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{ "title": [ "", "Introduction", "Child Poverty in 2007", "Child Poverty by Family Type", "Child Poverty by Race and Ethnicity", "Child Poverty by Annual Work Experience of the Family Head or Spouse", "Child Poverty by Educational Credential of the Family Head or Spouse", "Child Poverty by the Age of the Head or Spouse", "Child Poverty by Immigrant Status of the Family Head or Spouse", "Trends in Child Poverty", "Trends in Child Poverty Rates, by Type of Family", "Trends in the Number and Composition of Poor Children", "Rise in Work by Lone Mothers", "How Many Single Mothers Are Poor Despite Working?", "Government \"Safety Net\" Policy", "Social Security", "Unemployment Insurance", "Cash Public Assistance for Children", "Money Income Poverty Rates of Children, by Income Source", "Conclusion", "Appendix. Support Tables to Selected Figures in This Report" ], "paragraphs": [ "", "Child poverty persists as a social and economic concern in the United States. In 2007,12.8 million children were considered poor under the official U.S. Census Bureau definition. The child poverty rate (the percent of all children considered poor) stood at 17.6%—well below the most recent high of 22% in 1993, but still well above its historic low of 13.8% in 1969. In 2007, 1.8 million more children were counted as poor than in 2000, when 15.6% of children were poor.\nChild poverty reflects both family circumstances in which children reside and economic conditions and opportunities in communities where children live. Family living arrangements, indicated by the presence of just one or both parents, greatly affect the chances that a child is poor. Children who are racial or ethnic minorities are at particular risk of being poor.\nTo avoid poverty, most children need an adult breadwinner. The economic well-being of children usually depends on how well their parent(s) fares in the labor market. Children most at risk of poverty are in families without an earner. However, some are poor despite the work—even the full-time work—of a parent. They are among the working poor.\nPoverty affects children's life chances, their prospects of realizing their full potential, and their ability to successfully transition into adulthood. By almost any indicator, poor children fare worse than their nonpoor counterparts. Poor children are at greater risk of poor physical health, delayed cognitive development, poor academic achievement, and risky behavior (particularly among children growing up in poor neighborhoods). Poor adolescent girls are more likely to become teenage mothers than their nonpoor counterparts, contributing to a cycle of poverty from one generation to the next.\nWhile income poverty is associated with poor child outcomes, lack of income may account for only part of the reason why poor children face poor future prospects. Other factors are arguably as important, if not more so, than income, per se, in affecting children's life chances. Prolonged or deep income poverty among families with children may signal more chronic problems than merely a lack of income. Income support policies may help alleviate economic distress among such families, helping to provide families' basic needs; however, without other social supports or other, more fundamental changes in children's family circumstances, children's prospects may remain limited.\nNumerous programs operate in the U.S. to aid children without a breadwinner, or with one whose earnings are low. These programs, together, constitute the main threads of this nation's income/social safety net:\nSocial insurance programs (Social Security and Unemployment Insurance-UI) provide payments for children whose parent has paid payroll taxes but is now out of the workforce. Social Security benefits are paid to children whose parent(s) is dead, disabled, or retired. Unemployment insurance benefits are paid temporarily to some workers who have lost a job (most state UI programs do not provide dependents' benefits, however). Neither program imposes an income test. Benefits are an earned entitlement. Refundable tax credits (the federal Earned Income Tax Credit, or EITC, and the child tax credit) supplement low earnings of parents. Cash welfare programs make payments to some needy children and their parents. Major welfare programs for children are Temporary Assistance for Needy Families (TANF) and, for disabled children or children with disabled parents, Supplemental Security Income (SSI). These programs impose an income test (and, usually, an assets test). TANF seeks to move parents into the labor market and requires states to condition eligibility (beyond two months) on parental work. Noncash welfare programs, such as food stamps, subsidized housing, Medicaid and the State Children's Health Insurance Program (SCHIP) provide in-kind benefits. These programs also are means-tested.\nGovernment is challenged to maintain family self-support through work-based policies to promote parents' work and family economic self-sufficiency, while at the same time maintaining a safety net that prevents children from falling into abject poverty when parents are unable to work or their efforts are insufficient.", "In 2007, 12.8 million children out of a total of 72.8 million lived in families whose pre-tax money income that year fell short of the poverty threshold. This translates into a child poverty rate of 17.6%.\nAs a group, children are more likely to be poor than are either the aged (persons aged 65 or older) or nonaged adults (persons 18 to 64 years old). Figure 1 compares 2007 poverty rates of children, the aged, and nonaged adults. It shows that children were 80% more likely to be poor than the aged and that the incidence of poverty among nonaged adults was only slightly higher than that of the aged.\nThere are some well-known correlates to child poverty. A child's risk of being poor varies by family structure and size and by race/ethnicity. Further, since children primarily rely on adult workers for income, child poverty also varies by the educational attainment and age (which is related to work experience) of the family's head, and (if present) spouse.\nThis section provides a profile of child poverty in 2007. Shown are child poverty rates by characteristics of the family, child, or family head and spouse. This perspective answers the question, among children, who are most at risk for being in poor families? This section also provides the composition of child poverty by those characteristics, answering the question who are the poor children?", "Living arrangements of U.S. children have undergone a dramatic shift since the 1960 census. In 1960, 88 out of 100 children lived with two parents. The proportion living with two parents averaged 81% during the 1970s, 75% in the 1980s, and 70% in the 1990s. Corresponding increases were registered by children living with mother only (the family type most afflicted with money income poverty): 8% in the 1960 census; 15% during the 1970s; 20% in the 1980s, and 23% in the 1990s. The data for children living with father alone: 1% in the 1960 census, 3% on average during the 1970s and the 1980s, and 4% during the 1990s. Finally, the share of children living with neither parent averaged 3% during the 1970s and 1980s, but rose to 4% in the 1990s.\nFigure 2 presents data about poverty rates of children who lived in families in 2007. The bar chart presents 2007 child poverty rates by type of family. As it shows, children in married-couple families had a much lower poverty rate (8.5%) than those in single parent families headed by a woman (43.0%) or a man (21.3%). The pie chart shows the composition of the 12.8 million related poor children. Female-headed families held the majority of poor children—58.9%, or 7.5 million. Children in husband-wife families, despite their relatively low risk of poverty, comprised 34.0% of all poor children, or 4.3 million. The remaining 0.9 million poor children (7.1%) were in male-headed families (no wife present).\nBecause of the relatively high poverty rate among children in female-headed families, much of the policy discussion about child poverty centers on this group. Therefore, much of this remaining profile provides information on the poverty rate and composition of poverty for children in single parent families as well as for all children.\nAmong children in female-headed families, poverty rates vary by whether the single mother had ever been married (see Figure 3 ). Children with mothers who never married are about twice as likely to be poor (a 54.8% poverty rate) as children whose mothers divorced (poverty rate of 27.6%). Moreover, the number of all children in families where the single mother never married exceeds the number of children in families where the mother divorced. Thus, children in families with never-married mothers account for a large share of poor children, about half (51.3%) of all poor children in female-headed families.", "Children in racial and ethnic minorities tend to have higher poverty rates than white children. Figure 4 shows that in 2007, the poverty rate among African-American (non-Hispanic) children was 34.2%—3.5 times the poverty rate for white (non-Hispanic) children of 9.7%. Hispanic children had lower poverty rates than African-American children, but higher poverty rates than white children.\nDespite the variance in poverty rates by race and ethnicity, the populations of poor white, African-American, and Hispanic children are of similar size. The larger population of white children, when multiplied by the lower poverty rates of this group, yields a number of poor white children not too different from the number of poor children in each of the two other racial/ethnic groups.\nFigure 5 shows poverty rates and the composition of poor children by race and ethnicity for children in female-headed families. As in the overall child population, minority children have higher rates of poverty than do white children—the poverty rates for African-American (49.9%) and Hispanic (51.6%) children are both about 1.5 times that of white children in female-headed families (32.4%). However, African-American children comprise the largest group of poor children in female-headed families—accounting for about four out of ten poor children in female-headed families.\nAdditionally, Hispanic children are highly likely to be in married couple families. (Not shown on the figure.) Among children in married-couple families, Hispanic children have a poverty rate (19.3%) higher than that of whites (4.7%) or African-American children (11.0%). Therefore, Hispanics account for the largest share of poor children in married-couple families (45.9%).\nThus, Hispanic children in female-headed families have a slightly higher poverty rate than African-American children in female-headed families, and also have a substantially higher poverty rate than African-American children in married-couple families. However, their poverty rates among all children are lower than those for African-Americans. This is because Hispanic children are more likely than African-American children to be in married-couple families, and children in married-couple families have lower poverty rates than children in female-headed families.", "If a family has no earnings, a child is almost certain to be poor. The poverty rate in 2007 for children without a working parent (or spouse of the family head) was 70.0% (bar chart in Figure 7 ). However, millions of children are poor even though the family head (or spouse) works full time, year round. In 2007, about seven out of 100 children with such a worker were poor. The number of these children totaled 4.2 million, and they accounted for 32.4% of all poor children (pie chart in Figure 7 ). Most children (77.4%, not shown on the chart) live in families where either the head or, if present, the spouse is a full-time, full-year worker. Hence, these children account for a relatively large share of all poor children even though their poverty rate is low. The bar chart shows that the incidence of poverty is 35.1% among children in families with a parent who works full-time part-year and 40.0% among those in which a parent works part-time, full-year.\nThe relationships between work experience for family adults over the year and child poverty also hold for children in female-headed families (though these families are without a potential spouse to supplement the work of the family head). Among children in female-headed families where the head works full-time, year-round, 18.7% were poor (bar chart in Figure 8 ). Of children in single, female-headed families without an earner, 76.2% were poor.\nThe pie chart in Figure 8 depicts the composition of all poor children in female-headed families. Of these children, 20.5%—totaling 1.5 million children—lived in families where the mother was a full-time worker, year round. However, the pie chart also shows that 42.9% of all poor children in these families had a mother who did not work during the year. Though work among lone mothers has increased dramatically in recent years (discussed later in this report), 24.2% of all children in female-headed families had a mother who did not work. In comparison, only about 2.6% of all children in married-couple families had neither adult heading the family in the workforce.", "From 1960 to 2007, the share of the population (at least 25 years old) with a high school diploma (or more) has more than doubled, from 41.1% to 85.7%. In the same period the share with 4 or more years of a college education more than tripled, from 7.7% to 28.7%. The returns to education have also increased over time, as the average wages of those with a college degree have increased relative to the average wages of those without such a degree. Increasingly, job applicants must have postsecondary credentials. By some measures, high school graduates and those who failed to complete high school have seen declining real wages.\nThus, child poverty rates depend in part on the educational level of the family head (or spouse). In 2007, almost half (49.6%) of children whose family head had not completed high school were poor. This group made up one-third of all poor children (see Figure 9 ). Children whose family head (or the family head's spouse) had completed high school, but not gone beyond it, had a poverty rate of 27.3% and represented 37.2% of all poor children. If the family head or family head's spouse achieved an associates degree, the child poverty rate was sharply lower (9.7%) than that of one with some postsecondary education, but no degree (16.0%).\nIn 2007, more than two out of three children (68.3%) in families headed by a mother who failed to complete high school were poor (see Figure 10 ). This group represented 33.6% of all poor children in female-headed families. Attainment of a high school diploma reduced the child poverty rate, but it still was almost one-half (49.2%). As with the overall child population, poverty rates were much lower when the female head earned a college degree. Children in families where the female head received an associates degree had a poverty rate of 24.6%, compared with 35.5% for those who had some post-secondary education but no degree. Poverty rates were relatively low (13.9%) for children with female heads who had a bachelors degree or an advanced degree.", "Child poverty rates are highest in young families with children. The poverty rate for preschool children (children under the age of six) was 20.8% in 2007, compared with a 16.0% poverty rate for older children. This is because, in part, these children have on average younger parents. Younger parents, who have less job experience in the workforce, tend to earn less than older adults with more experience.\nFigure 11 shows the child poverty rate by the age of the household head or spouse if present. For married-couple families, the age of the older adult was used to determine the age of the head or spouse. It shows that child poverty rates tend to mirror the \"life-cycle\" pattern of earnings of adults. That is, earnings tend to be low in the early years, peak in middle age, and decline as adults approach and reach retirement age. This explains some of the pattern shown on the figure. However, children in families with a never-married female head (the group with the highest poverty rate) also tend to be in families where the head was young.\nChildren in families with the head or spouse under age 25 have the highest poverty rates, almost 50%. For children in families with a head or spouse aged 30 to 34, the poverty rate drops to 22.4%. Among poor children, 45% are in families with the head and spouse younger than age 35. Child poverty rates drop below the average rate for all children (17.6%) for age groupings with the head or spouse over 35 and younger than age 64, but are about the same as the overall rate for children in families with a head or spouse age 65 and older.\nThe basic relationships between child poverty and age of the family's adults shown in Figure 11 also tend to hold for children in female-headed families: the highest poverty rates are for children with younger parents. (No figure is shown.) However, poverty rates for children in female-headed families are higher than for all related children for all age categories of the family head.", "Figure 12 shows that slightly more than one out of every four poor children is the child of a parent born outside the United States. The poverty rate for these children in 2007 was 26.8%, compared with a rate of 15.7% for children whose family head or spouse was native born. Any children born in the United States are citizens, regardless of their parents' citizenship status.", "Children have been more likely than any other age group in the U.S. to be poor since 1974, when their poverty rate first topped that of the aged. In records dating back to 1959, the incidence of poverty among related children in families has ranged from a peak of 26.9% (1959) to a low of 13.8% (1969). (See Figure 13 ). In 2007, the rate was 17.6%. Child poverty rates display both cyclical and longer term trends. Except for the 1961-1962 recession, child poverty rates rose during economic slumps, peaking in the year or two after the end of the recession.\nDuring the years covered by Figure 13 , the poverty rate for the aged (not shown) fell from 35.2% in 1959 to 9.7% in 2007.", "Figure 14 shows poverty rates of related children, by family type, from 1959-2007. Poverty rates for children in female-headed families have been higher than those for children in male-present (married couple or families with a male-head but no spouse) since poverty data have been recorded. The figure shows that poverty rates for both female-headed families and male-present families fell in the early period (1960s). Since then, much of the variation in poverty rates among children in male-present families has been cyclical.\nPoverty rates for children in female-headed families show little cyclical variation in the first three recessions shown (1961, 1970-1971, 1974-1975). However, by the 1982-1983 recession, poverty rates for children in female-headed families do begin to exhibit cyclical increases and decreases, likely attributable to increased labor force participation of women. Poverty rates for children in female-headed families also show pronounced secular (noncyclical) patterns. Rates during the entire economic expansion of the 1980s were higher than in the mid- and late-1970s, coincident with the increase in the number of children of never-married mothers, who have high poverty rates compared to children in other types of female-headed families.\nFrom the mid-1990s to 2000, in the wake of the 1996 welfare reform law, the drop in the poverty rate was more pronounced for children in families headed by a lone mother than for children in families with a male present. However, the increase in the poverty rate for children in single parent families from 2000 to 2007 was also more pronounced than the increase in the rate shown for children in families with a male present.", "In 1959, the first year of official poverty data, 17.2 million children were counted as poor (see Figure 15 ). The poor child population declined through most of the 1960s and hovered around 10 million during the 1970s (with an all-time low of 9.5 million in 1973). During the 1980s the peak number was 13.4 million (1983); and during the 1990s, 15 million (1993). It rose in 2004 to 12.5 million. Since 1970, the number of poor children has fluctuated because of both the economy and demographic trends. The number of related children under 18 fell from 70 million in 1968 to 62 million in 1978. The number of related children began to rise again in 1988, reaching 72.8 million in 2007.\nFigure 15 shows the number of poor children from 1959 to 2007 by family type. It shows both the variation in the number of poor children, and its changing composition. In 1959, most poor children and most children lived in married-couple families. Since 1972, the majority of poor children have been in female-headed families.\nThe historical trend toward an increased prevalence of children living in female-headed families has resulted in higher overall child poverty rates than would have otherwise been the case had children's living arrangements been unchanged over the past several decades. In order to approximate the effects of historical changes in living arrangements on the overall child poverty rate, we estimate overall child poverty rates based on the relative composition of children by family type that existed in 1960, while maintaining historically observed child poverty rates by family type. Effectively, the adjusted poverty rates present a crude approximation of what the overall child poverty rate might have been had family composition remained unchanged from its 1960 level. Figure 16 shows the effects of these adjustments. The top line of the figure shows historical child poverty rates, whereas the bottom line shows the overall adjusted child poverty rate had child family living arrangements been the same as those observed in 1960. The figure shows, for example, that in 2007 the child poverty rate was 17.6%, but had family composition in 2007 been the same as in 1960, the overall adjusted child poverty rate would have been 12.6%; instead of the observed 12.8 million children being counted as poor in 2007 had family composition remained unchanged from 1960, the number of poor children estimated by this method would have been 9.2 million, or 3.6 million fewer than the number observed.", "Dramatic gains have occurred in recent years in work by lone mothers—especially among those with preschool age children. Employment rates of single mothers with infants or toddlers (under age 3) increased markedly from 1993 through 2000, rising from 35.1% to 59.1% over the period (see Figure 17 ). In 2000 their rate of employment overtook that of their married counterparts—in earlier years these single mothers' rate of employment had lagged behind their married counterparts by as much as 18 percentage points. Similarly, single mothers with somewhat older preschool age children (age 3 to 5) also experienced significant employment gains over most of the 1990s. Among these women, their employment rate rose from 54.1% in 1992, to 72.7% in 2000, overtaking their married counterparts in 1999. Employment rates among single mothers have yet to rebound to the peak levels attained prior to the last economic (2001) recession, marked as beginning in March 2001 and ending in November of that year.\nFactors encouraging work by single mothers include a healthy economy during much of the 1990s, the transformation of the family cash welfare program into a work-conditioned and time-limited operation, increases in the EITC and increases in the federal minimum wage. TANF—and preceding state-waivered programs of Aid to Families with Dependent Children (AFDC)—converted cash assistance from a needs-based entitlement to a program of temporary help aimed at promoting work and personal responsibility. Under the TANF block grant, most states reward work by permitting recipients to add to their benefits some (or all) of their earnings, at least for a time. And most states have increased sanctions for failure to perform required work. Increases in the EITC, passed by Congress in 1993 and phased in between 1994 and 1996, have increased the financial incentive for single mothers to work. Other factors, such as increased funding for child care subsidies, may also have contributed to making work possible for more single mothers. For more details about trends in welfare, work, and the economic well-being of lone-mother families with children, see CRS Report RL30797, Trends in Welfare, Work, and the Economic Well-Being of Female-Headed Families with Children: 1987-2006 , by [author name scrubbed] (pdf).", "Figure 18 shows the trend in the distribution of annual hours worked by poor lone-mothers from 1987 to 2007. The figure shows, for example, that poor lone-mothers increased their job attachment during these years, based on annual hours of work. The picture of hours worked mirrors the employment rate numbers depicted earlier, in Figure 17 . Hours worked among poor lone-mothers increased over the same period in which their employment rates were increasing. Lone-mothers are not only more likely to be working in the later years than in earlier years, but are likely to be working more hours. For example, in 1995, half of all poor lone mothers did not work, as indicated by the median number of hours worked (i.e., estimated hours worked was zero at the 50 th percentile). By 1999 and 2000, half of all poor single mothers (the 50 th percentile) were working nearly 480 hours per year or more, and in 2000 20% (80 th percentile) were working 1,760 or more hours. The figure shows the decline in hours worked from 2000 to 2005, for all but the top 10% of poor working mothers (90 th percentile), probably reflecting the effects of the past (2001) recession on poor mothers' work attachment. Annual hours worked have increased somewhat since 2005 but are still below their 2000 peak.\nOverall, among all types of families with related children, Census Bureau data show that the incidence of \"full-time work poverty\" increased somewhat from 1987 to 2007. Full-time full-year workers are considered to have worked 35 or more hours per week for 50 or more weeks during the year. Among all children, the rate at which at least one of their parents were full-time, full-year workers increased from 71.8% in 1987 to 79.8% in 2000, and stood at 77.4% in 2007 (see Table 1 ). The decline since 2000 was due, at least in part, to the 2001 recession and unemployment in its aftermath. Tracking this trend, the percent of poor children in families where one parent was a full-time, year-round worker rose from 19.6% of poor children in 1987 to 35.4% of poor children in 2000, before falling to 30% in 2003. It stood at 32.4% in 2007. The share of children in families with lone mothers who worked full-time year-round also increased fairly sharply, from 8.3% in 1987 to 21.6% in 2000, falling to 16.6% in 2003, before rising again to 20.4% in 2007.", "The framework for federal cash income support policy can be found in the Social Security Act and the Internal Revenue Code. A two-tier safety net was put into place in the 1935 Act. The first tier, consisting of Old-Age Insurance (usually thought of as social security) (Title II) and unemployment insurance (Title III) aimed to protect families from the economic risks associated with the retirement or unemployment of their workers. Workers earned rights to these social insurance benefits by paying payroll taxes in a covered job. The second tier made grants to states to help make means-tested payments to specified categories of needy persons not expected to work, namely, the aged (Title I), children (with only one able-bodied parent in the home) (Title IV), and the blind (Title X).\nAdded to the social insurance tier over time were Survivors' Insurance (1939 Social Security Act Amendments), Disability Insurance (1956 Amendments), and Medicare (1965 Amendments) health insurance for the elderly. Added to the welfare tier over time was aid for needy persons who were permanently and totally disabled (1952), replaced in 1972 by a 100% federal cash program for the aged, blind, and disabled called SSI. Health insurance for low-income aged, blind, and disabled persons and for needy families with children was added in the form of the Medicaid program (1965 Amendments). Health insurance for low-income children ineligible for Medicaid was added by enactment of the State Children's Health Insurance Program (SCHIP) (Balanced Budget Act of 1997). Also, the cash welfare program for needy children was opened up to some unemployed two-parent families (1961) and, finally (1996) was replaced by a block grant for temporary assistance.\nThe social insurance programs are designed to provide benefits when a family loses earnings because its breadwinner is permanently or temporarily out of the labor market (through death, disability, unemployment). At the outset the welfare programs were restricted to persons not expected to work, but over time, work requirements have been added to the cash welfare program for families with children, and it now emphasizes moving families from welfare to work.\nIn 1975, Congress enacted a program to explicitly support and supplement the income of working poor parents—the EITC. This provision of the tax code makes payments from the Treasury to parents whose credit exceeds any income tax liability. In tax year 2005, the EITC was claimed by 22.8 million tax filers, with credits totaling $42.4 billion.\nIn addition, child care subsidies have been expanded for families receiving cash welfare by the Family Support Act of 1988, the Omnibus Budget Reconciliation Act of 1990, which created child care programs for the working poor, and the 1996 welfare reform law, which consolidated child care funding. FY2008 appropriations for child care totaled $5 billion ($2.9 billion for the mandatory child care block grant and $2.1 billion for the discretionary Child Care and Development Block Grant).\nFinally, the federal child support enforcement program (begun in 1975) has shifted its role from reimbursing federal and state governments for welfare costs to facilitating income transfers to families with children where one parent (usually the father) is noncustodial. The increased role of child support is particularly important in light of the growth of female-headed families. In FY2006, child support enforcement offices collected $24 billion: $0.9 billion for TANF cash welfare families, $9.5 billion for former TANF cash welfare families, $3.1 billion for families receiving Medicaid (and no TANF), and $11.3 billion for families that never received TANF cash welfare.", "As noted above, the Social Security Act established an old-age insurance system for workers; and later, social security was enlarged to cover dependents and survivors of retired or disabled workers. With these additions, social security became a system of comprehensive insurance for all families with a worker who paid social security payroll taxes. If the family breadwinner died or became disabled, social security would provide cash for his dependents and survivors. It was widely hoped that coverage by work-related social insurance eventually would eliminate most need for cash relief to families who lost their breadwinner.\nIn September 2008, there were 50.6 million social security recipients, of which 3.1 million were children. This means the federal government makes social security payments to about 4% of U.S. children. Total benefits to children totaled nearly $1.5 billion in that month, a rate of $17.5 billion per year. In addition, some adult social security beneficiaries are in families with children, so that this program reaches an even greater proportion of the child population.", "The Social Security Act also established the federal-state unemployment insurance (UI) program. This program provides temporary unemployment benefits to workers who are unemployed through no fault of their own, provided they have earned a state-determined sum of wages during an established base period, usually the first quarter of the last five completed calendar quarters, and are available for work.\nHistorically there has been concern that UI eligibility rules present barriers to low-wage workers with unstable work histories. To what extent might unemployment benefits be available for former welfare recipients who lose a job? Studies of former cash recipients in a number of states conclude that most recipients who leave welfare for work have sufficient earnings to qualify for UI at some point after leaving welfare. However, having sufficient earnings is only one of the qualifying conditions for receiving UI upon losing a job. The job loss must be considered as occurring through no fault of the potential recipient, a definition that varies among the states. A study of welfare leavers in New Jersey, considered a fairly liberal state with respect to UI eligibility rules, found that as many as 60% of those with monetary eligibility might have been disqualified for other reasons—especially the high rates of voluntarily quitting a job. It found that about half of the job quitters did so for a personal reason, such as a health problem, having to care for a child at home, or a transportation issue. Advocates of broadening UI rules to qualify more low-wage workers have recommended that states permit job quits for \"good reason.\"", "Before passage of the Social Security Act in 1935, some states offered \"mothers' pensions\" so that needy mothers could stay home to raise their children. This aid was largely restricted to \"paternal orphans,\" children whose father had died. In response to the Great Depression, the Social Security Act provided federal funds to enable states to help certain needy groups, including children whose second parent was dead, incapacitated, or continually absent from home—Aid to Dependent Children (ADC). The original purpose of AFDC was to help states enable needy mothers to be full-time caregivers at home. Thus, it had no expectation of mothers' work and no requirement for it. In fact, the law penalized work by requiring states to reduce benefits by the full amount of any earnings (including those spent on work expenses).\nHowever, this changed over the years. Gradually the assumption that AFDC mothers belonged at home faded as more and more nonwelfare mothers went to work and as rising numbers of unwed mothers joined AFDC, altering the character of the caseload.\nSince the early 1960s, Congress has tried to promote work and self-support of welfare families by means of work requirements, financial incentives, and various services. The first work rule (1961) applied to unemployed fathers (a group that Congress admitted to AFDC—at state option—that year). The rule required states to condition AFDC for Unemployed Fathers (AFDC-UF) on acceptance of work. In 1967, Congress established a Work Incentive Program (WIN) for AFDC families and required states to assign \"appropriate\" persons to this education and training program. The 1967 law required states to give AFDC parents who went to work a financial reward: disregard of some earnings when calculating benefits. In 1971, Congress removed from states the discretion to decide who must work or train. Instead, it specified that states must assign to WIN all able-bodied custodial parents except those with a preschool child, under age six. In the Family Support Act of 1988, Congress lowered the young child age threshold for work exemption. It required states to assign to a new Jobs and Basic Skills (JOBS) Training program for AFDC families all able-bodied custodial parents except those with a child under age three (under age one, at state option). However, the law required states to \"guarantee\" child care for children below age six.\nFinally, in 1996, Congress replaced AFDC with the TANF block grant. TANF law requires states to engage certain percentages of adult recipients in specified \"work activities.\" The law exempts no one from work participation, but it permits states to exempt a single parent caring for a child under age one (and to exclude that parent in calculating the state's work participation rate). In addition, the law bars a state from penalizing a single parent with a child under age six for failure to engage in required work if the person cannot obtain needed child care because appropriate care is unavailable (or available care is unsuitable). States decide individual participation rules.\nIn June 2008, 3.0 million children were in families that received cash benefits from TANF programs or separate state-funded (TANF) programs. This is down from a historic peak of 9.6 million children in families receiving cash benefits from AFDC in 1994. In FY2006, federal and state spending on cash welfare benefits totaled $9.9 billion—a little less than half the amount spent on cash welfare by the federal government and states back in the mid-1990s.", "Although there are numerous government \"safety net\" programs that aid families with children, the chief component of money income for most families with children is earnings. The first bars in Figures 19 and 20 show what child poverty rates in 2007 would have been if families had no cash income other than earnings. The rates would have been 21.8% for all related children and 52.4% for related children in female-headed families. The last bars show the official money income poverty rates, 17.6% for all related children and 43.0% for children being raised by the mother alone. In succession, the intervening bars show the poverty-reducing contributions of (1) cash from other family effort (property income, private pensions, child support and alimony), and (2) government cash transfers (social insurance, other cash benefits, and cash welfare). In general, the official poverty rates are about 20% lower than market income (earnings only) poverty rates. Figures 19 and 20 show only sources of pre-tax money income (income counted in determining official poverty rates). They exclude noncash aid and tax benefits.", "This report examined both the role of work and the role of government income supports as factors affecting the official child poverty rate. Work is the principal means by which families with children support themselves. Child poverty rates are correlated with factors associated with wage rates, such as parent(s)' educational attainment and work experience; the amount of work done during the year; and family type, which affects the likelihood that a family will have a second earner. Without family earnings, a child is almost certain to be poor.\nHowever, earnings alone often fail to overcome poverty. In 2006, one-third of all poor children lived with at least one adult who was a full-time, full-year worker. The economy has many jobs that pay low wages. Parents in such jobs may escape poverty only through job advancement that results in higher wages, possibly only by upgrading skills and education while working. Often, it takes work of both parents to move their children and families out of poverty. This often comes at the cost of arranging child care to permit both parents to work outside of the home. Additionally, work is not always steady, with some parents experiencing spells of joblessness for part of the year.\nAccess to the first tier of the \"safety net,\" social insurance, is restricted to families with a current or previous wage earner. Social insurance benefits are established through work, and are characterized as earned rights. Although these programs are not targeted to the poor per se, these programs—which partially replace earnings because of the death, old age, disability or involuntary unemployment of a worker—have a significant impact on reducing poverty among families with children. Over the past 20 years, the social insurance tier of the safety net has remained relatively static. The protections of its cash benefit programs have generally been maintained. However, the social insurance tier has not been revised to take into account changes in the economy, family structure, and work patterns of parents.\nIn contrast, the second tier of the \"safety net,\" programs targeted to low-income families and persons, has undergone a radical transformation over the past 20 years. Cash welfare for needy families with children has increasingly been tied to a philosophy of mutual obligations—adult recipients have been expected to engage in either work or activities to move them into work. In the wake of welfare reforms made at the federal and state levels in the mid-1990s, the cash welfare rolls plummeted, so that children in families receiving cash assistance represent a small and decreasing share of both the overall and poverty child populations. Need-tested assistance increasingly is paid to families only in the form of noncash benefits (Medicaid and food stamps) whose value is not reflected in the official child poverty statistics. These programs cast an uneven net of basic support to families. Moreover, when parents receiving need-tested benefits go to work, benefits are often significantly reduced as earnings increase, at times creating a perverse disincentive to work. For many families with limited earnings capacity, the route toward self-sufficiency can be a steep climb, yielding only small economic gain for additional work effort.\nAlong with the transformation of need-tested benefits have come expansions of refundable tax credits for families with children, particularly the Earned Income Tax Credit (EITC). As a work support, the EITC helps offset the financial disincentives relating to work that poor families have traditionally faced under welfare programs. For some families with very low earnings, the EITC may supplement up to 40 cents on every dollar a parent earns. EITC payments (either advance payments, tax refunds, or reductions in tax liabilities that would otherwise be owed) are not included in the official poverty statistics. However, for a single parent with two children, who works full-time, all year at the 2006 federal minimum wage, those earnings combined with food stamps and the EITC are sufficient to lift that family to just above the poverty threshold.\nThus, recent changes to taxes and benefits targeted to low-income families have sought to increase the rewards to work. However, the world of work does not guarantee steady income. Working parents face risks to financially supporting their children, stemming from job loss associated with either cyclical or structural changes in the economy or interrupted periods of work because of their own or a family members' illness. Moreover, there remain a small but not insignificant group of families with children where no parent has an attachment to the labor force. This creates a series of policy dilemmas which include how to balance protections against economic risk while maintaining a policy that rewards work, and helping children in those families without a worker without undermining the efforts of working parents.", "" ], "depth": [ 0, 1, 1, 2, 2, 2, 2, 2, 2, 1, 2, 2, 2, 2, 1, 2, 2, 2, 1, 1, 2 ], "alignment": [ "h0_title h2_title h1_title h3_title", "h0_full h1_full", "h2_title h1_title", "h1_full", "h1_full", "h2_full", "h1_full", "h2_full", "", "h0_full h2_full h3_title", "", "", "h2_full", "h3_full", "", "", "", "", "", "h3_full h2_full", "" ] }

{ "question": [ "To what extent is child poverty a problem in the US?", "How does poverty affect children?", "How have poverty rates changed since 1959?", "How do family living arrangements affect child poverty?", "What is the correlation between parentage and child poverty?", "What is the correlation between race and child poverty?", "What is the connection between family earnings and poverty?", "What statistics demonstrate this point?", "How have employment rates of single mothers changed?", "How is parental eduction correlated with child poverty?", "What is the relationship between parental age and child poverty?", "Of what does the child social safety net consist?", "How have need-tested benefits changed?", "How else did such programs change in the 1990s?", "What are the impacts of the EITC?" ], "summary": [ "Child poverty persists as a social and economic concern in the United States.", "Poverty affects a child's life chances; by almost any indicator, poor children fare worse than their nonpoor counterparts.", "In 2007 12.8 million children (17.6% all children) were considered poor under the official U.S. definition. In records dating back to 1959, the incidence of poverty among related children in families has ranged from a peak of 26.9% in 1959 to a low of 13.8% in 1969.", "Family living arrangements, indicated by the presence of just one or both parents, greatly affect the chances that a child is poor.", "In 2007, 43.0% of children in female-headed families were poor, compared to 8.5% of children in married-couple families. In that year, 24% of children were living in female-headed families, more than double the share who lived in such families when the overall child poverty rate was at its historical low (1969).", "Children who are racial or ethnic minorities are at particular risk of being poor. In 2007, a little more than one-third of black children (34.2%) and almost three out of ten Hispanic children (28.3%) were poor, compared to about one in ten white non-Hispanic children (9.7%).", "Work is the principal means by which families with children support themselves. Without family earnings, a child is almost certain to be poor. However, earnings often fail to overcome poverty.", "In 2007, about one-third (32.4%) of all poor children lived with at least one adult who was a full-time, full-year worker; another one-third were in families with a worker who either worked part-year or (less likely) part-time; another third lived in families without an adult who worked during the year.", "Additionally, dramatic gains have occurred in recent years in work by lone mothers—especially among those with preschool children. Employment rates of single mothers with children under age 3 rose from 35.1% in March 1993 to 59.1% in March 2000, but have since remained below their 2000 level, standing at 54.5% in March 2008. Nonetheless, many of these working single mothers (and their children) remained poor.", "Higher child poverty rates were observed for those whose parents had less, rather than more, education.", "Children of younger parents, with less potential time and experience in the workforce, were more likely to be poor than children of older parents.", "The social safety net for children consists of (1) earnings-based social insurance programs and (2) need-based transfers of cash and noncash benefits.", "Need-tested benefits have undergone a radical transformation during the past 20 years, capped by the 1996 welfare reform law. Cash welfare caseloads have plummeted since the reforms of the mid-1990s, so that many families receiving need-tested aid only receive noncash benefits (e.g., Medicaid and food stamps) whose value is not reflected in official poverty statistics.", "Further, the welfare reforms of the mid-1990s were accompanied by expansions of the Earned Income Tax Credit (EITC), which supplements the earnings of low-income families with children. (The value of the EITC is also not considered in official poverty statistics.)", "The result has been to curtail benefit availability for nonworking families while raising the returns to work." ], "parent_pair_index": [ -1, 0, -1, -1, 0, 0, -1, 0, 0, -1, -1, -1, 0, 0, 2 ], "summary_paragraph_index": [ 0, 0, 0, 1, 1, 1, 2, 2, 2, 2, 2, 3, 3, 3, 3 ] }

{ "title": [ "Background", "The Defense Laboratories", "Hiring Authorities", "Government-wide (Title 5) Hiring Authorities", "DOD-specific Hiring Authorities", "The Defense Laboratories Have Used Direct Hire Authorities and Other Incentives to Help Hiring Efforts, but Officials Reported Challenges in Hiring Highly Qualified Candidates", "Defense Laboratories Used the Direct Hire Authorities Most Frequently for Hiring STEM Candidates, and the Use of These Authorities Has Increased since 2015", "Laboratory Officials Reported That Certain Hiring Authorities and Incentives Have Helped Defense Laboratories Hire Highly Qualified Candidates", "Defense Laboratory Officials We Surveyed Identified Challenges That Affect Their Ability to Hire Highly Qualified Candidates", "DOD and the Defense Labs Track Hiring Data, but the Defense Laboratories Office Has Not Obtained and Monitored These Data or Evaluated the Effectiveness of Hiring at the Laboratories", "DOD Does Not Have Clear Time Frames for Approving and Implementing New Hiring Authorities for the Defense Laboratories", "Conclusions", "Recommendations for Executive Action", "Agency Comments", "Appendix I: Department of Defense Science, Technology, Engineering, and Mathematics (STEM) Occupations", "Appendix II: Copy of GAO Questionnaire Administered to the Defense Laboratory Officials", "Appendix III: Objectives, Scope, and Methodology", "Appendix IV: The Department of Defense Laboratories’ Use of Hiring Authorities for Fiscal Years 2015, 2016, and 2017", "Appendix V: Defense Laboratory Time to Hire Data by Hiring Authority Category for Fiscal Years 2015, 2016, and 2017", "Appendix VI: Comments from the Department of Defense", "Appendix VII: Contact and Staff Acknowledgments", "GAO Contact:", "Staff Acknowledgments:" ], "paragraphs": [ "", "The National Defense Authorization Act (NDAA) for Fiscal Year 1995 authorized the Secretary of Defense to conduct personnel demonstration projects at the department’s laboratories designated as Science and Technology Reinvention Laboratories. The demonstration projects were established to give laboratory managers more authority and flexibility in managing their civilian personnel. These projects function as the vehicles through which the department can determine whether changes in personnel management concepts, policies, or procedures, such as flexible pay or hiring authorities, would result in improved performance and would contribute to improved DOD or federal personnel management. Table 1 presents a list of the 15 defense laboratories included in the scope of our review.\nThe Defense Laboratories Office—within the Office of the Undersecretary of Defense for Research and Engineering (Research and Engineering)— carries out a range of core functions related to the defense labs, including the aggregation of data, analysis of capabilities, and alignment of activities, as well as advocacy for the defense labs. The National Defense Authorization Act for Fiscal Year 2017 gave authority to conduct and evaluate defense laboratory personnel demonstration projects to the Under Secretary of Defense for Research and Engineering and, accordingly, the Defense Laboratories Office. The Defense Laboratories Office supports the Research and Engineering mission by helping to ensure comprehensive department-level insight into the activities and capabilities of the defense laboratories.\nThe LQEP was chartered on April 15, 1994 to improve productivity and effectiveness of the defense laboratories through changes in, among other things, personnel management and contracting processes. The NDAA for Fiscal Year 2017 established a new organizational structure for the program, adding two new panels while also specifying that two previously existing subpanels on personnel and infrastructure would continue to meet. The NDAA for Fiscal Year 2017 requires the department to maintain a LQEP Panel on Personnel, Workforce Development, and Talent Management—one of the four panels established by a February 14, 2018 charter signed by the Under Secretary of Defense for Research and Engineering. The purpose of the panel is to help the LQEP achieve the following goals: (1) review and make recommendations to the Secretary of Defense on current policies and new initiatives affecting the defense laboratories; (2) support implementation of quality enhancement initiatives; and (3) conduct assessments and data analysis. The LQEP Panel on Personnel, Workforce, Development, and Talent Management includes representatives from each of the defense laboratories, as well as from the Army, Navy, Air Force, appropriate defense agencies, and Office of the Under Secretary of Defense for Research and Engineering.", "A hiring authority is the law, executive order, or regulation that allows an agency to hire a person into the federal civil service. Among other roles, hiring authorities determine the rules (or a subset of rules within a broader set) that agencies must follow throughout the hiring process. These rules may include whether a vacancy must be announced, who is eligible to apply, how the applicant will be assessed, whether veterans preference applies, and how long the employee may stay in federal service. Hiring authorities may be government-wide or granted to specific agencies.", "Competitive (Delegated) Examining. This is the traditional method for making appointments to competitive service positions, and it requires adherence to Title 5 competitive examining requirements. The competitive examining process requires agencies to notify the public that the government will accept applications for a job, screen applications against minimum qualification standards, apply selection priorities such as veterans preference, and assess applicants’ relative competencies or knowledge, skills, and abilities against job-related criteria to identify the most qualified applicants. Federal agencies typically assess applicants by rating and ranking them based on their experience, training, and education. Figure 1 depicts the Office of Personnel Management’s (OPM) 80-day standard roadmap for hiring under the competitive process.\nGovernmentwide (Title 5) Direct Hire Authority. This authority allows agencies to appoint candidates to positions without regard to certain requirements in Title 5 of the United States Code, with OPM approval. A direct hire authority expedites hiring by eliminating specific hiring rules. In order for an agency to use direct hire, OPM must determine that there is either a severe shortage of candidates or a critical hiring need for a position or group of positions. When using the direct hire authority, agencies must adhere to certain public notice requirements.\nThe Pathways Programs. These programs were created to ensure that the federal government continues to compete effectively for students and recent graduates. The current Pathways Programs consist of the Internship Program, the Recent Graduates Program, and the Presidential Management Fellows Program. Initial hiring is made in the excepted service, but it may lead to conversion to permanent positions in the competitive service.\nVeterans-Related Hiring Authorities. These include both the Veterans Recruitment Appointment Authority and the Veterans Employment Opportunities Act authority. The Veterans Recruitment Appointment authority allows for certain exceptions from the competitive examining process. Specifically, agencies may appoint eligible veterans without competition under limited circumstances or otherwise through excepted service hiring procedures. The Veterans Employment Opportunities Act authority is a competitive service appointment authority that allows eligible veterans to apply for positions announced under merit promotion procedures when an agency accepts applications from outside of its own workforce.", "The Defense Laboratory Direct Hire Authorities. These include the following four types of direct hire authorities granted to the defense laboratories by Congress for hiring STEM personnel: (1) direct hire authority for candidates with advanced degrees; (2) direct hire authority for candidates with bachelor’s degrees; (3) direct hire authority for veterans; and (4) direct hire authority for students currently enrolled in a graduate or undergraduate STEM program. The purpose of these direct hire authorities is to provide a streamlined and accelerated hiring process to allow the labs to successfully compete with private industry and academia for high-quality scientific, engineering, and technician talent.\nThe Expedited Hiring Authority for Acquisition Personnel. This authority permits the Secretary of Defense to designate any category of positions in the acquisition workforce as positions for which there exists a shortage of candidates or there is a critical hiring need; and to utilize specific authorities to recruit and appoint qualified persons directly to positions so designated.\nThe Science, Mathematics, and Research for Transformation (SMART) Scholarship-for-Service Program. This program was established pursuant to 10 USC §2192a, as amended, and is funded through the National Defense Education Program. The SMART scholarship for civilian service program provides academic funding in exchange for completing a period of full-time employment with DOD upon graduation.", "The labs have used the defense laboratory-specific direct hire authorities more than any other category of agency-specific or government-wide hiring authority. Defense laboratory officials we surveyed reported that these direct hire authorities had been the most helpful to the labs’ efforts to hire highly qualified candidates for STEM positions, and also reported that the use of certain incentives had been helpful in this effort. However, even with access to the authorities, these defense laboratory officials identified challenges associated with the hiring process that affected their ability to hire highly qualified candidates.", "For fiscal years 2015 through 2017, the defense laboratories used laboratory-specific direct hire authorities more often than any other category of hiring authorities when hiring STEM personnel. Moreover, the defense laboratories’ use of these direct hire authorities increased each year from fiscal year 2015 through fiscal year 2017. Of the 11,562 STEM hiring actions in fiscal years 2015 through 2017, approximately 46 percent were completed using one of the defense laboratory direct hire authorities. The second and third most used hiring authorities were internal hiring actions and the expedited hiring authority for acquisition personnel, each of which comprised approximately 12 percent of the hiring actions during the time period. Table 2 provides information on the overall number of hiring actions by hiring authority for fiscal years 2015 through 2017.\nThe laboratory-specific direct hire authorities include the direct hire authorities for candidates with advanced degrees, candidates with bachelor’s degrees, and candidates who are veterans—authorities were granted by Congress in prior legislation. Among the defense laboratory direct hire authorities, the direct hire authority for candidates with bachelor’s degrees was used for 55 percent of all direct hires, for a total of 2,920 hiring actions for fiscal years 2015 through 2017. During the same time frame, the labs used the direct hire authority for candidates with advanced degrees for approximately 36 percent (1,919 hiring actions) of all direct hires, and the direct hire authority for veteran candidates for approximately 9 percent (455 hiring actions). In addition, for less than one percent of the direct hires, either the labs used another category of laboratory-specific direct hire authority or we were unable to determine which type of direct hire authority was used during those same three fiscal years. See table 3 for information on the defense labs’ use of the defense laboratory-specific direct hire authorities for fiscal years 2015 through 2017.\nIn fiscal year 2017 the defense labs used the defense laboratory direct hire authorities for 54 percent of STEM hiring actions completed, representing an increase of approximately 16 percentage points relative to fiscal year 2015, when 38 percent were hired under defense lab direct hire authorities. For additional information on the labs’ use of hiring authorities in fiscal years 2015 through 2017, as well as hiring authority data by laboratory, see appendix IV. One laboratory official explained that the increased use of the direct hire authorities could be a result of the NDAA for Fiscal Year 2016, which increased the laboratories’ allowable use of the direct hire authority for candidates with bachelor’s degrees from 3 percent to 6 percent, and use of the direct hire authority for veterans from 1 percent to 3 percent, of the total number of scientific and engineering positions at each laboratory at the end of the preceding fiscal year. The direct hire authority for candidates with bachelor’s degrees was used most often—for 1,151 out of 1,835 hiring actions—as compared with the other direct hire authorities in fiscal year 2017. See table 4 for more information on the laboratories’ use of all hiring authorities in fiscal year 2017. In addition, table 5 provides more information on the labs’ use of the direct hire authorities in fiscal year 2017.", "Defense laboratory officials we surveyed most frequently identified the three defense laboratory-specific direct hire authorities as having helped to hire highly qualified candidates (see figure 2) and to hire quickly (see figure 3). Specifically, 15 of 16 respondents to our survey stated that each of the three direct hire authorities had been helpful in hiring highly qualified candidates, and that the direct hire authorities for veterans and for candidates with an advanced degree had helped them to hire quickly. Moreover, all 16 survey respondents stated that the direct hire authorities for candidates with a bachelor’s degree had helped them to hire quickly. Among the three direct hire authorities, the one for candidates with bachelor’s degrees was reported to be the most helpful to the laboratories’ hiring efforts, according to our survey results.\nA majority of the laboratory officials we surveyed also stated that the Expedited Hiring Authority and the Science, Mathematics, and Research for Transformation (SMART) Program had both helped facilitate their efforts to hire highly qualified candidates and to hire them quickly. According to our survey, the least helpful hiring authority that lab officials reported using was the delegated examining unit authority. Six of 16 survey respondents stated that the delegated examining unit authority had helped them to hire highly qualified candidates, while 9 of 16 stated that the authority had hindered this effort. Three of 16 survey respondents stated that the delegated examining unit authority had helped them to hire quickly, while 12 of 16 stated that the use of this authority had hindered their ability to hire quickly.\nDuring our interviews with laboratory officials, hiring officials and supervisors described the defense laboratory direct hire authorities as being helpful in their hiring efforts. For example, hiring officials from one lab stated that the direct hire authorities were the easiest authorities to use, and that since their lab had started using them, job offer acceptance rates had increased and their workload related to hiring had decreased. A hiring official from another laboratory stated that the use of direct hire authorities had allowed their lab to be more competitive with the private sector in hiring, which is useful due to the high demand for employees in research fields. A supervisor from one lab stated that the use of direct hire authorities was not only faster than the competitive hiring process, but it also allowed supervisors a greater ability to get to know candidates early in the process to determine whether they met the needs of a position. In comparison, hiring managers we interviewed at one laboratory stated that the Pathways Program is not an effective means of hiring students because the program requires a competitive announcement. Supervisors also stated that the application process for Pathways can be cumbersome and confusing for applicants and may cause quality applicants to be screened out early. Defense laboratory officials who responded to our survey also stated that the process takes too long and that quality applicants may drop out of the process due to the length of the process.\nDefense laboratory hiring data also indicated that use of the defense laboratory direct hire authorities resulted in faster than median hiring times. As shown in table 6, the median time to hire for STEM positions at the defense laboratories in fiscal year 2017 was 88 days. The median time to hire when using the defense laboratories’ direct hire authorities, Pathways, or the SMART program authority was faster than that of the median for all categories combined. The median time to hire when using the competitive hiring process was approximately twice as long as when using the labs’ direct hire authorities. Our full analysis of defense laboratory hiring data, including the time to hire by hiring authority category, for fiscal years 2015 through 2017 can be found in appendix V.\nDefense laboratory officials also cited the use of incentives as helpful in hiring highly qualified candidates, as shown in figure 4. According to our survey results, the defense laboratories’ flexibility in pay setting under their demonstration project authority was generally considered to be the most helpful incentive, with 13 of 16 survey respondents stating that this incentive had very much helped them to hire highly qualified candidates.\nDuring interviews, laboratory officials described the use of these incentives as being particularly helpful if a candidate is considering multiple job offers because the incentives can help make the lab’s offer more competitive with offers from other employers. Multiple hiring officials stated that they would generally not include such incentives in an initial offer, but that if the candidate did not accept that offer, they would consider increasing the salary or offering a bonus. A hiring official from one lab stated that his lab has not offered many recruitment bonuses in recent years, because their acceptance rate has been sufficiently high without the use of that incentive.\nMany of the recently hired lab employees whom we interviewed also cited incentives, including bonuses and student loan repayment, as factoring into their decisions to accept the employment offers for their current positions. For example, one recently hired employee stated that the lab’s student loan repayment program was a significant factor in his decision to accept employment at the lab rather than with private industry. Recently hired employees also cited less tangible benefits of working at the labs, including the work environment, job stability, and type of work performed, as key factors in their decisions to accept their current positions. One newly hired employee stated that, while she could earn more money in a private-sector job, the defense laboratory position would afford her the freedom to pursue the type of work she is currently doing, and that this was a major consideration in her decision to accept it. Another newly hired employee similarly stated that he was interested in the type of research conducted at the lab where he now works, and that he was attracted to the opportunity to contribute to the national defense, while also taking advantage of benefits that support the pursuit of higher education.", "Defense laboratory officials we surveyed reported that, although the available hiring authorities and incentives are helpful, they experience a range of challenges to their ability to hire highly qualified candidates, as shown in figure 5, ranging in order from the most to the least frequently cited. In addition, figure 6 shows the extent to which officials reported selected top challenges that hindered their respective labs’ abilities to hire highly qualified candidates.\nDefense laboratory officials described how hiring challenges identified in our survey affect their ability to hire high quality candidates. Specifically, these challenges are as follows:\nLosing quality candidates to the private sector: Fifteen of 16 survey respondents stated that this was a challenge, and 12 of the 15 stated that this challenge had somewhat or very much hindered their lab’s ability to hire highly qualified candidates for STEM positions since October 2015. Hiring officials and supervisors we interviewed stated that private-sector employers can make on-the-spot job offers to candidates at college career fairs or other recruiting events, whereas the labs are unable to make a firm job offer until later in the hiring process.\nGovernment-wide hiring freeze: Fifteen of 16 survey respondents identified this as a challenge, with 13 of those reporting that it had either somewhat or very much hindered their lab’s ability to hire highly qualified candidates for STEM positions since October 2015. Multiple hiring officials and supervisors we interviewed stated that they had lost candidates whom they were in the process of hiring because the candidates had accepted other offers due to the delays created by the hiring freeze. In addition, some officials stated that, although the freeze had been lifted, their labs’ hiring efforts were still affected by backlogs created by the freeze, or were adapting to new processes that were implemented as a result of the freeze.\nDelays with the processing of security clearances: Fifteen of 16 survey respondents cited this as a challenge; 12 of the 15 stated that this challenge had somewhat or very much hindered their lab’s ability to hire highly qualified candidates for STEM positions since October 2015. A supervisor from one lab stated that he was in the process of trying to hire two employees whose hiring actions had been delayed due to the security clearance process. The supervisor stated that he had been told it could potentially take an additional 6 months to 1 year to complete the process, and that he believed this may cause the candidates to seek other employment opportunities. In other cases, hiring officials stated that employees may be able to begin work prior to obtaining a clearance, but that they may be limited in the job duties they can perform while waiting for their clearance to be granted. The government-wide personnel security clearance process was added to GAO’s High Risk List in 2018, based on our prior work that identified, among other issues, a significant backlog of background investigations and delays in the timely processing of security clearances.\nInability to extend a firm job offer until a final transcript is received: Fourteen of 16 survey respondents stated that this was a challenge, with 10 of the officials responding that it had somewhat or very much hindered their lab’s ability to hire highly qualified candidates. One hiring official stated that top candidates will often receive 5 to 10 job offers prior to graduation, and that his lab’s may be the only one of those offers that is characterized as tentative. Multiple officials noted that career fairs can often occur several months prior to graduation, so the lab would have to wait for the duration of this time before extending a firm offer to a candidate who has been identified.\nDelays with processing personnel actions by the external human resources office: Thirteen of 16 survey respondents stated that this presented a challenge, and 9 of the 13 stated that this challenge had somewhat or very much hindered their lab’s ability to hire highly qualified candidates for STEM positions since October 2015. Multiple hiring officials stated that employees at their human resource offices may not have an understanding of either the technical nature of the positions being filled at the lab or the lab’s unique hiring authorities, and that this lack of knowledge could create delays. Other officials noted that their servicing human resource offices seemed to be inflexible regarding certain paperwork requirements. For example, officials at one lab stated that their human resource office requires candidates’ resumes to be formatted in a particular way, and that they have been required to ask candidates to make formatting changes to their resumes. An official at another lab stated that the lab has faced similar challenges with regard to the formatting of transcripts and has had to request clarifying documentation from the university. In both cases, the officials described these requirements as embarrassing, and as a delay to the hiring process. Further, both a supervisor and a newly hired employee we interviewed noted that it is difficult to learn the status of an application when it is being processed by the human resource office.\nOverall length of the hiring process: Twelve of 16 survey respondents cited this as a challenge; 11 of the 12 stated that this challenge had somewhat or very much hindered their lab’s ability to hire highly qualified candidates for STEM positions since October 2015. Hiring officials and supervisors we interviewed stated that their lab had lost candidates due to the length of the hiring process. One supervisor we interviewed stated that he has encountered candidates who really wanted to work at his lab but had had to pursue other opportunities because they could not afford to wait to be hired by the lab. Multiple newly hired employees we interviewed described the process as slow or lengthy, but described reasons why they were willing to wait. For example, some employees were already working at their lab in a contractor or post-doctoral fellowship position, and accordingly they were able to continue in these positions while completing the hiring process for the permanent positions they now hold. One employee stated that if the process had gone on any longer, he likely would have accepted another offer he had received, while another employee stated that he knew of at least two post- doctoral fellows at his lab who chose not to continue in the hiring process for a permanent position at the lab due to the length of the hiring process.", "The department and the defense laboratories track hiring data that can be used to evaluate some aspects of the individual labs’ hiring efforts, but the Defense Laboratories Office has not routinely obtained or monitored these data or evaluated the effectiveness of hiring, including the use of hiring authorities, across the defense laboratories as a whole. Laboratory hiring data are captured at the department level in the Defense Civilian Personnel Data System (DCPDS)—the department’s system of record for personnel data. In addition, the individual defense laboratories track hiring data, including the type of hiring authority used and certain milestone dates that can be used to measure the length of the hiring process, known as time to hire.\nAccording to OPM guidance and our prior work, time to hire is a measure that may inform about the effectiveness of the hiring process, and federal agencies are required to report time to hire for certain types of hiring actions to OPM. Defense laboratory officials stated that, from their perspectives, the time- to-hire metric does not sufficiently inform about the effectiveness of the use of specific authorities, particularly when using the most commonly tracked milestones—from the initiation of a request for personnel action to an employee’s entrance-on-duty date. For example, officials stated that when a direct hire authority is used to hire a candidate who is completing the final year of his or her educational program, the lab may identify and provide a tentative offer to this candidate several months prior to graduation, consistent with private- sector recruitment methods. In this case, officials stated that the length of time between the initiation of the request for personnel action and the candidate’s entrance-on-duty date, following his or her graduation, could span a period of several months. According to defense laboratory officials, the total number of days for this hiring action gives the appearance that the use of the hiring authority was not efficient in this case; however, officials stated that it would have been effective from the supervisor’s perspective, because the use of the hiring authority resulted in the ability to recruit a highly qualified candidate in a manner that was more competitive with the private sector.\nFurther, time-to-hire data, as reflected by the milestone dates that are currently tracked across the defense laboratories, may not reflect a candidate’s perception of the length of the hiring process. More specifically, a candidate may consider the hiring process to be completed upon receiving a job offer (either tentative or final), which could occur weeks or months before the candidate’s entrance-on-duty date, the commonly used end-point for measuring time to hire. According to officials, the length of time from when the offer is extended to entrance on duty can be affected by a candidate’s individual situation and preferences, such as the need to complete an educational program or fulfill family or professional responsibilities prior to beginning work in the new position. In other cases, certain steps of the hiring process, such as completing the initial paperwork or obtaining management approval, may occur after a candidate has been engaged but prior to the initiation of a request for personnel action—the commonly used start-point for measuring time to hire. In this situation, the candidate’s perception of the length of the hiring process may be longer than what is reflected by the time-to-hire data.\nFor the reasons described above, some defense laboratories measure time to hire using milestones that they have determined more appropriately reflect the effectiveness of their hiring efforts. For example, officials from one lab stated that they have sought to measure the length of the hiring process that occurs prior to the request for personnel action, while officials from some labs stated that they measure time to hire using the tentative offer date as an end-point. In addition, some laboratories informally collect other types of data that they use in an effort to evaluate their hiring efforts, such as the reasons why candidates decline a job offer or feedback on the hiring process from newly hired employees.\nHowever, officials from the Defense Laboratories Office stated that their office has not conducted any review of the effectiveness of defense laboratory hiring, including the use of hiring authorities, across the labs. The National Defense Authorization Action for Fiscal Year 2017 gave authority to conduct and evaluate defense laboratory personnel demonstration projects to the Office of the Under Secretary of Defense for Research and Engineering, under which the Defense Laboratories Office resides. Defense Laboratories Office officials stated that the office has not evaluated the effectiveness of defense laboratory hiring because it does not have access to defense laboratory hiring data, has not routinely requested these data from the labs or at the department level to monitor the data, and has not developed performance measures to evaluate the labs’ hiring. As noted, laboratory hiring data are captured at the department level in DCPDS and in a variety of service- and laboratory- specific systems and tools. However, the Defense Laboratories Office does not have access to these data and, according to one official, the office would not have access to defense laboratory hiring data unless officials specifically requested them from the labs or from the Defense Manpower Data Center, which maintains DCPDS. According to the official, the Defense Laboratories Office has not routinely requested such data in the past, in part because their role did not require evaluation of such data.\nIn addition, the Defense Laboratories Office has not developed performance measures to evaluate the effectiveness of hiring across the defense laboratories or the labs’ use of hiring authorities. An official from the Defense Laboratories Office stated that the office may begin to oversee the effectiveness of the defense laboratories’ hiring efforts and, in doing so, may consider establishing performance measures to be used consistently across the labs, which could include time-to-hire or other measures. However, as of March 2018, the office had not established such measures for use across the defense laboratories nor provided any documentation on any planned efforts.\nStandards for Internal Control in the Federal Government states that management should design appropriate types of control activities to achieve the entity’s objectives, including top-level reviews of actual performance and the comparison of actual performance with planned or expected results. Further, consistent with the principles embodied in the GPRA Modernization Act of 2010, establishing a cohesive strategy that includes measurable outcomes can provide agencies with a clear direction for implementation of activities in multi-agency cross-cutting efforts. We have previously reported that agencies are better equipped to address management and performance challenges when managers effectively use performance information for decision making.\nWithout routinely obtaining and monitoring defense laboratory hiring data and developing performance measures, the Defense Laboratories Office cannot effectively oversee the effectiveness of hiring, including the use of hiring authorities, at the defense laboratories. Specifically, without performance measures for evaluating the effectiveness of the defense laboratories’ hiring, and more specifically the use of hiring authorities, the department lacks reasonable assurance that these authorities—in particular, those granted by Congress to the defense laboratories—are resulting in improved hiring outcomes. In addition, without evaluating the effectiveness of the defense laboratories’ hiring efforts, the department cannot understand any challenges experienced by the labs or determine appropriate strategies for mitigating these challenges. As a result, the department and defense laboratories may be unable to demonstrate that they are using their authorities and flexibilities effectively, or that such authorities and flexibilities should be maintained or expanded for future use.", "DOD does not have clear time frames for its process for approving and implementing new hiring authorities for the defense laboratories. Section 1105 of the Carl Levin and Howard P “Buck” McKeon National Defense Authorization Act for Fiscal Year 2015 established a direct hire authority for students enrolled in a scientific, technical, engineering, or mathematics course of study at institutions of higher education on a temporary or term basis. Officials from the Defense Laboratories Office stated that the labs were unable to use the authority because the department’s current process—the publication of a federal register notice—for allowing the laboratories to use the hiring authority took longer than anticipated. On June 28, 2017—2 ½ years after the authority was granted in the NDAA for Fiscal Year 2015—the department published a federal register notice allowing the defense laboratories the authority to use the direct hire for students.\nDOD officials stated that the department has typically published a federal register notice whenever the defense laboratories are granted a new hiring authority in legislation—for example, when an NDAA is issued, or when certain modifications to the demonstration projects are made. The Defense Civilian Personnel Advisory Service—through its personnel policymaking role for the department—at the time required that the federal register notice process be used to implement any hiring authorities granted to the defense labs by Congress in legislation. These procedures were published in DOD Instruction 1400.37. DOD officials identified coordination issues that occurred during the approval process of the federal register notice across the relevant offices as the cause of the delay associated with this federal register notice.\nChanges to DOD organizational structures further complicated the process of implementing new hiring authorities for defense laboratories. Specifically, in late 2016 a provision in the NDAA for Fiscal Year 2017 shifted the authority to conduct and evaluate defense laboratory personnel demonstration projects from the Office of the Under Secretary of Defense for Personnel and Readiness to the Office of the Under Secretary of Defense for Research and Engineering. Within the Office of the Under Secretary of Defense for Research and Engineering, the Defense Laboratories Office has been tasked with the responsibility for matters related to the defense laboratories. According to the Director of the Defense Laboratories Office, informal discussions about the transition began shortly after the NDAA for Fiscal Year 2017 was passed in late 2016. According to that official, despite the shift in oversight responsibility, coordination between the offices of the Under Secretaries for Research and Engineering and for Personnel and Readiness is required on issues related to civilian personnel, including defense laboratory federal register notices.\nAlthough a formal process for coordination did not exist at the start of our review, officials from the Defense Laboratories Office stated that representatives from the offices have met approximately five times since December 2016 and were taking steps to establish a coordination process for implementing new authorities. According to officials from the Defense Laboratories Office, during those meetings as well as during other, less formal interactions, officials have taken steps to formalize the roles and responsibilities of the relevant offices. According to officials from the Defense Laboratories Office, as of May 2018 the office was drafting a memorandum to formalize the roles and responsibilities of the Defense Laboratories Office and the Office of the Under Secretary of Defense for Personnel and Readiness to correspond to the federal register notice approval process; however, officials did not provide a completion date.\nThe Defense Laboratories Office established and documented its own federal register approval process in spring 2017 and updated it in early 2018. The aforementioned memorandum would further describe the roles and responsibilities for the Offices of the Under Secretary for Research and Engineering and the Deputy Assistant Secretary of Defense for Civilian Personnel Policy in carrying out the updated process. According to officials, this is the process the office will use moving forward for coordination and approval of any future federal register notices. On March 6, 2018, the Office published a federal register notice that rescinds the earlier instruction published by the Defense Civilian Personnel Advisory Service of the Office of the Under Secretary of Personnel and Readiness. By rescinding that instruction—including the earlier process for approving requests from the labs and federal register notices—the Defense Laboratories Office can, according to officials, publish its own process and guidance.\nIn a 2016 presentation to the Joint Acquisition/Human Resources Summit on the defense laboratories, the Chair of the Laboratory Quality Enhancement Program Personnel Subpanel stated that a renewed and streamlined approval process would be beneficial to the creation of new authorities, among other things. Although Defense Laboratories Office officials provided a flowchart of the office’s updated federal register approval process for coordination, this process did not include time frames for specific stages of the coordination. Officials stated that they cannot arbitrarily assign time frames or deadlines for a review process because any time frames will be contingent on the other competing priorities of each office, and other tasks may take priority and thus push review of a federal register notice down in order of priority. Our prior work has found that other federal agencies identify milestones, significant events, or stages in the agency-specific rulemaking process, and track data associated with these milestones. That work also found that, despite variability across federal agencies in the length of time taken by the federal rulemaking process, scheduling and budgeting for rulemaking are useful tools for officials to manage regulation development and control the resources needed to complete a rule.\nStandards for Internal Control in the Federal Government further establishes that management should design control activities to achieve objectives and respond to risks. Further, management should also establish an organizational structure, assign responsibility, and delegate authority to achieve the entity’s objectives. Moreover, documentation is a necessary part of an effective internal control system. The level and nature of documentation may vary based on the size and complexity of the organization and its processes. The standards also underscore that specific terms should be fully and clearly set forth such that they can be easily understood. Our prior work on interagency collaboration has also found that overarching plans can help agencies overcome differences in missions, cultures, and ways of doing business, and can help agencies better align their activities, processes, and resources to collaborate effectively to accomplish a commonly defined outcome.\nWithout establishing and documenting clear time frames for its process for departmental coordination efforts related to the approval and implementation of new hiring authorities, the department cannot be certain that it is acting in the most efficient or effective manner possible. Moreover, the defense laboratories may not promptly benefit from the use of congressionally granted hiring authorities, relying instead on other existing authorities. Doing so could, according to officials, have the unintended consequence of complicating the hiring process, increasing hiring times, or resulting in the loss of highly qualified candidates.", "The future of the department’s technological capabilities depends, in large part, on its investment in its people—the scientists and engineers who perform research, development, and engineering. To that end, Congress has granted the defense laboratories specific hiring authorities meant to encourage experimentation and innovation in their approaches to building and strengthening their workforces. The defense laboratories have used most of these authorities as a part of their overall hiring efforts. However, without obtaining and monitoring hiring data and developing performance measures, the Defense Laboratories Office may not be in a position to provide effective oversight of the defense laboratories’ hiring, including the use of hiring authorities, or to evaluate the effectiveness of specific hiring authorities. Moreover, the absence of clear time frames to facilitate timely decision-making and implementation of any new hiring authorities may impede the laboratories’ ability to make use of future authorities when authorized by Congress. Until the department addresses these issues, it lacks reasonable assurance that the defense laboratories are taking the most effective approach toward hiring a workforce that is critical to the military’s technological superiority and ability to address existing and emerging threats.", "We are making three recommendations to DOD.\nThe Secretary of Defense should ensure that the Defense Laboratories Office routinely obtain and monitor defense laboratory hiring data to improve the oversight of the defense laboratories’ use of hiring authorities. (Recommendation 1)\nThe Secretary of Defense should ensure that the Defense Laboratories Office develop performance measures to evaluate the effectiveness of the defense laboratories’ use of hiring authorities as part of the labs’ overall hiring to better inform future decision making about hiring efforts and policies. (Recommendation 2)\nThe Secretary of Defense should ensure that the Defense Laboratories Office, in collaboration with the Under Secretary of Defense for Personnel and Readiness and the Laboratory Quality Enhancement Panel’s Personnel Subpanel, establish and document time frames for its coordination process to direct efforts across the relevant offices and help ensure the timely approval and implementation of hiring authorities. (Recommendation 3)", "We provided a draft of this report to DOD for review and comment. In its written comments, reproduced in appendix VI, DOD concurred with our recommendations, citing steps the department has begun and plans to take to improve oversight and coordination of the defense laboratories’ hiring efforts. DOD also provided technical comments, which we incorporated as appropriate.\nWe are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, and other interested parties, including the Defense Laboratories Office and defense laboratories. In addition, this report is available at no charge on the GAO website at http://www.gao.gov.\nIf you or your staff have any questions regarding this report, please contact Brenda Farrell at (202) 512-3604 or farrellb@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix VII.", "The term “STEM” refers to the fields of science, technology, engineering, and mathematics. The following figure identifies the Department of Defense’s broad categories of STEM occupations, as well as the specific occupational series within each category.", "", "This report examines (1) the defense laboratories use of existing hiring authorities and what officials view as the benefits of authorities and incentives and the challenges in hiring; (2) the extent to which the Department of Defense (DOD) evaluates the effectiveness of hiring, including hiring authorities, at the defense laboratories; and (3) the extent to which DOD has time frames for approving and implementing new hiring authorities.\nTo address these objectives, we included in the scope of our review science, technology, engineering, and mathematics (STEM) hiring at the 15 defense laboratories designated as Science and Technology Reinvention Laboratories (STRL) that were implemented at the time of our review within the Army, Navy, and Air Force. We included 9 Army laboratories: Armament Research, Development, and Engineering Center; Army Research Laboratory; Aviation and Missile Research, Development, and Engineering Center; Communications-Electronics Research, Development, and Engineering Center; Edgewood Chemical and Biological Center; Engineer Research and Development Center; Medical Research and Materiel Command; Natick Soldier Research, Development, and Engineering Center; and Tank Automotive Research, Development, and Engineering Center. We included 5 Navy laboratories: Naval Air Systems Command Warfare Centers, Weapons Division and Aircraft Division; Naval Research Laboratory; Naval Sea Systems Command Warfare Centers, Naval Surface and Undersea Warfare Centers; Office of Naval Research; and Space and Naval Warfare Systems Command, Space and Naval Warfare Systems Center, Atlantic and Pacific. We included 1 Air Force laboratory: Air Force Research Laboratory. We excluded 2 additional defense laboratories within the Army—the Army Research Institute and the Space and Missile Defense Command—because these defense laboratories were in the process of being implemented at the time of our review.\nFor our first objective, we obtained and analyzed documentation, including past National Defense Authorization Acts (fiscal years 1995 through 2017), guidance related to government-wide hiring authorities, and federal register notices on existing hiring authorities used by the defense laboratories to hire STEM personnel. We obtained data that were coordinated by the Defense Manpower Data Center and prepared by the Defense Civilian Personnel Advisory Service’s Planning and Accountability Directorate. These data included, among other things, hiring process milestone dates and type of hiring authority used for each civilian hire at the defense laboratories for fiscal years 2015 through 2017. We selected these years because they were the three most recent years for which hiring data were available, and because doing so would allow us to identify any trends in the use of hiring authorities or the length of time taken to hire. The data we obtained were extracted from DCPDS using the Corporate Management Information System.\nThe team refined the data to include only those hiring actions that were made by the 15 defense laboratories included within the scope of our review. In addition, we excluded hiring actions that used a 700-series nature of action code, which denotes actions that relate to position changes, extensions, and other changes, which we determined should not be included in our analysis. We included actions that used nature of action codes in the 100-series (appointments) and 500-series (conversions to appointments). For the purpose of calculating time to hire, we also excluded records with missing dates and those for which the time-to-hire calculation resulted in negative number (that is, the record’s request for personnel action initiation date occurred after the enter-on- duty date). Specifically, we excluded 92 actions for which no request for personnel action initiation date was recorded and 205 actions for which the date occurred after the enter-on-duty date, for a total of 2.57 percent of all hiring actions. We included in our calculation 7 actions for which the request for personnel action initiation date was the same date as the enter-on-duty date, resulting in a time to hire of zero days.\nTo determine the extent to which the defense laboratories use existing hiring authorities, based on the department’s data, we analyzed the current appointment authority codes identified for individual hiring actions. Current appointment authority codes are designated by the Office of Personnel Management and are used to identify the law, executive order, rule, regulation, or other basis that authorizes an employee’s most recent conversion or accession action. Based on our initial review of the data, we determined that, in some cases, more than one distinct current appointment authority code could be used to indicate the use of a certain hiring authority. Alternately, a single current appointment authority code could in some cases be used for indicating more than one type of authority. In these cases, the details of the specific type of hiring authority that was used for the hiring action can be recorded in the description field associated with the current appointment authority code field. For this reason, in order to determine the type of hiring authority used, it was necessary to analyze the description fields for the current appointment authority code when certain codes were used. Two analysts independently reviewed each description and identified the appropriate hiring authority. Following this process, the two analysts compared their work and resolved any instances in which the results of their analyses differed. A data analyst used the results to produce counts of the number of times various categories of hiring authorities were used, as well as the average time to hire for each hiring authority category.\nFor those instances where the analysts could not identify a hiring authority on the basis of the three digit codes or the description fields, the hiring actions were assigned to an “unknown” category. We note that the “unknown” category included 591 hiring actions, or approximately 5 percent of the total data for fiscal years 2015 through 2017. In addition, within the laboratory-specific direct hire authority category, if a determination could not be made about the specific type of laboratory- specific direct hire authority used, the hiring action was captured in the “direct hire authority, unspecified” category because the action was clearly marked as one of the laboratory-specific direct hire authorities but the type of authority (for example, direct hire for veterans) was unclear. Of the 5,303 hiring actions identified as a laboratory-specific direct hire authority, 0.1 percent of the hiring actions fell into the unspecified category. Based on the aforementioned steps and discussions with officials from the Defense Civilian Personnel Advisory Service and the Defense Manpower Data Center and reviews of additional documentation provided to support the data file, as well as interviews with officials from 13 of the laboratories about their data entry and tracking, we determined that these data were sufficiently reliable for the purposes of reporting the frequency with which the labs used specific hiring authorities and calculating the time it takes the labs to hire, or time to hire, for fiscal years 2015 through 2017.\nTo describe officials’ views of hiring authorities and other incentives, we conducted a survey of officials at each of the defense laboratories on (1) their perceptions of the various hiring authorities and incentives, (2) whether those authorities and incentives have helped or hindered hiring efforts, (3) the extent to which they experienced barriers to using hiring authorities, and (4) any challenges during the hiring process, among other things. We administered the survey to the official at each defense laboratory who was identified as the Laboratory Quality Enhancement Program Personnel, Workforce Development, and Talent Management Panel point of contact, because we determined that this individual would be the most knowledgeable about his or her lab’s hiring process and use of hiring authorities. One laboratory—the Space and Naval Warfare Systems Command Centers—had two designated Laboratory Quality Enhancement Program Personnel, Workforce Development, and Talent Management Panel points of contact, one for each of its command centers (Atlantic and Pacific). Because the contacts would each be knowledgeable about his or her lab’s hiring processes for their respective command centers, we chose to include both command centers in our survey. As a result, we included a total of 16 laboratory officials in our survey.\nWe drafted our questionnaire based on the information obtained from our initial interviews with department, service, and laboratory personnel. We conducted pretests to check that (1) the questions were clear and unambiguous, (2) terminology was used correctly, (3) the questionnaire did not place an undue burden on agency officials, (4) the information could feasibly be obtained, and (5) the survey was comprehensive and unbiased. We conducted five pretests to include representatives from each of the three services, as well as from corporate research laboratories and from research, development, and engineering centers. We conducted the pretests—with the assistance of a GAO survey specialist—by telephone and made changes to the content and format of the questionnaire after each pretest, based on the feedback we received. Key questions from the questionnaire used for this study are presented in appendix II.\nWe sent a survey notification email to each laboratory’s identified point of contact on July 6, 2017. On July 10, 2017, we sent the questionnaire by email as a Microsoft Word attachment that respondents could return electronically after marking checkboxes or entering responses into open answer boxes. One week later, we sent a reminder email, attaching an additional copy of the questionnaire, to everyone who had not responded. We sent a second reminder email and copy of the questionnaire to those who had not responded 2 weeks following the initial distribution of the questionnaire. We received questionnaires from all 16 participants by August 4, 2017, for a 100 percent response rate. Between July 26 and October 5, 2017, we conducted additional follow-up with 11 of the respondents via email to resolve missing or problematic responses.\nBecause we collected data from every lab, there was no sampling error. However, the practical difficulties of conducting any survey may introduce errors, commonly referred to as non-sampling errors. For example, differences in how a particular question is interpreted, the sources of information available to respondents, how the responses were processed and analyzed, or the types of people who do not respond can influence the accuracy of the survey results. We took steps in the development of the survey, the data collection, and the data analysis to minimize these non-sampling errors and help ensure the accuracy of the answers that were obtained. For example, a survey specialist designed the questionnaire, in collaboration with analysts having subject matter expertise. Then, as noted earlier, the draft questionnaire was pretested to ensure that questions were relevant, clearly stated, and easy to comprehend. The questionnaire was also reviewed by internal subject matter experts and an additional survey specialist.\nData were electronically extracted from the Microsoft Word questionnaires into a comma-delimited file that was then imported into a statistical program for quantitative analyses and Excel for qualitative analyses. We examined the survey results and performed computer analyses to identify inconsistencies and other indications of error, and we addressed such issues as necessary. Quantitative data analyses were conducted by a survey specialist using statistical software. An independent data analyst checked the statistical computer programs for accuracy.\nTo obtain information on department- and service-level involvement in and perspectives of defense laboratory hiring, we interviewed officials at the Defense Personnel Advisory Service, Defense Laboratories Office, Army Office of the Assistant G-1 for Civilian Personnel, and Navy Office of Civilian Human Resources. In addition, we interviewed hiring officials, first-line supervisors, and newly hired employees from a non- generalizable sample of six defense laboratories or subordinate level entities within a laboratory (for example, division or directorate) to obtain their perspectives on the hiring process. We selected the six laboratories based on the following two criteria: (1) two laboratories from each of the three services, and (2) a mix of both corporate research laboratories and research and engineering centers. In addition, because some hiring activities can occur at subordinate levels within a laboratory—such as a division or directorate—we included at least one subordinate level entity for each service. In total, we selected: Army Research Laboratory Sensors and Electron Devices directorate; Aviation and Missile Research, Development, and Engineering Center (Army); Naval Research Laboratory; Naval Air Warfare Center Weapons Division; Air Force Research Laboratory Information directorate; and Air Force Research Laboratory Space Vehicles directorate. For each lab, we requested to interview the official(s) most knowledgeable about the lab’s hiring process, supervisors who had recently hired, and newly hired employees.\nWe initially requested to interview one group each of supervisors and newly hired employees. Following our first round of interviews at one laboratory, we requested to interview two groups each of supervisors and newly hired employees. Subsequent to this request, at one lab we were able to conduct one supervisor interview and at a second lab we were able to conduct one newly hired employee interview, due to scheduling constraints. The views obtained from these officials, supervisors, and recent hires are not generalizable and are presented solely for illustrative purposes.\nFor our second and third objectives, we reviewed guidance and policies for collecting and analyzing laboratory personnel data related to the implementation and use of hiring authorities by these labs. We interviewed DOD, military service, and defense laboratory officials to discuss and review their hiring processes and procedures for STEM personnel, the use of existing hiring authorities, and efforts to document and evaluate time-to-hire metrics. We also met with DOD officials from the Office of the Under Secretary of Defense for Personnel and Readiness and the Office of the Under Secretary of Defense for Research and Engineering to discuss processes and procedures for implementing new hiring authorities granted by Congress. We evaluated their efforts to determine whether they met federal internal control standards, including that management should design appropriate types of control activities to achieve the entity’s objectives, including top-level reviews of actual performance, and should establish an organizational structure, assigning responsibilities and delegating authority to achieve an organization’s objectives.\nWe conducted this performance audit from November 2016 to May 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.", "We analyzed three years of Department of Defense hiring data obtained from the Defense Civilian Personnel Data System to identify the defense laboratories’ use of hiring authorities. We found that the defense laboratories completed a total of 11,562 STEM hiring actions in fiscal years 2015 through 2017 and used the defense laboratory direct hire authorities the most often when hiring STEM personnel. Table 7 provides information on the laboratories’ use of hiring actions by hiring authority for fiscal years 2015, 2016, and 2017.\nTable 8 provides a breakdown of the individual labs’ use of hiring authorities in fiscal years 2015 through 2017.", "We analyzed three years of the DOD hiring data to identify time to hire using various types of hiring authorities when hiring for Science, Technology, Engineering, and Math (STEM) occupations at the defense laboratories. Tables 9, 10, 11, and 12 below show the frequency of actions for each hiring authority category and the average, minimum, maximum, median, 25th percentile, and 75th percentile of the number of days to hire for each category in fiscal years 2015 through 2017 and for all three years combined.", "", "", "", "In addition to the contact named above, Vincent Balloon (Assistant Director), Isabel Band, Vincent Buquicchio, Joseph Cook, Charles Culverwell, Serena Epstein, Christopher Falcone, Robert Goldenkoff, Cynthia Grant, Chelsa Gurkin, Amie Lesser, Oliver Richard, Michael Silver, John Van Schaik, Jennifer Weber, and Cheryl Weissman made key contributions to this report." ], "depth": [ 1, 2, 2, 3, 3, 1, 2, 2, 2, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 2, 2 ], "alignment": [ "", "", "", "", "", "h0_full", "h0_full", "", "h0_full", "h1_full", "h2_full", "", "", "", "", "", "h3_full", "", "", "", "", "", "" ] }

{ "question": [ "What characterizes DOD lab hiring practices?", "What statistic illustrates this claim?", "What challenges exist in such a practice?", "To what extent does DOD assess its hiring data?", "What is the weakness of DOD's timeliness data?", "What is the current standing of DLO's hiring performance measures?", "Why does this pose a risk to DOD?", "What is the current status of DOD's hiring practices?", "Why were defense labs unable to use a direct hire authority in FY 2015?", "What is the DOD's plan to improve coordination?", "What is a weakness of this plan?", "Why did GAO review the labs' hiring structure?", "What does this report examine?", "How did GAO arrive at its findings?" ], "summary": [ "The Department of Defense's (DOD) laboratories (defense labs) have used the laboratory-specific direct hire authorities more than any other category of agency-specific or government-wide hiring authority for science, technology, engineering, and mathematics personnel.", "As shown below, in fiscal years 2015—2017 the labs hired 5,303 personnel out of 11,562 total hires, or 46 percent using these direct hire authorities.", "Lab officials, however, identified challenges to hiring highly qualified candidates, such as delays in processing security clearances, despite the use of hiring authorities such as direct hire.", "DOD and the defense labs track hiring data, but the Defense Laboratories Office (DLO) has not obtained or monitored these data or evaluated the effectiveness of the labs' hiring, including the use of hiring authorities. While existing lab data can be used to show the length of time of the hiring process, effectiveness is not currently evaluated.", "According to lab officials, timeliness data do not sufficiently inform about the effectiveness of the authorities and may not reflect a candidate's perception of the length of the hiring process.", "Further, the DLO has not developed performance measures to evaluate the effectiveness of hiring across the defense laboratories.", "Without routinely obtaining and monitoring hiring data and developing performance measures, DOD lacks reasonable assurance that the labs' hiring and use of hiring authorities—in particular, those granted by Congress to the labs—result in improved hiring outcomes.", "DOD does not have clear time frames for approving and implementing new hiring authorities.", "The defense labs were unable to use a direct hire authority granted by Congress in fiscal year 2015 because it took DOD 2½ years to publish a federal register notice—the process used to implement new hiring authorities for the labs—for that authority.", "DOD officials identified coordination issues associated with the process as the cause of the delay and stated that DOD is taking steps to improve coordination—including meeting to formalize roles and responsibilities for the offices and developing a new approval process—between offices responsible for oversight of the labs and personnel policy.", "However, DLO's new federal register approval process does not include time frames for specific stages of coordination. Without clear time frames for its departmental coordination efforts related to the approval and implementation of new hiring authorities, officials cannot be certain they are taking action in a timely manner.", "Senate Report 114-255 included a provision for GAO to examine the labs' hiring structures and effective use of hiring authorities.", "This report examines (1) the defense labs use of existing hiring authorities and officials' views on the benefits of authorities and challenges of hiring; (2) the extent to which DOD evaluates the effectiveness of hiring, including hiring authorities at the defense labs; and (3) the extent to which DOD has time frames for approving and implementing new hiring authorities.", "GAO analyzed DOD hiring policies and data; conducted a survey of 16 defense lab officials involved in policy-making; interviewed DOD and service officials; and conducted nongeneralizable interviews with groups of officials, supervisors, and new hires from 6 labs—2 from each of the 3 military services, selected based on the labs' mission." ], "parent_pair_index": [ -1, 0, 0, -1, 0, 0, 2, -1, 0, 1, 2, -1, -1, 1 ], "summary_paragraph_index": [ 2, 2, 2, 7, 7, 7, 7, 8, 8, 8, 8, 1, 1, 1 ] }

{ "title": [ "", "Introduction", "Background", "Implementing the Good Neighbor Provision", "SIPs Process", "Section 126(b) Petitions", "Interpreting \"Significant Contribution\"", "Programs Addressing Interstate Pollution", "Acid Rain Program", "Ozone Control: Regional NOx Programs", "Ozone Transport Commission NOx Budget Program", "NOx Budget Trading Program", "Ozone and PM Control: Regional SO2 and NOx Trading Programs", "Clean Air Interstate Rule", "Cross State Air Pollution Rule", "Framework to Assess Good Neighbor Provision", "CSAPR Emissions Trading Programs", "Results of Regional SO2 and NOx Trading Programs", "Status of Good Neighbor Determinations for Ozone Standards", "Good Neighbor Determinations and the 2008 Ozone Standard", "Good Neighbor Determinations and the 2015 Ozone Standard", "Issues for Congressional Consideration", "NOx Emission Trends", "Incentives for NOx Reductions", "Related EPA Air Quality Initiatives" ], "paragraphs": [ "", "The movement of air pollutants across state lines, known as interstate transport, has posed a decades-long challenge to air quality protection. The Clean Air Act (CAA) assigns responsibility to states to limit emissions from sources within their borders as needed to attain federal health-based air quality standards. A state's air quality, however, may be affected by emissions from upwind sources located in a different state. Hence, controlling emissions within the border of a state may not be sufficient to attain the air quality standard. The downwind state lacks authority to limit emissions from the sources in the upwind state(s) but is nonetheless responsible for attaining the federal standards.\nInterstate transport has made it difficult for some downwind states to attain federal standards for ozone and fine particulate matter (PM 2.5 ). Both of these pollutants are formed by precursor emissions that can travel long distances. Specifically, sulfur dioxide (SO 2 ) and nitrogen oxide (NO x ) contribute to the formation of PM 2.5 in the air. NO x and volatile organic compounds (VOCs) react in sunlight to form ground-level ozone, the main component of smog. Studies have shown that these precursor emissions, as well as ozone and PM 2.5 , are regional pollutants, meaning that they can travel hundreds of miles through the atmosphere. For example, Bergin et al.'s study of the eastern United States concluded that regional transport affected air quality in most eastern states. They attributed an average of 77% of each state's ozone and PM 2.5 concentrations to emissions from upwind states.\nThese regional emissions are associated with health impacts and are therefore of concern. For example, research shows that ground-level ozone is associated with aggravated asthma, chronic bronchitis, heart attacks, and premature death. Studies have also linked exposure to particulate matter to respiratory illnesses, such as aggravated asthma, as well as heart attacks and premature death.\nThe CAA's \"Good Neighbor\" provision recognizes such interstate issues and requires states to prohibit emissions that significantly contribute to air quality problems in another state (Section 110(a)(2)(D)). It requires each state's implementation plan—a collection of air quality regulations and documents—to include adequate provisions to prohibit emissions that either \"contribute significantly\" to nonattainment or \"interfere with maintenance\" of federal air quality standards in another state.\nSince the 1990s, the U.S. Environmental Protection Agency (EPA) and the states have implemented various regional programs to address interstate air transport. Many of these programs have since concluded. The current program—the Cross State Air Pollution Rule (CSAPR, pronounced \"Casper\")—is an emissions trading program for 28 states in the eastern part of the United States. EPA established CSAPR to limit interstate transport of power sector SO 2 and NO x emissions and help states comply with the 1997 and 2006 PM 2.5 standards as well as the 1997 and 2008 ozone standards.\nEPA has attributed emission reductions to CSAPR and the agency's other emissions trading programs, such as the Acid Rain Program: annual SO 2 emissions from power plants participating in CSAPR were 1.2 million tons in 2016, an 87% reduction from 2005 levels. CSAPR power plants also emitted 420,000 tons of NO x in the 2016 ozone season, roughly an 80% reduction from the 1990 ozone season NO x emissions.\nEmissions reduction progress notwithstanding, some areas of the country do not meet federal air quality standards for pollutants like ozone and particulate matter. In 2018, EPA designated 52 areas with approximately 200 counties or partial counties as \"nonattainment\" with respect to the 2015 ozone standard.\nMembers of Congress representing both downwind and upwind states may have an interest in how EPA and states implement the CAA's Good Neighbor provision, particularly as states begin to develop plans for nonattainment areas to come into compliance with the 2015 ozone standards. Some downwind states with nonattainment areas have attributed their ozone violations—at least in part—to emission sources from upwind states. Downwind states have also expressed concerns that transported air pollution contributes to harmful human health impacts and adversely affects economic growth. For example, a Maryland state agency reported that transport of emissions from upwind states has required Maryland's sources to compensate with \"deeper in-state emissions reductions,\" thereby adding economic costs to the state's business community. Upwind states have disagreed with the approach used by EPA to determine whether emissions from upwind sources contribute to downwind air quality problems. For instance, Ohio's state environmental agency described EPA's transport approach as \"deeply flawed,\" concluding that it would place \"an unfair amount of responsibility\" on upwind power plants to reduce emissions.\nTo assist Members and staff in understanding interstate transport issues, this report presents background information about the CAA's interstate transport provision, provides a brief history of regional programs leading up to CSAPR, discusses key aspects of the CSAPR program and program results, summarizes the status of Good Neighbor determinations with respect to ozone standards, and concludes with issues for congressional consideration.", "The CAA requires EPA to establish national standards for air pollutants that meet the criteria in Section 108(a)(1). These pollutants—the \"criteria pollutants\"—are those that EPA has determined \"may reasonably be anticipated to endanger public health or welfare\" and whose presence in \"ambient air results from numerous or diverse mobile or stationary sources.\" EPA must design two types of National Ambient Air Quality Standards (NAAQS) for the criteria pollutants. Primary NAAQS must protect public health with an \"adequate margin of safety,\" and secondary NAAQS must \"protect public welfare from any known or anticipated adverse effects.\" The NAAQS are concentration standards measured in parts per million (ppm) by volume, parts per billion (ppb) by volume, and micrograms per cubic meter of air (µg/m 3 ). The NAAQS do not set direct limits on emissions but rather define what EPA considers to be clean air for the pollutant in question.\nSection 109(d) of the act requires periodic NAAQS reviews. Every five years, EPA must review the NAAQS and the science upon which the NAAQS are based and then revise the NAAQS if necessary. This multi-step process is rarely completed within the five-year review cycle and is often the subject of litigation that results in court-ordered deadlines for completion of NAAQS reviews. Since January 1997, EPA has completed at least one review for each of the six criteria pollutants (carbon monoxide, lead, nitrogen dioxide, ozone, particulate matter, and sulfur dioxide), with standards being made more stringent for five of the six. Most of the revisions finalized in this time period were for the ozone and particulate matter standards.\nThe CAA assigns responsibility to states to establish procedures to attain and maintain the NAAQS within their borders. In particular, the act requires each state to submit a new or revised state implementation plan (SIP) to EPA within three years of a NAAQS promulgation or revision. This SIP submission, also known as an \"infrastructure SIP,\" outlines how the state will implement, maintain, and enforce the NAAQS . The infrastructure SIP allows EPA to \"review the basic structural requirements of [a state's] air quality management program in light of each new or revised NAAQS.\" Examples of the basic structural requirements include enforceable emission limits, an air monitoring program, an enforcement program, air quality modeling capabilities, and \"adequate personnel, resources, and legal authority.\"\nThe state's SIP must also address its interstate transport obligations under the CCAA. EPA refers to this section of the SIP submission as the \"Good Neighbor SIP.\" The Good Neighbor SIP must prohibit \"certain emissions of air pollutants because of the impact they would have on air quality in other states.\" Specifically, the state's Good Neighbor SIP must prohibit sources in that state from \"emitting any air pollutant in amounts which will … contribute significantly to nonattainment in, or interfere with maintenance\" of a NAAQS in another state.\nEPA reviews SIPs to ensure they meet statutory requirements. The agency also has authority to require states to revise their SIPs. Furthermore, the act requires EPA, under certain conditions, to impose sanctions and to issue a Federal Implementation Plan (FIP) if a state fails or declines to submit or implement an adequate SIP.\nRecognizing ongoing challenges with ozone transport, the 1990 CAA Amendments established regional planning provisions specific to ozone. For example, CAA Section 184 created a multi-state ozone transport region, known as the Ozone Transport Region (OTR), and established the northeast Ozone Transport Commission (OTC) to advise EPA about ozone controls in the OTR. The OTR is comprised of 12 Northeastern and Mid-Atlantic states (Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, certain counties in Northern Virginia) and Washington, DC. The CAA required states in the OTR to impose controls on sources in all specified areas, regardless of attainment status. Such controls included enhanced vehicle inspection and maintenance programs and reasonably available control technology for sources of VOCs.\nIn addition, CAA Section 176A allows EPA to establish transport regions to address regional pollution problems contributing to violations of a primary NAAQS. The agency must establish a commission, comprised of EPA and state officials, for each transport region that makes recommendations to EPA on appropriate mitigation strategies.", "The CAA provides two independent statutory authorities to facilitate compliance with the Good Neighbor provision: (1) the SIPs process under Section 110 and (2) a petition process under Section 126(b). While these authorities are separate, they each address the same objective—that is, the Good Neighbor provision in Section 110(a)(2)(D)(i). The remainder of this section describes how these authorities may be used to enforce the Good Neighbor provision.", "As previously noted, a state's SIP must prohibit sources in that state from \"emitting any air pollutant in amounts which will … contribute significantly to nonattainment in, or interfere with maintenance\" of a NAAQS in another state. If EPA finds an existing SIP inadequate, it must require the state to revise the SIP. This procedure is known as a \"SIP call\" and it can be issued to multiple states at the same time. Specifically, EPA must issue a SIP call whenever the agency determines that the SIP is \"substantially inadequate to attain or maintain\" a particular NAAQS, to ensure that the state's sources do not contribute significantly to a downwind state's nonattainment, or if it is otherwise inadequate to meet any CAA requirement. EPA can also issue a SIP call if states do not meet the CAA Section 184 requirements of the OTR.", "Under CAA Section 126(b), any state or political subdivision can petition EPA to issue a \"finding that any major source or group of stationary sources emits or would emit any air pollutant in violation\" of the Good Neighbor provision. Section 126(b) requires EPA to make a decision within 60 days. If EPA grants the petition, the sources identified in the petition must cease operations within three months unless they comply with emission controls and compliance schedules set by EPA.\nWhile Section 126(b) and a SIP call each enforce the Good Neighbor provision, they differ in their implementation. First, a state or political subdivision must initiate the 126(b) petition, whereas EPA initiates the SIP call. Second, unlike a SIP call, the 126(b) petition is limited to a \"major source or group of stationary sources\" and cannot be used to address minor or mobile sources. Third, EPA may directly regulate upwind sources when it grants a 126(b) petition, whereas a SIP call results in direct EPA regulation only if EPA issues a FIP in response to a state's failure to respond adequately to the SIP call.\nEPA's review of 126(b) petitions has sometimes coincided with the agency's SIP call process. For example, in 1998, EPA coordinated its review of eight 126(b) petitions when it promulgated a SIP call. EPA acknowledged the distinction between the CAA authorities for the 126(b) petition process and the SIP call but coordinated the two actions because they were both designed to reduce ozone transport in the eastern United States.\nStates have also submitted 126(b) petitions ahead of the deadlines for Good Neighbor SIPs. For example, in 2011, EPA granted a 126(b) petition from New Jersey, finding that a coal-fired generating station in Pennsylvania contributed significantly to nonattainment with the SO 2 NAAQS in New Jersey. Some considered EPA's approval of this petition to reflect a more expansive interpretation of Section 126 in which 126(b) petitions are not necessarily limited to the time frame of Good Neighbor SIP updates. Whereas EPA had previously considered 126(b) petitions several years after revising a NAAQS—and after making attainment and nonattainment designations for revised standards—EPA approved New Jersey's 126(b) petition before Pennsylvania was required to complete its Good Neighbor SIP for the 2010 revision to the SO 2 NAAQS. EPA promulgated an emissions limit for the generating station that would reduce its SO 2 emissions by 81% and set a compliance deadline of three years. In 2013, the U.S. Court of Appeals for the Third Circuit upheld EPA's interpretation of Section 126, concluding that the CAA allows EPA to make a Section 126 finding independently of the Section 110 SIP process.\nStates have continued to submit Section 126(b) petitions related to ozone interstate transport. For example, Connecticut, Delaware, Maryland, and New York have submitted 126(b) petitions related to compliance with the 2008 and/or 2015 ozone NAAQS. As of July 2018, EPA has denied the petition from Connecticut and has proposed to deny petitions from Delaware and Maryland. Among the various reasons for denying Connecticut's petition, EPA found that the petition did not reflect current operations at the named source—a power plant located in Pennsylvania. In particular, EPA stated that the air quality modeling in Connecticut's petition was based on 2011 emissions data and therefore did not account for subsequent NO x reductions, noting that the named source \"primarily burned natural gas with a low NO x emission rate in the 2017 ozone season.\" In addition, EPA conducted its own analysis using the agency's current multi-step framework for determining what constitutes a significant contribution. The agency's analysis did not identify additional \"highly cost-effective controls available at the source and thus no basis to determine that [the named source] emits or would emit in violation of the good neighbor provision with respect to the 2008 ozone NAAQS.\" While EPA \"expects the facility to continue operating primarily by burning natural gas in future ozone seasons,\" others have expressed concern that there is no \"enforceable requirement prohibiting\" the named source from switching back to coal.\nSimilarly, in June 2018, EPA proposed to deny petitions from Delaware and Maryland, in part because EPA found \"several elements of the states' analyses … insufficient to support the states' conclusions.\" For example, EPA said that Delaware's petitions did \"not provide any analysis indicating that Delaware may be violating or have difficulty maintaining the 2008 or 2015 ozone NAAQS in a future year associated with the relevant attainment dates.\" EPA also noted that Delaware used 2011 emissions data, which EPA characterized as \"generally higher than, and therefore not representative of, current and future projected emissions levels at these [named sources] and in the rest of the region.\" Delaware has disagreed with EPA's proposed denial on various grounds. Among other things, Delaware stated that EPA has not \"shown valid modeling or justification that Delaware will attain the 2015 ozone standard by its 2021 Marginal nonattainment deadline.\" In particular, EPA's projections analyzed the year 2023, which is the attainment deadline for areas designated as moderate nonattainment with respect to the 2015 ozone standard.\nFinally, EPA proposed to deny Maryland's petition, in part because the agency disagreed with Maryland that NO x limits for 36 named sources should be based on the respective units' lowest observed emissions rates. Specifically, Maryland's petition concluded that the 36 named sources were operating pollution controls \"sub-optimally based on a comparison of their lowest observed NO x emissions rates between 2005 and 2008, which Maryland describes as the 'best' observed emissions rates, to emissions rates from the 2015 and 2016 ozone seasons.\" EPA disagreed that the lowest historical NO x emissions rate is representative of \"ongoing achievable NO x rates\" in part because over time, some NO x controls (e.g., selective catalytic reduction [SCR] systems) \"may have some broken-in components and routine maintenance schedules entailing replacement of individual components.\" EPA stated that in a 2016 rulemaking addressing regional ozone transport, the agency determined that the \"third lowest fleetwide average coal-fired [power plant] NO x rate\" for power plants using SCR to be \"most representative of ongoing, achievable emission rates.\" Maryland has disagreed with EPA's proposed denial, noting that it will \"testify in opposition to the proposal and use all available tools, including litigation.\"", "Enforcement of the CAA's interstate transport provisions hinges on a key test in Section 110(a)(2)(D)(i)—whether one state \"significantly contributes\" to a violation of the NAAQS in another state. The CAA does not, however, define what constitutes a significant contribution. Instead, this phrase has been interpreted through EPA rulemakings addressing interstate air pollution. The agency's interpretation has been contentious at times, given that it \"inherently involves a decision on how much emissions control responsibility should be assigned to upwind states, and how much responsibility should be left to downwind states.\" Stakeholders have challenged the legality of EPA's interpretations over the years.\nThe regulatory actions and litigation have led to EPA's establishment of the current framework to address the Good Neighbor provision for ozone and particulate matter. The framework establishes a screening threshold—interstate pollution that exceeds 1% of the NAAQS—to identify states with sources that may contribute significantly to air quality problems in downwind states. Upwind states that exceed this threshold for interstate pollution are evaluated further—considering cost and air quality factors—to determine whether emission reductions are needed. EPA has clarified that it generally uses this framework to determine what constitutes a significant contribution when evaluating Good Neighbor SIPs and when evaluating a 126(b) petition. See \" Framework to Assess Good Neighbor Provision \" for detailed discussion of the framework.", "Pursuant to the CAA, EPA and states have implemented various market-based programs that target regional emissions of SO 2 and NO x from power plants. One type of market-based program, known as emissions trading, sets a limit (or \"cap\") on total emissions within a defined geographic area or economic sector and requires covered entities to surrender an allowance for each unit—typically a ton—of emissions. Such programs are also known as \"cap-and-trade.\"\nUnder an emissions cap, covered entities with relatively low emission-reduction costs have a financial incentive to reduce emissions because they can sell unused allowances to entities that face higher costs to reduce their facility emissions. The requirements vary by each program. For example, policymakers may decide to distribute the emission allowances to covered entities at no cost (based on, for example, previous years' emissions), sell the allowances (e.g., through an auction), or use some combination of these strategies. In addition, some programs may permit covered entities to \"bank\" or save surplus allowances for future use while others may not.\nThe remainder of this section presents a brief history of the interstate transport programs implemented prior to 2015, given their cumulative impact on regional emission reductions. The \" Cross State Air Pollution Rule \" section then provides more detail about CSAPR, the current emissions trading program intended to limit interstate transport of power sector SO 2 and NO x emissions. Figure 1 summarizes the timeline of the regional programs for ozone and particulate matter control.", "EPA established the Acid Rain Program (ARP) under Title IV of the 1990 CAA Amendments to reduce power sector emissions that cause acid rain. Specifically, the ARP targets SO 2 emissions through cap-and-trade and addressed NO x emissions through an emissions-rate-based program. Since its inception over two decades ago, the ARP has achieved notable reductions in these regional pollutants at lower-than-predicted costs. The market-based program also served as the basis for subsequent programs addressing interstate pollution.\nUnder Title IV of the CAA, EPA implemented the ARP in two phases. The first phase—1995 to 1999—included 110 high-emitting coal-fired power plants, which had been identified in the statute and spanned 21 eastern and midwestern states. The second phase began in 2000 and included more coal-fired power plants as well as those firing oil and natural gas, accounting for nearly all fossil-fueled power plants in the lower 48 states. EPA set the annual SO 2 emissions cap at 9.97 million allowances in 2000 and decreased it in subsequent years. The ARP remains in effect today. The annual SO 2 cap—8.95 million tons of SO 2 per year—has not changed since 2010. The annual cap is roughly half of the SO 2 emitted by the power sector in 1980.\nEPA distributed SO 2 allowances based on statutory formulas and accounted for historical emission rates and fuel consumption. The \"existing\" power plant units—those in operation prior to November 15, 1990—received allowances for free. The \"new\" power plant units—those commencing operations after November 15, 1990—generally did not receive free allowances and had to purchase them on the market. At the end of each year, covered power plants have to surrender one allowance for each ton of SO 2 emitted. Unused allowances can either be sold or banked for use in later years. The market value of unused allowances, therefore, serves as an incentive for power plants to \"reduce emissions at the lowest cost.\"\nThe NO x portion of the ARP does not involve cap-and-trade but follows a more traditional regulatory approach. It is implemented through boiler-specific NO x emission rates. This program has provided power plants with some compliance flexibility, for example, by allowing the use of emissions rate averaging plans for units under common control, provided they meet certain conditions. According to one analysis of the ARP, the NO x portion \"helped demonstrate the cost-effectiveness of NO x controls,\" and by 2000, it \"encouraged the installation of advanced NO x combustion controls, such as low-NO x burners, and the development of new power plant designs with lower NO x emission rates.\"\nWhile the ARP reduced SO 2 and NO x emissions from the power sector, additional reductions were needed to meet ambient air quality standards under the CAA and to address the statute's Good Neighbor provision. For example, in 1997, EPA revised the NAAQS for ozone and particulate matter—which are formed by SO 2 and NO x —to be more stringent. The next sections summarize some of the programs designed to achieve these reductions.", "Ozone control strategies had focused on VOC emissions until the mid-1990s, when market-based programs began targeting another ozone precursor, NO x , given its \"important role … in ozone formation and transport.\" Specifically, two regional trading programs were implemented between 1999 and 2009 to address ozone by reducing NO x emissions. The first one, the \"Ozone Transport Commission NO x Budget Program,\" was in effect between 1999 and 2002. It was then replaced by the second program, the \"NO x Budget Trading Program,\" which ran until 2009.", "The OTC—a multistate organization established under the 1990 CAA Amendments to advise EPA on ozone transport issues—developed the NO x Budget Program and implemented it through a Memorandum of Understanding (MOU) with nearly all of the OTC states. The OTC NO x Budget Program set a regional budget (i.e., cap) on NO x emissions from electric utilities and large industrial boilers during the \"ozone season\" (May through September), which is the time of year weather conditions are most favorable for ozone formation. Under the MOU, states \"were responsible for adopting regulations, identifying sources, allocating NO x allowances, and ensuring compliance,\" while EPA was \"responsible for approving the states' regulations and tracking allowances and emissions.\"\nBefore emissions trading began under the OTC NO x Budget Program, sources under the ARP were required to meet CAA emission rate standards that were in effect at that time. Sources could not emit above the NO x level expected if using Reasonably Available Control Technology. Next, the cap-and-trade program began in 1999 and ran until 2002, at which point the OTC NO x Budget Program was effectively replaced by the NO x Budget Trading Program (see next section).\nIn 2002, the sources participating in the OTC NO x Budget Program reduced ozone season NO x emissions 60% below 1990 baseline levels. Despite the NO x reductions in the Northeast, many northeastern and mid-Atlantic states were unable to meet a statutory deadline to attain the one-hour ozone NAAQS. EPA concluded that these areas had not met this statutory deadline largely because of ozone transport from upwind areas.", "The NO x Budget Trading Program (NBP) effectively replaced the OTC NO x Budget Program and was implemented between 2003 and 2009. The NBP encompassed a wider geographic area than the OTC NO x Budget Program and targeted NO x reductions from electric utilities and nonutility sources (e.g., large industrial boilers). EPA established the NBP under the NO x SIP Call, which required a number of eastern and midwestern states, plus the District of Columbia, to revise their SIPs to address regional ozone transport. The NO x SIP Call set a NO x ozone season budget for each state and required upwind states to adopt SIPs that would reduce NO x emissions to a level that would meet the budgets.\nIn the NO x SIP Call, EPA observed that \"virtually every nonattainment problem is caused by numerous sources over a wide geographic area,\" leading the agency to conclude that \"the solution to the problem is the implementation over a wide area of controls on many sources, each of which may have a small or unmeasurable ambient impact by itself.\" Ultimately, EPA expected that this would \"eliminat[e] the emissions that significantly contribute to nonattainment or interference with maintenance of the ozone NAAQS in downwind states.\"\nEPA based the NOx SIP Call in part on recommendations from the Ozone Transport Assessment Group (OTAG), a group created by EPA and the 37 easternmost states. Of most relevance, OTAG recommended strategies to reduce NO x emissions from utilities as well as large and medium nonutility sources in a trading program.\nEPA accounted for the cost of NO x controls when establishing the NO x budgets. EPA identified cost-effective reductions in the electric utility and nonutility source sectors. These control strategies informed the establishment of the NO x emission budgets. EPA did not identify cost-effective controls in other sectors—namely, area sources (i.e., nonmobile sources that emit less than 100 tons of NO x per year), nonroad engines (i.e., mobile sources that do not operate on roads and highways, such as engines used to power snowmobiles, chainsaws, or lawnmowers), or highway vehicles. Under the NO x SIP Call, states could require their sources to comply with the emissions budget or participate in a regional cap-and-trade program. EPA developed a model rule for a regional emissions trading program—known as the NO x Budget Trading Program—to assist states interested in the trading option. All of the jurisdictions—20 states and the District of Columbia—adopted the NBP into their SIPs and participated in the NBP.\nIn 2008, NBP emissions were 9% below the 2008 cap, representing a 75% reduction compared to 1990 baseline levels. This also represented a 62% reduction below a 2000 baseline, which accounted for emission reductions that occurred under the 1990 CAA Amendments before implementation of the NBP.\nEPA observed that ozone season NO x emissions decreased each year between 2003 and 2008 and attributed these reductions in part to the installation of NO x controls. The agency noted that emissions vary year-to-year due to variables such as weather, electricity demand, and fuel costs. For example, EPA attributed the NO x reductions between 2007 and 2008 primarily to lower electricity demand. However, analysis of the entire NBP period—2003 to 2008—shows a reduction in ozone season NO x emissions despite a slight increase in demand for electricity. EPA reported that the average NO x emission rate for the 10 highest electricity demand days (i.e., hot days when use of air conditioning is high) decreased in each year of the NBP. This metric for peak electricity days was 44% lower in 2008 compared to 2003.\nEPA reported that ozone concentrations decreased by 10% between the years 2002 and 2007 across all states participating in the NBP. EPA also observed a \"strong association between areas with the greatest NO x emission reductions from NBP sources and downwind monitoring sites measuring the greatest improvements in ozone.\" Progress notwithstanding, some NBP areas remained in nonattainment status with the ozone NAAQS as the NBP program concluded by the end of 2008.", "In 2005, EPA determined that interstate transport of SO 2 and NO x contributed significantly to ozone and PM 2.5 nonattainment. Specifically, EPA found that (1) interstate transport of NO x from 25 states and the District of Columbia contributed significantly to nonattainment, or interfered with maintenance, of the 1997 eight-hour ozone NAAQS; and (2) interstate transport of SO 2 and NO x from 23 states and the District of Columbia contributed significantly to nonattainment, or interfered with maintenance, of the 1997 PM 2.5 NAAQS. To address these findings, EPA promulgated a rule that applied to 28 eastern states and the District of Columbia. This rulemaking is known as the Clean Air Interstate Rule (CAIR).\nA legal challenge, however, vacated and remanded CAIR to EPA. CAIR remained in effect while EPA responded to the court decision and developed a new regional program addressing air transport, known as CSAPR. CSAPR replaced CAIR on January 1, 2015, and remains in effect today. The remainder of this section discusses each program in turn.", "CAIR established a regional cap-and-trade program to reduce power sector SO 2 and NO x emissions. Specifically, CAIR established emission budgets for each of the 28 states as well as a model rule for a multi-state cap-and-trade program in the power sector. Under CAIR, states could achieve their emission budgets by requiring their sources to participate in the cap-and-trade program.\nCAIR set three emissions caps: Two were annual emissions caps to limit SO 2 and NO x as precursor emissions to PM 2.5 , and the third was an ozone season cap limiting NO x as a precursor emission to ozone. The annual NO x and seasonal NO x caps were implemented as the \"CAIR NO x annual\" and \"CAIR ozone season NO x \" programs, respectively, in 2009. The SO 2 emissions cap was implemented as the \"CAIR SO 2 annual\" program in 2010.\nThe scope of CAIR differed from prior NO x trading programs. Whereas the NBP had included both electric generators and nonutility industrial sources (e.g., boilers and turbines), CAIR focused only on electric generators. As previously noted, OTAG's recommendations for the NO x SIP Call included NO x controls for medium and large nonutility stationary sources as well as electric generating units. While nonutility sources emit both NO x and SO 2 , EPA did not require NO x and SO 2 reductions from these sources under CAIR. EPA concluded that it needed more reliable emissions data and better information about control costs to require reductions from nonutility sources in CAIR. Specifically, EPA stated that it lacked information about the costs to integrate NO x and SO 2 controls at nonutility sources and therefore could not determine whether such controls would qualify as \"highly cost-effective\" under CAIR.\nSome stakeholders disagreed with this conclusion, noting that EPA had cost information from the NO x SIP Call. EPA responded that the geographic scope of the NO x SIP Call differed somewhat from CAIR, and therefore it had limited emissions data about nonutility sources in CAIR states that were outside of the NOx SIP Call. In addition, EPA expected that projected NO x and SO 2 emissions from nonutility sources were \"significantly lower than projected\" emissions from electric generators. EPA concluded that states would be better positioned to \"make decisions regarding any additional control requirements for [non-utility] sources.\"\nCAIR was challenged in court. The U.S. Court of Appeals for the District of Columbia concluded that CAIR was flawed, finding among other things that the CAIR trading program did not assure some \"measurable\" emission reduction in each upwind state. The court reasoned that the \"[e]missions reduction by the upwind states collectively was not enough to satisfy Section 110(a)(2)(D).\" The court ultimately remanded CAIR to EPA in December 2008, allowing CAIR to remain in effect while EPA developed a replacement rule. The CAIR programs for NO x (annual and ozone season) began in 2009 and the CAIR SO 2 program began in 2010. The programs continued through the end of 2014.", "In 2011, EPA promulgated CSAPR to address the court's concerns regarding CAIR. CSAPR implementation began in 2015—replacing CAIR—and it remains in effect today. Similar to CAIR, CSAPR aims to reduce ozone and PM 2.5 interstate transport. As shown in Figure 2 , CSAPR requires 27 states to reduce SO 2 emissions, annual NO X emissions, and/or ozone season NO X emissions from the power sector. Specifically, CSAPR sets annual SO 2 , annual NO x , and ozone-season NO x budgets for the covered states and allows states to determine how they will achieve those budgets, including the option of emissions trading.\nCSAPR differs from CAIR in other ways, though, and introduced a new approach to measuring a significant contribution under Section 110(a)(2)(D). EPA had previously relied on a regional analysis of significant contributions (e.g., in CAIR and the NO x SIP Call). As previously noted, the D.C. Circuit found the regional approach flawed in a ruling on CAIR. As a result, EPA used state-specific information under CSAPR to determine significant contributions at the state level. After various legal challenges, the approach used in CSAPR remains in effect today. EPA has determined that it can use this framework to assess the Good Neighbor provision each time it revises the relevant NAAQS.", "EPA developed a multi-step framework to assess states' Good Neighbor obligations and determine each state's significant contribution in CSAPR. First, EPA conducted air quality modeling to project \"downwind air quality problems\"—that is, it identified downwind monitoring receptors expected to have difficulty attaining or maintaining the NAAQS. Next, EPA identified the links between upwind states and the downwind air quality monitoring sites with projected attainment or maintenance difficulties. EPA then identified which of these linked upwind states \"contribute at least one percent of the relevant NAAQS\" at the downwind sites. The agency next assessed the cost-effectiveness of emission control measures and air quality factors to determine whether states exceeding this threshold made significant contributions or interfered with maintenance of a NAAQS in a downwind state. That is, EPA determined that an upwind state contributes significantly to a nonattainment or interference with maintenance of a NAAQS if it produced more than 1% of NAAQS concentration in at least one downwind state and if this pollution could be mitigated using cost-effective measures.\nEPA modified the way it considered costs under CSAPR. Whereas EPA had previously based \"significant contribution\" on the emissions that \"could be removed using 'highly cost effective' controls,\" the agency accounted for both cost and air quality improvement to measure significant contributions under CSAPR. In CSAPR, EPA (1) quantified each state's emission reductions available at increasing costs per ton (\"cost thresholds\"), (2) evaluated the impact of upwind reductions on downwind air quality, and (3) identified the cost thresholds providing \"effective emission reductions and downwind air quality improvement.\"\nThe last step of the Good Neighbor assessment framework requires the adoption of \"permanent and enforceable measures needed to achieve\" the emission reductions. EPA implemented this step through its promulgation of FIPs, giving states the option to replace the FIP with a SIP. The FIPs specified the emission budgets for each state, reflecting the required SO 2 and NO x reductions from power plants in the state, and established the trading programs as each state's remedy to meet the emissions budgets.\nLegal challenges, which eventually reached the Supreme Court, delayed CSAPR implementation. The Court largely upheld EPA's approach, holding that EPA's consideration of cost in establishing states' emission budgets was a \"permissible construction of the statute.\"", "In response to the CAIR litigation, EPA designed \"air quality-assured interstate emission trading programs\" to implement CSAPR. The CSAPR trading programs allow for interstate trading but include provisions meant to ensure that all of the necessary reductions would occur in each individual state. Specifically, EPA stated that the CSAPR assurance provisions \"ensure that no state's emissions … exceed that specific state's budget plus the variability limit (i.e., the state's assurance level).\"\nEPA established four interstate trading programs for affected power plants under CSAPR: two for annual SO 2 , one for annual NO X , and one for ozone-season NO X . These trading programs aim to help downwind areas attain the 1997 and 2006 annual PM 2.5 NAAQS and the 1997 and 2008 ozone NAAQS. The first phase of CSAPR, which began in 2015, sought to address the 1997 and 2006 PM 2.5 NAAQS as well as the 1997 ozone NAAQS. The second phase of CSAPR, referred to as the CSAPR Update, began in 2017 and has sought to address the 2008 ozone NAAQS.\nThe total emissions budget for each CSAPR trading program equals the sum of the individual state budgets covered by that program. Affected power plants receive an allocation of allowances based on the emission budget for that trading program in the state. Each affected power plant must have an allowance to emit each ton of the relevant pollutant. It may comply with its allowance allocation by using control technologies to reduce emissions—and sell or bank any surplus allowances—or buy more allowances on the market.\nEPA's \"CSAPR Update\" rulemaking updated the ozone season NO x program with respect to the 2008 ozone NAAQS. Specifically, the CSAPR Update promulgated new FIPs for 22 states; 21 of these states were covered in the original CSAPR ozone season NO x trading program. The updated ozone season NO x trading began in 2017 and largely replaced the original CSAPR ozone season NO x trading program. EPA concluded based on its modeling analysis that emissions from 10 of the states covered in the original CSAPR ozone season NO x trading program \"no longer significantly contribute to downwind nonattainment or interference with maintenance\" of either the 1997 ozone NAAQS or the 2008 ozone NAAQS. Various states and stakeholders have filed a petition for review of the CSPAR Update to the D.C. Circuit.\nCSAPR does not address the Good Neighbor provision with respect to either the 2012 revision to the PM 2.5 NAAQS or the 2015 revision to the ozone NAAQS. As of July 2018, states and EPA are in the process of evaluating interstate ozone transport with respect to the 2015 ozone NAAQS (see discussion under \" Good Neighbor Determinations and the 2015 Ozone Standard \").\nRegarding the 2012 PM 2.5 standard, a 2016 EPA analysis determined that \"few areas in the United States\" would \"have problems attaining and maintaining the 2012 PM 2.5 NAAQS due to the relatively small number and limited geographic scope of projected nonattainment and maintenance receptors.\" EPA concluded that \"most states will be able to develop good neighbor SIPs that demonstrate that they do not contribute significantly to nonattainment or interfere with maintenance of the 2012 PM 2.5 NAAQS in any downwind state.\" Currently, nine areas are designated nonattainment with the 2012 PM 2.5 standard, four of which are located in two CSAPR states (Ohio and Pennsylvania). No areas are currently designated as maintenance with that standard.", "Power sector SO 2 and NO x emissions have declined since 2005. EPA has attributed most of these reductions to CAIR, which was in effect through the end of 2014. The agency noted that other programs, such as state NO x emission control programs, also contributed to the reductions in annual and ozone season NO x achieved by 2016. Figure 3 illustrates the trend of declining emissions, showing that annual SO 2 , annual NO x , and ozone season NO x decreased between 2009 (the first year of CAIR) and 2016 (the latest year for which the EPA Air Markets Program Data website reports emissions for all three programs).\nEPA attributed the SO 2 reductions under CAIR/CSAPR and the ARP largely to the greater use of pollution control technologies on coal-fired power plant units and \"increased generation at natural gas-fired units that emit very little SO 2 emissions.\" As noted by the U.S. Energy Information Administration (EIA), nearly all SO 2 emissions from the electricity sector are associated with coal-fired generation. EPA reported that the average SO 2 emissions rate for units subject to either the CSAPR or ARP decreased 81% compared to 2005 rates. Most of the reductions were from coal-fired units.\nAnalysis from EIA reveals a similar trend at the national level, suggesting that a combination of market and regulatory factors have contributed to SO 2 reductions. EIA reported a 73% reduction in national power sector SO 2 emissions from 2006 to 2015, which it described as \"much larger\" than the 32% reduction in coal-fired generation in that same period. EIA attributed the national SO 2 reductions to (1) changes in the electricity generation mix (e.g., less coal-fired generation and more natural-gas-fired generation), (2) the installation of pollution control technologies at coal- and oil-fired plants (in particular, to comply with the Mercury and Air Toxics rule), and (3) lower use of the most-polluting power plants (e.g., retirements of coal-fired units). Another EIA analysis reported that the eastern region of the United States—which includes all of the CSAPR states except Texas—had the largest share of capacity retirements between 2008 and 2017 compared to the rest of the continental United States.\nIn addition, emissions in 2016 were below the total emission budgets for each CSAPR trading program (see Figure 4 ). EPA observed that this resulted in CSAPR allowance prices at the end of 2016 that \"were well below the marginal cost for reductions projected at the time of the final rule [and that such prices] are subject, in part, to downward pressure from the available banks of allowances.\"\nEPA reported that preliminary data from the 2017 ozone season—the first CSAPR Update compliance period—show that ozone season NO x emissions were below the total emission budget.\nEmission allowance prices are generally affected by a number of factors, including supply and demand, program design elements that influence supply and demand, and legal and regulatory uncertainty. Analyses of ozone season NO x highlight summer weather as a key factor (e.g., higher than average temperatures could lead to greater demand for electricity). Power sector compliance strategies (e.g., use of installed control technologies, switching to lower emitting fuels, or retiring higher emitting units) are also relevant to ozone season allowance prices.\nRecent allowance prices in the CSAPR Update trading program appear to be lower than the marginal cost to reduce ozone season NO x emission. One brokerage firm reported that by May 2018—the start of the 2018 ozone season—NO x allowance prices ranged from $150 to $175 per ton, suggesting that the availability of allowance prices at such low prices \"could lead to some decisions not to run some pollution controls at maximum output. This would, in turn, lead to higher emissions.\"\nThe brokerage firm reported the marginal cost of ozone season NO x reductions to be about $300 per ton, though EPA considered higher marginal costs to develop the CSPAR Update emission budgets. Specifically, EPA considered several cost thresholds—ranging from $800 per ton to $6,400 per ton—and based the CSAPR Update emission budgets on reductions that could be achieved at $1,400 per ton. EPA concluded that a $1,400 per ton threshold would maximize the incremental benefits—the emission reductions and corresponding downwind air quality improvements—compared to other marginal cost thresholds. EPA identified NO x control strategies at this cost threshold to include optimizing use of existing operational Selective Catalytic Reduction (SCR) controls, turning on existing but idled controls—for example, SCR that had not been used for several seasons—and installing advanced combustion controls, such as low-NO x burners.\nEPA has reported improvements in air quality, attributing progress in part to the regional SO 2 and NO x transport programs. For example, 34 of the 36 areas in the eastern United States that were designated as nonattainment for the 1997 PM 2.5 NAAQS now show concentrations below that standard based on 2014-2016 data. In terms of ozone, all 92 of the eastern areas originally identified as nonattainment under the 1997 ozone standard now show concentrations below that standard based on 2014-2016 data. The 2014-2016 monitoring data also showed that 17 of the 22 areas in the eastern United States that were originally designated as nonattainment with the 2008 ozone standard now have concentrations below that standard.", "As previously noted, revisions to the NAAQS trigger the SIPs review process, through which EPA determines whether states have met their Good Neighbor obligations. EPA has not yet finalized its Good Neighbor determinations for either the 2008 revision or the 2015 revision to the ozone standards. The remainder of this section summarizes the status of EPA's Good Neighbor determinations under each standard.", "EPA first sought to address ozone transport with respect to the 2008 ozone standard in the 2016 CSAPR Update. Specifically, the CSAPR Update covered 22 states and promulgated FIPs with ozone season NO x budgets for power plants. EPA concluded at the time, however, that it could not determine whether the CSAPR Update fully addressed the Good Neighbor provision with respect to the 2008 ozone standard for 21 of the 22 covered states. In other words, the 2016 CSAPR Update \"did not fully satisfy the EPA's obligation to address the good neighbor provision requirements\" for those 21 states. EPA based its 2016 conclusion in part on the agency's projection of air quality problems at downwind monitors in 2017, even with implementation of the CSAPR Update. EPA found that 21 of the 22 CSAPR Update states would contribute \"equal to or greater than 1 percent of the 2008 ozone NAAQS\" to at least one nonattainment or maintenance monitor in 2017.\nSince then, EPA has updated its air quality modeling and, on June 29, 2018, proposed to determine that the CSAPR Update fully addresses 20 of the 21 remaining Good Neighbor obligations for the 2008 ozone standards. As such, the agency has \"proposed to determine that it has no outstanding, unfulfilled obligation under Clean Air Act Section 110(c)(1) to establish additional requirements for sources in these states to further reduce transported ozone pollution under\" the CAA's Good Neighbor provision with respect to the 2008 ozone NAAQS.\nEPA based its proposed determination on the updated air quality modeling, which projected air quality in 2023—a longer analytical time frame than it used in the CSAPR Update. The updated projections showed that in 2023, there would not be any nonattainment or maintenance monitors with respect to the 2008 ozone standard in the eastern United States.\nEPA's selection of a future analytic year is an important factor in the Good Neighbor determination. The agency based its selection of 2023 on two primary factors: (1) the downwind attainment deadlines and (2) the time frame required to implement emission reductions as \"expeditiously as possible.\" As of August 2018, the next attainment dates for the 2008 ozone standard are July 20, 2021 (for areas classified as \"Serious\" nonattainment) and July 20, 2027 (for areas classified as \"Severe\" nonattainment).\nThe potential to \"over-control\" emissions was another factor that EPA identified as relevant to the selection of the analytic year. EPA described it as relevant given the agency's expectation that future emissions will decline through implementation of existing local, state, and federal programs and in light of holdings from the U.S. Supreme Court. EPA stated that it considered both downwind states' obligation to attain the ozone standards \"as expeditiously as possible\" and EPA's \"obligation to avoid unnecessary over-control of upwind state emissions.\" EPA did not specify whether it expected separate agency actions that may affect ozone precursor emissions—such as changes in the mobile source program—to affect its projections for 2023.\nEPA acknowledged that the year it chose—2023—is later than the attainment date for areas classified as \"Serious\" nonattainment (2008 ozone standard) but concluded that \"it is unlikely that emissions control requirements could be promulgated and implemented by the Serious area attainment date.\"\nThe timing of EPA's proposed determination was driven in part by a court order. A federal district court in New York ordered EPA to propose determinations for five states by June 30, 2018, and finalize them by December 6, 2018. EPA is under additional court-ordered and statutory deadlines to fully address the Good Neighbor provision with respect to the 2008 ozone standard. For example, another federal district court in California ordered EPA to address the Good Neighbor provision for Kentucky by June 30, 2018. EPA is subject to statutory deadlines in 2018 and 2019 to address requirements for eight CSAPR Update states.", "Evaluation of interstate ozone transport with respect to the 2015 ozone NAAQS is underway. EPA has conducted air quality modeling to inform the development and review of the Good Neighbor SIPs and issued the results in a memorandum in March 2018. States have the option to use these modeling results—for example, projections of potential nonattainment and maintenance monitoring sites with respect to the 2015 ozone NAAQS in the year 2023—to develop their Good Neighbor SIPs. States are required to submit Good Neighbor SIPs with respect to the 2015 ozone standard to EPA by October 1, 2018. EPA will then evaluate the adequacy of the SIPs and determine whether additional steps are necessary to address ozone transport.\nEPA's March 2018 memorandum also identified \"potential flexibilities\" or \"concepts\" for developing the Good Neighbor SIPs, describing considerations for each step of the transport framework. One of these considerations centered on international ozone contributions. Specifically, EPA seeks feedback on the evaluation of international ozone contributions when determining whether a state significantly contributes to or interferes with maintenance of a NAAQS. This \"potential flexibility\" might involve developing a \"consensus on evaluation of the magnitude of international ozone contributions relative to domestic, anthropogenic ozone contributions\" to nonattainment or maintenance receptors and consider whether to weigh the \"air quality, cost, or emission reduction factors\" differently in areas with relatively high contributions from international sources. EPA also invited stakeholders to suggest additional concepts—\"including potential EPA actions that could serve as a model\"—for the way Good Neighbor obligations are translated to enforceable emissions limits.", "SO 2 and NO x emissions have declined in recent decades, with SO 2 , annual NO x , and ozone season NO x emissions well below the 2016 CSAPR budgets (see Figure 3 and Figure 4 ). EPA's analysis suggests that its regional SO 2 and NO x programs have reduced interstate transport of PM 2.5 and ozone in the eastern United States. EIA's national-scale analysis also points to a combination of broader market and regulatory factors contributing to emission reductions, in particular for SO 2 .\nGoing forward, it is not clear whether emissions will remain well below CSAPR budgets given recent low allowance prices for ozone season NO x and the supply of banked allowances that can be used in future years. In addition, EPA has not yet issued a determination about whether ozone transport contributes to air quality problems with respect to the 2015 ozone standard. The agency has, therefore, not yet determined whether and how it will update the CSAPR budgets with respect to the 2015 ozone standard.\nStakeholder views on interstate air pollution transport vary, generally reflecting disagreements about the level of emissions that should be reduced and which sources—and states—bear responsibility for doing so. Some stakeholders have expressed concern that interstate transport continues to harm air quality. For example, some stakeholders have expressed concern about transport of ozone and ozone precursor emissions to downwind states—and the health impacts associated with ozone exposure—and stated that some coal-fired power plants do not make full use of \"already-installed pollution controls\" to reduce ozone precursor emissions. As discussed earlier in this report, EPA has recently denied a 126(b) petition and proposed to deny others from states seeking additional upwind reductions in ozone precursors, in part because the agency disagreed with each state's technical analysis (see \" Section 126(b) Petitions \"). Among the stakeholders disagreeing with the agency's rejection of Connecticut's 126(b) petition was a regional organization that raised concern that EPA has not used existing CAA tools to \"adequately address interstate ozone transport in a timely manner.\" On the other hand, emissions are below CSAPR budgets, and other stakeholders have questioned the feasibility of additional reductions in ozone precursors. These stakeholders have raised concerns about the extent to which international or natural sources contribute to ambient ozone concentrations. The following issues may inform deliberations about interstate air transport, particularly as EPA continues its assessment of Good Neighbor obligations with respect to the 2015 ozone standard.", "Major sources of NO x emissions include power plants, industrial facilities, and mobile sources such as cars and trucks. EPA reported that NO x emissions are expected to decline in the future through a \"combination of the implementation of existing local, state, and federal emissions reduction programs and changing market conditions for [power] generation technologies and fuels.\" EIA's projections, however, suggest that while coal-fired power generation declines in the reference scenario, power sector NO x emissions remain relatively flat between 2017 and 2050, showing a total decline of 0.2%. EPA noted that nonpower-sector sources may be \"well-positioned to cost-effectively reduce NO x \" emissions compared to the power sector, but the agency also concluded that it has less certainty about nonpower-sector NO x control strategies.\nThe extent to which the current collection of federal and state programs—such as CSAPR and EPA mobile source programs that set tailpipe emission standards—improve air quality in areas not meeting the 2015 ozone standard is to be determined. In 2015, EPA projected that existing rules (e.g., those addressing automobile emission and fuel economy standards and rules affecting power plants) would reduce ozone precursor emissions, regardless of whether EPA revised the ozone NAAQS. EPA has subsequently proposed changes to some of these existing rules—specifically, greenhouse gas emission (GHG) standards for passenger cars and light trucks and existing coal-fired power plants. In particular, the proposal for passenger cars and light trucks would freeze fuel economy and GHG standards at model year 2020 levels through model year 2026. The current GHG standards would decrease between model years 2020 and 2025 and were projected to decrease carbon dioxide as well as ozone precursor emissions. In terms of power plants, EPA concluded that its Affordable Clean Energy proposal to replace the Clean Power Plan would increase carbon dioxide, SO 2 , and NO x emissions from the power sector relative to a scenario with implementation of the Clean Power Plan. While the agency has not yet finalized these changes, they may have implications for levels of ozone precursor emissions. That is, regulatory changes affecting emissions in one sector—such as automobiles—may affect ozone NAAQS implementation as states seek to ensure the necessary emission reductions are achieved across all sources—mobile and stationary—in the state.", "A recent market report concluded that current NO x allowance prices—which are lower than the marginal cost of NO x reductions—may ultimately lead to higher emissions. While EPA has set state-specific emission budgets for CSAPR states intended to address interstate ozone transport with respect to the 2008 ozone standard, it is not clear whether these budgets will be sufficient to address Good Neighbor obligations under the more stringent 2015 ozone standard.\nIn light of this trend in NO x allowance prices, some have questioned whether additional regulatory incentives may be necessary for states to fulfill Good Neighbor obligations. Some states have urged EPA to implement additional regulatory requirements through 126(b) petitions. For example, Delaware's 126(b) submission to EPA concluded that \"[a]dditional regulatory incentive is required to ensure that the existing [Electric Generating Unit] NO x controls are consistently operated in accordance with good pollution control practices.\"", "Current Trump Administration air quality initiatives may indirectly affect consideration of states' Good Neighbor obligations. The Administration has established a \"NAAQS Reform\" initiative that, among other things, seeks to streamline the NAAQS review process and obtain Clean Air Scientific Advisory Committee advice regarding background pollution and potential adverse effects from NAAQS compliance strategies. EPA has also created an Ozone Cooperative Compliance Task Force in response to some stakeholders' concerns about international and long-range ozone transport as well as monitoring and modeling issues. Limited information is available about the Ozone Cooperative Compliance Task Force and what actions it may undertake.\nIn March 2018, EPA reiterated its interest in these particular ozone issues when it published air quality projections meant to inform Good Neighbor evaluations with respect to the 2015 ozone standard. Specifically, EPA's memorandum sought comment on \"potential flexibilities\" for developing the Good Neighbor SIPs, describing considerations for each step of the transport framework, including assessment of international ozone transport." ], "depth": [ 0, 1, 1, 1, 2, 2, 2, 1, 2, 2, 3, 3, 2, 3, 3, 4, 4, 3, 1, 2, 2, 1, 2, 2, 2 ], "alignment": [ "h0_title h2_title h4_title h3_title h1_title", "h0_full h3_full h1_full", "", "h0_title h3_title", "", "h0_full h3_full", "", "h1_title", "", "h1_title", "", "h1_full", "", "", "", "", "", "", "", "", "", "h3_full h2_full h4_full", "h4_full", "h4_full", "h4_full" ] }

{ "question": [ "What is the goal of the Clean Air Act's \"Good Neighbor\" provision?", "How does it achieve this goal?", "What is the relationship between the \"Good Neighbor\" provision and the EPA?", "What issues do the regional programs implemented by the EPA and the states address?", "How do they address these problems?", "What does the Cross State Air Pollution Rule (CSAPR) focus on?", "What has the EPA concluded about regional SO2 and NOx programs?", "What is the goal of the Energy Information Administration's national-scale analysis?", "What is the emission forecast?", "How does ozone transport affect air quality?", "To what extent does interstate transport affect air quality?", "How have states attempted to address this problem?", "What other concerns have been raised?", "What will inform interstate air transport?", "What issues have gone unaddressed thus far?", "What did the EPA conclude about industrial sources in relation to NOx emissions?", "What is the current status of regulatory incentives?", "What other factor will influence these assessments?", "How is EPA addressing this issue?" ], "summary": [ "The Clean Air Act's \"Good Neighbor\" provision (Section 110(a)(2)(D)) seeks to address this issue and requires states to prohibit emissions that significantly contribute to another state's air quality problems.", "It requires each state's implementation plan (SIP)—a collection of air quality regulations and documents—to prohibit emissions that either \"significantly contribute\" to nonattainment or \"interfere with maintenance\" of federal air quality standards in another state.", "The act also authorizes states to petition EPA to issue a finding that emissions from \"any major source or group of stationary sources\" violate the Good Neighbor provision (Section 126(b)).", "EPA and the states have implemented regional programs to address interstate ozone and PM2.5 transport and comply with the Good Neighbor provision.", "These programs set emission \"budgets\" for ozone and PM2.5 precursor emissions—specifically, sulfur dioxide (SO2) and nitrogen oxide (NOx) as PM2.5 precursors and seasonal NOx emissions as an ozone precursor.", "The current program—the Cross State Air Pollution Rule (CSAPR)—focuses on limiting interstate transport of power sector SO2 and NOx emissions to eastern states.", "EPA has concluded that regional SO2 and NOx programs have reduced interstate transport of PM2.5 and ozone.", "The Energy Information Administration's national-scale analysis identifies market and regulatory factors contributing to emission reductions.", "It is unclear whether emissions will remain well below budgets, given recent prices of ozone season NOx allowances (i.e., authorization for each ton emitted) and the supply of banked allowances for future use in lieu of emission reductions.", "Research indicates that ozone transport harms air quality in downwind states.", "However, stakeholder views vary regarding the extent to which interstate transport impacts air quality. Some note that some coal-fired power plants do not fully use already-installed pollution controls.", "Several states have sought additional upwind reductions in ozone precursors through Section 126(b) petitions.", "Others have questioned the feasibility of achieving additional reductions in ozone precursors, raising concerns about emissions from international or natural sources.", "The following issues, among others, may inform deliberations about interstate air transport. First, the extent to which existing programs will improve air quality in areas not meeting the 2015 ozone standard is to be determined.", "CSAPR has not addressed NOx emissions from nonpower sector sources, such as large industrial boilers.", "EPA concluded that industrial sources have potential to cost-effectively reduce NOx emissions but is less certain about the structure of potential NOx control strategies.", "Second, some have questioned whether additional regulatory incentives are necessary to fulfill Good Neighbor obligations, particularly given current NOx allowance prices. These prices are below the marginal abatement cost, which may result in higher emissions.", "Third, EPA's current air quality initiatives may indirectly affect its Good Neighbor assessments.", "EPA recently sought comment on potential flexibilities for the development of Good Neighbor SIPs." ], "parent_pair_index": [ -1, 0, 0, -1, 0, -1, -1, -1, 1, -1, 0, 1, 1, -1, 0, 1, 0, 0, 4 ], "summary_paragraph_index": [ 1, 1, 1, 2, 2, 2, 4, 4, 4, 5, 5, 5, 5, 8, 8, 8, 8, 8, 8 ] }

{ "title": [ "", "Threat Assessment", "The International Terrorism Threat", "The Threat to Afghanistan's Stability", "Afghan Militant Groups in the Border Area", "Attacks on U.S./NATO Supply Lines", "The Threat to Pakistan and Islamabad's Responses", "Internal Military Operations", "Tribal Militias", "Complicating Factors in Achieving U.S. Goals", "Pakistan's Strategic Vision", "Xenophobia and Anti-American Sentiment", "Weak Government Writ in the FATA", "U.S. Policy", "Increasing U.S.-Pakistan Cooperation and Coordination", "Increased Direct U.S. Military Action", "Aerial Drone Attacks", "Military Capacity Building in Pakistan", "Security-Related Equipment", "Security-Related Training", "Coalition Support Funds", "U.S. Development Assistance for Western Pakistan", "FATA Development Plan", "Reconstruction Opportunity Zones" ], "paragraphs": [ "Islamist extremism and militancy has been a menace to Pakistani society throughout the post-2001 period, becoming especially prevalent in 2007 and 2008. The numerous militant groups operating in Pakistan, many of which have in the past displayed mutual animosity, may be increasing their levels of coordination and planning. Moreover, a new generation of militants is comprised of battle-hardened jihadis with fewer allegiances to religious and tribal leaders and customs. Deputy Secretary of State Negroponte warned in late 2008 that, \"The United States and our allies face near-term challenges from Pakistan's reluctance and inability to roll back terrorist sanctuaries in the tribal region.\" One Western press report called Pakistan's Federally Administered Tribal Areas (FATA) \"the most ungoverned, combustible region in the world,\" and an unrelenting surge in Islamist-related violence in Pakistan has some observers fearing a total collapse of the Pakistani state. This untenable state of affairs is compounded by Pakistan's deteriorating economic conditions.\nIn 2008, the influence of Islamist militants appears to have grown unchecked in large parts of Pakistan beyond the FATA, bringing insecurity even to the North West Frontier Province (NWFP) capital of Peshawar, which reportedly is in danger of being overrun by pro-Taliban militants. In late 2008, militants in the region have attempted to assassinate the U.S. Consul General in Peshawar and undertook the targeted killing of an American aid worker there. Other so-called \"settled areas\" of Pakistan beyond the tribal regions have come under attack from pro-Taliban militants. Indeed, the \"Talibanization\" of western Pakistan appears to be ongoing and may now threaten the territorial integrity of the Pakistani state.", "The instability in western Pakistan has broad implications for international terrorism, for Pakistani stability, and for U.S. efforts to stabilize Afghanistan. From the State Department's Country Reports on Terrorism 2007 (released April 2008):\nThe United States remained concerned that the Federally Administered Tribal Areas (FATA) of Pakistan were being used as a safe haven for Al Qaeda terrorists, Afghan insurgents, and other extremists.... Extremists led by Baitullah Mehsud and other Al Qaeda-related extremists re-exerted their hold in areas of South Waziristan.... Extremists have also gained footholds in the settled areas bordering the FATA.\nThe report noted that the trend and sophistication of suicide bombings grew in Pakistan during 2007, when there was more than twice as many such attacks (at least 45) as in the previous five years combined. Rates of such bombings have only increased in 2008. CIA Director Hayden said in March 2008 that the situation on the Pakistan-Afghanistan border \"presents a clear and present danger to Afghanistan, to Pakistan, and to the West in general, and to the United States in particular.\" He agreed with other top U.S. officials who believe that possible future terrorist attacks on the U.S. homeland likely would originate from that region.", "The State Department report on international terrorism for 2007 said that Al Qaeda remained the greatest terrorist threat to the United States and its partners in 2007. The two most notable Al Qaeda leaders at large, and believed in Pakistan, are Osama bin Laden and his close ally, Ayman al-Zawahri. They have apparently been there since December 2001, when U.S. Special Operations Forces and CIA officers reportedly narrowed Osama bin Laden's location to the Tora Bora mountains in Afghanistan's Nangarhar Province (30 miles west of the Khyber Pass), but the Afghan militia fighters who were the bulk of the fighting force did not prevent his escape. Associated with Al Qaeda leaders in this region are affiliated groups and their leaders, such as the Islamic Movement of Uzbekistan (IMU) and its leader, Tahir Yuldashev. Chechen Islamist radicals are also reportedly part of the Al Qaeda militant contingent, and U.S. commanders say some have been captured in 2008 on the Afghanistan battlefield.\nA purported U.S.-led strike reportedly missed Zawahri by a few hours in the village of Damadola, Pakistan, in January 2006, suggesting that the United States and Pakistan have some intelligence on his movements. A strike in late January 2008, in an area near Damadola, killed Abu Laith al-Libi, a reported senior Al Qaeda figure who purportedly masterminded, among other operations, the bombing at Bagram Air Base in February 2007 when Vice President Cheney was visiting. In August 2008, an airstrike was confirmed to have killed Al Qaeda chemical weapons expert Abu Khabab al-Masri.\nPrior to 2007, the United States had praised the government of then-President Pervez Musharraf for Pakistani accomplishments against Al Qaeda, including the arrest of over 700 Al Qaeda figures, some of them senior, since the September 11 attacks. After the attacks, Pakistan provided the United States with access to Pakistani airspace, some ports, and some airfields for Operation Enduring Freedom. Others say Musharraf acted against Al Qaeda only when it threatened him directly; for example, after the December 2003 assassination attempts against him by that organization. The U.S. shifted toward a more critical position following a New York Times report (February 19, 2007) that Al Qaeda had re-established some small Al Qaeda terrorist training camps in Pakistan, near the Afghan border.", "According to the Pentagon, the existence of militant sanctuaries inside Pakistan's FATA represents \"the greatest challenge to long-term security within Afghanistan.\" The commander of U.S. and NATO forces in Afghanistan, General David McKiernan, and his aides, assert that Pakistan's western tribal regions provide the main pool for recruiting insurgents who fight in Afghanistan, and that infiltration from Afghanistan has caused a 30% increase in number of militant attacks in eastern Afghanistan over the past year. Another senior U.S. military officer estimated that militant infiltration from Pakistan now accounts for about one-third of the attacks on coalition troops in Afghanistan. Most analysts appear to agree that, so long as Taliban forces enjoy \"sanctuary\" in Pakistan, their Afghan insurgency will persist. U.S. leaders—both civilian and military—now call for a more comprehensive strategy for fighting the war in Afghanistan, one that will encompass Pakistan's tribal regions. The Chairman of the U.S. Joint Chiefs of Staff, Adm. Mike Mullen, sees the two countries as \"inextricably linked in a common insurgency\" and has directed that maps of the Afghan \"battle space\" include the tribal areas of western Pakistan.", "The following major Afghan militant organizations apparently have a measure of safehaven in Pakistan:\nThe original Taliban leadership of Mullah Mohammad Omar. His purported associates include Mullah Bradar and several official spokespersons, including Qari Yusuf Ahmadi and Zabiullah Mujahid. This group—referred to as the \"Qandahari clique\" or \"Quetta Shura\"—operates not from Pakistan's tribal areas, but from populated areas in and around the Baluchistan provincial capital of Quetta. Its fighters are most active in the southern provinces of Afghanistan, including Qandahar, Helmand, and Uruzgan. Many analysts believe that Pakistan's intelligence services know the whereabouts of these Afghan Taliban leaders but do not arrest them as part of a hedge strategy in the region. Another major insurgent faction is the faction of Hizb-e-Islami (Islamic Party) led by former mujahedin leader Gulbuddin Hikmatyar. His fighters operate in Kunar and Nuristan provinces, northeast of Kabul. His group was a major recipient of U.S. funds during the U.S.-supported mujahedin war against the Soviet occupation of Afghanistan, and in that capacity Hikmatyar was received by President Reagan in 1985. On February 19, 2003, the U.S. government formally designated Hikmatyar as a \"Specially Designated Global Terrorist,\" under the authority of Executive Order 13224, subjecting it to financial and other U.S. sanctions. (It is not formally designated as a \"Foreign Terrorist Organization.\") On July 19, 2007, Hikmatyar expressed a willingness to discuss a cease-fire with the Karzai government, although no firm reconciliation talks were held. In 2008, he has again discussed possible reconciliation, only later to issue statements suggesting he will continue his fight. Another major militant faction is led by Jalaludin Haqqani and his eldest son, Sirajuddin Haqqani. The elder Haqqani served as Minister of Tribal Affairs in the Taliban regime of 1996-2001, is believed closer to Al Qaeda than to the ousted Taliban leadership in part because one of his wives is purportedly Arab. The group is active around Khost Province. Haqqani property inside Pakistan has been repeatedly targeted in September and October 2008 by U.S. strikes.\nFor their part, Pakistani officials more openly contend that the cause of the security deterioration has its roots in the inability of the Kabul government to effectively extend its writ, in its corruption, and in the lack of sufficient Afghan and Western military forces to defeat the Taliban insurgents. This view is supported by some independent analyses. Pakistani leaders insist that Afghan stability is a vital Pakistani interest. They ask interested partners to enhance their own efforts to control the border region by undertaking an expansion of military deployments and checkposts on the Afghan side of the border, by engaging more robust intelligence sharing, and by continuing to supply the counterinsurgency equipment requested by Pakistan. Islamabad touts the expected effectiveness of sophisticated technologies such as biometric scanners in reducing illicit cross-border movements, but analysts are pessimistic that such measures can prevent all militant infiltration.", "Militants in Pakistan increasingly seek to undermine the U.S.-led mission in Afghanistan by choking off supply lines. Roughly three-quarters of supplies for U.S. troops in Afghanistan move either through or over Pakistan. Taliban efforts to interdict NATO supplies as they cross through Pakistan to Afghanistan have included a March 2008 attack that left 25 fuel trucks destroyed and a November 2008 raid when at least a dozen trucks carrying Humvees and other supplies were hijacked at the Khyber Pass. Despite an upsurge in reported interdiction incidents, U.S. officials say only about 1% of the cargo moving from the Karachi port into Afghanistan is being lost. After a U.S. special forces raid in the FATA in early September 2008, Pakistani officials apparently closed the crucial Torkham highway in response. The land route was opened less than one day later, but the episode illuminated how important Pakistan's cooperation is to sustaining multilateral military efforts to the west.\nPentagon officials have studied alternative routes in case further instability in Pakistan disrupts supply lines. The Russian government agreed to allow non-lethal NATO supplies to Afghanistan to cross Russian territory, but declines to allow passage of troops as sought by NATO. Uzbekistan also has expressed a willingness to accommodate the flow of U.S. supplies, although in exchange for improved U.S. relations, which took a downturn following the April 2005 Uzbek crackdown on demonstrators in its city of Andijon. A Pentagon official has said the U.S. military was increasing its tests of alternative supply routes.", "The Tehrik-i-Taliban Pakistan (TTP)—widely identified as the leading anti-government militant group in Pakistan—emerged as a coherent grouping in late 2007 under Baitullah Mehsud's leadership. This \"Pakistani Taliban\" is said to have representatives from each of Pakistan's seven tribal agencies, as well as from many of the \"settled\" districts abutting the FATA. There appears to be no reliable evidence that the TTP receives funding from external states. The group's principal aims are threefold:\nuniting disparate pro-Taliban groups active in the FATA and NWFP; assisting the Afghan Taliban in its conflict across the international frontier; and establishing a Taliban-style state in Pakistan and perhaps beyond.\nAs an umbrella group, the TTP is home to tribes and sub-tribes, some with long-held mutual antagonism. It thus suffers from factionalism. Mehsud himself is believed to command some 5,000 militants. His North Waziristan-based deputy is Hafiz Gul Bahadur; Bajaur's Maulana Faqir Muhammad is said to be third in command. The Islamabad government formally banned the TTP in August 2008 due to its alleged involvement in a series of domestic suicide attacks. The move allowed for the freezing of all TTP bank accounts and other assets and for the interdiction of printed and visual propaganda materials.\nThe NWFP governor has claimed Mehsud oversees an annual budget of up to $45 million devoted to perpetuating regional militancy. Most of this amount is thought to be raised through narcotics trafficking, although pro-Taliban militants also sustain themselves by demanding fees and taxes from profitable regional businesses such as marble quarries. The apparent impunity with which Mehsud is able to act has caused serious alarm in Washington, where officials worry that his power and influence are only growing.\nIn addition to the TTP, several other Islamist militant groups are active in the region. These include the Tehreek-e-Nafaz-e-Shariat-e-Mohammadi (TNSM) of radical cleric Maulana Fazlullah and up to 5,000 of his armed followers who seek to impose Sharia law in Bajaur, as well as in neighboring NWFP districts; a South Waziristan militia led by Mehsud rival Maulvi Nazir, which reportedly has won Pakistan government support in combating Uzbek militants; and a Khyber agency militia led by Mangal Bagh, which battled government forces in mid-2008.", "To combat the militants, the Pakistan army has deployed upwards of 100,000 regular and paramilitary troops in western Pakistan in response to the surge in militancy there. Their militant foes appear to be employing heavy weapons in more aggressive tactics, making frontal attacks on army outposts instead of the hit-and-run skirmishes of the past. The army also has suffered from a raft of suicide bomb attacks and the kidnaping of hundreds of its soldiers. Such setbacks damaged the army's morale and caused some to question the organization's loyalties and capabilities. Months-long battles with militants have concentrated on three fronts: the Swat valley, and the Bajaur and South Waziristan tribal agencies (see Figure 1 ). Taliban forces may also have opened a new front in the Upper Dir valley of the NWFP, where one report says a new militant \"headquarters\" has been established. Pakistan has sent major regular army units to replace Frontier Corps soldiers in some areas near the Afghan border and has deployed elite, U.S.-trained and equipped Special Services Group commandos to the tribal areas.\nHeavy fighting between government security forces and religious militants flared in the FATA in 2008. Shortly after Bhutto's December 2007 assassination the Pakistan army undertook a major operation against militants in the South Waziristan agency assumed loyal to Baitullah Mehsud. Sometimes fierce combat continued in that area throughout the year. According to one report, nearly half of the estimated 450,000 residents of the Mehsud territories were driven from their homes by the fighting and live in makeshift camps.\nPakistani ground troops have undertaken operations against militants in the Bajaur agency beginning in early August. The ongoing battle has been called especially important as a critical test of both the Pakistani military's capabilities and intentions with regard to combating militancy, and it has been welcomed by Defense Secretary Gates as a reflection of the new Islamabad government's willingness to fight. Some 8,000 Pakistani troops are being backed by helicopter gunships and ground attack jets. The Frontier Corps' top officer has estimated that militant forces in Bajaur number about 2,000, including foreigners. Battles include a series of engagements at the strategic Kohat tunnel, a key link in the U.S. military supply chain running from Karachi to Afghanistan. The fighting apparently has attracted militants from neighboring regions and these reinforced insurgents have been able to put up surprisingly strong resistance—complete with sophisticated tactics, weapons, and communications systems—and reportedly make use of an elaborate network of tunnels in which they stockpile weapons and ammunition. Still, Pakistani military officials report having killed more than 1,500 militants in the Bajaur fighting to date. The army general leading the campaign believes that more than half of the militancy being seen in Pakistan would end if his troops are able to win the battle of Bajaur. Subsequent terrorist attacks in other parts of western Pakistan have been tentatively linked to the Bajaur fighting.\nThe Pakistani military effort in Bajaur has included airstrikes on residential areas occupied by suspected militants who may be using civilians as human shields. The use of fixed-wing aircraft continues and reportedly has killed some women and children along with scores of militants. The strife is causing a serious humanitarian crisis. In August, the U.S. government provided emergency assistance to displaced families. The United Nations estimates that hundreds of thousands of civilians have fled from Bajaur, with about 20,000 of these moving into Afghanistan. International human rights groups have called for international assistance to both Pakistani and Afghan civilians adversely affected by the fighting.\nQuestions remain about the loyalty and commitment of the Pakistani military. Pakistan's mixed record on battling Islamist extremism includes an ongoing apparent tolerance of Taliban elements operating from its territory. Reports continue to indicate that elements of Pakistan's major intelligence agency and military forces aid the Taliban and other extremists forces as a matter of policy. Such support may even include providing training and fire support for Taliban offensives. Other reports indicate that U.S. military personnel are unable to count on the Pakistani military for battlefield support and do not trust Pakistan's Frontier Corps, whom some say are active facilitators of militant infiltration into Afghanistan. At least one senior U.S. Senator, Armed Services Committee Chairman Carl Levin, has questioned the wisdom of providing U.S. aid to a group that is ineffective, at best, and may even be providing support to \"terrorists.\"", "Autumn 2008 saw an increase in the number of lashkars —tribal militias—being formed in the FATA. These private armies may represent a growing popular resistance to Islamist militancy in the region, not unlike that seen in Iraq's \"Sunni Awakening.\" A potential effort to bolster the capabilities of tribal leaders near the Afghan border would target that region's Al Qaeda elements and be similar to U.S. efforts in Iraq's Anbar province. Employing this strategy in Pakistan presents new difficulties, however, including the fact that the Pakistani Taliban is not alien to the tribal regions but is comprised of the tribals' ethnolinguistic brethren. Still, with pro-government tribals being killed by Islamist extremists almost daily in western Pakistan, tribal leaders may be increasingly alienated by the violence and so more receptive to cooperation with the Pakistan military.\nThe Pakistan army reportedly backs these militias and the NWFP governor expresses hope that they will turn the tide against Taliban insurgents. Islamabad reportedly plans to provide small arms to these anti-Taliban tribal militias, which are said to number some 14,000 men in Bajaur and another 11,000 more in neighboring Orakzai and Dir. No U.S. government funds are to be involved. Some reporting indicates that, to date, the lashkars have proven ineffective against better-armed and more motivated Taliban fighters. Intimidation tactics and the targeted killings of pro-government tribal leaders continue to take a toll, and Islamabad's military and political support for the tribal efforts is said to be \"episodic\" and \"unsustained.\" Some analysts worry that, by employing lashkars to meet its goals in the FATA, the Islamabad government risks sparking an all-out war in the region.", "", "Three full-scale wars and a constant state of military preparedness on both sides of their mutual border have marked six decades of bitter rivalry between Pakistan and India. The acrimonious partition of British India into two successor states in 1947 and the unresolved issue of Kashmiri sovereignty have been major sources of tension. Both countries have built large defense establishments at significant cost to economic and social development. The conflict dynamics have colored the perspectives of Islamabad's strategic planners throughout Pakistani existence.\nPakistani leaders have long sought access to Central Asia and \"strategic depth\" with regard to India through friendly relations with neighboring Afghanistan to the west. Such policy contributed to President-General Zia ul-Haq's support for Afghan mujahideen \"freedom fighters\" who were battling Soviet invaders during the 1980s and to Islamabad's later support for the Afghan Taliban regime from 1996 to 2001. British colonialists had purposely divided the ethnic Pashtun tribes inhabiting the mountainous northwestern reaches of their South Asian empire with the 1893 \"Durand Line.\" This porous, 1,600-mile border is not accepted by Afghan leaders, who have at times fanned Pashtun nationalism to the dismay of Pakistanis.\nPakistan is wary of signs that India is pursuing a policy of \"strategic encirclement,\" taking note of New Delhi's past support for Tajik and Uzbek militias which comprised the Afghan Northern Alliance, and the post-2001 opening of several Indian consulates in Afghanistan. More fundamental, perhaps, even than regime type in Islamabad is the Pakistani geopolitical perspective focused on India as the primary threat and on Afghanistan as an arena of security competition between Islamabad and New Delhi. In the conception of one long-time analyst, \"Pakistan's grand strategy, with an emphasis on balancing against Afghanistan and India, will continue to limit cooperation in the war on terrorism, regardless of whether elected civilian leaders retain power or the military intervenes again.\"", "The tribes of western Pakistan and eastern Afghanistan are notoriously adverse to interference from foreign elements, be they British colonialists and Soviet invaders of the past, or Westerners and even non-Pashtun Pakistanis today (a large percentage of Pakistan's military forces are ethnic Punjabis with little or no linguistic or cultural familiarity with their Pashtun countrymen). Anti-American sentiments are widespread throughout Pakistan and a significant segment of the populace has viewed years of U.S. support for President Musharraf and the Pakistani military as an impediment to, rather than facilitator of, the process of democratization and development there. Underlying the anti-American sentiment is a pervasive, but perhaps malleable perception that the United States is fighting a war against Islam. Opinion surveys in Pakistan have found strong support for an Islamabad government emphasis on negotiated resolutions to the militancy problem. They also show scant support for unilateral U.S. military action on Pakistani territory.\nPakistan's Islamist political parties are notable for expressions of anti-American sentiment, at times calling for \"jihad\" against the existential threat to Pakistani sovereignty they believe alliance with Washington entails. Some observers identify a causal link between the poor state of Pakistan's public education system and the persistence of xenophobia and religious extremism in that country. Anti-American sentiment is not limited to Islamic groups, however. Many across the spectrum of Pakistani society express anger at U.S. global foreign policy, in particular when such policy is perceived to be unfriendly or hostile to the Muslim world (as in, for example, Palestine and Iraq).", "Pakistan's rugged, mountainous FATA region includes seven ethnic Pashtun tribal agencies traditionally beyond the full writ of the Pakistani state. The FATA is home to some 3.5 million people living in an area slightly larger than the state of Maryland. The inhabitants are legendarily formidable fighters and were never subjugated by British colonialists. The British established a khassadar (tribal police) system which provided the indigenous tribes with a large degree of autonomy under maliks —local tribal leaders. This system provided the model through which the new state of Pakistan has administered the region since 1947. Today, the Pashtun governor of Pakistan's North West Frontier Province, Owais Ahmed Ghani, is the FATA's top executive, reporting directly to President Zardari. He and his \"political agents\" in each of the agencies ostensibly have full political authority, but this has been eroded in recent years as both military and Islamist influence has grown. Ghani, who took office in January 2008, gained a reputation for taking a hardline toward militancy during his tenure as Baluchistan governor from 2003 to 2008.\nUnder the Pakistani Constitution, the FATA is included among the \"territories\" of Pakistan and is represented in the National Assembly and the Senate, but remains under the direct executive authority of the President. The FATA continues to be administered under the 1901 Frontier Crimes Regulation (FCR) laws, which give sweeping powers to political agents and provides for collective punishment system that has come under fire from human rights groups. Civil and criminal FCR judgments are made by jirgas (tribal councils). Laws passed by Pakistan's National Assembly do not apply to the FATA unless so ordered by the President. According to the FATA Secretariat, \"Interference in local matters is kept to a minimum.\" Adult franchise was introduced in the FATA only in 1996, and political parties and civil society organizations are still restricted from operating there. Efforts are underway to rescind or reform the FCR, and the civilian government seated in Islamabad in 2008 has vowed to work to bring the FATA under the more effective writ of the state. The U.S. government supports Islamabad's \"Frontier Strategy\" of better integrating the FATA into the mainstream of Pakistan's political and economic system. Many analysts insist that only through this course can the FATA's militancy problem be resolved.", "U.S. policy in the FATA seeks to combine better coordinated U.S. and Pakistani military efforts to neutralize militant threats in the short term with economic development initiatives meant to reduce extremism in Pakistan over the longer-term. Congressional analysts have identified serious shortcomings in the Bush Administration's FATA policy: In April 2008, the Government Accountability Office issued a report in response to congressional requests for an assessment of progress in meeting U.S. national security goals related to counterterrorism efforts in Pakistan's FATA. Their investigation found that, \"The United States has not met its national security goals to destroy terrorist threats and close safe haven in Pakistan's FATA,\" and, \"No comprehensive plan for meeting U.S. national security goals in the FATA has been developed.\" House Foreign Affairs Committee Chairman Representative Howard Berman called the conclusions \"appalling.\"", "In late 2008, U.S. officials have indicated that they are seeing greater Pakistani cooperation. In February 2008, Pakistan stopped attending meetings of the Tripartite Commission under which NATO, Afghan, and Pakistani forces meet regularly on both sides of the border. However, according to General McKiernan on November 18, 2008, the meetings resumed in June 2008 and three have been held since then, with another planned in December 2008. Gen. McKiernan, Pakistan's Chief of Staff Ashfaq Pervez Kayani, and Afghan Chief of Staff Bismillah Khan represent their respective forces in that commission. In April 2008, in an extension of the commission's work, the three forces agreed to set up five \"border coordination centers\"—which will include networks of radar nodes to give liaison officers a common view of the border area. These centers build on an agreement in May 2007 to share intelligence on extremists' movements. Only one has been established to date, at the Torkham border crossing. According to U.S. Army chief of staff Gen. George Casey in November 2008, cooperation is continuing to improve with meetings between U.S. and Pakistani commanders once a week. Also, U.S. commanders have praised October 2008 Pakistani military moves against militant enclaves in the tribal areas, and U.S. and Pakistani forces are jointly waging the \"Operation Lionheart\" offensive against militants on both sides of the border, north of the Khyber Pass.\nIn addition, Afghanistan-Pakistan relations are improving since Musharraf's August 2008 resignation. Karzai attended the September inauguration of President Asif Ali Zardari, widower of slain former Prime Minister Benazir Bhutto. The \"peace jirga\" process—a series of meetings of notables on each side of the border, which was agreed at a September 2006 dinner hosted by President Bush for Karzai and Musharraf—has resumed. The first jirga, in which 700 Pakistani and Afghan tribal elders participated, was held in Kabul in August 2007. Another was held in the improving climate of Afghanistan-Pakistan relations during October 2008; the Afghan side was headed by former Foreign Minister Dr. Abdullah. It resulted in a declaration to endorse efforts to try to engage militants in both Afghanistan and Pakistan to bring them into the political process and abandon violence.", "Although U.S.-Pakistan military cooperation is improving in late 2008, U.S. officials are increasingly employing new tactics to combat militant concentrations in Pakistan without directly violating Pakistan's limitations on the U.S. ability to operate \"on the ground\" in Pakistan. Pakistani political leaders across the spectrum publicly oppose any presence of U.S. combat forces in Pakistan, and a reported Defense Department plan to send small numbers of U.S. troops into the border areas was said to be \"on hold\" because of potential backlash from Pakistan. This purported U.S. plan was said to be a focus of discussions between Joint Chiefs Chairman Mullen and Kayani aboard the aircraft carrier U.S.S. Lincoln on August 26, 2008, although the results of the discussions are not publicly known. On September 3, 2008, one week after the meeting, as a possible indication that at least some aspects of the U.S. plan were going forward, U.S. helicopter-borne forces reportedly crossed the border to raid a suspected militant encampment, drawing criticism from Pakistan. However, there still does not appear to be U.S. consideration of longer term \"boots on the ground\" in Pakistan. U.S. forces in Afghanistan now acknowledge that they shell purported Taliban positions on the Pakistani side of the border, and do some \"hot pursuit\" a few kilometers over the border into Pakistan.", "Since well before the September 3 incursion, U.S. military forces have been directing increased U.S. firepower against militants in Pakistan. Missile strikes in Pakistan launched by armed, unmanned American Predator aircraft have been a controversial, but sometimes effective tactic against Islamist militants in remote regions of western Pakistan. Pakistani press reports suggest that such drones \"violate Pakistani airspace\" on a daily basis. By some accounts, U.S. officials reached a quiet January understanding with President Musharraf to allow for increased employment of U.S. aerial surveillance and Predator strikes on Pakistani territory. Musharraf's successor, President Asif Zardari, may even have struck a secret accord with U.S. officials involving better bilateral coordination for Predator attacks and a jointly approved target list. Neither Washington nor Islamabad offers official confirmation of Predator strikes on Pakistani territory; there are conflicting reports on the question of the Pakistani government's alleged tacit permission for such operations. Three Predators are said to be deployed at a secret Pakistani airbase and can be launched without specific permission from the Islamabad government (Pakistan officially denies the existence of any such bases). Pentagon officials eager to increase the use of armed drones in Pakistan reportedly meet resistance from State Department diplomats who fear that Pakistani resentments built up in response to sovereignty violations and to the deaths of civilians are harmful to U.S. interests, outweighing potential gains.\nA flurry of suspected Predator drone attacks on Pakistani territory in the latter months of 2008 suggests a shift in tactics in the effort to neutralize Al Qaeda and other Islamist militants in the border region. As of later November, at least 20 suspected Predator attacks had been made on Pakistani territory since July, compared with only three reported during all of 2007. Such strikes have killed more than 100 people, including numerous suspected foreign and indigenous fighters, but also women and children. The new Commander of the U.S. Central Command, Gen. David Petraeus, claims that such attacks in western Pakistan are \"extremely important\" and have killed three top extremist leaders in that region.\nOfficially, Pakistan's Foreign Ministry calls Predator attacks \"destabilizing\" developments that are \"helping the terrorists.\" Strident Pakistani government reaction has included summoning the U.S. Ambassador to lodge strong protest, and condemnation of missile attacks that Islamabad believes \"undermine public support for the government's counterterrorism efforts\" and should be \"stopped immediately.\" During his first visit to Pakistan as Centcom chief in early November, Gen. Petraeus reportedly was met with a single overriding message from Pakistani interlocutors: cross-border U.S. military strikes in the FATA are counterproductive. Pakistan's defense minister warned Gen. Petraeus that the strikes were creating \"bad blood\" and contribute to anti-American outrage among ordinary Pakistanis. In November 2008, Pakistan's Army Chief, Gen. Ashfaq Pervez Kayani, called for a full halt to Predator strikes, and President Zardari has called on President-elect Obama to re-assess the Bush Administration policy of employing aerial attacks on Pakistani territory.", "Some reports indicate that U.S. military assistance to Pakistan has failed to effectively bolster the paramilitary forces battling Islamist militants in western Pakistan. Such forces are said to be underfunded, poorly trained, and \"overwhelmingly outgunned.\" However, a July 2008 Pentagon-funded assessment found that Section 1206 \"Global Train and Equip\" funding—which supplements security assistance programs overseen by the State Department—is important for providing urgently needed military assistance to Pakistan, and that the counterinsurgency capabilities of Pakistani special operations forces are measurably improved by the training and equipment that come through such funding.", "Major government-to-government arms sales and grants to Pakistan since 2001 have included items useful for counterterrorism operations, along with a number of \"big ticket\" platforms more suited to conventional warfare. The United States has provided Pakistan with nearly $1.6 billion in Foreign Military Financing (FMF) since 2001, with a \"base program\" of $300 million per year beginning in FY2005. These funds are used to purchase U.S. military equipment. Defense supplies to Pakistan relevant to counterinsurgency missions have included more than 5,600 military radio sets; six C-130E transport aircraft; 20 AH-1F Cobra attack helicopters; 26 Bell 412 transport helicopters; night-vision equipment; and protective vests. The Defense Department also has characterized transferred F-16 combat aircraft, P-3C maritime patrol aircraft, and TOW anti-armor missiles as having significant anti-terrorism applications. In fact, the State Department claims that, since 2005, FMF funds have been \"solely for counterterrorism efforts, broadly defined.\" Such claims elicit skepticism from some observers. Other security-related U.S. assistance programs for Pakistan are said to be aimed especially at bolstering Islamabad's police and border security efforts, and have included U.S.-funded road-building projects in the NWFP and FATA.", "The Bush Administration has launched an initiative to strengthen the capacity of Pakistan's Frontier Corps (FC), an 80,000-man paramilitary force overseen by the Pakistani Interior Ministry. The FC has primary responsibility for border security in the NWFP and Baluchistan provinces. Some $400 million in U.S. aid is slated to go toward training and equipping FC troops by mid-2010, as well as to increase the involvement of the U.S. Special Operations Command in assisting with Pakistani counterterrorism efforts. Some two dozen U.S. trainers began work in October 2008. Fewer than 100 Americans reportedly have been engaged in training Pakistan's elite Special Service Group commandos with a goal of doubling that force's size to 5,000. The United States also has undertaken to train and equip new Pakistan Army Air Assault units that can move quickly to find and target terrorist elements. Some in Congress have expressed doubts about the loyalties of locally-recruited, Pashtun FC troops, some of whom may retain pro-Taliban sympathies.", "Congress has appropriated billions of dollars to reimburse Pakistan and other nations for their operational and logistical support of U.S.-led counterterrorism operations. These \"coalition support funds\" (CSF) account for the bulk of U.S. financial transfers to Pakistan since 2001. More than $9 billion has been appropriated or authorized for FY2002-FY2009 Pentagon spending for CSF for \"key cooperating nations.\" Pentagon documents show that disbursements to Islamabad—at some $6.7 billion or an average of $79 million per month since 2001—account for roughly 80% of these funds. The amount is equal to about one-quarter of Pakistan's total military expenditures. According to Secretary of Defense Gates, CSF payments have been used to support scores of Pakistani army operations and help to keep some 100,000 Pakistani troops in the field in northwest Pakistan by paying for food, clothing, and housing. They also compensate Islamabad for ongoing coalition usage of Pakistani airfields and seaports.\nConcerns have grown in Congress and among independent analysts that standard accounting procedures were not employed in overseeing these large disbursements from the U.S. Treasury. The State Department claims that Pakistan's requests for CSF reimbursements are carefully vetted by several executive branch agencies, must be approved by the Secretary of Defense, and ultimately can be withheld through specific congressional action. However, a large proportion of CSF funds may have been lost to waste and mismanagement, given a dearth of adequate controls and oversight. Senior Pentagon officials reportedly have taken steps to overhaul the process through which reimbursements and other military aid is provided to Pakistan. The National Defense Authorization Act for FY2008 ( P.L. 110-181 ) for the first time required the Secretary of Defense to submit to Congress itemized descriptions of coalition support reimbursements to Pakistan.\nThe Government Accountability Office (GAO) was tasked to address oversight of coalition support funds that go to Pakistan. A report issued in June 2008 found that, until about one year before, only a small fraction of Pakistani requests were disallowed or deferred. In March 2007, the value of rejected requests spiked considerably, although it still represented one-quarter or less of the total. The apparent increased scrutiny corresponds with the arrival in Islamabad of a new U.S. Defense Representative, an army officer who reportedly has played a greater role in the oversight process. GAO concluded that increased oversight and accountability was needed over Pakistan's reimbursement claims for coalition support funds.", "Since the 2001 renewal of large overt U.S. assistance packages and reimbursements for militarized counterterrorism efforts, a total of about $12 billion in U.S. funds went to Pakistan from FY2002-FY2008. The majority of this was delivered in the form of coalition support reimbursements; another $3.1 billion was for economic purposes and nearly $2.2 billion for security-related programs. According to the State Department, U.S. assistance to Pakistan is meant primarily to maintain that country's ongoing support for U.S.-led counterterrorism efforts.", "Pakistan's tribal areas are remote, isolated, poor, and very traditional in cultural practices. The social and economic privation of the inhabitants is seen to make the region a particularly attractive breeding ground for violent extremists. The U.S.-assisted development initiative for the FATA, launched in 2003, seeks to improve the quality of education, develop healthcare services, and increase opportunities for economic growth and micro-enterprise specifically in Pakistan's western tribal regions. A senior USAID official estimated that, for FY2001-FY2007, about 6% of U.S. economic aid to Pakistan has been allocated for projects in the FATA. The Bush Administration urges Congress to continue funding a proposed five-year, $750 million aid plan for the FATA initiated in FY2007. The plan will support Islamabad's own ten-year, $2 billion Sustainable Development effort there. Skepticism has arisen about the potential for the new policy of significantly boosted funding to be effective. Corruption is endemic in the tribal region and security circumstances are so poor that Western nongovernmental contractors find it extremely difficult to operate there. Moreover, as much as half of the allocated funds likely will be devoted to administrative costs. Islamabad is insisting that implementation is carried out wholly by Pakistani civil and military authorities and that U.S. aid, while welcomed, must come with no strings attached.", "The related establishment of Reconstruction Opportunity Zones (ROZs) that could facilitate further development in the FATA (and neighboring Afghanistan), an initiative of President Bush during his March 2006 visit to Pakistan, ran into political obstacles in Congress and is yet to be finalized. The ROZ program would provide duty-free access into the U.S. market for certain goods produced in approved areas and potentially create significant employment opportunities. While observers are widely approving of the ROZ plan in principle, many question whether there currently are any products with meaningful export value produced in the FATA. One senior analyst suggests that the need for capital and infrastructure improvements outweighs the need for tariff reductions. A Pakistani commentator has argued that an extremely poor law and order situation in the region will preclude any meaningful investment or industrialization in the foreseeable future. In March 2008, more than two years after the initiative was announced, S. 2776 , which would provide duty-free treatment for certain goods from designated ROZs in Afghanistan and Pakistan, was introduced in the Senate. A related bill, H.R. 6387 , was referred to House subcommittee four months later. Neither bill has emerged from committee to date." ], "depth": [ 0, 1, 2, 2, 3, 3, 2, 3, 3, 1, 2, 2, 2, 1, 2, 3, 3, 2, 3, 3, 3, 2, 3, 3 ], "alignment": [ "h0_title h2_title h1_title", "h0_full h2_title h1_title", "h0_full", "h2_full h1_full", "", "h1_full", "h0_full h1_full", "h0_full", "h0_full", "h0_title", "h0_full", "", "", "h0_title h2_title", "h0_title h2_full", "h0_full", "h0_full", "", "", "", "", "", "", "" ] }

{ "question": [ "What events changed the relationship between the US and Pakistan?", "What is the current status of this partnership?", "What is the nature of Pakistan's counterterrorism efforts?", "How has the status of militant groups in the region changed in recent years?", "How does the new regime plan to combat this problem?", "What specific operations has it undertaken of late?", "How is militant activity in Pakistan affecting U.S. efforts in the region?", "How are U.S. policymakers attempting to address this problem?", "What is a key priority of U.S. commanders in the Middle East?", "How will this be achieved?", "What role does coordination play in this effort?" ], "summary": [ "A U.S.-Pakistan relationship marked by periods of both cooperation and discord was transformed by the September 2001 terrorist attacks on the United States and the ensuing enlistment of Pakistan as a key ally in U.S.-led counterterrorism efforts.", "Top U.S. officials have praised Pakistan for its ongoing cooperation, although long-held doubts exist about Islamabad's commitment to some core U.S. interests.", "Since 2003, Pakistan's army has conducted unprecedented and largely ineffectual counterterrorism operations in the country's Federally Administered Tribal Areas (FATA) bordering Afghanistan, where Al Qaeda operatives and pro-Taliban insurgents are said to enjoy \"safe haven.\"", "Militant groups have only grown stronger and more aggressive in 2008.", "Islamabad's new civilian-led government vows to combat militancy in the FATA through a combination of military force, negotiation with \"reconcilable\" elements, and economic development.", "The Pakistani military has in late 2008 undertaken major operations aimed at neutralizing armed extremism in the Bajaur agency, and the government is equipping local tribal militias in several FATA agencies with the hope that these can supplement efforts to bring the region under more effective state writ.", "The upsurge of militant activity on the Pakistan side of the border is harming the U.S.-led stabilization mission in Afghanistan, by all accounts. U.S. commanders in Afghanistan attribute much of the deterioration in security conditions in the south and east over the past year to increased militant infiltration from Pakistan.", "U.S. policymakers are putting in place a series of steps to try to address the deficiencies of the Afghan government and other causes of support for Afghan Taliban militants, but they are also undertaking substantial new security measures to stop the infiltration.", "A key, according to U.S. commanders, is to reduce militant infiltration into Afghanistan from Pakistan.", "To do so, U.S. General David McKiernan, the overall commander in Afghanistan, is \"redefining\" the Afghan battlefield to include the Pakistan border regions, and U.S. forces are becoming somewhat more aggressive in trying to disrupt, from the Afghan side of the border, militant operational preparations and encampments on the Pakistani side of the border.", "At the same time, Gen. McKiernan and other U.S. commanders are trying to rebuild a stalled Afghanistan-Pakistan-U.S./NATO military coordination process, building intelligence and information sharing centers, and attempting to build greater trust among the senior ranks of the Pakistani military." ], "parent_pair_index": [ -1, 0, 0, 2, 3, 4, -1, 0, -1, 0, 0 ], "summary_paragraph_index": [ 1, 1, 1, 1, 1, 1, 2, 2, 3, 3, 3 ] }

{ "title": [ "", "Overview and Objectives", "Blocked Iranian Property and Assets", "Post-JCPOA Status: Iranian Assets Still Frozen, but Some Issues Resolved", "U.S.-Iran Claims Tribunal", "Other Iranian Assets Frozen", "Use of Iranian Assets to Compensate U.S. Victims of Iranian Terrorism", "Executive Order 13599 Impounding Iran-Owned Assets", "Post-JCPOA Status: Still in Effect", "Sanctions for Iran's Support for Armed Factions and Terrorist Groups", "Sanctions Triggered by Terrorism List Designation", "Exception for U.S. Humanitarian Aid", "Sanctions on States \"Not Cooperating\" Against Terrorism", "Executive Order 13224 Sanctioning Terrorism-Supporting Entities", "Use of the Order to Target Iranian Arms Exports", "Application of CAATSA to the Revolutionary Guard", "Implementation", "Foreign Terrorist Organization Designations", "Other Sanctions on Iran's \"Malign\" Regional Activities", "Executive Order 13438 on Threats to Iraq's Stability", "Executive Order 13572 on Repression of the Syrian People.", "The Hizballah International Financing Prevention Act (P.L. 114-102) and Hizballah International Financing Prevention Amendments Act of 2018 (S. 1595, P.L. 115-272).", "Ban on U.S. Trade and Investment with Iran", "Status: Trade ban eased for JCPOA, but back in full effect on August 6, 2018", "JCPOA-Related Easing and Reversal", "What U.S.-Iran Trade Is Allowed or Prohibited?", "Application to Foreign Subsidiaries of U.S. Firms", "Sanctions on Iran's Energy Sector", "Status: Energy sanctions waived for JCPOA, back in effect November 5, 2018", "The Iran Sanctions Act (and Triggers added by other Laws)", "Key Sanctions \"Triggers\" Under ISA", "Trigger 1 (Original Trigger): \"Investment\" To Develop Iran's Oil and Gas Fields", "Trigger 2: Sales of WMD and Related Technologies, Advanced Conventional Weaponry, and Participation in Uranium Mining Ventures", "Trigger 3: Sales of Gasoline to Iran", "Trigger 4: Provision of Equipment or Services for Oil, Gas, and Petrochemicals Production", "Trigger 5: Transporting Iranian Crude Oil", "Iran Threat Reduction and Syria Human Rights Act (ITRSHRA): ISA Sanctions for insuring Iranian oil entities, purchasing Iranian bonds, or engaging in transactions with the IRGC", "Executive Order 13622: Sanctions on the Purchase of Iranian Crude Oil and Petrochemical Products, and Dealings in Iranian Bank Notes", "Mandate and Time Frame to Investigate ISA Violations", "Oversight", "Interpretations of ISA and Related Laws", "Application to Energy Pipelines", "Application to Crude Oil Purchases", "Application to Purchases from Iran of Natural Gas", "Exception for Shah Deniz and other Gas Export Projects", "Application to Iranian Liquefied Natural Gas Development", "Application to Private Financing but Not Official Credit Guarantee Agencies", "Implementation of Energy-Related Iran Sanctions", "Iran Oil Export Reduction Sanctions: Section 1245 of the FY2012 NDAA Sanctioning Transactions with Iran's Central Bank", "Status: Back into effect November 5, 2018, and exceptions ended", "Implementation/SREs Issued and Ended", "Reactivation on November 5, 2018, and Exceptions Granted then Ended", "Iran Foreign Bank Account \"Restriction\" Provision", "Status: Back in Effect on November 5, 2018", "Sanctions on Auto Production and Minerals Sectors", "Executive Order 13645: Application of ISA and Other Sanctions to Iran's Automotive Sector, Rial Trading, and Precious Stones", "Executive Order 13871 on Iran's Minerals and Metals Sectors", "Sanctions on Weapons of Mass Destruction, Missiles, and Conventional Arms Transfers", "Status: No sanctions in this section eased to implement JCPOA", "Iran-Iraq Arms Nonproliferation Act and Iraq Sanctions Act", "Implementation", "Banning Aid to Countries that Aid or Arm Terrorism List States: Anti-Terrorism and Effective Death Penalty Act of 1996", "Proliferation-Related Provision of the Iran Sanctions Act", "Iran-North Korea-Syria Nonproliferation Act", "Implementation", "Executive Order 13382 on Proliferation-Supporting Entities", "Status: Order Remained in Force, but Numerous Entities \"Delisted\"", "Arms Transfer and Missile Sanctions: The Countering America's Adversaries through Sanctions Act (CAATSA, P.L. 115-44)", "Foreign Aid Restrictions for Named Suppliers of Iran", "Sanctions on \"Countries of Diversion Concern\"", "Financial/Banking Sanctions", "Targeted Financial Measures", "Status: Initiative Suspended during JCPOA Implementation", "Ban on Iranian Access to the U.S. Financial System/Use of Dollars", "Status: Remains in Force", "Recent Developments", "Punishments/Fines Implemented against Some Banks.", "CISADA: Sanctioning Foreign Banks That Conduct Transactions with Sanctioned Iranian Entities", "Status: Remained in force after JCPOA, but Iranian banks \"delisted.\" Delisted banks will be \"relisted\" as of November 5, 2018.", "Implementation of Section 104: Sanctions Imposed", "Iran Designated a Money-Laundering Jurisdiction/FATF", "Status: Central Bank Remained Designated Under this Section during JCPOA", "Use of the SWIFT System", "Cross-Cutting Secondary Sanctions: The Iran Freedom and Counter-Proliferation Act (IFCA)", "Status: Waived to implement JCPOA; will go back into effect as specified.", "Implementation", "Executive Order 13608 on Sanctions Evasion", "Sanctions on Iran's Cyber and Transnational Criminal Activities", "Status: All in Force during JCPOA Period", "Executive Order 13694 (April 1, 2015)", "Executive Order 13581 (July 25, 2011)", "Implementation", "Divestment/State-Level Sanctions", "Sanctions and Sanctions Exemptions to Support Democratic Change/Civil Society in Iran", "Post-JCPOA Status: Virtually All Sanctions in This Section Remain in Effect. No Entities \"Delisted.\"39", "Expanding Internet and Communications Freedoms", "Countering Censorship of the Internet: CISADA, E.O. 13606, and E.O. 13628", "Laws and Actions to Promote Internet Communications by Iranians", "Measures to Sanction Human Rights Abuses and Promote the Opposition", "U.N. Sanctions", "Resolution 2231 and U.N. Sanctions Eased", "Iran Compliance Status", "U.N. List of Sanctioned Entities", "Sanctions Application under Nuclear Agreements", "Sanctions Eased by the JPA", "Sanctions Easing under the JCPOA and U.S. Reimposition", "U.S. Laws Waived and Executive Orders Terminated, and Reimposition52", "Exceptions and Waivers Provided by the Trump Administration", "U.S. Sanctions that Remained in Place during JCPOA and Since", "Other Mechanisms to \"Snap-Back\" Sanctions on Iran", "International Implementation and Compliance59", "European Union (EU)", "U.S. JCPOA Exit-Driven Divestment", "European Counterefforts/Special Purpose Vehicle/INSTEX", "EU Antiterrorism and Anti-proliferation Actions", "SWIFT Electronic Payments System", "China and Russia", "Russia", "China", "Japan/Korean Peninsula/Other East Asia", "North Korea", "Taiwan", "South Asia", "India", "Pakistan", "Turkey/South Caucasus", "Turkey", "Caucasus and Caspian Sea", "Persian Gulf States and Iraq82", "Iraq", "Syria and Lebanon", "Africa and Latin America", "World Bank and WTO", "WTO Accession", "Effectiveness of Sanctions on Iranian Behavior", "Effect on Iran's Nuclear Program and Strategic Capabilities", "Effects on Iran's Regional Influence", "Political Effects", "Economic Effects", "Iran's Economic Coping Strategies", "Effect on Energy Sector Development", "Human Rights-Related Effects", "Humanitarian Effects", "Air Safety", "Post-JCPOA Sanctions Legislation", "Key Legislation in the 114th Congress", "Iran Nuclear Agreement Review Act (P.L. 114-17)", "Visa Restriction", "Iran Sanctions Act Extension", "Reporting Requirement on Iran Missile Launches", "114th Congress Legislation Not Enacted", "The Trump Administration and Major Iran Sanctions Legislation", "The Countering America's Adversaries through Sanctions Act of 2017 (CAATSA, P.L. 115-44)", "Legislation in the 115th Congress Not Enacted", "116th Congress", "Other Possible U.S. and International Sanctions123" ], "paragraphs": [ "", "Sanctions have been a significant component of U.S. Iran policy since Iran's 1979 Islamic Revolution that toppled the Shah of Iran, a U.S. ally. In the 1980s and 1990s, U.S. sanctions were intended to try to compel Iran to cease supporting acts of terrorism and to limit Iran's strategic power in the Middle East more generally. After the mid-2000s, U.S. and international sanctions focused largely on ensuring that Iran's nuclear program is for purely civilian uses. During 2010-2015, the international community cooperated closely with a U.S.-led and U.N.-authorized sanctions regime in pursuit of the goal of persuading Iran to agree to limits to its nuclear program. Still, sanctions against Iran have multiple objectives and address multiple perceived threats from Iran simultaneously.\nThis report analyzes U.S. and international sanctions against Iran. CRS has no way to independently corroborate whether any individual or other entity might be in violation of U.S. or international sanctions against Iran. The report tracks \"implementation\" of the various U.S. laws and executive orders as designations and imposition of sanctions. Some sanctions require the blocking of U.S.-based property of sanctioned entities. CRS has not obtained information from the executive branch indicating that such property has been blocked, and it is possible that sanctioned entities do not have any U.S. assets that could be blocked.\nThe sections below are grouped by function, in the chronological order in which these themes have emerged.", "", "U.S. sanctions on Iran were first imposed during the U.S.-Iran hostage crisis of 1979-1981, in the form of executive orders issued by President Jimmy Carter blocking nearly all Iranian assets held in the United States. These included E.O. 12170 of November 14, 1979, blocking all Iranian government property in the United States, and E.O 12205 (April 7, 1980) and E.O. 12211 (April 17, 1980) banning virtually all U.S. trade with Iran. The latter two Orders were issued just prior to the failed April 24-25, 1980, U.S. effort to rescue the U.S. Embassy hostages held by Iran. President Jimmy Carter also broke diplomatic relations with Iran on April 7, 1980. The trade-related Orders (12205 and 12211) were revoked by Executive Order 12282 of January 19, 1981, following the \"Algiers Accords\" that resolved the U.S.-Iran hostage crisis. Iranian assets still frozen are analyzed below.", "The Accords established a \"U.S.-Iran Claims Tribunal\" at the Hague that continues to arbitrate cases resulting from the 1980 break in relations and freezing of some of Iran's assets. All of the 4,700 private U.S. claims against Iran were resolved in the first 20 years of the Tribunal, resulting in $2.5 billion in awards to U.S. nationals and firms.\nThe major government-to-government cases involved Iranian claims for compensation for hundreds of foreign military sales (FMS) cases that were halted in concert with the rift in U.S.-Iran relations when the Shah's government fell in 1979. In 1991, the George H. W. Bush Administration paid $278 million from the Treasury Department Judgment Fund to settle FMS cases involving weapons Iran had received but which were in the United States undergoing repair and impounded when the Shah fell.\nOn January 17, 2016, (the day after the JCPOA took effect), the United States announced it had settled with Iran for FMS cases involving weaponry the Shah was paying for but that was not completed and delivered to Iran when the Shah fell. The Shah's government had deposited its payments into a DOD-managed \"Iran FMS Trust Fund,\" and, after 1990, the Fund had a balance of about $400 million. In 1990, $200 million was paid from the Fund to Iran to settle some FMS cases. Under the 2016 settlement, the United States sent Iran the $400 million balance in the Fund, plus $1.3 billion in accrued interest, paid from the Department of the Treasury's \"Judgment Fund.\" In order not to violate U.S. regulations barring direct U.S. dollar transfers to Iranian banks, the funds were remitted to Iran in late January and early February 2016 in foreign hard currency from the central banks of the Netherlands and of Switzerland. Some remaining claims involving the FMS program with Iran remain under arbitration at the Tribunal.", "Iranian assets in the United States are blocked under several provisions, including Executive Order 13599 of February 2010. The United States did not unblock any of these assets as a consequence of the JCPOA.\nAbout $1.9 billion in blocked Iranian assets are bonds belonging to Iran's Central Bank, frozen in a Citibank account in New York belonging to Clearstream, a Luxembourg-based securities firm, in 2008. The funds were blocked on the grounds that Clearstream had improperly allowed those funds to access the U.S. financial system. Another $1.67 billion in principal and interest payments on that account were moved to Luxembourg and are not blocked. About $50 million of Iran's assets frozen in the United States consists of Iranian diplomatic property and accounts, including the former Iranian embassy in Washington, DC, and 10 other properties in several states, and related accounts. Among other frozen Iranian assets are real estate holdings of the Assa Company, a UK-chartered entity, which allegedly was maintaining the interests of Iran's Bank Melli in a 36-story office building in New York City and several other properties around the United States (in Texas, California, Virginia, Maryland, and other parts of New York City). An Iranian foundation, the Alavi Foundation, allegedly is an investor in the properties. The U.S. Attorney for the Southern District of New York blocked these properties in 2009. The Department of the Treasury report avoids valuing real estate holdings, but public sources assess these blocked real estate assets at nearly $1 billion. In June 2017, litigation won the U.S. government control over the New York City office building.", "There are a total of about $46 billion in court awards that have been made to victims of Iranian terrorism. These include the families of the 241 U.S. soldiers killed in the October 23, 1983, bombing of the U.S. Marine barracks in Beirut. U.S. funds equivalent to the $400 million balance in the DOD account (see above) have been used to pay a small portion of these judgments. The Algiers Accords apparently precluded compensation for the 52 U.S. diplomats held hostage by Iran from November 1979 until January 1981. The FY2016 Consolidated Appropriation (Section 404 of P.L. 114-113 ) set up a mechanism for paying damages to the U.S. embassy hostages and other victims of state-sponsored terrorism using settlement payments paid by various banks for concealing Iran-related transactions, and proceeds from other Iranian frozen assets.\nIn April 2016, the U.S. Supreme Court determined the Central Bank assets, discussed above, could be used to pay the terrorism judgments, and the proceeds from the sale of the frozen real estate assets mentioned above will likely be distributed to victims of Iranian terrorism as well. On the other hand, in March 2018, the U.S. Supreme Court ruled that U.S. victims of an Iran-sponsored terrorist attack could not seize a collection of Persian antiquities on loan to a University of Chicago museum to satisfy a court judgment against Iran.\nOther past financial disputes include the mistaken U.S. shoot-down on July 3, 1988, of an Iranian Airbus passenger jet (Iran Air flight 655), for which the United States paid Iran $61.8 million in compensation ($300,000 per wage-earning victim, $150,000 per non-wage earner) for the 248 Iranians killed. The United States did not compensate Iran for the airplane itself, although officials involved in the negotiations told CRS in November 2012 that the United States later arranged to provide a substitute used aircraft to Iran.\nFor more detail on how Iranian and other assets are used to compensate victims of Iranian terrorism, see CRS Report RL31258, Suits Against Terrorist States by Victims of Terrorism , by Jennifer K. Elsea and CRS Legal Sidebar LSB10104, It Belongs in a Museum: Sovereign Immunity Shields Iranian Antiquities Even When It Does Not Protect Iran , by Stephen P. Mulligan.", "", "Executive Order 13599, issued February 5, 2012, directs the blocking of U.S.-based assets of entities determined to be \"owned or controlled by the Iranian government.\" The order was issued to implement Section 1245 of the FY2012 National Defense Authorization Act ( P.L. 112-81 ) that imposed secondary U.S. sanctions on Iran's Central Bank. The Order requires that any U.S.-based assets of the Central Bank of Iran, or of any Iranian government-controlled entity, be blocked by U.S. banks. The order goes beyond the regulations issued pursuant to the 1995 imposition of the U.S. trade ban with Iran, in which U.S. banks are required to refuse such transactions but to return funds to Iran. Even before the issuance of the Order, and in order to implement the ban on U.S. trade with Iran (see below) successive Administrations had designated many entities as \"owned or controlled by the Government of Iran.\"\nNumerous designations have been made under Executive Order 13599, including the June 4, 2013, naming of 38 entities (mostly oil, petrochemical, and investment companies) that are components of an Iranian entity called the \"Execution of Imam Khomeini's Order\" (EIKO). EIKO was characterized by the Department of the Treasury as an Iranian leadership entity that controls \"massive off-the-books investments.\"\nImplementation of the U.S. JCPOA Withdrawa l. To implement the JCPOA, many 13599-designated entities specified in the JCPOA (Attachment 3) were \"delisted\" from U.S. secondary sanctions (no longer considered \"Specially Designated Nationals,\" SDNs), and referred to as \"designees blocked solely pursuant to E.O 13599.\" That characterization permitted foreign entities to conduct transactions with the listed entities without U.S. sanctions penalty but continued to bar U.S. persons (or foreign entities owned or controlled by a U.S. person) from conducting transactions with these entities. Treasury Department announced on May 8, 2018, in concert with the U.S. withdrawal from the JCPOA, that almost all of the 13599-designated entities that were delisted as SDNs will be relisted as SDNs on November 5, 2018. That day, the Treasury Department updated the list of SDNs to reflect the redesignations.\nCivilian Nuclear Entity Exception . One notable exception to the relisting policy implemented in 2018 is the Atomic Energy Organization of Iran (AEOI). The entity, along with 23 of its subsidiaries, were redesignated under E.O. 13599 but not as entities subject to secondary sanctions under E.O. 13382. This U.S. listing decision was made in order to facilitate continued IAEA and EU and other country engagement with Iran's civilian nuclear program under the JCPOA. The May 2019 ending of some waivers for nuclear technical assistance to Iran modifies this stance somewhat (see subhead on waivers and exceptions under the JCPOA, below).", "Most of the hostage crisis-related sanctions were lifted upon resolution of the crisis in 1981. The United States began imposing sanctions against Iran again in the mid-1980s for its support for regional groups committing acts of terrorism. The Secretary of State designated Iran a \"state sponsor of terrorism\" on January 23, 1984, following the October 23, 1983, bombing of the U.S. Marine barracks in Lebanon by elements that established Lebanese Hezbollah. This designation triggers substantial sanctions on any nation so designated.\nNone of the laws or Executive Orders in this section were waived or revoked to implement the JCPOA. No entities discussed in this section were \"delisted\" from sanctions under t he JCPOA.", "The U.S. naming of Iran as a \"state sponsor of terrorism\"—commonly referred to as Iran's inclusion on the U.S. \"terrorism list\"—triggers several sanctions. The designation is made under the authority of Section 6(j) of the Export Administration Act of 1979 ( P.L. 96-72 , as amended), sanctioning countries determined to have provided repeated support for acts of international terrorism. The sanctions triggered by Iran's state sponsor of terrorism designation are as follows:\nRestrictions on sales of U.S. dual use items . The restriction—a presumption of denial of any license applications to sell dual use items to Iran—is required by the Export Administration Act, as continued by executive orders under the authority of the International Emergency Economic Powers Act, IEEPA. The restrictions are enforced through Export Administration Regulations (EARs) administered by the Bureau of Industry and Security (BIS) of the Commerce Department. Ban on direct U.S. financial assistance and arms sales to Iran . Section 620A of the Foreign Assistance Act, FAA (P.L. 87-95) and Section 40 of the Arms Export Control Act ( P.L. 95-92 , as amended), respectively, bar any U.S. foreign assistance to terrorism list countries. Included in the definition of foreign assistance are U.S. government loans, credits, credit insurance, and Ex-Im Bank loan guarantees. Successive foreign aid appropriations laws since the late 1980s have banned direct assistance to Iran, and with no waiver provisions. The FY2012 foreign operations appropriation (Section 7041(c)(2) of P.L. 112-74) banned the Ex-Im Bank from using funds appropriated in that Act to finance any entity sanctioned under the Iran Sanctions Act. The foreign aid provisions of the FY2019 Consolidated Appropriation (Section 7041) made that provision effective for FY2019. Requirement to oppose multilateral lending . U.S. officials are required to vote against multilateral lending to any terrorism list country by Section 1621 of the International Financial Institutions Act ( P.L. 95-118 , as amended [added by Section 327 of the Anti-Terrorism and Effective Death Penalty Act of 1996 ( P.L. 104-132 )]). Waiver authority is provided. Withholding of U.S. foreign assistance to countries that assist or sell arms to t errorism l ist c ountries . Under Sections 620G and 620H of the Foreign Assistance Act, as added by the Anti-Terrorism and Effective Death Penalty Act (Sections 325 and 326 of P.L. 104-132 ), the President is required to withhold foreign aid from any country that aids or sells arms to a terrorism list country. Waiver authority is provided. Section 321 of that act makes it a crime for a U.S. person to conduct financial transactions with terrorism list governments. Withholding of U.S. Aid to Organizations T hat Assist Iran . Section 307 of the FAA (added in 1985) names Iran as unable to benefit from U.S. contributions to international organizations, and require proportionate cuts if these institutions work in Iran. For example, if an international organization spends 3% of its budget for programs in Iran, then the United States is required to withhold 3% of its contribution to that international organization. No waiver is provided for.", "The terrorism list designation, and other U.S. sanctions laws barring assistance to Iran, do not bar U.S. disaster aid. The United States donated $125,000, through relief agencies, to help victims of two earthquakes in Iran (February and May 1997); $350,000 worth of aid to the victims of a June 22, 2002, earthquake; and $5.7 million in assistance for victims of the December 2003 earthquake in Bam, Iran, which killed 40,000. The U.S. military flew 68,000 kilograms of supplies to Bam.", "Section 330 of the Anti-Terrorism and Effective Death Penalty Act ( P.L. 104-132 ) added a Section 40A to the Arms Export Control Act that prohibits the sale or licensing of U.S. defense articles and services to any country designated (by each May 15) as \"not cooperating fully with U.S. anti-terrorism efforts.\" The President can waive the provision upon determination that a defense sale to a designated country is \"important to the national interests\" of the United States.\nEvery May since the enactment of this law, Iran has been designated as a country that is \"not fully cooperating\" with U.S. antiterrorism efforts. However, the effect of the designation is largely mooted by the many other authorities that prohibit U.S. defense sales to Iran.", "Executive Order 13324 (September 23, 2001) mandates the freezing of the U.S.-based assets of and a ban on U.S. transactions with entities determined by the Administration to be supporting international terrorism. This order was issued two weeks after the September 11, 2001, attacks on the United States, under the authority of the IEEPA, the National Emergencies Act, the U.N. Participation Act of 1945, and Section 301 of the U.S. Code, initially targeting Al Qaeda.", "E.O. 13224 is not specific to Iran and does not explicitly target Iranian arms exports to movements, governments, or groups in the Middle East region. However, successive Administrations have used the Order—and the orders discussed immediately below—to sanction such Iranian activity by designating persons or entities that are involved in the delivery or receipt of such weapons shipments. Some persons and entities that have been sanctioned for such activity have been cited for supporting groups such as the Afghan Taliban organization and the Houthi rebels in Yemen, which are not named as terrorist groups by the United States.", "Section 105 of the Countering America's Adversaries through Sanctions Act (CAATSA, P.L. 115-44 , signed on August 2, 2017), mandates the imposition of E.O. 13324 penalties on the Islamic Revolutionary Guard Corps (IRGC) and its officials, agents, and affiliates by October 30, 2017 (90 days after enactment). The IRGC was named as a terrorism-supporting entity under E.O 13224 within that deadline. The Treasury Department made the designation of the IRGC as a terrorism-supporting entity under that E.O. on October 13, 2017.", "No entities designated under E.O. 13224 were delisted to implement the JCPOA. Additional Iran-related entities have been designated under the Order since JCPOA implementation, as shown in the tables at the end of this report.", "Sanctions similar to those of E.O. 13224 are imposed on Iranian and Iran-linked entities through the State Department authority under Section 219 of the Immigration and Nationality Act (8.U.S.C. 1189) to designate an entity as a Foreign Terrorist Organization (FTO). In addition to the sanctions of E.O. 13224, any U.S. person (or person under U.S. jurisdiction) who \"knowingly provides material support or resources to an FTO, or attempts or conspires to do so\" is subject to fine or up to 20 years in prison. A bank that commits such a violation is subject to fines.\nImplementation: The following organizations have been designated as FTOs for acts of terrorism on behalf of Iran or are organizations assessed as funded and supported by Iran:\nIslamic Revolutionary Guard Corps (IRGC). Designated April 8, 2019. See CRS Insight IN11093, Iran's Revolutionary Guard Named a Terrorist Organization , by Kenneth Katzman. On April 22, 2019, the State Department issued guidelines for implementing the IRGC FTO designation, indicating that it would not penalize routine diplomatic or humanitarian-related dealings with the IRGC by U.S. partner countries or nongovernmental entities. Lebanese HezbollahKata'ib Hezbollah . Iran-backed Iraqi Shi'a militia. Hamas . Sunni, Islamist Palestinian organization that essentially controls the Gaza Strip. Palestine Islamic Jihad . Small Sunni Islamist Palestinian militant group Al Aqsa Martyr's Brigade . Secular Palestinian militant group. Popular Front for the Liberation of Palestine-General Command (PFLP-GC). Leftwing secular Palestinian group based mainly in Syria. Al Ashtar Brigades . Bahrain militant opposition group", "Some sanctions have been imposed to try to curtail Iran's destabilizing influence in the region.", "Issued on July 7, 2007, the order blocks U.S.-based property of persons who are determined by the Administration to \"have committed, or pose a significant risk of committing\" acts of violence that threaten the peace and stability of Iraq, or undermine efforts to promote economic reconstruction or political reform in Iraq. The Order extends to persons designated as materially assisting such designees. The Order was clearly directed at Iran for its provision of arms or funds to Shiite militias there. Persons sanctioned under the Order include IRGC-Qods Force officers, Iraqi Shiite militia-linked figures, and other entities. Some of these sanctioned entities worked to defeat the Islamic State in Iraq and are in prominent roles in Iraq's parliament and political structure.", "Issued on April 29, 2011, the order blocks the U.S.-based property of persons determined to be responsible for human rights abuses and repression of the Syrian people. The IRGC-Qods Force (IRGC-QF), IRGC-QF commanders, and others are sanctioned under this order.", "The latter Act was signed by President Trump on October 23, 2018the 25 th anniversary of the Marine barracks bombing in Beirut. The original law, modeled on the 2010 Comprehensive Iran Sanctions, Accountability, and Divestment Act (\"CISADA,\" see below), excludes from the U.S. financial system any bank that conducts transactions with Hezbollah or its affiliates or partners. The more recent law expands the authority of the original law by authorizing the blocking of U.S.-based property of and U.S. transactions with any \"agency or instrumentality of a foreign state\" that conducts joint operations with or provides financing or arms to Lebanese Hezbollah. These latter provisions clearly refer to Iran, but are largely redundant with other sanctions on Iran.", "", "In 1995, the Clinton Administration expanded U.S. sanctions against Iran by issuing Executive Order 12959 (May 6, 1995) banning U.S. trade with and investment in Iran. The order was issued under the authority primarily of the International Emergency Economic Powers Act (IEEPA, 50 U.S.C. 1701 et seq.), which gives the President wide powers to regulate commerce with a foreign country when a \"state of emergency\" is declared in relations with that country. E.O. 12959 superseded Executive Order 12957 (March 15, 1995) barring U.S. investment in Iran's energy sector, which accompanied President Clinton's declaration of a \"state of emergency\" with respect to Iran. Subsequently, E.O 13059 (August 19, 1997) added a prohibition on U.S. companies' knowingly exporting goods to a third country for incorporation into products destined for Iran. Each March since 1995, the U.S. Administration has renewed the \"state of emergency\" with respect to Iran. IEEPA gives the President the authority to alter regulations to license transactions with Iran—regulations enumerated in Section 560 of the Code of Federal Regulations (Iranian Transactions Regulations, ITRs).\nSection 103 of the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA, P.L. 111-195 ) codified the trade ban and reinstated the full ban on imports that had earlier been relaxed by April 2000 regulations. That relaxation allowed importation into the United States of Iranian nuts, fruit products (such as pomegranate juice), carpets, and caviar. U.S. imports from Iran after that time were negligible. Section 101 of the Iran Freedom Support Act ( P.L. 109-293 ) separately codified the ban on U.S. investment in Iran, but gives the President the authority to terminate this sanction with presidential notification to Congress of such decision 15 days in advance (or 3 days in advance if there are \"exigent circumstances\").", "In accordance with the JCPOA, the ITRs were relaxed to allow U.S. importation of the Iranian luxury goods discussed above (carpets, caviar, nuts, etc.), but not to permit general U.S.-Iran trade. U.S. regulations were also altered to permit the sale of commercial aircraft to Iranian airlines that are not designated for sanctions. The modifications were made in the Departments of State and of the Treasury guidance issued on Implementation Day and since. In concert with the May 8, 2018, U.S. withdrawal from the JCPOA, the easing of the regulations to allow for importation of Iranian carpets and other luxury goods was reversed on August 6, 2018.", "The following provisions apply to the U.S. trade ban on Iran as specified in regulations (Iran Transaction Regulations, ITRs) written pursuant to the executive orders and laws discussed above and enumerated in regulations administered by the Office of Foreign Assets Control (OFAC) of the Department of the Treasury.\nOil Transactions . All U.S. transactions with Iran in energy products are banned. The 1995 trade ban (E.O. 12959) expanded a 1987 ban on imports from Iran that was imposed by Executive Order 12613 of October 29, 1987. The earlier import ban, authorized by Section 505 of the International Security and Development Cooperation Act of 1985 (22 U.S.C. 2349aa-9), barred the importation of Iranian oil into the United States but did not ban the trading of Iranian oil overseas. The 1995 ban prohibits that activity explicitly, but provides for U.S. companies to apply for licenses to conduct \"swaps\" of Caspian Sea oil with Iran. These swaps have been prohibited in practice; a Mobil Corporation application to do so was denied in April 1999, and no applications have been submitted since. The ITRs do not ban the importation, from foreign refiners, of gasoline or other energy products in which Iranian oil is mixed with oil from other producers . The product of a refinery in any country is considered to be a product of the country where that refinery is located, even if some Iran-origin crude oil is present. Transshipment and Brokering . The ITRs prohibit U.S. transshipment of prohibited goods across Iran, and ban any activities by U.S. persons to broker commercial transactions involving Iran. Iranian Luxury Goods . Pursuant to the JCPOA, Iranian luxury goods, such as carpets and caviar, could be imported into the United States after January 2016. This prohibition went back into effect on August 6, 2018 (90-day wind-down). Shipping Insurance . Obtaining shipping insurance is crucial to Iran's expansion of its oil and other exports. A pool of 13 major insurance organizations, called the International Group of P & I Clubs, dominates the shipping insurance industry and is based in New York. The U.S. presence of this pool renders it subject to the U.S. trade ban, which complicated Iran's ability to obtain reinsurance for Iran's shipping after Implementation Day. On January 16, 2017, the Obama Administration issued waivers of Sections 212 and 213 of the ITRSHRA to allow numerous such insurers to give Iranian ships insurance. However, this waiver ended on August 6, 2018 (90-day wind-down). Civilian Airline Sales . The ITRs have always permitted the licensing of goods related to the safe operation of civilian aircraft for sale to Iran (§560.528 of Title 31, C.F.R.), and spare parts sales have been licensed periodically. However, from June 2011 until Implementation Day, Iran's largest state-owned airline, Iran Air, was sanctioned under Executive Order 13382 (see below), rendering licensing of parts or repairs for that airline impermissible. Several other Iranian airlines were sanctioned under that Order and Executive Order 13224. In accordance with the JCPOA, the United States relaxed restrictions on to allow for the sale to Iran of finished commercial aircraft, including to Iran Air, which was \"delisted\" from sanctions. A March 2016 general license allowed for U.S. aircraft and parts suppliers to negotiate sales with Iranian airlines that are not sanctioned, and Boeing and Airbus subsequently concluded major sales to Iran Air. In keeping with the May 8, 2018, U.S. withdrawal from the JCPOA, preexisting licensing restrictions went back into effect on August 6, 2018, and the Boeing and Airbus licenses to sell aircraft to Iran were revoked. Sales of some aircraft spare parts (\"dual use items\") to Iran also require a waiver of the relevant provision of the Iran-Iraq Arms Non-Proliferation Act, discussed below. Personal Communications , Remittances , and Publishing . The ITRs permit personal communications (phone calls, emails) between the United States and Iran, personal remittances to Iran, and Americans to engage in publishing activities with entities in Iran (and Cuba and Sudan). Information Technology Equipment. CISADA exempts from the U.S. ban on exports to Iran information technology to support personal communications among the Iranian people and goods for supporting democracy in Iran. In May 2013, OFAC issued a general license for the exportation to Iran of goods (such as cell phones) and services, on a fee basis, that enhance the ability of the Iranian people to access communication technology. Food and Medical Exports. Since April 1999, sales to Iran by U.S. firms of food and medical products have been permitted, subject to OFAC stipulations. In October 2012, OFAC permitted the sale to Iran of specified medical products, such as scalpels, prosthetics, canes, burn dressings, and other products, that could be sold to Iran under \"general license\" (no specific license application required). This list of general license items list was expanded in 2013 and 2016 to include more sophisticated medical diagnostic machines and other medical equipment. Licenses for exports of medical products not on the general license list are routinely expedited for sale to Iran, according to OFAC. The regulations have a specific definition of \"food\" that can be licensed for sale to Iran, and that definition excludes alcohol, cigarettes, gum, or fertilizer. The definition addresses information in a 2010 article that OFAC had approved exports to Iran of condiments such as food additives and body-building supplements that have uses other than purely nutritive. Humanitarian and Related Services . Donations by U.S. residents directly to Iranians (such as packages of food, toys, clothes, etc.) are not prohibited, but donations through relief organizations broadly require those organizations' obtaining a specific OFAC license. On September 10, 2013, the Department of the Treasury eliminated licensing requirements for relief organizations to (1) provide to Iran services for health projects, disaster relief, wildlife conservation; (2) to conduct human rights projects there; or (3) undertake activities related to sports matches and events. The amendment also allowed importation from Iran of services related to sporting activities, including sponsorship of players, coaching, referees, and training. In some cases, such as the earthquake in Bam in 2003 and the earthquake in northwestern Iran in August 2012, OFAC has issued blanket temporary general licensing for relief organizations to work in Iran. Payment Methods, Trade Financing , and Financing Guarantees . U.S. importers are allowed to pay Iranian exporters, including with U.S. dollars. However, U.S. funds cannot go directly to Iranian banks, but must instead pass through third-country banks. In accordance with the ITRs' provisions that transactions that are incidental to an approved transaction are allowed, financing for approved transactions are normally approved, presumably in the form of a letter of credit from a non-Iranian bank. Title IX of the Trade Sanctions Reform and Export Enhancement Act of 2000 ( P.L. 106-387 ) bans the use of official credit guarantees (such as the Ex-Im Bank) for food and medical sales to Iran and other countries on the U.S. terrorism list, except Cuba, although allowing for a presidential waiver to permit such credit guarantees. The Ex-Im Bank is prohibited from guaranteeing any loans to Iran because of Iran's continued inclusion on the terrorism list, and the JCPOA did not commit the United States to provide credit guarantees for Iran.", "The ITRs do not ban subsidiaries of U.S. firms from dealing with Iran, as long as the subsidiary is not \"controlled\" by the parent company. Most foreign subsidiaries are legally considered foreign persons subject to the laws of the country in which the subsidiaries are incorporated. Section 218 of the Iran Threat Reduction and Syrian Human Rights Act (ITRSHRA, P.L. 112-158 ) holds \"controlled\" foreign subsidiaries of U.S. companies to the same standards as U.S. parent firms, defining a controlled subsidiary as (1) one that is more than 50% owned by the U.S. parent; (2) one in which the parent firm holds a majority on the Board of Directors of the subsidiary; or (3) one in which the parent firm directs the operations of the subsidiary. There is no waiver provision.\nJCPOA Regulations and Reversal. To implement the JCPOA, the United States licensed \"controlled\" foreign subsidiaries to conduct transactions with Iran that are permissible under JCPOA (almost all forms of civilian trade). The Obama Administration asserted that the President has authority under IEEPA to license transactions with Iran, the ITRSHRA notwithstanding. This was implemented with the Treasury Department's issuance of \"General License H: Authorizing Certain Transactions Relating to Foreign Entities Owned or Controlled by a United States Person.\" With the Trump Administration reimposition of sanctions, the licensing policy (\"Statement of Licensing Policy,\" SLP) returned to pre-JCPOA status on November 5, 2018.", "", "In 1996, Congress and the executive branch began a long process of pressuring Iran's vital energy sector in order to deny Iran the financial resources to support terrorist organizations and other armed factions or to further its nuclear and WMD programs. Iran's oil sector is as old as the petroleum industry itself (early 20 th century), and Iran's onshore oil fields are in need of substantial investment. Iran has 136.3 billion barrels of proven oil reserves, the third largest after Saudi Arabia and Canada. Iran has large natural gas resources (940 trillion cubic feet), exceeded only by Russia. However, Iran's gas export sector is still emerging—most of Iran's gas is injected into its oil fields to boost their production. The energy sector still generates about 20% of Iran's GDP and as much as 30% of government revenue.", "The Iran Sanctions Act (ISA) has been a pivotal component of U.S. sanctions against Iran's energy sector. Since its enactment in 1996, ISA's provisions have been expanded and extended to other Iranian industries. ISA sought to thwart Iran's 1995 opening of the sector to foreign investment in late 1995 through a \"buy-back\" program in which foreign firms gradually recoup their investments as oil and gas is produced. It was first enacted as the Iran and Libya Sanctions Act (ILSA, P.L. 104-172 , signed on August 5, 1996) but was later retitled the Iran Sanctions Act after it terminated with respect to Libya in 2006. ISA was the first major \"extra-territorial sanction\" on Iran—a sanction that authorizes U.S. penalties against third country firms.", "ISA consists of a number of \"triggers\"—transactions with Iran that would be considered violations of ISA and could cause a firm or entity to be sanctioned under ISA's provisions. The triggers, as added by amendments over time, are detailed below:", "The core trigger of ISA when first enacted was a requirement that the President sanction companies (entities, persons) that make an \"investment\" of more than $20 million in one year in Iran's energy sector. The definition of \"investment\" in ISA (§14 [9]) includes not only equity and royalty arrangements but any contract that includes \"responsibility for the development of petroleum resources\" of Iran. The definition includes additions to existing investment (added by P.L. 107-24 ) and pipelines to or through Iran and contracts to lead the construction, upgrading, or expansions of energy projects (added by CISADA).", "This provision of ISA was not waived under the JCPOA.\nThe Iran Freedom Support Act ( P.L. 109-293 , signed September 30, 2006) added Section 5(b)(1) of ISA, subjecting to ISA sanctions firms or persons determined to have sold to Iran (1) \"chemical, biological, or nuclear weapons or related technologies\" or (2) \"destabilizing numbers and types\" of advanced conventional weapons. Sanctions can be applied if the exporter knew (or had cause to know) that the end-user of the item was Iran. The definitions do not specifically include ballistic or cruise missiles, but those weapons could be considered \"related technologies\" or, potentially, a \"destabilizing number and type\" of advanced conventional weapon.\nThe Iran Threat Reduction and Syria Human Rights Act (ITRSHRA, P.L. 112-158 , signed August 10, 2012) created Section 5(b)(2) of ISA subjecting to sanctions entities determined by the Administration to participate in a joint venture with Iran relating to the mining, production, or transportation of uranium.\nImplementation: No ISA sanctions have been imposed on any entities under these provisions.", "Section 102(a) of the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA, P.L. 111-195 , signed July 1, 2010) amended Section 5 of ISA to exploit Iran's dependency on imported gasoline (40% dependency at that time). It followed legislation such as P.L. 111-85 that prohibited the use of U.S. funds to fill the Strategic Petroleum Reserve with products from firms that sell gasoline to Iran; and P.L. 111-117 that denied Ex-Im Bank credits to any firm that sold gasoline or related equipment to Iran. The section subjects the following to sanctions:\nSales to Iran of over $1 million worth (or $5 million in a one year period) of gasoline and related aviation and other fuels. (Fuel oil, a petroleum by-product, is not included in the definition of refined petroleum.) Sales to Iran of equipment or services (same dollar threshold as above) which would help Iran make or import gasoline. Examples include equipment and services for Iran's oil refineries or port operations.", "Section 201 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (ITRSHA, P.L. 112-158 , signed August 10, 2012) codified an Executive Order, 13590 (November 21, 2011), by adding Section 5(a)(5 and 6) to ISA sanctioning firms that\nprovide to Iran $1 million or more (or $5 million in a one-year period) worth of goods or services that Iran could use to maintain or enhance its oil and gas sector. This subjects to sanctions, for example, transactions with Iran by global oil services firms and the sale to Iran of energy industry equipment such as drills, pumps, vacuums, oil rigs, and like equipment. provide to Iran $250,000 (or $1 million in a one year period) worth of goods or services that Iran could use to maintain or expand its production of petrochemical products. This provision was not altered by the JPA.", "Section 201 of the ITRSHRA amends ISA by sanctioning entities the Administration determines\nowned a vessel that was used to transport Iranian crude oil. The section also authorizes but does not require the President, subject to regulations, to prohibit a ship from putting to port in the United States for two years, if it is owned by a person sanctioned under this provision (adds Section 5[ a ][ 7 ] to ISA) . This sanction does not apply in cases of transporting oil to countries that have received exemptions under P.L. 112-81 (discussed below). participated in a joint oil and gas development venture with Iran, outside Iran, if that venture was established after January 1, 2002. The effective date exempts energy ventures in the Caspian Sea, such as the Shah Deniz oil field there (adds Section 5[ a ][ 4 ] to ISA ) .", "Separate provisions of the ITRSHR Act— which do not amend ISA — require the application of ISA sanctions (the same 5 out of 12 sanctions as required in ISA itself) on any entity that\nprovides insurance or reinsurance for the National Iranian Oil Company (NIOC) or the National Iranian Tanker Company (NITC) (Section 212). purchases or facilitates the issuance of sovereign debt of the government of Iran, including Iranian government bonds (Section 213). This sanction went back into effect on August 6, 2018 (90-day wind-down period). assists or engages in a significant transaction with the IRGC or any of its sanctioned entities or affiliates. (Section 302). This section of ITRSHRA was not waived to implement the JCPOA.\nImplementation . Section 312 of ITRSHRA required an Administration determination, within 45 days of enactment (by September 24, 2012) whether NIOC and NITC are IRGC agents or affiliates. Such a determination would subject financial transactions with NIOC and NITC to sanctions under CISADA (prohibition on opening U.S.-based accounts). On September 24, 2012, the Department of the Treasury determined that NIOC and NITC are affiliates of the IRGC. On November 8, 2012, the Department of the Treasury named NIOC as a proliferation entity under Executive Order 13382—a designation that, in accordance with Section 104 of CISADA, bars any foreign bank determined to have dealt directly with NIOC (including with a NIOC bank account in a foreign country) from opening or maintaining a U.S.-based account.\nSanctions on dealings with NIOC and NITC were waived in accordance with the interim nuclear deal and the JCPOA, and designations of these entities under Executive Order 13382 were rescinded in accordance with the JCPOA. These entities were \"relisted\" again on November 5, 2018. Some NIOC have partners and independent Iranian energy firms have not been designated, including: Iranian Offshore Oil Company; National Iranian Gas Export Co.; Petroleum Engineering and Development Co.; Pasargad Oil Co., Zagros Petrochem Co.; Sazeh Consultants; Qeshm Energy; and Sadid Industrial Group.", "Status: Revoked (by E.O. 13716) but will back into effect as stipulated below\nExecutive Order 13622 (July 30, 2012) imposes specified sanctions on the ISA sanctions menu, and bars banks from the U.S. financial system, for the following activities ( E .O. 13622 d id not amend ISA itself ):\nthe purchase of oil, other petroleum, or petrochemical products from Iran. Th e part of th is order pertaining to petrochemical purchases was suspended under the JPA. The wind-down period was 180 days (ending November 4, 2018). transactions with the National Iranian Oil Company (NIOC) or Naftiran Intertrade Company (NICO) (180-day wind-down period). E.O. 13622 also blocks U.S.-based property of entities determined to have assisted or provided goods or services to NIOC, NICO, the Central Bank of Iran (180-day wind-down period). assisted the government of Iran in the purchase of U.S. bank notes or precious metals, precious stones, or jewels. (The provision for precious stones or jewels was added to this Order by E.O. 16345 below.) (90-day wind-down period.)\nE.O. 13622 sanctions do not apply if the parent country of the entity has received an oil importation exception under Section 1245 of P.L. 112-81 , discussed below. An exception also is provided for projects that bring gas from Azerbaijan to Europe and Turkey, if such project was initiated prior to the issuance of the Order.", "In the original version of ISA, there was no firm requirement, and no time limit, for the Administration to investigate potential violations and determine that a firm has violated ISA's provisions. The Iran Freedom Support Act ( P.L. 109-293 , signed September 30, 2006) added a provision calling for, but not requiring , a 180-day time limit for a violation determination. CISADA (Section 102[g][5]) mandated that the Administration begin an investigation of potential ISA violations when there is \"credible information\" about a potential violation, and made mandatory the 180-day time limit for a determination of violation.\nThe Iran Threat Reduction and Syria Human Rights Act ( P.L. 112-158 ) defines the \"credible information\" needed to begin an investigation of a violation to include a corporate announcement or corporate filing to its shareholders that it has undertaken transactions with Iran that are potentially sanctionable under ISA. It also says the President may (not mandatory) use as credible information reports from the Government Accountability Office and the Congressional Research Service. In addition, Section 219 of ITRSHRA requires that an investigation of an ISA violation begin if a company reports in its filings to the Securities and Exchange Commission (SEC) that it has knowingly engaged in activities that would violate ISA (or Section 104 of CISADA or transactions with entities designated under E.O 13224 or 13382, see below).", "Several mechanisms for Congress to oversee whether the Administration is investigating ISA violations were added by ITRSHRA. Section 223 of that law required a Government Accountability Office report, within 120 days of enactment, and another such report a year later, on companies that have undertaken specified activities with Iran that might constitute violations of ISA. Section 224 amended a reporting requirement in Section 110(b) of CISADA by requiring an Administration report to Congress every 180 days on investment in Iran's energy sector, joint ventures with Iran, and estimates of Iran's imports and exports of petroleum products. The GAO reports have been issued; there is no information available on whether the required Administration reports have been issued as well.", "The sections below provide information on how some key ISA provisions have been interpreted and implemented.", "ISA's definition of \"investment\" that is subject to sanctions has been consistently interpreted by successive Administrations to include construction of energy pipelines to or through Iran. Such pipelines are deemed to help Iran develop its petroleum (oil and natural gas) sector. This interpretation was reinforced by amendments to ISA in CISADA, which specifically included in the definition of petroleum resources \"products used to construct or maintain pipelines used to transport oil or liquefied natural gas.\" In March 2012, then-Secretary of State Clinton made clear that the Obama Administration interprets the provision to be applicable from the beginning of pipeline construction.", "The original version of ISA did not provide for sanctioning purchases of crude oil from Iran. However, subsequent laws and executive orders took that step.", "The Iran Freedom and Counterproliferation Act (IFCA, discussed below) authorized sanctions on transactions with Iran's energy sector, but s pecifically exclude d from sanctions purchases of natural gas from Iran . But construction of gas pipelines involving Iran is subject to sanctions.", "The effective dates of U.S. sanctions laws and Orders exclude long-standing joint natural gas projects that involve some Iranian firms—particularly the Shah Deniz natural gas field and related pipelines in the Caspian Sea. These projects involve a consortium in which Iran's Naftiran Intertrade Company (NICO) holds a passive 10% share, and includes BP, Azerbaijan's natural gas firm SOCAR, Russia's Lukoil, and other firms. NICO was sanctioned under ISA and other provisions (until JCPOA Implementation Day), but an OFAC factsheet of November 28, 2012, stated that the Shah Deniz consortium, as a whole, is not determined to be \"a person owned or controlled by\" the government of Iran and transactions with the consortium are permissible.", "The original version of ISA did not apply to the development by Iran of a liquefied natural gas (LNG) export capability. Iran has no LNG export terminals, in part because the technology for such terminals is patented by U.S. firms and unavailable for sale to Iran. CISADA specifically included LNG in the ISA definition of petroleum resources and therefore made subject to sanctions LNG investment in Iran or supply of LNG tankers or pipelines to Iran.", "The definitions of investment and other activity that can be sanctioned under ISA include financing for investment in Iran's energy sector, or for sales of gasoline and refinery-related equipment and services. Therefore, banks and other financial institutions that assist energy investment and refining and gasoline procurement activities could be sanctioned under ISA.\nHowever, the definitions of financial institutions are interpreted not to apply to official credit guarantee agencies—such as France's COFACE and Germany's Hermes. These credit guarantee agencies are arms of their parent governments, and ISA does not provide for sanctioning governments or their agencies.", "Entities sanctioned under the executive orders or laws cited in this section are listed in the tables at the end of this report. As noted, some of the Orders cited provide for blocking U.S.-based assets of the entities designated for sanctions. OFAC has not announced the blocking of any U.S.-based property of the sanctioned entities, likely indicating that those entities sanctioned do not have a presence in the United States.", "", "In 2011, Congress sought to reduce Iran's exportation of oil by imposing sanctions on the mechanisms that importers use to pay Iran for oil. The Obama Administration asserted that such legislation could lead to a rise in oil prices and harm U.S. relations with Iran's oil customers, and President Obama, in his signing statement on the bill, indicated he would implement the provision so as not to damage U.S. relations with partner countries.\nThe law imposed penalties on transactions with Iran's Central Bank. Section 1245 of the FY2012 National Defense Authorization Act (NDAA, P.L. 112-81 , signed on December 31, 2011):\nRequires the President to prevent a foreign bank from opening an account in the United States—or impose strict limitations on existing U.S. accounts—if that bank is determined to have conducted a \"significant financial transaction\" with Iran's Central Bank or with any sanctioned Iranian bank . The provision applies to a foreign central bank only if the transaction with Iran's Central Bank is for oil purchases. The provision went into effect after 180 days (June 28, 2012). Significant Reduction Ex c eption (SRE): The law provides incentive for Iran's oil buyers to cut purchases of Iranian oil by providing for an exception (exemption) for the banks of any country determined to have \" significantly reduced \" its purchases of oil from Iran. The banks of countries granted the SRE may continue to conduct all transactions with the Central Bank (not just for oil) or with any sanctioned Iranian bank. The SRE exception is reviewed every 180 days and, to maintain the exception, countries are required to reduce their oil buys from Iran, relative to the previous 180-day period. ITRSHRA amended Section 1245 such that any country that completely ceased purchasing oil from Iran entirely would retain an exception. The law lacks a precise definition of \"significant reduction\" of oil purchases, but the Obama Administration adopted a standard set in a January 2012 letter by several Senators to then-Treasury Secretary Geithner setting that definition at an 18% purchase reduction based on total paid for the Iranian oil (not just volume reduction). Sanctions on transactions for oil apply only if the President certifies to Congress every 90 days, based on a report by the Energy Information Administration, that the oil market is adequately supplied, and, an Administration determination every 180 days that there is a sufficient supply of oil worldwide to permit countries to reduce purchases from Iran. The required EIA reports and Administration determinations have been issued at the prescribed intervals, even during the period when the law was in a state of waiver. Hum anitarian Exception . Paragraph (2) of Section 1245 exempts transactions with Iran's Central Bank that are for \"the sale of agricultural commodities, food, medicine, or medical devices to Iran\" from sanctions.", "The Obama and Trump Administration have implemented the FY2012 NDAA with an eye toward balancing the global oil market with the intended effects on Iran's economy and behavior. The table below on major Iranian oil customers indicates cuts made by major customers compared to 2011.\nIn March 20, 2012, Japan received an SRE. In September 2012, following a July 2012 EU Iran oil embargo, 10 EU countries (Belgium, Czech Republic, France, Germany, Greece, Italy, the Netherlands, Poland, Spain, and Britain) received the SRE because they ended purchases pursuant to the EU Iran oil purchase embargo of July 1, 2012. Seventeen EU countries were not granted the SRE because they were not buying Iran's oil and could not \"significantly reduce\" buys from Iran. In December 2012, the following countries/jurisdictions received the SRE: China, India, Malaysia, South Africa, South Korea, Singapore, Sri Lanka, Turkey, and Taiwan.", "The January 2016 waivers issued to implement the JCPOA suspended the requirement for a country to cut oil purchases from Iran in order to maintain their exceptions, and Iran's historic oil customers quickly resumed buying Iranian oil. The provision went back into effect on November 5, 2018. On June 26, 2018, a senior State Department official, in a background briefing, stated that department officials, in meetings with officials of countries that import Iranian oil, were urging these countries to cease buying Iranian oil entirely, but Administration officials later indicated that requests for exceptions would be evaluated based on the ease of substituting for Iranian oil, country-specific needs, and the need for global oil market stability.\nOn November 5, 2018, in the first SRE grants available under reimposed U.S. sanctions, the following eight countries received the SRE: China, India, Italy, Greece, Japan, South Korea, Taiwan, and Turkey. The SREs expired on May 2, 2019. On April 22, 2019, the State Department announced that no more SREs would be granted after their expiration at 12:00 AM on May 2, 2019. The Administration indicated that the global oil market is well supplied enough to permit the decision, which is intended to \"apply maximum pressure on the Iranian regime until its leaders change their destructive behavior, respect the rights of the Iranian people, and return to the negotiating table.\" The announcement indicated that U.S. officials have had discussions with Saudi Arabia and the UAE to ensure that the global oil market remains well supplied. Left unclear is the extent to which, if at all, Iran's oil customers seek to continue importing Iranian oil and whether the Administration will penalize foreign banks for continuing transactions with Iran's Central Bank.", "", "The ability of Iran to repatriate hard currency—U.S. dollars are the primary form of payment for oil—to its Central Bank was impeded by a provision of the ITRSHRA which went into effect on February 6, 2013 (180 days after enactment). Section 504 of the ITRSHRA amended Section 1245 of the FY2012 NDAA (adding \"clause ii\" to Paragraph D[1]) by requiring that any funds paid to Iran as a result of exempted transactions (oil purchases, for example) be credited to an account located in the country with primary jurisdiction over the foreign bank making the transaction.\nThis provision essentially prevents Iran from repatriating to its Central Bank any hard currency Iran held in foreign banks around the world. Most of Iran's funds held abroad are in banks located in Iran's main oil customers. The provision largely compels Iran to buy the products of the oil customer countries. Some press reports refer to this arrangement as an \"escrow account,\" but State Department officials describe the arrangement as \"restricted\" accounts.", "Successive Administrations have expanded sanctions, primarily by executive order, on several significant nonoil industries and sectors of Iran's economy. The targeted sectors include Iran's automotive production sector, which is Iran's second-largest industry (after energy), and its mineral exports, which account for about 10% of Iran's export earnings.", "JCPOA Status: Revoked (by E.O 13716) but most provisions below went back into effect as of August 6, 2018 (90-day wind-down period).\nExecutive Order 13645 of June 3, 2013 (effective July 1, 2013), contains the provisions below. (E.O. 13645 did not amend ISA itself.)\nImposes specified ISA-related sanctions on firms that supply goods or services to Iran's automotive (cars, trucks, buses, motorcycles, and related parts) sector, and blocks foreign banks from the U.S. market if they finance transactions with Iran's automotive sector. (An executive order cannot amend a law, so the order does not amend ISA.) Blocks U.S.-based property and prohibits U.S. bank accounts for foreign banks that conduct transactions in Iran's currency, the rial , or hold rial accounts. This provision mostly affected banks in countries bordering or near Iran. The order applies also to \"a derivative, swap, future, forward, or other similar contract whose value is based on the exchange rate of the Iranian rial .\" If Iran implements plans to develop a digital currency, or cryptocurrency, backed by or tied to rials, it would appear that the Order also applies to that digital currency. Expands the application of Executive Order 13622 (above) to helping Iran acquire precious stones or jewels (see above). Blocks U.S.-based property of a person that conducts transactions with an Iranian entity listed as a Specially Designated National (SDN) or Blocked Person. SDNs to be \"relisted\" on November 5, 2018.", "On May 8, 2019, President Trump issued Executive Order 13871 sanctioning transactions with Iran's key minerals and industrial commodities. The White House announcement stated that Iran earns 10% of its total export revenues from sales of the minerals and metals sanctioned under the order. The order does the following:\nblocks U.S.-based property of any entity that conducts a significant transaction for the \"sale, supply, or transfer to Iran\" of goods or services, or the transport or marketing, of the iron, steel, aluminum, and copper sectors of Iran; authorizes the Secretary of the Treasury to bar from the U.S. financial system any foreign bank that conducts or facilitates a financial transaction for steel, steel products, copper, or copper products from Iran; bars the entry into the United States of any person sanctioned under the order.", "", "Several laws and executive orders seek to bar Iran from obtaining U.S. or other technology that can be used for weapons of mass destruction (WMD) programs. Sanctions on Iran's exportation of arms are discussed in the sections above on sanctions for Iran's support for terrorist groups.", "The Iran-Iraq Arms Nonproliferation Act (Title XIV of the FY1993 National Defense Authorization Act, P.L. 102-484 , signed in October 1992) imposes a number of sanctions on foreign entities that supply Iran with WMD technology or \"destabilizing numbers and types of advanced conventional weapons.\" Advanced conventional weapons are defined as follows:\n(1) such long-range precision-guided munitions, fuel air explosives, cruise missiles, low observability aircraft, other radar evading aircraft, advanced military aircraft, military satellites, electromagnetic weapons, and laser weapons as the President determines destabilize the military balance or enhance the offensive capabilities in destabilizing ways;\n(2) such advanced command, control, and communications systems, electronic warfare systems, or intelligence collections systems as the President determines destabilize the military balance or enhance offensive capabilities in destabilizing ways; and\n(3) such other items or systems as the President may, by regulation, determine necessary for the purposes of this title.\nThe definition is generally understood to include technology used to develop ballistic missiles.\nSanctions to be i mposed : Sanctions imposed on violating entities include\na ban, for two years, on U.S. government procurement from the entity; a ban, for two years, on licensing U.S. exports to that entity; authority (but not a requirement) to ban U.S. imports from the entity.\nIf the violator is determined to be a foreign country, sanctions to be imposed are\na one-year ban on U.S. assistance to that country; a one-year requirement that the United States vote against international lending to it; a one-year suspension of U.S. coproduction agreements with the country; a one-year suspension of technical exchanges with the country in military or dual use technology; a one-year ban on sales of U.S. arms to the country; an authorization to deny the country most-favored-nation trade status; and to ban U.S. trade with the country.\nSection 1603 of the act amended an earlier law, the Iraq Sanctions Act of 1990 (Section 586G(a) of P.L. 101-513 ), to provide for a \"presumption of denial\" for all dual use exports to Iran (including computer software).", "A number of entities were sanctioned under the act in the 1990s, as shown in the tables at the end of this paper. None of the designations remain active, because the sanctions have limited duration.", "Another law reinforces the authority of the President to sanction governments that provide aid or sell arms to Iran (and other terrorism list countries). Under Sections 620G and 620H of the Foreign Assistance Act, as added by the Anti-Terrorism and Effective Death Penalty Act of 1996 (Sections 325 and 326 of P.L. 104-132 ), the President is required to withhold foreign aid from any country that provides to a terrorism list country financial assistance or arms. Waiver authority is provided. Section 321 of that act also makes it a criminal offense for U.S. persons to conduct financial transactions with terrorism list governments.\nNo foreign assistance cuts or other penalties under this law have been announced.", "As noted above, Section 5(b)(1) of ISA subjects to ISA sanctions firms or persons determined to have sold to Iran (1) technology useful for weapons of mass destruction (WMD) or (2) \"destabilizing numbers and types\" of advanced conventional weapons. This, and Section 5(b)(2) pertaining to joint ventures to mine uranium, are the only provisions of ISA that were not waived to implement the JCPOA.\nAs noted, no sanctions under this section have been imposed.", "The Iran Nonproliferation Act ( P.L. 106-178 , signed in March 2000) is now called the Iran-North Korea-Syria Nonproliferation Act (INKSNA) after amendments applying its provisions to North Korea and to Syria. It authorizes sanctions—for two years unless renewed—on foreign persons (individuals or corporations, not governments) that are determined in a report by the Administration to have assisted Iran's WMD programs. Sanctions imposed include (1) a prohibition on U.S. exportation of arms and dual use items to the sanctioned entity; and (2) a ban on U.S. government procurement and of imports to the United States from the sanctioned entity under Executive Order 12938 (of November 14, 1994). INKSNA also banned U.S. extraordinary payments to the Russian Aviation and Space Agency in connection with the international space station unless the President certified that the agency had not transferred any WMD or missile technology to Iran within the year prior.", "Entities that have been sanctioned under this law are listed in the tables at the end of the report. Designations more than two years old are no longer active. The JCPOA required the United States to suspend INKSNA sanctions against \"the acquisition of nuclear-related commodities and services for nuclear activities contemplated in the JCPOA,\" but no entities were \"delisted\" to implement the JCPOA.", "", "Executive Order 13382 (June 28, 2005) allows the President to block the assets of proliferators of weapons of mass destruction (WMD) and their supporters under the authority granted by the International Emergency Economic Powers Act (IEEPA; 50 U.S.C. 1701 et seq.), the National Emergencies Act (50 U.S.C. 1601 et seq.), and Section 301 of Title 3, United States Code .\nImplementation. The numerous entities sanctioned under the order for dealings with Iran are listed in the tables at the end of this report. Entities delisted and which were to be delisted in accordance with the JCPOA (in October 2023) are in italics and boldface type, respectively. All entities delisted to implement the JCPOA are to be relisted on November 5, 2018, according to the Treasury Department.", "The CAATSA law, signed on August 2, 2017, mandates sanctions on arms sales to Iran and on entities that \"materially contribute\" to Iran's ballistic missile program.\nSection 104 references implementation of E.O. 13382, which sanctions entities determined by the Administration to be assisting Iran's ballistic missile program. The section mandates that the Administration impose the same sanctions as in E.O. 13382 on any activity that materially contributes to Iran's ballistic missile program or any system capable of delivering WMD. The section also requires an Administration report every 180 days on persons (beginning on January 29, 2018) contributing to Iran's ballistic missile program in the preceding 180 days. Section 107 mandates imposition of sanctions (the same sanctions as those contained in E.O. 13382) on any person that the President determines has sold or transferred to or from Iran, or for the use in or benefit of Iran: the weapons systems specified as banned for transfer to or from Iran in U.N. Security Council Resolution 2231. These include most major combat systems such as tanks, armored vehicles, warships, missiles, combat aircraft, and attack helicopters. The provision goes somewhat beyond prior law that mandates sanctions mainly on sales to Iran of \"destabilizing numbers and types of advanced conventional weapons.\" The imposition of sanctions is not required if the President certifies that a weapons transfer is in the national security of the United States; that Iran no longer poses a significant threat to the United States or U.S. allies; and that the Iranian government no longer satisfies the requirements for designation as a state sponsor of terrorism.", "Some past foreign aid appropriations have withheld U.S. assistance to the Russian Federation unless it terminates technical assistance to Iran's nuclear and ballistic missiles programs. The provision applied to the fiscal year for which foreign aid is appropriated. Because U.S. aid to Russia generally has not gone to the Russian government, little or no funding was withheld as a result of the provision. The JCPOA makes no reference to any U.S. commitments to waive this sanction or to request that Congress not enact such a provision.", "Title III of CISADA established authorities to sanction countries that allow U.S. technology that Iran could use in its nuclear and WMD programs to be re-exported or diverted to Iran. Section 303 of CISADA authorizes the President to designate a country as a \"Destination of Diversion Concern\" if that country allows substantial diversion of goods, services, or technologies characterized in Section 302 of that law to Iranian end-users or Iranian intermediaries. The technologies specified include any goods that could contribute to Iran's nuclear or WMD programs, as well as goods listed on various U.S. controlled-technology lists such as the Commerce Control List or Munitions List. For any country designated as a country of diversion concern, there would be prohibition of denial for licenses of U.S. exports to that country of the goods that were being re-exported or diverted to Iran.\nImplementation : To date, no country has been designated a \"Country of Diversion Concern.\" Some countries adopted or enforced anti-proliferation laws apparently to avoid designation.", "U.S. efforts to shut Iran out of the international banking system were a key component of the 2010-2016 international sanctions regime.", "", "During 2006-2016, the Department of the Treasury used long-standing authorities to persuade foreign banks to cease dealing with Iran, in part by briefing them on Iran's use of the international financial system to fund terrorist groups and acquire weapons-related technology. According to a GAO report of February 2013, the Department of the Treasury made overtures to 145 banks in 60 countries, including several visits to banks and officials in the UAE, and convinced at least 80 foreign banks to cease handling financial transactions with Iranian banks. Upon implementation of the JCPOA, the Treasury Department largely dropped this initiative, and instead largely sought to encourage foreign banks to conduct normal transactions with Iran.", "", "There is no blanket ban on foreign banks or persons paying Iran for goods using U.S. dollars. But, U.S. regulations (ITRs, C.F.R. Section 560.516) ban Iran from direct access to the U.S. financial system. The regulations allow U.S. banks to send funds (including U.S. dollars) to Iran for allowed (licensed) transactions. However, the U.S. dollars cannot be directly transferred to an Iranian bank, but must instead be channeled through an intermediary financial institution, such as a European bank. Section 560.510 specifically allows for U.S. payments to Iran to settle or pay judgments to Iran, such as those reached in connection with the U.S.-Iran Claims Tribunal, discussed above. However, the prohibition on dealing directly with Iranian banks still applies.\nOn November 6, 2008, the Department of the Treasury broadened restrictions on Iran's access to the U.S. financial system by barring U.S. banks from handling any transactions with foreign banks that are handling transactions on behalf of an Iranian bank (\"U-turn transactions\"). This means a foreign bank or person that pays Iran for goods in U.S. dollars cannot access the U.S. financial system (through a U.S. correspondent account, which most foreign banks have) to acquire dollars for any transaction involving Iran. This ban remained in effect under the JCPOA implementation, and Iran argued that these U.S. restrictions deter European and other banks from reentering the Iran market, as discussed later in this report.", "Then-Treasury Secretary Lew in March and April 2016 suggested the Obama Administration was considering licensing transactions by foreign (non-Iranian) clearinghouses to acquire dollars that might facilitate transactions with Iran, without providing Iran with dollars directly. However, doing so was not required by the JCPOA and the Administration declined to take that step. Instead, the Obama Administration encouraged bankers to reenter the Iran market without fear of being sanctioned. The Trump Administration has not, at any time, expressed support for allowing Iran greater access to dollars. The reimposition of U.S. sanctions has further reduced the willingness and ability of foreign firms to use dollars in transactions with Iran.", "The Department of the Treasury and other U.S. authorities has announced financial settlements (forfeiture of assets and imposition of fines) with various banks that have helped Iran (and other countries such as Sudan, Syria, and Cuba) access the U.S. financial system. The amounts were reportedly determined, at least in part, by the value, number, and duration of illicit transactions conducted, and the strength of the evidence collected by U.S. regulators. (As noted above, the FY2016 Consolidated Appropriation, P.L. 114-113 , provides for use of the proceeds of the settlements above to pay compensation to victims of Iranian terrorism.)", "", "Section 104 of CISADA requires the Secretary of the Treasury to forbid U.S. banks from opening new \"correspondent accounts\" or \"payable-through accounts\" (or force the cancellation of existing such accounts) for\nany foreign bank that transactions business with an entity that is sanctioned by Executive Order 13224 or 13382 (terrorism and proliferation activities, respectively). These orders are discussed above. A full list of such entities is at the end of this report, and entities \"delisted\" are in italics. any foreign bank determined to have facilitated Iran's efforts to acquire WMD or delivery systems or provide support to groups named as Foreign Terrorist Organizations (FTOs) by the United States. any foreign bank that facilitates \"the activities of\" an entity designated under by U.N. Security Council resolutions that sanction Iran. any foreign bank that transacts business with the IRGC or any of its affiliates designated under any U.S. Iran-related executive order. any foreign bank that does business with Iran's energy, shipping, and shipbuilding sectors, including with NIOC, NITC, and IRISL. (This provision was contained in Section 1244(d) of the Iran Freedom and Counterproliferation Act, IFCA, discussed below, but d id not specifically amend CISADA . The provision was waived to implement the JCPOA.\nOne additional intent of the provision was to reduce the ability of Iran's pivotal import-export community (referred to in Iran as the \"bazaar merchants\" or \" bazaaris \") from obtaining \"letters of credit\" (trade financing) to buy or sell goods. The Department of the Treasury has authority to determine what constitutes a \"significant\" financial transaction.", "On July 31, 2012, the United States sanctioned the Bank of Kunlun in China and the Elaf Islamic Bank in Iraq under Section 104 of CISADA. On May 17, 2013, the Department of the Treasury lifted sanctions on Elaf Islamic Bank in Iraq, asserting that the bank had reduced its exposure to the Iranian financial sector and stopped providing services to the Export Development Bank of Iran.", "", "On November 21, 2011, the Obama Administration identified Iran as a \"jurisdiction of primary money laundering concern\" under Section 311 of the USA Patriot Act (31 U.S.C. 5318A), based on a determination that Iran's financial system, including the Central Bank, constitutes a threat to governments or financial institutions that do business with Iran's banks. The designation imposed additional requirements on U.S. banks to ensure against improper Iranian access to the U.S. financial system.\nThe Administration justified the designation as implementation of recommendations of the Financial Action Task Force (FATF)—a multilateral standard-setting body for anti-money laundering and combating the financing of terrorism (AML/CFT). In 2016, the FATF characterized Iran as a \"high-risk and non-cooperative jurisdiction\" with respect to AMF/CFT issues. On June 24, 2016, the FATF welcomed an \"Action Plan\" filed by Iran to address its strategic AML/CFT deficiencies and decided to suspend, for one year, \"countermeasures\"—mostly voluntary recommendations of increased due diligence with respect to Iran transactions—pending an assessment of Iran's implementation of its Action Plan. The FATF continued the suspension of countermeasures in June and November 2017, and February 2018.\nOn October 19, 2018, the FATF stated that Iran had only acted on 9 out of 10 of its guidelines, and that Iran's Majles had not completed legislation to adopt international standards. The FATF continued to suspend countermeasures and gave Iran until February 2019 to fully accede to all FATF guidelines. On February 22, 2019, the FATF stated that countermeasures remained suspended but that \"If by June 2019, Iran does not enact the remaining legislation in line with FATF Standards, then the FATF will require increased supervisory examination for branches and subsidiaries of financial institutions based in Iran. The FATF also expects Iran to continue to progress with enabling regulations and other amendments.\"\nOn October 12, 2018, the Treasury Department Financial Crimes Enforcement Network (FINCEN) issued a warning to U.S. banks to guard against likely Iranian efforts to evade U.S. financial sanctions. Earlier, in January 1, 2013, OFAC issued an Advisory to highlight Iran's use of hawalas (traditional informal banking and money exchanges) in the Middle East and South Asia region to circumvent U.S. financial sanctions. Because the involvement of an Iranian client is often opaque, banks have sometimes inadvertently processed hawala transactions involving Iranians.", "Section 220 of the ITRSHRA required reports on electronic payments systems, such as the Brussels-based SWIFT (Society of Worldwide Interbank Financial Telecommunications), that do business with Iran. That law also authorizes—but neither it nor any other U.S. law or executive order mandates—sanctions against SWIFT or against electronic payments systems. Still, many transactions with Iran are subject to U.S. sanctions, no matter the payment mechanism.", "", "The National Defense Authorization Act for FY2013 ( H.R. 4310 , P.L. 112-239 , signed January 2, 2013)—Subtitle D, The Iran Freedom and Counter-Proliferation Act (IFCA), sanctions a wide swath of Iran's economy, touching several sectors. Its provisions on Iran's human rights record are discussed in the section on \" Measures to Sanction Human Rights Abuses and Promote the Opposition .\"\nSection 1244 of IFCA mandates the blocking of U.S.-based property of any entity (Iranian or non-Iranian) that provides goods, services, or other support to any Iranian entity designated by the Treasury Department as a \"specially designated national\" (SDN). The tables at the end of this report show that hundreds of Iranian entities are designated as SDNs under various executive orders. The Iranian entities designated for civilian economic activity were \"delisted\" to implement the JCPOA, but will be relisted on November 5, 2018. Section 1247 of IFCA prohibits from operating in the United States any bank that knowingly facilitates a financial transaction on behalf of an Iranian SDN. The section also specifically sanctions foreign banks that facilitate payment to Iran for natural gas unless the funds owed to Iran for the gas are placed in a local account. The section provides for a waiver for a period of 180 days.\nSeveral sections of IFCA impose ISA sanctions on entities determined to have engaged in specified transactions below. ( The provision s apply ISA sanctions but do not amend ISA .)\nEnergy, Shipbuilding, and Shipping Sector . Section 1244 mandates 5 out of 12 ISA sanctions on entities that provide goods or services to Iran's energy, shipbuilding, and shipping sectors, or to port operations there—or which provide insurance for such transactions. The sanctions d o not apply when such transactions involve d purchases of Iranian oil by countries that have exemptions under P.L. 112-81 , or to the purchase of natural gas from Iran . This section goes back into effect after a 180-day wind-down period (by November 4, 2018). Dealings in Precious Metals . Section 1245 imposes 5 out of 12 ISA sanctions on entities that provide precious metals to Iran (including gold) or semifinished metals or software for integrating industrial processes. The section affected foreign firms that transferred these items or other precious metals to Iran in exchange for oil or any other product. There is no exception to this sanction for countries exempted under P.L. 112-81 . This section went back into effect after a 90-day wind-down period (August 6, 2018). Insurance for Related Activities . Section 1246 imposes 5 out of 12 ISA sanctions on entities that provide underwriting services, insurance, or reinsurance for any transactions sanctioned under any executive order on Iran, ISA, CISADA, the Iran Threat Reduction Act, INKSNA, other IFCA provisions, or any other Iran sanction, as well as to any Iranian SDN. ( There is no exception for countries exempted under P.L. 112-81 .) This provision goes back into effect after a 180-day wind-down period (by November 4, 2018). Exception for Afghanistan Reconstruction . Section 1244(f) of IFCA provides a sanctions exemption for transactions that provide reconstruction assistance for or further the economic development of Afghanistan. See JCPOA waivers below.", "On August 29, 2014, the State Department sanctioned UAE-based Goldentex FZE in accordance with IFCA for providing support to Iran's shipping sector. It was \"delisted\" from sanctions on Implementation Day of the JCPOA.\nOn October 16, 2018, OFAC designated as terrorism-related entities several Iranian industrial companies on the grounds that they provide the Basij s ecurity force with revenue to support its operations in the Middle East. The designations, pursuant to E.O. 13224, mean that foreign firms that transact business with these Iranian industrial firms could be subject to U.S. sanctions under IFCA. The industrial firms—which were not previously designated and were therefore not \"relisted\" as SDNs on November 5, 2018, were Technotar Engineering Company; Iran Tractor Manufacturing Company; Iran's Zinc Mines Development Company and several related zinc producers; and Esfahan Mobarakeh Steel Company, the largest steel producer in the Middle East.", "Executive Order 13608 of May 1, 2012, gives the Department of the Treasury the ability to identify and sanction (cutting them off from the U.S. market) foreign persons who help Iran (or Syria) evade U.S. and multilateral sanctions.\nSeveral persons and entities have been designated for sanctions, as shown in the tables at the end of the report.", "", "The Trump Administration appears to be making increasing use of executive orders issued during the Obama Administration to sanction Iranian entities determined to be engaged in malicious cyberactivities or in transnational crime. Iranian entities have attacked, or attempted to attack, using cyberactivity, infrastructure in the United States, Saudi Arabia, and elsewhere. Iran's ability to conduct cyberattacks appears to be growing. Separately, the Justice Department has prosecuted Iranian entities for such activity. The section below discusses Executive Order 13694 on malicious cyberactivities and Executive Order 13581 on transnational crime.", "Executive Order 13694 blocks U.S.-based property of foreign entities determined to have engaged in cyber-enabled activities that (1) harm or compromise the provision of services by computers or computer networks supporting in the critical infrastructure sector; (2) compromise critical infrastructure; (3) disrupt computers or computer networks; or (4) cause misappropriation of funds, trade secrets, personal identifiers, or financial information for financial advantage or gain.", "Executive Order 13581 blocks the U.S.-based property of entities determined (1) to be a foreign person that constitutes a significant transnational criminal organization; (2) to have materially assisted any person sanctioned under this order; or (3) to be owned or controlled by or to have acted on behalf of a person sanctioned under the order.", "Iran-related entities sanctioned under the Orders are listed in the tables at the end of this report.", "Some U.S. laws require or call for divestment of shares of firms that conduct certain transactions with Iran. A divestment-promotion provision was contained in CISADA, providing a \"safe harbor\" for investment managers who sell shares of firms that invest in Iran's energy sector at levels that would trigger U.S. sanctions under the Iran Sanctions Act. As noted above, Section 219 of the ITRSHRA of 2012 requires companies to reports to the Securities and Exchange Commission whether they or any corporate affiliate has engaged in any transactions with Iran that could trigger sanctions under ISA, CISADA, and E.O 13382 and 13224.\nImplementation : Numerous states have adopted laws, regulations, and policies to divest from—or avoid state government business with—foreign companies that conduct certain transactions with Iran. The JCPOA requires the United States to work with state and local governments to ensure that state-level sanctions do not conflict with the sanctions relief provided by the federal government under the JCPOA. Most states that have adopted Iran sanctions continue to enforce those measures.", "", "A trend in U.S. policy and legislation since the June 12, 2009, election-related uprising in Iran has been to support the ability of the domestic opposition in Iran to communicate and to sanction Iranian officials that commit human rights abuses. Sanctions on the IRGC represent one facet of that trend because the IRGC is a key suppressive instrument. Individuals and entities designated under the executive orders and provisions discussed below are listed in the tables at the end of this report. For those provisions that ban visas to enter the United States, the State Department interprets the provisions to apply to all members of the designated entity.", "Some laws and Administration action focus on expanding internet freedom in Iran or preventing the Iranian government from using the internet to identify opponents. Subtitle D of the FY2010 Defense Authorization Act ( P.L. 111-84 ), called the \"VOICE\" (Victims of Iranian Censorship) Act, contained several provisions to increase U.S. broadcasting to Iran and to identify (in a report to be submitted 180 days after enactment) companies that are selling Iran technology equipment that it can use to suppress or monitor the internet usage of Iranians. The act authorized funds to document Iranian human rights abuses since the June 2009 Iranian presidential election. Section 1241 required an Administration report by January 31, 2010, on U.S. enforcement of sanctions against Iran and the effect of those sanctions on Iran.", "Section 106 of CISADA prohibits U.S. government contracts with foreign companies that sell technology that Iran could use to monitor or control Iranian usage of the internet. The provisions were directed, in part, against Nokia (Finland) and Siemens (Germany) for reportedly selling internet monitoring and censorship technology to Iran in 2008. The provision was derived from the Reduce Iranian Cyber-Suppression Act (111 th Congress, S. 1475 and H.R. 3284 ). On April 23, 2012, President Obama issued an executive order (13606) sanctioning persons who commit \"Grave Human Rights Abuses by the Governments of Iran and Syria via Information Technology (GHRAVITY).\" The order blocks the U.S.-based property and essentially bars U.S. entry and bans any U.S. trade with persons and entities listed in an Annex and persons or entities subsequently determined to be (1) operating any technology that allows the Iranian (or Syrian) government to disrupt, monitor, or track computer usage by citizens of those countries or assisting the two governments in such disruptions or monitoring; or (2) selling to Iran (or Syria) any technology that enables those governments to carry out such actions. Section 403 of the ITRSHRA sanctions (visa ban, U.S.-based property blocked) persons/firms determined to have engaged in censorship in Iran, limited access to media, or—for example, a foreign satellite service provider—supported Iranian government jamming or frequency manipulation. On October 9, 2012, the President issued Executive Order 13628 implementing Section 403 by blocking the property of persons/firms determined to have committed the censorship, limited free expression, or assisted in jamming communications. The order also specifies the sanctions authorities of the Department of State and of the Treasury.", "On March 8, 2010, OFAC amended the Iran Transactions Regulations to allow for a general license for providing free mass market software to Iranians. The ruling incorporated major features of the Iran Digital Empowerment Act ( H.R. 4301 in the 111 th Congress). The OFAC determination required a waiver of the provision of the Iran-Iraq Arms Nonproliferation Act (Section 1606 waiver provision) discussed above. Section 103(b)(2) of CISADA exempts from the U.S. export ban on Iran equipment to help Iranians communicate and use the internet. On March 20, 2012, the Department of the Treasury amended U.S.-Iran trade regulations to permit several additional types of software and information technology products to be exported to Iran under general license, provided the products were available at no cost to the user . The items included personal communications, personal data storage, browsers, plug-ins, document readers, and free mobile applications related to personal communications. On May 30, 2013, the Department of the Treasury amended the trade regulations further to allow for the sale, on a cash basis (no financing), to Iran of equipment that Iranians can use to communicate (e.g., cellphones, laptops, satellite internet, website hosting, and related products and services).", "Some legislation has sought to sanction regime officials involved in suppressing the domestic opposition in Iran or in human rights abuses more generally. Much of this legislation centers on amendments to Section 105 of CISADA.\nSanctions against Iranian Human Rights Abusers. Section 105 of CISADA bans travel and freezes the U.S.-based assets of those Iranians determined to be human rights abusers. On September 29, 2010, pursuant to Section 105, President Obama issued Executive Order 13553 providing for CISADA sanctions against Iranians determined to be responsible for or complicit in post-2009 Iran election human rights abuses. Those sanctioned under the provisions are listed in the tables at the end of this report. Section 105 terminates if the President certifies to Congress that Iran has (1) unconditionally released all political prisoners detained in the aftermath of the June 2009 uprising; (2) ceased its practices of violence, unlawful detention, torture, and abuse of citizens who were engaged in peaceful protest; (3) fully investigated abuses of political activists that occurred after the uprising; and (4) committed to and is making progress toward establishing an independent judiciary and respecting human rights. Sanctions on Sales of Anti-Riot Equipment. Section 402 of the ITRSHRA amended Section 105 by adding provisions that sanction (visa ban, U.S. property blocked) any person or company that sells the Iranian government goods or technologies that it can use to commit human rights abuses against its people. Such goods include firearms, rubber bullets, police batons, chemical or pepper sprays, stun grenades, tear gas, water cannons, and like goods. In addition, ISA sanctions are to be imposed on any person determined to be selling such equipment to the IRGC. Sanctions a gainst Iranian Government Broadcasters /IRIB . Section 1248 of IFCA (Subtitle D of P.L. 112-239 ) mandates inclusion of the Islamic Republic of Iran Broadcasting (IRIB), the state broadcasting umbrella group, as a human rights abuser. IRIB was designated as an SDN on February 6, 2013, under E.O. 13628 for limiting free expression in Iran. On February 14, 2014, the State Department waived IFCA sanctions under Sections 1244, 1246, or 1247, on any entity that provides satellite connectivity services to IRIB. The waiver has been renewed each year since. Sanctions a gainst Iranian Profiteers . Section 1249 of IFCA amends Section 105 by imposing sanctions on any person determined to have engaged in corruption or to have diverted or misappropriated humanitarian goods or funds for such goods for the Iranian people. The measure is intended to sanction Iranian profiteers who are, for example, using official connections to corner the market for vital medicines. This provision, which remains in forces, essentially codifies a similar provision of Executive Order 13645. The Countering America's Adversaries through Sanctions Act (CAATSA, P.L. 115-44 ). Section 106 authorizes, but does not require, the imposition of the same sanctions as those prescribed in E.O. 13553 on persons responsible for extrajudicial killings, torture, or other gross violations of internationally recognized human rights against Iranians who seek to expose illegal activity by officials or to defend or promote human rights and freedoms in Iran. The persons to be sanctioned are those named in a report provided 90 days after CAATSA enactment (by October 31, 2017) and annually thereafter. The provision is similar to E.O. 13553 but, in contrast, applies broadly to Iranian human rights abuses and is not limited to abuses connected to suppressing the June 2009 uprising in Iran. Additional designations of Iranian human rights abusers under E.O. 13533 were made subsequent to the enactment of CAATSA and the October 31, 2017, CAATSA report deadline. Separate Visa Bans. On July 8, 2011, the State Department imposed visa restrictions on 50 Iranian officials for participating in political repression in Iran, but it did not name those banned on the grounds that visa records are confidential. The action was taken under the authorities of Section 212(a)(3)(C) of the Immigration and Nationality Act, which renders inadmissible to the United States a foreign person whose activities could have serious consequences for the United States. On May 30, 2013, the State Department announced it had imposed visa restrictions on an additional 60 Iranian officials on similar grounds. High Level Iranian Visits . There are certain exemptions in the case of high level Iranian visits to attend U.N. meetings in New York. The U.N. Participation Act (P.L. 79-264) provides for U.S. participation in the United Nations and as host nation of U.N. headquarters in New York, and visas are routinely issued to heads of state and their aides attending these meetings. In September 2012, the State Department refused visas for 20 members of Iranian President Ahmadinejad's traveling party on the grounds of past involvement in terrorism or human rights abuses. Still, in line with U.S. obligations under the act, then-President Ahmadinejad was allowed to fly to the United States on Iran Air, even though Iran Air was at the time a U.S.-sanctioned entity, and his plane reportedly was allowed to park at Andrews Air Force base.", "U.N. sanctions on Iran, enacted by the Security Council under Article 41 of Chapter VII of the U.N. Charter, applied to all U.N. member states. During 2006-2008, three U.N. Security Council resolutions—1737, 1747, and 1803—imposed sanctions on Iran's nuclear program and weapons of mass destruction (WMD) infrastructure. Resolution 1929, adopted on June 9, 2010, was key for its assertion that major sectors of the Iranian economy support Iran's nuclear program—giving U.N. member states authorization to sanction civilian sectors of Iran's economy. It also imposed strict limitations on Iran's development of ballistic missiles and imports and exports of arms.", "U.N. Security Council Resolution 2231 of July 20, 2015\nendorsed the JCPOA and superseded all prior Iran-related resolutions as of Implementation Day (January 16, 2016). lifted all U.N. sanctions discussed above. The Resolution did not continue the mandate of the \"the panel of experts\" and the panel ended its operations. \"calls on\" Iran not to develop ballistic missiles \"designed to be capable\" of delivering a nuclear weapon for a maximum of eight years from Adoption Day (October 18, 2015). The restriction expires on October 18, 2023. And, 2231 is far less restrictive on Iran's missile program than is Resolution 1929. No specific sanctions are mandated in the Resolution if Iran conducted missile tests inconsistent with the Resolution. The JCPOA did not impose any specific missile-related requirements. requires Security Council approval for Iran to export arms or to purchase any arms (major combat systems named in the Resolution) for a maximum of five years from Adoption Day (until October 18, 2020). The JCPOA does not impose arms requirements.\nThe U.S. withdrawal from the JCPOA did not change the status of Resolution 2231.", "U.N. and International Atomic Energy Agency reports since the JCPOA began implementation have stated that Iran is complying with its nuclear obligations under the JCPOA. That assessment was corroborated by U.S. intelligence leaders in January 29, 2019, testimony before the Senate Select Committee on Intelligence.\nU.N. reports on Iranian compliance with Resolution 2231 have noted assertions by several U.N. Security Council members, including the United States, that Iranian missile tests have been inconsistent with the Resolution. U.S. officials have called some of Iran's launches of its Khorramshahr missile as violations of the Resolution. The reports required by Resolution 2231, as well as those required by other Resolutions pertaining to various regional crises, such as that in Yemen, also note apparent violations of the Resolution 2231 restrictions on Iran's exportation of arms. The Security Council is responsible for prescribing penalties on Iran for violations, and no U.N. Security Council actions have been taken against Iran for these violations to date.", "Under Paragraph 6(c) of Annex B of Resolution 2231, entities sanctioned by the previous Iran-related Resolutions would continue to be sanctioned for up to eight years from Adoption Day (until October 2023). An attachment to the Annex listed 36 entities for which this restriction would no longer apply (entities \"delisted\") as of Implementation Day. Most of the entities immediately delisted were persons and entities connected to permitted aspects of Iran's nuclear program and its civilian economy. According to press reports, two entities not on the attachment list, Bank Sepah and Bank Sepah International PLC, also were delisted on Implementation Day by separate Security Council action. Paragraph 6(c) provides for the Security Council to be able to delist a listed entity at any time, as well as to add new entities to the sanctions list. Delisted entities are in italics in the table of U.N.-listed sanctioned entities at the end of the report.", "The following sections discuss sanctions relief provided under the November 2013 interim nuclear agreement (JPA) and, particularly, the JCPOA. Later sections discuss the degree to which Iran is receiving the expected benefits of sanctions relief.", "U.S. officials said that the JPA provided \"limited, temporary, targeted, and reversible\" easing of international sanctions. Under the JPA (in effect January 20, 2014-January 16, 2016)\nIran's oil customers were not required reduce their oil purchases from Iran because waivers were issued for Section 1245(d)(1) of the National Defense Authorization Act for FY2012 ( P.L. 112-81 ) and Section 1244c(1) of IFCA. The Waivers of ITRSHRA and ISA provisions were issued to permit transactions with NIOC. The European Union amended its regulations to allow shipping insurers to provide insurance for ships carrying oil from Iran. A waiver of Section 1245(d)(1) of IFCA allowed Iran to receive directly $700 million per month in hard currency from oil sales and $65 million per month to make tuition payments for Iranian students abroad (paid directly to the schools). Executive Orders 13622 and 13645 and several provisions of U.S.-Iran trade regulations were suspended. Several sections of IFCA were waived to enable Iran to sell petrochemicals and trade in gold and other precious metals, and to conduct transactions with foreign firms involved in Iran's automotive manufacturing. Executive Order 13382 provisions and certain provisions of U.S.-Iran trade regulations were suspended for equipment sales to Iran Air. The United States licensed some safety-related repairs and inspections for certain Iranian airlines and issued a new \"Statement of Licensing Policy\" to enable U.S. aircraft manufacturers to sell equipment to Iranian airlines. The JPA required that the P5+1 \"not impose new nuclear-related sanctions ... to the extent permissible within their political systems.\"", "Under the JCPOA, sanctions relief occurred at Implementation Day (January 16, 2016), following IAEA certification that Iran had completed stipulated core nuclear tasks. U.S. secondary sanctions were waived or terminated, but most sanctions on direct U.S.-Iran trade. The secondary sanctions eased included (1) sanctions that limited Iran's exportation of oil and sanction foreign sales to Iran of gasoline and energy sector equipment, and which limit foreign investment in Iran's energy sector; (2) financial sector sanctions; and (3) sanctions on Iran's auto sector and trading in the rial . The EU lifted its ban on purchases of oil and gas from Iran; and Iranian banks were readmitted to the SWIFT electronic payments system. All U.N. sanctions were lifted.\nAll of the U.S. sanctions that were eased will go back into effect on November 4, 2018, in accordance with the May 8, 2018, announcement that the United States will cease participating in the JCPOA. The Administration has stated that the purpose of reimposing the sanctions is to deny Iran the revenue with which to conduct regional malign activities and advance its missile, nuclear, and conventional weapons programs.\nThe sanctions that went back into effect on August 7, 2018 (90-day wind-down period), are on\nthe purchase or acquisition of U.S. bank notes by Iran; Iran's trade in gold and other precious metals; transactions in the Iranian rial ; activities relating to Iran's issuing of sovereign debt; transactions with Iran in graphite, aluminum, steel, coal, and industrial software; importation of Iranian luxury goods to the United States; and the sale to Iran of passenger aircraft (and aircraft with substantial U.S. content).\nThe sanctions that went back into effect on November 5, 2018, are on\npetroleum-related transactions with Iran. port operators and energy, shipping, and shipbuilding sectors; and transactions by foreign banks with Iran's Central Banks (including the provision that restricts Iran's access to hard currency held in banks abroad).", "The laws below required waivers to implement U.S. commitments under the JCPOA, and all waivers were revoked in concert with the Trump Administration exit from the accord. All the provisions discussed below went back into effect on November 5, 2018.\nIran Sanctions Act . The blanket energy/economic-related provisions of the ISA of P.L. 104-172 , as amended. (Section 4(c)(1)(A) waiver provision.) The WMD-related provision of ISA was not waived. FY2012 NDAA . Section 1245(d) of the National Defense Authorization Act for FY2012 ( P.L. 112-81 ) imposes sanctions on foreign banks of countries that do not reduce Iran oil imports. Iran Threat Reduction and Syria Human Rights Act ( P.L. 112-158 ) . Sections 212 and 213—the economy-related provisions of the act—were waived. The human rights-related provisions of the law were not waived. Iran Freedom and Counter-proliferation Act . Sections 1244, 1245, 1246, and 1247 of the Iran Freedom and Counter-Proliferation Act (Subtitle D of P.L. 112-239 ). The core provision of CISADA ( P.L. 111-195 ) that sanctions foreign banks was not waived, but most listed Iranian banks were \"delisted\" to implement the JCPOA, thereby making this CISADA provision largely moot. The Administration relisted all delisted Iranian banks on November 5, 2018. Executive Orders: 13574, 13590, 13622, 13645, and Sections 5-7 and 15 of Executive Order 13628 were revoked outright by Executive Order 13716. The orders were reinstated on August 6, 2018, by Executive Order 13846. The United States \"delisted\" for sanctions the specified Iranian economic entities and personalities listed in Attachment III of the JCPOA, including the National Iranian Oil Company (NIOC), various Iranian banks, and many energy and shipping-related institutions. That step enabled foreign companies/banks to resume transactions with those entities without risking being penalized by the United States. The tables at the end of the report depict in italics those entities delisted. Entities that were to be delisted on \"Transition Day\" (October 2023) are in bold type. The Administration relisted these entities for secondary sanctions, with selected exceptions (such as the AEOI and 23 subsidiaries), on November 5, 2018. The continued de-listing of the nuclear entities was in order to allow European and other U.S. partners to continue providing civilian nuclear assistance to Iran as permitted under the JCPOA. The JCPOA required the U.S. Administration, by \"Transition Day,\" to request that Congress lift virtually all of the sanctions that were suspended under the JCPOA. No outcome of such a request is mandated. The JCPOA requires all U.N. sanctions to terminate after 10 years of adoption (\"Termination Day\"). The U.S.-related provisions are rendered moot by the U.S. exit from the JCPOA.", "Even though it has reimposed all U.S. sanctions on Iran, the Trump Administration has issued some exceptions that are provided for under the various U.S. sanctions laws, including the following:\nAs noted above, on November 5, 2018, eight countries were given the SRE to enable them to continue transactions with Iran's Central Bank and to purchase Iranian oil. At an April 10 hearing of the Senate Foreign Relations Committee, Secretary Pompeo appeared to indicate that the SREs would be renewed. However, on April 22 the Administration announced termination of the SREs as of their expiration on May 2, 2019. On May 3, the Administration ended some waivers under IFCA and various antiproliferation laws (discussed above) that allow international technical assistance to Iran's three nuclear sites permitted to operate under the JCPOA—the Fordow facility, the Bushehr nuclear power reactor, and the Arak heavy water plant. The Administration ended the waiver that enabled Rosatom (Russia) to remove Iran's LEU that exceeds the 300kg allowed stockpile, and that allowed Iran to export heavy water that exceeded the limits on that product to Oman. The waiver limitations also will prohibit the expansion of the Bushehr reactor by any supplier. In response, President Rouhani announced that Iran would no longer abide by the JCPOA stockpile limits. The Administration waived Section 1247(e) of IFCA to enable Iraq to continue paying for purchases of natural gas from Iran. The waiver term for that section is up to 180 days, but the Administration has been providing the waiver for 90-day increments. The Administration has issued the permitted IFCA exception for Afghan reconstruction to enable India to continue work at Iran's Chahbahar Port. A U.S. State Department official told Afghan leaders in mid-May 2019 that the exception would continue. The Administration has renewed the licenses of certain firms to enable them to continue developing the Rhum gas field in the North Sea that Iran partly owns.", "The JCPOA did not commit the United States to suspend U.S. sanctions on Iran for terrorism or human rights abuses, on foreign arms sales to Iran or sales of proliferation-sensitive technology such as ballistic missile technology, or on U.S.-Iran direct trade (with the selected exceptions of the latter discussed above). The sanctions below remained in place during JCPOA implementation and remain in effect now:\nE.O. 12959, the ban on U.S. trade with and investment in Iran; E.O. 13224 sanctioning terrorism entities, any sanctions related to Iran's designation as a state sponsor or terrorism, and any other terrorism-related sanctions. The JCPOA does not commit the United States to revoke Iran's placement on the terrorism list; E.O. 13382 sanctioning entities for proliferation; the Iran-Iraq Arms Non-Proliferation Act; the Iran-North Korea-Syria Non-Proliferation Act (INKSNA); the section of ISA that sanctions WMD- and arms-related transactions with Iran; E.O. 13438 on Iran's interference in Iraq and E.O. 13572 on repression in Syria; Executive Orders (E.O. 13606 and E.O. 13628) and the provisions of CISADA, ITRSHRA, and IFCA that pertain to human rights or democratic change in Iran; all sanctions on the IRGC, military, proliferation-related, and human rights- and terrorism-related entities, which were not \"delisted\" from sanctions; Treasury Department regulations barring Iran from access to the U.S. financial system. Foreign banks can pay Iran in dollars out of their existing dollar supply, and the Treasury Department revised its guidance in October 2016 to stress that such transactions are permitted.", "Sanctions might have been reimposed by congressional action in accordance with President Trump's withholding of certification of Iranian compliance with the JCPOA. Such certification under the Iran Nuclear Agreement Review Act (INARA, P.L. 114-17 ), was withheld in October 2017 and January and April of 2018. Congress had the opportunity to act on legislation, under expedited procedures, to reimpose sanctions that were suspended. Congress did not take such action.\nAdditionally, the JCPOA (paragraph 36 and 37) contains a mechanism for the \"snap back\" of U.N. sanctions if Iran does not satisfactorily resolve a compliance dispute. According to the JCPOA (and Resolution 2231), the United States (or any veto-wielding member of the U.N. Security Council) would be able to block a U.N. Security Council resolution that would continue the lifting of U.N. sanctions despite Iran's refusal to resolve the dispute. In that case \"... the provisions of the old U.N. Security Council resolutions would be reimposed, unless the U.N. Security Council decides otherwise.\" There are no indications that the Administration plans to try to snap back U.N. sanctions under this process. However, some observers maintain that the Administration assertions in 2019 that Iran was not forthcoming with the IAEA about its past nuclear weapons research could potentially indicate that the Administration will trigger the snap-back mechanism.", "During 2010-2016, converging international views on Iran produced global consensus to pressure Iran through sanctions. In addition to asserting that the international community needed to ensure that Iran did not develop a nuclear weapon, some countries joined the sanctions regime to head off unwanted U.S. or other military action against Iran. Some countries cooperated in order to preserve their close relationships with the United States. This section assesses international cooperation and compliance with U.S. sanctions, and cooperation with U.S. sanctions reimposed as a consequence of the May 8, 2018, U.S. exit from the JCPOA. All the JCPOA parties publicly opposed the U.S. decision to exit the JCPOA and have sought to stay engaged in the Iran market in order to continue to provide the JCPOA's economic benefits to Iran.\nA comparison between U.S., U.N., and EU sanctions against Iran is contained in Table A-1 below. Broader issues of Iran's relations with the countries discussed in this section can be found in CRS Report R44017, Iran's Foreign and Defense Policies , by Kenneth Katzman.", "After the passage of Resolution 1929 in June 2010, European Union (EU) sanctions on Iran became nearly as extensive as those of the United States—a contrast from most of the 1990s, when the EU countries refused to join the 1995 U.S. trade and investment ban on Iran and (along with Japanese creditors) rescheduled $16 billion in Iranian debt bilaterally. In July 2002, Iran tapped international capital markets for the first time since the Islamic revolution, selling $500 million in bonds to European banks and, during 2002-2005, there were negotiations between the EU and Iran on a \"Trade and Cooperation Agreement\" (TCA) that would have lowered the tariffs or increased quotas for Iranian exports to the EU countries.\nUnder the JCPOA, EU sanctions, most of which were imposed in 2012, were lifted, including the following:\nthe ban on oil and gas imports from Iran. a ban on insurance for shipping oil or petrochemicals from Iran and a freeze on the assets of several Iranian firms involved in shipping. a ban on trade with Iran in gold, precious metals, diamonds, and petrochemicals. a freeze of the assets of Iran's Central Bank (except for approved civilian trade). a ban on transactions between European and all Iranian banks and on short-term export credits, guarantees, and insurance. a ban on exports to Iran of graphite, semi-finished metals such as aluminum and steel, industrial software, shipbuilding technology, oil storage capabilities, and flagging or classification services for Iranian tankers and cargo vessels. The cutoff of 14 EU-sanctioned Iranian banks from the Brussels-based SWIFT electronic payments system was lifted, and the Iranian banks resumed accessing the system in February 2016. A large number of entities that had been sanctioned by EU Council decisions and regulations over the years were \"delisted\" by the EU on Implementation Day.\nThe following EU sanctions have remained in place:\nan embargo on sales to Iran of arms, missile technology, other proliferation-sensitive items, and gear for internal repression. a ban on 84 Iranian persons and one entity—all designated for human rights abuses or supporting terrorism—from visiting EU countries, and a freeze on their EU-based assets (see Table C-1 below).", "The EU countries have not reimposed sanctions on Iran and instead have sought to preserve the JCPOA by maintaining economic relations with Iran. However, to avoid risk to their positions in the large U.S. market, more than 100 companies—mostly in Europe—have left Iran since May 2018. In some cases, European companies have stopped doing business with Iran after being threatened with U.S. sanctions by U.S. diplomats.\nSome of the 100+ European companies that have ended investments in or transactions with Iran to avoid reimposed U.S. sanctions include the following:\nOil Importation. No EU state has bought Iranian oil since U.S. energy sanctions went back into effect in November 2018, even though Italy and Greece were given SRE sanctions exemptions from November 5, 2018, until May 2, 2019. Cars. Renault and Citroen of France suspended their post-JCPOA $1 billion investments in a joint venture with two Iranian firms to boost Renault's car production capacity in Iran to 350,000 cars per year. On August 6, 2018, Daimler (manufacturer of Mercedes Benz autos) announced it was suspending its activities in Iran. Volkswagen followed suit one month later. Buses. Scania of Sweden established a factory in Iran to supply the country with 1,350 buses, but it is not clear whether this venture is still operating. Other Industry . German industrial giant Siemens signed an agreement in March 2016 with Iranian firm Mapna to transfer technology to produce gas turbines in Iran, and other contracts to upgrade Iran's railways. Siemens said in late 2018 that it would pursue no new Iranian business. Italy's Danieli industrial conglomerates and Gruppo Ventura have exited the Iranian market. Banking . Several banks have announced since the U.S. JCPOA exit a cessation of transactions with Iran: DZ Bank and Allianz of Germany; Oberbank of Austria; and Banque Wormser Freres of France. In July 2018, at U.S. request, Germany's central bank (Deutsche Bundesbank) introduced a rule change that blocked Iran's withdrawal of $400 million in cash from the Europaische-Iranische Handlesbank (EIH). EIH is reportedly at least partly owned by Iran and has often partnered on transactions with the Bundesbank. (EIH was \"de-listed\" from sanctions by the United States to implement the JCPOA, but was relisted on November 5, 2018.) Energy. On energy issues: Total SA has exited a nearly $5 billion energy investment in South Pars gas field, and it is transferring its stake to its joint venture partner, China National Petroleum Corporation. As noted above, European countries have reduced their purchases of Iranian oil. OMV of Austria has announced it would halt energy development work. Norway's Saga Energy (Norway is not in the EU) signed a $3 billion deal to build solar power plants in Iran, and Italy's FS signed a $1.4 billion agreement to build a high speed railway between Qom and Arak. These deals are still active. Shipping. Hapag-Lloyd of Germany and Denmark's AP Moller-Maersk have ceased shipping services to Iran. Telecommunications. Germany telecommunications firm Deutsche Telekom announced in September 2018 that it would end its business in Iran. Flights. Although air service is not subject to U.S. sanctions per se, Air France and British Air announced in September 2018 that they would cease service to Iran due to lack of demand. Rhum Gas Field . One project, the Rhum gas field in the North Sea that is partly owned by Iranian Oil Company (a subsidiary of NIOC), has been able to continue operating. In part because the field supplies about 5% of Britain's demand for natural gas, in October 2018, the Trump Administration renewed the license of BP and Serica Energy to continue providing goods and services to the field, despite the Iranian involvement in the project.", "The EU countries, in an attempt to persuade Iran to continue to adhere to the JCPOA, have undertaken several steps that run counter to Trump Administration policy. On August 6, 2018, a 1996 EU \"blocking statute\" that seeks to protect EU firms from reimposed U.S. sanctions took effect. In September 2018, EU countries announced small amounts of development assistance to Iran, apparently in order to demonstrate that the EU is making good faith efforts to provide Iran the economic benefits of the JCPOA.\nThe EU subsequently designed a mechanism under which EU countries could continue to trade with Iran with relative immunity from U.S. sanctions. On September 25, 2018, Germany, France, and Britain, joined by Russia and China, as well as Iran, endorsed the creation of a \"special purpose vehicle\" (SPV)—an entity that would facilitate trade without utilizing dollar-denominated transactions with Iran, and without exposure to the U.S. market. In a January 31, 2019, joint statement, France, Britain, and Germany announced the formal registration of the SPV, formally termed the Instrument for Supporting Trade Exchanges (INSTEX). It is based in France, with German governance, and financial support from the three governments. It will initially focus on the sectors most essential to Iran, including medicines, medical devices, and food, and perhaps eventually provide a platform for non-European countries to trade with Iran in oil and other products. The operation of INSTEX depended on Iran setting up a counterparty vehicle in Europe and, in April 2019, Iran set up that counterparty as the \"Special Trade and Finance Instrument\" (STFI).\nSecretary of State Michael Pompeo denounced the plan as counterproductive, and Vice President Mike Pence, in mid-February 2019, criticized INSTEX as an outright attempt to undermine U.S. sanctions against Iran. Amid reported agitation among Iranian regime hardliners to exit the JCPOA because of the EU's failure to prevent harm to the Iranian economy, Iranian officials indicated the announcement represented a positive first step. Indicative of U.S. pressure on the EU not to begin INSTEX operations, on May 7, 2019, Treasury Department Under Secretary for Terrorism and Financial Intelligence Sigal Mandelker said that INSTEX is unlikely to fulfill EU pledges to prevent INSTEX from being used by Iran to launder money or fund terrorism. Mandelker's statement included an implicit threat to potentially sanction INSTEX or its counterparties. The U.S. concerns about INSTEX might be a product, at least in part, of the alleged involvement of sanctioned Iranian banks in Iran's STFI counterparty.", "While attempting to preserve civilian economic engagement with Iran, the European countries have sought to support U.S. efforts to counter Iran's terrorism and proliferation activities.\nIn December 2018, Albania expelled Iran's ambassador and one other Iranian diplomat for involvement in a terrorism plot that was thwarted. In January 2019, the EU added Iran's intelligence service (MOIS) and two intelligence operatives to its terrorism-related sanctions list in response to allegations of Iranian terrorism plotting in Europe. Germany followed that move by denying landing rights to Iran's Mahan Air, which the United States has designated as a terrorism supporting entity.", "The management of the Brussels-based Swift electronic payments system has sought to balance financial risks with the policies of the EU governments. In March 2012, SWIFT acceded to an EU request to expel sanctioned Iranian banks. Some Iranian banks were still able to conduct electronic transactions with the European Central Bank via the \"Target II\" system. EU diplomats indicated they would not comply with U.S. requests to ask SWIFT to expel Iranian banks again, and no EU request to SWIFT to again expel sanctioned Iranian banks was made. However, SWIFT is run by an independent board and seeks to avoid risk of U.S. penalties. In late 2018, the system again disconnected the Iranian banks that were \"relisted\" for U.S. sanctions as of November 5, 2018.", "Russia and China, two permanent members of the U.N. Security Council and parties to the JCPOA, historically have imposed only those sanctions required by Security Council resolutions. Both governments opposed the U.S. withdrawal from the JCPOA. Many observers expect that, because companies in both countries have limited U.S. exposure and are strongly influenced by their governments, much of Iran's trade and economic engagement will shift to China and Russia from EU countries, Japan, and South Korea.", "Increasingly close politically primarily on the issue of the conflict in Syria, Iran and Russia have discussed expanding energy and trade cooperation. The two countries reportedly agreed on broad energy development deals during President Putin's visit to Tehran in late October 2017, with an estimated investment value of up to $30 billion, although implementation remains uncertain. In December 2018, Iran signed a free trade deal with the Russia-led \"Eurasian Economic Union,\" suggesting Russian intent not to abide by reimposed U.S. sanctions on Iran. The revenues of Russia's Rosatam conglomerate are likely to be reduced as a consequence of the Trump Administration's May 2019 ending of waivers for some assistance to Iran's nuclear program.\nIn April 2015, Russia lifted its own restriction on delivering the S-300 air defense system that it sold Iran in 2007 but refused to deliver after Resolution 1929 was adopted—even though that Resolution technically did not bar supply of that defensive system. In April 2016, Russia began delivering the five S-300 batteries. Iran's Defense Minister visited Russia in February 2016 to discuss possible future purchases of major combat systems. No sales have been announced.", "China is a major factor in the effectiveness of any sanctions regime on Iran because China is Iran's largest oil customer. During 2012-2016, China was instrumental in reducing Iran's total oil exports because it cut its buys from Iran to about 435,000 barrels per day from its 2011 average of 600,000 barrels per day. The State Department asserted that, because China was the largest buyer of Iranian oil, percentage cuts by China had a large impact in reducing Iran's oil sales by volume and China merited an SRE. After sanctions were lifted in early 2016, China increased its purchases of Iranian oil to levels that sometimes exceeded those of 2011. Several Chinese energy firms that invested in Iran's energy sector put those projects on hold in 2012, but resumed or considered resuming work after sanctions were eased in 2016. Chinese firms also took over some EU country energy investments that have been divested after the reimposition of U.S. sanctions.\nSince the reimposition of U.S. sanctions, China appears to have reduced its oil imports from Iran somewhat (see Table 1 . The Administration gave China a SRE sanctions exception on November 5, 2018, in part to recognize import reductions but also possibly to avoid further complicating U.S. relations with China. However, China reportedly is continuing to import at least some Iranian oil despite the ending of the SRE as of May 2, 2019, in large part on the expectation that the Trump Administration will be hesitant to impose actual sanctions on Chinese banks for continuing to engage with Iran on oil payments. Prior to the expiration of the SREs, China had stockpiled 20 million barrels of Iranian oil at its Dalian port.\nSanctions have complicated Iran-China banking and trade relations. During 2012-2016, China settled much of its trade balance with Iran with goods rather than hard currency, which was highly favorable to China financially. Iran's automotive sector obtains a significant proportion of its parts from China, including from China-based Geelran and Chery companies, and Iran's auto parts imports from China often fluctuate depending on the availability of trade financing. Iran and China also have a separate escrow account to pay for China's infrastructure projects in Iran, such as the long Niayesh Tunnel, funded by about $20 billion of Iran's hard currency reserves. However, suggesting that reimposed U.S. sanctions have again complicated Iran-China banking relations, China's Kunlun Bank—an affiliate of China's energy company CNPC and which was sanctioned under CISADA in 2012 as the main channel for money flows between the two countries—reportedly stopped accepting Euro and then China currency-denominated payments from Iran in November 2018. Existing Iranian accounts at the bank presumably can still be used to pay for Iranian imports from China.\nChina's President Xi Jinping visited Iran and other Middle East countries in the immediate aftermath of the JCPOA, and he has stated that Iran is a vital link in an effort to extend its economic influence westward through its \"One Belt, One Road\" initiative. Chinese firms and entrepreneurs are integrating Iran into this vision by modernizing Iran's rail and other infrastructure, particularly where that infrastructure links to that of neighboring countries, including the Sultanate of Oman, funded by loans from China. Iran's place in this initiative offers China's government and firms incentive to avoid cooperating with U.S. sanctions.\nIn April 2018, the Commerce Department (Bureau of Industry and Security, BIS, which administers Export Administration Regulations) issued a denial of export privileges action against China-based ZTE Corporation and its affiliates. The action was taken on the grounds that ZTE did not uphold the terms of March 2017 settlement agreement with BIS over ZTE's shipment of prohibited U.S. telecommunications technology to Iran (and North Korea). On March 27, 2019, OFAC announced a $1.9 million settlement with a Chinese subsidiary of the U.S. Black and Decker tool company for unauthorized exports of tools and parts to Iran.", "During 2010-2016, Japan and South Korea enforced sanctions on Iran similar to those imposed by the United States and the EU. Both countries cut imports of Iranian oil sharply after 2011, and banks in the two countries restricted Iran's access to the foreign exchange assets Iran held in their banks. From 2016-2018, both countries increased importation of Iranian oil, and Iran has been able to access funds in banks in both countries. Japan exports to Iran significant amounts of chemical and rubber products, as well as consumer electronics. South Korean firms have been active in energy infrastructure construction in Iran, and its exports to Iran are mainly iron, steel, consumer electronics, and appliances—meaning that South Korea could be affected significantly by the May 2019 executive order sanctioning transactions with Iran's minerals and metals sector.\nBoth countries—and their companies—have historically been unwilling to undertake transactions with Iran that could violate U.S. sanctions, and firms in both countries have said they will comply with reimposed U.S. sanctions. South Korea, in particular, sought Administration concurrence to continue to import Iranian condensates (a petroleum product sometimes considered as crude oil), on which South Korea depends. Both countries reduced their Iranian oil purchases to zero in October 2018 and both countries received SRE sanctions exceptions on November 5. Japan resumed some Iranian oil importation in early 2019, and South Korea has been purchasing about 200,000 barrels per day of Iranian condensates. Both countries are widely assessed as likely to cease energy transactions with Iran entirely as a result of the Administration's decision to end SREs as of May 2, 2019, and South Korea reportedly is seeking to replace Iranian condensates supplies with those of Qatar and Australia.\nThe following firms have announced their postures following the U.S. exit from the JCPOA:\nDaelim of South Korea terminated a $2 billion contract to expand an Iranian oil refinery. In late October, Hyundai cancelled a $500 million contract to build a petrochemical plant in Iran, citing \"financing difficulties.\" Car companies Mazda and Toyota of Japan and Hyundai of South Korea have suspended joint ventures to produce cars in Iran. Among banks, South Korea's Woori Bank and Industrial Bank of Korea have partly suspended transactions with Iran. Woori Bank reportedly is only using an Iran Central Bank account held there to process payments for South Korean humanitarian goods sold to Iran. Nomura Holdings of Japan has taken a similar position. The South Korean conglomerate POSCO withdrew from a 2016 deal to build a steel plant in Iran's free trade zone at the port of Chahbahar.", "North Korea, like Iran, has been subject to significant international sanctions. North Korea has never pledged to abide by international sanctions against Iran, and it reportedly cooperates with Iran on a wide range of WMD-related ventures, particularly the development of ballistic missiles. A portion of the oil that China buys from Iran (and from other suppliers) is reportedly sent to North Korea, but it is not known if North Korea buys any Iranian oil directly. The potential for North Korea to try to buy Iranian oil illicitly increased in the wake of the adoption in September 2017 of U.N. Security Council sanctions that limit North Korea's importation of oil, but there are no publicly known indications that it is doing so. While serving as Iran's president in 1989, the current Supreme Leader, Ayatollah Ali Khamene'i, visited North Korea. North Korea's titular head of state Kim Yong Nam attended President Rouhani's second inauguration in August 2017, and during his visit signed various technical cooperation agreements of unspecified scope.", "Taiwan has generally been a small buyer of Iranian oil. It resumed imports of Iranian oil after sanctions were eased in 2016. Taiwan received an SRE as of November 5, 2018, but has bought no Iranian oil since late 2018. It is unlikely to resume any Iranian oil imports now that the SREs have ended as of May 2, 2019.", "", "India cites U.N. Security Council resolutions on Iran as justification for its stances on trade with Iran. During 2011-2016, with U.N. sanctions in force, India's private sector assessed Iran as a \"controversial market\"—a term describing markets that entail reputational and financial risks. India's central bank ceased using a Tehran-based regional body, the Asian Clearing Union, to handle transactions with Iran, and the two countries agreed to settle half of India's oil buys from Iran in India's currency, the rupee. Iran used the rupee accounts to buy India's wheat, pharmaceuticals, rice, sugar, soybeans, auto parts, and other products.\nIndia reduced its imports of Iranian oil substantially after 2011, in the process incurring significant costs to retrofit refineries that were handling Iranian crude. However, after sanctions were eased in 2016, India's oil imports from Iran increased to as much as 800,000 bpd in July 2018—well above 2011 levels. Indian firms resumed work that had been ended or slowed during 2012-2016. India also paid Iran the $6.5 billion it owed for oil purchased during 2012-2016.\nIndia's cooperation with reimposed U.S. sanctions is mixed because no U.N. sanctions have been reimposed. In June 2018, the two countries again agreed to use rupee accounts for their bilateral trade. Nonetheless, India's purchases of Iranian oil appear to have fallen from levels of most of 2018, but volumes remain substantial. India received the SRE exception on November 5, 2018. Because some Indian banks do not have or seek a presence in the United States, it was widely expected that India and Iran will work out alternative payment arrangements under which India will continue importing at least some Iranian oil despite the end of the SRE as of May 2, 2019. However, Indian officials said in early May 2019 that India would comply with U.S. sanctions and find alternative suppliers, although some industry sources indicate that Indian refiners might still be buying some Iranian oil as of mid-May 2019.\nIn 2015, India and Iran agreed that India would help develop Iran's Chahbahar port that would enable India to trade with Afghanistan unimpeded by Pakistan. With sanctions lifted, the project no longer entails risk to Indian firms involved. In May 2016, Indian Prime Minister Narendra Modi visited Iran and signed an agreement to invest $500 million to develop the port and related infrastructure. Construction at the port is proceeding. As noted above, the Administration has utilized the \"Afghanistan reconstruction\" exception under Section 1244(f) of IFCA to allow for firms to continue developing it.", "One test of Pakistan's compliance with sanctions was a pipeline project that would carry Iranian gas to Pakistan—a project that U.S. officials on several occasions stated would be subject to ISA sanctions. Despite that threat, agreement on the $7 billion project was finalized on June 12, 2010, and construction was formally inaugurated in a ceremony attended by the Presidents of both countries on March 11, 2013. In line with an agreed completion date of mid-2014, Iran reportedly completed the pipeline on its side of the border. China's announcement in April 2015 of a $3 billion investment in the project seemed to remove financial hurdles to the line's completion, and the JCPOA removed sanctions impediments to the project. However, during President Hassan Rouhani's visit to Pakistan in March 2016, Pakistan still did not commit to complete the line, and observers note that there are few indications of progress on the project. In 2009, India dissociated itself from the project over concerns about the security of the pipeline, the location at which the gas would be transferred to India, pricing of the gas, and tariffs.", "Iran has substantial economic relations with Turkey and the countries of the South Caucasus.", "Turkey buys about 40% of its oil from Iran, and bought about 6% of its total gas imports from Iran in 2017. Turkey reduced purchases of Iranian oil during 2012-2016, but its buys returned to 2011 levels after sanctions on Iran were eased in 2016. Turkey's leaders have said that the country will not cooperate with reimposed U.S. sanctions, but its oil import volumes from Iran have fallen since late 2018. Turkey received an SRE sanctions exemption on November 5, 2018, and its officials strongly indicated in late April 2019 that Turkey expected to receive another SRE as of the May 2, 2019, expiration. Turkey's insistence on being allowed to buy Iranian oil without fear of U.S. penalty—as well as its overall dependence on Iranian oil—might underpin a reported decision by Turkey to continue buying at least some Iranian oil despite the expiration of the SRE exception.\nTurkey also is Iran's main gas customer via a pipeline built in 1997, which at first was used for a swap arrangement under which gas from Turkmenistan was exported to Turkey. Direct Iranian gas exports to Turkey through the line began in 2001 (with additional such exports through a second pipeline built in 2013), but no ISA sanctions were imposed on the grounds that the gas supplies were crucial to Turkey's energy security. Prior to the October 2012 EU ban on gas purchases from Iran, this pipeline was a conduit for Iranian gas exports to Europe (primarily Bulgaria and Greece).\nPre-JCPOA, in response to press reports that Turkey's Halkbank was settling Turkey's payments to Iran for energy with gold, U.S. officials testified on May 15, 2013, that the gold going from Turkey to Iran consists mainly of Iranian private citizens' purchases of Turkish gold to hedge against the value of the rial . A U.S. criminal case involved a dual Turkish-Iranian gold dealer, Reza Zarrab, arrested in the United States in 2016 for allegedly violating U.S. sanctions prohibiting helping Iran deal in precious metals.\nAmong past cases of possible Turkish violations of Iran sanctions, on November 7, 2016, the U.S. Attorney for New York's Southern District indicted several individuals for using money services businesses in Turkey and in the UAE for conspiring to conceal from U.S. banks transactions on behalf of and for the benefit of sanctioned Iranian entities, including Mahan Air. On January 6, 2014, the Commerce Department blocked a Turkey-based firm (3K Aviation Consulting and Logistics) from re-exporting two U.S.-made jet engines to Iran's Pouya Airline.", "The rich energy reserves of the Caspian Sea create challenges for U.S. efforts to deny Iran financial resources. The Clinton and George W. Bush Administrations cited potential ISA sanctions to deter oil pipeline routes involving Iran—thereby successfully promoting an the alternate route from Azerbaijan (Baku) to Turkey (Ceyhan), which became operational in 2005. Section 6 of Executive Order 13622 exempts from sanctions any pipelines that bring gas from Azerbaijan to Europe and Turkey.\nAgreements reached in 2018 between Russia and the Caspian Sea states on the legal division of the sea could spawn new energy development in the Caspian. Iran's energy firms will undoubtedly become partners in joint ventures to develop the Caspian's resources, and Iran's involvement in such projects will require the Administration to determine whether to impose sanctions.\nIran's relations with Azerbaijan—even though that country is inhabited mostly by Shiite Muslims—are hindered by substantial political and ideological differences. Iran and Azerbaijan have in recent years tried to downplay these differences for joint economic benefit, and they have been discussing joint energy and infrastructure projects among themselves and with other powers, including Russia.\nIran and Armenia—Azerbaijan's adversary—have long enjoyed extensive economic relations: Armenia is Iran's largest direct gas customer, after Turkey. In May 2009, Iran and Armenia inaugurated a natural gas pipeline between the two, built by Gazprom of Russia. No determination of ISA sanctions was issued. Armenia has said its banking controls are strong and that Iran is unable to process transactions illicitly through Armenia's banks. However, observers in the South Caucasus assert that Iran is using Armenian banks operating in the Armenia-occupied Nagorno-Karabakh territory to circumvent international financial sanctions.", "The Gulf Cooperation Council states (GCC: Saudi Arabia, UAE, Qatar, Kuwait, Bahrain, and Oman) are oil exporters and close allies of the United States. As Iranian oil exports decreased after 2012, the Gulf states supplied the global oil market with additional oil. Since the U.S. exit from the JCPOA, U.S. officials have worked with Gulf oil exporters to ensure that the global oil market is well supplied even as Iranian oil exports fall. And the State Department's SRE announcement on April 22, 2019, indicated that the Administration is looking to Saudi Arabia and the UAE, in particular, to keep the global oil market well supplied after SREs end on May 2, 2019. Still, in order not to antagonize Iran, the Gulf countries maintain relatively normal trade with Iran. Some Gulf-based shipping companies, such as United Arab Shipping Company reportedly continued to pay port loading fees to such sanctioned IRGC-controlled port operators as Tidewater.\nThe UAE has attracted U.S. scrutiny because of the large presence of Iranian firms there, and several UAE-based firms have been sanctioned, as noted in the tables at the end of the report. U.S. officials praised the UAE's March 1, 2012, ban on transactions with Iran by Dubai-based Noor Islamic Bank, which Iran reportedly used to process oil payments. Some Iranian gas condensates (120,000 barrels per day) were imported by Emirates National Oil Company (ENOC) and refined mostly into jet fuel. Subsequent to the May 8, 2018, U.S. exit from the JCPOA, ENOC officials said they were trying to find alternative supplies of the hydrocarbon products it buys from Iran.\nIran and several of the Gulf states have had discussions on various energy and related projects, but few have materialized because of broad regional disputes between Iran and the Gulf states. Kuwait and Iran have held talks on the construction of a 350-mile pipeline that would bring Iranian gas to Kuwait, but the project does not appear to be materializing. Bahrain's discussions of purchasing Iranian gas have floundered over sharp political differences. Qatar and Iran share the large gas field in the Gulf waters between them, and their economic relations have become closer in light of the isolation of Qatar by three of its GCC neighbors, Saudi Arabia, UAE, and Bahrain. The only GCC state that has moved forward with economic joint ventures with Iran is Oman, particularly in the development of Oman's priority project to expand its port at Al Duqm port, which Oman and Iran envision as a major hub for regional trade. In September 2015, the two countries also recommitted to a gas pipeline joint venture.\nOmani banks, some of which operate in Iran, were used to implement some of the financial arrangements of the JPA and JCPOA. As a consequence, a total of $5.7 billion in Iranian funds had built up in Oman's Bank Muscat by the time of implementation of the JCPOA in January 2016. In its efforts to easily access these funds, Iran obtained from the Office of Foreign Assets Control (OFAC) of the Treasury Department a February 2016 special license to convert the funds (held as Omani rials) to dollars as a means of easily converting the funds into Euros. Iran ultimately used a different mechanism to access the funds as hard currency, but the special license issuance resulted in a May 2018 review by the majority of the Senate Permanent Subcommittee on Investigation to assess whether that license was consistent with U.S. regulations barring Iran access to the U.S. financial system.", "Iraq's attempts to remain close to its influential neighbor, Iran, have complicated Iraq's efforts to rebuild its economy yet avoid running afoul of the United States and U.S. sanctions on Iran. As noted above, in 2012, the United States sanctioned an Iraqi bank that was a key channel for Iraqi payments to Iran, but lifted those sanctions when the bank reduced that business. Iraq presented the United States with a sanctions-related dilemma in July 2013, when it signed an agreement with Iran to buy 850 million cubic feet per day of natural gas through a joint pipeline that enters Iraq at Diyala province and would supply several power plants. No sanctions were imposed on the arrangement, which was agreed while applicable sanctions were in effect. In May 2015, the Treasury Department sanctioned Iraq's Al Naser Airlines for helping Mahan Air (sanctioned entity) acquire nine aircraft.\nThe Trump Administration reportedly is seeking to accommodate Iraq's need for Iranian electricity supplies and other economic interactions. As of October 2018, Iraq reportedly has discontinued crude oil swaps with Iran—about 50,000 barrels per day—in which Iranian oil flowed to the Kirkuk refinery and Iran supplied oil to Iraq's terminals in the Persian Gulf.\nThe Administration reportedly has given Iraq waiver permission—apparently under Section 1247 of IFCA—to buy the Iranian natural gas that runs Iraq's power plants. That section provides for waivers of up to 180 days, but press reports indicate that the Administration has limited the waiver period to 90-day increments to give Iraq time to line up alternative supplies and equipment to generate electricity. The latest waiver rollover was in March 2019 and extends until June 2019. Iranian arms exports to Shia militias in Iraq remain prohibited by Resolution 2231, but no U.N. sanctions on that activity have been imposed to date.", "Iran has extensive economic relations with both Syria and Lebanon, countries where Iran asserts that core interests are at stake. The compliance of Syrian or Lebanese banks and other institutions with international sanctions against Iran was limited even during 2012-2015. Iran reportedly uses banks in Lebanon to skirt financial sanctions, according to a wide range of observers, and these banks are among the conduits for Iran to provide financial assistance to Hezbollah as well as to the regime of Syrian President Bashar Al Assad. However, some reports indicate that sanctions on Iran are adversely affecting Hezbollah's finances to the point where the party has had to cut expenses, request donations, and delay or reduce payments to its fighters.\nIn January 2017, Iran and Syria signed a series of economic agreements giving Iranian firms increased access to Syria's mining, agriculture, and telecommunications sectors, as well as management of a Syrian port.", "During the presidency of Ahmadinejad, Iran looked to several Latin American and African countries to try to circumvent international sanctions. For the most part, however, Iran's trade and other business dealings with these regions are apparently too modest to weaken the effect of international sanctions significantly.", "The united approach to sanctions on Iran during 2010-2016 carried over to international lending to Iran. The United States representative to international financial institutions is required to vote against international lending, but that vote, although weighted, is not sufficient to block international lending. No new loans have been approved to Iran since 2005, including several environmental projects under the Bank's \"Global Environmental Facility\" (GEF). The initiative slated more than $7.5 million in loans for Iran to dispose of harmful chemicals. The 2016 lifting of sanctions increased international support for new international lending to Iran, but the U.S. exit from the JCPOA will likely lead to differences between the United States and other lenders over extending any new loans to Iran.\nEarlier, in 1993, the United States voted its 16.5% share of the World Bank against loans to Iran of $460 million for electricity, health, and irrigation projects, but the loans were approved. To block that lending, the FY1994-FY1996 foreign aid appropriations ( P.L. 103-87 , P.L. 103-306 , and P.L. 104-107 ) cut the amount appropriated for the U.S. contribution to the bank by the amount of those loans, contributing to a temporary halt in new bank lending to Iran. But, in May 2000, the United States' allies outvoted the United States to approve $232 million in loans for health and sewage projects. During April 2003-May 2005, a total of $725 million in loans were approved for environmental management, housing reform, water and sanitation projects, and land management projects, in addition to $400 million in loans for earthquake relief.", "An issue related to sanctions is Iran's request to join the World Trade Organization (WTO). Iran began accession talks in 2006 after the George W. Bush Administration dropped its objection to Iran's application as part of an effort to incentivize Iran to reach an interim nuclear agreement. The lifting of sanctions presumably paves the way for talks to accelerate, but the accession process generally takes many years. Accession generally takes place by consensus of existing WTO members. Iran's accession might be complicated by the requirement that existing members trade with other members; as noted above, the U.S. ban on trade with Iran remains in force. The Trump Administration does not advocate Iran's admission to that convention.", "It can be argued that the question \"are sanctions on Iran 'working'?\" should be assessed based on an analysis of the goals of the sanctions. The following sections try to assess the effectiveness of Iran sanctions according to a number of criteria.", "The international sanctions regime of 2011-2016 is widely credited with increasing Iran's willingness to accept restraints on its nuclear program, as stipulated in the JCPOA. Hassan Rouhani was elected president of Iran in June 2013 in part because of his stated commitment to achieving an easing of sanctions and ending Iran's international isolation. Still, as to the long-term effects of sanctions, the intelligence community assesses that it \"does not know\" whether Iran plans to eventually develop a nuclear weapon, and the JCPOA restrictions begin to expire in 2025.\nIran remained in the JCPOA despite the U.S. exit from it, but Rouhani has announced that, in response to the ending of U.S. nuclear waivers and other steps such as the FTO designation of the IRGC, Iran will cease abiding by JCPOA restrictions on stockpiles of low-enriched uranium and heavy water. Still, Iran has not withdrawn from the JCPOA outright. Yet, Iranian leaders have not, to date, taken up the Trump Administration's stated offer for negotiations on a new agreement that would cover not only Iran's nuclear program but also its missile program and its regional malign activities. Both President Trump and President Rouhani have publicly said they would accept bilateral talks without conditions, but both leaders generally indicate that the other's demands are too extensive to make such a meeting productive.\nThere is little evidence that even the strict sanctions of 2011-2016 slowed Iran's nuclear program or its missile program. And, even though U.S. and EU sanctions remain on Iran's missile programs, U.S. intelligence officials have testified that Iran continues to expand the scale, reach, and sophistication of its ballistic missile arsenal. Still, some U.S. officials have asserted that Iran's nuclear and missile programs might have advanced faster were sanctions not imposed.\nSanctions have apparently prevented Iran from buying significant amounts of major combat systems since the early 1990s. Iran's indigenous arms industry has grown over the past two decades. U.S. intelligence directors testified in January 2019 that Iran continues to field increasingly lethal weapons systems, including more advanced naval mines and ballistic missiles, small submarines, armed UAVs (unmanned aerial vehicles), coastal defense cruise missile batteries, attack craft, and anti-ship ballistic missiles. Iran has been able to acquire some defensive systems that were not specifically banned by Resolution 2231; Russia delivered the S-300 air defense system in April 2016.", "Neither the imposition, lifting, nor reimposition of strict sanctions has appeared to affect Iran's regional behavior. Iran intervened extensively in Syria, Iraq, and Yemen during the 2012-2016 period when sanctions had a significant adverse effect on Iran's economy. Iran apparently is able to manufacture domestically much of the weaponry it supplies to its regional allies. Iran has remained engaged in these regional conflicts since sanctions were eased in early 2016.\nOn the other hand, press reports since March 2019 note that Iran has scaled back payments to Hezbollah and to various pro-Iranian fighters in Syria, perhaps as a reflection of Iranian financial difficulties. An alternate explanation is that Iran is adjusting its expenditures in the Syria conflict to the reduced activity on the battlefield there. The Administration points to reports of the reduced payments as evidence that its \"maximum pressure\" campaign on Iran is working.\nThe Administration has asserted that the easing of sanctions during the period of U.S. implementation of the JCPOA (2016-2018) caused Iran to expand its regional activities. President Trump stated that Iran's defense budget had increased 40% during that time. He stated on August 6, 2018, that \"Since the deal [JCPOA] was reached, Iran's aggression has only increased. The regime has used the windfall of newly accessible funds it received under the JCPOA to build nuclear-capable missiles, fund terrorism, and fuel conflict across the Middle East and beyond.... The reimposition of nuclear-related sanctions through today's actions further intensifies pressure on Tehran to change its conduct.\" However, most outside Iran experts who assess Iran's regional activities asserted that Iran's regional activities were not facilitated by the easing of sanctions during that period, but instead increased because of the opportunities to expand its influence that were provided by Iran by the region's several conflicts.\nIn terms of congressional oversight, a provision of the FY2016 Consolidated Appropriation ( P.L. 114-113 ) required an Administration report to Congress on how Iran has used the financial benefits of sanctions relief. And, a provision of the Iran Nuclear Agreement Review Act ( P.L. 114-17 ) requires that a semiannual report on Iran's compliance with the JCPOA include information on any Iranian use of funds to support acts of terrorism.", "No U.S. Administration, including the Trump Administration, has asserted that sanctions on Iran are intended to bring about the change of Iran's regime, although some experts assert that this might be a desired Trump Administration goal. Iranians seeking reintegration with the international community and sanctions relief helped propel the relatively moderate Rouhani to election victories in both 2013 and 2017. Many Iranians cheered the finalization of the JCPOA on July 15, 2015, undoubtedly contributing to Supreme Leader Khamene'i's acceptance of the deal. Despite the Trump Administration's withdrawal from the JCPOA and its additional steps to pressure Iran in 2019, there does not appear to be an imminent political threat to Rouhani's grip on his office.\nStill, the IRGC and other hardliners control domestic security and the judiciary, and these factions have criticized Rouhani for remaining in the JCPOA despite the U.S. exit. In July 2018, the IRGC and Iran's parliament ( Majles ) called for cabinet changes to address economic mismanagement and, in September 2018, the Majles compelled Rouhani to be questioned about the economic situation. In July 2018, Rouhani replaced Iran's Central Bank governor as an apparent gesture to indicate responsiveness to economic concerns. In February 2019, apparently under pressure from hardliners, Foreign Minister Mohammad Javad Zarif announced his resignation, but Rouhani—apparently as a challenge to the hardliners—did not accept the resignation and reinstated him.\nSome assert that the sanctions are sustaining the periodic unrest that has erupted in Iran since late 2017. In 2018 and thus far in 2019, labor strikes and unrest among women protesting the strict public dress code have continued, although not at a level that appears to threaten the regime. Other protests occurred over flooding in the southwest in March-April 2019, but again not to the level where the regime was threatened. Still, some protesters complain that the country's money is being spent on regional interventions rather than on the domestic economy.", "The U.S. sanctions enacted since 2011, when fully implemented, take a substantial toll on Iran's economy.\nGDP and Employment Trends . At the height of the sanctions regime in April 2015, then-Treasury Secretary Jacob Lew said that Iran's gross domestic product (GDP) was 15%-20% smaller than it would have been had global sanctions not been imposed in 2011. The unemployment rate rose to about 20% by 2014, and many Iranians worked unpaid or partially paid. In 2015, Iran's GDP was about $400 billion at the official exchange rate ($1.4 trillion if assessed on a purchasing power parity [PPP] basis). The 2016 lifting of sanctions enabled Iran to achieve 7% annual growth during 2016-2018. The reimposition of U.S. sanctions in mid-2018 caused Iran's GDP to decline 2% from March 2018 to March 2019, and it is projected to decline by more than 5% during March 2019-March 2020. Oil Exports . Global Iran sanctions (2011-2016) reduced Iran's crude oil sales about 60% from the 2.5 mbd level of 2011, causing Iran to lose over $160 billion in oil revenues during that time. The JCPOA sanctions relief enabled Iran to increase its oil exports to 2011 levels, but the reimposition of U.S. sanctions has driven Iran's oil exports to under 1 mbd as of the end of April 2019. The Trump Administration said in an April 2019 factsheet that the reimposition of sanctions since May 2018 has cost Iran $10 billion in lost oil revenues. The May 2019 end to SREs was an effort to cause Iran's oil exports to fall to zero, although results will depend on whether China, India, and Turkey continue buying Iran oil. Bankin g. Global banks mostly left the Iranian market after 2011 because of the international sanctions in force. Banks were hesitant to reenter the Iran market after the 2016 easing of sanctions because of (1) reported concerns that the United States might still sanction their transactions with Iran; (2) a lack of transparency in Iran's financial sector; (3) lingering concerns over past financial penalties for processing Iran-related transactions in the U.S. financial system; and (4) extra costs and procedures caused by the inability to process Iran-related transactions through the U.S. financial system and/or easily use dollars in Iran-related transactions. Those banks that did reenter the Iran market have, as a consequence of the U.S. exit from the JCPOA, stopped or limited their transactions with Iran. Shipping Insurance . Iran was able after 2016 to obtain shipping insurance as a result of U.S. waivers given to numerous insurers, as discussed above. However, as of August 7, 2018, U.S.-based shipping reinsurers no longer have active U.S. waivers, and Iran has been compelled to self-insure most of its shipments. Hard Currency A ccessib ility . The 2011-2016 sanctions regime prevented Iran from accessing the hard currency it was being paid for its oil. By January 2016, Iran's hard currency reserves held in foreign banks stood at about $115 billion. Iranian officials stated in February 2016 that sanctions relief had allowed them to access the funds, and it could move the funds via renewed access to the SWIFT electronic payments system. Of this amount, about $60 billion was due to creditors such as China ($20 billion) or to repay nonperforming loans extended to Iranian energy companies working in the Caspian and other areas in Iran's immediate neighborhood. After 2016, Iran kept most of its reserves abroad for cash management and to pay for imports, but Iran's foreign reserves are again restricted by reimposed U.S. sanctions. Currency Decline . Sanctions caused the value of the rial on unofficial markets to decline about 60% from January 2012 until the 2013, when the election of Rouhani stabilized the rial at about 35,000 to the dollar. The reimposition of U.S. sanctions in 2018 caused the rial 's value to plummet to 150,000 to the dollar by the November 5, 2018. The value later recovered somewhat to about 100,000 to one at the beginning of 2019. The downturn has made it difficult for Iranian merchants to import goods or properly price merchandise, and the government has banned the importation of 1,400 goods to preserve hard currency. Inflation . The drop in value of the currency caused inflation to accelerate during 2011-2013 to a rate of about 60%—a higher figure than that acknowledged by Iran's Central Bank. As sanctions were eased, inflation slowed to the single digits by June 2016, meeting the Central Bank's stated goal. However, in 2017, the inflation rate reportedly increased back to double digits, and turmoil surrounding the possible U.S. exit from the JCPOA caused inflation to increase to about 15% by late June 2018. It increased significantly, to nearly 40%, by the end of 2018. Industrial/Auto Production and Sales . Iran's light-medium manufacturing sector was expanding prior to 2011, but its dependence on imported parts left the sector vulnerable to sanctions that reduced the availability of import financing. Iran's vehicle production fell by about 60% from 2011 to 2013. Press reports say that the auto sector, and manufacturing overall, rebounded since sanctions were lifted, but is declining again in light of the announced divestments by auto makers following the U.S. exit from the JCPOA. Researchers at Iran's parliament estimated in September 2018 that auto production would decline 45% by March 2019, and other industrial production would drop by 5%. U.S.-Iran Trade. U.S.-Iran trade remains negligible. In 2015, the last full year before JCPOA implementation, the United States sold $281 million in goods to Iran and imported $10 million worth of Iranian products. The slight relaxation of the U.S. import ban stemming from the JCPOA likely accounts for the significant increase in imports from Iran in 2016 to $86 million. U.S. imports from Iran were about $63 million in 2017 and about that same amount in 2018. U.S. exports to Iran remained low for all of 2016 and 2017 ($172 million and $137 million, respectively) but spiked to $440 million for 2018.", "Iran had some success mitigating the economic effect of sanctions. These strategies will likely be used to try to cope with reimposed U.S. sanctions.\nExport Diversification . Over the past 10 years, Iran has promoted sales of nonoil products such as minerals, cement, urea fertilizer, and other agricultural and basic industrial goods. Such \"nonoil\" exports now generate much of the revenue that funds Iran's imports. This diversification might have been a factor in the Trump Administration decision in May 2019 to sanction Iran's mineral and metals sector (see above). Even in the energy sector, Iran has promoted the sale of oil products such as petrochemicals and condensates, earning about $4.7 billion in revenue from that source by 2016.\nReallocation of Investment Funds and Import Substitution . Sanctions compelled some Iranian manufacturers to increase domestic production of some goods as substitutes for imports. This trend has been hailed by Iranian economists and Supreme Leader Khamene'i, who supports building a \"resistance economy\" that is less dependent on imports and foreign investment.\nPartial Privatization/IRGC in the Economy . Over the past few years, portions of Iran's state-owned enterprises have been transferred to the control of quasi-governmental or partially private entities. Some of them are incorporated as holding companies, foundations, or investment groups. Based on data from the Iranian Privatization Organization, there are about 120 such entities that account for a significant proportion of Iran's GDP. Rouhani has sought to push the IRGC out of Iran's economy through divestment, to the extent possible. However, a substantial part of the economy remains controlled by government-linked conglomerates, including the IRGC. Although estimates vary widely, the IRGC's corporate affiliates are commonly assessed as controlling at least 20% of Iran's economy, although there is little available information on the degree of IRGC-affiliated ownership stakes.\nSubsidy Reductions . In 2007, the Ahmadinejad government began trying to wean the population off of generous subsidies by compensating families with cash payments of about $40 per month. Gasoline prices were raised to levels similar to those in other regional countries, and far above the subsidized price of 40 cents per gallon. Rouhani has continued to reduce subsidies, including by raising gasoline and staple food prices further and limiting the cash payments to only those families who could claim financial hardship. Rouhani also has improved collections of taxes and of price increases for electricity and natural gas utilities.\nImport Restrictions /Currency Controls . To conserve hard currency, Iran has at times reduced the supply of hard currency to importers of luxury goods, such as cars or cellphones, in order to maintain hard currency supplies to importers of essential goods. These restrictions eased after sanctions were lifted in 2016 but were reimposed in 2018 to deal with economic unrest and the falling value of the rial .", "The Iran Sanctions Act (ISA) was enacted in large part to reduce Iran's oil and gas production capacity over the longer term by denying Iran the outside technology and investment to maintain or increase production. U.S. officials estimated in 2011 that Iran had lost $60 billion in investment in the sector as numerous major firms pulled out of Iran. Iran says it needs $130 billion-$145 billion in new investment by 2020 to keep oil production capacity from falling. Further development of the large South Pars gas field alone requires $100 billion. Table B-1 at the end of this report discusses various Iranian oil and gas fields and the fate of post-1999 investments in them.\nDuring 2012-2016, there was little development activity at Iran's various oil and gas development sites, as energy firms sought to avoid sanctions. Some foreign investors resold their equity stakes to Iranian companies. However, the Iranian firms are not as technically capable as the international firms that have withdrawn. The lifting of sanctions in 2016 lured at least some foreign investors back into the sector, encouraged by Iran's more generous investment terms under a concept called the \"Iran Petroleum Contract.\" That contract gives investing companies the rights to a set percentage of Iran's oil reserves for 20-25 years. Iran signed a number of new agreements with international energy firms since mid-2016 but, as noted in the tables and other information above, major energy firms have begun to divest in response to the U.S. exit from the JCPOA.\nSanctions relief also opened opportunities for Iran to resume developing its gas sector. Iran has used its gas development primarily to reinject into its oil fields rather than to export. Iran exports about 3.6 trillion cubic feet of gas, primarily to Turkey and Armenia. Sanctions have rendered Iran unable to develop a liquefied natural gas (LNG) export business. However, it was reported in March 2017 that the Philippine National Oil Company is seeking to build a 2-million-ton LNG plant in Iran, suggesting that patent issues do not necessarily preclude Iran from pursuing LNG.\nWith respect to gasoline, the enactment of the CISADA law targeting sales of gasoline to Iran had a measurable effect. Several suppliers stopped selling gasoline to Iran once enactment appeared likely, and others ceased supplying Iran after enactment. Gasoline deliveries to Iran fell from about 120,000 barrels per day before CISADA to about 30,000 barrels per day immediately thereafter, although importation later increased to about 50,000 barrels per day. As a result, Iran expanded several of its refineries and, in 2017, Iranian officials said Iran had become largely self-sufficient in gasoline production.", "It is difficult to draw any direct relationship between sanctions and Iran's human rights practices. Recent human rights reports by the State Department and the U.N. Special Rapporteur on Iran's human rights practices assess that there was only modest improvement in some of Iran's practices in recent years, particularly relaxation of enforcement of the public dress code for women. The altered policies cannot necessarily be attributed to sanctions pressure or sanctions relief, although some might argue that sanctions-induced economic dissatisfaction emboldened Iranians to protest and to compel the government to relax some restrictions.\nSince at least 2012, foreign firms have generally refrained from selling the Iranian government equipment to monitor or censor social media use. Such firms include German telecommunications firm Siemens, Chinese internet infrastructure firm Huawei, and South African firm MTN Group. In October 2012, Eutelsat, a significant provider of satellite service to Iran's state broadcasting establishment, ended that relationship after the EU sanctioned the then head of the Islamic Republic of Iran Broadcasting (IRIB), Ezzatollah Zarghami. However, the regime retains the ability to monitor and censor social media use.", "During 2012-2016, sanctions produced significant humanitarian-related effects, particularly in limiting the population's ability to obtain expensive Western-made medicines, such as chemotherapy drugs. Some of the scarcity was caused by banks' refusal to finance such sales, even though doing so was not subject to any sanctions. Some observers say the Iranian government exaggerated reports of medicine shortages to generate opposition to the sanctions. Other accounts say that Iranians, particularly those with connections to the government, took advantage of medicine shortages by cornering the import market for key medicines. These shortages resurfaced in 2018 following the reimposition of sanctions by the Trump Administration. For example, reports indicate that the reimposition of U.S. sanctions may be inhibiting the flow of humanitarian goods to the Iranian people and reportedly contributing to shortages in medicine to treat ailments such as multiple sclerosis and cancer. Other reports indicate that Cargill, Bunge, and other global food traders have halted supplying Iran because of the absence of trade financing. And, Iranian officials and some international relief groups have complained that U.S. sanctions inhibited the ability to provide relief to flooding victims in southwestern Iran in March-April 2019.\nEU officials have called on the United States to produce a \"white list\" that would \"give clear guidelines about what channels European banks and companies should follow to conduct legitimate [humanitarian] transactions with Iran without fear of future penalties.\" Iranian officials have also accused U.S. sanctions of hampering international relief efforts for victims of vast areas of flooding in southwestern Iran in the spring of 2019.\nOther reports say that pollution in Tehran and other big cities is made worse by sanctions because Iran produces gasoline itself with methods that cause more impurities than imported gasoline. As noted above, Iran's efforts to deal with environmental hazards and problems might be hindered by denial of World Bank lending for that purpose.\nIn the aviation sector, some Iranian pilots complained publicly that U.S. sanctions caused Iran's passenger airline fleet to deteriorate to the point of jeopardizing safety. Since the U.S. trade ban was imposed in 1995, 1,700 passengers and crew of Iranian aircraft have been killed in air accidents, although it is not clear how many of the crashes, if any, were due to difficultly in acquiring U.S. spare parts.", "Sanctions relief ameliorated at least some of the humanitarian difficulties discussed above. In the aviation sector, several sales of passenger aircraft have been announced, and licensed by the Department of the Treasury, since Implementation Day. However, as noted, the licenses are being revoked and deliveries will not proceed beyond November 2018.\nIn February 2016, Iran Air—which was delisted from U.S. sanctions as of Implementation Day—announced it would purchase 118 Airbus commercial aircraft at an estimated value of $27 billion. Airbus received an OFAC license and three of the aircraft have been delivered. Airbus has said it will not deliver any more aircraft to Iran because its U.S. Treasury Department license is revoked. In December 2016, Boeing and Iran Air finalized an agreement for Boeing to sell the airline 80 passenger aircraft and lease 29 others. Boeing received a specific license for the transaction. The deal has a total estimated value of about $17 billion, with deliveries scheduled to start later in 2018. The Boeing sale is to include 30 of the 777 model. None were delivered, and Boeing cancelled planned deliveries to Iran after its export licenses were revoked. In April 2017, Iran's Aseman Airlines signed a tentative agreement to buy at least 30 Boeing MAX passenger aircraft. No U.S. license for this sale was announced prior to the U.S. exit from the JCPOA. The airline is owned by Iran's civil service pension fund but managed as a private company. In June 2017, Airbus agreed to tentative sales of 45 A320 aircraft to Iran's Airtour Airline, and of 28 A320 and A330 aircraft to Iran's Zagros Airlines. No U.S. license for the sale was announced prior to the U.S. exit from the JCPOA. ATR, owned by Airbus and Italy's Leonardo, sold 20 aircraft to Iran Air. It delivered eight aircraft by the time of the U.S. JCPOA exit. It reportedly has been given temporary U.S. Treasury Department licenses to deliver another five after the August 6, 2018, initial sanctions reimposition in which its U.S. export licenses were to be revoked.", "JCPOA oversight and implications, and broader issues of Iran's behavior have been the subject of legislation.", "The JCPOA states that as long as Iran fully complies with the JCPOA, the sanctions that were suspended or lifted shall not be reimposed on other bases (such as terrorism or human rights). The Obama Administration stated that it would adhere to that provision but that some new sanctions that seek to limit Iran's military power, its human rights abuses, or its support for militant groups might not necessarily violate the JCPOA.", "The Iran Nuclear Agreement Review Act of 2015 (INARA, P.L. 114-17 ) provided for a 30- or 60-day congressional review period after which Congress could pass legislation to approve or to disapprove of the JCPOA, or do nothing. No such legislation of disapproval was enacted.\nThere are several certification and reporting requirements under INARA, although most of them clearly no longer apply as a result of the Trump Administration withdrawal:\nMaterial Breach Report . The President must report a potentially significant Iranian breach of the agreement within 10 days of acquiring credible information of such. Within another 30 days, the President must determine whether this is a material breach and whether Iran has cured the breach. Certification Report . The President is required to certify, every 90 days, that Iran is \"transparently, verifiably, and fully implementing\" the agreement, and that Iran has not taken any action to advance a nuclear weapons program. The latest certification was submitted on July 17, 2017, and another one was due on October 15, 2017. On October 13, 2017, the Administration declined to make that certification, on the grounds that continued sanctions relief is not appropriate and proportionate to Iran's measures to terminate its illicit nuclear program (Section (d)(6)(iv)(I) of INARA). If a breach is reported, or if the President does not certify compliance, Congress may initiate within 60 days \"expedited consideration\" of legislation that would reimpose any Iran sanctions that the President had suspended through use of waiver or other authority. That 60-day period is to expire on December 12, 2017. Semiannual Report. INARA also requires an Administration report every 180 days on Iran's nuclear program, including not only Iran's compliance with its nuclear commitments but also whether Iranian banks are involved in terrorism financing; Iran's ballistic missile advances; and whether Iran continues to support terrorism.", "The FY2016 Consolidated Appropriation ( P.L. 114-113 ) contained a provision amending the Visa Waiver Program to require a visa to visit the United States for any person who has visited Iraq, Syria, or any terrorism list country (Iran and Sudan are the two aside from Syria still listed) in the previous five years. Iran argued that the provision represented a violation of at least the spirit of the JCPOA by potentially deterring European businessmen from visiting Iran. The Obama Administration issued a letter to Iran stating it would implement the provision in such a way as not to not impinge on sanctions relief, and allowances for Iranian students studying in the United States were made in the implementing regulations. Another provision of that law requires an Administration report to Congress on how Iran has used the benefits of sanctions relief.\nPresident Trump has issued and amended executive orders that, in general, prohibit Iranian citizens (as well as citizens from several other countries) from entering the United States. This marked a significant additional restriction beyond the FY2016 Consolidated Appropriation.", "The 114 th Congress acted to prevent ISA from expiring in its entirety on December 31, 2016. The Iran Sanctions Extension Act ( H.R. 6297 ), which extended ISA until December 31, 2026, without any other changes, passed the House on November 15 by a vote of 419-1 and then passed the Senate by 99-0. President Obama allowed the bill to become law without signing it ( P.L. 114-277 ), even though the Administration considered it unnecessary because the President retains ample authority to reimpose sanctions on Iran. Iranian leaders called the extension a breach of the JCPOA, but the JCPOA's \"Joint Commission\" did not determine it breached the JCPOA.", "The conference report on the FY2017 National Defense Authorization Act ( P.L. 114-328 ) contained a provision (Section 1226) requiring a quarterly report to Congress on Iran's missile launches the imposition of U.S. sanctions with respect to Iran's ballistic missile launches until December 31, 2019. The conference report on the FY2018 NDAA ( P.L. 115-91 ) extended that reporting requirement until December 31, 2022. The report is to include efforts to sanction entities or individuals that assist those missile launches.", "The Iran Policy Oversight Act ( S. 2119 ) and the Iran Terror Finance Transparency Act ( H.R. 3662 ) contained a provision that would have added certification requirements for the Administration to remove designations of Iranian entities sanctioned. The House passed the latter bill but then vacated its vote. The IRGC Terrorist Designation Act ( H.R. 3646 / S. 2094 ) would have required a report on whether the IRGC meets the criteria for designation as a Foreign Terrorist Organization (FTO). The Obama Administration argued that the law that set up the FTO designations (Section 219 of the Immigration and Nationality Act [8 U.S.C. 1189]) applies such designations only to groups, rather than armed forces of a nation-state (which the IRGC is). The Prohibiting Assistance to Nuclear Iran Act ( H.R. 3273 ) would have prohibited the use of U.S. funds to provide technical assistance to Iran's nuclear program. The provision appeared to conflict with the provision of the JCPOA that calls on the P5+1 to engage in peaceful nuclear cooperation with Iran (Paragraph 32). The Justice for Victims of Iranian Terrorism Act ( H.R. 3457 / S. 2086 ) would have prohibited the President from waiving U.S. sanctions until Iran completed paying judgments issued for victims of Iranian or Iran-backed acts of terrorism. The House passed it on October 1, 2015, by a vote of 251-173, despite Obama Administration assertions that the bill would contradict the JCPOA. H.R. 3728 would have amended ITRSHRA to make mandatory (rather than voluntary) sanctions against electronic payments systems such as SWIFT if they were allowed to be used by Iran. The IRGC Sanctions Act ( H.R. 4257 ) would have required congressional action to approve an Administration request to remove a country from the terrorism list and would have required certification that any entity to be \"delisted\" from sanctions is not a member, agent, affiliate, or owned by the IRGC. The Iran Ballistic Missile Sanctions Act of 2016 ( S. 2725 ) would have required that specified sectors of Iran's economy (automotive, chemical, computer science, construction, electronic, energy metallurgy, mining, petrochemical, research, and telecommunications) be subject to U.S. sanctions, if those sectors were determined to provide support for Iran's ballistic missile program. A similar bill, H.R. 5631 , the Iran Accountability Act, which passed the House on July 14, 2016, by a vote of 246-179, would have removed some waiver authority for certain provisions of several Iran sanctions laws and required sanctions on sectors of Iran's civilian economy determined to have supported Iran's ballistic missile program. The latter provision, as did S.2725, appeared to contradict the JCPOA. In the 115 th Congress, S. 15 and key sections of S. 227 and H.R. 808 (Iran Nonnuclear Sanctions Act of 2017) mirror S. 2725 . H.R. 4992 , which passed the House on July 14, 2016, by a vote of 246-181, and the related Countering Iranian Threats Act of 2016 ( S. 3267 ), would have, among their central provisions, required foreign banks and dollar clearinghouses to receive a U.S. license for any dollar transactions involving Iran. The Obama Administration opposed the bill as a violation of the JCPOA. H.R. 5119 , which passed the House by a vote of 249-176, would have prohibited the U.S. government from buying additional heavy water from Iran and appeared intended to block additional U.S. purchases similar to one in April 2016 in which the United States bought 32 metric tons from Iran at a cost of about $8.6 million. Several bills and amendments in the 114 th Congress sought to block or impede the sale of the Boeing aircraft to Iran by preventing the licensing, financing, or Ex-Im Bank loan guarantees for the sale. These included H.R. 5715 , H.R. 5711 , and several amendments to the House version of the FY2017 Financial Services and General Government Appropriations Act ( H.R. 5485 ). That act passed the House on July 7, 2016, by a vote of 239-185, and H.R. 5711 passed by the House on November 17, 2016, by a vote of 243-174. The Obama Administration opposed the measures as JCPOA violations.", "Even before the Trump Administration pulled the United States out of the JCPOA, Congress acted on or considered additional Iran sanctions legislation. The following Iran sanctions legislation was enacted or considered in the 115 th Congress.", "A bill, S. 722 , which initially contained only Iran-related sanctions, was reported out by the Senate Foreign Relations Committee on May 25, 2017. After incorporating an amendment adding sanctions on Russia, the bill was passed by the Senate on June 15, 2017, by a vote of 98-2. A companion measure, H.R. 3203 , was introduced in the House subsequent to the Senate passage of S. 722 , and contained Iran-related provisions virtually identical to the engrossed Senate version of S. 722 . Following a reported agreement among House and Senate leaders, H.R. 3364 , with additional sanctions provisions related to North Korea (and provisions on Iran remaining virtually unchanged from those of the engrossed S. 722 ), was introduced and passed both chambers by overwhelming margins. President Trump signed it into law on August 2, 2017 ( P.L. 115-44 ), accompanied by a signing statement expressing reservations about the degree to which provisions pertaining to Russia might conflict with the President's constitutional authority.\nCAATSA's Iran-related provisions are analyzed above. Overall, CAATSA does not appear to conflict with the JCPOA insofar as it does not reimpose U.S. secondary sanctions on Iran's civilian economic sectors. The JCPOA did not require the United States to refrain from imposing additional sanctions—as CAATSA does—on Iranian proliferation, human rights abuses, terrorism, or the IRGC. Section 108 of CAATSA requires an Administration review of all designated entities to assess whether such entities are contributing to Iran's ballistic missile program or contributing to Iranian support for international terrorism.", "H.R. 1698 . The Iran Ballistic Missiles and International Sanctions Enforcement Act, passed the House on October 26, 2017, by a vote of 423-2. It would have amended the remaining active (not waived) section of ISA (Section 5b) to clarify that assistance to Iran's ballistic missile program is included as subject to sanctions. The provision would have applied the sanctions to foreign governments determined to be assisting Iran's missile programs, and would have applied several ISA sanctions to foreign entities, including foreign governments, that sell to or import from Iran the major combat systems banned for sale to Iran in Security Council Resolution 2231. This represents a more specific list of banned items than the \"destabilizing numbers and types\" of weaponry the sale to Iran of which can be sanctioned under ISA and several other U.S. laws discussed above. H.R. 1638 . On November 14, 2017, the House Financial Services Committee ordered reported H.R. 1638 , the Iranian Leadership Asset Transparency Act, which would have required the Treasury Secretary to report to Congress on the assets and equity interests held by named Iranian persons, including the Supreme Leader, the President, various IRGC and other security commanders, and members of various leadership bodies. H.R. 4324 . The House Financial Services Committee also ordered reported on November 14, 2017, the Strengthening Oversight of Iran's Access to Finance Act. The bill would have required Administration reports on whether financing of Iranian commercial passenger aircraft purchases posed money-laundering or terrorism risks or benefited Iranian persons involved in Iranian proliferation or terrorism. Some argued that the bill might affect the willingness of the Treasury Department to license aircraft sales to Iran, and in so doing potentially breach the U.S. JCPOA commitment to sell such aircraft to Iran. Following President Trump's October 13, 2017, statement on Iran, then-Senate Foreign Relations Committee Chairman Bob Corker and Senator Tom Cotton released an outline of legislation that would reimpose waived U.S. sanctions if, at any time—including after JCPOA restrictions expire—Iran breaches JCPOA-stipulated restrictions. The bill draft, which was not introduced, included sanctions triggers based on Iranian missile developments. H.R. 5132 . The Iranian Revolutionary Guard Corps Economic Exclusion Act. This bill mandated Administration reports on whether specified categories of entities are owned or controlled by the IRGC, or conduct significant transactions with the IRGC. The bill defined an entity as owned or controlled by the IRGC even if the IRGC's ownership interest is less than 50%—a lower standard than the usual practice in which ownership is defined as at least 50%. The bill would have required Administration investigation of several specified entities as potentially owned or controlled by the IRGC, including several telecommunications, mining, and machinery companies, and required a report on whether the Iran Airports Company violates E.O. 13224 by facilitating flight operations by Mahan Air, which is a designated SDN under E.O. 13224. Whereas the bill's provisions did not mandate any sanctions on entities characterized within, the bill appeared to establish a process under which the Administration could name as SDNs entities in Iran's civilian economic sectors, including civil aviation. H.R. 6751 . The Banking Transparency for Sanctioned Persons Act of 2018, would have required reporting to Congress on any license given to a bank to provide financial services to a state sponsor of terrorism. H.R. 4591 , S. 3431 , and H.R. 4238 . Several bills would have essentially codified Executive Order 13438 by requiring the blocking of U.S.-based property and preventing U.S. visas for persons determined to be threatening the stability of Iraq—legislation apparently directed at Iran's Shiite militia allies in Iraq. The latter two bills specifically mentioned the Iraqi groups As'aib Ahl Al Haq and Harakat Hizballah Al Nujabi as entities that the Administration should so sanction. H.R. 4591 passed the House on November 27, 2018.", "Because the Trump Administration has exited the JCPOA, there is increased potential for the 116 th Congress to consider legislation that sanctions those Iranian economic sectors that could not be sanctioned under the JCPOA. As the 116 th Congress began work in 2019, press reports indicated that several Senators and at least one House Member planned to introduce legislation to greatly expand U.S. secondary sanctions on Iran's financial sector. Among the reported provisions were (1) mandatory imposition of sanctions on the SWIFT electronic payments system if it does not expel sanctioned Iranian banks from its network; (2) amending IFCA to sanction any significant transactions with Iran's financial sector (in addition to energy, shipping, and shipbuilding sectors in the current law); (3) requiring the Treasury Department to issue a final rule that would sanction any international transaction with Iran's Central Bank; and (4) sanctioning foreign persons that supply or provide other help to Iran's efforts to establish a digital currency. The following have been introduced:\nSeveral bills similar or virtually identical to those introduced previously have been introduced, imposing sanctions on Iranian proxies in Iraq and elsewhere. These bills include H.R. 361 , the Iranian Proxies Terrorist Sanctions Act of 2019, and H.R. 571 , the Preventing Destabilization of Iraq Act of 2019. The Iranian Revolutionary Guard Corps Exclusion Act ( S. 925 ), similar to H.R. 5132 in the 115 th Congress, has been introduced in the Senate. The Iran Ballistic Missiles and International Sanctions Enforcement Act ( H.R. 2118 ). The bill includes provisions similar to H.R. 1698 in the 115 th Congress (see above).", "There are a number of other possible sanctions that might receive consideration—either in a global or multilateral framework. These possibilities are analyzed in CRS In Focus IF10801, Possible Additional Sanctions on Iran , by Kenneth Katzman.\nAppendix A. Comparison Between U.S., U.N., and EU and Allied Country Sanctions (Prior to Implementation Day)\nAppendix B. Post-1999 Major Investments in Iran's Energy Sector\nAppendix C. Entities Sanctioned Under U.N. Resolutions and EU Decisions\nAppendix D. Entities Sanctions Under U.S. Laws and Executive Orders" ], "depth": [ 0, 1, 1, 2, 2, 2, 2, 2, 3, 1, 2, 3, 2, 2, 3, 3, 3, 2, 2, 3, 3, 3, 1, 2, 2, 2, 2, 1, 2, 2, 3, 4, 4, 4, 4, 4, 4, 4, 3, 4, 3, 4, 4, 4, 4, 4, 4, 3, 2, 3, 3, 4, 3, 4, 1, 2, 2, 1, 2, 2, 3, 2, 2, 2, 3, 2, 3, 2, 2, 2, 1, 2, 3, 2, 3, 3, 3, 2, 3, 3, 2, 3, 2, 1, 2, 2, 2, 1, 2, 2, 2, 3, 1, 1, 2, 2, 3, 3, 2, 1, 2, 3, 3, 1, 2, 2, 3, 4, 3, 4, 1, 2, 3, 3, 3, 3, 2, 3, 3, 2, 3, 3, 2, 3, 3, 2, 3, 3, 2, 3, 2, 2, 2, 3, 1, 2, 2, 2, 2, 3, 2, 2, 2, 3, 1, 2, 3, 3, 3, 3, 3, 2, 3, 3, 3, 2 ], "alignment": [ "h0_title h2_title h1_title h3_title", "h1_full", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "h3_title", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "h3_title", "", "h3_title", "h3_full", "", "", "h0_full", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "h1_title", "h1_full", "", "", "h2_title h1_title h3_title", "", "h3_full h2_full h1_full", "h3_title", "h3_full", "h3_full", "", "h3_title", "h3_title", "", "h3_full", "", "", "h3_title", "", "h3_full", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "h0_title h2_title h3_title", "h2_full", "h0_full", "h3_full h2_full", "h3_full", "", "h0_full", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "" ] }

{ "question": [ "How have Administrations used sanctions regarding Iran?", "How have these sanctions affected Iran?", "How did the Iranian economy changed in 2012-2015?", "How did JCPOA affect Iran?", "What restrictions remained in place?", "What did U.N. Security Council Resolution 2231 mandate?", "How did JCPOA affect the Iranian economy?", "How did the sanctions relief affect President Rouhani?", "To what extent did this economic rebound stabilize Iran?", "How has Iran continued improving its military?", "How important are sanctions to the Trump Administration's Iran strategy?", "How did the Trump Administration reapply sanctions?", "How have these sanctions affected Iran?", "What is the European Union's approach regarding Iran?", "How does the EU plan to circumvent U.S. sanctions?", "How did the Trump Administration respond these activities?", "How have these actions affected Iran?" ], "summary": [ "Successive Administrations have used sanctions extensively to try to change Iran's behavior.", "Sanctions have had a substantial effect on Iran's economy but little, if any, observable effect on Iran's conventional defense programs or regional malign activities.", "During 2012-2015, when the global community was relatively united in pressuring Iran, Iran's economy shrank as its crude oil exports fell by more than 50%, and Iran had limited ability to utilize its $120 billion in assets held abroad.", "The 2015 multilateral nuclear accord (Joint Comprehensive Plan of Action, JCPOA) provided Iran broad relief through the waiving of relevant sanctions, revocation of relevant executive orders (E.O.s), and the lifting of U.N. and EU sanctions.", "Remaining in place were a general ban on U.S. trade with Iran and U.S. sanctions on Iran's support for regional governments and armed factions, its human rights abuses, its efforts to acquire missile and advanced conventional weapons capabilities, and the Islamic Revolutionary Guard Corps (IRGC).", "Under U.N. Security Council Resolution 2231, which enshrined the JCPOA, nonbinding U.N. restrictions on Iran's development of nuclear-capable ballistic missiles and a binding ban on its importation or exportation of arms remain in place for several years.", "JCPOA sanctions relief enabled Iran to increase its oil exports to nearly pre-sanctions levels, regain access to foreign exchange reserve funds and reintegrate into the international financial system, achieve about 7% yearly economic growth (2016-17), attract foreign investment, and buy new passenger aircraft.", "The sanctions relief contributed to Iranian President Hassan Rouhani's reelection in the May 19, 2017, vote.", "However, the economic rebound did not prevent sporadic unrest from erupting in December 2017.", "And, Iran has provided support for regional armed factions, developed ballistic missiles, and expanded its conventional weapons development programs during periods when international sanctions were in force, when they were suspended, and after U.S. sanctions were reimposed in late 2018.", "The Trump Administration has made sanctions central to efforts to apply \"maximum pressure\" on Iran's regime.", "On May 8, 2018, President Trump announced that the United States would no longer participate in the JCPOA and that all U.S. secondary sanctions would be reimposed by early November 2018.", "The reinstatement of U.S. sanctions has driven Iran's economy into mild recession as major companies exit the Iranian economy rather than risk being penalized by the United States. Iran's oil exports have decreased significantly, the value of Iran's currency has declined sharply, and unrest has continued, although not to the point where the regime is threatened.", "But, the European Union and other countries are trying to keep the economic benefits of the JCPOA flowing to Iran in order to persuade Iran to remain in the accord.", "To that end, in January 2019 the European countries created a trading mechanism (Special Purpose Vehicle) that presumably can increase trade with Iran by circumventing U.S. secondary sanctions.", "On November 5, 2018, the Administration granted 180-day \"Significant Reduction Exceptions\" (SREs) to eight countries—enabling them to import Iranian oil without penalty as long as they continue to reduce purchases of Iranian oil. On April 22, 2019, the Administration announced it would not renew any SREs when they expire on May 2, 2019, instead seeking to drive Iran's oil exports as close to zero as possible. On May 3, 2019, the Administration ended some waivers for foreign governments to provide technical assistance to some JCPOA-permitted aspects of Iran's nuclear program.", "The economic difficulties and other U.S. pressure measures have prompted Iran to cease performing some of the nuclear commitments of the JCPOA." ], "parent_pair_index": [ -1, 0, 0, -1, 0, 0, -1, 0, 0, -1, -1, 0, 0, -1, 3, 4, -1 ], "summary_paragraph_index": [ 0, 0, 0, 1, 1, 1, 2, 2, 2, 2, 3, 3, 3, 3, 3, 3, 3 ] }

{ "title": [ "Background", "Primary Federal Land Management Agencies with Wildland Fire Management Responsibilities", "Key Components of Wildland Fire Management", "Funding for Federal Wildland Fire Management", "Federal Wildland Fire Policy History", "Agencies Have Made Several Key Changes in Their Approach to Wildland Fire Management Since 2009", "Agencies Issued Guidance That Provided Greater Flexibility in Responding to Wildland Fire", "Agencies Made Changes Intended to Formalize Collaboration with Nonfederal Partners", "Increased Emphasis by Interior on the Sagebrush Steppe Ecosystem", "Agencies Made Additional Changes in Other Areas of Wildland Fire Management", "Working to Improve Technology for Wildland Fire Planning and Response", "Increasing Line-Officer Training", "Emphasizing the Primacy of Firefighter Safety", "Agencies Assess Effectiveness of Their Programs in Several Ways, but Have Not Consistently Conducted Reviews That Could Improve Responses to Wildland Fires", "Agencies Use Various Performance Measures to Assess Wildland Fire Management", "Agencies Have Undertaken Multiple Efforts to Assess Effectiveness of Specific Activities", "Forest Service and Interior Agencies Have Not Consistently Conducted Reviews of Wildland Fire Incidents to Assess their Effectiveness", "Agencies Distribute Resources in Part on the Basis of Historical Amounts, but Are Developing New Methods Intended to Better Reflect Current Conditions", "Agencies Fund Suppression as Needed for Responding to Wildland Fires", "Forest Service and Interior Distribute Preparedness Funding Based in Part on an Obsolete System They Are Working to Replace", "Forest Service and Interior Distribution of Preparedness Funds to Regions and Agencies", "Forest Service Regions’ Distribution to Individual National Forests", "Interior Agencies’ Distribution to Regional Offices", "Agencies Are Working to Distribute Fuel Reduction Funding to Better Account for Current Conditions", "Conclusions", "Recommendations for Executive Action", "Agency Comments and Our Evaluation", "Appendix I: Objectives, Scope, and Methodology", "Appendix II: Forest Service and Interior Agency Obligations for Preparedness, Fuel Reduction, and Suppression, Fiscal Years 2004 through 2014", "Appendix III: Differences in Forest Service and Department of the Interior Salary Payments Using Preparedness and Suppression Funding", "Appendix IV: Comments from the Department of Agriculture", "Appendix V: Comments from the Department of the Interior", "Appendix VI: GAO Contact and Staff Acknowledgments", "GAO Contact", "Staff Acknowledgments", "Related GAO Products" ], "paragraphs": [ "Wildland fires are both natural and inevitable and play an important ecological role on the nation’s landscapes. These fires have long shaped the composition of forests and grasslands, periodically reduced vegetation densities, and stimulated seedling regeneration and growth in some species. Wildland fires can be ignited by lightning or by humans either accidentally or intentionally. As we have described in previous reports, however, various land use and management practices over the past century—including fire suppression, grazing, and timber harvesting—have reduced the normal frequency of fires in many forest and rangeland ecosystems. These practices contributed to abnormally dense, continuous accumulations of vegetation, which in turn can fuel uncharacteristically severe wildland fires in certain ecosystems.\nAccording to scientific reports, several other factors have contributed to overall changes to ecosystems and the landscapes on which they depend, altering natural fire regimes and contributing to an increased frequency or intensity of wildland fire in some areas. For example, the introduction and spread of highly flammable invasive nonnative grasses, such as cheatgrass, along with the expanded range of certain flammable native species, such as western juniper, in the Great Basin region of the western United States—including portions of California, Idaho, Nevada, Oregon, and Utah— have increased the frequency and intensity of fire in the sagebrush steppe ecosystem. Changing climate conditions, including drier conditions in certain parts of the country, have increased the length and severity of wildfire seasons, according to many scientists and researchers. For example, in the western United States, the average number of days in the fire season has increased from approximately 200 in 1980 to approximately 300 in 2013, according to the 2014 Quadrennial Fire Review. In Texas and Oklahoma this increase was even greater, with the average fire season increasing from fewer than 100 days to more than 300 during this time. According to the U.S. Global Change Research Program’s 2014 National Climate Assessment, projected climate changes suggest that western forests in the United States will be increasingly affected by large and intense fires that occur more frequently. Figure 1 shows the wildfire hazard potential across the country as of 2014.\nIn addition, development in the wildland-urban interface (WUI) has continued to increase over the last several decades, increasing wildland fire’s risk to life and property. According to the 2014 Quadrennial Fire Review, 60 percent of new homes built in the United States since 1990 were built in the WUI, and the WUI includes 46 million single-family homes and an estimated population of more than 120 million. In addition to increased residential development, other types of infrastructure are located in the WUI, including power lines, campgrounds and other recreational facilities, communication towers, oil and gas wells, and roads. Some states, such as New Mexico and Wyoming, have experienced significant increases in oil and gas development over the past decade, adding to the infrastructure agencies may need to protect.", "Under the National Forest Management Act and the Federal Land Policy and Management Act of 1976, respectively, the Forest Service and BLM manage their lands for multiple uses such as protection of fish and wildlife habitat, forage for livestock, recreation, timber harvesting, and energy production. FWS and NPS manage federal lands under legislation that primarily calls for conservation; management for activities such as harvesting timber for commercial use is generally precluded. BIA is responsible for the administration and management of lands held in trust by the United States for Indian tribes, individuals, and Alaska Natives. These five agencies manage about 700 million surface acres of land in the United States, including national forests and grasslands, national wildlife refuges, national parks, and Indian reservations. The Forest Service and BLM manage the majority of these lands. The Forest Service manages about 190 million acres; BLM manages about 250 million acres; and BIA, FWS, and NPS manage 55, 89, and 80 million acres, respectively. Figure 2 shows the lands managed by each of these five agencies.\nSevere wildland fires and the vegetation that fuels them may cross the administrative boundaries of the individual federal land management agencies or the boundaries between federal and nonfederal lands. State forestry agencies and other entities—including tribal, county, city, and rural fire departments—share responsibility for protecting homes and other private structures and have primary responsibility for managing wildland fires on nonfederal lands. Most of the increased development in the WUI occurs on nonfederal lands, and approximately 70,000 communities nationwide are considered to be at high risk from wildland fire. Some of these communities have attempted to reduce risk of wildland fire through programs aimed at improving fire risk awareness and promoting steps to reduce their risk, such as the Firewise Communities program.", "Wildland fire management consists of three primary components: preparedness, suppression, and fuel reduction.\nPreparedness. To prepare for a wildland fire season, the five land management agencies acquire firefighting assets—including firefighters, fire engines, aircraft, and other equipment—and station them either at individual federal land management units or at centralized dispatch locations in advance of expected wildland fire activity. The primary purpose of acquiring these assets is to respond to fires before they become large—a response referred to as initial attack. The agencies fund the assets used for initial attack primarily from their wildland fire preparedness accounts.\nSuppression. When a fire starts, interagency policy calls for the agencies to consider land management objectives—identified in land and fire management plans developed by each land management unit—and the structures and resources at risk when determining whether or how to suppress the fire. A wide spectrum of strategies is available to choose from, and the land manager at the affected local unit is responsible for determining which strategy to use—from conducting all-out suppression efforts to monitoring fires within predetermined areas in order to provide natural resource benefits. When a fire is reported, the agencies are to follow a principle of closest available resource, meaning that, regardless of jurisdiction, the closest available firefighting equipment and personnel respond. In instances when fires escape initial attack and grow large, the agencies respond using an interagency system that mobilizes additional firefighting assets from federal, state, and local agencies, as well as private contractors, regardless of which agency or agencies have jurisdiction over the burning lands. The agencies use an incident management system under which specialized teams are mobilized to respond to wildland fires, with the size and composition of the team determined by the complexity of the fire. Federal agencies typically fund the costs of these activities from their wildland fire suppression accounts.\nFuel reduction. Fuel reduction refers to agencies’ efforts to reduce potentially hazardous vegetation that can fuel fires, such as brush and “ladder fuels” (i.e., small trees and other vegetation that can carry fire vertically to taller vegetation such as large trees), in an effort to reduce the potential for severe wildland fires, lessen the damage caused by fires, limit the spread of flammable invasive species, and restore and maintain healthy ecosystems. The agencies use multiple approaches for reducing this vegetation, including setting fires under controlled conditions (prescribed burns), mechanical thinning, herbicides, certain grazing methods, or combinations of these and other approaches. The agencies typically fund these activities from their fuel reduction accounts.\nRisk is an inherent element of wildland fire management. Federal agencies acknowledge this risk, and agency policies emphasize the importance of managing their programs accordingly. For example, Forest Service guidance states that “the wildland fire management environment is complex and possesses inherent hazards that can—even with reasonable mitigation—result in harm.” According to a 2013 Forest Service report on decision making for wildfires, risk management is to be applied at all levels of wildfire decision making, from the individual firefighter on the ground facing changing environmental conditions to national leaders of the fire management agencies weighing limited budgets against increasingly active fire seasons. For example, the report explains that, during individual wildland fires, risk can be defined as “a function of values, hazards, and probability.”", "Congress, the Office of Management and Budget, federal agency officials, and others have raised questions about the growing cost of federal wildland fire management. According to a 2015 report by Forest Service researchers, for example, the amount the Forest Service spends on wildland fire management has increased from 17 percent of the agency’s total funds in 1995 to 51 percent of funds in 2014. The report noted that this has come at the cost of other land management programs within the agency, such as vegetation and watershed management, some of which support activities intended to reduce future wildfire damage. From fiscal years 2004 through 2014, the Forest Service and Interior agencies obligated $14.9 billion for suppression, $13.4 billion for preparedness, and $5.7 billion for fuel reduction. Figure 3 shows the agencies’ total obligations for these three components of wildland fire management for fiscal years 2004 through 2014.\nAfter receiving its annual appropriation, the Forest Service allocates preparedness and fuel reduction funds to its nine regional offices, and those offices in turn allocate funds to individual field units (national forests and grasslands). Interior’s Office of Wildland Fire, upon receiving its annual appropriation, allocates preparedness and fuel reduction funds to BIA, BLM, FWS, and NPS. These agencies then allocate funds to their regional or state offices, which in turn allocate funds to individual field units (e.g. national parks or national wildlife refuges). The Forest Service and Interior agencies do not allocate suppression funding to their regions. These funds are managed at the national level.", "Federal wildland fire management policy has evolved over the past century in response to changing landscape conditions and greater recognition of fire’s role in maintaining resilient and healthy ecosystems. According to wildland fire historians, in the late 1800s and early 1900s, the nation experienced a series of large and devastating fires that burned millions of acres, including highly valued timber stands. In May 1908, federal legislation authorized the Forest Service to use any of its appropriations to fight fires. During the following decades, the Forest Service and Interior agencies generally took the view that fires were damaging and should be suppressed quickly, with policies and practices evolving gradually. For example, in 1935, the Forest Service issued the “10 a.m. policy,” which stated that whenever possible, every fire should be contained by 10 a.m. on the day after it was reported. In more remote areas, suppression policies had minimal effect until fire towers, lookout systems, and roads in the 1930s facilitated fire detection and fire deployment. The use of aircraft to drop fire retardants—that is, chemicals designed to slow fire growth—began in the 1950s, according to agency documents. Subsequent to the introduction of the 10 a.m. policy, some changes to agency policies lessened the emphasis on suppressing all fires, as some federal land managers took note of the unintended consequences of suppression and took steps to address those effects. In 1943, for example, the Chief of the Forest Service permitted national forests to use prescribed fire to reduce fuels on a case-by-case basis. In 1968, NPS revised its fire policy, shifting its approach from suppressing all fires to managing fire by using prescribed burning and allowing fires started by lightning to burn in an effort to accomplish approved management objectives. In 1978, the Forest Service revised its policy to allow naturally ignited fires to burn in some cases, and formally abandoned the 10 a.m. policy.\nTwo particularly significant fire events—the Yellowstone Fires of 1988, in which approximately 1.3 million acres burned, and the South Canyon Fire of 1994, in which 14 firefighters lost their lives—led the agencies to fundamentally reassess their approach to wildland fire management and develop the Federal Wildland Fire Management Policy of 1995. Under the 1995 policy, the agencies continued to move away from their emphasis on suppressing every wildland fire, seeking instead to (1) make communities and resources less susceptible to being damaged by wildland fire and (2) respond to fires so as to protect communities and important resources at risk while considering both the cost and long-term effects of that response. The policy was reaffirmed and updated in 2001, and guidance for its implementation was issued in 2003 and 2009.\nIn 2000, after one of the worst wildland fire seasons in 50 years, the President asked the Secretaries of Agriculture and the Interior to submit a report on managing the impact of wildland fires on communities and the environment. The report, along with congressional approval of increased appropriations for wildland fire management for fiscal year 2001, as well as other related activities, formed the basis of what is known as the National Fire Plan. The National Fire Plan emphasized the importance of reducing the buildup of hazardous vegetation that fuels severe fires, stating that unless hazardous fuels are reduced, the number of severe wildland fires and the costs associated with suppressing them would continue to increase. In 2003, Congress passed the Healthy Forests Restoration Act, with the stated purpose of, among other things, reducing wildland fire risk to communities, municipal water supplies, and other at- risk federal land through a collaborative process of planning, setting priorities for, and implementing fuel reduction projects.\nAlong with the development of policies governing their responses to fire, the agencies developed a basic operational framework within which they manage wildland fire incidents. For example, to respond to wildland fires affecting both federal and nonfederal jurisdictions, firefighting entities in the United States have, since the 1970s, used an interagency incident management system. This system provides an organizational structure that expands to meet a fire’s complexity and demands, and allows entities to share firefighting personnel, aircraft, and equipment. Incident commanders who manage the response to each wildland fire may order firefighting assets through a three-tiered system of local, regional, and national dispatch centers. Federal, tribal, state, and local entities and private contractors supply the firefighting personnel, aircraft, equipment, and supplies which are dispatched through these centers. The agencies continue to use this framework as part of their approach to wildland fire management.", "Since 2009, the five federal agencies have made several changes in their approach to wildland fire management. The agencies have issued fire management guidance which, among other things, gave their managers greater flexibility in responding to wildland fires by providing for responses other than full suppression of fires. In collaboration with nonfederal partners such as tribal and state governments, they have also developed a strategy aimed at coordinating federal and nonfederal wildland fire management activities around common goals, such as managing landscapes for resilience to fire-related disturbances. In addition, Interior, and BLM in particular, have placed a greater emphasis on wildland fire management efforts in the sagebrush steppe ecosystem by issuing guidance and developing strategies aimed at improving the condition of this landscape. The agencies have also taken steps to change other aspects of wildland fire management, including changes related to improving fire management technology, line officer training, and firefighter safety. Agency officials told us the agencies are moving toward a more risk-based approach to wildland fire management. The extent to which the agencies’ actions have resulted in on-the-ground changes varied across agencies and regions, however, and officials identified factors, such as proximity to populated areas, that may limit their implementation of some of these actions.", "The agencies have increased their emphasis on using wildland fire to provide natural resource benefits rather than seeking to suppress all fires, in particular through issuing the 2009 Guidance for Implementation of Federal Wildland Fire Management Policy. Compared with interagency guidance issued in 2003, the 2009 guidance provided greater flexibility to managers in responding to wildland fire to achieve natural resource benefits for forests and grasslands, such as reducing vegetation densities and stimulating regeneration and growth in some species. The 2003 guidance stated that only one “management objective” could be applied to a single wildland fire—meaning that wildland fires could either be managed to meet suppression objectives or managed for continued burning to provide natural resource benefits, but not both. The 2003 guidance also restricted a manager’s ability to switch between full suppression and management for natural resource benefits, even when fire conditions changed. In contrast, under the 2009 interagency guidance, managers may manage individual fires for multiple objectives, and may change the management objectives on a fire as it spreads across the landscape. For example, managers may simultaneously attempt to suppress part of a fire that is threatening infrastructure or valuable resources while allowing other parts of the same fire to burn to achieve desired natural resource benefits. According to agency documents, the 2009 guidance was intended to reduce barriers to risk- informed decision making, allowing the response to be more commensurate with the risk posed by the fire, the resources to be protected, and the agencies’ land management objectives.\nHowever, agency officials varied in their opinions about the extent to which this guidance changed their management practices, with some telling us it marked a departure from their past practices, and others telling us it did not significantly change the way they managed wildland fire. Several headquarters and regional agency officials told us the guidance improved managers’ ability to address natural resource needs when managing a fire, rather than simply suppressing all fires. For example, BIA officials told us that the flexibility provided through the guidance allowed managers on the San Carlos Apache Reservation in southeastern Arizona to use a variety of management strategies to manage the 2014 Skunk Fire. According to a BIA fire ecologist, managers were able to maximize firefighter safety while fostering desirable ecological benefits, including helping to restore the historical fire regime to the area. In addition, Forest Service officials from several regions, including the Rocky Mountain and Intermountain Regions, told us they have used the full range of management options in the guidance more frequently over the last 5 years, and they credited the 2009 guidance for giving them the ability to manage fires and their associated risks. For example, during the 2011 Duckett Fire on the Pike-San Isabel National Forests in Colorado, managers attempted to contain part of the fire to protect a subdivision while allowing the portion of the fire uphill from the subdivision to burn into wilderness. Officials told us that, prior to the 2009 guidance, they would likely have responded to this fire by attempting full suppression, which could have put firefighters at risk at the upper part of the fire because of the steep and rugged terrain.\nIn contrast, other officials told us the effect of the guidance was minimal because certain factors—including proximity to populated areas, size of the land management unit, and concerns about resources necessary to monitor fires—limit their ability to manage wildland fire incidents for anything other than suppression. For example, Forest Service officials from the Eastern Region told us that they try to use fire to provide natural resource benefits where possible, but they have fewer opportunities for doing so because of the smaller size of Forest Service land units in this region, which makes it more likely the fires will cross into nonfederal land, and their proximity to many areas of WUI. Similarly, Forest Service officials from the Pacific Southwest Region told us they are limited in using the added flexibility provided through the 2009 interagency guidance in Southern California, in part because the forests there are so close to major cities. However, in other more remote areas of California, these officials said they have managed wildland fires concurrently for one or more objectives, and objectives can change as the fire spreads across the landscape. Officials from BLM’s Utah State Office also told us that their changed landscape is a limiting factor in responding to wildland fire. Specifically, cheatgrass, a nonnative, highly flammable grass, has replaced much of the native vegetation of the sagebrush steppe ecosystem that used to exist on the lands they manage in western Utah. As a result, introducing fire into this area could be detrimental rather than helpful because cheatgrass’s flammability makes fires difficult to control.\nSeveral officials also told us that managing wildland fires for objectives beyond full suppression, as provided for in the 2009 guidance, is highly dependent on circumstance. Officials told us that allowing fires to burn requires the agencies to devote assets to monitoring the fires to prevent them from escaping, which—especially for long-duration fires—can reduce the assets available to respond to other fires that may occur. For example, in 2012, in response to what it predicted to be an expensive and above-normal fire season, the Forest Service issued guidance to its regions limiting the use of any strategy other than full suppression (i.e., any strategy that involved allowing fires to burn for natural resource benefits) for the remainder of that year. The Forest Service noted that it was issuing this guidance because of concerns about committing the assets necessary to monitor long-duration fires that were allowed to burn in order to provide natural resource benefits. In 2015, during the Thunder Creek fire in North Cascades National Park, concerns about the resources needed to monitor the fire if it were allowed to burn to provide natural resource benefits led NPS managers instead to order full suppression efforts to help ensure that the resources would be available for other fires. In a press release about the fire, NPS noted that experts anticipated a very high potential for wildfire in 2015, leading to agency concerns that significant fire activity throughout the west could leave few available firefighting resources later in the season.", "Another change since 2009 was the completion in 2014 of the National Cohesive Wildland Fire Management Strategy (Cohesive Strategy), developed in collaboration with partners from multiple jurisdictions (i.e., tribal, state, and local governments, nongovernmental partners, and public stakeholders) and aimed at coordinating wildland fire management activities around common wildland fire management goals. The agencies have a long history of collaboration with nonfederal partners in various aspects of wildland fire management, including mobilizing firefighting resources during wildland fire incidents and conducting fuel reduction projects across jurisdictions. The Cohesive Strategy is intended to set broad, strategic, nationwide direction for such collaboration.\nSpecifically, the Cohesive Strategy provides a nationwide framework designed to more fully integrate fire management efforts across jurisdictions, manage risks, and protect firefighters, property, and landscapes by setting “broad, strategic, and national-level direction as a foundation for implementing actions and activities across the nation.” The vision of the Cohesive Strategy is “to safely and effectively extinguish fire, when needed; use fire where allowable; manage our natural resources; and as a nation, live with wildland fire.” The Cohesive Strategy identified three goals: (1) landscapes across all jurisdictions are resilient to fire-related disturbances in accordance with management objectives; (2) human populations and infrastructure can withstand wildfire without loss of life or property; and (3) all jurisdictions participate in developing and implementing safe, effective, and efficient risk-based wildfire management decisions. According to a senior Forest Service official, the Wildland Fire Leadership Council is responsible for providing a national, intergovernmental platform for implementing the strategy. In September 2014, an interim National Cohesive Strategy Implementation Task Group completed an implementation framework that included potential roles, responsibilities, and membership for a “national strategic committee” that is intended to provide oversight and leadership on implementing the strategy.\nAgency officials differed in the extent to which they viewed the Cohesive Strategy as having a significant effect on their wildland fire management activities. On the one hand, several headquarters and regional agency officials told us the Cohesive Strategy has improved wildland fire management. For example, Forest Service officials from the Southern Region told us the Cohesive Strategy has reinforced existing work that better enabled them to collaborate on new projects, which they told us is important because nearly 85 percent of the land base in the region is privately owned, and little could be achieved without collaboration. Forest Service officials cited one instance in which they signed a regional level agreement that will cover several state chapters of The Nature Conservancy to exchange resources for fuel reduction treatment and to promote public understanding of its benefits—an action they said was supported by the Cohesive Strategy. Similarly, Forest Service officials from the Intermountain Region told us about several efforts that have been implemented across their region that they attribute to the Cohesive Strategy. For example, in 2014, the Forest Service, the state of Utah, and other stakeholders collaborated on the implementation of Utah’s Catastrophic Wildfire Reduction Strategy, which aims to identify where fuel treatment across the state would be most beneficial. In contrast, many officials told us they have collaborated with partners for years and did not find the additional direction provided through the Cohesive Strategy to be much different than how they already operated. For example, several regional BLM, FWS, and NPS officials told us they have long worked with nonfederal partners on issues related to wildland fire management and that the Cohesive Strategy did not change those relationships.\nHowever, implementation of collaborative actions stemming from the Cohesive Strategy may be limited by such factors as differences in laws and policies among federal, tribal, state, and local agencies. For example, while the 2009 federal interagency guidance provided federal managers with additional flexibility in managing a single fire for multiple purposes, laws and regulations at the state and local levels typically require full suppression of all fires, according to the 2014 Quadrennial Fire Review. For example, according to California state law, state forest officials in California are “charged with the duty of preventing and extinguishing forest fires.”", "Since 2009, Interior and BLM have placed a greater emphasis on wildland fire management, restoration, and protection related to the sagebrush steppe ecosystem—particularly with respect to habitat for the greater sage-grouse. Several changes, including urbanization and increased infrastructure built in support of various activities (e.g., roads and power lines associated with oil, gas, or renewable energy projects), have altered the sagebrush steppe ecosystem in the Great Basin region of the western United States. In addition, the introduction and spread of highly flammable invasive nonnative grasses such as cheatgrass have altered this ecosystem by increasing the frequency and intensity of fire. As of July 2015, FWS was evaluating whether to list the greater sage- grouse, a species reliant on the sagebrush steppe ecosystem, as a threatened and endangered species under the Endangered Species Act. FWS has noted the importance of fire and fuel management activities in reducing the threat to sage-grouse habitat. Beginning in 2011, BLM issued guidance to its state offices emphasizing the importance of sage-grouse habitat in fire operations and the need for fuel reduction activities to address concerns about the habitat, more than half of which is located on BLM-managed lands. In 2014, the agency issued guidance reiterating this importance and stating that it would make changes in funding to allow field units to place greater focus on reducing fire’s threats in sage-grouse habitat areas.\nIn January 2015, the Secretary of the Interior issued a Secretarial Order to enhance policies and strategies “for preventing and suppressing rangeland fire and for restoring sagebrush landscapes impacted by fire across the West.” The order established the Rangeland Fire Task Force and directed it to, among other things, complete a report on activities to be implemented ahead of the 2016 Western fire season. Under the order, the task force also was to address longer term actions to implement the policy and strategy set forth by the order. In a report issued in May 2015, An Integrated Rangeland Fire Management Strategy, the task force called for prepositioning firefighting assets where priority sage-grouse habitat exists, including moving assets from other parts of the country as available. The goal is to improve preparedness and suppression capability during initial stages of a wildfire to increase the chances of keeping fires small and reduce the loss of sage-grouse habitat.\nThe report also identified actions aimed at improving the targeting of fuel reduction activities, including identifying priority landscapes and fuel management priorities within those landscapes. These actions are to be completed by the end of September 2015 and continuously improved upon in subsequent years. According to BLM state officials, the increased emphasis on sage-grouse habitat will significantly change how they manage their fuel reduction programs. BLM officials from states that include sage-grouse habitat said they expect a large increase in fuel reduction treatment funding and increased project approvals. In contrast, BLM officials from states without this habitat told us they expect significant funding decreases, limiting their capacity to address other resource issues important for nonsagebrush ecosystems.", "Since 2009, the agencies also have taken steps to change other areas of wildland fire management, including technology for wildland fire planning and response, line-officer training, and firefighter safety.", "Since 2009, the agencies have applied new technologies to improve wildland fire management planning and response. Prominent among them is the Wildland Fire Decision Support System (WFDSS), a Web- based decision-support tool that assists fire managers and analysts in making strategic and tactical decisions for fire incidents. WFDSS replaced older tools, some of which had been used for more than 30 years and were not meeting current fire management needs, according to the system’s website. According to this site, WFDSS has several advantages over the older systems, such as enabling spatial data layering, increasing use of map displays, preloading information about field units’ management objectives, and allowing for use in both single and multiple fire situations. Officials from several agencies told us that using WFDSS improved their ability to manage fires by allowing information from fire management plans to be loaded into WFDSS and providing substantial real-time fire information on which to make decisions. For example, one Forest Service official told us that, at one point in a recent particularly active fire season in the Pacific Northwest Region, the system processed information on approximately 20 concurrent fires that managers could monitor in real time. As a result, they were able to make strategic and risk-informed decisions about the resource allocations needed for each fire, including decisions to let some fires burn to meet natural resource benefit objectives. According to Forest Service reviews of several fires that occurred in 2012, however, some managers said WFDSS did not provide effective decision support for firefighters because the system underestimated fire behavior or did not have current information.\nAccording to officials from several agencies, another example of updated wildland fire technology has been the replacement of traditional paper- based fire management plans with electronic geospatial-based plans. Federal wildland fire management policy directs each agency to develop a fire management plan for all areas they manage with burnable vegetation. A fire management plan, among other things, identifies fire management goals for different parts of a field unit. According to an interagency document describing geospatial-based plans, agency officials expect such plans to increase efficiency because the plans can more easily be updated to account for changes in the landscape resulting from fires, fuel reduction treatments, and other management activities. In addition, the electronic format is designed to allow plans to more easily be shared across multiple users, including personnel responding to wildland fires. Agency officials mentioned other technological improvements, such as the development of an “Enterprise Geospatial Portal” providing wildland fire data in geospatial form using a Web-based platform, although many officials also told us that additional improvements are needed in wildland fire technology overall.\nIn addition to specific technologies, in 2012 the Forest Service and Interior issued a report titled “Wildland Fire Information and Technology: Strategy, Governance, and Investments,” representing the agencies’ efforts to develop a common wildland fire information and technology vision and strategy. The agencies signed a Memorandum of Understanding later that same year intended to establish a common management approach for information and technology services. Nevertheless, the 2014 Quadrennial Fire Review concluded that the wildland fire management community does not have an agenda for innovation and technology adoption or a list of priorities, stating that the wildland fire community “sometimes struggles to define common technology priorities and implement integrated, enterprise-level solutions” and noting that there are more than 400 information technology systems in use by the wildland fire community. The report provides recommendations on actions the agencies could consider for improvement; however, because it was issued in May 2015, it is too early to determine what, if any, actions the agencies have taken. In commenting on a draft of this report, Interior stated that the agencies are completing an investment strategy for wildland fire applications and supporting infrastructure, but did not provide an expected date for its completion.", "Officials from several agencies told us that, since 2009, the agencies have increased training efforts, particularly those aimed at improving line officers’ knowledge about, and response to, wildland fires. Line officers are land unit managers such as national forest supervisors, BLM district managers, and national park superintendents. During a wildland fire, staff from “incident management teams” with specific wildland firefighting and management training manage the response, and line officers associated with the land unit where the fire is occurring must approve major decisions that incident management teams make during the response. Officials at BLM’s Oregon/Washington State Office, for example, told us they provide line officers with day-long simulation exercises, as well as shadowing opportunities that give line officers experience on actual wildland fires. Beginning in 2007, the Forest Service initiated a Line Officer Certification Program and began a coaching and mentoring program to provide on-the-ground experience for preparing line officers to act as agency administrators during wildland fires or other critical incidents. This program is aimed at providing officials that do not have wildland fire experience the opportunity to work under the advisement of a coach with wildland fire experience. According to Forest Service documents, this program has evolved substantially, in part to address the increased demand for skills necessary to manage increasingly complex wildland fires. In May 2015, the Forest Service issued guidance for the program and called for each Forest Service regional office to administer it within the regions.", "Officials told us that, since 2009, the agencies have, in some cases, changed firefighting tactics to better protect firefighters, including making greater use of natural barriers to contain fire instead of attacking fires directly. The agencies have also issued additional guidance aimed at emphasizing the primacy of firefighter safety. In 2010, the agencies developed and issued the “Dutch Creek Protocol” (named after a wildland fire where a firefighter died), which provided a standard set of protocols for wildland firefighting teams to follow during an emergency medical response or when removing and transporting personnel from a location on a fire. Both the Forest Service and Interior have also issued agency direction stating that firefighter safety should be the priority of every fire manager.", "The agencies assess the effectiveness of their wildland fire management programs in several ways, including through performance measures, efforts to assess specific activities, and reviews of specific wildland fire incidents. Both the Forest Service and Interior are developing new performance measures and evaluations, in part to help better assess the results of their current emphasis on risk-based management, according to agency officials. In addition, the agencies have undertaken multiple efforts, such as studies, to assess the effectiveness of activities including fuel reduction treatments and aerial firefighting. The agencies also conduct reviews of their responses to wildland fires. However, they have not consistently followed agency policy in doing so or used specific criteria for selecting the fires they have reviewed, limiting their ability to help ensure that their fire reviews provide useful information and meaningful results.", "Both the Forest Service and Interior use various performance measures, such as the number of WUI acres treated to reduce fuels and the percentage of wildland fires contained during initial attack, to assess their wildland fire management effectiveness. These measures are reported in, among other things, the agencies’ annual congressional budget justifications. Officials from both the Forest Service and Interior told us their performance measures need improvement to more appropriately reflect their approach to wildland fire management and, in June 2015, officials from both agencies told us that they were working to improve them. For example, several performance measures for both agencies use a “stratified cost index” to help analyze suppression costs on wildfires. The index is based on a model that compares the suppression costs of fires that have similar characteristics, such as fire size, fuel types, and proximity to communities, and identifies the percentage of fires with suppression costs that exceeded the index. We found in a June 2007 report, however, that the index was not entirely reliable and that using the index as the basis for comparison may not allow the agencies to accurately identify fires where more, or more-expensive, resources than needed were used. The agencies continue to use the index, but have acknowledged its shortcomings. The Forest Service reported in its fiscal year 2016 budget justification to Congress that improvements were forthcoming. In April 2015, Forest Service officials told us they have incorporated detailed geospatial information into the model on which the index is based to help yield more accurate predictions of suppression expenditures and have submitted the model for peer review. Once that is complete, the agencies plan to begin to implement the updated model, but officials did not provide a time frame for doing so.\nBoth agencies have also made efforts to improve their performance measures to better reflect their emphasis on a risk-based approach to wildland fire management. In fiscal year 2014, Interior began using a new performance measure intended to better reflect a variety of strategies in addition to full suppression: “Percent of wildfires on DOI-managed landscapes where the initial strategy (ies) fully succeeded during the initial response phase.” The same year, the Forest Service began developing a performance measure intended to reflect that, in some cases, allowing naturally-ignited fires to burn can provide natural resource benefits at a lower cost and lower risk to personnel than fully suppressing the fire as quickly as possible: “Percent of acres burned by natural ignition with resource benefits.” Forest Service officials told us they are working with field units to evaluate whether this measure will effectively assess their efforts to implement a risk-based approach to fire management and that they will adjust it as needed. The officials told us they plan to finalize the measure and use it in 2017.\nAlso, in fiscal year 2014, the Forest Service began developing a performance measure that would assess the risk that wildland fire presents to highly valued resources such as communities and watersheds. This measure is known as the “National Forest System wildfire risk index.” According to the agency’s fiscal year 2016 budget justification, it would create an index of relative fire risk based on the likelihood of a large fire affecting these highly valued resources. It may also incorporate factors measuring the relative importance of these resources and the expected effects that might occur from fire. The Forest Service plans to establish a national baseline measure for this index in 2015 and then periodically remeasure it, likely every 2 years, to determine if overall risk has been reduced, according to Forest Service officials. Changes that could affect the index include those resulting from fuel reduction treatments, wildland fire, forest management activities, vegetative growth, and increased WUI development, among others, according to the agency’s 2016 budget justification. As with the performance measure described above, agency officials told us they will evaluate whether the measure meets their needs before adopting it; if it meets their needs, they plan to finalize the measure and use it in 2017.", "The agencies have also undertaken multiple efforts to assess the effectiveness of particular activities, such as fuel reduction and aerial firefighting. Regarding fuel reduction activities, we found in September 2007 and September 2009 that demonstrating the effectiveness of fuel reduction treatments is inherently complex and that the agencies did not have sufficient information to evaluate fuel treatment effectiveness, such as the extent to which treatments changed fire behavior. Without such information, we concluded that the agencies could not ensure that fuel reduction funds were directed to the areas where they can best minimize risk to communities and natural and cultural resources. Accordingly, we recommended that the agencies take actions to develop additional information on fuel treatment effectiveness. While the agencies took steps to address this recommendation, they are continuing efforts to improve their understanding of fuel treatment effectiveness. For example, the Forest Service and Interior agencies use a system called Fuel Treatment Effectiveness Monitoring to document and assess fuel reduction treatment effectiveness. The Forest Service began requiring such assessments in 2011 and Interior requested such assessments be completed starting in 2012. Under this approach, the agencies are to complete a monitoring report whenever a wildfire interacts with a fuel treatment and enter the information into the system. Officials told us that additional efforts are under way to help understand other aspects of fuel treatment effectiveness. For example, in February 2015, the Joint Fire Science Program completed its strategy to implement the 2014 Fuel Treatment Science Plan. It includes as one of its goals the “development of measures/metrics of effectiveness that incorporate ecological, social, resilience, and resource management objectives at the regional and national level.”\nThe Forest Service and Interior are also implementing an effort known as the Aerial Firefighting Use and Effectiveness Study, begun in 2012 to address concerns about limited performance information regarding the use of firefighting aircraft. As part of this effort, the agencies are collecting information on how aerial retardant and suppressant delivery affects fire behavior and plan to use this and other collected information to track the performance of specific aircraft types, according to the study website. This will help the agencies identify ways to improve their current fleet of aircraft and inform future aerial firefighting operations and aviation strategic planning, according to the website. Agency officials told us the study is not a one-time activity, but is an ongoing effort to continually provide information to help improve their use of firefighting resources.", "The Forest Service and the Interior agencies have conducted reviews to assess their effectiveness in responding to wildland fires but have not consistently followed agency policy in doing so and did not always use specific criteria for selecting the fires they have reviewed. Officials from both the Forest Service and Interior told us that current agency policy regarding fire reviews overly emphasizes the cost of wildland fire suppression rather than the effectiveness of their response to fire. However, the agencies have neither updated their policies to better reflect their emphasis on effectiveness nor established specific criteria for selecting fires for review and conducting the reviews. By developing such criteria, the agencies may enhance their ability to obtain useful, comparable information about their effectiveness in responding to wildland fires, which, in turn, may help them identify needed improvements in their wildland fire approach.\nCongressional reports and agency policy have generally called for the agencies to review their responses to wildland fires involving federal expenditures of $10 million or more. For fiscal years 2003 through 2010, congressional committee reports directed the Forest Service and Interior to conduct reviews of large fire incidents, generally for the purpose of understanding how to better contain suppression costs; beginning in fiscal year 2006, these reports included a cost threshold, specifying that such reviews be conducted for fires involving federal expenditures of $10 million or more. The agencies, in turn, have each developed their own policies that generally direct them to review each fire that exceeds the $10 million threshold.\nThe agencies, however, have not consistently conducted reviews of fire incidents meeting the $10 million threshold, in part because, according to officials, current agency policy that includes the $10 million threshold does not reflect the agencies’ focus on assessing the effectiveness of their response to fire. However, the agencies have not developed specific criteria for selecting fire incidents for review. Forest Service officials told us that, rather than selecting all fires with federal expenditures of $10 million or more, they changed their approach to selecting fires to review. These officials told us that focusing exclusively on suppression costs when selecting fires limits the agency in choosing those fires where it can obtain important information and best assess management actions and ensure they are appropriate, risk-based, and effective. Forest Service officials told us the agency judgmentally selects incidents to review based on a range of broad criteria, such as complexity and national significance, taking into account political, social, natural resource, or policy concerns. Using these broad selection criteria, the Forest Service reviewed 5 wildland fires that occurred in 2012 and 10 that occurred in 2013. However, with these broad criteria it is not clear why the Forest Service selected those particular fires and not others. For example, the 2013 Rim Fire, which cost over $100 million to suppress—by far the costliest fire to suppress that year—and burned over 250,000 acres of land, was not among the 2013 fires selected for review. Moreover, the reviews completed for each of those years did not use consistent or specific criteria for conducting the reviews. As of July 2015, the agency had not selected the fires it will review from the 2014 wildland fire season and, when asked, agency officials did not indicate a time frame for doing so.\nForest Service officials told us they believe it is appropriate to judgmentally select fires to provide them flexibility in identifying which fires to review and which elements of the fire response to analyze. Nevertheless, Forest Service officials also acknowledged the need to develop more specific criteria for selecting fires to review and conducting the reviews and, in July 2015, told us they are working to update their criteria for doing so. They provided us a draft update of the Forest Service policy manual, but this draft did not contain specific criteria for selecting fires for review or conducting the reviews. Moreover, officials did not provide a time frame for completing their update.\nWithin Interior, BLM officials told us BLM completed its last fire review based on significant cost (i.e., federal expenditures of $10 million or more) in 2013. These officials told us that BLM, similar to the Forest Service, plans to shift the emphasis of its fire reviews to evaluate management actions rather than focusing on cost, and that officials are working to determine criteria for selecting fires for review. Interior headquarters officials told us that FWS and NPS have continued to follow the direction provided through their policies regarding reviews of fires that met the $10 million threshold. Interior headquarters officials, however, acknowledged the need to improve Interior’s approach to selecting fires for review to focus more on information about decision making rather than fire costs. In July 2015, the officials told us they plan to develop criteria other than cost for use by all Interior agencies in selecting fires to review, and that they plan to develop standard criteria for implementing the reviews. They stated that they expect this department-wide effort to be completed by the end of calendar year 2015 but did not provide information about how they planned to develop such criteria or the factors they would consider.\nAgency reports have likewise cited the need to improve both the processes for selecting fires for review and the implementation of the reviews. A 2010 report, for example, noted the importance of improving the selection of fires to review and stated that the agencies would benefit from a more productive review strategy. The report said the agencies’ existing approach to conducting reviews tended to produce isolated efforts and unrelated recommendations rather than establishing a consistent foundation for continuous improvement. A 2013 report assessing the usefulness of the Forest Service’s five reviews of 2012 fires noted shortcomings in consistency across the reviews, including unclear criteria for selecting fires and conducting reviews, as well as limitations in the specificity of the resulting reports and recommendations. As noted, both agencies have acknowledged the need to improve their criteria for selecting fires to review and conducting the reviews. By developing specific criteria in agency policies for selecting fires for review and conducting the reviews, the agencies may enhance their ability to help ensure that their fire reviews provide useful information and meaningful results. This is consistent with our previous body of work on performance management, which has shown that it is important for agencies to collect performance information to inform key management decisions, such as how to identify problems and take corrective actions and how to identify and share effective approaches. By collecting such performance information, the agencies may be better positioned to identify needed improvements in their wildland fire approach and thereby use their limited resources more effectively.", "The Forest Service and Interior determine the distribution of fire management resources in part on the basis of historical amounts but are developing new methods intended to better reflect current conditions. For suppression, the Forest Service and Interior manage funding as needed for units to respond to individual wildland fires. For preparedness, the Forest Service and Interior distribute resources based, in part on historical funding levels generated by an obsolete system. The agencies are working to replace the system and develop new tools to help them distribute resources to reflect current landscape conditions, values at risk, and the probability of wildland fire. For fuel reduction, until recently, the Forest Service and Interior both distributed funds using the same system. In 2014, the Forest Service began using a new system to help it distribute fuel reduction funding in ways that better reflect current conditions. Interior is working to develop a system that likewise reflects current conditions.", "The agencies manage funding for suppression at the national level as needed for field units to respond to individual wildland fires. The overall amount of suppression funding the agencies obligate is determined by the complexity and number of wildland fire responses over the course of the fiscal year and can vary considerably from year to year. For example, federal agencies obligated approximately $1.7 billion for suppression in fiscal year 2006, $809 million in fiscal year 2010, and $1.9 billion in fiscal year 2012. (See app. II for more detailed information about suppression obligations by the Forest Service and the Interior agencies for fiscal years 2004 through 2014.)\nEach year, the agencies estimate the expected level of funding for suppression activities using the average of the previous 10 years of suppression obligations. The estimated amount, however, has often been less than the agencies’ actual suppression obligations, particularly for the Forest Service. In all but 2 years since 2000, Forest Service suppression obligations have exceeded the 10-year average that forms the basis of the agency’s annual appropriation. To pay for wildfire suppression activities when obligations are greater than the amount appropriated for suppression, the Forest Service and Interior may transfer funds from other programs within their respective agencies as permitted by law. As we found in a prior report, these transfers can affect the agencies’ ability to carry out other important land management functions that are key to meeting their missions, such as restoration of forest lands and other improvements. For example, according to a Forest Service report, funding transfers led to a canceled fuel reduction project on the Sante Fe National Forest and the deferral of critical habitat acquisition on the Cibola National Forest, both located in New Mexico.\nIn their annual budget justifications for fiscal years 2015 and 2016, the agencies proposed an alternative mechanism to fund suppression activities. Under that proposal, the agencies would receive 70 percent of the standard 10-year average of suppression obligations as their appropriation for wildland fire suppression, which reflects the amount the agencies spend to suppress approximately 99 percent of wildland fires. If suppression obligations exceed this amount, additional funds would be made available from a disaster funding account. Forest Service and Interior officials told us this proposal would allow them to better account for the variable nature of wildland fire seasons and reduce or eliminate the need to transfer funds from other accounts to pay for suppression. In addition, legislation pending in Congress would change how certain wildland fire suppression operations are funded.", "The Forest Service and Interior distribute preparedness funding to their regions and agencies, respectively, based in part on information generated from a system that is now obsolete. The agencies attempted to develop a new system to distribute preparedness funding, but ended that effort in 2014 and are now working to develop different tools and systems. In distributing preparedness funds to individual forests, some Forest Service regions have developed additional tools to help them distribute funds; similarly, three of the four Interior agencies have developed additional tools to help them distribute preparedness funds to their regions. Overall preparedness obligations in 2014 totaled about $1.0 billion for the Forest Service and about $274 million for the Interior agencies. (See app. II for detailed information on each of the agencies’ obligations for preparedness for fiscal years 2004 through 2014.)", "To determine the distribution of preparedness funds from Forest Service headquarters to its regions, and from Interior to the department’s four agencies with wildland fire management responsibilities, the Forest Service and Interior rely primarily on amounts that are based on results from a budgeting system known as the National Fire Management Analysis System (NFMAS). That system, however, was terminated in the early 2000s, according to agency officials. Relying on the results from the last year NFMAS was used, and making only incremental changes from year to year, the Forest Service and Interior have not made significant shifts in the funding distribution across their respective regions and agencies over time, and they have generally maintained the same number and configuration of firefighting assets (e.g., fire engines and crews) in the same geographic areas from year to year. Several agency officials, however, told us that these amounts no longer reflect current conditions, in part because of changes to the landscape resulting from increased human development, climate change, and changes to land management policies that consider natural resource values differently than they did when NFMAS was in use.\nBeginning in 2002, the agencies attempted to replace NFMAS with an interagency system designed to help them determine the optimal mix and location of firefighting assets and distribute funds accordingly. In developing this system, known as the Fire Program Analysis system, the agencies’ goal was to develop “a comprehensive interagency process for fire planning and budget analysis identifying cost-effective programs to achieve the full range of fire management goals and objectives.” According to agency documents, this effort proved problematic because of the difficulty in modeling various aspects of wildland fire management. In addition, agency officials told us it is difficult to design a system that could account for multiple agencies’ different needs and varying missions. After more than a decade of work, and investment that Forest Service officials estimated at approximately $50 million, the agencies terminated the system’s development in September 2014. At that time, they stated that it “only delivered inconsistent and unacceptable results.”\nSince the termination of the Fire Program Analysis system, the agencies have continued to rely on results based on the terminated NFMAS, but have begun working on new tools to help them distribute funding and assets based on current conditions and updated information. Forest Service headquarters officials told us the agency is developing a new tool called the Wildland Fire Investment Portfolio System. According to these officials, this proposed system is intended to model scenarios such as large shifts in firefighting assets, various potential dispatch procedures, and changes in fire behavior due to climate change, which will allow managers, both at the national and individual unit level, to conduct resource trade-off analyses and assess whether assets are being used effectively. Forest Service officials told us that the agency is in the early stages of developing this proposed system and anticipates using it for planning and analysis purposes in fiscal year 2016.\nInterior documents state that Interior is developing a system called the Risk-Based Wildland Fire Management model, which Interior will use to help support funding distribution decisions to the four Interior agencies for both preparedness and fuel reduction. The proposed system will assess the probability and likely intensity of wildland fire, values at risk, and the expected value of acres likely to burn. A key element of this system will be the development of strategic business plans by each of the four Interior agencies, detailing how each agency intends to distribute its preparedness and fuel reduction funding to reduce the risks from wildland fire on its lands. Interior officials said that, once the agencies provide these business plans, Interior will assess them in making funding distribution decisions among the agencies. According to several Interior agency officials, identifying priority values at risk across Interior’s four agencies may be challenging given the variation in agency missions and the types of lands they manage. For example, a threatened species located primarily on BLM lands may be among BLM’s highest priorities, but a forested area relied upon by an Indian tribe for its livelihood may be among BIAs’ highest priorities. Interior officials told us that they expect to identify the prioritized values and issue guidance on the proposed system by the end of calendar year 2015, and then use its results to inform their fiscal year 2016 funding distributions to the four agencies.", "Once the Forest Service distributes preparedness funding to regions, it gives regions discretion to determine how to subsequently distribute funding to individual national forests, as long as those determinations are consistent with policy and annual budget program direction. Forest Service headquarters officials told us they do not plan to direct regions to use any specific system to help inform distributions to national forests, so that regions can have flexibility in distributing their funds and take into account local conditions and priorities. According to agency officials, most regions distribute funding to individual national forests based on historical amounts resulting from NFMAS. However, two regions have changed the way they determine funding distribution to individual national forests to better reflect current landscape conditions. The Rocky Mountain Region uses a new system that ranks each of its forests according to a “risk priority score.” According to regional officials, use of the system has resulted in shifts in funding across forests in the region; for example, the officials told us they have provided additional resources to forests along Colorado’s Front Range because of increased development in the WUI. The Pacific Northwest Region also uses its own funding distribution tool, which considers elements such as fire occurrence and the number of available assets to develop a weighted value for each forest in the region. The region distributes the funding proportionally based on the values calculated for each forest.", "Once obtaining preparedness funds from Interior, each agency—which, as noted, have their own land management responsibilities and missions—distributes these funds to its units. Three of these agencies— BLM, FWS, and NPS—use newer systems and current information, such as updated fuel characterization and fire occurrence data, to distribute funding to their regional offices. The fourth agency, BIA, generally uses historical-based amounts (i.e., NFMAS results), but has made some changes to reflect updated priorities. The regions subsequently distribute funding to individual land units, typically using the same systems. The four agencies’ approaches are described below.\nBLM. Since 2010, BLM officials told us they have used results from the Fire Program Decision Support System to help determine funding distributions to state offices. The system analyzes BLM’s fire workload and complexity using four components: fire suppression workload, fuel types, human risk, and additional fire resources, and assigns scores to state offices accordingly. Based on the resulting analyses, BLM has shifted funding across state offices to help better reflect current conditions. BLM officials told us that most states use the new system to help inform the distribution of funding to their units. BLM is also developing an additional component of the Fire Program Decision Support System to help offices determine the appropriate number of firefighting assets needed in each area. Officials expect to apply the new component with their overall system in the fall of 2015.\nFWS. In 2014, FWS began distributing its preparedness funding to regions using the Preparedness Allocation Tool. Officials told us that the tool uses information such as historical wildland fire occurrence, proximity to WUI areas, and other information, to inform preparedness funding distributions to regions. Agency officials told us that results from this tool did not generally identify the need for large funding shifts across units, but rather helped identify some smaller shifts to better reflect current landscape conditions. Officials with one FWS region told us that the tool has helped the agency provide better assurance that funding amounts are risk-based and transparent.\nNPS. Since 2013, primarily in response to their overall wildland fire management program funding reductions, NPS began using a system called the Planning Data System to determine what level of firefighting workforce the agency could afford under different budget distribution scenarios. The system generates personnel requirements for each NPS unit by establishing a minimum number of people for any unit that meets certain criteria. Those results are rolled up to also provide regional workforce requirements. The results generated from this system showed that some NPS regions, as well as individual park units, had existing wildland fire organizations that they could no longer adequately support in light of reduced budgets.\nBIA. BIA relies primarily on historical funding amounts derived from a system similar to NFMAS. However, BIA officials told us they have made adjustments to the historical amounts using professional judgment. BIA officials told us that the regions also still primarily use historical-based amounts to distribute funding to their units. The officials told us they will wait until Interior finalizes its Risk Based Wildland Fire Management model before they develop a new funding distribution tool.", "Beginning in 2009, the Forest Service and Interior both used systems collectively known as the Hazardous Fuels Prioritization and Allocation System (HFPAS) to distribute fuel reduction funds. Officials told us these systems, based on similar concepts and approaches, were developed by the agencies to provide an interagency process for distributing fuel reduction funding to the highest-priority projects. Starting in 2014, the Forest Service instead began using a new system, which, according to officials, allows the agency to more effectively distribute fuel reduction funds. Interior continues to distribute fuel reduction funding to the four agencies based on funding amounts derived from HFPAS, but it plans to develop a new system for distributing funds to reflect more current conditions and risks. Overall fuel reduction obligations in 2014 totaled about $302 million for the Forest Service and about $147 million for the Interior agencies. (See app. II for detailed information on the agencies’ fuel reduction obligations for fiscal years 2004 through 2014.)\nForest Service officials told us their new system identifies locations where the highest probability of wildland fire intersects with important resources, such as residential areas and watersheds critical to municipal water supplies. These officials told us the new system allows the agency to invest its fuel reduction funds in areas where there are both a high probability of wildland fires and important resources at risk. In contrast, according to officials, HFPAS in some cases prioritized funding for areas where important resources, such as extensive WUI, existed but where the potential for wildland fires was low. The new system has identified locations for funding adjustments to Forest Service regions. For example, in 2015 the agency’s Eastern and Southern Regions received a smaller proportion of fuel reduction funding than they had previously received, and some western regions saw increases, because results from the system showed that the western regions had more areas with both important resources and high wildland fire potential.\nThe Forest Service directs its regions to distribute fuel reduction funding to national forests using methods consistent with national information, as well as with specific local data. A senior Forest Service official told us that, as a result, most regions distribute funding to individual national forests based on information generated using HFPAS, augmented with local data. One region has developed a more updated distribution approach. Specifically, in 2012, the Rocky Mountain Region, in conjunction with the Rocky Mountain Research Station and Forest Service headquarters, developed a fuel reduction funding distribution tool that generates a risk priority score for each forest in the region. The risk priority score is based on fire probability, resources at risk from fire, potential fire intensity, and historical fire occurrence. Each forest’s risk priority score is used to inform the region’s distribution of funding to the national forests.\nInterior currently distributes fuel reduction funding to its agencies based on the funding amounts derived from HFPAS results that were last generated in 2013. Interior officials also told us they plan to stop using HFPAS results and are planning to use the new system they are developing, the Risk-Based Wildland Fire Management model, to reflect current information on conditions and risks in distributing fuel reduction funds.\nWithin Interior, officials from the four agencies told us they have developed, or are in the process of developing, funding distribution systems and tools while they wait for Interior to complete the Risk-Based Wildland Fire Management model. BLM, for example, uses a fuel reduction funding distribution tool that maps values at risk, including WUI, critical infrastructure, sagebrush habitat, and invasive species data. BLM combines this information with data on wildland fire probability to create a spatial illustration of the values at risk relative to potential fire occurrence. BLM then uses the results of this analysis to fund its state offices. BIA uses its own tool to distribute fuel reduction funding to its regions based on wildland fire potential data generated by the Forest Service. That information is then combined with fire occurrence history and workload capacity to generate a model that shows potential fire risk and capacity across BIA units. FWS officials told us they are developing a fuel reduction funding distribution tool, expected to be used for fiscal year 2016, which considers fire risks associated with each FWS unit. FWS officials told us this tool will identify risk reduction over longer periods of time, contain an accountability function to monitor results, and will share many attributes with FWS’ preparedness allocation tool. NPS officials told us the agency will continue to rely on historical amounts, based largely on HFPAS. Similar to the previous Interior distribution approach, NPS distributes funding for specific projects identified at the headquarters level. However, if a unit is not able to implement an identified project, the unit can substitute other projects, as necessary.", "Faced with the challenge of working to protect people and resources from the unwanted effects of wildland fire while also recognizing that fire is an inevitable part of the landscape, the federal wildland fire agencies have taken steps aimed at improving their approaches to wildland fire management. Their 2009 update to interagency guidance, for example, was designed to continue moving away from the agencies’ decades-long emphasis on suppressing all fires, by giving fire managers more flexibility in responding to fires. In addition, the agencies are working to develop more up-to-date systems for distributing wildland fire resources. A central test of such changes, however, is the extent to which they help ensure appropriate and effective agency responses to fires when they occur. The agencies have acknowledged the importance of reviewing their responses to individual wildland fires to understand their effectiveness and identify possible improvements. However, the agencies have not systematically followed agency policy regarding such fire reviews and, in the reviews they have conducted, they have not used specific criteria in selecting fires and conducting the reviews. Officials from both the Forest Service and Interior told us cost alone should not be the basis for such reviews and have acknowledged the need to improve their criteria for selecting fires and conducting reviews. Draft guidance provided by the Forest Service did not contain specific criteria for such reviews, however, and Interior officials did not provide information about how they planned to develop criteria or the factors they would consider. By developing specific criteria for selecting fires to review and conducting the reviews, and making commensurate changes to agency policies to help ensure the criteria are consistently applied, the agencies may enhance their ability to ensure that their fire reviews provide useful information and meaningful results. This, in turn, could better position them to identify improvements in their approach to wildland fire management and thereby use their limited resources more effectively.", "To better ensure that the agencies have sufficient information to understand the effectiveness of their approach to wildland fires, and to better position them to develop appropriate and effective strategies for wildland fire management, we recommend that the Secretaries of Agriculture and the Interior direct the Chief of the Forest Service and the Director of the Office of Wildland Fire to take the following two actions:\nDevelop specific criteria for selecting wildland fires for review and for conducting the reviews as part of their efforts to improve their approach to reviewing fires, and\nOnce such criteria are established, revise agency policies to align with the specific criteria developed by the agencies.", "We provided a draft of this report for review and comment to the Departments of Agriculture and the Interior. The Forest Service (responding on behalf of the Department of Agriculture) and Interior generally agreed with our findings and recommendations, and their written comments are reproduced in appendixes IV and V respectively. Both agencies stated that they are developing criteria for selecting fires to review and conducting reviews. Both agencies also provided technical comments which we incorporated into our report as appropriate. Interior also provided additional information about wildland fire technology, which we likewise incorporated as appropriate.\nWe are sending copies of this report to the appropriate congressional committees, the Secretaries of Agriculture and the Interior, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov.\nIf you or your staff members have any questions regarding this report, please contact me at (202) 512-3841 or fennella@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to the report are listed in appendix VI.", "This report examines (1) key changes the federal wildland fire agencies have made in their approach to wildland fire management since 2009, (2) how the agencies assess the effectiveness of their wildland fire management programs, and (3) how the agencies determine the distribution of their wildland fire management resources.\nTo perform this work, we reviewed laws, policies, guidance, academic literature, and reviews related to federal wildland fire management. These included the 1995 Federal Wildland Fire Management Policy and subsequent implementation guidance, the Interagency Standards for Fire and Fire Aviation Operations, and the 2009 and 2014 Quadrennial Fire Reviews. We also interviewed headquarters officials from each of the five federal land management agencies responsible for wildland fire management—the Forest Service in the Department of Agriculture and the Bureau of Indian Affairs (BIA), Bureau of Land Management (BLM), Fish and Wildlife Service (FWS), and National Park Service (NPS) in the Department of the Interior—as well as Interior’s Office of Wildland Fire.\nWe also conducted semistructured interviews of regional officials in each of the agencies to obtain information about issues specific to particular regions and understand differences across regions. We interviewed wildland fire management program officials from each of the 9 Forest Service regional offices, 11 of BLM’s 12 state offices, and 2 regional offices each for BIA, FWS, and NPS. We focused these regional interviews primarily on the Forest Service and BLM because those agencies receive the greatest percentage of appropriated federal wildland fire funding. For BIA, FWS, and NPS, we selected the two regions from each agency that received the most funds in those agencies—BIA’s Northwest and Western Regions, FWS’s Southwest and Southeast Regions, and NPS’s Pacific West and Intermountain Regions. We conducted a total of 25 semistructured interviews of regional offices.\nDuring these semistructured interviews we asked about (1) significant changes to the agencies’ approach to wildland fire management, including regional efforts to implement the policy areas identified in the 2009 interagency Guidance for Implementation of Federal Wildland Fire Management Policy, (2) agency efforts to assess the effectiveness of their wildland fire management activities, and (3) agency processes for determining the distribution of fire management resources. We focused our review on three primary components of wildland fire management— suppression, preparedness, and fuel reduction—because they account for the highest spending amounts among wildland fire management activities.\nTo address our first objective, we reviewed agency documents, such as policy and guidance, as well as other documents such as agency budget justifications, to identify changes the agencies have made to their approach to managing wildland fire since 2009, efforts the agencies have undertaken to address wildland fire management challenges, agency- identified improvements resulting from those changes, and challenges associated with implementing them. Our review focuses on changes since 2009 because we last completed a comprehensive review of wildland fire management in that year, and because the agencies’ last significant change to interagency wildland fire management guidance for implementing the Federal Wildland Fire Management Policy also occurred that year. To further our understanding of these issues, we also asked about these changes in our interviews with agency headquarters officials. In particular, we asked about the extent to which changes to the agencies’ wildland fire management approaches have occurred or are planned, the effects of these changes, and associated challenges. In addition, we relied on the semistructured interviews of regional officials described above to understand how the regions implemented national direction and policy. We analyzed the responses provided to us during the interviews to identify common themes about prominent changes since 2009, and challenges associated with implementing those changes. The information we report represents themes that occurred frequently in our interviews with both regional and headquarters officials. We did not report on changes described during our interviews that were not directly related to wildland fire management, such as changes to general workforce management policies.\nTo address our second objective, we reviewed agency strategic plans and budget justifications describing performance measures, as well as other documents associated with agency efforts to assess their programs, including fire reviews. We also reviewed legislative and agency direction related to fire reviews, including agency policies and the Interagency Standards for Fire and Fire Aviation Operations, and reviewed reports resulting from fire reviews conducted by the agencies since 2009. We compared agency practices for conducting fire reviews to direction contained in relevant agency policy. We also interviewed headquarters officials to identify the agencies’ key performance measures and the extent to which those measures reflect changing approaches to wildland fire management. In our interviews with headquarters and regional officials, we also inquired about other mechanisms the agencies use to determine the effectiveness of their wildland fire management programs, as well as any changes they are making in this area. To obtain additional insight into the use of performance information on the part of federal agencies, we also reviewed our previous reports related to agencies’ use of performance information.\nTo address our third objective, we reviewed relevant agency budget documentation, including annual budget justifications and documentation of agency obligations, as well as information about the tools and systems the agencies use to distribute funds and resources. We did not assess the design or use of any of the agencies’ tools or systems for distributing funds. We interviewed agency officials at the headquarters and regional levels to identify the processes they use for budget formulation and resource distribution. We asked about the extent to which these processes have changed in recent years at the headquarters and regional levels for each of the five agencies and the extent to which they have changed funding and resource amounts. We also obtained data from the Forest Service and from Interior’s Office of Wildland Fire on obligations for each of the three primary wildland fire management components— suppression, preparedness, and fuel reduction—from fiscal years 2004 through 2014, analyzing the data in both nominal (actual) and constant (adjusted for inflation) terms. Adjusting nominal dollars to constant dollars allows the comparison of purchasing power across fiscal years. To adjust for inflation, we used the gross domestic product price index with 2014 as the base year. We reviewed budget documents and obligation data provided by the agencies, and interviewed agency officials knowledgeable about the data, and we found the data sufficiently reliable for the purposes of this report.\nWe conducted this performance audit from August 2014 to September 2015 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.", "This appendix provides information on preparedness, fuel reduction, and suppression obligations by the Forest Service and the Department of the Interior’s four wildland fire agencies—the Bureau of Indian Affairs, Bureau of Land Management, Fish and Wildlife Service, and National Park Service—for fiscal years 2004 through 2014.\nFigures 4, 5, and 6 show overall agency obligations for preparedness, fuel reduction, and suppression for fiscal years 2004 through 2014. Individual agencies’ obligations for each of the three programs are described later in this appendix.\nTable 1 and figure 7 show annual Forest Service wildland fire management obligations for fiscal years 2004 through 2014. Preparedness obligations increased from nearly $760 million in fiscal year 2004 to about $1.0 billion in fiscal year 2014, an average increase of 3.2 percent per year, or 1.2 percent after adjusting for inflation. Fuel reduction obligations increased from about $284 million in fiscal year 2004 to about $302 million in fiscal year 2014, an average annual increase of 0.6 percent, or a 1.4 percent decrease after adjusting for inflation. Suppression obligations fluctuated from year to year, with a high of about $1.4 billion in fiscal year 2012 and a low of about $525 million in fiscal year 2005.\nTable 2 and figure 8 show annual Bureau of Indian Affairs wildland fire management obligations for fiscal years 2004 through 2014. Preparedness obligations decreased from nearly $58 million in fiscal year 2004 to about $51 million in fiscal year 2014, an average annual decrease of 1.3 percent per year, or 3.2 percent after adjusting for inflation. Fuel reduction obligations decreased from about $39 million in fiscal year 2004 to about $30 million in fiscal year 2014, an average annual decrease of 2.6 percent, or 4.5 percent after adjusting for inflation. Suppression obligations fluctuated from year to year, with a high of about $105 million in fiscal year 2012 and a low of about $43 million in fiscal year 2010.\nTable 3 and figure 9 show annual Bureau of Land Management wildland fire management obligations from fiscal years 2004 through 2014. Preparedness obligations increased from nearly $152 million in fiscal year 2004 to about $160 million in fiscal year 2014, an average annual increase of 0.6 percent per year, or a 1.4 percent decrease after adjusting for inflation. Fuel reduction obligations decreased from about $98 million in fiscal year 2004 to about $75 million in fiscal year 2014, an average annual decrease of 2.6 percent, or 4.6 percent after adjusting for inflation. Suppression obligations fluctuated from year to year, with a high of about $299 million in fiscal year 2007 and a low of about $130 million in fiscal year 2009.\nTable 4 and figure 10 show annual Fish and Wildlife Service wildland fire management obligations for fiscal years 2004 through 2014. Preparedness obligations decreased from about $33 million in fiscal year 2004 to about $27 million in fiscal year 2014, an average annual decrease of 2.1 percent per year, or 4.1 percent after adjusting for inflation. Fuel reduction obligations decreased from about $24 million in fiscal year 2004 to about $21 million in fiscal year 2014, an average annual decrease of 1.5 percent, or 3.5 percent after adjusting for inflation. Suppression obligations fluctuated from year to year, with a high of about $41 million in fiscal year 2011 and a low of about $4 million in fiscal year 2010.\nTable 5 and figure 11 show annual National Park Service wildland fire management obligations for fiscal years 2004 through 2014. Obligations for preparedness increased from about $35 million in fiscal year 2004 to about $36 million in fiscal year 2014, an average annual increase of 0.5 percent per year, or a 1.5 percent decrease after adjusting for inflation. Fuel reduction obligations decreased from about $31 million in fiscal year 2004 to about $21 million in fiscal year 2014, an average annual decrease of 3.7 percent, or 5.6 percent after adjusting for inflation. Suppression obligations fluctuated from year to year, with a high of about $58 million in fiscal year 2006 and a low of about $22 million in fiscal year 2009.", "The Forest Service and the Department of the Interior use different approaches for paying the base salaries of their staff during wildland fire incidents. For periods when firefighters are dispatched to fight fires, the Forest Service generally pays its firefighters’ base salaries using suppression funds, whereas Interior pays its firefighters’ base salaries primarily using preparedness funds. Forest Service officials told us that under this approach, regional offices, which are responsible for hiring firefighters in advance of the fire season, routinely hire more firefighters than their preparedness budgets will support, assuming they can rely on suppression funds to pay the difference. Forest Service officials told us that their funding approach helps the agency maintain its firefighting capability over longer periods of time during a season and accurately track the overall costs of fires. Interior officials told us they choose to use preparedness funds to pay their firefighters’ base salaries during a wildland fire because it constitutes a good business practice. According to a Wildland Fire Leadership Council document, in 2003, the council agreed that the agencies would use a single, unified approach and pay firefighters’ base salary using Interior’s method of using preparedness funds. However, the council subsequently noted that in 2004 the Office of Management and Budget directed the Forest Service to continue using suppression funds to pay firefighters’ base salaries. The agencies have used separate approaches since 2004.", "", "", "", "", "In addition to the individual named above, Steve Gaty (Assistant Director), Ulana M. Bihun, Richard P. Johnson, Lesley Rinner, and Kyle M. Stetler made key contributions to this report. Important contributions were also made by Cheryl Arvidson, Mark Braza, William Carrigg, Carol Henn, Benjamin T. Licht, Armetha Liles, and Kiki Theodoropoulos.", "Wildland Fire Management: Improvements Needed in Information, Collaboration, and Planning to Enhance Federal Fire Aviation Program Success. GAO-13-684. Washington, D.C.: August 20, 2013.\nStation Fire: Forest Service’s Response Offers Potential Lessons for Future Wildland Fire Management. GAO-12-155. Washington, D.C.: December 16, 2011.\nArizona Border Region: Federal Agencies Could Better Utilize Law Enforcement Resources in Support of Wildland Fire Management Activities. GAO-12-73. Washington, D.C.: November 8, 2011.\nWildland Fire Management: Federal Agencies Have Taken Important Steps Forward, but Additional Action Is Needed to Address Remaining Challenges. GAO-09-906T. Washington, D.C.: July 21, 2009.\nWildland Fire Management: Federal Agencies Have Taken Important Steps Forward, but Additional, Strategic Action Is Needed to Capitalize on Those Steps. GAO-09-877. Washington, D.C.: September 9, 2009.\nWildland Fire Management: Actions by Federal Agencies and Congress Could Mitigate Rising Fire Costs and Their Effects on Other Agency Programs. GAO-09-444T. Washington, D.C.: April 1, 2009.\nForest Service: Emerging Issues Highlight the Need to Address Persistent Management Challenges. GAO-09-443T. Washington, D.C.: March 11, 2009.\nWildland Fire Management: Interagency Budget Tool Needs Further Development to Fully Meet Key Objectives. GAO-09-68. Washington, D.C.: November 24, 2008.\nWildland Fire Management: Federal Agencies Lack Key Long- and Short-Term Management Strategies for Using Program Funds Effectively. GAO-08-433T. Washington, D.C.: February 12, 2008.\nForest Service: Better Planning, Guidance, and Data Are Needed to Improve Management of the Competitive Sourcing Program. GAO-08-195. Washington, D.C.: January 22, 2008.\nWildland Fire Management: Better Information and a Systematic Process Could Improve Agencies’ Approach to Allocating Fuel Reduction Funds and Selecting Projects. GAO-07-1168. Washington, D.C.: September 28, 2007.\nNatural Hazard Mitigation: Various Mitigation Efforts Exist, but Federal Efforts Do Not Provide a Comprehensive Strategic Framework. GAO-07-403. Washington, D.C.: August 22, 2007.\nWildland Fire: Management Improvements Could Enhance Federal Agencies’ Efforts to Contain the Costs of Fighting Fires. GAO-07-922T. Washington, D.C.: June 26, 2007.\nWildland Fire Management: A Cohesive Strategy and Clear Cost- Containment Goals Are Needed for Federal Agencies to Manage Wildland Fire Activities Effectively. GAO-07-1017T. Washington, D.C.: June 19, 2007.\nWildland Fire Management: Lack of Clear Goals or a Strategy Hinders Federal Agencies’ Efforts to Contain the Costs of Fighting Fires. GAO-07-655. Washington, D.C.: June 1, 2007.\nDepartment of the Interior: Major Management Challenges. GAO-07-502T. Washington, D.C.: February 16, 2007.\nWildland Fire Management: Lack of a Cohesive Strategy Hinders Agencies’ Cost-Containment Efforts. GAO-07-427T. Washington, D.C.: January 30, 2007.\nBiscuit Fire Recovery Project: Analysis of Project Development, Salvage Sales, and Other Activities. GAO-06-967. Washington, D.C.: September 18, 2006.\nWildland Fire Rehabilitation and Restoration: Forest Service and BLM Could Benefit from Improved Information on Status of Needed Work. GAO-06-670. Washington, D.C.: June 30, 2006.\nWildland Fire Suppression: Better Guidance Needed to Clarify Sharing of Costs between Federal and Nonfederal Entities. GAO-06-896T. Washington, D.C.: June 21, 2006.\nWildland Fire Suppression: Lack of Clear Guidance Raises Concerns about Cost Sharing between Federal and Nonfederal Entities. GAO-06-570. Washington, D.C.: May 30, 2006.\nWildland Fire Management: Update on Federal Agency Efforts to Develop a Cohesive Strategy to Address Wildland Fire Threats. GAO-06-671R. Washington, D.C.: May 1, 2006.\nNatural Resources: Woody Biomass Users’ Experiences Provide Insights for Ongoing Government Efforts to Promote Its Use. GAO-06-694T. Washington, D.C.: April 27, 2006.\nNatural Resources: Woody Biomass Users’ Experiences Offer Insights for Government Efforts Aimed at Promoting Its Use. GAO-06-336. Washington, D.C.: March 22, 2006.\nWildland Fire Management: Timely Identification of Long-Term Options and Funding Needs Is Critical. GAO-05-923T. Washington, D.C.: July 14, 2005.\nNatural Resources: Federal Agencies Are Engaged in Numerous Woody Biomass Utilization Activities, but Significant Obstacles May Impede Their Efforts. GAO-05-741T. Washington, D.C.: May 24, 2005.\nNatural Resources: Federal Agencies Are Engaged in Various Efforts to Promote the Utilization of Woody Biomass, but Significant Obstacles to Its Use Remain. GAO-05-373. Washington, D.C.: May 13, 2005.\nTechnology Assessment: Protecting Structures and Improving Communications during Wildland Fires. GAO-05-380. Washington, D.C.: April 26, 2005.\nWildland Fire Management: Progress and Future Challenges, Protecting Structures, and Improving Communications. GAO-05-627T. Washington, D.C.: April 26, 2005.\nWildland Fire Management: Forest Service and Interior Need to Specify Steps and a Schedule for Identifying Long-Term Options and Their Costs. GAO-05-353T. Washington, D.C.: February 17, 2005.\nWildland Fire Management: Important Progress Has Been Made, but Challenges Remain to Completing a Cohesive Strategy. GAO-05-147. Washington, D.C.: January 14, 2005.\nWildland Fires: Forest Service and BLM Need Better Information and a Systematic Approach for Assessing the Risks of Environmental Effects. GAO-04-705. Washington, D.C.: June 24, 2004.\nFederal Land Management: Additional Guidance on Community Involvement Could Enhance Effectiveness of Stewardship Contracting. GAO-04-652. Washington, D.C.: June 14, 2004.\nWildfire Suppression: Funding Transfers Cause Project Cancellations and Delays, Strained Relationships, and Management Disruptions. GAO-04-612. Washington, D.C.: June 2, 2004.\nBiscuit Fire: Analysis of Fire Response, Resource Availability, and Personnel Certification Standards. GAO-04-426. Washington, D.C.: April 12, 2004.\nForest Service: Information on Appeals and Litigation Involving Fuel Reduction Activities. GAO-04-52. Washington, D.C.: October 24, 2003.\nGeospatial Information: Technologies Hold Promise for Wildland Fire Management, but Challenges Remain. GAO-03-1047. Washington, D.C.: September 23, 2003.\nGeospatial Information: Technologies Hold Promise for Wildland Fire Management, but Challenges Remain. GAO-03-1114T. Washington, D.C.: August 28, 2003.\nWildland Fire Management: Additional Actions Required to Better Identify and Prioritize Lands Needing Fuels Reduction. GAO-03-805. Washington, D.C.: August 15, 2003.\nWildland Fires: Forest Service’s Removal of Timber Burned by Wildland Fires. GAO-03-808R. Washington, D.C.: July 10, 2003.\nForest Service: Information on Decisions Involving Fuels Reduction Activities. GAO-03-689R. Washington, D.C.: May 14, 2003.\nWildland Fires: Better Information Needed on Effectiveness of Emergency Stabilization and Rehabilitation Treatments. GAO-03-430. Washington, D.C.: April 4, 2003.\nMajor Management Challenges and Program Risks: Department of the Interior. GAO-03-104. Washington, D.C.: January 1, 2003.\nResults-Oriented Management: Agency Crosscutting Actions and Plans in Border Control, Flood Mitigation and Insurance, Wetlands, and Wildland Fire Management. GAO-03-321. Washington, D.C.: December 20, 2002.\nWildland Fire Management: Reducing the Threat of Wildland Fires Requires Sustained and Coordinated Effort. GAO-02-843T. Washington, D.C: June 13, 2002.\nWildland Fire Management: Improved Planning Will Help Agencies Better Identify Fire-Fighting Preparedness Needs. GAO-02-158. Washington, D.C.: March 29, 2002.\nSevere Wildland Fires: Leadership and Accountability Needed to Reduce Risks to Communities and Resources. GAO-02-259. Washington, D.C.: January 31, 2002.\nForest Service: Appeals and Litigation of Fuel Reduction Projects. GAO-01-1114R. Washington, D.C.: August 31, 2001.\nThe National Fire Plan: Federal Agencies Are Not Organized to Effectively and Efficiently Implement the Plan. GAO-01-1022T. Washington, D.C.: July 31, 2001.\nReducing Wildfire Threats: Funds Should be Targeted to the Highest Risk Areas. GAO/T-RCED-00-296. Washington, D.C.: September 13, 2000.\nFire Management: Lessons Learned From the Cerro Grande (Los Alamos) Fire. GAO/T-RCED-00-257. Washington, D.C.: August 14, 2000.\nFire Management: Lessons Learned From the Cerro Grande (Los Alamos) Fire and Actions Needed to Reduce Fire Risks. GAO/T-RCED-00-273. Washington, D.C.: August 14, 2000." ], "depth": [ 1, 2, 2, 2, 2, 1, 2, 2, 2, 2, 3, 3, 3, 1, 2, 2, 2, 1, 2, 2, 3, 3, 3, 2, 1, 1, 1, 1, 1, 1, 1, 1, 1, 2, 2, 1 ], "alignment": [ "h3_full", "", "", "h3_full", "", "h0_full", "h0_full", "h0_full", "", "", "", "", "", "h1_full", "", "", "h1_full", "h2_full", "h2_full", "h2_title", "h2_full", "", "", "", "", "", "", "h0_full h4_full", "", "", "", "", "", "", "", "" ] }

{ "question": [ "What agencies have made changes to federal wildland fire management?", "How did such changes affect managers?", "How have agencies collaborated with nonfederal entities?", "How have these changes affected on-the-ground operations?", "How do the agencies assess the effectiveness of their wildland fire management programs?", "Why are they developing new performance measures?", "To what extent have their fire reviews met federal standards?", "Why is it important for agencies to collect performance information?", "What efforts are Forest Service and Interior making to improve their fire review process?", "To what extent have these efforts been completed?", "How will improved fire selection criteria benefit the agencies?", "How are fire management resources distributed?", "How is fire suppression funding managed?", "How are preparedness and fuel reduction funded?", "How is the funding distribution process slated to change?", "What role does wildland fire play in ecosystems?", "How have land management practices affected wildland fires?", "What are some negative effects of wildland fires?", "How well-funded are wildland fire suppression efforts?", "What was GAO asked to review?", "What does this report cover?", "How did GAO source data for its report?" ], "summary": [ "Since 2009, the five federal agencies responsible for wildland fire management—the Forest Service within the Department of Agriculture and the Bureau of Indian Affairs, Bureau of Land Management, Fish and Wildlife Service, and National Park Service in the Department of the Interior—have made several key changes in their approach to wildland fire management.", "One key change was the issuance of agency guidance in 2009 that provided managers with more flexibility in responding to wildland fires. This change allowed managers to consider different options for response given land management objectives and the risk posed by the fire.", "The agencies also worked with nonfederal partners to develop a strategy aimed at coordinating wildland fire management activities around common goals.", "The extent to which the agencies' steps have resulted in on-the-ground changes varied across agencies and regions, however, and officials identified factors, such as proximity to populated areas, that may limit their implementation of some changes.", "The agencies assess the effectiveness of their wildland fire management programs in several ways, including through performance measures and reviews of specific wildland fires.", "The agencies are developing new performance measures, in part to help better assess the results of their current emphasis on risk-based management, according to agency officials.", "However, the agencies have not consistently followed agency policy regarding fire reviews, which calls for reviews of all fires resulting in federal suppression expenditures of $10 million or more, nor have they used specific criteria for the reviews they have conducted.", "GAO has previously found that it is important for agencies to collect performance information to inform key management decisions and to identify problems and take corrective actions.", "Forest Service and Interior officials said focusing only on suppression costs does not allow them to identify the most useful fires for review, and they told GAO they are working to improve their criteria for selecting fires to review and conducting these reviews.", "Forest Service officials did not indicate a time frame for their efforts, and while they provided a draft update of their policy manual, it did not contain specific criteria. Interior officials told GAO they expect to develop criteria by the end of 2015, but did not provide information about how they planned to develop such criteria or the factors they would consider.", "By developing specific criteria for selecting fires to review and conducting reviews, and making commensurate changes to agency policies, the agencies may enhance their ability to help ensure that their fire reviews provide useful information about the effectiveness of their wildland fire activities.", "The Forest Service and Interior determine the distribution of fire management resources for three primary wildland fire activities of suppression, preparedness, and fuel reduction in part on the basis of historical funding amounts.", "For suppression, the Forest Service and Interior manage suppression funding as needed for responding to wildland fires, estimating required resources using the average of the previous 10 years of suppression obligations.", "For preparedness and fuel reduction, the Forest Service and Interior distribute resources based primarily on historical amounts.", "Both are working to distribute resources in ways that better reflect current conditions, including developing new systems that they stated they plan to begin using in fiscal year 2016.", "Wildland fire plays an important ecological role in maintaining healthy ecosystems.", "Over the past century, however, various land management practices, including fire suppression, have disrupted the normal frequency of fires and have contributed to larger and more severe wildland fires.", "Wildland fires cost billions to fight each year, result in loss of life, and cause damage to homes and infrastructure.", "In fiscal years 2009 through 2014, the five federal wildland fire agencies obligated a total of $8.3 billion to suppress wildland fires.", "GAO was asked to review multiple aspects of federal wildland fire management across the five federal wildland fire management agencies.", "This report examines (1) key changes the federal wildland fire agencies have made in their approach to wildland fire management since 2009, (2) how the agencies assess the effectiveness of their wildland fire management programs, and (3) how the agencies determine the distribution of their wildland fire management resources.", "GAO reviewed laws, policies, and guidance related to wildland fire management; reviewed agency performance measures; analyzed obligation data for fiscal years 2004 through 2014; and interviewed officials from the five agencies, as well as Interior's Office of Wildland Fire." ], "parent_pair_index": [ -1, 0, 0, 0, -1, 0, 0, 0, -1, 4, 4, -1, 0, 0, 0, -1, 0, 0, 0, -1, 0, 1 ], "summary_paragraph_index": [ 2, 2, 2, 2, 3, 3, 3, 3, 3, 3, 3, 4, 4, 4, 4, 0, 0, 0, 0, 1, 1, 1 ] }

{ "title": [ "", "Background", "Food Aid Programs", "Section 416(b)11", "Food for Peace Act (FFPA)", "Since Mid-1980s, Title II Outlays Have Dominated", "Food Aid Consultative Group (FACG)", "Title I—Concessional Sales of U.S. Agricultural Commodities", "Title II—In-Kind Donations via PVOs, Cooperatives, or IOs", "Title II Emergency Food Assistance", "Title II Non-Emergency Food Assistance", "Shelf-Stable Foods and Prepositioning of FFPA Commodities", "USAID Guidelines for Title II Proposals", "Food Quality", "Title III—In-Kind Donations to Recipient-Country Governments", "Title V—Farmer-to-Farmer Program", "Other Food Aid Programs", "Food for Progress", "McGovern-Dole International Food for Education and Child Nutrition (IFECN)49", "Local and Regional Procurement (LRP) Projects51", "The Bill Emerson Humanitarian Trust (BEHT)55", "Emergency Food Security Program (EFSP)", "Common Features of U.S. International Food Aid Programs", "CCC Acquisition and Transportation of Commodities", "Reimbursement of Distribution Costs", "Bellmon Requirements", "Publicity and Branding of U.S. Commodities", "Agricultural Cargo Preference (ACP)", "Bumpers Amendment", "Issues for Congress", "In-Kind Food Aid Versus Cash-Based Food Assistance", "What Is the Issue?", "Background on Cash-Based Food Assistance", "Proponents' Views on Cash-Based Food Assistance", "Concerns About Cash-Based Food Assistance", "Agricultural Cargo Preference (ACP)", "What Is the Issue?", "Background on ACP", "Views on ACP", "Monetization", "What Is the Issue?", "Background on Monetization107", "Views on Monetization", "Food Aid Quality", "What Is the Issue?", "The 2014 Farm Bill Makes Several Adjustments", "International Trade Agreements", "What Is the Issue?", "History of International Trade Agreements Governing Food Aid", "The FAO's Consultative Subcommittee on Surplus Disposal (CSSD)", "The U.N.'s World Food Program (WFP)", "The Food Aid Convention (FAC)", "The 1994 Uruguay Round Agreement on Agriculture (AoA)", "The WTO's Doha Round Negotiations", "Current Status", "Administrative and Legislative Proposals", "What Is the Issue?", "The Administration's 2007 Farm Bill Proposal", "Administration Budget Requests", "FY2014 Budget Request", "Criticisms of the FY2014 Administration Proposal", "FY2015 Budget Request", "FY2016 Budget Request", "FY2017 Budget Request", "Jurisdictional Issues and International Food Aid Proposals", "Legislative Proposals in the 113th Congress", "H.R. 1983—\"Reform U.S. Food Aid (Food for Peace)\"", "S. 2421—\"Reform U.S. Food Aid (Food for Peace)\"", "Legislative Proposals in the 114th Congress", "S. 525—\"Food for Peace Reform Act of 2015\"", "The Global Food Security Act", "Appendix. International Food Assistance Funding" ], "paragraphs": [ "", "For almost seven decades, the United States has played a leading role in global efforts to alleviate hunger and malnutrition and to enhance world food security through international food aid—primarily through either the donation or the sale on concessional terms of U.S. agricultural commodities. Since 2006, U.S. food aid has averaged nearly $2.5 billion per year—accounting for over 7% of total U.S. foreign aid. Health, economic, and security-related assistance account for most of the outlays.\nCurrent U.S. food aid programs had their origins in 1954 with Public Law 83-480, or \"P.L. 480,\" as it was commonly known. P.L. 83-480 has since been amended multiple times and renamed as the Food for Peace Act (FFPA). One of the original purposes of \"P.L. 480\" in-kind food donations was to reduce large government stocks of program crops that had accumulated under U.S. Department of Agriculture (USDA) commodity price support programs while responding to humanitarian, economic development, and geopolitical goals in foreign countries. Since the end of the Cold War, U.S. food assistance goals have shifted more toward emergency response and support for long-term agricultural development. However, the United States continues to rely on domestic purchases of U.S. commodities as the basis for its food aid programs. In contrast, most other countries operating international food aid programs have converted primarily to cash-based food assistance. U.S. reliance on in-kind food aid has become controversial due to its identified inefficiencies and potential market distortions compared with cash-based assistance.\nAnother concern regarding U.S. international food aid is how that food aid is delivered into foreign countries. In-kind food aid shipments are subject to a set of requirements that potentially limit the flexibility of the U.S. response to emergency food crises. U.S. laws require that\nall agricultural commodities be sourced from the United States; at least 50% of U.S. food aid must be shipped on U.S.-flag vessels; at least 20%, but not more than 30%, with a minimum of $350 million, of FFPA funding must be available for non-emergency food aid; at least 75% of in-kind food transfers dedicated to non-emergency assistance must be in a processed, fortified, or bagged form; at least 50% of any bagging must consist of whole-grain commodities bagged in the United States; and at least 15% of non-emergency food aid funding must be made available to qualifying nongovernmental organizations (NGOs) for monetization—that is, the process of selling donated U.S. commodities in recipient-country markets to generate cash for development programs.\nBoth the George W. Bush and Obama Administrations have sought greater flexibility in the use of U.S. food aid funding, particularly for cash-based assistance, in order to respond with greater expediency, at lower cost, and with more interest in meeting cultural food preferences when responding to international food emergencies. A majority of NGOs working in the realm of international food assistance and development, as well as some Members of Congress, support the goals of these efforts.\nU.S. commodity groups and food processors continue to advocate strongly for retention of in-kind transfers of U.S. commodities. A vocal minority of NGOs that benefit from the monetization of in-kind commodity transfers also support retention of in-kind transfers. In addition, U.S. maritime interests are strong advocates for retention of agricultural cargo preference (ACP) requirements associated with in-kind food aid.\nThis report includes three principal sections: the first section is a description of U.S. international food aid programs under current law; the second section discusses several important policy issues related to U.S. international food aid; and the third section describes Administration and congressional proposals intended to change the nature of U.S. international food assistance.", "The U.S. government provides international food aid through a variety of programs administered by either USDA's Foreign Agricultural Service (FAS) or the U.S. Agency for International Development (USAID).\nTable 1 lists each international food assistance program, the year it was enacted (or first instituted in the case of the Emergency Food Security Program [EFSP]), the statutory authority, and the administering agency. The two implementing agencies, USDA and USAID, are under different congressional jurisdiction for authorization, oversight, and appropriations. Table A-1 (at the end of this report) provides a breakout of annual outlays by program since FY2006.\nAverage annual spending on U.S. international food aid programs increased gradually over the past six decades ( Figure 1 ). During the FY2000 to FY2009 period ( Table 2 ), average food assistance outlays were approximately $2.2 billion annually, with FFPA Title II activities comprising the largest share (77% of outlays). More recently, FY2010-FY2014, new cash-based outlays under the EFSP have supplemented traditional FFPA Title II program outlays to push total U.S. international food aid program spending up slightly to about $2.4 billion annually while lowering Title II's share to 65%.\nWhen adjusted for inflation using year-2013 dollars (as shown in Figure 2 ), total U.S. food assistance outlays peaked in 1964 at $8.4 billion (2013 dollars) then declined to a low of $1.54 billion (2013 dollars) in 1996. In 2014, U.S. food assistance outlays were at $2.5 billion (2013 dollars), thus having somewhat recovered from the 1990s level. However, outlays remain well below the inflation-adjusted levels of the 1960s.", "The Agricultural Act of 1949 (P.L. 81-439; §416) permanently authorized the Section 416(b) program. As such, it represented the first permanent, large-scale U.S. international food aid program; however, its original intent was more than humanitarian response. The Cold War was beginning to influence foreign policy decisions, and policymakers viewed international food aid as an important foreign policy tool. U.S. agricultural producers were looking for new foreign markets to replace the now faded war-driven international demand of the 1940s. By the late 1940s, USDA's Commodity Credit Corporation (CCC) was accumulating substantial stocks of wheat and corn as part of its commodity price support programs. These large CCC-owned stocks depressed domestic market prices and contributed to a cycle of government support payments and stock accumulation. Policymakers designed the Section 416(b) program, in part, to help draw down government stocks by donating and shipping surplus government-owned commodities to foreign countries that lacked sufficient buying power to participate in commercial markets.\nUSDA (via the CCC) made surplus commodities available for donation through agreements with foreign governments, NGOs, cooperatives, and IOs. In the early years, Section 416(b) donations supplemented food supplies in food deficit countries. However, over time Section 416(b) food donations became a source of U.S. commodities for FFPA Title II and Title III programs, as well as for the Food for Progress program (described later in this report in \" Food for Progress \"). As a result, depending on the agreement, the cooperating sponsor could use commodities donated under Section 416(b) directly for distribution to a target population, or they could be sold (i.e., monetized) in the recipient country with the proceeds then used to support emergency and non-emergency activities, such as agricultural, economic, or infrastructure development programs.\nUSDA administers the Section 416(b) program. It has been a highly variable component of food aid because it is entirely dependent on the availability of surplus commodities in CCC inventories. Thus, the program's utility has changed along with changes to federal price support programs. In particular, Congress instituted special marketing loan program benefits in the mid-1980s and decoupled price and income support programs in the mid-1990s to prevent further government stock accumulation of program crops. These changes eventually led to the depletion of government-owned grain stocks by 2006. The Section 416(b) program has been inactive since FY2007 because of the unavailability of CCC-owned stocks.", "The Food for Peace Act (FFPA), historically referred to as P.L. 480, is the main legislative vehicle that authorizes U.S. international food assistance. Under FFPA programs (with the exception of Title V, Farmer-to-Farmer), cooperating sponsors (i.e., implementing partners) ship U.S. commodities to recipient countries either for direct use in food distribution programs or for monetization. The Agricultural Trade Development Assistance Act of 1954 (P.L. 83-480) originally authorized FFPA in 1954 as the first comprehensive U.S. international food aid program. Since 1970 FFPA has been reauthorized as part of subsequent farm bills. Funding for FFPA programs is authorized in annual agriculture appropriations bills.\nFFPA food aid has five statutory objectives: combating world hunger and malnutrition and their causes; promoting sustainable agricultural development; expanding international trade; fostering private sector and market development; and preventing conflicts.\nThe FFPA is comprised of four program areas, each listed under a different title and having a different objective. FFPA authorities for these programs are in the following titles.\nTitle I, administered by USDA's FAS, authorizes concessional sales (i.e., using long-term, low-interest loans) of U.S. agricultural commodities to developing country governments and private entities to support specific non-emergency food security and development projects. Title I has been inactive since FY2006. Title II, administered by USAID, provides for the donation of U.S. agricultural commodities to IOs and NGOs to support specific emergency or non-emergency food needs either by monetization or for direct food distribution. Title III, administered by USAID, makes government-to-government grants of U.S. agricultural commodities for monetization in support of non-emergency projects targeting long-term growth in least-developed countries. Title III has been inactive since FY2002. Title V, administered by USAID, finances non-emergency activities under the Farmer-to-Farmer Program to provide short-term volunteer technical assistance to farmers, farm organizations, and agribusinesses in developing and transitional countries.", "During the first 35 years of the FFPA (FY1955 through FY1989), Title I funding was the largest program in terms of outlays, but since the mid-1980s it has slowly been phased out of operation ( Figure 1 ). Successive Administrations have not requested funding for any new Title I food aid programs since FY2006. In contrast, since the late 1980s Title II has emerged as the largest funding source for U.S. food aid shipments. This pattern was reinforced by the 1990 farm bill, when strengthening global food security was made a formal objective of American food aid. Since 2000, Title II outlays have accounted for 73% of total U.S. annual international food aid spending.\nA partial motive behind the funding shift from Title I to Title II was international pressure from major trading partners who argued that U.S. use of concessional sales terms for exporting surplus commodities was displacing normal commercial activity. These concerns influenced the development of an international framework to monitor and discipline international food aid. In anticipation of these international commitments and to avoid potential conflict with trading partners over what constitutes an export subsidy, the United States began shifting funding away from Title I concessional sales in the mid-1980s, and toward Title II grants.", "A Food Aid Consultative Group (FACG) advises the USAID Administrator on food aid policy and regulations, especially related to Title II of the FFPA. The Administrator meets with the FACG at least twice per year. The 1990 farm bill ( P.L. 101-624 , §1512) first established the FACG. It has been reauthorized under subsequent farm bills. The 2014 farm bill (§3005) reauthorized the FACG and added representatives from the processing sector. FACG membership consists of the USAID Administrator; USDA's Under Secretary of Agriculture for Farm and Foreign Agricultural Services; the Inspector General for USAID; a representative of each PVO and cooperative participating in FFPA programs; representatives from African, Asian, and Latin-American indigenous NGOs as determined appropriate by the Administrator of USAID; representatives from U.S. agricultural producer groups; representatives from the U.S. agricultural processing sector involved in providing agricultural commodities for FFPA programs; and representatives from the maritime transportation sector involved in transporting agricultural commodities overseas for FFPA programs. The 2014 farm bill specified that USAID is to consult with FACG on the implementation of food aid quality provisions (discussed below in \" Food Aid Quality \") and also required that FACG review and comment on any changes to USAID's regulation handbook implementing FFPA.", "Title I of the FFPA provides for sales on concessional credit terms of U.S. agricultural commodities to developing country governments and to private entities for monetization in recipient country markets. Loan agreements under the Title I credit program may provide for repayment terms of up to 30 years with a grace period of up to 5 years. Donations of Title I commodities can also be made through Food for Progress grant agreements (described below in \" Food for Progress \"). The local currency derived from such concessional sales has been used to support specific non-emergency food security and development projects. Congress has given no new funding for Title I credit sales and grants since FY2006, although some funding has been provided to administer Title I program agreements entered into prior to FY2006.", "Title II of the FFPA provides for the donation of U.S. agricultural commodities (referred to as \"in-kind\" donations) to IOs and qualifying NGOs to support specific emergency or non-emergency food needs either by monetization or for direct food distribution. The 2008 and 2014 farm bills authorized appropriations for Title II programs at $2.5 billion annually. However, because all FFPA funding is discretionary, it is up to annual appropriations bills to set the actual amount of annual Title II funding. Over the five-year life of the 2008 farm bill (FY2008-FY2012), Title II funding averaged $1.9 billion annually (see Table A-1 for actual Title II annual outlays) but trended lower each succeeding year. In FY2014, $1.324 billion was spent on Title II activities.\nFFPA Title II in-kind donations may be used for both emergency and non-emergency assistance. In 2002, emergency food aid accounted for a majority of U.S. food aid flows for the first time in history. Since then, the volume of Title II emergency food aid has far exceeded the amount of non-emergency or development food aid ( Figure 3 ). This divergence highlights the divide between conflicting interests—emergency versus non-emergency—in the use of U.S. international food aid in general and Title II funds in particular.", "USAID targets emergency food aid to vulnerable populations in response to malnutrition, famine, natural disaster, civil strife, and other extraordinary relief requirements. Emergency assistance is provided through recipient governments and public or private agencies, including IOs, particularly the WFP.", "Non-emergency food assistance involves multi-year (generally three to five years) development programs—made through eligible PVOs, cooperatives, or IOs—that target chronically food-insecure populations. These programs include monetization and/or direct distribution of food aid. Under monetization—and depending on the agreement with the recipient country—proceeds from the sale of donated U.S. commodities are used by cooperating sponsors either to fund distribution expenses in the case of direct feeding programs or to implement various development projects that address chronic food shortages and food security. Title II food aid is subject to several requirements (see box below) including an in-kind mandate, coupled with processing and monetization requirements.\nThe 2014 farm bill authorized the use of up to $17 million annually for the monitoring and assessment of non-emergency food aid programs. The 2014 farm bill also required that USAID prepare an annual report for Congress that addresses how funds are allocated to and used by eligible organizations as well as the rate of return on aid funds—defined as the sum of the proceeds from monetization of food aid commodities relative to the total cost of procuring and shipping the commodities to the recipient country's local market. Sponsors and projects with rates of return below 70% are to come under special scrutiny.", "The 2014 farm bill (§3007) authorized appropriations of $10 million for shelf-stable (i.e., not easily spoiled) prepackaged foods—70% of the funds are for their preparation and stockpiling in the United States, and the balance is for their rapid transportation, delivery, and distribution to needy individuals in foreign countries.\nUSAID may also use funds appropriated for FFPA Titles II and III to procure on the open market, transport, and store agricultural commodities in pre-positioned locations at various sites in the United States—for example, near major port facilities—and around the world to expedite their delivery in the event of emergency need. The 2014 farm bill (§3009) reauthorized pre-positioning of commodities through FY2018, increased the annual funding for pre-positioning to $15 million from $10 million, and allowed USAID to have discretion over whether to establish additional prepositioning sites based on the results of assessments of need, technology, feasibility, and cost. USAID maintains that pre-positioning enables it to respond more rapidly to emergency food needs.", "USAID issues guidance that PVOs must follow when developing and implementing Title II programs. For food emergencies, USAID responds based on a proposal from a PVO, an appeal from an IO, or a disaster declaration by the U.S. embassy in the affected country. Similarly, for Title II funded non-emergency programs, eligible NGOs and IOs submit proposals to USAID based on Food for Peace guidance. Since IOs (e.g., WFP) are not subject to U.S. regulations, they receive food aid according to a special agreement established with the U.S. government. Once USAID approves a Title II project, the partnering institution orders commodities for delivery at the foreign location. USAID provides a list of eligible U.S. agricultural commodities. Choosing from the list, and based on their local assessments of markets and needs, partners identify the types and amounts of commodities required and a schedule for delivery. USDA procures the requested commodities by issuing a tender to commodity suppliers and processors. All Title II commodities are purchased on the open market. The implementing partner (working with USAID and subject to agricultural cargo preference requirements discussed later in this report) arranges shipment of the cargo from a U.S. port to the recipient country, again using a tender process. In emergencies, USAID can expedite the response by tapping into prepositioned food supplies of up to 100,000 tons—situated in warehouses at U.S. Gulf ports and at additional sites overseas.", "The 2014 farm bill (§3003) amended current food aid law to place greater emphasis on improving the nutritional quality of food aid products. This issue is discussed in more detail later in this report in the section entitled \" Issues for Congress .\"", "Title III of the FFPA—entitled \"Food for Development\"—provides for government-to-government grants of U.S. commodities to support non-emergency long-term economic development in least developed countries. Under this program, implementing partners can monetize donated commodities in the recipient country and use the resulting revenue to support programs that promote economic development and food security, including development of agricultural markets, school feeding programs, nutrition programs, and infrastructure programs. The U.S. government also pays for the costs of procurement, processing, and transportation under Title III. No funding request has been made for Title III activities since FY2002.", "Title IV of the Food for Peace Act of 1966 (P.L. 89-808) created the Farmer-to-Farmer program. However, the program was first funded by the 1985 farm bill ( P.L. 99-198 ; §1107). Funding levels were doubled in the FFPA by the 1990 farm bill ( P.L. 101-624 ; §1512) and reauthorized in subsequent farm bills, including the 2014 farm bill (§3014). The 2014 farm bill assigned minimum funding for the program as the greater of $15 million or 0.6% of the funds made available to FFPA programs for each year from FY2014 through FY2018. In addition, the 2014 farm bill added a requirement for a Government Accountability Office (GAO) report to review the program and provide recommendations to improve the monitoring and evaluation of the program.\nThe Farmer-to-Farmer program does not provide commodity food aid but instead provides technical assistance to farmers, farm organizations, and agribusinesses in developing and transitional countries. The program mobilizes the expertise of volunteers from U.S. farms, land grant universities, cooperatives, private agribusinesses, and nonprofit organizations to carry out short-term projects overseas.", "", "The 1985 farm bill ( P.L. 99-198 ; §1110) authorized the Food for Progress program. USDA's FAS administers the program. USDA undertakes multi-year agreements with cooperating sponsors (i.e., eligible organizations include PVOs, cooperatives, IOs, and recipient-country governments). These agreements require monetization of donated U.S. commodities in support of certain developing countries and emerging democracies. Qualifying countries must have made commitments to agricultural policy reforms that incorporate free enterprise elements through changes in commodity pricing, marketing, input availability, distribution, and private sector involvement. Program activities focus on private sector development of agricultural infrastructure, such as improved production practices, marketing systems, farmer training, agro-processing, and agribusiness development.\nCooperating sponsors request commodities from USDA. In response, USDA's CCC purchases the requested commodities from the U.S. market and ships them to the recipient country using either appropriated Title I funds or CCC financing. Upon arrival, USDA transfers them to the implementing organizations for monetization. Since Congress has not appropriated any new Title I program funds since FY2006, the Food for Progress program now relies entirely on CCC financing. The Food for Progress program includes a requirement that not less than 400,000 metric tons (mt) of commodities shall be provided each fiscal year; however, actual purchases have averaged 212,600 mt since 2010. Because the commodity requirement is based on weight, the actual cost of the program will vary from year to year with commodity prices. The program is limited by statute to pay no more than $40 million annually for freight costs, which limits the amount of commodities that can be shipped, particularly in years with high shipping costs. In addition, up to $15 million of program funds are available to assist the implementing partners to set up and run program activities. In FY2014, Food for Progress programs involving 195,900 mt of U.S. commodities valued at $127.5 million were targeted through various implementing partners in 10 developing countries. For FY2016, USDA announced eight international Food for Progress projects valued at $153.2 million.", "The 2002 farm bill ( P.L. 107-171 , §3107) first authorized the McGovern-Dole IFECN program. USDA's FAS administers the program. Under the McGovern-Dole IFECN program, implementing partners use U.S. commodities and financial and technical assistance to carry out school feeding programs and maternal, infant, and child nutrition programs in foreign countries identified as having critical food needs. The 2014 farm bill (§3204) reauthorized the program through FY2018 with discretionary funding of \"such sums as are necessary\" to be determined by annual appropriations.\nUSDA provides the commodities used in the program through agreements with qualifying PVOs, cooperatives, IOs, and foreign governments. The implementing partners, in turn, use the commodities for direct feeding or, in limited situations, for local sale to generate proceeds to support school feeding and nutrition projects. Priority countries must demonstrate sufficient need for improving domestic nutrition, literacy, and food security. In FY2014, the program provided 78,860 mt of commodities (e.g., soybean oil, rice, potatoes, lentils, wheat, dark red kidney beans, soybean meal, and corn soy blend), valued at $164.8 million, to an estimated 2.5 million beneficiaries in 9 developing countries in Asia, Africa, and Latin America.", "Under an LRP program, the administering agency (either USDA or USAID) awards cash grants to eligible organizations—a PVO or cooperative that is registered with USAID or an IO—to carry out field-based projects to purchase eligible commodities from markets close to the target population in response to food crises and disasters. Both USDA and USAID have funded LRP activity. The 2008 farm bill ( P.L. 110-246 , §3206) authorized USDA to develop a four-year (FY2009-FY2012) LRP Pilot Project with a mandatory authorization for $60 million of CCC funds (i.e., not from FFPA appropriations). In response to the success of the LRP pilot projects, the 2014 farm bill ( P.L. 113-79 ; §3207) converted the expired pilot project into a permanent LRP program to be administered by USDA. Congress authorized funding levels for LRP at $80 million annually for FY2014 through FY2018, but instead of mandatory CCC funding, the LRP program is now subject to annual appropriations. This budget sourcing has proven crucial since, in FY2014 through FY2016, Congress has made no appropriations for LRP, and, thus, it remains unused.\nIn 2008, in the Supplemental Appropriations Act ( P.L. 110-252 ) Congress provided USAID with $50 million for LRP activities in response to emergencies, including the global food crisis of 2008. This initial $50 million of LRP funding was augmented by another $75 million in International Disaster Account (IDA) funding for USAID LRP activities. Then, in 2009, Congress provided $75 million for USAID LRP activities in the Omnibus Appropriations Act ( P.L. 111-8 , Div. H). Since 2010, USAID has used EFSP funds to finance LRP and other cash-based assistance ( Table 3 ).\nThe primary motive behind LRP is to expedite the provision of food aid to vulnerable populations affected by food crises and disasters. A secondary motive is to realize substantial economies by purchasing locally rather than trans-shipping commodities from the United States, thus allowing LRP funding to reach more people. Because cash transfers can occur electronically, LRP food acquisitions are not delayed by international shipping operations. Instead, potential limitations include the availability of field staff as well as regional market supplies and infrastructure.\nTo the extent possible, LRP activities must both expedite the provision of food aid to affected populations and not significantly increase commodity costs for low-income consumers who procure commodities sourced from the same markets at which the eligible commodities are procured. In addition, USDA (and USAID) require from each eligible organization commitments designed to prevent or restrict (1) the resale or trans-shipment of any eligible commodity procured under this section to any country other than the recipient country; and (2) the use of the eligible commodity for any purpose other than food aid. USDA, in administering LRP projects, may give preference in carrying out this program to eligible organizations that have, or are working toward, projects under the McGovern-Dole IFECN program. Under the 2014 farm bill, USDA must submit an annual report to Congress on the LRP projects' implementation time frames; costs; and impacts on local and regional producers, markets, and consumers.", "The Bill Emerson Humanitarian Trust (BEHT) is a reserve of U.S. commodities and/or cash authorized under the Africa: Seeds of Hope Act of 1998 ( P.L. 105-385 ). BEHT is not a food aid program per se. It is a reserve of commodities (up to 4 mmt of grains—rice or wheat) or funds owned by the CCC for use in the FFPA programs to meet unanticipated humanitarian food aid needs in developing countries. BEHT replaced the Food Security Commodity Reserve established in the 1996 farm bill and its predecessor, the Food Security Wheat Reserve, originally authorized by the Agricultural Trade Act of 1980. The 2014 farm bill reauthorized BEHT through FY2018. The program is administered under the authority of the Secretary of Agriculture. However, a request for use of BEHT would generally be initiated by the USAID administrator to USDA.\nUSDA's CCC may be reimbursed for the value of U.S. commodities released from BEHT from either FFPA appropriations or direct appropriations for reimbursement. The CCC may use reimbursement funds to replenish commodities released or simply hold them as cash. Reimbursement to the CCC for ocean freight and related non-commodity costs occurs through the regular USDA appropriations process.\nSince 1980, wheat has been the only commodity held in reserve. During 2008, USDA sold the remaining wheat in the trust (about 915,000 mt) and is currently holding only cash. USDA can use the cash to finance activities or purchase commodities to meet emergency food needs when FFPA Title II funds are not available. The BEHT was last used in FY2014, when cash disbursements of $173.8 million were used to purchase 189,970 mt of U.S. agricultural commodities—vegetable oil, yellow split peas, sorghum, and ready-to-use supplementary foods—for South Sudan.", "The Emergency Food Security Program (EFSP) is a cash-based food-assistance program administered by USAID. It provides grants to eligible organizations for rapid response to the highest priority emergency food security needs. The Foreign Assistance Act of 1961, as amended (FAA; P.L. 87-195) authorizes, among other things, the provision of disaster assistance such as EFSP. USAID initiated EFSP in FY2010 as a complement to FFPA Title II emergency in-kind food aid donations. In July 2016, EFSP was permanently authorized as part of the FAA (22 U.S.C. 2292(c)) by the Global Food Security Act (GFSA, P.L. 114-195 ; §7). The GFSA provided the authority for appropriations (i.e., discretionary funding dependent on annual appropriations) of $2,794,184,000 for each of FY2017 and FY2018.\nUSAID used funds from its International Disaster Assistance (IDA) account, also authorized under the FAA, to finance EFSP activities. According to USAID, from FY2010 through FY2015, USAID awarded EFSP grants totaling $3.3 million for cash-based food assistance, with the majority of this aid going to Syria ( Table 3 ). Implementing partners include U.S. and foreign NGOs, cooperatives, and IOs.\nUSAID uses EFSP primarily when U.S.-purchased, in-kind food aid cannot arrive fast enough to respond to an emergency or when other interventions may be more appropriate than U.S. in-kind food aid due to local market conditions. EFSP funds have relied on three principal forms of emergency food security assistance: local and regional procurement (40% of outlays), food vouchers (26%), and cash transfers (14%).\nLocal and Regional Procurement (LRP ) : Implementing partners use EFSP funds to purchase food commodities within the disaster-affected country or from a nearby country for distribution to the disaster-affected population. LRP is most effective when adequate supplies of food are available regionally such that large-scale purchases will not significantly impact prices or commercial trade. The WFP uses LRP extensively in its operations.\nCash Transfers : Implementing partners distribute cash to disaster-affected people for use in purchasing essential food items to meet their food security needs. Cash transfers can take the form of a physical payment or an electronic transfer through mobile providers or debit cards from financial institutions. Cash transfers work well when the recipient population is widely spread out such that a feeding center would not work, when an acute food crisis requires immediate response, or when the recipient population is so indigent that most new income is spent on food.\nFood Vouche r s : Local food vendors supply specific, essential food items to beneficiaries through paper or electronic food coupons. Vendors are then able to redeem the vouchers for payment from USAID. Food vouchers have proven to be an effective way to reach recipient populations that may reside in regions with high security risk due to civil strife or armed combat where there are specific security concerns associated with the transfer of either cash or in-kind commodities, or when there is a need to ensure that people receive a specific set of foods.", "", "Commodities requested under a U.S. food assistance program may be furnished from the inventory of USDA's CCC, if available, or purchased in the U.S. domestic market. USDA's Farm Service Agency (FSA) serves as the buying agent for the CCC for all U.S. food aid programs. FSA issues separate tenders to both prospective sellers of food commodities and providers of freight service for commodity delivery to overseas ports. In emergencies, USAID can tap into up to 100,000 metric tons of food that it has prepositioned in warehouses at U.S. Gulf ports and additional sites overseas to expedite the response.", "In addition to the purchase of U.S. commodities, USDA's CCC finances storage and distribution costs for commodities, including pre-positioned commodities, and transportation costs. Such costs include both ocean freight and overland transport when appropriate. Once a shipment of food aid arrives in the recipient country, additional funding to move it to the final point of sale or use depends on the program and its administrator. USAID provides its implementing partners with support for administrative costs (other than commodity procurement and ocean shipping) from two potential sources: (1) internal transportation, shipping, and handling (ITSH) funds and (2) funding available through §202(e) of the FFPA. The 2014 farm bill (§3002) amended the FFPA both to expand the portion of Title II §202(e) funds allocated to foreign program support—specified as a range of \"not less than 7.5% nor more than 20%\" (up from an earlier range of 7.5% to 13%)—and to allow for greater flexibility in the nature of that support to include cash-based activity to enhance ongoing food distribution under certain conditions.", "In accordance with an amendment included in the FFPA by the International Development and Food Assistance Act of 1977 ( P.L. 95-88 , §212)—referred to as the \"Bellmon\" requirements—use of U.S. commodities for food assistance is prohibited under two specific conditions: (1) if the recipient country does not have adequate storage facilities to prevent spoilage or waste of the donated commodities at the time of their arrival; or (2) if the distribution of U.S. commodities in the recipient country would result in substantial disincentive to or interference with domestic production or marketing of agricultural commodities in that country. As a result of the Bellmon requirements, cooperating sponsors must conduct a Bellmon analysis to ensure that existing in-country conditions will not result in food aid monetization interfering with the agricultural economy of the recipient country.", "By statute, recipients—whether governments or private entities—of U.S. commodities under the FFPA are expected to widely publicize, to the extent possible, that such commodities are being provided by the friendship of the American people. In particular, commodities provided under FFPA Title II must be labelled on the package, bag, or container as being furnished \"by the people of the United States of America.\"", "USAID offers tenders for international freight shipping providers in a competitive process, subject to U.S. agricultural cargo preference requirements. In accordance with permanent authority contained in the Cargo Preference Act of 1954 (P.L. 83-644) and §901 of the Merchant Marine Act of 1936 (both as amended), at least 50% of the gross tonnage of U.S. agricultural commodities financed under U.S. food aid programs must ship via privately owned, registered U.S.-flag commercial vessels.", "In November 1985, an amendment (offered by then-Senator Dale Bumpers) included in a supplemental appropriations act ( P.L. 99-349 , §209) prohibited the use of U.S. foreign assistance funds for any activities—including any testing or breeding feasibility study, variety improvement or introduction, consultancy, publication, conference, or training—that would encourage the export of agricultural commodities from developing countries that might compete with U.S. agricultural products in international markets. The Bumpers Amendment was preceded by USAID Policy Determination 71 in 1978, which required review by USAID \"at the earliest possible stage\" of any development project that would involve sugar, palm oil, or citrus for export. Following enactment of the Bumpers Amendment, USAID issued Policy Determinations 15 (September 13, 1986), which states that \"it is USAID policy to avoid supporting the production of agricultural commodities for export by developing countries when the commodities would directly compete with exports of similar U.S. agricultural commodities to third countries and have a significant impact on U.S. exporters.\"\nExceptions to the so-called Bumpers Amendment include food-security activities, research activities that directly benefit U.S. producers, activities in acutely indigent countries, and activities in a country that the President determines is recovering from widespread conflict, a humanitarian crisis, or a complex emergency.", "The following sections present some of the arguments both in favor of and against in-kind food aid as compared with cash-based food assistance and a suite of related issues—including agricultural cargo preference, monetization of non-emergency food aid, food aid quality, and how food aid fits within international trade agreements.", "Donors can provide international food assistance in two primary forms: in-kind, as commodities purchased in the donor country and shipped to a foreign country, or as cash transferred directly to the foreign country and used to acquire food or provide access to food for a target population.\nDespite the growth in recent years of cash-based assistance under USAID's EFSP and some initial LRP activity by USDA, the United States remains one of the few countries that continue to rely primarily on in-kind transfers of domestically purchased commodities as the basis for international food assistance (referred to as \"food aid tying\"). FFPA Titles I, II, and III programs, the Food for Progress program, and the McGovern-Dole IFECN programs involve such tied in-kind food aid, usually for monetization, but occasionally for direct food distribution programs. Such in-kind food shipments represented 92% of the value of U.S. food aid during FY2006 to FY2013. Only the Title V Farmer-to-Farmer and the cash-based EFSP programs do not involve in-kind food assistance.\nAs an alternative to in-kind food aid, the United States and other international donors have used three primary types of cash-based food assistance programs to help food-needy populations acquire access to food supplies: (1) local and regional procurement (LRP), (2) food vouchers, and (3) direct cash transfers.", "Since the 1960s, both the international development and U.S. agricultural communities, as well as academics, policymakers, and others, have debated whether U.S. international food aid should be provided in the form of in-kind, U.S.-purchased commodities or more directly in the form of cash-based assistance. In the past decade several studies and GAO reports have provided evidence of economic inefficiencies and potential market distortions associated with in-kind food aid compared with cash-based assistance.\nSeveral questions have emerged from this debate, including the following: Is in-kind food aid the best or most appropriate form of humanitarian assistance in time of emergencies? Are there situations where cash-based assistance is preferable? Is there an optimal balance between in-kind and cash-based assistance? If so, is the current allocation representative of that balance? Similarly, in an era of tight budgets, what is a reasonable balance between emergency and non-emergency international aid?", "Cash-based food assistance is not a new concept. From 2001 to 2008, through programs funded under the authority of the Foreign Assistance Act, the U.S. government provided approximately $220 million in cash contributions to the WFP to purchase foreign-grown commodities. WFP has seen its cash and voucher programs significantly increase since 2010, growing from $139 million to $1.37 billion in 2014—with the largest increases occurring between 2012 and 2014, owing primarily to the civil war in Syria.\nThe December 2004 Indian Ocean tsunami helped shift thinking in favor of cash-based food assistance. The highly visible disaster required rapid, large-scale assistance to populations that eat mainly rice—a commodity with scant domestic surpluses from North Atlantic food aid donors—and maintained access to commercial food distribution systems. Cash donations allowed the international community to establish cash and food voucher distribution and LRP of food aid. The success of the 2004 cash-based emergency response reinforced Europe's commitment to cash-based food assistance and expedited a similar shift in Canada's international food aid policy.\nMost other major donor countries—including Australia, Canada, and the European Union and its member countries—have switched away from in-kind donations to cash-based forms of aid targeted primarily to emergency response rather than non-emergency development programs. Several other major donor countries, such as Saudi Arabia, Norway, and Switzerland, have always relied on cash-based assistance. Some PVOs, think tanks, academics, U.N. organizations, and U.S. trade partners advocate for following the lead of other major donor countries and switching over to a cash-based system of food assistance.\nIn recent years, the United States has joined other major donors in increasingly providing food assistance in the form of cash or vouchers. The 2008 farm bill (§3206) authorized USDA to develop a four-year (FY2009-FY2012) LRP pilot project with a mandatory authorization for $60 million of CCC funds. Subsequent evaluations of the pilot project indicated that LRP could both lower the costs and improve the timeliness of providing food aid in most emergency situations. Evaluations of U.S. and other LRP projects recommended that such procurement should be accompanied by careful assessment and monitoring to address concerns about food quality, local market disruption, and assuredness of supply. In response to the success of the LRP pilot projects, the 2014 farm bill (§3207) converted the expired pilot project into a permanent LRP program to be administered by USDA with authorized funding levels of $80 million annually for FY2014 through FY2018. However, the LRP program is now subject to annual appropriations and remains unfunded and unused through FY2015. In addition to the LRP program, the 2014 farm bill (§3002) also amended current food aid law to allow for greater flexibility in the use of FFPA 202(e) funds. This flexibility includes cash-based assistance in recipient countries where a Title II program is already operating. Prior to the 2014 farm bill, none of FFPA Title II appropriations could be used to purchase foreign-grown food. In addition to LRP, since 2010 USAID has used EFSP to provide food assistance as both cash and vouchers ( Table 3 ).", "Proponents of cash-based food assistance argue that, because cash transfers can occur electronically, food acquisitions are not delayed by international shipping operations. In addition, they contend that the increased flexibility of cash-based assistance allows U.S. aid to reach situations that would otherwise be difficult to access with in-kind food aid. According to USAID, flexible cash-based interventions have proven critical to effectively respond to complex and logistically challenging emergencies—such as the humanitarian crises in Syria, because of the ongoing civil war there, and in the Philippines, because of the aftermath of Typhoon Haiyan.\nAccordingly, they contend that cash-based food assistance offers several potential advantages over transoceanic in-kind food aid, including the following.\nTimeliness : In-kind food shipments take an average of 4 to 6 months to reach their recipient destination; LRP food reaches beneficiaries in 1 to 2 months; food vouchers and cash transfers can occur in less than a month. Research has shown that cash-based food security assistance can get food to people in critical need 11 to 14 weeks faster than commodity shipments from the United States. Less costly : By avoiding expensive ocean shipping (subject to cargo preference requirements), a larger share of each taxpayer dollar can reach the intended recipient country, thus allowing a larger number of beneficiaries to be reached. In a 2001 report, GAO found that USAID's average cost recovery per taxpayer dollar expended on monetized in-kind food aid was 76%, while USDA's was 58%.\nBoth USDA and USAID in various budget requests have proposed that some portion of Title II funds be made available to purchase commodities in areas near the emergency so as to lower the time and cost of delivery. Because freight and other transportation costs must be paid out of Title II appropriations, they limit the amount of funds available for actually purchasing commodities. In addition, ocean freight rates vary from year to year, making it difficult for USDA and USAID to plan their annual programming.\nIn a 2009 study, GAO concluded that between 2001 and 2008, food aid obtained by the U.N.'s WFP using LRP substantially reduced costs and improved timeliness of delivery, relative to similar food aid that USAID purchased and shipped from the United States to the same countries. LRP was less costly in sub-Saharan Africa (SSA) and Asia by 34% and 29%, respectively, and reduced aid delivery time by over 100 days for many countries in Sub-Saharan Africa. In FY2006, USAID estimated that almost half of its food aid allocations went to paying the cost of transportation (ocean transport and internal shipping costs). Other studies have found savings in cash-based assistance—LRP for bulk commodities can save over 50% compared with in-kind food aid (LRP for processed commodities may be less effective).\nLess disruptive to local agricultural producers and markets : In-kind food aid—particularly when monetized—can encourage black market activity and cause price distortions and volatility in local markets with harmful effects on agricultural producers in recipient countries. Less disruptive to global commercial markets : In-kind food aid—whether monetized or distributed directly—can impede or displace commercial exports depending on the extent of distribution leakages or the economic viability of food aid recipients. In-kind food aid has engendered international concerns from key trade partners that the United States is using international food donations as part of a domestic supply-management, price-support strategy, interfering with commercial market activity and potentially violating international trade agreements. Support local market channels and food preferences : Whether LRP, food voucher, or cash transfer—procuring food locally can bolster local marketing channels, support farmers, and better comply with local food preferences. Flexibility —Food vouchers and cash transfers can be used when a rapid response is needed, people are physically spread out or highly mobile, or there are security concerns about moving in-kind food or making cash transfers into the affected region.", "Cash-based food assistance has its potential hazards. If LRP acquisitions occur in a food-deficit region or a region where commercial markets are not well developed, they could induce inflationary pressures and distort trader behavior. In addition, in cases of particularly acute food needs, local foods may not have adequate nutritional quality for therapeutic treatment and rehabilitation activities, particularly for highly vulnerable recipients such as children and lactating or pregnant mothers. In such cases, fortified or specialized foods may be preferable and require importation. Further, LRP and cash-based assistance are limited by the availability of trained field staff as well as regional market supplies and infrastructure. In poorly controlled settings, recipients of cash transfers and food vouchers may use them for non-food items.\nCongressional and other critics of cash-based assistance also maintain that allowing non-U.S. commodities to be purchased with U.S. funds would result in undermining the coalition of commodity groups, PVOs, and shippers that support Title II in-kind donations, and thus lead to reductions in overall U.S. food aid funding. Other concerns related to LRP are that buying commodities locally or regionally could result in local or regional price spikes. The price spikes might make it difficult for people living in the affected areas to buy the supplies they need. Other concerns include that local or regional procurement cannot guarantee the reliability and quality of food supplies used for LRP-based programs.", "Ocean transport of all U.S. government-impelled cargoes—including food aid shipments—is permanently authorized by the Cargo Preference Act of 1954 (P.L. 83-644). This act requires that at least 50% of the volume of U.S. agricultural commodities financed under U.S. food aid programs ship on U.S.-flag vessels.", "The debate surrounding agricultural cargo preference (ACP) is related to concerns about the costs added to U.S. food aid delivery by complying with ACP (costs which are paid by the CCC out of annual food aid appropriations) versus maintaining a viable U.S. merchant fleet with military-readiness capability. Excess shipping costs are incurred because freight rates on U.S.-flag vessels are generally higher than on foreign commercial ships due to taxes, as well as safety, health, and environmental regulations, and higher labor costs associated with a requirement that at least 75% of crew members be U.S. citizens while the remaining crew must be resident aliens.", "The Cargo Preference Act of 1954 (P.L. 83-644) mandated that at least 50% of U.S. food aid must ship on U.S. registered vessels. Qualifying ships must be privately owned, U.S.-flagged commercial vessels that have been registered in the United States for at least three years and employ a crew of at least 75% U.S. citizens while the remaining crew must be resident aliens. The Department of Transportation's Maritime Administration (MARAD) monitors and enforces ACP compliance.\nAn amendment to the act in the 1985 farm bill ( P.L. 99-198 ; §1142) increased the cargo preference share to 75% and required that MARAD reimburse the CCC for\n1. the \"excess\" ocean freight costs on U.S.-flag vessels—referred to as the ocean freight differential (OFD)—incurred by complying with the additional 25% cargo preference requirement, and 2. any excessive shipping costs incurred during periodic spikes in transport prices when the cost of shipping exceeds 20% of the value of the commodities shipped—called the Twenty Percent Excess Freight (TPEF). Excess costs are incurred because freight rates on U.S.-flag vessels are generally higher than on foreign commercial ships.\nIn 2012, the cargo preference share was reduced from 75% to 50% in the surface transportation reauthorization act (MAP-21, P.L. 112-141 ). The 2012 act also eliminated the reimbursement requirement for OFD. The Congressional Budget Office (CBO) estimated that repeal of this provision would save $108 million annually or $540 million over the period FY2013-FY2017. In 2013, the Bipartisan Budget Act of 2013 ( P.L. 113-67 , §602) repealed the requirement that MARAD reimburse USDA for TPEF associated with the transportation of food aid shipments on U.S.-flag vessels. Again enacted as a cost-saving measure, the repeal, according to CBO estimates, would save about $75 million annually or $356 million over the period 2014-2018. However, the effect was to reduce funds available for purchasing food for use in FFPA programs.\nA provision in the 113 th Congress's Coast Guard and Maritime Transportation Act of 2014 ( H.R. 4005 , §318) would have repealed the reduction in the cargo preference requirement contained in MAP-21, and reinstated the provision requiring that 75% of U.S. food aid be shipped on U.S.-flag vessels. The bill passed the House on a voice vote, but no action was taken by the Senate during the 113 th Congress.", "According to MARAD, cargo preference laws are intended\nto provide a revenue base that will retain and encourage a privately owned and operated U.S.-flag merchant marine because the U.S.-flag merchant marine is a vital resource providing: essential sealift capability in wartime or other national emergencies; a cadre of skilled seafarers available in time of national emergencies; and to protect U.S. ocean commerce from total foreign domination and control.\nUSA Maritime—an organization that represents shipper and maritime unions—also argued that the cargo preference mandated for U.S. food aid exports contributes to the maintenance and retention of a strong merchant marine and that the combination of handling, processing, and transporting U.S. international food aid from the farm to foreign ports supports substantial economic activity.\nCritics argue that, according to published research, ACP increases the costs of shipping U.S. commodities to other countries. These costs—which come directly out of Title II appropriations—potentially reduce the volume of food aid provided. In addition, they contend that preference requirements potentially delay arrival of food aid compared with an open, competitive bidding process in the absence of ACP.\nAn analysis in 2010 found that cargo preference requirements did not succeed in meeting the law's objectives of maintaining a U.S. merchant marine and that eliminating cargo preference could enable an increase in food aid commodities provided. Similarly, a 1994 GAO report found that shipments of food aid on U.S.-flag vessels did little to meet the law's objective of helping to maintain a U.S. merchant marine, while adversely affecting operations of the food aid programs, chiefly by raising the cost of ocean transportation and reducing the volume of commodities that can be shipped.", "Monetization is the act of selling U.S.-donated food aid commodities—purchased in the United States and shipped primarily on U.S.-flag vessels—in the local or regional markets of a recipient country. The sales are generally undertaken by implementing partners—that is, qualifying PVOs and cooperatives, many of which are U.S.-based NGOs, or an IO or recipient-country government (when eligible). Monetization is used by implementing partners under the FFPA Title II, Food for Progress, and McGovern-Dole IFECN programs and accounts for approximately 60% of non-emergency food aid. Over time, many of the participating PVOs have become dependent on monetized funds as one of their major sources of development finance.\nImplementing partners use the funds generated by monetization to transport, store, distribute, and otherwise enhance the effectiveness of the use of such Title II agricultural commodities; implement income-generating, community development, health, nutrition, cooperative development, agricultural, and other developmental activities; or be invested and any interest earned on such investment used for the aforementioned development projects. There are two types of monetization: (1) large-volume sales and (2) small-scale, timed sales referred to as targeted monetization. However, nearly all monetization of U.S. international food assistance is of large-volume sales. Targeted monetization is more costly to undertake, in terms of both personnel and infrastructure.", "Monetization is perceived by many as being an economically inefficient cash transfer. Fast cash (i.e., direct cash transfers to fund the development programs of implementing partners) is being replaced with slow cash that loses value along the transfer process—where in-kind commodities are first purchased in the United States, then shipped subject to cargo preference requirements to an implementing partner located in a recipient country, and sold in local markets to generate cash which is then used to operate food-security-related programs. Current law requires that at least 15% of FFPA Title II non-emergency in-kind food aid be available for monetization to generate development funds.", "The 1985 farm bill ( P.L. 99-198 , §1104) first authorized monetization by PVOs and cooperatives for use in funding their development activities. Furthermore, the 1985 farm bill required such monetization for at least 5% of the total amount of commodities distributed under Title II non-emergency programs in any fiscal year. The currency generated by these sales could then finance internal transportation, storage, or distribution of commodities under FFPA programs. The 1985 farm bill (§1110) also authorized a new program—Food for Progress—administered by USDA and financed entirely by monetized food aid by implementing partners, that is, PVOs, cooperatives, IOs, and recipient-country governments.\nIn 1988, the list of authorized uses of FFPA Title II monetization funds was expanded to incorporate funding of food-security-related development projects. The 1990 farm bill ( P.L. 101-624 , §1512) increased the FFPA Title II monetization requirement to not less than 10% of Title II, non-emergency funds. The 1996 farm bill ( P.L. 104-127 , §208) required that PVOs and cooperatives be permitted to monetize at least 15% of Title II, non-emergency funding. The 2002 farm bill ( P.L. 107-171 ) extended monetization to include the McGovern-Dole IFECN program in-kind food aid shipments.\nThe 1977 farm bill ( P.L. 95-88 ), included the Bellmon Amendment (§212) to the FFPA (as described in the preceding section of this report). As a result, both USAID and USDA must ensure that monetization transactions do not entail substantial disincentives to, or interfere with, domestic production or marketing in the recipient country—referred to as Bellmon analysis.\nInitially, the U.S. government used CCC-owned commodities to meet its food aid and monetization quantities. However, the Food for Peace Act of 1966 (P.L. 89-808) authorized the use of purchased commodities in the program in addition to surplus commodities. Then, as the availability of CCC-held stocks diminished, the government could switch to purchasing commodities from the U.S. commercial market and shipping them abroad, subject to cargo preference requirements, to generate cash. Due to the obvious inefficiencies in using monetization to convert taxpayer dollars into development funding, USAID sought to achieve an average cost recovery of 80%. However, the 2002 farm bill (§3009) eliminated USAID's cost recovery goal and, instead, required that USAID and USDA achieve a \"reasonable market price\" for monetization sales—the term \"reasonable market price\" has never been clearly defined.", "Critics of monetization contend that the practice of converting U.S. taxpayer dollars into commodities, shipping them to foreign markets subject to stringent cargo preference requirements, then converting the commodities back to cash in local currency is an inefficient use of resources that may also have adverse market impacts in recipient countries. Studies have found monetization to be an economically inefficient form of providing development support because the \"cost recovery\" of an original taxpayer dollar is less than one due to the shipping and transaction costs needed to move the commodities to foreign markets. According to GAO, research comparing in-kind with cash-based food assistance found that switching to a cash-based approach can generate savings of 25% to 50% depending on the situation—that is, bulk versus high-valued commodities and the distance to be shipped.\nCritics of monetization argue that it is an inefficient way to meet the objectives of relieving emergency food needs or fostering economic and agricultural development in receiving countries. Unlike targeted food distribution, which is given directly to food-needy persons who are often unable to participate in commercial markets, monetization involves selling U.S. commodities in commercial markets. Thus, critics charge that it has a greater potential to distort markets by both depressing commodity prices and increasing their volatility. Low prices can encourage black market activity and discourage local agricultural producers from expanding their production, thus reinforcing a dependency on the imported food assistance. Furthermore, monetized food aid can impede or displace commercial activity from U.S. trading partners or other commercial exporters that might vie for a share of that recipient country's market. Finally, if monetization only occurs episodically and in large batches, it can inject substantial price volatility into the marketplace, thus discouraging investment in the agricultural sector and making it difficult for households to plan their budgets.\nDespite legislation that imposes assessments of the potential impact of food aid on local markets—referred to as usual marketing requirements (UMRs) undertaken by USDA and Bellmon analyses undertaken by USAID —GAO reports that USAID and USDA cannot ensure that monetization does not cause adverse market impacts because they monetize at high volumes, conduct weak market assessments, and do not conduct post-monetization evaluations.\nIn contrast, advocates argue that monetization can be an effective tool to meet long-term development needs of chronically food-insecure people in many developing countries. Several PVOs, potentially affected by a decrease in monetization, organized themselves as the Alliance for Global Food Security (referred to as the Alliance). The Alliance currently represents 9 PVOs (and the Congressional Hunger Caucus) involved in implementing FFPA non-emergency programs. The Alliance contends that monetization can lead to benefits beyond those created via direct program funding. These benefits include addressing credit, hard currency, small volume, and other constraints to buying on the international market. They assert this creates business opportunities and increases the availability of the commodity in the recipient country. However, to achieve such results, the monetization must be in small volumes and specifically targeted to avoid market distortions. Under such conditions, monetization may help develop the capacity of smaller traders to participate in markets, increase competition, and potentially combat price volatility. A survey of U.S. and other food aid programs over a 50-year period identifies few examples of targeted monetization, as opposed to open market sales to generate cash.\nIn summer 2006, CARE International (a large U.S.-based NGO), which had supported monetization in the past, announced that it would transition away from the practice of monetization and refuse food commodity donations worth tens of millions of dollars starting in 2009. According to CARE, monetization is management-intensive, costly, fraught with legal and financial risks, and economically inefficient; when monetization involves open-market sale of commodities to generate cash, which is almost always the case, it inevitability causes commercial displacement. As such, it can be harmful to traders and local farmers, undermine the development of local markets, and be detrimental to longer-term food security objectives.\nAnother NGO, Catholic Relief Services, has taken a similar position with respect to monetization, but continues to use it. It sells commodities only when it has determined that no alternative methods of funding exist and that the sale will have no negative impacts on local markets and local production. Catholic Relief Services says that its policy is to seek to replace monetization with cash funding to cover program costs.", "Historically, most U.S. food aid has been delivered in the form of general rations composed of unfortified grains and legumes (wheat, corn, sorghum, rice, soybeans, peas, lentils, and vegetable oils). Estimates are that about 25% of the volume of U.S. food aid is in the form of fortified blended foods (FBFs). Advances in food and nutritional sciences in recent years, including the development of improved product formulations and new products, have enhanced the capacity of food aid providers to deliver more nutritious foods to target groups, such as children, lactating mothers, and HIV-positive individuals. In addition to FBF formulations, new products such as ready-to-use therapeutic foods, including lipid-based products, have been developed.", "Two studies—a GAO report and a study by Tufts University—released in 2011 raised concerns about the nutritional quality and safety of U.S. food aid programs. These studies pointed to reduced food aid budgets, high and volatile food prices, and frequent and protracted humanitarian emergencies as factors underlying a need for greater attention to the nutritional content of U.S. food aid.\nGAO's 2011 report noted two significant challenges in delivering more nutritional products to food aid recipients. First, specialized food products are generally more expensive than food rations used in general distribution feeding programs. According to GAO, a typical ration consisting of rice, cornmeal, wheat, or sorghum could range in cost from $0.02 per day for a six-month-old child to $0.09 per day for a two-year-old child. A daily ration of FBFs could cost between $0.06 and $0.12 per day, depending on the size of the ration. Within a fixed budget, providing more expensive specialized products would reduce the number of people fed. Second, U.S. food aid agencies poorly target the specialized food aid products provided. In this connection, GAO noted that USAID provides implementing partners with limited guidance on how to target more nutritious foods to ensure they reach intended recipients. As a result, GAO recommended that USAID and USDA issue guidance to implementing partners on addressing nutritional deficiencies, especially during protracted emergencies, and evaluate the performance and cost effectiveness of specialized food products.\nThe Tufts report suggested, among other recommendations, that USAID should adopt new specifications for FBFs and explore the use of new products such as new lipid-based products. In addition, it should provide new program guidance to implementing partners and convene an interagency food aid committee to provide technical guidance about specialized products and to interface with industry and implementing partners.", "In response to these studies, the 2014 farm bill (§3003) requires that USAID use Title II funds to assess types and quality of agricultural commodities donated as food aid; adjust products and formulation as necessary to meet nutrient needs of target populations; test prototypes; adopt new specifications or improve existing specifications for micronutrient food aid products, based on the latest development in food and nutrition science; develop new program guidance for eligible organizations to facilitate improved matching of products to purposes; develop improved guidance on how to address nutritional efficiencies among long-term recipients of food aid; and evaluate the performance and cost-effectiveness of new or modified food products and program approaches to meet nutritional needs of vulnerable groups.\nThe managers' joint statement to the 2014 farm bill maintains that they expect USAID to set verifiable goals and to maximize strong public-private partnerships with food manufacturers and other stakeholders to more quickly address the deficiencies highlighted in the GAO 2011 report by using currently available studies on food aid quality and nutrition. Also, the managers encouraged USAID to establish multi-year approaches to the procurement of high-value products. Managers expected longer-term procurement to encourage investment of specialized equipment needed to deliver critical products in a timely and cost-effective manner. In recognition of the importance associated with close collaboration between USDA and USAID on approving new products, the managers stated that they expect both agencies to adopt clear guidelines to facilitate the swift adoption of new products in order to quickly capture the benefits of the research and testing undertaken in this area.", "", "The United States continues to rely primarily on domestically sourced, in-kind food donations, whereas most other major donors have shifted away from in-kind to cash-based donations. The substantial volume of in-kind food aid donated by the U.S. government each year has engendered international concerns from key trade partners—in particular, the European Union (EU) and members of the Cairns group —that the United States uses international food donations as part of a domestic supply-management, price-support policy. The concern is that by purchasing commodities from the domestic market, the U.S. government is potentially supporting domestic prices; and by donating large volumes of U.S. commodities in foreign markets, the U.S. government is potentially implementing an implicit export subsidy program to capture those markets. In short, other export nations have become skeptical of U.S. in-kind food aid and contend that it interferes with commercial market activity and potentially violates international trade agreements.", "In the 1950s, the United States, Canada, and Europe donated or sold their agricultural surpluses at subsidized prices to developing countries. Beyond the rationale of supporting food-short countries, food aid in this form acted as a de facto export subsidy for donor countries. This implicit export subsidy became a highly critical issue among competing food-exporting nations. In response, the food-exporting countries (later joined by food-importing nations) gradually contributed to an international structure to harmonize food aid with international trade. This structure included the Consultative Subcommittee on Surplus Disposal (CSSD), a subcommittee in the U.N. Food and Agricultural Organization (FAO); the U.N.'s WFP; the international Food Aid Convention (FAC); and multilateral trade negotiations that resulted in the creation of the World Trade Organization (WTO) and its set of legal texts governing international trade.", "CSSD was created within the FAO in 1954 to define and monitor uses of surplus disposal as food aid. It arose largely due to fears expressed by Canada, Australia, and other grain exporters that the United States would use food aid as a pretext for dumping large government-held agricultural surpluses. The CSSD established the first international code of conduct safeguarding the interests of commercial exporters as well as those of agricultural producers in the recipient countries—the Principles of Surplus Disposal and Guiding Lines for Dealing with Agricultural Surpluses. The concept of a \"usual marketing requirement (UMR),\" based on average commercial imports of the previous five-year period, was created to ensure that food aid was \"additional to,\" rather than replacement of, commercial trade. However, the CSSD's UMR recommendations and safeguards were non-binding and lacked enforcement provisions, thus limiting their effectiveness.", "WFP was created in 1961 to convert the United States' bilateral food aid into a multilateral asset—thus, its principal activity is food distribution. It is governed by an executive board through which the United States plays a leadership role; the executive director of the WFP is traditionally an American. The WFP has established a permanent international infrastructure (with a staff of about 11,500) for distribution of both in-kind and cash-based food assistance.", "In 1967, the major food aid donors created the FAC. It was a legally binding agreement that defined minimum tonnage commitments of food aid to be supplied by each signatory. The FAC designed these food aid quotas to ensure that such aid was both predictable and timely for response to international food crises and that such food transfers followed the FAO's Principles of Surplus Disposal. The FAC is date-specific and must be renegotiated and renewed periodically. The FAC of 1986 included a provision that prohibited the explicit use of food aid as an export subsidy. Although the FAC is a treaty whose signatories have legal obligations, it lacks enforcement provisions.", "The Agreement on Agriculture of the WTO was the outcome of multilateral trade negotiations that culminated in the successful Uruguay Round in 1994. The agreement spells out the rules governing both domestic support to the agricultural sector as well as for market access and export competition. Under Article 10, \"Prevention of Circumvention of Export Subsidy Commitments,\" of the agreement,\n4.Members donors of international food aid shall ensure:\n(a)that the provision of international food aid is not tied directly or indirectly to commercial exports of agricultural products to recipient countries;\n(b)that international food aid transactions, including bilateral food aid which is monetized, shall be carried out in accordance with the FAO \"Principles of Surplus Disposal and Consultative Obligations\", including, where appropriate, the system of Usual Marketing Requirements (UMRs); and\n(c)that such aid shall be provided to the extent possible in fully grant form or on terms no less concessional than those provided for in Article IV of the Food Aid Convention 1986.", "The Doha Round of multilateral trade negotiations began in 2000 in an effort to build on the achievements made in the three pillars of agricultural trade by the Uruguay Round—that is, limitations on domestic support, expanded market access, and stringent controls on various non-competitive forms of export competition. Food aid became one of the key contested issues. The United States was inclined to preserve its full range of tied food aid programs, whereas the EU and other European donors proposed to move entirely to untied food aid. In particular, the EU indicated a willingness to eliminate its own direct subsidies for agricultural exports on the condition that all forms of export subsidies, both explicit and implicit, are disciplined as well.\nThe Ministerial Declaration made in Hong Kong on December 18, 2005, stated:\nOn food aid ... we will ensure elimination of commercial displacement. To this end, we will agree to effective disciplines on in-kind food aid, monetization, and re-exports so that there can be no loop-hole for continuing export subsidization.\nThe Doha Round was never completed; however, negotiators produced a working text that may serve as a guide for future trade rules. With respect to food aid, the Doha texts propose additional rigor to defining and proscribing international food aid as detailed in Annex L to the draft modalities with a strong emphasis on moving to untied cash-based food aid.", "The United States has always been a leader in both global agricultural trade and international trade negotiations to establish a transparent and unified set of standards to govern international commerce. The United States openly declares its commitment to international trade and the international set of rules governing that trade in the Food for Peace Act (§3(c)) where it declares its intent to\n(C) ensure, to the maximum extent practicable, that options for providing food aid for emergency and non-emergency needs shall not be subject to limitation, including in-kind commodities, provisions of funds for agricultural commodity procurement, and monetization of commodities, on the condition that the provision of those commodities or funds—\n(i) is based on assessments of need and intended to benefit the food security of, or otherwise assist, recipients, and\n(ii) is provided in a manner that avoids disincentives to local agricultural production and marketing and with minimal potential for disruption of commercial markets, and\n(2) the United States should increase its contribution of bona fide food assistance to developing countries consistent with the Agreement on Agriculture.", "The FFPA Title II program has been embroiled in a long-running debate between successive Administrations and Congress over how Title II funds may be used. Both the George W. Bush and Obama Administrations have sought greater flexibility in their use of Title II funds. Both Administrations claimed that this flexibility would allow them to direct food to international points of crisis more quickly and at lower cost (primarily as cash-based food assistance), thus helping to better respond to international emergencies while meeting U.S. foreign policy goals.\nIn contrast, Congress has favored using Title II funds to purchase U.S. commodities, ship them on U.S.-flag vessels to foreign countries with food deficiencies, and then monetize the commodities by selling them in recipient country markets for local currency, which is subsequently used to fund food security and development activities.", "FFPA programs are under the authority of the House and Senate Agriculture Committees, which reauthorize FFPA programs in periodic farm bills. Proponents for change in U.S. food aid policy have expressed concerns that the agriculture committees are too close to U.S. commodity groups, food processors, and maritime interests, all of whom have a vested interest in the status quo. Recognizing this, most proposals for change have attempted to move FFPA program authority away from the agriculture committees and to the House Foreign Affairs Committee and Senate Foreign Relations Committee, which have authority over U.S. foreign relations as well as most forms of international economic assistance and disaster response activities.\nBoth the previous and current Administrations (in their annual budget requests) have proposed changes to the structure and intent of U.S. international food assistance, especially involving FFPA Title II resources. The 2014 farm bill made some modest changes to international food aid programs. However, it did not adopt the larger Obama Administration FY2014 proposals (described below). In addition to Administration proposals, some Members of Congress have introduced bills in both the House ( H.R. 1983 ) and Senate ( S. 2421 ) in the 113 th Congress and the Senate ( S. 525 ) in the 114 th Congress that proposed alterations to U.S. food aid programs—including shifting select food aid authorities away from the agriculture committees and their periodic farm bills and into the Foreign Assistance Act, as well as the elimination of the requirements related to U.S.-only procurement of commodities, cargo preference, and monetization.", "In 2007, the Bush Administration proposed that Congress provide authorization in the farm bill to use up to 25% of annual Title II funds (approximately $300 million) to procure food from selected developing countries near the site of a crisis. The Administration justified this proposal on the grounds that the U.S. response to food emergencies would be more efficient and cost-effective if commodities could be procured locally. The Administration's farm bill proposal cited instances in which the U.S. food aid response to emergencies would have been enhanced with this kind of authority, particularly for Iraq in 2003, the Asian tsunami in 2004, southern and West Africa in 2005, and East Africa in 2006. The Administration noted that \"U.S. grown food will continue to play the primary role and will be the first choice in meeting global needs.\" Local and regional purchases would be made only where the speed of the arrival of food aid is essential, according to USDA. These proposals did not advance in Congress.", "", "In its FY2014 budget request, made in advance of the 2014 farm bill, the Obama Administration proposed changes to the structure and intent of U.S. international food assistance, especially involving FFPA Title II resources. These changes included (1) shifting funds from the FFPA, as authorized by the farm bill, to three USAID accounts—International Disaster Assistance (IDA), Development Assistance (DA), and Emergency Food Assistance Contingency Fund (EFAC), described below—authorized in foreign assistance legislation; (2) eliminating the monetization procedure; (3) providing greater flexibility to procure commodities in local and regional markets overseas; and (4) reducing the volume of commodities subject to cargo preference legislation.\nThe Administration proposed to replace funding previously requested for FFPA Title II, estimated at $1.47 billion annually, with an equivalent amount divided among the three USAID foreign assistance accounts as follows:\nShift $1.1 billion to IDA for emergency food response . This shift would have augmented IDA's Emergency Food Security Program for cash-based food security assistance. The total available for IDA emergency food security assistance after such a shift would be $1.4 billion. Shift $250 million to DA for a Community Development and Resilience Fund (CDRF) . The CDRF would address chronic food insecurity in areas of recurrent crises such as in the Horn of Africa or the West African Sahel. The CDRF also would receive $80 million of DA from USAID's Bureau of Food Security, which administers the Feed the Future program. Total funding for this program after such a shift would be $330 million. Shift $75 million to EFAC. The newly created EFAC would serve as a fund to provide emergency food assistance for unexpected and urgent food needs.\nAccording to USAID, the type of food assistance intervention—in-kind versus cash-based food assistance—depends on overall program goals, cost, and several factors related to the affected region. These factors include food insecurity causes, the severity of the food crisis, timeliness of response, the functioning of markets, security conditions, and local diet preferences. USAID argued that the proposed shifts would result in gains of flexibility, timeliness, and efficiency in the provision of emergency food aid. These gains would allow U.S. international food assistance to reach at least 2 million to 4 million more people each year with equivalent funding. Rather than a commodity-only response, USAID would be able to select from a menu of options that could include local or regional procurement in countries or regions where food aid emergencies are occurring and other forms of cash-based assistance, like food vouchers or cash transfers. CDRF would continue to engage PVOs as implementing partners of non-emergency development programs. In addition, USAID argued that the $330 million in the CDRF would be the equivalent of the non-emergency funding guarantee in the FFPA because of cost savings associated with the end of monetization.\nAccording to USAID, the food aid reform proposal would guarantee that in FY2014 no less than 55% of the requested $1.4 billion for emergency food assistance would be used for procurement, transport, and related costs of U.S. commodities. Going forward, USAID said that U.S. commodities would continue to make up a significant portion of purchases, especially for many processed foods and bulk commodity procurements, which might not be available elsewhere in the world. Further, inflation concerns or food price volatility may make U.S. commodities a more feasible option in certain situations. In addition, $25 million of \"efficiency savings\" would be devoted to an increase for the Maritime Security Program (MSP), administered by MARAD, thus serving as a partial offset for reduced U.S. food aid shipments. Increasing the direct subsidies to the maritime sector with additional MSP funding was intended to help retain militarily useful U.S.-flag vessels and facilitate the retention of mariners in the workforce.", "Critics of the Administration's food aid proposal included the Alliance for Global Food Security and the U.S. maritime sector. In early 2013, prior to the release of the Administration's FY2014 proposal, a group of 70 organizations—representing maritime interests, commodity groups, and the Alliance—who support the current food aid program wrote the President a letter urging continuation of the FFPA and other U.S. food aid programs in their current form based on in-kind shipments and monetization. Then, in response to the Administration FY2014 budget request, the Alliance sent another letter recommending the continuation of the current in-kind food aid procurement system and monetization. However, the Alliance said it agreed with the use of IDA funds (including increased funding \"as needed\") for LRP or cash-based assistance pending arrival of either pre-positioned FFPA commodities or deliveries of U.S. commodities. The Alliance contends that monetization provides benefits other than the cash generated to finance PVO projects. Those include increased economic activity that helps alleviate credit, hard currency, or small-volume constraints that limit procurement of sufficient food supplies on international markets. The Alliance recommended using USAID's Development Assistance (DA) funds to support FFPA Title II development programs where monetization is not feasible or appropriate. As mentioned earlier, USA Maritime also opposed transforming the current food aid programs from a commodity-based to a cash-based program. It argued that the proposed food aid changes would jeopardize future funding by losing its current support network of farmers, international relief and development organizations, ports, and inland and ocean transporters.", "Although the 2014 farm bill made some modest changes to U.S. international food assistance, it did not adopt the Administration's broader FY2014 proposals. In a revised version of its international food aid proposals, the President's FY2015 budget requested that up to 25% of total Title II funding be available for cash-based interventions. USAID claimed that the cost savings and improved timeliness associated with such a shift in use of Title II funds from shipping U.S. commodities on U.S.-flag vessels to cash-based assistance would allow USAID to reach an additional 2 million people. As under its FY2014 budget request, the Administration again proposed that $25 million of the \"efficiency savings\" obtained from the transfer of FFPA funds be devoted to an annual increase of the Maritime Security Program (MSP), administered by MARAD, thus serving as a partial offset for reduced shipping related to smaller U.S. food aid shipments. Congress did not include the Administration's proposals in its FY2015 appropriations.", "In its FY2016 budget request, the Administration repeated the proposed changes to U.S. international food aid made in its FY2015 budget request—allow up to 25% of total Title II funding to be available for cash-based interventions and increase annual MSP funds by $25 million as a partial offset for reduced shipping related to smaller U.S. food aid shipments.", "The Administration's FY2017 budget request proposed $1.35 billion in Title II funding, of which 25% ($337.5 million) would be exempt from any U.S. purchase requirement and would instead be available as cash-based food assistance for emergencies. Both the House and Senate bills would appropriate larger Title II funding for FY2017—the House bill ( H.R. 5054 ) proposes $1.466 billion, while the Senate bill ( S. 2956 ) proposes $1.6 billion—but without the in-kind purchase exemption.", "The Administration's FY2014 food aid proposal raised issues of congressional committee and subcommittee jurisdiction over food aid appropriations and authorizing legislation ( Table 4 ). In the Senate, food aid authorizing legislation currently is with the Agriculture, Nutrition, and Forestry Committee, while appropriations jurisdiction is with the Agriculture Appropriations Subcommittee. In the House, jurisdiction over authorizing legislation currently is with the Agriculture Committee, periodically shared with the Foreign Affairs Committee. Appropriations are the purview of the Agriculture Appropriations Subcommittee. Shifting food aid funding to programs authorized in foreign assistance legislation (e.g., IDA and DA) as proposed by the Administration suggested that responsibility for food aid appropriations might shift to the Foreign Operations Appropriations Subcommittees in both chambers. Similarly, authorizing legislation might become the responsibility of the House Foreign Affairs Committee and Senate Foreign Relations Committee.", "Members introduced two bills to change U.S. international food aid programs during the 113 th Congress ( H.R. 1983 and S. 2421 ), although no action was taken on either. The Senate food aid bill has been reintroduced in a modified form in the 114 th Congress as S. 525 .", "In May 2013, Representative Royce, chairman of the House Foreign Affairs Committee, and then-Ranking Member Bass, introduced a bill ( H.R. 1983 ) that would have altered U.S. food aid programs by eliminating monetization and the U.S.-only commodity purchase requirement. It would have transferred the Title II non-emergency program authority away from farm legislation and USDA, and to the Foreign Assistance Act, where it might allow USAID greater flexibility in responding to foreign emergency situations through local and regional purchase of food in a food-crisis area. In addition, H.R. 1983 would have exempted FFPA Title II food assistance from cargo preference requirements. The 113 th Congress took no action on H.R. 1983 .", "In June 2014, then-Ranking Member Corker and Senator Coons from the Foreign Relations Committee introduced a bill, S. 2421 , that also proposed eliminating monetization, cargo preference requirements (but only as they relate to FFPA food assistance), and the U.S.-only commodity purchase requirement. It would have transferred the Title II program authority away from farm legislation and USDA, and to the Foreign Assistance Act. S. 2421 also proposed retaining the funding allocation for non-emergency assistance to between 20% to 30% of FFPA funds, but not less than $375 million for any fiscal year. Finally, S. 2421 included a \"Sense of Congress\" provision recognizing the \"critical\" role the Merchant Marines play in maintaining U.S. defense capability. The 113 th Congress took no action on S. 2421 .", "", "In February 2015, Chairman Corker and Senator Coons reintroduced their food-aid bill in the new 114 th Congress as S. 525 . Similar to their 2014 reform bill ( S. 2421 ), S. 525 proposes eliminating monetization, cargo preference requirements, and the U.S.-only commodity purchase requirement but only for FFPA Title II program activity. As with S. 2421 , S. 525 does not address cargo preference requirements as they relate to other food aid programs. As such, the current requirement for agricultural cargo preference, as well as current practices of reliance on in-kind commodity transfers with subsequent monetization, would remain relevant for these food aid programs.\nInstead, S. 525 would allow FFPA Title II funds to be used for both in-kind and cash-based assistance—whichever is deemed by USAID as the preferred option for the given situation. To accomplish this, the bill would transfer the Title II program authority away from farm legislation and USDA, to the Foreign Assistance Act and USAID. Finally, S. 525 proposes lowering the authorized annual appropriations level for Title II programs by $100,000 to $2.4 billion per fiscal year to reflect the efficiencies that would be gained from the increased flexibility in use of Title II funds.\nThe Senators estimate that their proposed changes would supplement existing funds by as much as $440 million annually through greater efficiencies in delivering aid. As a result, U.S. food assistance could potentially reach an additional 8 million to 12 million people than under current programs. S. 525 also proposes retaining the allocation for non-emergency assistance of between 20% to 30% of FFPA Title II funds, but not less than $375 million for any fiscal year. Finally, S. 525 includes a \"Sense of Congress\" provision that recognizes the \"critical\" role the Merchant Marines play in maintaining U.S. defense capability.\nWith respect to the cargo preference requirement change, S. 525 would allow USAID the flexibility to ship any U.S.-sourced commodities under FFPA Title II on vessels that are the most suitable to the task—that is, readily available and most cost-effective—irrespective of the vessel's registry.", "On July 20, 2016, President Obama signed into law the Global Food Security Act ( P.L. 114-195 ). The GFSA represents a codification of the Obama Administration's Feed the Future (FTF) program into the Foreign Assistance Act (FAA) of 1961. FTF is a U.S. international development program launched in 2010 that invests in food security and agricultural development activities in a select group of developing countries in an effort to reduce hunger, malnutrition, poverty, and food insecurity. Since its origin, FTF has expanded into a whole-of-government effort that coordinates previously existing U.S. agricultural development policies into a single framework.\nThe GFSA continues the FTF's global food security initiative under a \"whole-of-government\" strategy. In GFSA (Section 5) the President is directed to develop a Global Food Security Strategy (GFSS) by not later than October 1, 2016. Furthermore, the President is directed to coordinate—through a whole-of-government approach—the efforts of all relevant federal departments and agencies involved in the U.S. global food security initiative. Thus, the GFSA subsumes the USDA in-kind food aid programs discussed in this report, along with those food-security-related programs of other federal agencies.\nUnder FTF, U.S. international food assistance programs have often been run jointly or in close association with each other when occurring in common regional settings. The GFSA grants coordinating authority to the President for the GFSS. However, the GFSA includes a provision (Section 9) that specifically precludes the GFSS from superseding or otherwise affecting the authority of USDA to carry out its various food assistance programs. The programs subject to this exclusion are explicitly listed in the GFSA, Section 9(b), as the Food for Peace Act; Food for Progress, Section 416(b); McGovern-Dole Food for Education Program; Local and Regional Procurement Program; Bill Emerson Humanitarian Trust; and any other food and nutrition security and emergency and non-emergency food assistance program of USDA.\nThe GFSA (Section 6) authorized appropriations of about $1.0 billion for each of FY2017 and FY2018 for those portions of the GFSS that relate to the Department of State and USAID. In addition, the GFSA (Section 7) permanently authorized the Emergency Food Security Program (EFSP) as part of the Foreign Assistance Act (FAA) of 1961 and authorized appropriations of nearly $2.8 billion for each of FY2017 and FY2018 for humanitarian assistance under EFSP.", "" ], "depth": [ 0, 1, 1, 2, 2, 3, 3, 3, 3, 4, 4, 4, 4, 4, 3, 3, 2, 3, 3, 3, 3, 3, 2, 3, 3, 3, 3, 3, 3, 1, 2, 3, 3, 3, 3, 2, 3, 3, 3, 2, 3, 3, 3, 2, 3, 3, 2, 3, 3, 4, 4, 4, 4, 4, 3, 1, 2, 2, 2, 3, 4, 3, 3, 3, 2, 2, 3, 3, 2, 3, 2, 3 ], "alignment": [ "h0_title h2_title h1_title", "h1_full", "h0_full h2_full h1_full", "h0_full", "h0_full", "", "", "", "", "", "", "", "", "", "", "h0_full", "h0_title", "", "", "h0_full", "", "h0_full", "", "", "", "", "", "", "", "h0_title h1_title", "h1_full", "", "", "h1_full", "", "", "", "", "", "", "", "", "", "", "", "", "h0_title", "h0_full", "", "", "", "", "", "", "", "h2_title h1_title", "h1_full", "", "", "", "", "", "", "", "", "h1_full", "", "", "", "", "h2_full", "" ] }

{ "question": [ "How is U.S. international food assistance distributed?", "How are these programs authorized?", "What similarities do these programs share?", "How did the 2014 farm bill affect U.S. international food assistance efforts?", "Through what other programs does the U.S. provide cash-based food assistance?", "How was EFSP authorized?", "What agencies oversee these programs?", "What does most U.S. international food aid consist of?", "How does this compare to other countries?", "Why is U.S. in-kind food aid controversial?", "What legislative requirements restrict U.S. food aid?", "What changes have been proposed to the U.S. food aid system?", "How does the GFSA affect U.S. food assistance efforts?", "How is GFSA related to the Feed the Future program?", "What does this report cover?", "In what report are the GFSA and its prececessor discussed?" ], "summary": [ "Historically, U.S. international food assistance has been distributed through four main program authorities: (1) the Food for Peace Act (FFPA, also known as P.L. 480); (2) the Section 416(b) program (which has been inactive since 2007); (3) the Food for Progress Act of 1985; and (4) the McGovern-Dole International Food for Education and Child Nutrition Program.", "The Section 416(b) program is permanently authorized by the Agricultural Act of 1949. The other programs are reauthorized in periodic farm bills, most recently (through FY2018) by the 2014 farm bill.", "A common feature of these programs is that they rely primarily on U.S.-sourced commodities (i.e., in-kind food aid) for their operations.", "The 2014 farm bill (P.L. 113-79) added an additional permanent international food assistance program—the Local and Regional Purchase (LRP) project—but based on cash transfers to purchase commodities from markets near the source of international food need.", "Since 2010, the U.S. Agency for International Development (USAID) has also used its authority under the Foreign Assistance Act of 1961 (FAA) to initiate cash-based food assistance in response to international crises under the Emergency Food Security Program (EFSP) as a complement to FFPA Title II emergency in-kind food aid donations.", "In July 2016, EFSP was permanently authorized by the Global Food Security Act (P.L. 114-195).", "These six food assistance programs are administered either by the Foreign Agricultural Service of the U.S. Department of Agriculture (USDA) or USAID.", "Since FY2006, annual spending on U.S. international food assistance programs has averaged $2.5 billion, with FFPA Title II outlays averaging $1.8 billion (74%). Despite growth in cash-based assistance under EFSP, the United States continues to rely heavily on in-kind transfers of domestic commodities for international food aid.", "In contrast, most other countries operating international food aid programs have converted primarily to cash-based food assistance.", "U.S. reliance on in-kind food aid has become controversial due to its identified inefficiencies and potential market distortions compared with cash-based assistance.", "In addition to domestic sourcing, U.S. food aid is subject to a suite of legislative requirements that potentially limit the U.S. response to emergency food crises. These include minimum levels of non-emergency program funding; domestic processing, bagging, and packaging; monetization—that is, the process of selling donated U.S. commodities in recipient-country markets to generate cash for development programs—by eligible NGOs; and ocean shipping on U.S. registered vessels (referred to as cargo preference).", "The 2014 farm bill made modest changes to U.S. food aid programs. However, the past two Administrations—that is, George W. Bush and Obama Administrations—as well as certain Members of Congress, via bills in the 113th (H.R. 1983 and S. 2421) and 114th (S. 525) Congresses, have proposed making more significant changes to the structure and intent of U.S. food aid programs. Proposed changes include, among others, expanding flexibility in the use of cash-based forms of assistance and eliminating both cargo preference and monetization.", "In addition to its food assistance activities, the United States provides funding for investment in international food security programs under the Global Food Security Act (GFSA, P.L. 114-195).", "The GFSA represents a codification of the previous Feed the Future program.", "This report focuses on U.S. international food assistance activities, including the EFSP.", "The GFSA and its predecessor—Feed the Future—are discussed in CRS Report R44216, The Obama Administration's Feed the Future Initiative." ], "parent_pair_index": [ -1, 0, 0, -1, 3, 4, 3, -1, 0, 0, 0, -1, -1, 0, -1, 2 ], "summary_paragraph_index": [ 1, 1, 1, 1, 1, 1, 1, 2, 2, 2, 2, 2, 3, 3, 3, 3 ] }

{ "title": [ "", "Introduction", "Brief Summary of the Law of Unconstitutional Conditions", "The Leadership Against HIV/AIDS, Tuberculosis and Malaria Act of 2003", "First Amendment Challenges to the Leadership Act", "Background", "Supreme Court Decision: Agency for International Development v. Alliance for Open Society" ], "paragraphs": [ "", "Article 1, Section 8 of the United States Constitution provides Congress with the explicit power to collect taxes. Implicit in that power to collect revenue is also the power to spend that revenue. This clause is known as the Taxing and Spending Clause of the Constitution, and the Supreme Court has found that it grants Congress wide latitude to promote social policy that the federal government supports.\nOne way that Congress may exercise its spending power to encourage the implementation of policies that the federal government supports is through appropriations. \"Appropriations are comparable to tax exemptions and deductions which are also a matter of grace that Congress can, of course, disallow as it chooses.\" One common example of Congress exercising spending power to impose its will is the National Minimum Drinking Age Act of 1984. That act conditioned the receipt of a percentage of federal highway funding on states agreeing to raise the minimum drinking age to 21. While states were not required by the act to raise the drinking age, they could not receive the funds if they did not, thus creating a powerful incentive for states to adopt Congress's chosen policy on the subject of the legal drinking age.\nCongress has wide discretion to provide subsidies to activities that it supports without incurring the constitutional obligation to also provide a subsidy to activities that it does not necessarily encourage. However, the power to spend money only on policies that Congress supports is not without limits. Congress may not place what have come to be known as \"unconstitutional conditions\" on the receipt of federal benefits, even benefits Congress was not required to provide in the first place. Which conditions on the receipt of federal funds are and are not constitutional is a longstanding question with somewhat unclear answers, particularly when it comes to conditions placed upon the speech of the recipients of federal funds.\nMost recently, the Supreme Court heard a case challenging the constitutionality of a provision of the United States Leadership Against HIV/AIDS, Tuberculosis, and Malaria Act of 2003 (Leadership Act). The relevant provision prohibited the government from making funds available to grant recipients that do not have a policy of opposing prostitution. The question facing the Court in this case was whether the Leadership Act's requirement that recipients affirmatively adopt a policy that applied to the entire organization, and not just to the federal funds received, violated the First Amendment. In an opinion announced on June 20, 2013, the Court held that this provision does violate the First Amendment because it requires private actors to adopt the approved opinion of the government. The decision outlines an important limitation on the ability of Congress to place conditions upon the receipt of federal funds.", "The Constitution grants Congress the power to subsidize some activities and speech without subsidizing all speech, or even all viewpoints on a particular topic. There is a certain amount of discrimination inherent in the choices Congress makes to provide funds or tax deductions to one organization's activities, but not to another. As noted in footnote 1 , Congress allows tax deductions for interest paid on home mortgages, but does not allow a similar deduction for those who rent their homes. Congress makes funds available to support non-commercial broadcast stations through the Corporation for Public Broadcasting, but commercial broadcast stations are ineligible to receive those funds, even though they also engage in broadcasting. In other words, Congress discriminates frequently in the types of activities it chooses to support.\nCongress also has a fair amount of discretion to condition the funding it provides on the recipients of those funds performing some other task ancillary to the receipt of the funds. For example, as previously discussed, in exchange for federal highway funding, states were required to raise the minimum age for the legal consumption of alcohol to 21. States were free to keep their minimum drinking age lower than the age of 21, but doing so meant they would have forfeited federal dollars. Conditions on the receipt of federal funds are, therefore, not uncommon. However, when the condition on the receipt of federal funds is an agreement to espouse, or to refrain from espousing, a particular point of view that is in line with the government's favored viewpoint, questions related to whether Congress is infringing upon the First Amendment freedoms of fund recipients may arise. While the principle that Congress may choose to subsidize whatever speech or behavior it may desire may seem simple enough; in practice, the case law has been described as complicated and contentious. Nonetheless, some core principles may be distilled from the case history.\nOne of the first instances in which the Supreme Court addressed the question of discrimination in a tax subsidy on the basis of speech was in the case of Speiser v. Randall . The State of California had decided to deny any and all tax deductions to persons who advocated the unlawful overthrow of the United States government. In order to alleviate the administrative burdens of figuring out exactly which Californians were advocating the violent overthrow of the government, the state decided instead to require all Californian taxpayers seeking to avail themselves of tax deductions to sign a loyalty oath that affirmed that the taxpayer did not advocate the overthrow of the government by force or violence. A group of honorably discharged World War II veterans declined to sign the oath and sued claiming that the requirement violated their First Amendment rights.\nIn this particular case, the Supreme Court did not reach the question of whether the oath violated the First Amendment because the California Supreme Court had construed the provision to apply only to speech that fell outside the First Amendment's scope. Nonetheless, the Supreme Court did make clear that \"a discriminatory denial of a tax exemption for engaging in speech is a limitation on free speech\" and that to deny exemptions to persons who engage in certain types of speech is tantamount to penalizing them for that speech. Therefore, discriminatory denial of tax deductions could implicate the First Amendment, depending on the nature of the discrimination. Of particular concern to the Court was whether the requirement placed on the receipt of the benefit was \"aimed at the suppression of dangerous ideas.\" Where the suppression of an idea is the apparent object of a condition on the receipt of a benefit, the fact that a person could simply decline the benefit was not enough to overcome the concerns of the Court regarding the coercive nature of the requirement.\nAsserting the principle that Congress may not coerce citizens to engage in or to refrain from certain speech through the tax code, a group known as Taxation with Representation (TWR) challenged Congress's denial of certain tax deductions to organizations that engage in substantial lobbying activities as a violation of the group's core First Amendment rights. Important to this case are two federal, tax-exempt, non-profit structures: the 501(c)(3) organization and the 501(c)(4) organization. Taxpayers who donated to 501(c)(3) organizations could deduct those donations from their taxes. 501(c)(3) organizations were prohibited from engaging in substantial lobbying. Taxpayers who donated to 501(c)(4) organizations could not deduct those donations from their federal income taxes. 501(c)(4) organizations were permitted to engage in lobbying activities. TWR had been operating with a dual structure wherein its lobbying activities were accomplished via contributions to a 501(c)(4) organization and its other activities were funded through a 501(c)(3). TWR argued that the federal government was unconstitutionally discriminating against a form of fully protected speech, in this case lobbying, based solely upon its content, and that this discrimination violated the First Amendment.\nThe Supreme Court disagreed and found that the refusal to allow a tax deduction for lobbying activities was within Congress's power to tax and spend. In short, Congress was not discriminating against lobbying. It was merely choosing not to pay for lobbying activities. The Court pointed toward \"the broad discretion as to classification possessed by a legislature in the field of taxation,\" and found that Congress could choose not to subsidize lobbying activities without running afoul of the First Amendment, so long as adequate alternative avenues for engaging in lobbying activities remained available. The Court pointed out that TWR was not prohibited from lobbying under the statute. It was merely prohibited from lobbying with funds it received pursuant to its 501(c)(3) structure. TWR was free to continue its lobbying activities under the dual tax structure described above.\nThe Court noted that this would be a different case if Congress had discriminated against lobbying speech in such a way as to \"aim at the suppression of dangerous ideas.\" Finding no such circumstances in Congress's general refusal to subsidize lobbying activities, with a narrow exception for certain veterans organizations, the Court held that Congress did not have to provide a tax deduction in this circumstance. As the Court explained, \"the issue in these cases is not whether TWR must be permitted to lobby, but whether Congress is required to provide it with public money with which to lobby.\" The Court held that it was not. This case appears to ultimately stand for the principle that as long as Congress provides other avenues for engaging in protected speech, it may constitutionally choose not to provide funds to certain classes of speech in which an organization may wish to engage.\nOne year later, the Supreme Court considered another case in which it appeared that the federal government was refusing to subsidize a particular class of speech and refined Congress's authority to create spending conditions yet further. In FCC v. League of Women Voters , the Court examined whether Congress could constitutionally prohibit non-commercial broadcast stations that received federal funds through the Corporation for Public Broadcasting from engaging in editorializing. The government, relying on Regan v. Taxation with Representation , argued that the prohibition on editorializing was justified because Congress was simply refusing to fund the editorial activities of non-commercial broadcasters. The Court disagreed, distinguishing this case from TWR , because in TWR the organization remained free to engage in lobbying. In this case, non-commercial broadcasters were prohibited completely from editorializing if they received federal funds. A non-commercial broadcaster that received only 1% of its funding from the federal government was subject to the editorializing prohibition and could not, for example, segregate its federal funds so as to prevent the use of those funds for editorializing activities, while using its private funds to editorialize. The Court conceded, however, that if Congress were to amend the statute at issue to prohibit the use of federal funds to support editorializing activities, but allow the broadcasters to engage in such speech with private funding, the statute would then be constitutional. This case appears to stand for the proposition that, while Congress has wide discretion to control the ways in which federal funds may not be spent, its reach is more circumscribed should Congress also attempt to impose its spending conditions upon the use of private funds. The key to this case was that Congress prohibited all editorializing with whatever money the broadcasters may have possessed. The Court considered that to be too much of an imposition on First Amendment activity.\nFollowing FCC v. League of Women Voters , a few rules governing the constitutional exercise of the spending power appeared evident. First, Congress was entitled to subsidize the activities it supported, including speech activities, without being required to subsidize all activities. Congress must also allow those who might benefit from congressional largesse the freedom to express their opinions outside the bounds of the congressional subsidy. However, Congress could not prohibit speech that fund recipients might wish to engage in with non-federal dollars. Along with these principles, when designing future funding conditions, Congress was also prohibited from attempting outright to suppress dangerous ideas, because such laws, regardless of their style as a prohibition or spending prerogative, would always raise constitutional concerns.\nIn Rust v . Sullivan , grant recipients challenged the administration of Title X of the Public Health Service Act. Title X was intended to provide federal funding to subsidize health care for women prior to the conception of a child that included counseling, preconceptive care, education, general reproductive health care, and preventive family planning. However, the regulations made clear that no federal money was to be spent to provide counseling for abortion, nor were any participants in the Title X program permitted to provide patients with a referral to an abortion provider, even when the patient may have requested such a referral. Title X programs could not advocate or lobby for abortion rights. Title X programs were also required to be kept physically and financially separate from other programs in which a grantee might be engaging in. The grantees that received Title X funds were permitted to advocate for abortions outside of the auspices of their Title X programs, however.\nTitle X participants sued, claiming that these restrictions violated their First Amendment rights and interfered with the doctor-patient relationship. They argued that the restrictions were viewpoint discriminatory because they prohibited all discussion of abortion as a lawful option and compelled the clinic doctor or employee to espouse views that s/he might not hold (e.g., that abortion was not supported as an appropriate method of family planning). Unlike TWR , where they were permitted to lobby so long as they did not use tax-subsidized funds to do so, the plaintiffs here argued that speech about abortion was being discriminated against invidiously by Congress because Title X program participants were being forced to communicate the message of the government about abortion.\nThe Supreme Court disagreed. The Court reasoned that Congress is entitled to subsidize the public policy message it chooses to fund without funding other opinions on the same topic. Congress was within its constitutional rights to control the message that it preferred to encourage family planning methods other than abortion with funding conditions. The Court wrote, \"this is not a case of the Government suppressing a dangerous idea, but of a prohibition on a project grantee or its employees engaging in activity that was outside of the project's scope.\" Congress was not denying a benefit based upon the grantees' support for abortion, but was instead preventing the use of federal funds for purposes outside the intended use of the program those funds were intended to support. Important for the Court's analysis in this case was the fact that the restrictions on speech only applied to the administration and employees of the Title X program itself. The grantee, on the other hand, was free to receive funds for a variety of programs from a variety of sources and these other activities were not subject to the Title X speech restriction. As a result, Title X did not suffer from the same fatal flaw as the funding restriction in FCC v. League of Women Voters . The government had not placed a speech restriction on the recipient of the funds, as it had in League of Women Voters . Instead, the government had only restricted the types of activities for which federal funds pursuant to the Title X program could be used. Outside of that program, the organizations and doctors were free to espouse any abortion-related opinion they might choose. As in TWR , Congress had simply chosen not to fund it.\nFollowing Rust came two significant cases wherein the law of unconstitutional conditions was further refined. First, in Legal Services Corporation v. Vasquez , the Supreme Court struck down a restriction on the use of federal funds by lawyers employed by the Legal Services Corporation (LSC) to challenge existing welfare laws. In Rust , the government had used restrictions on the use of federal funds to subsidize and control the government's own message. In this case, however, the government was attempting to use restrictions on the use of federal funds to hinder private speech. In the Court's analysis, lawyers for the LSC were not speaking for the federal government or administering the federal government's message. They were representing the views and interests of their clients. The restrictions placed on LSC attorneys would have interfered with the attorney-client relationship by preventing potentially valid challenges to the welfare laws. The Court found that such restrictions unquestionably raised First Amendment questions. Because the LSC funded private expression, and not the message of the government, the Court found that Congress could not limit the types of cases that LSC attorneys could bring on behalf of their clients because such restrictions violated the First Amendment.\nThe second case outlining some limits to Congress's ability to condition its spending was Rosenberger v. Rector and Visitors of Univ. of Va . In this case, plaintiffs challenged a University regulation that provided funds to student publications, but refused to provide funding to student publications with religious affiliations. The university claimed that it was choosing not to subsidize religious activity. The Court found the university's restriction to be unconstitutional. Where the government creates a quasi-public forum, as it had in this case by making funds generally available to all university student publications, the government could not then discriminate against students seeking to use that forum on the basis of content.\nTaken together these cases seem to indicate that where Congress has appropriated funds to support the government's own message, Congress has wide latitude to condition the receipt of those funds on the espousal of the government's approved message, unless that condition invidiously discriminates against the espousal of dangerous ideas. In conditioning the use of federal funds on making sure the funds are only used to support Congress's approved message, ample opportunity for the recipients of those funds to exercise their protected constitutional rights outside of the federal program in which they are participating must be preserved. However, where Congress has provided funds for private speech or created a public or quasi-public forum, the ability to restrict speech funded by that money on the basis of content is narrower.", "In 2003, Congress passed the United States Leadership Against HIV/AIDS, Tuberculosis and Malaria Act (Leadership Act), 22 U.S.C. 7601 et seq . The Leadership Act was intended to address Congress's finding that HIV/AIDS, Malaria, and Tuberculosis posed grave health threats around the world. Congress found that the United States had the capacity to enhance the effectiveness of the fight against these various diseases on a number of fronts including providing financial resources to various aid groups, providing needed vaccines and medical treatments, promoting research, and promoting lifestyles that would diminish the chances of spreading these diseases.\nParticularly in relation to HIV/AIDS, Congress found that it should be the policy of the United States to promote abstinence, marriage, and monogamy as methods of diminishing the spread of HIV/AIDS, as well as promotion of the use of condoms. In addition to advocating the promotion of monogamous lifestyles, Congress also found that \"prostitution and other sexual victimization are degrading to women and children and it should be the policy of the United States to eradicate such practices.\" The findings went on to describe the sex industry, and sex trafficking, as an additional cause of the spread of HIV/AIDS and that eliminating or reducing prostitution and sex trafficking would reduce the spread of the virus in keeping with the goals of the act.\nTo that end, when Congress provided funds in the Leadership Act to private entities to assist in the fight against HIV/AIDS, Congress conditioned the receipt of those funds in two important ways. First, Congress made clear that no funds received pursuant to the Leadership Act may be used to \"promote or advocate the legalization or practice of prostitution or sex trafficking.\" Second, and more controversially, Congress also forbid any funds from being disbursed to any group or organization that did not have a policy explicitly opposing prostitution and sex trafficking. In other words, unless an organization adopted a policy explicitly opposing prostitution and sex trafficking, it could not receive funds under the Leadership Act, not even if the group remained silent as to prostitution and sex trafficking.", "", "Some organizations that wished to receive funds pursuant to the Leadership Act objected to the act's requirement that they affirmatively adopt a policy opposing prostitution. The organizations argued that they were being required to adopt and espouse the government's message on a topic that was tangential to the purpose of the act. In their view, the requirement to affirmatively speak, as opposed to simply remaining silent on the issue of prostitution and sex trafficking, was a violation of their First Amendment rights and an unconstitutional condition on the receipt of federal funds under the Leadership Act. As a result, this provision had been the subject of two circuit courts of appeal cases analyzing its constitutionality and administration, which appeared to reach opposite conclusions.\nIn the first case, the U.S. Court of Appeals for the District of Columbia upheld the provision against a First Amendment challenge. The D.C. Circuit panel found that the federal government, through the distribution of Leadership Act funds, was essentially using private actors to deliver the government's message. Under Rust v. Sullivan , Congress has wide latitude to take measures ensuring that the agents of the government's message adhered to the government's chosen script. In this case, according to the D.C. Circuit, Congress had provided funds to combat the spread of HIV/AIDS. In Congress's estimation, one of the sources of the spread of this disease was the proliferation of prostitution and sex trafficking abroad. As a result, part of the message Congress wished to convey in its government-funded fight against the spread of the disease was an opposition to prostitution and sex trafficking. The court determined that part of Congress's prerogative in restricting the use of the federal funds was the selection of the agents for the delivery of the government's message. Under this reasoning, it appears that the D.C. Circuit believed that the government was entitled to choose vehicles for its message that explicitly agreed with its message, and could do so without running afoul of the First Amendment.\nIn the second case, the Second Circuit Court of Appeals found that the provision likely did violate the First Amendment, and furthermore found that the guidelines issued by the United States Agency for International Development (USAID) were not sufficient to overcome the provision's constitutional deficiencies. As a result, the appeals court upheld a preliminary injunction against the provision's enforcement. The majority of the panel agreed with the plaintiffs that the funding conditions at issue in the Leadership Act fell \"well beyond what the Supreme Court and [Second Circuit] have upheld as permissible.\" It distinguished the Leadership Act's requirement for the adoption of the policy from previous cases because it did not merely restrict expression, it pushed \"considerably further and mandate[d] that recipients affirmatively say something.\" In the eyes of the majority of the Second Circuit panel, this requirement for affirmative adoption of the government's viewpoint was compelled speech and therefore warranted heightened scrutiny. Applying a heightened scrutiny standard to the provision, a majority of the Second Circuit panel found the policy requirement to be unconstitutional.\nIn part to resolve this apparent circuit split, the Supreme Court agreed to hear the appeal from the Second Circuit's decision.", "After the Second Circuit declined to rehear the case en banc , the Supreme Court granted certiorari, and struck down the policy requirement as a violation of the First Amendment, but under different reasoning from the Second Circuit panel. The Court did not hold, as the Second Circuit did, that the policy requirement must be subjected to heightened scrutiny because it required affirmative speech on the part of grant recipients. Indeed, the Court appeared to make no distinction between compelled and prohibited speech for First Amendment purposes. Instead, the majority applied the existing precedent found in Regan , League of Women Voters , and Rust to hold that the policy requirement violated the First Amendment because \"the condition by its very nature affects 'protected conduct outside the scope of the federally funded program\" in contravention of the holding in Rust .\nThe majority began its opinion, written by Chief Justice Roberts, by outlining the funding conditions for HIV/AIDS outreach in the Leadership Act. Particularly, the Court noted that there are two conditions on the receipt of federal funds under the act: the first prohibited spending any federal dollars to promote prostitution or sex trafficking, and the second required the adoption of the policy opposing prostitution. The Court pointed out that if the requirement that private persons adopt a policy opposing prostitution was directly enforced, rather than a condition on the receipt of federal funds, the requirement would be unconstitutional. However, Congress has more leeway under the Spending Clause to place restrictions, including speech restrictions, on the receipt of federal funds, and the Court reviewed the Leadership Act with that leeway in mind.\nTo frame its opinion, the majority first distilled the relevant cases regarding unconstitutional conditions on the receipt of federal funds including Regan , League of Women Voters , and Rust . The Court pointed out that each decision turned primarily on whether the restriction at issue was cabined to control only the use of federal dollars within a federal program. If the restriction prohibited the use of funds for the delivery of a message within the scope of a federally funded program, each case upheld the restriction as constitutional. In cases in which the government had overreached, the overreach occurred when Congress attempted to regulate speech accomplished with private funds outside the federal program at issue.\nThe Court called the distinction drawn in these cases the difference \"between conditions that define the federal program and those that reach outside it\" and noted that the line between the two is not always clear but it is crossed when the government seeks \"to leverage funding to regulate speech outside the contours of the program itself.\" Turning to the Leadership Act, the majority pointed out that the government conceded that preventing the expenditure of federal funds for the promotion of prostitution, which the act does, ensures that no federal dollars would be used for any prohibited purposes. That provision, which was not challenged in this case, effectively prohibits the use of federal money to promote prostitution or sex trafficking within the federal program created by the Leadership Act. If the restriction on the expenditure of federal funds prevents the use of funds for purposes in contravention to the act, according to the Court, the added requirement for the adoption of the anti-prostitution policy \"must be doing something more—and it is.\" Essentially, the Court found, that the policy requirement forces funding recipients to adopt the government's view as their own on an issue of public concern. \"By requiring recipients to profess a specific belief, the policy requirement goes beyond defining the limits of the federally funded program to defining the recipient,\" and that the government cannot do.\nThe Court went on to hold that the guidelines issued by USAID allowing funding recipients to affiliate with organizations that did not have the required policies were insufficient to save the act from being struck down. The Court explained that it has allowed speech by affiliates of funding recipients to be sufficient where an organization bound by a funding condition was thereby allowed to express its beliefs outside of the scope of the federal program. The Court held that \"[a]ffiliates cannot serve that purpose when the condition is that a funding recipient espouses a specific belief as its own.\" Either the funding recipient is left without any avenue for expressing its true beliefs, or the recipient is forced into evident hypocrisy by espousing the government's policy in one affiliate and its own beliefs in another. In the Court's view, this is a result the First Amendment does not support.\nUnder this decision, it is now clear that speech conditions on the receipt of federal funding are permissible insofar as they define the scope and permissible uses of funding within a federal program, and prevent undermining federal intent in appropriating and distributing the funds. The government runs afoul of this general rule when it attempts to restrict speech outside the federal program or to define the recipient of the funds rather than the program being funded. The Court found that the policy requirement at issue in the Leadership Act committed both of these errors by requiring fund recipients \"to pledge allegiance to the Government's policy of eradicating prostitution.\" For that reason, it violated the First Amendment." ], "depth": [ 0, 1, 1, 1, 1, 2, 2 ], "alignment": [ "h0_title h1_title", "h0_full h1_full", "h0_full", "", "h1_title", "", "h1_full" ] }

{ "question": [ "To what extent can Congress limit its spending to activities it supports?", "What restrictions exist for Congressional conditions on funds?", "What is an \"unconstitutional condition\"?", "What questions does the definition of \"unconstitutional conditions\" raise?", "What what characterized the recent Supreme Court case regarding the Leadership Act?", "What question faced the Court in this case?", "What was the Court's conclusion?", "What implications does this case have for the federal government?" ], "summary": [ "Congress has wide discretion to provide subsidies to activities that it supports without incurring the constitutional obligation to also provide a subsidy to activities that it does not necessarily encourage. However, the power to spend money only on policies that Congress supports is not without limits.", "However, the power to spend money only on policies that Congress supports is not without limits. Congress may not place what have come to be known as \"unconstitutional conditions\" on the receipt of federal funds.", "Which conditions on the receipt of federal funds are and are not constitutional is a longstanding question with somewhat unclear answers, particularly when it comes to conditions placed upon the speech of the recipients of federal funds.", "To what extent may the federal government prevent recipients of federal funds from using that money to communicate a message that may not be supported by the federal government? To what extent may the federal government require fund recipients to espouse a particular point of view as a condition upon the receipt of funds?", "Most recently, the Supreme Court heard a case challenging the constitutionality of a provision of the United States Leadership Against HIV/AIDS, Tuberculosis, and Malaria Act of 2003 (Leadership Act). The relevant provision prohibited the government from making funds available to grant recipients that do not have a policy of opposing prostitution.", "The question facing the Court in this case was whether the Leadership Act's requirement that recipients affirmatively adopt a policy that applied to the entire organization, and not just to the federal funds received, violated the First Amendment.", "The Supreme Court decided that the requirement is unconstitutional and struck it down in an opinion released on June 20, 2013.", "The case makes it clear that, while the government has wide latitude to control the message conveyed with federal dollars within a federal program, the First Amendment prohibits the government from controlling speech outside the federal program." ], "parent_pair_index": [ -1, 0, 1, 1, -1, 0, 0, 0 ], "summary_paragraph_index": [ 2, 2, 2, 2, 3, 3, 3, 3 ] }

{ "title": [ "Background", "Current Housing Situation", "The Mortgage Market", "Delinquency, Default, and Foreclosure", "Options to Avoid Foreclosure", "Responses to the Foreclosure Crisis Have Focused on Loan Modifications and Other Home Retention Options", "Modification Activity Peaked in Early 2010 as More Borrowers Received Payment Reductions", "Servicers Have Also Focused on Loan Modification Programs to Help Address the Foreclosure Crisis", "Refinancing Programs Have Shifted to Reach Borrowers with Little or Negative Equity, but Associated Costs Relative to Participation Raise Questions", "Other Home Retention Efforts Provide Temporary Relief to Borrowers", "Programs that Facilitate Short Sales and Deeds-in- Lieu of Foreclosure Have Been Implemented or Expanded", "Recent Federal and State Enforcement Actions Require Servicers to Assist Struggling Homeowners", "Millions of Loans Face Elevated Risk of Foreclosure and Indicators Show Housing Market Remains Weak", "Foreclosure May Remain High Primarily Due to the Large Number of Delinquent Loans", "Enhancing Current Federal Foreclosure Mitigation Efforts Could Improve Their Effectiveness", "Most but Not All Federal Agencies and the Enterprises Have Increased Efforts to Reach Struggling Borrowers Early in a Delinquency", "FHA, VA, and USDA Have Not Done the Analyses Needed to Minimize Costs and Assess the Effectiveness of their Actions", "Some Evidence Suggests That Principal Forgiveness Could Be an Effective Foreclosure Mitigation Action in Certain Circumstances, but Experience with This Tool Is Limited", "Conclusions", "Recommendations", "Agency Comments and Our Evaluation", "Appendix I: Objectives, Scope, and Methodology", "Appendix III: Description of GAO’s Methodology to Identify Loan Modifications", "Data Source and Preparation", "Development of Algorithms", "Robustness Test", "Appendix IV: Loans with Characteristics Associated with Increased Likelihood of Foreclosure", "Appendix V: Description of GAO’s Econometric Analysis of Redefault of Modified Loans", "Data Used", "TERM CHANGE (months) Borrower and loan characteristics at modification CURRENT, AT MOD", "Variable (unit used) MOD REQUIRES PMI Loan modification start MOD STARTED, 2009Q1", "Borrower and loan characteristics at origination FICO CREDIT SCORE, AT ORIGN", "Variable (unit used) Other: product characteristics", "Comparison of CoreLogic and HAMP Data Sets", "Appendix VI: Comments from the Department of Treasury", "Appendix VII: Comments from the Department of Housing and Urban Development", "Appendix VIII: Comments from the Department of Veterans Affairs", "Appendix IX: Comments from the Federal Housing Finance Agency", "Appendix X: GAO Contact and Staff Acknowledgments", "GAO Contact", "Staff Acknowledgments" ], "paragraphs": [ "", "As we previously reported, factors such as a rapid decline in home prices throughout much of the nation, weak regional labor market conditions in some states where foreclosure rates were already elevated, along with the legacy of eased underwriting standards, wider use of certain loan features associated with poorer loan performance, and growth in the market for private label residential mortgage-backed securities, contributed to the increase in loan defaults and foreclosures beginning in late 2006. The nation’s economy was in recession between December 2007 and June 2009. During this period, the elevated unemployment rate and declining home prices worsened the financial circumstances for many families and, with it, their ability to make their mortgage payments. Analysis by federal agencies, the Federal Reserve System, and housing market observers attribute the continued increase in foreclosures between 2008 and 2011 to several factors, including, continued depreciation in home values, elevated numbers of unemployed nationwide, and weaknesses in the servicing industry’s response to the large number of delinquent borrowers.", "When individuals purchase residential real property with borrowed funds, they usually enter into a contractual agreement in which they agree, among other things, to make payments to the originating lender for a period of time. To secure their debt, lenders obtain a lien on the underlying property as collateral against borrower default. The lien holder has the right to seize the property should the borrower fail to pay. The residential mortgage market can be divided into several loosely defined segments that are determined, in part, by a borrower’s credit quality.\nPrime mortgages are made to borrowers with strong credit histories and provide the most competitive interest rates and mortgage terms.\nNear-prime mortgages (also called Alt-A mortgages) generally serve borrowers whose credit histories are close to prime, but the loans often have one or more high-risk features such as limited documentation of income or assets.\nSubprime mortgages are generally made to borrowers with blemished credit and feature higher interest rates and fees than the prime and near-prime markets.\nGovernment-insured or government-guaranteed mortgages primarily serve borrowers who may have difficulty qualifying for prime mortgages. These mortgages generally feature interest rates competitive with prime loans, but borrowers must purchase mortgage insurance or pay guarantee fees. HUD’s Federal Housing Administration (FHA), VA, and USDA operate the main federal programs that insure or guarantee mortgages, which protect lenders against losses in the event of default.\nOriginating lenders generally sell or assign their mortgages to other financial institutions that securitize them rather than hold them in their portfolios. The purchasers of these mortgages package them into pools and issue securities (known as mortgage-backed securities, or MBS). The pooled mortgages serve as collateral, and the securities pay interest and principal to their investors, which include other financial institutions, pension funds, and other institutional investors. The secondary market consists of several types of securities. Ginnie Mae securities are backed by government-insured or government-guaranteed mortgages (FHA, USDA, and VA). Securities issued by the enterprises are backed by mortgages that meet the requirements for purchase by Fannie Mae and Finally, private label securities—activity levels for which Freddie Mac.have dropped dramatically since 2007—are backed by mortgages that typically do not conform to Fannie Mae or Freddie Mac purchase requirements because they are too large or do not meet their underwriting criteria. Investment banks bundled most subprime and Alt-A loans into private label residential MBS, or RMBS.", "Common measures of loan performance are delinquency, default, and foreclosure rates, which show the percentages of loans that fall into each category. A loan becomes delinquent when a borrower does not make one or more scheduled monthly payments. Loans in default are generally delinquent by 90 or more days—the point at which foreclosure proceedings become a strong possibility.\nForeclosure is a legal process that a mortgage lender initiates against a homeowner who has missed a certain number of payments. The foreclosure process, which is usually governed by state law and varies widely by state, generally falls into one of two categories—judicial foreclosure, which proceeds through the courts, or nonjudicial foreclosure, which does not require court proceedings. The foreclosure process has several possible outcomes but generally means that the homeowner loses the property, typically because it is sold to repay the outstanding debt or repossessed by the lender. The legal fees, foregone interest, property taxes, repayment of former homeowners’ delinquent obligations, and selling expenses can make foreclosure extremely costly to lenders.\nForeclosures have been associated with a number of adverse effects on homeowners, communities, the housing market, and the overall economy. Homeowners involved in a foreclosure are often forced to move out and may see their credit ratings plummet, making it difficult to purchase another home. A large number of foreclosures can have serious consequences for neighborhoods. For example, research has shown that foreclosures depress the values of nearby properties in the local neighborhood. In addition, our past work showed that vacant properties— often the aftermath of the foreclosure process—can be broken into and vandalized, illegally occupied, or used by people engaging in criminal activities, increasing the risk of fires or other public safety hazards. Creditors, investors and servicers can incur a number of costs during the foreclosure process (e.g., maintenance and local taxes) and can incur a net financial loss as a result of the shortfall between the ultimate sales price and the mortgage balance and carrying costs. Large numbers of foreclosures can significantly worsen cities’ fiscal circumstances, both by reducing property tax revenues and by raising costs to local government associated with maintaining vacant and abandoned properties. More broadly, avoiding preventable foreclosures has been viewed as a key component of stabilizing home prices and restoring confidence in housing for prospective home buyers and existing homeowners. As noted by the Federal Reserve System, house prices have fallen an average of about 33 percent from their 2006 peak, resulting in a decline of about $7 trillion in household wealth and an associated ratcheting down of aggregate consumption.", "Options to avoid foreclosure include repayment plans, forbearance plans, loan modifications, short sales, and deeds-in-lieu of foreclosure (DIL). Eligibility for different options often varies by the borrower’s delinquency status. With repayment plans, forbearance plans, and loan modifications, the borrower retains ownership of the property. With short sales and deeds-in-lieu, the borrower does not.\nWith a repayment plan, the borrower agrees to pay a certain amount in addition to the regularly scheduled mortgage payment for a specified number of months as a way to catch up on delinquent payments and fees.\nWith a forbearance plan, an investor agrees to reduce or suspend payments for a specified period of time, during which a portion of the principal balance does not accrue interest. Forbearance may be used in response to a serious event, such as illness, that has caused the homeowner to miss several loan payments. Usually, the investor will require the borrower to make up the difference at a later time, often through a repayment plan.\nThe investor may offer a loan modification when the borrower can no longer afford the monthly payments on the original mortgage but can afford reduced payments. Loan modification involves making temporary or permanent changes to the terms of the existing loan agreement, either by capitalizing the past due amounts, reducing the interest rate, extending the loan term, reducing the total amount of the loan through principal forgiveness or forbearance, or a combination of these actions. sum of the principal, accrued interest, and other expenses owed. Short sales are often the first nonhome retention workout option considered, because the investors do not have to take ownership of the property.\nUnder DIL, the mortgage holder opts to accept ownership of the property in place of the money owed on the mortgage. The homeowner voluntarily gives the investor the keys to the property and executes a deed to transfer title to the investor. The investor agrees to release the debtor from any liability on the outstanding mortgage balance. Mortgage holders generally will not accept a DIL if there are other liens on the property, as foreclosure may be necessary in order to gain clear title—that is, a title with no other claims on the property. A DIL may be combined with a lease agreement in an arrangement called a deed-for-lease, which allows the borrower to remain in the home as a renter.", "Federal and nonfederal responses to the foreclosure crisis have been varied and have included a range of new efforts and expanded use of existing programs. In contrast to the traditional focus of putting borrowers into temporary repayment plans or forbearance agreements, federal and nonfederal foreclosure mitigation efforts have shifted to modifying the terms of existing loans to make the payments more affordable. With the move toward lowering monthly mortgage payments, the collective performance of modified loans has improved. The key federal effort has been HAMP, which was initiated in early 2009 using TARP and enterprise funds. In addition, the enterprises, federal agencies, and servicers have expanded their existing modification programs in an effort to reach additional borrowers. Although not typically viewed as a foreclosure mitigation effort, federal refinancing programs have been introduced and expanded to help borrowers unable to refinance due to declines in home values take advantage of lower interest rates in order to make their mortgage payments more affordable, such as the Home Affordable Refinancing Program (HARP). In addition, federal and nonfederal efforts also looked to provide temporary relief and expand usage of nonhome retention programs that facilitate short sales and deed-in-lieu of foreclosure, such as Treasury’s Home Affordable Foreclosure Alternatives (HAFA) program, to allow borrowers to transition to more affordable housing and avoid foreclosure. Finally, recent federal and state enforcement actions require the five largest U.S. servicers to take actions to assist struggling homeowners. Additional details related to specific federal and nonfederal efforts are available in appendix II.", "In total, servicers completed more than 4 million loan modifications under various federal and proprietary programs between January 2009 and December 2011, according to estimates published by HOPE NOW, a mortgage industry association.in 2009, the mortgage industry permanently modified more loans in 2010, nearly 1.8 million. In 2011, however, the volume of modifications subsequently declined to 1 million. Modification activity peaked in the second quarter of 2010 before declining. In fact, loan modification activity during the second quarter of 2010 was more than double the volume of modifications completed in the fourth quarter of 2011, nearly 500,000 modifications compared to about 242,000.\nAfter completing 1.2 million modifications Over time, servicers have also begun providing borrowers with larger reductions in their monthly mortgage payments by using different types of modifications. Using CoreLogic data—CoreLogic provides coverage of approximately 65 percent to 70 percent of prime loans and about 50 percent of subprime loans—we found that in 2007 most modifications of prime loans and a substantial number of subprime modifications resulted in an increase in monthly mortgage payments, corresponding to the time when most modifications involved capitalizing past due amounts—that is, adding past due amounts to the remaining mortgage balance and reamortizing (see fig. 1).remaining term and sometimes with a term extension), left borrowers paying more each month. However, by the third quarter of 2008, an increasing proportion of modifications involved other actions that lowered payments to make them more sustainable in the long term. These actions included reducing interest rates, extending loan terms, and reducing principal through principal forgiveness or forbearance. Further, beginning in the first quarter of 2010, more than half of both prime and subprime modifications involved payment reductions of 20 percent or more. In addition, in 2010 and the first half of 2011 about a quarter of all prime and subprime modifications included payment reductions of more than 40 percent, compared to 8 percent of prime modifications and 11 percent of subprime modifications completed between January 2007 and December 2009.\nThese added amounts (sometimes over the Servicers participating in HAMP are required to Treasury reported that between its inception in early 2009 and December 2011, about 933,000 permanent HAMP modifications had been started (see table 1), but almost as many have had their trial or permanent modifications canceled. More than half of these—about 481,000—came through the enterprises’ HAMP efforts. About 763,000 permanent modifications were active as of December 2011. In addition, about 79,000 trial (not permanent) modifications were active as of December 2011. According to Treasury, the median monthly payment reduction for borrowers in an active permanent modification as of December 2011 was about $531, or 37 percent of the median monthly payment prior to modification. As of December 2011, Treasury had spent about $1.8 billion on HAMP incentive payments to servicers, investors, and borrowers for first-lien modifications on nonenterprise loans. Meanwhile, Fannie Mae reported paying about $880 million in servicer and borrowers incentives, and Freddie Mac paid or accrued $685 million in servicer and borrower incentives for HAMP modifications since program inception through December 2011. Although HAMP has assisted many borrowers, a large number of borrowers have been unable to receive a HAMP permanent modification. According to Treasury, about 1.9 million borrowers had their HAMP loan modification application denied, as of December 2011. Further, more than 930,000 homeowners have had their trial or permanent loan modifications canceled. Servicers had canceled 761,961 trial modifications, and the vast majority of these (717,390) had trial start dates prior to June 1, 2010, when Treasury implemented a verified income requirement. Since Treasury implemented this requirement, 86 percent of trial modifications have converted to permanent modifications.\nThe enterprises have not received incentive payments from Treasury for PRA or the other components of the Making Home Affordable program, including HAMP. In January 2012, Treasury announced that it would pay PRA incentives to the enterprises for HAMP PRA modifications of enterprise loans; however, as of June 2012, FHFA does not allow Fannie Mae and Freddie Mac to forgive principal as part of a HAMP modification. and exceeds the NPV result under the standard waterfall. As of December 2011, about 5 percent of active permanent HAMP modifications (a total of about 40,000 loans) and 19 percent of permanent first-lien modifications started that month received reductions in their principal balances under PRA. Treasury had paid $8.8 million in PRA incentives to participating servicers as of December 2011.\nTreasury announced a series of changes to its HAMP program in January 2012 intended to help reach additional borrowers at risk of foreclosure. Effective June 1, 2012, these modifications, referred to as HAMP Tier 2 modifications, will be made available to borrowers who do not meet the eligibility or underwriting requirements under the original HAMP guidelines (now referred to as HAMP Tier 1). These HAMP Tier 2 modifications will capitalize past due amounts, adjust the interest rate to the market rate plus a risk adjustment, and extend the loan term to 480 months from the date of the modification. In cases where the mark-to- market loan-to-value (LTV) ratio exceeds 115 percent, the servicer must forbear principal equal to the lesser of (a) an amount that would create a post-modification mark-to-market LTV ratio of 115 percent using the interest bearing principal balance or (b) an amount equal to 30 percent of the gross post-modified unpaid principal balance of the mortgage loan (inclusive of capitalized past due amounts). If these changes reduce the borrower’s monthly principal and interest payment by at least 10 percent and result in monthly payments that are between 25 percent and 42 percent of the borrower’s monthly gross income, the modification may be offered.\nBoth Fannie Mae and Freddie Mac have provided loan modifications outside of the HAMP program for mortgages they hold or guarantee. Servicers of Fannie Mae and Freddie Mac loans may use enterprise programs for borrowers who have been evaluated for HAMP but do not qualify or who received a HAMP modification but have redefaulted. Both of the enterprises delegated authority to their largest servicers to offer modifications according to a standard set of waterfall steps. This modification structure was aimed at making monthly payments more affordable. According to Fannie Mae and Freddie Mac data, non-HAMP modifications resulted in median monthly payment reductions of about 26 percent ($279) and 11 percent ($132), respectively, in fiscal year 2011.\nIn addition, the enterprises offered incentives of $800 per completed modification. Fannie Mae and Freddie Mac modified nearly 580,000 loans between January 2009 and December 2011 through their non-HAMP programs.\nFHFA, which is the regulator and conservator, has direct supervisory authority over Fannie Mae’s and Freddie Mac’s activities. and Freddie Mac made these requirements and servicing practices effective for all loans on October 1, 2011.\nFHA, VA, and USDA offer their own loan modification options for troubled mortgages. which typically involve capitalizing past due amounts and limited interest rate reductions and term extensions—each agency has implemented an expanded modification program with features similar to HAMP. Each of these agencies requires servicers to evaluate borrowers for the established loss mitigation options first before considering them for the newer expanded modification programs. None of these programs use the Treasury NPV model to evaluate whether the loan should be modified, instead relying on servicers to make that determination. In addition, Treasury does not share the cost to investors of modifying loans under these programs, although FHA and USDA servicers and borrowers may be eligible for incentive payments from Treasury.\nSee appendix II for a more detailed description of the various foreclosure mitigation efforts offered by FHA, VA, and USDA. lien is paid in full.resulted in average monthly payment reductions of about 19 percent in fiscal year 2011, compared to reductions of about 11 percent under its standard modification program. FHA completed more than 370,000 standard modifications and 13,000 FHA-HAMP modifications between January 2009 and December 2011.The claims payments to servicers for these modifications totaled $446 million, and the servicer incentives’ totaled $294 million.\nAccording to FHA data, FHA-HAMP modifications In January 2010, VA issued guidelines for VA-HAMP, which will be available until Treasury’s HAMP expires. This program follows Treasury’s HAMP procedures for calculating the target monthly payment and uses the same waterfall (capitalization, interest rate reduction down to 2 percent, term extension, and principal forbearance) to achieve the necessary payment reduction to reach the targeted monthly payment (31 percent of income). Servicers completed about 30,000 modifications of VA loans between January 2009 and December 2011. The incentives for servicers associated with these modifications totaled about $15 million in costs to VA.\nIn August 2010, USDA published a final rule outlining procedures for special loan servicing (SLS). SLS procedures are a permanent part of USDA’s loss mitigation efforts. These procedures expand its modification efforts by allowing for term extensions of up to 40 years from the date of modification (compared to the remaining term under the traditional modification program), further interest rate reductions, and if necessary, a mortgage recovery advance to cover past due amounts and other costs, such as canceled foreclosure fees. In addition, forborne principal may be included in this advance. USDA reimburses the servicer for advancing the funds for the mortgage recovery advance, which is payable when the borrower sells the property or pays off the loan (similar to FHA-HAMP). USDA approved servicing plans for nearly 13,000 traditional modifications and 143 SLS modifications between January 2009 and December 2011. USDA does not offer servicers incentives for modifying loans. According to USDA’s guidance, servicers are required to use the following waterfall in considering a loss mitigation action: repayment agreement, special forbearance, loan modification, SLS loan modification, preforeclosure sale (short sale) or deed-in-lieu of foreclosure.\nAlthough Treasury does not share the cost of modifying loans with investors under FHA-HAMP and USDA’s SLS, it has put in place performance incentives that reward participating servicers and borrowers for certain modifications that remain current under these programs. Servicers must have entered into agreements with Treasury to participate in these incentive programs. According to Treasury, it offered VA the opportunity for its servicers and borrowers to receive incentive payments under MHA. However, VA officials told us that implementing this feature increased the complexity of its loan modification program and VA was concerned that veterans may be denied modifications. As a result, VA decided to issue its guidelines for VA-HAMP without the additional incentives. As of December 2011, Treasury had paid $5 million in servicer and borrower incentives using TARP funds for FHA-HAMP modifications that remained current, but had not made any incentive payments for USDA SLS modifications.\nTreasury’s Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (known as the Hardest Hit Fund or HHF program) has committed $7.6 billion of TARP funding to 18 states and the District of Columbia for programs such as loan modification programs, among other things, to meet the distinct challenges struggling homeowners in their state are facing. For example, California devoted more than $770 million for reducing principal balances for low-to-moderate income borrowers with current LTV ratios greater than 115 percent. Arizona, Michigan, Nevada, North Carolina, Ohio, and Rhode Island are among the states with modification programs that include principal reduction.", "To estimate the total number of permanent loan modifications through servicers’ proprietary efforts, we subtracted the modifications completed under federal agencies and the enterprises (as reported by the federal agencies and the enterprises) from the total modifications estimated by HOPE NOW. Between January 2009 and December 2011, HOPE NOW estimated there were about 4 million permanent modifications. The HOPE NOW estimates are from a survey of HOPE NOW members, which include approximately 37 million loans and which have been extrapolated to the entire first-lien industry. HOPE NOW reports data on HAMP modifications and “proprietary modifications.” According to a HOPE NOW official, proprietary modifications in their survey include modifications completed through the enterprises, other federal efforts, as well as modifications completed on loans held in lenders’ portfolios or in private label securities. monthly mortgage payments to be at least 31 percent of their income prior to modification, some servicers have a lower threshold for their proprietary programs. As a result, proprietary loan modification programs may reach homeowners who are ineligible for HAMP and other federal programs.", "Refinancing a mortgage is not typically viewed as an action to mitigate a foreclosure, although it can reduce borrowers’ monthly mortgage payments and thereby result in more sustainable mortgage loans. A number of federal and nonfederal programs are in place to help homeowners who are current on their mortgages but cannot refinance because of declining home values. Generally, these programs offer refinancing options that include accepting higher LTV ratios than have typically been allowed and lowering refinancing costs.\nThe primary federal refinance effort has been the Home Affordable Refinance Program (HARP). It was announced alongside HAMP in February 2009 as a way to provide for borrowers who were current on their mortgage payments but unable to refinance because the declines in home values had left them with little or no equity in their homes. HARP was intended to allow these borrowers to benefit from reduced interest rates in order to make their mortgage payments more affordable. Only mortgages owned or guaranteed by Fannie Mae and Freddie Mac are eligible. Initially, HARP targeted borrowers with current LTV ratios between 80 percent and 105 percent, but FHFA revised those requirements to include borrowers with current LTV ratios up to 125 percent in July 2009. The standard mortgage insurance requirements for these refinance loans were relaxed so that borrowers who did not have mortgage insurance on their existing loan did not have to purchase it for their refinanced loan, something that would typically be required for a loan with an LTV ratio of more than 80 percent. HARP has resulted in approximately 1 million refinances as of December 31, 2011.Approximately 91 percent of HARP refinances have gone to borrowers with current LTV ratios between 80 percent and 105 percent. According to Fannie Mae, borrowers who refinanced in 2011 under its HARP effort saved an average of $151 on their monthly mortgage payments.Fannie Mae and Freddie Mac expected that the program would have minimal net costs to them.\nTo respond to continued weakness in the housing market, including the large number of borrowers with negative equity, FHFA announced changes to HARP in October 2011. These changes included removing the LTV cap to reach more underwater borrowers—those with current LTVs of more than 125 percent. Delivery fees the enterprises charged to lenders and that may be passed on to the borrower were also reduced. In addition, the enterprises eliminated representations and warranties tied to the original loan. FHFA also extended the program’s expiration date to December 31, 2013.\nWhile HARP is available only to borrowers with loans owned or guaranteed by Fannie Mae or Freddie Mac, several other refinance efforts were put in place to reach other borrowers. For example, Treasury worked in conjunction with FHA to establish the FHA Refinance for Borrowers in Negative Equity Positions (FHA Short Refinance), which is This program took effect in partially supported using TARP funds. September 2010 and provides an opportunity to borrowers who are current on their mortgage payments and have loans not insured by FHA with current LTV ratios greater than 100 percent to refinance into an FHA- insured mortgage. In order to qualify, investors must write down at least 10 percent of the outstanding principal and achieve an LTV ratio of no more than 97.75 percent.\nThrough December 2011, FHA Short Refinance has had limited success, reaching 646 borrowers. During the subsequent 5 months, however, program volume doubled to 1,303 loans. Although no borrowers who have refinanced under the program had defaulted as of December 31, 2011, Treasury had paid approximately $5.5 million in administrative fees to maintain an $8 billion letter of credit facility that will be used to pay Treasury’s portion of claims on losses associated with loans refinanced under the program. The letter of credit is expected to be in force through September 2020—approximately 8 more years—and the administrative fees associated with this letter of credit could reach a maximum of $117 million. However, participation in the program was initially estimated at 1 million borrowers, and even with FHA’s recently announced changes to the program, whether participation will reach the levels initially projected is not clear. With participation to date much lower than expected and future participation unknown, the costs to Treasury of maintaining the letter of credit facility may not be justified. As noted in our Standards for Internal Control in the Federal Government, program managers are responsible for achieving objectives of the agency while making effective and efficient use of the entity’s resources.\nFederal agencies and the enterprises have other existing refinance programs, and although the aim of these programs is not necessarily to provide relief to struggling borrowers, some have features that lend themselves to being used by such borrowers. For example, an FHA streamlined refinance without an appraisal may help existing borrowers with negative equity that are current on their mortgage but struggling to make their mortgage payments because it allows lenders to refinance the entire outstanding principal balance. VA’s Interest Rate Reduction Refinancing Loan requires no appraisal or credit underwriting, and borrowers may qualify with VA approval even if they are delinquent.\nUnder the HHF program, several states are using funding for refinance programs that help borrowers with negative equity or second mortgages. For example, Ohio set aside $50 million to help borrowers refinance into mortgages with a reduced principal balance and lower monthly payments. Servicers receive up to $25,000 per borrower for each refinance. North Carolina has a program that would provide interest-free loans of up to $30,000 to refinance certain second mortgages.", "Not all borrowers in financial distress need the terms of their mortgages changed (loan modification) or a new mortgage (refinance). Short-term relief may be sufficient for some borrowers to relieve a temporary shortfall in funds. Treasury’s Home Affordable Unemployment Program (UP) provides assistance to borrowers whose hardship is related to unemployment. A borrower who is unemployed and requests assistance under HAMP (nonenterprise program only) must be evaluated for and, if qualified, must receive an UP forbearance plan before being considered for HAMP unless the servicer determines that a HAMP modification is the better alternative for the borrower. No TARP funds are used to support the UP program. Under UP, servicers must provide qualified borrowers with a forbearance period during which their mortgage payments are temporarily reduced or suspended for a minimum of 12 months. Upon completion of the forbearance period, borrowers must be evaluated for other loan workout programs. UP has resulted in nearly 18,000 forbearance agreements.\nOther federal agencies and the enterprises also have existing programs to provide temporary relief to borrowers. These programs may be formal or informal and typically take the form of forbearance agreements and repayment plans. FHA and USDA encourage servicers to use these options informally early in the delinquency to prevent borrowers from ever becoming 90 days delinquent. Fannie Mae and Freddie Mac reported that about 257,000 repayment plans and forbearance agreements had been completed under their existing programs since January 2009. FHA servicers provided repayment plans to about 440,000 borrowers and special forbearance agreements to about 67,000 borrowers. In addition, servicers may advance funds to bring loans current, and FHA paid partial claims totaling $415 million to servicers to reimburse them for almost 47,000 such advances. Servicers reported that successful repayment plans and special forbearance agreements reached about 28,000 VA borrowers, while USDA approved special forbearance servicing plans for more than 5,000 borrowers. FHA extended the minimum term of its special forbearance program for unemployed borrowers from 4 months to 12 months, effective August 2011. In January 2012, Freddie Mac and Fannie Mae announced changes to the forbearance options servicers can offer to unemployed borrowers, which increase the minimum forbearance period to 6 months, extendable for up to an additional 6 months if the borrower is still unemployed.\nTwo recently established programs use federal funds to provide temporary relief to borrowers but are administered at the state level. Under HHF, several states have established programs to provide ongoing mortgage payment assistance to qualified borrowers who are unemployed or underemployed. Other programs provide one-time loans to qualified borrowers to resolve their delinquencies, which may be forgiven after a period of time (e.g., 3 years for California’s program). The Emergency Homeowners Loan Program (EHLP) was authorized under the Dodd-Frank Wall Street Reform and Consumer Protection Act, allowing HUD to provide short-term loans to unemployed borrowers to help meet their mortgage obligations in the 32 states and Puerto Rico that did not receive Hardest Hit Fund dollars. The program was designed to provide mortgage payment relief (up to $50,000 total) to eligible homeowners experiencing a drop in income of at least 15 percent to cover past-due mortgage payments as well as a portion of the homeowner’s mortgage payment for up to 24 months. HUD permitted five states with similar programs already in place—Connecticut, Delaware, Idaho, Maryland, and Pennsylvania—to direct their EHLP allocations to these programs. NeighborWorks America, a federally chartered nonprofit organization, administers EHLP for the remaining 27 states and Puerto Rico. Applications for funds under EHLP were due in September 2011. HUD reported that, as of September 30, 2011, slightly more than half of the $1 billion allocated to the program had been obligated. As of December 27, 2011, more than 5,500 EHLP loans had been closed and nearly 6,000 EHLP loans were in the process of being closed.", "When borrowers cannot afford to keep a property even with the assistance that a modification or temporary relief program would provide, they may seek alternatives that will allow them to transition to more affordable housing and avoid foreclosure. These alternatives are generally less expensive than going through the foreclosure process and often take less time. Treasury implemented the Home Affordable Foreclosure Alternatives (HAFA) program, which provides incentives for short sales and deeds-in-lieu of foreclosure as alternatives to foreclosure for borrowers who are unable or unwilling to complete the HAMP first-lien modification process. Borrowers, tenants, and certain other non-borrower occupants are eligible for relocation assistance of $3,000 and nonenterprise servicers receive a $1,500 incentive for completing a short sale or deed-in-lieu of foreclosure. In addition, investors are paid up to $2,000 for allowing short-sale proceeds to be distributed to holders of subordinate mortgages on the property. Servicers who participate in the HAMP first-lien modification program are required to evaluate certain borrowers for HAFA, including those who do not pass the NPV test or who default on a HAMP modification. Deed-for-lease agreements, where the borrower is allowed to rent the property after giving up ownership of the property, are permitted but not required under HAFA. Treasury has provided about $100 million in HAFA incentive payments for approximately 26,000 short sales and deeds-in-lieu as of December 2011.\nExisting programs at the enterprises, FHA, VA, and USDA provide opportunities beyond HAFA for short sales and deeds-in-lieu. These programs are typically the final options for avoiding foreclosure. Fannie Mae and Freddie Mac reported completing almost 300,000 short sales and deeds-in-lieu since January 2009, of which only about 1,600 were HAFA transactions. FHA paid claims on more than 55,000 short sales and 3,000 deeds-in-lieu between January 2009 and December 2011. During the same period, servicers completed about 13,000 short sales and about 2,000 deeds-in-lieu on VA loans, while USDA approved almost 3,400 short sales and about 230 deeds-in-lieu.\nIn some cases, state programs funded under Treasury’s HHF program include foreclosure alternatives and transition assistance for borrowers who cannot afford to keep their homes. For example, California and Rhode Island have programs to provide borrowers who are losing their homes through short sales or deeds-in-lieu with funds to secure new housing.", "In April 2011, OCC, the Federal Reserve, and the Office of Thrift Supervision (now part of OCC) sent consent orders to 14 servicers outlining changes they needed to make to their servicing processes to provide better service to borrowers.establishing compliance programs for their loss mitigation and loan modification activities and dedicating resources to communicating with These changes included borrowers in ways that avoid confusion and provide continuity (e.g., through providing a single point of contact).\nA recent joint federal government and state attorneys general agreement with the five largest servicers in the United States requires these servicers to provide financial relief to homeowners struggling to make their mortgage payments and implement new mortgage loan servicing standards.investigation looking at alleged misconduct related to the origination and servicing of single family residential mortgages. The settlement requires the servicers to collectively dedicate $20 billion toward various forms of financial relief to homeowners, including: reducing the principal on loans for borrowers who are delinquent or at imminent risk of default and owe more on their mortgages than their homes are worth; refinancing loans for borrowers who are current on their mortgages but who owe more on their mortgage than their homes are worth; forbearance of principal for unemployed borrowers; antiblight provisions; short sales; transitional assistance; and benefits for service members. These servicers are required to pay an additional $5 billion in cash to the federal and state governments, which will be used to repay public funds lost as a result of servicer misconduct and to fund housing counseling, among other things. In addition to the financial commitment, servicers must implement new standards for servicing mortgages and handling foreclosures, and take The settlement was the result of a federal and state steps to better ensure information provided in federal bankruptcy court is accurate.", "Based on our analysis of CoreLogic data that cover approximately 65 percent to 70 percent of the prime and approximately 50 percent of the subprime mortgage market, we found that as of June 2011, 1.9-3.0 million loans had characteristics associated with an increased likelihood of foreclosure, including delinquency and significant negative equity (current LTV ratios of 125 percent or higher). As our data do not cover the whole mortgage market, the actual number of loans with an increased likelihood of foreclosure is probably larger.Banker Association (MBA) data, as of June 2011, approximately 4 million For example, according to Mortgage loans had been delinquent for 60 days or more.housing market conditions—including default and foreclosures—show that the housing market remained weak through 2011. Approximately 8 percent of loans were in default 90 days or more or in foreclosure as of the end of 2011, according to MBA data. Other key housing market indicators, such as home prices and home equity, remained near their recent lows.", "Based on our analysis of CoreLogic data, we found that 1.9-3.0 million loans—1.6-2.6 million prime (7 to 11 percent) and between 312,000- 449,000 subprime loans (38 to 55 percent)—had characteristics that were associated with an increased likelihood of foreclosure, as of June 2011.For example, we considered loans where the borrower had missed two or more payments—that is, had been delinquent 60 days or more—to be at an increased risk of foreclosure. As of June 2011, approximately 1.6 million prime loans (7 percent) and 312,000 subprime loans (38 percent) were 60 days or more delinquent (see fig. 4). In addition to those loans that were 60 days or more delinquent, we identified other characteristics that were associated with an increased likelihood of foreclosure, such as certain levels of negative equity (owing more on a mortgage loan than the property is worth), high mortgage interest rate, or certain loan origination features. As of June 2011, approximately 1 million additional prime (5 percent) and 136,000 additional subprime loans (17 percent) were current or less than 60 days delinquent but had two or more of these additional characteristics.\nThe number of borrowers with characteristics associated with an increased likelihood of foreclosure remained largely unchanged between June 2009 and 2011 for prime loans while the number of subprime loans declined (see fig. 4). Among prime loans, the total number of loans with delinquency or two or more other characteristics associated with an increased likelihood of foreclosure decreased by less than 1 percent between June 2009 and 2011. In contrast, during the same period the total number of subprime loans with characteristics associated with an increased likelihood of foreclosure decreased by approximately 30 percent. However, this decline is in part a result of the decreasing overall number of surviving subprime loans between June 2009 and 2011.\nNot all borrowers with characteristics associated with an increased likelihood of foreclosure will require foreclosure mitigation assistance or respond to offers of assistance. Our analysis of CoreLogic data and officials with the enterprises and a federal agency revealed that some borrowers with characteristics associated with an increased likelihood of foreclosure continue to pay on time or, if they are delinquent, become current without intervention. Also, according to FHA and Treasury officials, some borrowers do not answer servicers’ outreach efforts to provide foreclosure mitigation assistance.\nAppendix IV provides additional data on the results of our analysis for each of the characteristics. likely to be Fannie Mae or Freddie Mac loans and more likely to be held in portfolio or private label securities than the overall population of prime loans. We were unable to analyze the investors associated with subprime loans because the loan-level data for this segment of the market do not contain reliable information about the loan’s investor.\nNegative Equity: Negative equity is also associated with an increased likelihood of foreclosure, particularly when the loan is delinquent or has other characteristics associated with an increased likelihood of foreclosure. Within the data we analyzed, a total of 1.2 million prime (5 percent) and 157,000 subprime loans (19 percent) in June 2011 had significant negative equity (a current LTV ratio of 125 percent or greater) and additional characteristics associated with an increased likelihood of foreclosure, including delinquency. Among loans with significant negative equity, more than one-third of prime loans (420,000) and more than half of subprime loans (93,000) were 60 days or more delinquent in June 2011. For those borrowers with limited ability to sell or refinance a home for a price that will cover the full mortgage, missed payments increase the likelihood of foreclosure.\nNegative Equity and Unemployment: As we have previously reported, housing market stakeholders have suggested a relationship between unemployment and negative equity and the increased likelihood of foreclosure. Borrowers who are unemployed and have significant negative equity in their homes are unlikely to be able to sell them at a price high enough to cover the mortgage and move elsewhere to seek work. In June 2011, approximately 67 percent of prime and subprime loans we analyzed with negative equity were located in areas with high local unemployment (10 percent or greater).\nMortgage Interest Rate: Borrowers with a high mortgage interest rate—150 basis points or 1.5 percentage points or higher above the market rate—have an increased likelihood of foreclosure as the high interest rate results in relatively higher monthly payments and may indicate other problems that have limited a borrower’s ability to refinance. 1 million prime (5 percent) and 230,000 subprime loans (83 percent) had a high mortgage interest rate and additional characteristics that are associated with an increased likelihood of foreclosure, such as delinquency. Of loans with a high mortgage interest rate and additional characteristics, 40 percent of prime and 29 percent of subprime loans had significant negative equity (LTV of 125 percent or greater). Researchers have found that borrowers with significant negative equity have a limited ability to refinance to lower interest rates and lower monthly payments as a result of tightened underwriting standards that require low LTV ratios.\nGAO, Nonprime Mortgages: Analysis of Loan Performance, Factors Associated with Defaults, and Data Sources, GAO-10-805 (Washington, D.C.: Aug. 24, 2010). See also Demyanyk, Koijen, and Van Hemert, “Determinants and Consequences of Mortgage Default” pg. 16 and Shane M. Sherlund, “The Past, Present, and Future of Subprime Mortgages,” Federal Reserve Board Finance and Economics Discussion Series, no. 2008- 63 (Washington, DC.: Nov. 2008)\nOrigination Loan Features: We have previously reported on the strong association between certain loan origination features— including low credit score and high LTV at the time of origination—and an increased likelihood of foreclosure. As of June 2011, of the loans we analyzed, approximately 899,000 prime (4 percent) and 314,000 subprime loans (65 percent) had a combination of certain loan origination features (credit score of 619 or below or LTV of 100 percent or higher) and other characteristics associated with an increased likelihood of foreclosure, including delinquency. Of loans with these certain origination features, approximately 16 percent of prime (407,000 loans) and almost half of subprime loans (201,000) were delinquent 60 days or more.\nFlorida and Nevada were among the states with the largest percentage of loans (prime and subprime loans combined) with an increased likelihood of foreclosure (see fig. 5). Of the loans we analyzed in June 2011, as many as 40 percent of loans in Nevada and 29 percent of loans in Florida had characteristics associated with an increased likelihood of foreclosure. California had a lower proportion of loans with characteristics associated with an increased likelihood of foreclosure compared to six other states— Arizona, Florida, Illinois, Michigan, Nevada, and Rhode Island. But California had the largest number of loans with these characteristics. In addition, several states—Arizona, California, Florida, Michigan, and Nevada—had relatively large proportions of loans within the CoreLogic data set with significant negative equity and additional characteristics, including delinquency, associated with an increased likelihood of foreclosure. In particular, over 10 percent of loans in Nevada and approximately 10 percent of loans in Florida had significant negative equity and were delinquent 60 days or more.\nThe number of seriously delinquent loans—those in default 90 days or more or in foreclosure—remained high in December 2011. According to MBA data, approximately 8 percent of loans were seriously delinquent nationwide, a fourfold increase compared with the number of such loans in June 2006, near the beginning of the current housing crisis. In comparison, during the prior 5 years from 2000 through 2005, approximately 2 percent of loans were seriously delinquent—substantially fewer than the current number. Continued high levels of serious delinquencies suggest that the volume of future foreclosures will likely remain high as these troubled mortgages are resolved.\nSerious delinquency data covers both loans that have entered but not We completed foreclosure and loans in default for 90 days or more.found that the number of loans in foreclosure in December 2011 was slightly below the peak levels in March and December 2010 but remained elevated with approximately 4 percent of loans in foreclosure (see fig. 6). Similarly, the volume of loans in default in December 2011 experienced a drop below their peak levels, with less than 4 percent of loans in default in comparison to about 5 percent in December 2009. Further, the volume of loans in default and in foreclosure during the most recent recessionary period have been extraordinarily high compared to the previous two recessions.\nIn addition to the high volume of loans in foreclosure and default in December 2011, other key national indicators of the housing market, such as home prices, home equity, and unemployment, suggest that the housing market has not yet begun to recover. Decreases in home prices have played a central role in the current crisis and continue to be well below their peak nationwide. According to CoreLogic’s Home Price Index, as of June 2011 home prices across the country had fallen 32 percent from their peak in April 2006 (see fig. 7). The decrease follows a 10-year period of significant home price growth, with the index more than doubling between April 1996 and 2006. During periods in 2009 and 2010, home prices showed some slight improvement, but in early 2011 home prices fell again and reached their lowest level since 2002. Home prices rose slightly in June 2011 but remained well below the 2006 levels.\nHome values have declined faster than home mortgage debt. As a result, homeowners have lost substantial equity in their homes. As of December 2011, national home equity (the difference between aggregate home value and mortgage debt owned by homeowners) was approximately $3.7 trillion less than total home mortgage debt (see fig. 8). In part because of the decline in home prices, households collectively lost approximately $9.1 trillion (in 2011 constant dollars) in home equity between 2005 and 2011. In contrast, aggregate home mortgage debt—a measure of the value of household-owned real estate debt—continued to increase by an additional $1.2 trillion between 2005 and 2007, reflecting the continued looseness of the credit markets early in the crisis as mortgage originations to low-credit quality borrowers continued to expand. Home mortgage debt has fallen slightly from its highest point in 2007 to approximately $10 trillion in 2011—a development that a study by the Federal Reserve Bank of New York attributed to consumers paying down debt and lenders’ tightened lending standards.2007, steep declines in house values left the nation’s homeowners, for the first time since the data were kept in 1945, holding home mortgage debt that surpassed the equity in their homes.\nStudies of housing market conditions we reviewed and some agency officials with whom we spoke identified the current sustained high unemployment rate as a key factor in the housing market’s continued poor performance. The unemployment rate more than doubled between April 2006—the peak period of home price increases when it stood at 4.7 percent—and October 2009, when it reached its highest level since 1984 of 10.1 percent. Although the rate had declined to less than 9 percent at the end of 2011, it has remained above 8 percent since February 2009— the longest sustained period at this level since 1948. In addition, the gap between the standard unemployment measure and a more comprehensive measure that includes underemployed and discouraged workers grew significantly between April 2006 and December 2011.This increase suggests that a growing number of workers have been employed below their capacity, a development that may result in their being unable to meet future mortgage obligations and will further contribute to reduced housing demand, additional foreclosures, and falling home prices.\nIn contrast to other indicators of the housing market we analyzed, home affordability was at record-high levels at the end of 2011, reflecting the decline in home prices and historically low interest rates. Based on our review of economic data, home affordability appeared to have increased 72 percent between March 2006 and December 2011. Improved home affordability may encourage new buyers to purchase homes and thus increase demand for housing and provide support for home values. However, according to the Federal Reserve and Joint Center for Housing Studies at Harvard University, many potential homebuyers have been reluctant or unable to purchase a home due to fear of further home price declines, uncertain income prospects, and difficulties obtaining mortgage credit. Further according to Census data on household growth, average annual household growth from 2008 through 2011 was less than half that of 2000 through 2007; although the most recent data indicate an increase in household formation in 2011 compared to growth in 2008 through 2010.", "Most stakeholders we contacted said that enhancing existing federal foreclosure mitigation efforts was the most appropriate action to take to facilitate the recovery of the housing market, and we found that opportunities existed for federal agencies to improve the effectiveness of their efforts. Our analysis of available data indicated that a large number of struggling homeowners could be eligible for federal foreclosure mitigation programs and a large number with FHA insured or enterprise- backed loans are at an increased risk for foreclosure because of their delinquency status. As the following examples illustrate.\nTreasury estimated that as of December 31, 2011, about 900,000 borrowers could be eligible for its HAMP modification program. This number included loans that were 60 days or more delinquent and were serviced by participating HAMP servicers that appeared to meet the program’s eligibility requirements.\nFannie Mae and Freddie Mac collectively had about 1.1 million loans that were seriously delinquent as of the quarter ending on December 31, 2011.\nFHA reported that about 711,000 of its loans were seriously delinquent for the month of December 2011. Furthermore, between March 2010 and June 2011 FHA’s serious delinquency rate ranged between 8.2 and 8.8 percent but between June and December 2011, it climbed about 1.4 percentage points to 9.5 percent.\nAlthough federal agencies and the enterprises have taken steps to help ensure that servicers reached struggling borrowers, not all agencies were conducting the necessary analyses to determine which of their foreclosure mitigation actions were most effective. Specifically, we found that not all federal agencies consider current data on redefault rates and evaluate the total costs of various loan modification actions to weigh the tradeoffs between assisting borrowers to retain their homes and protecting taxpayers’ financial interests. As a result, agencies may not be making the best use of foreclosure mitigation funds. Additionally, not all federal agencies analyze loan and borrower characteristics that could influence the success of these actions. Doing so would help in determining which actions would be most successful both in aiding homeowners and in containing costs. We also found some evidence to suggest that principal forgiveness as a mitigation tool could help some borrowers—those with significant negative equity—but that federal agencies and the enterprises were not using it consistently and some were not convinced of its overall merits. Moreover, there are other policy issues to be considered when determining how widely this option should be used, including moral hazard (borrowers strategically defaulting to become eligible for assistance).\nStakeholders provided us with a variety of reasons for not introducing new federal programs at this time. Specifically, most stakeholders said that introducing entirely new initiatives at this stage could be counterproductive. Such initiatives, they said, would create additional uncertainty in the market and could further delay a recovery because of the time and costs that would be involved in implementing them. Further, some stakeholders noted that support for new initiatives that required additional federal funding would be difficult to implement in the current budgetary environment. Stakeholders also said that not all borrowers who were at risk of foreclosure would be able to avoid foreclosure through any action and that some borrowers might not be interested in doing so. For example, Treasury officials said that some underwater borrowers could have already decided that foreclosure was in their best economic interest and may not want or seek assistance. Finally, some industry observers have argued that foreclosure mitigation efforts hinder the housing market’s recovery by simply delaying unavoidable foreclosures.", "All of the federal agencies—Treasury, FHA, VA, and USDA—as well as the enterprises have policies in place for servicers to follow once a borrower becomes delinquent. These policies are consistent with the results of our econometric analysis of CoreLogic and HAMP data that found that reaching borrowers early on, when they had missed fewer payments, resulted in more successful loan modifications. For instance, the redefault rate for loans that were delinquent less than 60 days at the time of modification was 9 percent, but the redefault rates for loans that were delinquent 90 days or more was 17 percent. The rate was even higher for those already in foreclosure—19 percent. In general, the agencies and the enterprises require servicers to make contact with delinquent borrowers, identify the reason for the delinquency, and provide borrowers information on available options to help them resolve the delinquency. However, Treasury and FHA officials said that servicers were unable to reach many borrowers, which may hinder efforts to provide foreclosure mitigation actions. For example, servicers have reported to FHA that about 13 percent of the delinquent borrowers they attempt to contact do not respond. As a result, with the exception of USDA, these agencies and the enterprises have taken a number of steps to reach more borrowers and monitor servicers’ ability to reach struggling borrowers.\nIn 2010, Treasury began airing nationwide public service announcements and conducting homeowner events across the country in order to raise the profile of its foreclosure mitigation programs and help struggling homeowners contact their servicers. Based upon the results from on-site and remote compliance reviews, Treasury began to rate the largest servicers’ procedures and controls for reaching out to delinquent borrowers as part of its MHA Servicer Assessments.eligible borrowers were contributing factors to Treasury’s decision to withhold servicer incentive payments from certain servicers.\nIssues related to identifying and contacting potentially\nFHA requires servicers to report monthly on delinquent borrowers, including the extent of the delinquency and the most recent action the servicer has taken. In 2011, FHA piloted a scorecard designed to comprehensively evaluate servicers’ loss mitigation activity, including their compliance with servicing guidelines and regulations. Further, FHA has been identifying best practices for reaching borrowers. For example, one servicer reported having increased success contacting borrowers earlier in a delinquency using text messages and email instead of telephone calls and letters, and FHA has shared this practice with other servicers.\nIn 2011, Fannie Mae and Freddie Mac revised the procedures servicers must follow when contacting borrowers to help ensure that all those eligible know about the options that may be available to them. The enterprises have also developed a performance metric to track servicers’ compliance with these requirements. Further, they recently implemented changes to HARP program requirements by eliminating the maximum LTV ratio and allowing servicers to solicit borrowers who may be eligible for the program. In addition, the enterprises have required servicers to report monthly on delinquent borrowers, including on the extent of the delinquency and the most recent action the servicer has taken.\nVA assigns a staff member to each case after a borrower becomes 60 days delinquent to monitor the servicer’s efforts and provide assistance to the borrower. The VA staff member performs an “adequacy of servicing” review if the delinquency is not resolved before the borrower becomes 120 days past due on the loan. If servicing is found to be adequate at that point, VA will continue to perform these reviews every 90 days until the delinquency is resolved. If the VA staff member determines that the servicer has not taken adequate steps to reach and assist the borrower, the VA staff member will try to contact the borrower directly and then may work with the servicer to identify the best foreclosure mitigation action.\nIn contrast, USDA does not require servicers to report information about their efforts to reach borrowers, and its systems are not set up to determine whether servicers are complying with USDA’s requirements. For example, servicers report monthly on loans that are at least 30 days delinquent, but USDA does not require servicers to report on efforts to contact the borrower early in the delinquency or on the extent to which they have offered informal foreclosure mitigation options. Once a loan is 90 days delinquent, servicers must submit servicing plans to USDA that outline recommended foreclosure mitigation actions, which USDA has to approve. But if a servicer determines that no foreclosure mitigation actions are appropriate, it does not need to submit a servicing plan. According to USDA officials, they would not have information on the servicer’s efforts to reach the borrower or offers of informal actions and may not become aware of the servicer’s decision not to offer a formal foreclosure mitigation action until after the loan goes into foreclosure and the servicer files a claim. USDA officials said that they review each loss claim to determine whether the servicer followed requirements for evaluating the borrower for foreclosure mitigation options. However, the absence of comprehensive and timely information limits USDA’s ability to assess and identify opportunities to improve servicers’ efforts to reach struggling borrowers and prevent foreclosures.\nThe enterprises and Treasury have adopted additional changes to policies and procedures with the goal of expanding the reach of existing programs to additional borrowers. The enterprises’ standard modification programs, which were announced in mid-2011 under FHFA’s Servicer Alignment Initiative, are intended to help ensure that borrowers who do not qualify for HAMP Tier 1 modifications are treated consistently at the next step in the evaluation process. Before these programs were put in place, terms of non-HAMP modifications varied among the enterprises and were set independently by Fannie Mae or Freddie Mac. Treasury’s recently announced HAMP Tier 2 modification largely aligns with the enterprises’ standard loan modification and is intended to expand HAMP to a larger pool of potentially eligible borrowers. This change provides servicers and borrowers with consistency across programs, regardless of the investor (i.e., Fannie Mae or Freddie Mac, private-label security owner, private lender). Further, this change could simplify servicers’ operations, improve their efficiency, and enhance their capacity, all of which have been long-standing concerns.", "Treasury and the enterprises incorporate analysis of long-term costs into their loss mitigation program design and management through redefault models and analysis, but the other agencies do not. The models that Treasury and the enterprises use incorporate data on the likelihood of redefault for different loan and borrower characteristics and are tailored to their particular pools of borrowers and costs. Specifically, the models incorporate data on redefault rates that are associated with loan and borrower characteristics, such as borrower income and expenses, delinquency status, current LTV, borrower credit score, and size of monthly payment reduction. Treasury and the enterprises use the results from these analyses to determine the eligibility requirements and loan modification terms for their loan modification programs. As part of this analysis, Treasury and the enterprises analyze redefault rates—one of the most common measures of the effectiveness of foreclosure mitigation efforts—for various types of foreclosure mitigation actions. According to Fannie Mae and Freddie Mac officials, recent changes to their non-HAMP loan modification programs—particularly the introduction of a trial period plan—resulted from analysis of differences in redefault rates and the size of monthly payment reduction between their various loan modification actions.\nOur own analysis of the performance of loans identified certain loan and borrower characteristics that reduce the likelihood of redefault. When controlling for observable borrower and loan characteristics, our analysis of CoreLogic data found that greater reductions in monthly mortgage payments reduced the 6-month redefault rate (see fig. 9).that reducing monthly mortgage payments by 40 to 49 percent resulted in the lowest 6-month redefault rates. Specifically, loans with monthly payment reductions of 40 to 49 percent had redefault rates of 12 percent—as compared to a redefault rate of 20 percent for loans that received a payment reduction of less than 10 percent. Larger reductions in the monthly payment—that is, 50 percent or more—did not result in further improvement in the 6-month redefault rate.\nAccording to our analysis, payment reductions for the majority of FHA and VA loan modifications were smaller than payment reductions for other types of modified loans. As figure 10 illustrates, 45 percent of FHA- modified loans and about 40 percent of VA-modified loans had payment reductions of less than 10 percent of the original mortgage payment. In contrast, the majority of modifications for enterprise-prime loans, nonenterprise-prime loans, and subprime loans had resulted in payment reductions greater than 20 percent, and in some cases were much larger. For example, more than half of enterprise-prime modified loans and 39 percent of subprime loans had payment reductions of 30 percent or more of the original monthly mortgage payment. Furthermore, our analysis found that the predicted 6-month redefault rate for FHA-modified loans was several percentage points higher than for the other loan types—for example, FHA’s rate was 22 percent, while the rate for subprime loans was 17 percent. However, the predicted 6-month redefault rate for VA- modified loans was 15 percent, which was similar to other loan types.\nAccording to our analysis of CoreLogic data, modifications resulting in payment reductions can involve one action or a combination of actions, such as lowering the interest rate, reducing the loan balance (through forgiving or forbearing principal), capitalizing past due amounts, and extending the term of the loan. Some of these actions were much more commonly used than others—for example, interest rate reductions and capitalization were used far more frequently than reducing the loan balance (see fig. 11). Further, our analysis indicated that the predicted 6- month redefault rates could differ depending on the action used. Modifications that included balance reductions had a redefault rate of 11 percent, while modifications that included a rate reduction, capitalization, or term extension had redefault rates of 15, 16, and 18 percent, respectively. Our analysis of HAMP data indicated that the baseline 12- month redefault rate for all modified loans was 15 percent. Among HAMP loans that received principal forbearance, the rate was slightly lower—12 percent. However, the rate for HAMP loans that received principal forgiveness was even lower—8 percent. See appendix V for a detailed description of the relationship between the modification action type and loan performance.\nFurther, loan modifications for borrowers with significant negative equity (LTV of 125 percent or higher) can be as effective as modifications for borrowers with equity in their home. For example, the lowest redefault rates for both borrowers with significant negative equity and borrowers with LTV less than 95 percent are achieved with payment reductions of 40 to 49 percent (see fig 12).\nWe also found that certain borrower and loan characteristics affected redefault rates. For instance, borrowers who were the most delinquent at the time of modification had higher redefault rates than less delinquent or current borrowers. Borrowers who were delinquent 90 days or more had a redefault rate of 17 percent, and those already in foreclosure had a redefault rate of 19 percent. But the rate for borrowers who had been delinquent for less than 60 days was 9 percent. Furthermore, modified loans with certain characteristics were more likely to redefault: loans in areas where the unemployment rate had increased since modification, loans receiving higher interest rates at modification, or loans that were originated with adjustable rather than fixed rates.\nGenerally, federal agencies are responsible for helping ensure that loss mitigation programs reduce taxpayers’ costs. For example, FHA requires and USDA encourages servicers to use foreclosure mitigation actions to minimize losses from loans going to foreclosure. Similarly, one of the core values of VA is to be a good steward of financial resources that taxpayers provide to the agency. In addition, in estimating costs of loan guarantee programs, agencies are required to consider the long-term costs of the loan guarantee on a net present value basis. Long-term costs include payments by the government to cover defaults and delinquencies, among other things. Further, according to the Office of Management and Budget loss mitigation actions should be used only if they are likely to be less expensive than the cost of default or foreclosure. And, as noted earlier, both the Treasury and the enterprises analyze the performance of modified loans and consider loan and borrower characteristics to better understand the long-term costs of various loan modification actions. Finally, as we previously reported, agencies could use performance information to identify problems, take corrective action, and improve programs. Evaluating the costs of various loan modification actions enables agencies to more effectively weigh the tradeoffs between helping borrowers keep their homes and protecting taxpayers’ interests.\nFHA officials stated that they considered loan performance and long-term costs in the initial design of the program in 1996. However, FHA has not updated its analysis of loan performance and long-term costs since this time to reflect changes to its loss and foreclosure mitigation activities— including the introduction of FHA-HAMP—or the housing market. In addition, FHA officials told us that they had not assessed the extent to which individual servicers considered long-term costs in making decisions about offering loss and foreclosure mitigation options to borrowers.Recently, FHA began to require trial modification payment periods for certain foreclosure mitigation actions. FHA expects this will reduce redefault rates.\nFHA has recently begun to calculate redefault rates for specific home retention actions and plans to examine these data in the future. FHA officials stated that they regularly monitor redefault rates of delinquent loans as part of their oversight of servicer activities. For example, FHA set an annual performance goal beginning in fiscal year 2010 for its combined home retention actions and has used the results of this monitoring to provide oversight and training to servicers to reduce redefault rates. However, this goal is for the actions in the aggregate and does not take into account individual actions, such as FHA’s standard loan modification and the FHA-HAMP modification. Further, FHA has not used this information to analyze the effectiveness of its programs. Recently, FHA began to calculate redefault rates for specific home retention actions and plans to continue to calculate and examine these data in the future.\nFHA currently collects limited data on loan and borrower characteristics at the time of a foreclosure mitigation action. FHA collects information such as delinquency status and the amount of the new principal and interest payment for some modified loans. However, it does not currently collect other key information on borrowers—such as borrower income and expenses at the time of foreclosure mitigation action. Analyses of the characteristics of modified loans and their borrowers could help in adjusting loss mitigation policies. Further, this information could be used to help identify which foreclosure mitigation action would be most appropriate for a borrower. According to FHA officials, servicers are required to provide only minimal data on loan and borrower characteristics at the time of a foreclosure mitigation action, as the responsibility for determining eligibility for loss mitigation activities rests with the servicer and not FHA. In October 2011, a contractor began work to assess FHA’s oversight of servicers’ loss mitigation activities. The assessment identified loan and borrower characteristics commonly collected within the industry, which include current LTV as well as information needed to calculate the change in monthly payment, among other things. The assessment concluded that FHA should collect additional loan-level data from servicers to enable FHA to analyze the performance of modified loans.\nFHA is considering changes to its current approach that may facilitate the analysis of long-term costs. In December 2010, a team of consultants assisting the agency to establish the Office of Risk Management advised FHA to use an NPV model to help identify appropriate loss mitigation options and maximize the economics of modifications. In March 2012, FHA indicated that it planned to develop a loss model to inform its loss mitigation approach. The use of a loss model would help the agency better understand its programs’ long-term costs. FHA officials told us that they planned to reassess the sequence of their foreclosure mitigation actions, including the point at which borrowers would be evaluated for an However, as of April 2012, FHA had not FHA-HAMP loan modification.decided to use an NPV model. FHA officials raised concerns about using an NPV approach. Specifically, they noted that FHA policy requires servicers to work with all delinquent borrowers to find long-term solutions that, if possible, permit the borrower to retain homeownership. Further, FHA does not use results from analyses to provide the basis for not offering assistance to struggling homeowners. Incorporating an NPV model into FHA’s foreclosure mitigation toolkit would not preclude servicers from working with all delinquent borrowers or offering assistance. Instead, it would likely provide greater clarity about the predicted economic outcome of specific foreclosure mitigation actions and would help servicers better prevent avoidable foreclosures. Further, incorporating an NPV model would help balance the tradeoffs between assisting borrowers to keep their homes and helping ensure the lowest cost to the taxpayer.\nVA also has not incorporated analyses of long-term costs into its loss mitigation programs. Although VA collects some information about the performance of modified loans and modified loan characteristics, it does not currently analyze its portfolio to understand differences in performance based on type of loss mitigation actions or for loan and borrower characteristics.data servicers provide on loan performance and other loss mitigation actions to determine redefault rates and has not used the information The agency also does not currently evaluate servicers report on loan and borrower characteristics to determine the optimal change in monthly payment amounts for future modifications. Finally, VA requires servicers to collect data on borrowers’ income and expenses but not to report the data to the agency. According to VA officials, VA monitors the effectiveness of its loss mitigation activities on a case-by-case basis by assigning a VA loan technician to oversee situations that cannot be resolved and work directly with the borrower, if required.\nFinally, USDA has not incorporated analyses of long-term costs into its foreclosure mitigation program, which is designed to have the least upfront cost to the government. As a result, USDA does not require servicers to consider long-term costs in determining which mitigation options to offer borrowers. It collects loan-level data from servicers on loan performance and type of action taken. Further, when servicers submit a request to provide a loss mitigation action to a borrower, they provide data on certain loan and borrower characteristics, including the monthly payment amount after the action, verified income and expenses, and the property value (which could be used to calculate LTV). However, USDA has not analyzed these data, in part because the data are provided through two different reporting systems and would have to be matched in order to be useful. Although the agency had not previously tried to match data, USDA officials said that it would be possible to match data on individual borrowers. Further, USDA officials stated that their loss mitigation data collection systems were outdated and noted that the agency had plans to update them to allow the agency to more systematically capture data on their loss mitigation activities. However, USDA officials were uncertain of the timetable or availability of funding to implement these changes.\nBecause FHA does not analyze the performance of loss mitigation activities by loan and borrower characteristics and VA and USDA do not analyze the performance of these activities by type of home retention action or loan and borrower characteristics, these agencies have a limited understanding of the ultimate costs of their loss mitigation programs. As a result, their loss mitigation activities may not be effectively balancing the tradeoffs between assisting borrowers to keep their homes and helping ensure the lowest cost to the taxpayer. If these agencies better understood the performance and ultimate costs of each home retention action, they could, for example, decide that it was in their best financial interest, as well as the borrowers, to change the order in which their loss mitigation options were offered or to adjust their eligibility requirements. And by collecting additional data and conducting more comprehensive analyses, they could better inform decision makers, helping them to ensure that federal foreclosure mitigation programs are as effective as possible and, at the same time, limiting long-term costs. Such efforts would be key to helping address the ongoing problems of the housing market, including the high volume of seriously delinquent loans that face an elevated risk of foreclosure.", "To date, principal forgiveness as a method of addressing defaults and foreclosures among borrowers that have significant negative equity has played a limited role in foreclosure mitigation efforts. Principal forgiveness involves reducing the amount the borrower owes on a mortgage without requiring that the amount of the reduction be repaid. As a result, this action not only lowers the borrower’s monthly mortgage payment but allows underwater borrowers the opportunity to rebuild equity in their homes more quickly. Our analysis found that, although the redefault rate for the loans that received principal forgiveness was lower than the overall pools of modified loans, the effects of changing the amount of principal forgiven on loan performance were inconclusive. However, private investors and lenders that hold loans in their portfolio have used principal forgiveness, suggesting that this foreclosure mitigation tool may be effective in certain circumstances.\nBetween 2009 and 2011, the prevalence of principal forgiveness among modified loans ranged from about 3 to 13 percent, and averaged about 6 percent (see fig 13). During the fourth quarter of 2011, about 9 percent (9,867) of modifications included principal forgiveness—up from about 3 In contrast, percent during the first quarter of 2011, according to OCC.more than three-quarters of all modifications during the fourth quarter of 2011 included capitalization or rate reduction, more than half received a term extension, and almost a quarter of modifications included principal forbearance. Principal forgiveness was more prevalent among HAMP modifications (about 16 percent) than among all modifications (about 9 percent). At the same time, OCC data indicated that the prevalence of principal forgiveness varied by market segment and investor. Specifically, principal forgiveness was more prevalent among subprime loans (about 13 percent) than prime loans (7 percent). Further, principal forgiveness was used primarily for loans held in portfolio or serviced for private investors. FHFA does not permit the enterprises to use principal forgiveness as a loan modification action. HUD, USDA, and VA are not authorized to support principal forgiveness.\nOur analysis of Treasury data for the HAMP program (including Fannie Mae and Freddie Mac loans) found that the 12-month redefault rate for loans that received principal forgiveness was 8 percent, while the rate for loans receiving principal forbearance was 12 percent. Both of these figures are lower than the overall redefault rate for all HAMP loans, which was 15 percent. Our analysis of HAMP data, when controlling for observable borrower and loan characteristics, found that the effect of principal forgiveness on the redefault rate was inconclusive. However, larger balance reductions through principal forbearance were found to lower the redefault rate. The inconclusive results are likely attributable to the fact that principal forgiveness has been used sparingly. While principal forgiveness has always been allowed under HAMP, Treasury did not start offering incentives to investors to forgive principal until October 2010. Since few HAMP modifications have incorporated principal forgiveness, our ability to fully examine the impact of this action on redefault rates was limited. For the CoreLogic data, we analyzed the performance of loans that received a balance reduction, either through principal forgiveness or principal forbearance, and found that loans that received a balance reduction were less likely to redefault. Specifically, the overall 12-month redefault rate of modified loans (loans comparable to HAMP loans) was 26 percent. In contrast, the redefault rate of loans that received a balance reduction was 15 percent.\nTreasury has taken recent action to further encourage servicers to use principal forgiveness. As discussed earlier, since October 2010 Treasury has required servicers to evaluate severely underwater HAMP applicants for its Principal Reduction Alternative, which provides investors in nonenterprise loans with incentive payments when forgiving principal as part of a HAMP modification. In January 2012, Treasury announced that HAMP would be modified to further encourage investors to offer principal reductions by increasing the incentives payments. In the past, investors received between 10 and 21 cents on the dollar to write down principal on loans. As of March 2012, Treasury began paying 30 to 63 cents on the dollar.\nFHFA, the conservator and regulator of Fannie Mae and Freddie Mac, has not allowed them to use their own funds to offer principal forgiveness. FHFA has argued that it has a statutory responsibility to preserve and conserve the assets and property of the regulated entities. At the same time, FHFA noted that it has a statutory responsibility to maximize assistance for homeowners to minimize foreclosures while taking into consideration the cost to taxpayers of any action undertaken. FHFA performed an initial analysis comparing the effectiveness of principal forbearance to principal forgiveness as a loan modification tool in December 2010 and updated it in June and December 2011 using Treasury’s HAMP Net Present Value (NPV) model. The agency concluded that although both forgiveness and forbearance reduce the borrower’s payment to the same affordable level, forbearance achieves marginally lower losses for the taxpayer than forgiveness. These analyses have provided the basis for FHFA’s current policy decision to not permit the enterprises’ use of principal forgiveness. However, some housing market observers have been critical of FHFA’s approach to evaluating the utility of principal forgiveness. For example, one industry observer noted that FHFA’s analysis assessed the costs of writing down all loans in the enterprises’ portfolios with negative equity instead of the possibility of using principal forgiveness for some borrowers and a forbearance strategy for others based on the borrowers’ and loans’ characteristics. For example, one Treasury official has been quoted as stating that principal forgiveness may have the best result for borrowers above 120 LTV ratios that can prove some type of hardship. Other concerns raised by industry observers included FHFA’s use of information obtained at loan origination rather than current data (i.e., Fair Isaac Corporation (FICO) credit scores, income, etc.) and not following HAMP modification rules for the extent of the monthly payment reduction, which require a 31 percent debt-to-income target rather than a prescribed LTV reduction.\nIn January 2012, Treasury announced that it would pay incentives to the enterprises if FHFA allowed servicers to forgive principal as part of Fannie Mae and Freddie Mac HAMP modifications, a change that could significantly alter FHFA’s position. Shortly after Treasury’s announcement, FHFA began to conduct analyses to reevaluate the use of principal forgiveness as a foreclosure mitigation tool. FHFA updated its earlier analyses by incorporating the impact of receiving incentive payments from Treasury and altered its analyses to address some of the critiques made of its previous approach. Specifically, FHFA indicated that it made adjustments to the loan origination data to better reflect likely changes in borrowers’ FICO scores and housing payment debt-to-income ratios, and used zip code as opposed to state-level indices to more accurately identify high LTV borrowers. In addition, FHFA officials told us that they used a 31 percent debt-to-income target in their updated analyses. According to FHFA officials, they also modified their current analysis to fully consider HAMP and HAMP PRA modification rules. FHFA officials told us that they believed that this change addressed the critique about using a mutually exclusive approach of using principal forgiveness versus forbearance for all loans with negative equity.\nAs of June 2012, FHFA had not made a final decision on allowing the enterprises to engage in HAMP principal forgiveness modifications. According to FHFA, its preliminary analysis, as of April 2012, showed a positive benefit of $1.7 billion to the enterprises of accepting $3.8 billion in Treasury incentive payments for performing loan modifications involving principal forgiveness. Further, FHFA noted any savings, from the perspective of the federal government, would be negligible due to the draw on the Treasury. However, all TARP-funded housing programs are expenditures, including incentives paid to the nonenterprise investors, servicers, and borrowers. Further, the payment of incentives to the enterprises for principal forgiveness modifications would be paid out of the $45.6 billion that Treasury has already obligated to be used for preventing avoidable foreclosures and preserving homeownership. FHFA’s estimate was based on the nearly 700,000 loans in Fannie Mae’s and Freddie Mac’s portfolios considered to be eligible for a HAMP loan modification that were severely underwater (current LTV greater than 115) as of June 30, 2011, and were either already in delinquency status or loans that could become delinquent within 6 months. According to FHFA, the actual number of borrowers who would receive principal forgiveness would likely be lower due to other eligibility requirements and because eligible borrowers may choose not to participate. Additionally, FHFA noted that HAMP principal forgiveness modifications would not expand the number of borrowers who are eligible to obtain modifications under HAMP because the eligibility requirements are the same.\nSeparately, the enterprises assessed the feasibility of principal forgiveness, but their analyses focused on different issues and produced different results. Before Treasury announced that it would pay incentives to the enterprises, Fannie Mae assessed the affect of principal forgiveness on loan modifications through two small pilot programs, but found that the pilots did not provide any indication that performance varied between modifications with and without principal forgiveness. However, Fannie Mae analysis did not address the financial impact to the enterprise of receiving Treasury HAMP PRA incentive payments. Freddie Mac prepared estimates of the savings that principal forgiveness might provide using the HAMP NPV model by assuming principal forgiveness to a 105 percent LTV. Given the underlying assumptions, it found that for 100,000 borrowers, the inclusion of the recently proposed Treasury incentive payments could offset losses to the enterprises by approximately $480 million as opposed to performing a loan modification without subsidies from Treasury.\nAside from the direct financial impact to the enterprises of receiving incentive payments for participating in HAMP’s PRA , FHFA and the enterprises have raised concerns about borrowers strategically defaulting to become eligible for principal forgiveness—moral hazard—as well as the additional costs and time this approach would require. Nonetheless, there remain techniques for mitigating its impact on borrower behavior, most notably requiring that the borrower already be in default and prove a financial hardship. All three entities also pointed to the costs for developing information systems and the time it would take the enterprises and its servicers to implement principal forgiveness. For example, according to Fannie Mae officials, these costs could be as high as tens of millions of dollars and could require up to 22 to 24 months. FHFA noted that it was still evaluating the direct operational costs associated with adopting principal forgiveness under HAMP and that those costs were not trivial. However, FHFA has not indicated whether those direct costs are likely to be greater than the $1.7 billion in financial benefits that it determined would likely accrue to the enterprises from receiving Treasury HAMP PRA incentive payments. Moreover, as noted by FHFA, the anticipated benefit of principal forgiveness is that, by reducing foreclosures relative to other modification types, losses to the enterprises would be lowered and house prices would stabilize faster, thereby producing broader benefits to all market participants.", "Despite the unprecedented scale of federal and nonfederal efforts to help borrowers facing potential foreclosure, key indicators suggest that the U.S. housing market remains weak and that high foreclosure levels will likely persist in the foreseeable future. While these efforts resulted in more than 4 million loan modifications between January 2009 and December 2011, the volume of modifications has declined since 2010 and millions of borrowers have sought but have been unable to receive a permanent modification. Specifically, our analysis of mortgage data showed that 1.9-3 million loans still had characteristics associated with an increased likelihood of foreclosure, such as serious delinquency and significant negative equity (LTV ratio of 125 or higher), as of June 2011. Further, Treasury estimated that there were 900,000 borrowers who were seriously delinquent and potentially eligible for its HAMP modification program as of December 31, 2011. Another almost 2 million FHA, Fannie Mae, and Freddie Mac loans also were seriously delinquent. In addition, indicators such as home prices and home equity remain near their postbubble lows. And finally, as of December 2011, total U.S. household mortgage debt was $3.7 trillion greater than households’ equity in their homes.\nDespite their efforts, neither federal agencies nor nonfederal entities have been able to come up with a clear path for resolving the foreclosure crisis. A number of factors have hindered foreclosure mitigation efforts, including competing priorities (e.g., balancing short-term versus long-term costs, mitigating moral hazard) and ongoing developments, such as declining house values, and a high unemployment rate. Ultimately, what will likely be required will be a variety of approaches aimed at removing various obstacles to existing foreclosure mitigation strategies. Comprehensive data-gathering and analysis will also be needed to help ensure that federal foreclosure mitigation programs are effective and also limit fiscal costs and the potential for negative long-term consequences from government intervention.\nOur analysis found that several agencies and the enterprises could do more to better manage the costs associated with foreclose mitigation efforts and step up their efforts to reach and help borrowers, specifically the following,\nTreasury has not reassessed its need for the letter of credit on FHA’s Short Refinance program, which will not likely reach the number of borrowers that it initially estimated it would help. For this reason, Treasury may not need to maintain an $8 billion letter of credit for the program and thus may be able to cut costs by reducing or eliminating the fees associated with the letter.\nOne of the key findings of our econometric analysis of the CoreLogic and HAMP loan-level data was that loan modifications should be made before borrowers become seriously delinquent on their mortgage payments in order to obtain the best results. Although USDA requires servicers to attempt to work with borrowers before they become seriously delinquent, USDA does not collect information from servicers about these efforts. Moreover, its monitoring and data collection to ensure that servicers are complying with its requirements to reach distressed borrowers before they become seriously delinquent are limited. Collecting and analyzing data would provide USDA with a more complete picture of how well servicers are reaching distressed borrowers and preventing avoidable foreclosures.\nFHA, VA, and USDA have not fully analyzed the costs and benefits of their foreclosure mitigation actions to help ensure that both borrowers and taxpayers benefit from efforts to keep homeowners in their homes. Although FHA has begun to calculate redefault rates for specific home retention actions, it has not used this information to assess the effectiveness of its foreclosure mitigation efforts. Doing so is particularly important since FHA loan modifications typically do not reduce borrower’s monthly payments to the levels that our analysis indicated result in more sustainable modifications. Further, VA and USDA do not routinely calculate redefault rates for specific types of home retention actions—such as their various loan modification programs—although additional efforts to calculate this performance data would provide these agencies with better information to manage their foreclosure mitigation efforts. In addition, our analysis of the performance of loans identified key loan and borrower characteristics that reduced the likelihood of redefault. Specifically, we found that the size of payment change as well as the current LTV and delinquency status at the time of modification greatly influenced the success of a loan modification. However, FHA, VA, and USDA have not assessed the impact of loan and borrower characteristics on the performance of their foreclosure mitigation efforts. In some cases, these agencies do not have the data needed to conduct these analyses. In contrast, Treasury and the enterprises routinely calculate and evaluate this performance information. For example, the enterprises based recent changes to their non-HAMP loan modification programs on their analysis of the size of monthly payment reductions on redefault rates. Without these types of analysis and data, FHA, VA and USDA cannot, on a regular basis, evaluate the merits of the different home retention actions and use the information to identify opportunities to improve program performance.\nFinally, several federal agencies and the enterprises continue to make changes and enhancements to their foreclosure mitigation efforts to assist borrowers struggling to avoid foreclosure. For example, Treasury recently announced a number of changes to HAMP to increase the number of borrowers helped by the program, including targeting efforts to help underwater borrowers by tripling the incentives paid to investors for principal forgiveness and offering incentive payments to the enterprises for loan modifications that include principal forgiveness. In response, FHFA is currently reevaluating its prohibition against the use of Fannie Mae and Freddie Mac funds for principal forgiveness. Although permitting the enterprises to offer principal forgiveness would not expand the numbers of borrowers eligible for a HAMP modification, FHFA’s preliminary analysis indicated that the Treasury incentive payments would result in a positive benefit to the enterprises of $1.7 billion as opposed to performing traditional HAMP modifications for severely underwater borrowers. FHFA and the enterprises have noted that there would be various costs associated with adopting a principal forgiveness program that have not yet been fully determined, thus, delaying a decision on whether the enterprises will engage in principal forgiveness. Given the December 31, 2013, deadline for entry into a HAMP permanent loan modification and the lead time required for the enterprises to implement a principal forgiveness program, it is critical that FHFA take the steps needed to expeditiously make a decision about allowing the enterprises to engage in HAMP principal forgiveness modifications. As estimated by FHFA, nearly 700,000 severely underwater borrowers could potentially be eligible if the enterprises were to offer HAMP modifications with principal forgiveness.\nAs the enhanced efforts pick up speed, it may be possible to identify further enhancements that would help both struggling homeowners and the overall economy. However, the ability of federal agencies and the enterprises to make such determinations is unclear, unless they collect and analyze the data needed to demonstrate the success and cost- effectiveness of individual actions. This information can help program managers and policymakers decide what further steps, if any, to take in their efforts to mitigate the foreclosure crisis.", "To help ensure Treasury is making effective and efficient use of its resources, Treasury and FHA should update their estimates of participation in the FHA Short Refinance program given current participation rates and recent changes to the program. Treasury should then use these updated estimates to reassess the terms of the letter of credit facility and consider seeking modifications in order to help ensure that it meets Treasury’s needs cost-effectively.\nIn order to better ensure that servicers are effectively implementing the agency’s loss mitigation programs and that distressed borrowers are receiving the assistance they need as early as possible before they become seriously delinquent, we recommend that the Secretary of the Department of Agriculture require servicers to report information about their efforts to reach distressed borrowers. For example, servicers could report on their efforts to reach borrowers and whether borrowers have responded to outreach from the servicer regarding early delinquency interventions and are receiving informal foreclosure mitigation actions. Further, the Secretary of USDA should determine the extent to which distressed borrowers have not been reached and assess whether changes are needed to help ensure servicers are complying with USDA’s loss mitigation requirements.\nTo more fully understand the strengths and risks posed by foreclosure mitigation actions and protect taxpayers from absorbing avoidable losses to the maximum extent possible, we recommend that FHA, VA, and USDA conduct periodic analyses of the effectiveness and the long-term costs and benefits of their loss mitigation strategies and actions. These analyses should consider (1) the redefault rates associated with each type of home retention action and (2) the impact that loan and borrower characteristics have on the performance of different home retention actions. The agencies should use the results from these analyses to reevaluate their loss mitigation approach and provide additional guidance to servicers to effectively target foreclosure mitigation actions. If FHA, VA, and USDA do not maintain data needed to consider this information, they should require services to provide them.\nWe recommend that FHFA expeditiously finalize its analysis as to whether Fannie Mae and Freddie Mac will be allowed to offer HAMP principal forgiveness modifications.", "We requested comments on a draft of this report from Treasury, HUD, USDA, VA, FHFA, Fannie Mae, Freddie Mac, OCC, Federal Reserve, FDIC, and the Consumer Financial Protection Bureau (CFPB). We received formal written comment letters from Treasury’s Assistant Secretary for Financial Stability, HUD’s Acting Assistant Secretary for Housing (Federal Housing Commissioner), VA’s Chief of Staff, and FHFA’s Senior Associate Director of the Office of Housing and Regulatory Policy; these are presented in appendixes VI through IX. We also received e-mail comments from USDA that are discussed below. Lastly, we received technical comments from Treasury, HUD, FHFA, Fannie Mae, Freddie Mac and FDIC that are incorporated as appropriate in the report. OCC, the Federal Reserve, and CFPB did not provide any comments on the draft report.\nTreasury, HUD, VA, and FHFA each agreed to consider or concurred with the recommendations and indicated that action was either under way or planned in response to our recommendations. In its written comments, FHFA noted that savings to the federal government would likely be negligible if the enterprises offered modifications under the HAMP Principal Reduction Alternative because of the incentive payments Treasury would have to provide. In response, we added additional information to the report noting, as we have in prior reports, that all TARP-funded housing programs are expenditures, including incentives paid to investors other than the enterprises, servicers, and borrowers. Further, incentives to the enterprises for principal forgiveness modifications would be paid out of the $45.6 billion that Treasury has already obligated for preventing avoidable foreclosures and preserving homeownership. FHFA also noted that the draft report did not discuss the issue of principal forgiveness modifications with respect to FHA, USDA, and VA. We included additional text in the report to note that FHA, USDA, and VA each cited limitations related to their authority to forgive loan principal as part of a foreclosure mitigation action. Moreover, as the draft report notes, FHA, VA, and USDA have not fully analyzed the costs and benefits of their foreclosure mitigation actions to help ensure that both borrowers and taxpayers benefit from efforts to keep homeowners in their homes. Therefore, we recommended that these agencies analyze the effectiveness and the long-term costs and benefits of their loss mitigation strategies and actions.\nAlthough USDA did not provide a formal written comment letter, e-mail comments from Rural Development noted that USDA generally concurred with the information applicable to USDA in the report. Further, USDA provided additional data on the types of information that servicers were required to report on their foreclosure mitigation efforts. In response, we clarified the text of the report and the associated recommendation to provide additional examples of data that would enhance USDA’s ability to monitor servicers’ borrower outreach and foreclosure mitigation efforts.\nWe are sending copies of this report to interested congressional committees, Treasury, HUD, USDA, VA, FHFA, Fannie Mae, Freddie Mac, OCC, Federal Reserve, FDIC, CFPB, Special Inspector General for TARP, and members of the Financial Stability Oversight Board. We also will make this report available at no charge on the GAO website at http://www.gao.gov.\nIf you or your office have any questions about this report, please contact me at (202) 512-8678 or sciremj@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix VII.", "This report focuses on foreclosure mitigation efforts. Specifically, this report examines (1) the federal and nonfederal response to the housing crisis, (2) the number of loans potentially at risk of foreclosure and the current condition of the U.S. housing market, and (3) opportunities to enhance the effectiveness of current foreclosure mitigation efforts.\nTo examine the response to the housing crisis, we identified key federal and nonfederal efforts to mitigate foreclosures, focusing our review on those that provided direct assistance to homeowners:\nDepartment of the Treasury’s efforts, including the Home Affordable Modification Program (HAMP), HAMP-Principal Reduction Alternative (PRA), Federal Housing Administration Refinance of Borrowers in Negative Equity Positions (FHA Short Refinance, joint program with the Department of Housing and Urban Development (HUD)), Home Affordable Unemployment Program (UP), and Home Affordable Foreclosure Alternatives (HAFA) Program.\nHUD’s efforts, mainly through FHA, including special forbearance agreements, standard modifications, FHA-HAMP, FHA Short Refinance (joint program with Treasury), partial claims short sales, and deeds-in-lieu of foreclosure.\nDepartment of Agriculture’s (USDA) efforts, including special forbearance, traditional modifications, special loan servicing, short sales, and deeds-in-lieu of foreclosure.\nDepartment of Veterans Affairs’ (VA) programs, including repayment plans, special forbearance agreements, standard modifications, VA- HAMP, short sales, and deeds-in-lieu of foreclosure.\nEfforts of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), including repayment plans, forbearance agreements, standard loan modification programs, Home Affordable Refinance Program (HARP), short sales, and deeds-in-lieu of foreclosure.\nEfforts implemented by states but supported by federal funds, such as Treasury’s Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (Hardest Hit Fund) and HUD’s Emergency Homeowners Loan Program (EHLP).\nEfforts implemented by mortgage servicers, commonly known as proprietary foreclosure mitigation efforts.\nFor federal efforts, we identified and reviewed statutes, regulations, requirements, guidance, and press releases. Further, to examine these foreclosure mitigation efforts, we obtained viewpoints from a wide range of housing market participants and observers, including federal officials from HUD, USDA, VA, and Treasury, as well as the Office of the Comptroller of the Currency (OCC), Federal Housing Finance Agency (FHFA), Board of Governors of the Federal Reserve System (Federal Reserve), Federal Deposit Insurance Corporation (FDIC), and Consumer Financial Protection Bureau (CFPB). In addition we met with staff from two government-sponsored-enterprises, Fannie Mae and Freddie Mac (the enterprises). We also met with housing market trade associations, including the Mortgage Bankers Association (MBA), Mortgage Insurance Companies of America, Association of Mortgage Investors, American Securitization Forum, and National Association of Realtors. Finally, we met with housing market observers and participants, such as CoreLogic, the Center for Responsible Lending, the National Association of Consumer Advocates, Amherst Securities, NeighborWorks America, HOPE NOW, and the National Community Reinvestment Coalition.\nTo describe the volume, characteristics, and costs associated with federal efforts and specific foreclosure mitigation actions (such as loan modifications), we obtained summary data from Treasury, HUD, USDA, VA and the enterprises. We did not independently confirm the accuracy of these data. However, we took steps to ensure that the data we used were sufficiently reliable for our purposes, such as reviewing existing information about data quality, interviewing officials familiar with the data, and corroborating key information. We also reviewed reports generated by Treasury, HUD, USDA, VA, the enterprises, and FHFA describing the volume, characteristics, performance, and costs of foreclosure mitigation efforts and actions that occurred for the period of January 2009 through December 2011. To examine the volume, characteristics and performance of nonfederal foreclosure mitigation efforts, we reviewed publically available data reported by HOPE NOW (an industry association) and servicers (through OCC’s Mortgage Metrics Reports)We did not independently confirm the accuracy of the summary data we obtained from these sources. However, we took steps to ensure that the data we used were sufficiently reliable for our purposes, such as reviewing the data with officials familiar with generating the data.\nTo supplement these data sources, we also analyzed loan-level servicing data we obtained from CoreLogic to examine the volume, characteristics, and performance of loan modifications made through both federal and nonfederal programs. The data we obtained provide wide coverage of the national mortgage market—that is, approximately 65 percent to 70 percent of prime loans and about 50 percent of subprime loans, according to CoreLogic officials. Due to the proprietary nature of CoreLogic’s estimates of its market coverage, we could not directly assess the reliability of these estimates. However, we have used CoreLogic data in prior reports in which we concluded that the data we used were sufficiently reliable for our purposes. in the coverage and completeness of the data, our analysis may not be representative of the mortgage market as a whole. CoreLogic’s prime loans include conventional loans as well as loans insured or guaranteed by FHA, VA, and other government entities. Further, prime loans include near prime or Alt-A loans.\nFor example, see GAO, Mortgage Reform: Potential Impacts of Provisions in the Dodd- Frank Act on Homebuyers and the Mortgage Market, GAO-11-656 (Washington, D.C.: July 19, 2011). provides information on certain loan and borrower characteristics at origination, such as the original loan amount and interest rate as well as credit score, and a series of monthly observations, which include current mortgage status (current on payments, 30, 60, or 90 or more days delinquent, in foreclosure, real estate owned, or has paid off).\nWe restricted our analysis to first-lien mortgages for the purchase or refinancing of single-family residential properties (1- to 4-units) in the 50 states and the District of Columbia that were active sometime during the period from January 2007 through June 2011. This data set contained about 58.2 prime mortgages and about 7.7 subprime mortgages. We reviewed documentation on the process CoreLogic used to collect its data. We discussed this process and the interpretation of different data fields with CoreLogic representatives. In addition, we conducted reasonableness checks on data elements to identify any missing, erroneous, or outlying data. Although the Core Logic data has certain limitations—for example, certain data fields are not fully reported—we concluded that the data we used were sufficiently reliable for our purposes.\nTo examine the volume, characteristics, and performance of loan modifications, we took a 15 percent random sample of the CoreLogic data set, which resulted in 7,608,603 prime mortgages and 608,704 subprime mortgages. Although this data set did not contain direct information about the presence of modifications, we developed a set of algorithms to infer if the loan had been modified. We confirmed the accuracy of our algorithms by using our methodology to analyze data provided by OCC that included known modifications (see app. III). We conducted several analyses on this data set. For example, we calculated the magnitude of payment reductions as well as the 6-month redefault rates for modified loans.\nTo identify other key efforts intended to mitigate foreclosures, we interviewed a wide range of housing market participants and observers. We identified a number of efforts, such as improvements to servicing standards. To examine this effort, we reviewed information related to the consent orders OCC the federal banking regulators sent to 14 servicers as well as the agreement reached by the federal government and state attorneys general agreement with the five largest servicers in the United States.\nTo examine the current condition of the U.S. housing market, we analyzed the loan-level data we obtained from CoreLogic. We conducted our analysis on all active loans in June 2009, 2010, and 2011 that met our selection criteria. Specifically, we identified loans that were associated with an increased likelihood of foreclosure and then described the number and loan and borrower characteristics of these loans. First, we identified key characteristics associated with an increased likelihood of foreclosure by reviewing our prior work and other studies, as well as interviewing housing market participants and observers. Based on these studies and viewpoints, we identified the following five key characteristics: (1) loans with two or more missed payments; (2) loans with significant negative equity (a current LTV ratio of 125 percent or greater); (3) loans with significant negative equity located in an area with unemployment of 10 percent or greater; (4) loans with a high current interest rate (1.5 percentage points or 150 basis points or higher above the market rate); and (5) loans with certain origination features, such as a credit score of 619 or below and an LTV of 100 percent or higher at the time of origination.\nSecond, we analyzed the CoreLogic loan-level data to determine the extent to which loans were associated with these five characteristics. We took steps to ensure that the data we used were sufficiently reliable for our purposes, such as conducting reasonableness checks on data elements. In some cases, the CoreLogic data set did not contain information associated with these characteristics—specifically, negative equity, unemployment, and high interest rate. In these cases, we linked additional data to the CoreLogic data to derive this information.\nTo estimate a borrower’s equity, we linked historical and current house price information at the zip code level to the CoreLogic data. Specifically, we calculated for each loan the current house value based on the date of origination. In areas where a house price did not exist we used the state-level average house price index for the month of origination and for June 2009, 2010, and 2011. Due to data limitations our analysis did not take into account additional liens. As a result, we may overstate the amount of equity a borrower has in their home.\nTo estimate unemployment levels that could affect borrowers we used employment data at the county level from the Bureau of Labor statistics (BLS) to analyze local area unemployment rates. We linked the local area unemployment data with zip code data in CoreLogic to determine a local area unemployment rate for each loan as of June 2009, 2010, and 2011. If the local area unemployment rate was 10 percent or higher we determined that the loan was in an area with a high unemployment.\nFor loans originated during the last 5 years, we determined high interest rates by comparing the interest rate on individual loans to the current Freddie Mac’s Primary Mortgage Market Survey monthly results for adjustable rate mortgage (ARM), 30-year fixed, and 15- year fixed-rate mortgages, depending on the loan’s origination mortgage product as of June 2009, 2010, and 2011. If the current interest rate was equal to or greater than the Freddie Mac rate by 150 basis points, we determined that the loan had a high interest rate.\nWe analyzed loans with delinquency or with two or more of the other four characteristics associated with an increased likelihood of foreclosure (i.e., significant negative equity, significant negative equity and located in an area with high unemployment, high current interest rate, certain origination features). We also conducted a state-by-state analysis.\nTo further examine the current condition of the U.S. housing market, we identified and analyzed key national housing market indicators, including measures of loan performance, home equity, unemployment, and home affordability. To identify these indicators, we reviewed a wide range of publicly available information and interviewed housing market participants and stakeholders. To analyze the indicators, we reviewed information in several reports, including, the National Delinquency Survey data issued by the Mortgage Bankers Association (MBA), data issued by the National Bureau of Economic Research, CoreLogic’s Home Price Index, the Federal Reserve’s statistical releases on the Flow of Funds Accounts of the United States, IHS Global Insight data on home affordability, and unemployment data reported by BLS. We did not independently confirm the accuracy of the information and analysis that we obtained from third parties. However, we took steps to ensure that the data we used from these sources were sufficiently reliable for our purposes, such as reviewing existing information about data quality, interviewing officials familiar with the data, and corroborating key information.\nTo examine opportunities to enhance the effectiveness of foreclosure mitigation efforts, we identified and reviewed the purposes and goals of federal foreclosure mitigation efforts as well as statutes, requirements, and guidance associated with these efforts. To describe the costs associated with federal efforts and specific foreclosure mitigation actions, we obtained summary data from Treasury, HUD, USDA, VA and the enterprises. Again, we did not independently confirm the accuracy of the summary data we obtained. However, we took steps to ensure that the data we used were sufficiently reliable for our purposes, such as interviewing officials familiar with the data. We reviewed relevant principals of federal budgeting resulting from federal credit reform. We obtained the viewpoints of a wide range of housing market participants and observers. For example, we met with officials from Treasury, HUD, FHFA, Fannie Mae, Freddie Mac, VA, and USDA to understand the extent to which their foreclosure mitigation programs reached struggling borrowers. We discussed their activities to monitor the performance of their foreclosure mitigation efforts and the extent to which they had considered other factors that may affect performance. For instance, we asked whether they had analyzed the effect of loan and borrower characteristics on the performance of loss mitigation actions and considered redefault rates and loss severity when evaluating the costs and benefits of these actions. Finally, we discussed the utility of, as well as any obstacles to, taking these steps.\nTo better understand characteristics that affect redefault rates of modified loans, we conducted an econometric analysis. Specifically, we analyzed a sample of loan-level data we obtained from CoreLogic. We took steps to ensure that the data we used were sufficiently reliable for our purposes, such as conducting reasonableness checks on data elements. In addition, we analyzed loan-level data we obtained from Treasury to examine the performance of HAMP loan modifications. The HAMP data are reported by servicers at the start of the trial modification period, during the trial period, during conversion to a permanent modification, and during the permanent modification phase of the program. The data contain several loan and borrower characteristics at origination, including the loan-to- value (LTV) and loan amount; as well as some information at time of the modification, including delinquency status. Since we did not have data on the performance history of the modified loans, we constructed the loan history using data from different points in time. The HAMP data have certain limitations. For instance, certain data fields are not fully reported, as indicated by the Department of the Treasury. However, we determined that the data were sufficiently reliable for our purposes. See appendix V for a detailed summary of the methodology for the analysis of the CoreLogic and HAMP data, as well as the results from this analysis.\nWe conducted this performance audit from October 2010 through June 2012 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.\nTreasury has outlined the requirements for certain foreclosure mitigation programs in the MHA Handbook, which are summarized here. These guidelines apply to mortgages that are not owned or guaranteed by Fannie Mae or Freddie Mac and that are not insured or guaranteed by the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), and the Department of Agriculture (USDA). Fannie Mae and Freddie Mac participate in the Home Affordable Modification Program (HAMP) but have issued their own guidance. FHA, VA, and USDA have issued guidance for companion programs that are separate from HAMP.\nTreasury’s programs provide relief to borrowers whose mortgages are held in lenders’ portfolios or in private securitization trusts. To qualify, mortgages must have been originated on or before January 1, 2009, and be secured by a one-to- four unit residential property. In general, borrowers must be delinquent or default must be reasonably foreseeable (imminent default).\nHome Affordable Modification Program (HAMP) Tier 1: HAMP Tier 1 modifications reduce borrowers’ monthly mortgage payments to affordable levels and help them avoid foreclosure. To be eligible under HAMP Tier 1, borrowers must occupy the property and have monthly mortgage payments that exceed 31 percent of their monthly gross income. The HAMP Tier 1 evaluation includes identifying actions to be taken that will result in a monthly mortgage payment-to- income ratio of 31 percent. These actions must follow a standard sequence until this ratio is reached: capitalizing past due amounts, reducing the interest rate down to a minimum of 2 percent, extending the mortgage term by up to 40 years from the date of modification, and forbearing principal. Servicers have the option of using an alternative sequence of modification actions under the Principal Reduction Alternative that includes principal forgiveness as a second step before reducing the interest rate. Servicers then use a standardized net present value (NPV) test to compare the financial benefits to the investor of modifying relative to not modifying the loan. Borrowers who are approved for HAMP Tier 1 begin with a trial period that lasts at least 3 months. Borrowers who successfully complete a trial period receive a permanent modification. After 5 years, the interest rate begins to step up each year until the market rate is reached if the starting interest rate was below the market rate at the time of the modification. Treasury pays incentives to investors and servicers for completed modifications and to borrowers, investors, and servicers for the continued successful performance of certain modifications. More than 450,000 nonenterprise permanent modifications were started between when the program began in 2009 and December 2011.\nHAMP Tier 2: Effective June 1, 2012, the HAMP Tier 2 program will offer modifications to certain borrowers who do not qualify for HAMP Tier 1, including those whose current mortgage payments are below 31 percent of their income and those who do not occupy the property as their primary residence. HAMP Tier 2 modifications will capitalize past due amounts, adjust interest rates to the market rate, extend loan terms to 40 years, and forbear up to 30 percent of principal on loans with LTV ratios of more than 115 percent to reach the 115- percent threshold. Borrowers will be offered HAMP Tier 2 modifications only if these changes reduce monthly payments by at least 10 percent and result in payments ranging from 25 percent to 42 percent of monthly gross income.\nSecond-Lien Modification Program (2MP): The Second Lien Modification Program (2MP) is designed to work in tandem with HAMP modifications to provide a comprehensive solution to help borrowers afford their mortgage payments. A participating servicer of a second lien for which the first lien receives a HAMP Tier 1 or Tier 2 modification must offer to modify the borrower’s second lien, accept a lump sum payment from Treasury to fully extinguish the second lien, or accept a lump sum payment from Treasury to partially extinguish the second lien and modify the remaining portion. Under 2MP, servicers are required to take modification actions in the following order: capitalize accrued interest and other past due amounts; reduce the interest rate to as low as 1 percent for 5 years (when the interest rate will reset at the rate on the HAMP-modified first lien); extend the term to at least match the HAMP- modified first lien; and forbear or forgive principal in at least the same proportion as the forbearance or forgiveness on the HAMP-modified first-lien, although servicers may choose to forbear or forgive more than that amount. According to Treasury, nearly 61,000 second liens had been modified under 2MP, including nearly 13,000 that involved full extinguishments.\nHome Affordable Unemployment Program (UP): This program provides forbearance on mortgage loans to borrowers whose hardship is related to unemployment. Borrowers who indicate that their hardship is related to unemployment when being considered for HAMP must be evaluated for UP and, if qualified, receive an offer for forbearance. At their discretion, however, servicers may offer a HAMP trial period instead, although they must document their reasons. Servicers are not required to offer UP forbearance to borrowers whose delinquency exceeds 12 months of scheduled monthly mortgage payments. The minimum duration of UP forbearance is 12 months unless the borrower finds a job during that time. There is no maximum forbearance period, and servicers may extend forbearance in increments at their discretion. Servicers must reduce monthly payments during the forbearance period to no more than 31 percent of monthly gross income, but may opt to suspend them in full. When the forbearance period ends, the servicer must evaluate the borrower for HAMP or other modifications to resolve the delinquency. As of December 2011, more than 18,000 UP forbearance agreements had been started.\nHome Affordable Foreclosure Alternatives (HAFA): Borrowers who cannot afford to keep their homes must be considered for short sales and deeds-in-lieu of foreclosure (DIL) under the HAFA program. Borrowers may be considered for HAFA after being considered for HAMP or upon the borrower’s request. Borrowers who qualify for a HAFA short sale must sign and return a short sale agreement that lasts for a minimum of 120 days and that lists the minimum price, allowable transaction costs, and monthly mortgage payments to be made during the period of the agreement, if applicable. Borrowers may also qualify for HAFA if they have received an offer on their property and submit a request for a short sale. Through HAFA, a borrower may also receive a DIL either as a condition of the short sale agreement if the property doesn’t sell or separately without a requirement to market the property. In all HAFA transactions, the title must be clear, any subordinate lien holders must release their liens, and investors must agree to the transaction. According to Treasury data, about 26,000 nonenterprise HAFA short sales and DILs had been completed as of December 2011.\nFannie Mae has outlined the requirements for foreclosure mitigation programs in its Single Family Servicing Guide, which are summarized here. These guidelines apply only to mortgages that are owned or guaranteed by Fannie Mae.\nFannie Mae recently changed its foreclosure mitigation workout hierarchy to require servicers to first evaluate whether borrowers face a temporary or permanent hardship. Temporary hardships may be addressed with repayment plans and temporary forbearance. Permanent or long-term hardships may be addressed with modifications (which may include forbearance) under the Home Affordable Modification Program (HAMP), Fannie Mae’s standard loan modifications, short sales or deeds-in-lieu of foreclosure (DIL) under the Home Affordable Foreclosure Alternatives program (HAFA) or Fannie Mae’s own program. Fannie Mae also has a program to lease back a property that has been conveyed through a DIL to the former homeowner, called a deed-for-lease. Previously Fannie Mae required servicers to evaluate borrowers for a HAMP modification before considering them for other foreclosure mitigation actions.\nRepayment Plans and Forbearance: A repayment plan is an agreement between servicer and borrower that gives the borrower a period of time to reinstate the mortgage by making regular monthly payments plus an additional amount to repay the delinquency. Servicers may also offer forbearance to borrowers, which suspends or reduces payments for up to 6 months. Forbearance periods longer than 6 months require written agreements with the borrower and written approval from Fannie Mae. Fannie Mae also has unemployment forbearance, which is the first action servicers must consider for unemployed borrowers. Fannie Mae clarified the requirements for this action in early 2012. Unemployment forbearance initially lasts for 6 months or until the borrower is reemployed, whichever occurs first. If the borrower completes the initial unemployment forbearance period and remains unemployed, the servicer may offer extended unemployment forbearance for up to 6 more months with Fannie Mae’s approval. For all forbearance programs, once the borrower’s hardship is resolved, the forbearance period ends and the borrower must repay the full amount, enter a repayment plan, or receive a loan modification or other foreclosure mitigation action. Fannie Mae completed about 90,000 repayment plans and forbearance agreements under these programs between January 2009 and December 2011.\nHome Affordable Modification Program (HAMP): Servicers must evaluate borrowers for HAMP before considering them for other modification options. Like Treasury’s nonenterprise HAMP program, the Fannie Mae HAMP evaluation reduces the monthly mortgage payment-to-income ratio to 31 percent by following a standard sequence of modification actions: capitalizing past due amounts, reducing the interest rate to a minimum of 2 percent, extending the mortgage term to up to 40 years, and forbearing principal. Servicers use Treasury’s net present value (NPV) model to estimate the financial outcome of modifying or not modifying the loan. Unless the NPV result for not modifying the loan exceeds the NPV result for modifying the loan by more than $5,000, the servicer must move forward with the HAMP modification. Borrowers who are approved for HAMP begin with a trial period that lasts at least 3 months. Modifications become permanent after borrowers have successfully completed the trial period. Fannie Mae pays borrower and servicer incentives for HAMP modifications but is not eligible for Treasury’s investor incentives under HAMP. Fannie Mae completed nearly 330,000 HAMP modifications as of December 2011.\nNon-HAMP Loan Modifications: Fannie Mae servicers must consider borrowers who do not qualify for HAMP or have defaulted on HAMP modification for standard modifications. The terms of Fannie Mae’s standard loan modification program, which took effect October 1, 2011, require servicers to capitalize past due amounts, adjust interest rates to a fixed rate (to be adjusted from time to time based on market conditions), and extend the amortization term to 480 months. In addition, if the current loan-to-value (LTV) ratio exceeds 115 percent, the servicer must forbear up to 30 percent of the principal balance to bring the LTV ratio down to 115 percent. These changes must reduce monthly payments by at least 10 percent, and the borrower’s front-end debt-to-income ratio must be greater than or equal to 10 percent and less than or equal to 55 percent in order for the modification to proceed. Fannie Mae offers up to $1,600 in incentives for each modification, depending on how early in the delinquency the modification takes effect.\nPrior to October 2011, Fannie Mae delegated authority to its largest servicers, which represent approximately 90 percent of loans, to offer modifications to borrowers who met specified eligibility criteria according to a standard set of waterfall steps. This modification structure was aimed at making monthly payments more affordable. Fannie Mae paid servicers $800 for each approved modification. Nearly 390,000 loans were modified through Fannie Mae’s non- HAMP programs between January 2009 and December 2011.\nShort Sales and Deeds-in-Lieu of Foreclosure: Borrowers who cannot afford to keep their homes must be considered for a short sale or DIL, first under HAFA and then under Fannie Mae’s own program. Borrowers who qualify for a HAFA short sale must sign and return an agreement that lasts for 120 days and lists the minimum list price for the short sale, allowable transaction costs, and monthly mortgage payments for the period of the agreement. A HAFA DIL is generally available to borrowers who are unable to sell their properties under the HAFA short sale process. In certain instances—such as a serious illness, death, military relocation or in other cases when a borrower has no interest or ability to market the property—the servicer may offer DIL without going through the HAFA short sale process. Under Fannie Mae’s program, Fannie Mae has delegated authority to certain servicers to offer short sales and DILs on its behalf under the terms of the delegated authority. However, servicers that do not have Fannie Mae’s delegated authority are required to obtain Fannie Mae’s approval on a case-by-case basis. Fannie Mae short sales and DILs can be offered to borrowers who are ineligible for HAFA. Fannie Mae reported completing more than 190,000 short sales and DIL transactions since January 2009.\nIn addition, Fannie Mae has a deed-for-lease program as part of its DIL effort that has been in place since November 2009. Under this program, the borrower can receive a lease agreement for up to 12 months. Fannie Mae officials told us that most borrowers are looking to move out of the home at a time that is convenient for them rather than looking to stay for an extended period of time.\nFreddie Mac has outlined the requirements for foreclosure mitigation programs in its Servicer Guide, which are summarized here. These guidelines apply only to mortgages that are owned or guaranteed by Freddie Mac.\nFreddie Mac requires servicers to evaluate borrowers for foreclosure mitigation actions in accordance with a hierarchy, which begins with reinstatement, repayment plans and forbearance. If servicers determine that those options are not appropriate, they evaluate borrowers for a modification under the Home Affordable Modification Program (HAMP) before considering them for other foreclosure mitigation actions. If the borrower does not qualify for HAMP, the servicer evaluates the borrower for a Freddie Mac standard loan modification. If the borrower is not eligible for a modification, the servicer evaluates the borrower for a short sale or deed-in-lieu of foreclosure (DIL) under the Home Affordable Foreclosure Alternatives program (HAFA), and then under Freddie Mac’s own program.\nRepayment Plans and Forbearance: A repayment plan is an agreement between the servicer and a borrower that gives the borrower a set period to reinstate the mortgage by making the borrower’s contractual payments plus an additional amount to repay the delinquency. Forbearance is another temporary relief option that typically involves reducing or suspending payments for a period of time, and Freddie Mac has three different types of forbearance. Short-term forbearance, which does not require Freddie Mac’s approval, is a written agreement that either suspends payments for up to 3 months or reduces payments for up to 6 months. Long-term forbearance, which requires a written agreement and Freddie Mac’s written approval, is available under certain circumstances—for example, when the borrower is experiencing a hardship due to long-term or permanent disability—and reduces or suspends monthly payments for 4 to 12 months. Unemployment forbearance was added in early 2012. Servicers must consider unemployed borrowers for unemployment forbearance first. Unemployment forbearance initially lasts for 6 months or until the borrower gets a job, whichever occurs first. Borrowers who remain unemployed may be eligible for extended unemployment forbearance, which can last for up to 6 more months, so long as the borrower’s total delinquency does not exceed 12 months, with Freddie Mac’s approval. Freddie Mac reported that servicers had completed nearly 170,000 repayment plans and forbearance agreements under these programs between January 2009 and December 2011.\nHome Affordable Modification Program (HAMP): Servicers must evaluate borrowers for HAMP before considering them for other modification options. Like Treasury’s nonenterprise HAMP program, the Freddie Mac HAMP evaluation includes following a standard sequence of modification actions to produce a monthly mortgage payment-to-income ratio of 31 percent: capitalizing past due amounts, reducing the interest rate down to a minimum of 2 percent, extending the mortgage term by up to 40 years from the date of modification, and, if applicable, forbearing principal. Servicers use Treasury’s net present value (NPV) model to estimate the financial outcome of modifying or not modifying the loan. Unless the NPV result for not modifying the loan exceeds the NPV result for modifying the loan by more than $5,000, the servicer must move forward with the HAMP modification. Borrowers who are approved for HAMP begin with a trial period that lasts at least 3 months, and the modification becomes permanent if they successfully complete the trial period. Freddie Mac completed more than 150,000 HAMP modifications between January 2009 and December 2011.\nNon-HAMP Loan Modifications: Freddie Mac servicers also consider borrowers who do not qualify for HAMP or have defaulted on a HAMP modification for standard modifications. The terms of Freddie Mac’s standard loan modification program, which became available on October 1, 2011, require servicers to capitalize past due amounts, adjust interest rates to a Freddie Mac- specified fixed rate, and extend the amortization term to 480 months. In addition, if the current LTV ratio exceeds 115 percent, the servicer must forbear up to 30 percent of the unpaid principal balance to reduce the LTV to 115 percent. The modification proceeds only if these changes reduce the borrower’s monthly principal and interest payments by at least 10 percent and the front-end debt-to- income ratio to greater than or equal to 10 percent and less than or equal to 55 percent. Servicers are eligible to receive incentives of up to $1,600 for each modification, depending on how early in the delinquency the modification takes effect. Prior to January 2012, Freddie Mac required all servicers to evaluate borrowers for a non-HAMP modification using a standard waterfall. In some cases, Freddie Mac delegated authority to some servicers to offer non-HAMP modifications. Servicers that did not have Freddie Mac’s delegated authority were required to provide a recommendation to Freddie Mac for a non-HAMP modification. Freddie Mac would determine the conditions of non-HAMP modifications and offered incentives of $800 per completed modification. Freddie Mac modified more than 190,000 loans between January 2009 and December 2011 through their non-HAMP programs.\nShort Sales and Deeds-in-Lieu of Foreclosure: Borrowers who cannot afford or do not want to retain ownership of their homes must be considered for short sales and deeds-in-lieu of foreclosure (DIL), first under the Home Affordable Foreclosure Alternatives (HAFA) program and then under Freddie Mac’s own program. These programs are typically the final options for avoiding foreclosure. Borrowers may be considered for HAFA only after being considered for home retention options, such as HAMP and a Freddie Mac standard modification. Borrowers who qualify for a HAFA short sale must sign and return a short sale agreement that lasts for 120 days and lists the minimum list price for the short sale, allowable transaction costs, and monthly mortgage payments to be made during the period of the agreement. Freddie Mac can extend the agreement if no acceptable purchase offers have been received, provided that the borrower has fully complied with the short sale agreement and an acceptable purchase offer is likely to occur during the extension period. Freddie Mac delegates the approval of HAFA short sales to servicers. A HAFA DIL is available only to borrowers who were unable to sell under the HAFA short sale process. With Freddie Mac’s approval, the servicer prepares a DIL agreement that, among other things, sets the date when the owner will vacate the property and outlines monthly payment terms until then. Borrowers who are ineligible for HAFA may be eligible for a Freddie Mac short sale or DIL. In some cases, Freddie Mac requires that the servicer obtain approval prior to accepting short sale offers or offering a DIL agreement. Under both HAFA and Freddie Mac’s short sale and DIL programs, if the borrower completes the transaction in accordance with Freddie Mac’s standard requirements, the borrower is released from liability for the remaining unpaid balance on the mortgage. Freddie Mac reported completing more than 100,000 short sales and DILs since January 2009.\nFederal Housing Administration (FHA)\nThe Federal Housing Administration (FHA) has outlined the requirements for foreclosure mitigation programs in a series of guidance documents (called mortgagee letters), which are summarized here. These guidelines apply only to mortgages that are insured by FHA.\nPrior to engaging in formal foreclosure mitigation actions, FHA requires servicers to address delinquencies through an early intervention process. This process involves contacting the borrower and gathering information on the borrower’s circumstances and financial condition. The servicer may refer the borrower to default counseling. During this process, the servicer may come to an informal forbearance arrangement with the borrower, which lasts for 3 months or less, that helps the borrower reinstate the loan through a repayment plan.\nWhen a servicer determines the need for a formal foreclosure mitigation action, FHA requires servicers to ensure that the borrower can afford the new monthly payment. In addition, servicers must consider formal foreclosure mitigation actions in the following order, from the lowest upfront cost to FHA to the highest upfront cost: repayment plans and special forbearance, standard loan modification, partial claim, FHA-HAMP, preforeclosure sale, and deed-in-lieu of foreclosure (DIL). To qualify for most of these actions, borrowers must be at least 90 days delinquent but no more than 12 months past due.\nRepayment Plans and Special Forbearance: Servicers may provide temporary relief to borrowers through repayment plans and special forbearance. Special forbearance combines a suspension or reduction in monthly mortgage payments with a repayment period and is available to borrowers who are at least 3 mortgage payments delinquent. Two types of special forbearance are available. Under Type I, the minimum forbearance period is 4 months, unless the borrower is unemployed, in which case the minimum forbearance period is 12 months under a temporary program change. Servicers must verify the employment status of unemployed borrowers monthly and certify that payments are made as scheduled. Type II special forbearance combines a short-term special forbearance plan with a loan modification or partial claim. The borrower must make three full monthly payments before the loan modification begins or the partial claim is executed. FHA provides servicers with incentive payments of $100 to $200 for Type I special forbearance agreements, depending on servicers’ performance ratings. FHA does not provide incentives for Type II agreements because servicers can receive them for the subsequent loan modifications or partial claims. Servicers reported that about 440,000 repayment plans were completed between January 2009 and December 2011. During the same period, FHA paid incentives on about 67,000 Type I special forbearance plans.\nStandard Loan Modifications: Borrowers must have paid at least 12 full monthly mortgage payments and be at least 3 months delinquent in order to qualify for a standard loan modification. Servicers capitalize past due amounts, reduce interest rates to the current market rate, and extend the term by up to 10 years from the original maturity date or 360 months. Borrowers generally must complete a trial period of 3 months. FHA offers $750 in incentives per standard modification completed. More than 370,000 standard loan modifications have been completed since January 2009.\nPartial Claims: Servicers may advance funds on behalf of a borrower to reinstate a loan that is at least 4 months delinquent. The total past due amount may not exceed 12 months and the mortgage may not be in foreclosure. The advance (called a partial claim) does not change the borrower’s monthly payments, so servicers must ensure that borrowers can resume making their regular payments. Borrowers must complete a trial period of at least 3 months making their regularly scheduled monthly payments before the partial claim is executed. FHA reimburses the servicer for the partial claim and executes an interest-free subordinate lien for the amount, which is payable when the property is sold or the first mortgage is paid off. FHA provides servicers with incentive payments of $500 per partial claim. FHA has paid claims on nearly 47,000 partial claims since January 2009.\nFHA-HAMP Modifications: Borrowers for whom a standard modification is not sufficient may be evaluated for a HAMP-style modification under the authority provided to HUD in 2009. The delinquent loan must have been originated at least 12 months before, and the borrower must have paid at least four full monthly payments. FHA-HAMP modifications bring borrowers’ monthly payments down to 31 percent of income by reducing interest rates to the market rate, extending the loan term to 30 years, and deferring principal. Rather than capitalizing past due amounts, however, servicers advance funds to reinstate the loan. FHA reimburses the servicer for the advance (as with a partial claim) and executes an interest-free subordinate lien in the amount of the advance plus any deferred principal. The amount of the subordinate lien cannot exceed 30 percent of the unpaid principal balance prior to the modification. FHA provides servicers with incentive payments of up to $1,250 per FHA-HAMP modification. According to data from FHA officials, about 13,000 FHA-HAMP loan modifications have been completed since the program was implemented.\nPreforeclosure Sales and Deeds-in-Lieu of Foreclosure (DIL): Under a preforeclosure sale agreement (also called a short sale), FHA accepts the proceeds of the sale as satisfying the mortgage debt, as long as the net proceeds (sales price minus certain costs) are at least 84 percent of the appraised value. A DIL is a voluntary transfer of a property from the borrower to FHA for a release of all obligations under the mortgage. FHA provides servicers with incentive payments of up to $1,000 for each completed preforeclosure sale and borrowers with payment of $750 to $1,000. For DILs, servicers can receive incentive payments of $250 per completed DIL transaction, and borrowers can receive $2,000. Nearly 60,000 pre-foreclosure sales and DILs have been completed since the beginning of 2009.\nDepartment of Veterans Affairs (VA)\nThe Department of Veterans Affairs (VA) has outlined the requirements for foreclosure mitigation programs in a series of guidance documents, which are summarized here. These guidelines apply only to mortgages that are guaranteed by VA.\nVA recommends that servicers consider foreclosure mitigation actions in the following order: repayment plans, special forbearance, loan modifications (including VA-HAMP), refunded loans, compromise sales, and deeds-in-lieu of foreclosure (DIL).\nIn addition, VA assigns each loan that is more than 60 days delinquent to a staff member, who monitors the servicer’s activity to ensure appropriate action is taken to assist the veteran borrower. VA provides the contact information of the staff member to the borrower, as well as options for resolving the delinquency. If the loan becomes 120 days delinquent, the VA staff member performs a review of the adequacy of servicing, which includes reviewing the servicer’s case notes, discussing the case with servicer staff, and serving as an intermediary between the servicer and borrower, if necessary. If VA determines the servicing has been adequate, another review will be performed in 90 days.\nRepayment Plans: Repayment plans, which last at least 3 months, allow borrowers to make their normal monthly payments plus a portion of the past due amount. Servicers must establish that the borrower is financially able to make these payments and must review the plan monthly to ensure that the borrower is complying with the plan. VA provides servicers with incentive payments of up to $200 for each repayment plan that reinstates a loan that was more than 60 days delinquent. According to data provided by VA officials, more than 25,000 repayment plans have been completed since January 2009.\nSpecial Forbearance: VA recommends that servicers consider special forbearance for borrowers who would not be able to maintain a repayment plan. Special forbearance involves a written agreement in which the servicer agrees to reduce or suspend payments for a month or more. There is no maximum period for special forbearance plans. At the end of the forbearance period, the borrower must pay the total delinquency or enter into a repayment plan. VA provides servicers with incentive payments of up to $200 for each special forbearance plan that reinstates a loan that was more than 60 days delinquent. However, if the borrower starts a repayment plan at the end of the forbearance period, the special forbearance is not eligible for the incentive payment. Instead, the servicer receives it on the repayment plan if the loan is reinstated. According to data from VA officials, about 2,600 special forbearance plans have been completed since the beginning of 2009.\nStandard and VA-HAMP Loan Modifications: Servicers are allowed to modify loans without VA’s prior approval provided certain regulatory conditions are met, such as the borrowers must have made at least 12 full monthly mortgage payments, the loan is not modified more than once in a 3-year period, and no more than three times over the life of the loan. If the conditions are not satisfied, the servicer may seek VA prior approval to modify the loan if they have determined that the event or circumstance that caused the delinquency has been or will be resolved and is not expected to reoccur. The traditional loan modification results in a loan with a fixed interest rate that does not exceed the current market rate plus 50 basis points. The term of the loan may be extended to the shorter of 360 months after the due date of the first payment on the modification or 120 months after the original maturity date. According to VA officials, servicers are expected to use VA’s underwriting guidance on affordability to determine whether the borrower can make the monthly payments, including recommended thresholds for residual income and debt-to-income ratios, with appropriate consideration of exculpatory or mitigating circumstances. If servicers determine that a traditional modification is not sufficient, they may evaluate the borrowers for a HAMP-style modification according to the guidelines VA issued in 2010. These VA-HAMP modifications involve reducing the interest rate to as low as 2 percent, extending the term of the loan to 480 months, and deferring principal.\nVA provides servicers with incentive payments of up to $700 for each loan modification that reinstates a loan that was more than 60 days delinquent. According to data from VA officials, about 30,000 loan modifications have been completed since the beginning of 2009. VA officials stated that they do not require servicers to specify whether the modifications they complete are traditional or VA-HAMP modifications when they report. However, the number of completed modifications increased markedly after the VA-HAMP guidance was issued in January 2010 (see figure).\nRefunded Loans: VA may elect to purchase a loan and assume the servicing responsibilities if the servicer determines that modifying the loan is not in the servicer’s economic interest. VA officials we spoke with said that VA evaluates refunding options under the terms of HAMP modifications using a VA net present value (NPV) model. If the NPV result is positive, VA will refund the loan. Even if the NPV result is negative, VA will evaluate the borrowers’ circumstances and may decide to refund the loan if the circumstances warrant it. This process is typically the final attempt to keep veterans in their home. According to data from VA officials, about 250 loans have been refunded since the beginning of 2009.\nCompromise (Short) Sales and Deeds-in-Lieu of Foreclosure (DIL): A compromise sale, also known as a short sale, is the first option the servicer should consider after determining that home retention options are not feasible. A compromise sale is typically for an amount that is less than the borrower’s total indebtedness on the loan. VA provides servicers with incentive payments of up to $1,000 for each completed compromise sale on loans that were more than 60 days delinquent. According to data provided by VA officials, almost 13,000 compromise sales have been completed since the beginning of 2009.\nA DIL is a voluntary transfer of a property from the borrower to the holder for a release of all obligations under the mortgage. Servicers are to consider a DIL only after considering all other loss mitigation options and determining they are not viable. The servicer must obtain a VA appraisal of the property. After completing the DIL, the servicer may retain ownership of the property or transfer it to VA. VA provides servicers with incentive payments of up to $350 per deed- in-lieu of foreclosure transaction that is completed on loans that were more than 60 days delinquent. According to data provided by VA officials, about 2,000 DILs have been completed since the beginning of 2009.\nDepartment of Agriculture (USDA)\nThe Department of Agriculture (USDA) has outlined the requirements for foreclosure mitigation programs in a loss mitigation guide and regulations, which are summarized here. These guidelines apply only to mortgages that are guaranteed by USDA.\nServicers are encouraged to address delinquencies of one or two missed payments through an early intervention process. This process involves borrower analysis, where the servicer gathers information on the borrower’s circumstances, intentions, and financial condition, and default counseling, where the servicer provides the borrower with information on available resources for housing counseling and loss mitigation options. During this process, the servicer may come to an informal forbearance arrangement, which lasts for 3 months or less, that helps the borrower reinstate the loan.\nWhen moving into formal mitigation actions (which begin when the borrower is 90 days or more delinquent), servicers should determine first whether the default is curable or noncurable. For curable defaults, servicers should consider special forbearance, loan modifications, and special loan servicing. For noncurable defaults, servicers should consider preforeclosure sales and deeds-in- lieu of foreclosure.\nSpecial Forbearance: A special forbearance plan can be structured to gradually increase monthly payments to repay the past due amount over time (at least 4 months) or through a resumption of normal payments for 3 or more months followed by a loan modification. Servicers may also suspend or reduce payments for 1 or more months (typically for periods of up to 3 months) to allow the borrower to recover from the cause of the delinquency, or may allow the borrower to resume making full monthly payments while delaying the repayment of the past due amount. The past due amount must not exceed the equivalent of 12 months of principal, interest, taxes, and insurance. There is no maximum duration for special forbearance plans, but the term must be reasonable and based upon the borrower’s repayment ability. USDA does not provide servicers with incentive payments for special forbearance plans. According to USDA, more than 5,000 special forbearance servicing plans were approved between January 2009 and December 2011.\nTraditional Loan Modifications: Loan modifications can be offered only if borrowers are 3 or more months delinquent or in imminent danger of default. A loan that is in foreclosure must be removed from foreclosure status in order to be modified. Borrowers must be owner-occupants of the property and be committed to occupying the property as a primary residence. The servicer must verify the property’s physical condition through an inspection before approving a modification. The term of the loan modification should not exceed 360 months from the date of the original loan, because USDA’s guarantee is only in effect for 30 years from the date of the original loan. Loan modifications may include reducing interest rates, including to below market levels; capitalizing all or a portion of past due amounts into the mortgage balance; and reamortizing the balance due. The modified balance may exceed the original loan balance and may equal more than 100 percent of the property’s current value. Modified loans that become delinquent are to be treated as new delinquencies, and servicers are to go through the full loss mitigation process. USDA does not offer servicers incentive payments for completing loan modifications. According to USDA, almost 13,000 loan modification servicing plans were approved between January 2009 and December 2011.\nSpecial Loan Servicing: Under regulations finalized in September 2010, USDA authorized servicers to provide additional relief to borrowers when traditional servicing methods do not provide a means to cure the default. As with loan modifications, the borrower must be in default or facing imminent default and must occupy the property as the primary residence and intend to continue doing so. Under this authority, called special loan servicing, servicers must reduce the interest rate to the market rate plus 50 basis points and extend the loan term up to 30 years. If necessary, the servicer may reduce the interest rate further, extend the term of the loan to up to 40 years from the date of the modification, and/or advance funds to satisfy the borrower’s past due amount, including legal fees and costs related to a canceled foreclosure. In addition, the servicer may defer principal. The sum of funds advanced cannot exceed 30 percent of the unpaid principal balance at the time of default and cannot cover past due amounts of more than 12 months of principal, interest, taxes, and insurance. USDA will reimburse the servicer for this amount and the borrower will execute a subordinate lien that is due when the property is sold or the mortgage paid off. Borrowers who are delinquent at the time of special loan servicing must complete a 3-month trial period, and borrowers who are in imminent default a 4- month trial period. According to USDA, 143 special loan servicing modification plans were approved between January 2009 and December 2011.\nPreforeclosure Sales and Deeds-in-Lieu of Foreclosure (DIL): A preforeclosure sale, also known as a short payoff or short sale, is the first option servicers are to consider after determining that a borrower cannot resolve a default. A preforeclosure sale is generally for an amount that is less than the borrower’s total indebtedness on the loan. The preforeclosure sale period is typically 3 months, and the servicer must review the sale plan every 30 days. If no closing date is scheduled within 90 days, the servicer may discuss the likelihood of a sale with the real estate broker and determine whether to extend the sale period by 30 days (if a sale is likely) or end the sale period. USDA provides servicers with incentive payments of up to $1,000 for each completed sale. According to USDA, almost 3,000 preforeclosure sale servicing plans were approved between January 2009 and December 2011.\nA DIL is a voluntary transfer of a property from the borrower to the holder for a release of all obligations under the mortgage. A DIL is preferable to foreclosure because it avoids the time and expense of a legal foreclosure action, and the property is generally in better physical condition because the borrower is cooperating with the servicer. USDA provides servicers with incentive payments of up to $250 for each completed DIL transaction. According to USDA, more than 200 DIL servicing plans were approved between January 2009 and December 2011.\nRefinancing can provide relief to borrowers who need lower monthly payments, but borrowers who are delinquent or who owe more than their homes are worth are generally unable to qualify. Here we present information on federal refinance programs that specifically target distressed borrowers.\nHome Affordable Refinance Program: The Home Affordable Refinance Program (HARP) was announced in February 2009 as a way to help borrowers who were current on their mortgage payments but unable to refinance because of declining home values. Under HARP, such borrowers can benefit from reduced interest rates that make their mortgage payments more affordable. Only mortgages owned by Fannie Mae and Freddie Mac are eligible. Initially, HARP targeted borrowers with current loan-to-value (LTV) ratios between 80 percent and 105 percent, although in July 2009 the Federal Housing Finance Agency (FHFA) revised those requirements to include borrowers with current LTV ratios of up to 125 percent. To respond to continued weakness in the housing market, including the large number of borrowers with significant negative equity (current LTV ratios that are greater than 125 percent), FHFA announced changes to HARP in October 2011. Among these changes was the removal of the LTV cap—allowing borrowers with current LTV ratios above 125 percent to refinance—and reduced delivery fees (fees that the enterprises charge to servicers and that are typically passed on to the borrower). The standard mortgage insurance requirements for these refinance loans were relaxed so that borrowers who did not have mortgage insurance on their existing loan did not have to purchase it for their refinanced loan, something that would typically be required for a loan with an LTV ratio of more than 80 percent FHA Refinance for Homeowners in Negative Equity Positions: Treasury worked in conjunction with FHA to establish the FHA Refinance for Borrowers in Negative Equity Positions (FHA Short Refinance), which is in part supported by TARP funds. For loans refinanced under the FHA Short Refinance program, Treasury will pay claims on those loans up to a predetermined percentage after FHA has paid its portion of the claim. This program took effect in September 2010 and provides an opportunity to borrowers who are current on their mortgage payments and who have loans not insured by FHA that have current LTV ratios greater than 100 percent to refinance into an FHA-insured mortgage. In order to qualify, investors must write down at least 10 percent of the outstanding principal and achieve an LTV ratio of no more than 97.75 percent. Through December 2011, FHA Short Refinance has had limited success, reaching 646 borrowers.\nBorrowers who receive a refinance under the FHA Short Refinance program and who have second liens may qualify for relief under the Treasury/FHA Second Lien Program. Treasury provides incentives to investors and servicers for partially or fully extinguishing these second liens. While Treasury allocated $2.7 billion in TARP funds to the program, it had not made any incentive payments as of December 31, 2011, and no second liens had been extinguished.\nThere are many other efforts that have been undertaken, including those by states, localities, and private organizations to mitigate foreclosures. Here we highlight three other efforts: the FDIC loan modification program, which was considered in developing the Home Affordable Modification Program (HAMP); the Housing Finance Agency Innovation Fund for Hardest Hit Housing Markets, which provides TARP funds to 18 states and the District of Columbia to develop innovative solutions to address housing problems; and the Emergency Homeowners Loan Program, which provided funds to the remaining 32 states and Puerto Rico to provide temporary assistance to unemployed borrowers.\nFDIC Loan Modifications: On July 11, 2008, FDIC was named conservator of IndyMac Federal Bank. Soon after, FDIC developed a loan modification program to modify nonperforming mortgages owned or serviced by the bank into affordable loans. Under that program, the goal was to reduce monthly payments to 38 percent of monthly gross income (this amount was subsequently changed to 31 percent, the same as HAMP) through capitalization, interest rate reduction, term extension, and, if necessary, principal forbearance—the same waterfall used by HAMP. The loan modification program implemented at Indymac Federal Bank served as a model for loan modification requirements found in Shared-Loss Agreements. According to FDIC staff, no federal funds have been expended for these failed bank resolutions.\nHousing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (Hardest Hit Fund): Treasury obligated $7.6 billion to 18 state housing finance agencies in states that were designated as among the hardest hit by the housing crisis, plus the District of Columbia. These states were to develop innovative solutions appropriate for their states. Treasury approved plans for these states’ programs, which totaled 55 as of December 2011. These programs target unemployed borrowers with temporary relief as well as offer loan modification assistance, refinance options, and foreclosure alternatives.\nEmergency Homeowners Loan Program: Through the Emergency Homeowners Loan Program (EHLP), HUD provided short-term loans to unemployed borrowers to help meet their mortgage obligations in the 32 states and Puerto Rico that did not receive Hardest Hit Fund dollars. The program was designed to provide mortgage payment relief (up to $50,000 total) to eligible homeowners experiencing a drop in income of at least 15 percent to cover past- due mortgage payments as well as a portion of the homeowner’s mortgage payment for up to 24 months. HUD permitted five states with similar programs already in place—Connecticut, Delaware, Idaho, Maryland, and Pennsylvania— to direct their allocations to those programs. NeighborWorks America, a federally chartered nonprofit organization, administers EHLP for the remaining 27 states and Puerto Rico that did not receive Hardest Hit Fund dollars and did not have existing programs similar to EHLP. Applications for funds under EHLP were due in September 2011. HUD reported that, as of September 30, 2011, slightly more than half of the $1 billion allocated to the program had been obligated. As of December 2011, more than 5,500 EHLP loans had been closed and nearly 6,000 other loans were in process.", "This appendix describes the algorithms we developed to identify mortgages that received a modification action and the steps we took to demonstrate the reliability of our results. By identifying the modification actions, we were able to examine the timing and characteristics of modification activity, and to see how certain characteristics affected the loan performance of a broad set of modified mortgages. We developed the algorithms because direct information on loan modifications is not generally available, and is not reported in the proprietary loan-level data set of prime, Alt-A, and subprime mortgages compiled by CoreLogic, an aggregator of monthly mortgage data reported by servicers that have agreed to provide this information. The CoreLogic data provide wide coverage of the entire mortgage market—approximately 65 percent to 70 percent of prime loans and about 50 percent of subprime loans, according First, we took several steps to prepare the data so to CoreLogic officials.that we would have complete and clean loan performance histories. Second, we developed algorithms to identify month-to-month changes in loan terms that would indirectly indicate the presence of modifications. We reviewed statistics on the volume and features of loan modifications contained in OCC’s mortgage metric reports and shared our approach and algorithms with a variety of researchers, analysts, and regulators, making adjustments in response to their comments. Finally, we assessed the performance of our algorithms by applying them to a large set of mortgages serviced by entities subject to OCC’s regulation. These servicers provided information on modifications and loan and borrower characteristics directly to OCC.", "We began with a sample of mortgages in the CoreLogic database that met certain requirements. Specifically, we restricted our analysis to first- lien mortgages for the purchase or the refinancing of single-family residential properties (1- to 4-units) located in the 50 states and the District of Columbia that were active during the period from January 2007 through June 2011. We took a 15-percent sample of this set of loans that resulted in a set of 7,608,603 prime (and Alt-A) mortgages and 608,704 subprime mortgages. For each mortgage, the CoreLogic database provided information on selected loan and borrower characteristics at origination. It also provided a series of monthly observations on, among other items, the balance, scheduled payment, interest rate, and mortgage status (current; 30,60, or 90 or more days delinquent; in foreclosure; real estate owned; or paid in full). This yielded a panel data set with a sequence of monthly observations for each loan. Because we required information on month-to-month changes for certain loan characteristics, such as balance and interest rate, we needed complete and reliable information on these characteristics for each month that a loan was active during the period. However, many mortgages, particularly subprime mortgages, had an incomplete set of monthly observations, often because a servicer stopped providing information to CoreLogic. In these cases, we had a sequence of monthly observations early on but not complete information for our entire period, even though the mortgage was still active. We also had incomplete data for loans that were transferred from servicers that did not participate with CoreLogic to servicers that did and for loans with servicers who joined CoreLogic later in our sample period, leaving us without information on the earlier mortgage activity. We excluded loans with these and other data-reporting issues that impaired For the our ability to identify loan modifications over our time period.remaining loans (those with complete information), we calculated the changes in interest rate, balance, and scheduled payment from their values in the previous month.", "To identify modification actions we developed decision rules or algorithms for identifying monthly changes in mortgage terms that were likely to indicate an actual modification action. Some changes to mortgage terms were expected, but others were not. For instance, in the case of a fully amortizing, fixed-rate mortgage, the interest rate should not change for the entire duration of the mortgage. Thus any change to the interest rate should indicate a modification. But in the case of an adjustable rate mortgage (ARM) or hybrid mortgage, the interest rate changes in expected ways according to reset provisions in the mortgage contract. Thus, a change to the interest rate in a month in which a rate change was expected and by an amount consistent with identified reset parameters would likely not indicate a modification. Our decision rules differed depending on whether a mortgage was a fixed-rate mortgage, ARM, or hybrid mortgage.\nBecause we could observe month-to-month changes in interest rates and loan balance, our algorithms focus on interest rate decreases, balance increases, and balance decreases that were likely to indicate a modification. We relied on rules developed by Federal Reserve Bank researchers to inform our initial screens. Their approach screened out quite small changes and set upper and lower bounds on balance changes. In some contexts, they also used information on a loan’s performance status as part of their decision rules—for instance, by requiring that observed changes be counted as modifications only if the mortgage was delinquent before the observed change. We modified these concepts, initially, accepting as potential modifications even very small changes in interest rates and balances. We did not impose upper bounds on balance changes, and we did not require that loans be delinquent. We made the latter decision because the HAMP program provides modifications for borrowers who are in imminent risk of default on their mortgages, even though they may be current in their payments. Additionally, in the case of prime, subprime and Alt-A hybrid loans, and subprime ARM loans, we compared the interest rate in the month of a rate change to the rate that equaled the loan’s specified margin and the specified index interest rate that was used to determine any adjustments. If the rate in the month of a rate change was lower than our calculated rate by more than 100 basis points, we accepted the change as a modification because the decrease was large relative to what would be expected.\nWe placed each identified action into one of five broad categories: capitalization accompanied by a rate reduction; capitalization only; rate reduction only; balance decrease accompanied by a rate reduction; and balance reduction only. For a month-to-month balance decrease, we could not distinguish between balance forbearance and balance forgiveness. In addition, because these month-to-month changes were net changes, we could not identify modifications in which arrears were added to the balance (capitalization) at the same time as an offsetting balance reduction. For example, we could not distinguish a (net) balance decrease modification from a modification in which a capitalization is more than offset by balance forbearance or forgiveness. Similarly, we could not distinguish a (net) balance increase modification from a modification in which a capitalization is less than offset by balance forbearance or forgiveness.\nAfter examining the resulting volume, timing, and composition of our initial set of identified actions and incorporating information from OCC mortgage metric data, we tightened our screens by adjusting the lower bounds, including upper bounds, and imposing some loan performance conditions (see table 2). We discussed our general approach with Federal Reserve Bank researchers, OCC staff, representatives from CoreLogic, and representatives from Amherst Securities Group, LP. Further, we discussed our preliminary results with these researchers, OCC staff, and representatives from CoreLogic.\nWe did not attempt to identify modifications with only a term extension characteristic because of data reliability issues concerning information on a loan’s original term and maturity date and because this type of modification occurred fairly infrequently. However, for months in which we did find a rate change or balance change, we solved for the amortization period associated with other mortgage characteristics at modification, and estimated whether and by how much the mortgage term had been extended. Specifically, we placed each action into one of three term extension categories: with term extension (if the estimated term extension was between 4 and 200 months); no term extension (if the estimated term extension was less than 4 months or greater than 200 months); or unknown term extension (if we were not able to calculate a measure of term extension).", "Our algorithms performed well when applied to a database of mortgages containing information reported by servicers on both modified and nonmodified loans. We were able to obtain information from OCC’s database on mortgage characteristics and monthly loan performance for two samples of 1,000,000 loans that were active for at least some portion One sample of the period from January 2009 to December 2010.included known modified loans, the other loans that had not been modified. We used similar data cleaning steps we developed for the CoreLogic data to screen out mortgages without complete and reliable histories and selected only fixed-rate mortgages for our robustness test. We examined fixed-rate mortgages because they were by far the most prominent mortgage type in our CoreLogic data sample. Because ARMs by definition have more month-to-month changes than fixed-rate mortgages, algorithms for ARMs are likely to be less successful in identifying true modifications. To the extent that ARMs were proportionately more troubled and more likely to be candidates for modification, this difficulty was a limitation Nonetheless, we believe our overall approach was reasonable and reliable. Furthermore, our econometric analysis in appendix V is robust to the issue of ARM modifications.\nWe were left with 434,635 fixed-rate mortgages with known modifications and 513,645 fixed-rate mortgages without modifications. When we applied our algorithms to the set of 434,635 modified mortgages, we identified 415,367 as having at least one modification action. Because a mortgage can receive a modification action in more than one month, we identified a total of 450,131 modification actions over this time period. Table 3 shows the relationship between OCC’s data and GAO’s at the loan level, combining the known modified and nonmodified loans.\nOf the 434,635 loans for which there was at least one directly reported modification action, we missed 19,268 (4.4 percent) of them. We believe that this percentage is an acceptable incidence of false negatives. Of the loans for which our algorithms did not indicate a modification, about 10 percent of the actions were reported to be term extensions only. We did not develop algorithms for this type of modification because of data limitations and evidence that term extensions only were not frequent. Approximately 40 percent were rate reductions only with very small rate movements, and approximately 30 percent were capitalization-only actions. For the set of 513,645 nonmodified loans, our algorithms identified 2,240 loans with at least one modification action, or 0.4 percent of these loans. OCC staff expressed concerns about the usefulness of an algorithmic approach to the identification of modifications. Nonetheless, we interpret our low rate of false negatives in conjunction with this low false positive rate to mean that our decision rules were appropriate. That is, our algorithms found virtually all of the known modifications and very few modifications in the nonmodified sample.\nWe were also interested in assessing how the volume of modification actions captured by our algorithms compared to the volume of directly reported modification actions over time. In OCC’s monthly mortgage data, we defined the month of a modification as the month when the database field for the date of last modification matched the month of the data record. For example, in the February 2010 data record, the date of last modification indicated that a modification occurred in February 2010. In some cases, however, the date of last modification was not reported until after the fact—for example, a data record for September 2010 might provide the first indication that a modification had occurred in June 2010. In these cases, we selected as the month of modification the month indicated as the month of last modification, even if it was not reported until later. We totaled modification actions for each month from January 2009 through December 2010 for the directly reported actions and for those identified by our algorithms. Figure 20 presents the modification volume during the period and shows that the pattern indicated by the application of our algorithms is comparable to the pattern of modifications provided directly by servicers.", "We analyzed CoreLogic data to identify the number and percentage of prime and subprime loans with characteristics associated with an increased likelihood of foreclosure in June 2009, 2010, and 2011. Specifically, we analyzed loans with the following characteristics that we identified as being associated with an increased likelihood of foreclosure: delinquency of 60 days or more; current loan-to-value (LTV) ratio of 125 percent or higher; local area unemployment of 10 percent or higher and current LTV of 125 percent or higher; mortgage interest rate that is 1.5 percentage points or 150 basis points above market rate; origination credit score of 619 or below; and origination LTV of 100 percent or greater.\nWe analyzed the volume of prime and subprime loans with each characteristic as of June 2009, 2010, and 2011. In addition, we evaluated these characteristics by performance, investor (prime loans only), loan type (prime loans only), and product type at origination. Finally, we assessed the extent to which loans had multiple characteristics and the prevalence of overlap among characteristics. For a detailed description of our analysis, please see appendix I.", "This appendix provides (1) a summary of the characteristics of loans in the CoreLogic proprietary loan-level servicing database that we used in our econometric analysis of loans that redefaulted (became 90 days or more delinquent or in foreclosure) 6 months after receiving loan modification actions and a comparison of the characteristics of loans in the CoreLogic data set and Treasury’s Home Affordable Modification Program (HAMP) data set, and (2) the results of our econometric analysis of the relationship between redefault rates and modification actions, controlling for several observable borrower and loan characteristics.\nWe used the CoreLogic database to analyze loans that had been modified under a variety of programs, including proprietary programs and federal programs, such as loans modified through the Department of the Treasury’s HAMP. In addition, we analyzed information from a Treasury database that contained information only on loans that were considered for or received HAMP loan modifications. Although the CoreLogic data set does not include data from all servicers, because it covers a significant portion of the mortgage market, we used it to approximate the universe of loans. The HAMP data set includes loans that had initiated trial modifications and loans that had converted to permanent modifications. For our analysis of HAMP data, our redefault rate is only for permanent modifications. For the CoreLogic data, we could not distinguish between trial and permanent modifications.\nUsing the above data, we described the borrower and loan characteristics of modifications from the universe of loans represented in the CoreLogic database and loans in the HAMP data set. We compared differences between them, focusing on the differences in borrower and loan characteristics, and in loan performance. We also used an econometric analysis to examine the characteristics of borrowers and loans that redefaulted postmodification. First, we looked at the effectiveness of different modification actions (e.g. interest rate reductions, term extensions, loan balance reductions) in reducing redefaults. Second, we compared the effectiveness of HAMP modifications and the universe of modifications identified in the CoreLogic data in reducing redefaults. Third, we examined whether a relationship existed between monthly payment reductions and redefault rates. Finally, we looked at the effect of borrower and loan characteristics (such as the delinquency status of the borrower prior to receiving loan modification and negative home equity) on redefault rates.", "The CoreLogic database contains loan-level information on mortgage servicing. According to CoreLogic officials, it covers approximately 65 to 70 percent of the prime loans and about 50 percent of the subprime loans in the U.S. mortgage market. The database contains detailed information on the characteristics of purchase and refinance mortgages. We used these data to represent the universe of loans that received modification actions between January 2009 and December 2010. We constructed data for loans that had aged at least 6, 12, or 18 months since modification. Although a loan could receive multiple modification actions over time, we recorded each modification action for the same loan as a separate loan. The data contain static and dynamic monthly data files. The static data fields are populated as of loan origination and include variables such as the loan purpose and product type. This is supplemented by monthly data fields (“transactional” data) that reflect the current loan terms (such as interest rate) and loan performance. The CoreLogic database has limitations, including the lack of data on some important variables, such as the type of modification action and FICO credit scores at the time of loan modification. Because this data set did not contain direct information about the presence of modifications, we developed a set of algorithms to infer if the loan had been modified. In addition, the CoreLogic database has incomplete information on key variables, such as second-liens and loan investor or ownership. We explicitly excluded from the analysis mortgages with certain characteristics, including loans that were paid off or in real estate owned (REO) status; liens other than first-liens; loans made for unknown purposes or purposes other than purchase or refinancing; loans with missing or invalid data on the underlying property type; loans for multifamily dwellings with five or more units; loans for mixed-use properties; and loans for commercial units. For computational tractability, we used a 15-percent random sample of the CoreLogic database. The data comprise loans modified between the first quarter of 2009 and the fourth quarter of 2010. The sample we used for the analysis generally contained more than 90,000 loans that had redefaulted—that is, were 90 days or more delinquent or in foreclosure—within 6 months of the modification after using an algorithm to identify loans that received modifications, using several filters, and excluding missing observations. Because of limitations in the coverage and completeness of the CoreLogic database, our analysis may not be fully representative of the mortgage market as whole. Nonetheless, we have determined that the data were sufficiently reliable for the purposes of our study.\nThe second database we used contained information from servicers that participate in HAMP. start of the trial modification period, during the trial period, during conversion to a permanent modification, and monthly after the conversion to a permanent modification. Through the fourth quarter of 2010, 15 large servicers held 85 percent of the loans, and the rest of the loans were serviced by a few hundred small servicers. Table 19 contains a complete list of variables from the CoreLogic and HAMP databases.\nServicers of nonenterprise loans and loans not insured by FHA, VA, and USDA undertake modifications based on the HAMP guidelines while servicers of Fannie Mae and Freddie Mac loans modify loans using guidelines from the enterprises.\nModified loan becomes 90 or more days past due (dpd) or in foreclosure within 6 months Modified loan becomes 90 or more days past due (dpd) or in foreclosure within 12 months Modified loan becomes 90 or more days past due (dpd) or in foreclosure within 18 months Percentage change in monthly payment of principal & interest Payment reduction is less than10% Payment reduction is between 10% and 19% Payment reduction is between 20% and 29% Payment reduction is between 30% and 39% Payment reduction is between 40% and 49% Payment reduction is between 50% and 59% Payment reduction is 60% or higher Change in interest rate (bps)", "Definition FICO greater than or equal to 620 and less than 660 at modification FICO greater than or equal to 660 and less than 680 at modification FICO greater than or equal to 680 and less than 700 at modification FICO greater than or equal to 700 and less than 750 at modification FICO greater than or equal to 750 at modification Current loan-to-value (CLTV) ratio at modification CLTV is greater than or equal to 10% and less than 80% at modification CLTV is greater than or equal to 80% and less than 95% at modification CLTV is greater than or equal to 95% and less than 100% at modification CLTV is greater than or equal to 100% and less than 115% at modification CLTV is greater than or equal to 115% and less than 125% at modification CLTV is greater than or equal to 125% and less than 150% at modification CLTV greater than or equal to 150% at modification Housing backend debt-to-income ratio (DTIBE), at modification DTIBE is greater than or equal to 30% and less than 35% at modification DTIBE is greater than or equal to 35% and less than 40% at modification DTIBE is greater than or equal to 40% and less than 45% at modification DTIBE is greater than or equal to 45% and less than 50% at modification DTIBE is greater than or equal to 50% and less than 55% at modification DTIBE is greater than or equal to 55% and less than 65% at modification DTIBE is greater than or equal to 65% at modification Percentage change in house prices after modification, zip code level Change in unemployment rate after modification, county level Interest rate at modification (basis points)", "", "Fair Isaac Corporation (FICO) credit score at loan origination FICO greater than or equal to 350 and less than 550 at loan origination FICO greater than or equal to 550 and less than 580 at loan origination FICO greater than or equal to 580 and less than 620 at loan origination FICO greater than or equal to 620 and less than 660 at loan origination FICO greater than or equal to 660 and less than 680 at loan origination FICO greater than or equal to 680 and less than 700 at loan origination FICO greater than or equal to 700 and less than 750 at loan origination FICO greater than or equal to 750 at loan origination Loan-to-value (LTV) ratio at origination LTV greater than or equal to 10% and less than 70% at origination LTV greater than or equal to 70% and less than 80% at origination LTV equal to 80% at origination LTV greater than 80% and less than 90% at origination LTV greater than or equal to 90% and less than 100% at origination LTV greater than or equal to 100% at origination Interest rate at origination (basis points)", "If loan is owned by government-sponsored enterprises (Fannie Mae or Freddie Mac)\nIf loan is owned by non-agency private investors If loan is owned by lender Prime loan = 1, subprime loan = 0 Adjustable rate (ARM) = 1, Fixed rate (FRM) = 0 Condominiums, including PUDs (planned unit developments)\nOther housing units, including cooperatives Conventional loans (nongovernment owned or guaranteed loans)\nFederal Housing Administration (FHA) loans Veterans Affairs (VA)\nIf owner-occupied housing versus a nonowner occupied Loans for refinance, with cash-out Loans for refinance, without cash-out Loans for refinance, reason unknown Loan originated in 2003 or before The payment change is the result of modification actions, including, rate reduction, balance reduction (from principal forgiveness or principal forbearance), capitalization, and term extension.\nThis modification action includes a rate reduction.\nThis modification action includes a balance reduction.\nThis modification action includes principal forgiveness.\nThis modification action includes principal forbearance.\nThis modification action includes capitalization.\nThis modification action includes a term extension.\nThe data do not include second liens.\nHousing price data are from CoreLogic.\nUnemployment data are from the Bureau of Labor Statistics.\nIncludes loans originated on January 1, 2009.\nWe discuss selected key characteristics of the universe of loans in the CoreLogic database using the average values of the variables (see table 20). Data for all loans are in column A, and prime and subprime loans are in columns B and C, respectively. The overall redefault rate 6 months after modification is 18 percent for all loans: 17 percent for prime loans, and 19 percent for subprime loans. Prime loans make up 85 percent of the universe of loans in the data set and subprime loans 15 percent. Eighty-eight percent of the loans have fixed rates (FRM) at origination, and the rest have adjustable rates (ARM).\nThe modification actions we identified were generally used in combination with other actions, much like the modification actions in the OCC Mortgage Metrics database. For loan modifications that include interest rate changes, the average change in interest rate is 299 basis points (bps), or 2.99 percentage points, and 289 bps and 361 bps for prime and subprime loans, respectively. In loan modifications, the balances decrease with principal forgiveness or principal forbearance but increase with capitalization. For modifications that include balance reductions, the average reduction is 20 percent (20 percent and 16 percent for prime and subprime loans, respectively). The capitalized amounts averaged 6 percent of the balances (6 percent and 8 percent for prime and subprime loans, respectively). The average increase in loan term used in combination with other modification actions is 96 months (95 months for prime loans and 101 months for subprime loans). The average reduction in monthly principal and interest payments as a result of changes in interest rates, loan balances, and loan term from the modifications is 24 percent of the payments at modification and amounts over $250. The payment reductions are 24 percent and 25 percent for prime and subprime loans, respectively. Thus the changes in the modification actions were generally larger for subprime loans than for prime loans, implying that the modifications helped subprime borrowers the most.\nAbout 83 percent of the modified loans identified in the CoreLogic data set were seriously delinquent (at least 90 days past due or in foreclosure), including 85 percent for prime and 74 percent of subprime loans. Ten percent of prime loans were in foreclosure, compared with 20 percent of subprime loans. The CLTV ratios at the time of modification were 108 percent overall (107 percent for prime loans and 112 percent for subprime loans). These ratios had increased since origination—24 percent for House prices continued prime loans and 30 percent for subprime loans. to decline for the 6 months after modifications, falling by about 2 percent, on average. The overall FICO credit score at the time of origination is 657, but scores for prime and subprime loans differed widely (666 and 609, respectively). The CLTV ratios and FICO scores are consistent with the relatively low quality of subprime loans. Overall, unemployment rates declined by less than 1 percent (among prime loans rates decreased by 0.08 percent compared to an increase of 0.2 percent for subprime loans).\nMany observations are missing data on the loan investor or ownership, especially for subprime loans. The majority of the prime loans identified are owned or guaranteed by the enterprises, while the majority of the subprime loans are private-label securitized (PLS) loans. Overall, portfolio loans slightly outnumber PLS loans. About 84 percent of the prime loans are conventional, with FHA accounting for 15 percent and VA and other government-guaranteed loans for the remaining 1 percent. All subprime loans are conventional. Almost all the loans (96 percent) are for owner- occupied housing, and a slight majority (55 percent) were for refinancings. The average unpaid principal balance for prime loans at the time of origination was $222,617, compared with $197,079 for subprime loans. About 67 percent and 73 percent of prime loans and subprime loans, respectively, were originated between 2005 and 2007. Modifications increased in 2010 compared to 2009, partly because of HAMP and included a larger share of prime loans as the available pool of subprime loans dwindled.", "We compare certain borrower and loan characteristics using comparable data from the universe of loans as represented by the CoreLogic data and HAMP loans found in the Treasury data. We restricted the CoreLogic data to first-lien loans for owner-occupied housing that received modifications between the fourth quarter of 2009 and the second quarter of 2010, and that received payment reductions.\nThe HAMP database has certain limitations. The data were sometimes missing or questionable, as indicated by the Department of the Treasury. Also, we constructed the performance history of HAMP loans using several monthly databases. Since we did not have data for February 2010 and April 2010, we assumed that the performances was the same as in the following months, March 2010 and May 2010, respectively. We do not expect this assumption to affect our results, since redefault is defined as 3 or more consecutive months of delinquency.We excluded observations if loan performance data were missing for any of the months. Generally, we believe that the constructed loan performance data become more reliable as the number of months since modification increases, as the quality of HAMP data has been improving over time. As a result, we compare CoreLogic and HAMP loans that are at least 12 months postmodification or that have redefaulted within 12 months. We believe that the HAMP data we use are sufficiently reliable for our purposes.\nIn table 21, the data indicate that the redefault rate is much higher for CoreLogic than for HAMP loans (26 percent and 16 percent, respectively, 12 months after modification). The HAMP data we use are for participants with permanent modifications—those who have successfully completed the trial modification. Most of the CoreLogic loans were far advanced in their delinquency prior to the modification, with about 89 percent 90 days or more delinquent or in foreclosure, compared to 61 percent of HAMP loans. The overall changes resulting from modification actions were generally largest for HAMP loans, which had an average payment reduction of 37 percent, compared to 30 percent among CoreLogic loans. The current LTVs were 109 percent and 140 percent, respectively, in the CoreLogic and HAMP databases, but there was not much difference between the loans at the time of origination, when the LTVs were 83 percent and 82 percent, respectively. Thus the decline in equity was 26 percent for the CoreLogic loans and 58 percent for HAMP loans. The majority of the modified loans were originated between 2005 and 2007.\nWe discuss below the models we developed and used to estimate the likelihood of redefault after modifying the typical loan (using the CoreLogic and HAMP databases), and the estimated results and robustness checks of the estimates. Unlike the descriptive statistics, this approach allows us to determine the relationship between the redefault rate and modification actions, holding other factors constant (including borrower and loan characteristics). Similarly, this approach also allows us to determine the relationship between the redefault rate and certain borrower or loan characteristics holding all the other borrower and loan characteristic in the model constant.\nFollowing the literature, we grouped into four categories the factors that generally affect whether a loan modified permanently through government and proprietary modification programs would redefault: borrower and loan characteristics at origination, borrower and loan characteristics at modification, geographic market and time effects, and investor/lender and servicer effects. We also note that, the redefault rate can be affected by the type of loan modification action. Typically, the modification lowers the monthly principal and interest payments by changing the interest rate, term, or loan balance. We use reduced-form multivariate probabilistic regression models, an approach used to examine choices and evaluate various events or outcomes, to help determine these effects.\nAccordingly, based on economic reasoning, data availability, and previous studies on loan performance, we use a relatively flexible specification to estimate the likelihood that a loan that has been modified redefaults.equals 100 if a loan that has been permanently modified redefaults within 6 months and 0 if the loan is still active and current. The explanatory variables that we include in the model to explain loan redefaults are borrower and loan characteristics and modification actions, conditioned by the available data. The complete list of variables available for the analysis is in table 19.\nThe dependent variable for the redefaults is binary and We discuss results for redefault in the universe of loans using the CoreLogic database. The regression estimates are in table 22. We estimated the models using the ordinary least squares (OLS) regression technique. Overall, the models are significant, and most of the variables are statistically significant at the 5-percent level or better. The effects (the direction of their impacts) are generally consistent with our expectations. We discuss below the key findings, based on statistically significant changes in the likelihood of redefaults, using the estimated marginal effects of the explanatory variables.\nThe regression results from estimating redefault in the universe of loans using the data in table 20 are presented in table 22 (based on the CoreLogic database) for the combined prime and subprime loans. The table presents regressions of redefault indicators (a modified loan becoming 90 days or more delinquent within 6 months of the modification) on modification actions—monthly payment changes, interest rate changes, balance reduction, capitalization, and term changes. In addition we include information on the borrower and the loan. The estimates were generated using the OLS technique. Fixed-effects estimates for loan origination year and zip codes are not reported, for brevity. The reported estimates are marginal effects (percentage point differences). The standard errors are presented in parentheses, and *, **, and *** denote two-tailed significance at 10 percent, 5 percent, and 1 percent or better, respectively.\nWe discuss the results from the redefault model using the CoreLogic data set, which represents the universe of loans, using the estimates in table 22. We start with the effects of modification actions on the redefault rate.\nWe first discuss the payment change, which is an outcome of the modification actions (rate change, balance reduction, capitalization, and term extension). For policy purposes, the payment change is important for loan modifications because it indicates whether the modification is affordable to the consumer. But while the payment change is important to the consumer, the type of modification action is also important to the lender/investor, because certain actions may not be feasible given the terms of the mortgage or could result in lower returns. For this reason, we also discuss the effects of the modification actions, independent of the resulting payment change. In general, modification actions that make the loan affordable are expected to lower the redefault rate.\nPayment change: Using the coefficient estimate of -0.174 for the impact of payment change in table 22, we note that the larger the reduction in monthly principal and interest payments, the less likely the loans are to redefault. In particular, a 24-percent (the average) reduction in monthly payments would reduce the likelihood of redefault by 4 percentage points from the baseline redefault rate of 18 percent to 14 percent.\nRate change: Using the coefficient estimate of -0.008 for the impact of rate change in table 22, we find that the larger the reduction in the interest rates of loans that receive interest rate reductions and at least one other modification action, the lower the redefault rate. A decrease of 302 bps (the average) would decrease the redefault rate by 2 percentage points from the baseline redefault rate of 16 percent to 14 percent.\nBalance reduction: Although the coefficient estimate for the impact of balance reduction in table 22 indicates, unexpectedly, that modifications that include balance reductions increase redefaults, the result is generally not robust. For instance, the estimates are insignificant when loans with balance reductions of 40 percent or more are excluded. Furthermore, the sample size used for the analysis is relatively small for the result to be meaningful.results are inconclusive regarding the impact on the redefault rate of a modification action that includes a balance reduction, the baseline redefault rate of these loans is generally low, at 11 percent, compared to the overall redefault rate of 18 percent, which is the baseline redefault for the pool of loans used to estimate the payment reduction equation.\nCapitalization: Using the coefficient estimate of 0.947 for the impact of capitalization in table 22, we see that the larger the proportion of the amount capitalized, combined with other modification actions, the higher the redefault rate. A capitalization of 6 percent of the loan balance (the average) would increase the redefault rate by 6 percentage points from the baseline redefault rate of 19 percent to 25 percent.\nTerm extension: Using the coefficient estimate of -0.012 for the impact of term extension in table 22, we note that the redefault rate falls as the term extension increases. A term extension of 99 months (the average) would reduce the redefault rate by 1 percentage point from the baseline redefault rate of 19 percent to 18 percent.\nWe discuss key results for borrower, loan, and other characteristics based on results for the payment regression equation in column 1 of table 22. The payment reduction is an amalgamation of several modification actions, and the results are generally similar to the estimates in the regression equations for the other modification actions (columns 2 through 5). We present the effects—most of which are expected—on the redefault rate of borrower and loan characteristics at modification.\nDelinquency status at modification: As expected, the results indicate that the more delinquent the loan at modification, the higher the redefault rate.\nHouse price depreciation: The redefault rates of loans are higher for higher CLTVs, as expected. Continued depreciation in house prices after the loan modification also increases the redefault rate.\nUnemployment rate: The redefault rates of loans are higher in areas where the unemployment rate has increased since the modification, as expected.\nInterest rate at modification: Loans with higher interest rates at the time of modification are more likely to redefault, as expected.\nTime of modification: Loan modifications that started prior to the fourth quarter of 2009 are more likely to redefault than those modified in later periods, probably because over time servicers learned which actions were more effective.\nWe also present results of the effects of borrower and loan characteristics at origination on redefault rate: Credit score at origination: The higher the FICO credit scores at origination, the less likely loans are to redefault, as expected.\nLTV at origination: The redefault rates of loans with higher LTVs at origination are less likely to redefault, an unexpected result. However, the effects are generally not statistically significant. These results are therefore inconclusive.\nInterest rate at origination: Loans with higher interest rates at origination are less likely to redefault, an unexpected result. The reason for this result is not clear.\nWe present results of other loan characteristics on the redefault rate: Investor/lender: As we have already mentioned, a substantial amount of data on the loan investor or ownership are missing or unavailable, especially for subprime loans. When we include the investor variable in the model using the limited available data for prime loans, we find that the redefault rates of portfolio loans and private-label securitized loans are lower than Fannie Mae and Freddie Mac loans. Excluding the Fannie Mae and Freddie Mac loans, portfolio loans were less likely to redefault compared to private-label securitized loans.servicers have better information about borrowers in their pools of portfolio loans than they have about those in the pool of private-label securitized loans. This finding is also consistent with the notion that servicers modify loans differently based on investor or ownership type.\nThe difference in the redefault rates could be that Adjustable Rate Mortgages (ARM): Loans with ARMs were more likely to redefault than those with fixed rates, as expected.\nProperty type: Loans for condominiums were more likely to redefault than loans for single-family houses.\nLoan type: FHA and VA loans were less likely than conventional loans to redefault. The reason for this finding is not clear.\nLoan purpose: Loans for refinancing, with or without cash-outs, were less likely to redefault than purchase loans. The reason for this effect is not clear.\nWe now compare the effects of the loan modifications in the CoreLogic data, which represent loans that had been modified under a variety of proprietary and federal programs, to the effects of loan modifications made under HAMP. To make the two data sets comparable, we restricted the CoreLogic data set to owner-occupied housing, since HAMP modified only this type of housing during the applicable period (fourth quarter of 2009 to second quarter of 2010). The modification also had to reduce the monthly payment. We also assumed that modification actions resulted in the same changes to the loan terms. The analysis includes loans that redefaulted 12 months after they were modified. We used 12 months after modification instead of 6 months because of HAMP data limitations, which we mentioned earlier. A summary of the results is presented in table 23. The full estimates for CoreLogic and HAMP data are in table 24 and 25, respectively. The values represent the incremental effects, which are the product of the estimated coefficients from regression estimates of loan redefaults within 12 months of modifications and the average changes in the modification actions based on the CoreLogic data representing the universe of loans.\nWe find that the reduction in redefault rates is similar for loans in both data sets that are modified to lower monthly payments. For loans from the CoreLogic data set, a 30 percent payment reduction decreases the redefault rate by about 9 percentage points. For HAMP-modified loans, the same reduction results in a 10-percentage-point decrease. The results are generally similar for rate reduction and capitalization, actions commonly used for loans in both data sets.\nAlthough we could not separately identify actions that resulted in principal forgiveness and principal forbearance in the CoreLogic data, our analysis of HAMP found that the 12-month redefault rate for loans that received principal forgiveness was 8 percent, and that for loans receiving forbearance 12 percent. Both rates are lower than the overall redefault rate for all HAMP loans, which was 15 percent. When controlling for observable borrower and loan characteristics, however, we found that the effect of principal forgiveness on the redefault rate was inconclusive, while larger forbearance lowers the redefault rate.\nTable 24 presents regressions of a redefault indicator (a modified loan becoming 90 days or more delinquent within 12 months of the modification) on modification actions—monthly payment changes, interest rate changes, balance reduction, capitalization, and term changes—for the CoreLogic data. The regression includes information on the borrower and the loan. We used the OLS technique, and fixed-effects estimates for loan origination year and zip codes are not reported, for brevity. The reported estimates are marginal effects (percentage point differences). The standard errors are presented in parentheses, and *, **, and *** denote two-tailed significance at 10 percent, 5 percent, and 1 percent or better, respectively.\nTable 25 presents regressions of a redefault indicator (a modified loan becoming 90 days or more delinquent within 12 months of the modification) on modification actions—monthly payment changes, interest rate changes, principal forgiveness, principal forbearance, capitalization, and term changes—for the HAMP data. The regression includes information on the borrower and the loan. We used the OLS technique. Fixed-effects estimates for loan origination year and zip codes are not reported, for brevity; and fixed effects for the servicers are not reported for reasons of confidentiality. The reported estimates are marginal effects (percentage point differences). The standard errors are presented in parentheses, and *, **, and *** denote two-tailed significance at 10 percent, 5 percent, and 1 percent or better, respectively.\nUsing the loans from the CoreLogic data, we estimated the impact of decreases in monthly payments on redefault within 6 months of modification, limiting the data to payment decreases and within set ranges. These included payment decreases—0 percent to less than 10 percent (the reference category), 10 percent to less than 20 percent, 20 percent to less than 30 percent, 30 percent to less than 40 percent, 40 percent to less than 50 percent, 50 percent to less than 60 percent, and more than 60 percent. We also included all the controls used in the previous estimates (see table 22). An abridged version of the estimates is presented in table 26 (only for the buckets of payment decreases). The first bucket is used as the reference group, and the reported estimates are marginal effects (percentage point differences). The standard errors are presented in parentheses, and *, **, and *** denote two-tailed significance at 10 percent, 5 percent, and 1 percent or better, respectively. The relationship between the payment decreases and redefault rate is shown in figure 21, based on the estimates in column 1 of table 27. We also summarize below the results for the separate modification actions in columns 2 to 5 of table 27.\nAs shown in figure 21, there is a tradeoff between decreases in monthly payments as a result of modification actions and the redefault rate. That is, as the payments decrease, the redefault rate generally decreases, but only up to a certain point. As an example, irrespective of the modification action (except for balance reduction), the redefault rate is 12 percent for loans receiving a 40-percent reduction (the lowest redefault rate), but rises to 20 percent for loans receiving a reduction of less than 10 percent. The data also show that the majority of the loans received payment reductions of less than 30 percent. We obtain similar effects for the specific modification actions—rate reduction, balance reduction, capitalization, and term extension. The modification actions generally result in lower redefault rates as the payment reductions increase, except for balance reductions (see fig. 21). Some of these actions were much more commonly used than others—for example, interest rate reductions and capitalization were used far more frequently than term extensions and reducing the balance (see fig. 21). Also, the majority of the loans receive payment reductions of less than 30 percent, except for balance reductions which generally result in payment reductions exceeding 40 percent.\nSeveral borrower and loan characteristics at modification strongly predict redefaults, but their impacts differ according to how much payments are reduced and the type of loan or borrower characteristics. Overall, borrower and loan characteristics at the time of modification are predictive of redefault. Large payment reductions generally help borrowers with high credit risks more than they help other borrowers. High-risk borrowers generally have high CLTV ratios, high unemployment rates after modification, and increased delinquency prior to modification. These borrowers are sensitive to large payment reductions possibly because they cannot afford their mortgages, but we could not control for affordability in the model because of a lack of usable data on the debt-to- income (DTI) ratio.\nWe find that payment reductions are more effective in reducing redefault rates for borrowers with high CLTV ratios, especially those with ratios above 125 percent (see table 28 and fig. 22). For instance, the baseline redefault rate is 18 percent for borrowers with a CLTV of at least 125 percent and 13 percent for those with a CLTV of less than 95 percent. With a payment reduction of less than 10 percent, the redefault rates are 25 percent and 16 percent for these two groups, respectively, but fall to 16 percent and 12 percent for payment reductions of 30 percent to 39 percent. Among the loans we analyzed, about a third had a CLTV of less than 95 percent and about a quarter had a CLTV of 125 percent or more. For all CLTV categories, the majority of the loans received payment reductions of less than 30 percent.\nPayment reductions are more effective in reducing redefault rates for borrowers in areas where the unemployment rate increased after modification (see table 29 and fig. 23). For instance, the baseline redefault rate is 18 percent for borrowers who are located in areas that experienced higher unemployment rates and 13 percent for those experiencing lower unemployment rates. With a payment reduction of between 50 to 59 percent, the redefault rate reduces to about 14 and 12 percent, respectively. Among the loans we analyzed, the proportion of loans located in areas with increases in or no change in unemployment rates was slightly lower than those located in areas with decreases in unemployment rates. For both unemployment categories, the majority of the loans received payment reductions of less than 30 percent.\nPayment reductions are more effective for borrowers who are 90 days or more past due (see table 30 and fig. 24). For instance, the baseline redefault rate is 17 percent for borrowers who are 90 days or more delinquent. But with a payment reduction of at least 40 percent, the redefault rate reduces to 13 percent. The payment reductions are generally not very effective for the other borrowers, including those in foreclosure. Among the loans we analyzed, almost three-quarters were 90 days or more past due. For all loan performance categories, the majority of the loans received payment reductions of less than 30 percent.\nTo ensure that the results were reliable, we performed several checks of robustness for the main results reported for the CoreLogic data set in column 1 of table 22 for payment reductions. We find that the results of the checks are generally consistent with what we have reported.\nFirst, we estimated the model for different durations after the modifications—12 and 18 months—instead of 6 months. The baseline redefault rate is 35 percent within 12 months of modification, and a 23- percent (the average) reduction in payments decreases the redefault rate by 8 percentage points to 27 percent. Similarly, within 18 months of modification, the redefault rate decreases from a baseline of 51 percent to 45 percent for a payment reduction of 18 percent (the average). Second, as already indicated some loans had multiple modifications. Similar estimates were obtained when we used only the latest modification action for loans that received multiple modifications. Third, as in other studies, the data were limited to loans that entered the CoreLogic database within 3 months of origination. This would help to reduce potential survivorship bias. Also, we restricted the sample to loans originated since January 2005, including those originated since the housing boom. For both of these cases, the results were similar to the main results. Fourth, the significance of the estimates was unchanged when we estimated robust standard errors. Finally, the results were unchanged when we clustered the standard errors by zip codes.\nSee, for example, Agarwal and others (2011a) which uses FICO credit scores and the documentation status of the loans at origination. Since the data are not available for documentation status, we used the delinquency status of the borrower and the FICO credit scores at the time of the modification, both of which are predictive of redefault. way. For instance, low-quality loans would be more likely to redefault than high-quality loans, because screening on unobservable characteristics is less important for the latter pool of loans. But if the estimates show that the conditional redefault rates are similar or low-quality loans were less likely to redefault, then unobserved characteristics related to loan quality are likely not the reason for the redefaults. The robustness check suggests that the results are not likely to be biased by unobserved borrower characteristics.\nWe also excluded loans owned or guaranteed by the enterprises and estimated the models. Loans owned or guaranteed by the enterprises differ from private-label securitized loans in terms of underwriting standards, default risk guarantee, servicer incentives, and modification restrictions. We conducted this analysis for prime loans only due to data limitations. The results were similar with the Fannie Mae and Freddie Mac loans excluded. We also provide predicted estimates of the redefault rates for payment reductions for different modification actions (payment reduction, rate reduction, balance reduction, capitalization and term extension) using data on subpopulations of loans—prime, subprime, enterprise, nonenterprise, FHA, and VA loans in tables 31 to 36 (see also fig. 25).\nWe note that since the modification terms are not randomly determined, but rather may reflect some unobserved borrower and loan characteristics, the results, as in previous studies, should be considered as describing the associative relationship between the modification terms and redefault.\nAdelino, M., K. Gerardi, and P. Willen. “Why Don’t Lenders Renegotiate More Home Mortgages? The Effect of Securitization,” Federal Reserve Bank of Atlanta, Working Paper no. 2009-17a, 2010.\nAgarwal, S., G. Amromin, I. Ben-David, S. Chomsisengphet, and D. Evanoff. “The Roleof Securitization in Mortgage Renegotiation” Unpublished manuscript. 2011a.\nAgarwal, S., G. Amromin, I. Ben-David, S. Chomsisengphet, and D. Evanoff. “Market-Based Loss Mitigation for Troubled Mortgages Following the Financial Crisis,” Federal Reserve Bank of Chicago, WP 2011-03. 2011b.\nAmbrose, B. and C. Capone, Jr., “Cost-Benefit Analysis of Single-Family Foreclosure Alternatives.” Journal of Real Estate Finance and Economics, 13: 105-120. 1996.\nAmbrose, B. and C. Capone. “The Hazard Rates of First and Second Defaults.” Journal of Real Estate Finance and Economics, 20(3): 275- 293. 2000.\nAmherst Securities Group LP. .”Modification Success—What Have We Learned?” Amherst Mortgage Insight (April 5, 2011a).\nAmherst Securities Group LP. “National Mortgage Servicing Standards and Conflicts of Interests” Testimony of Laurie Goodman, Amherst Securities Group to the Subcommittee on Housing, Transportation and Community Development of the Senate Committee on Banking, Housing and Urban Affairs. (May 11, 2011b).\nCapone, Jr., C., and A. Metz. “Mortgage Property Rights and Post-Default Incentives.” Unpublished manuscript, available at http://ssrn.com/abstract=1802448.2004.\nFoote, C., K. Gerardi, and P. Willen (FGW) “Negative Equity and Foreclosure: Theory and Evidence,” Journal of Urban Economics, 64(2): 234-245. 2008.\nFoote, C., K. Gerardi, L. Goette, and P. Willen (FGGW), “Reducing Foreclosures: No Easy Answers,” Federal Reserve Bank of Boston, Public Policy Discussion Papers, no. 09-2. 2009.\nGerardi, C., A. Shapiro, and P. Willen (GSW), “Subprime Outcomes: Risky Mortgages, Homeownership Experiences, and Foreclosures,” Federal Reserve Bank of Boston, Working Paper no. 07-15. 2007.\nGerardi, C. and Wenli Li. “Mortgage Foreclosure Prevention Efforts,” Federal Reserve Bank of Atlanta Economic Review, vol. 95, no. 2. 2007.\nGAO. Troubled Asset Relief Program: Treasury Continues to Face Implementation Challenges and Data Weaknesses in Its Making Home Affordable Program. GAO-11-288. Washington, D.C.: Mar. 17, 2011.\nKarikari, John. “Why Homeowners’ Documentation Went Missing Under the Home Affordable Mortgage Program (HAMP)?: An Analysis of Strategic Behavior of Homeowners and Servicers, Unpublished manuscript, http://ssrn.com/abstract=1807135. 2011.\nOCC-OTS (Office of the Comptroller of the Currency/Office of Thrift Supervision). OCC and OTS Mortgage Metrics Report (Disclosure of National Bank and Federal Thrift Mortgage Loan Data: Third Quarter 2010 (Washington, D.C.: December 2010).\nPiskorski, T., A. Seru, and V. Vig. “Securitization and Distressed Loan Renegotiation: Evidence from the Subprime Mortgage Crisis.” University of Chicago, Booth School of Business, Research Paper no. 09-02. 2009.\nVoicu, I., V. Been, M. Weselcouch and A. Tschirart. “Performance of HAMP Versus Non-HAMP Loan Modifications – Evidence from New York City,” Unpublished manuscript, OCC, Washington, DC. 2011.", "", "", "", "", "", "", "In addition to the individual named above, Harry Medina, Assistant Director; Anne Akin; Serena Agoro-Menyang; Don Brown; Steve Brown; Tania Calhoun; Emily Chalmers; DuEwa Kamara; John Karikari, Patricia MacWilliams; John McGrail; Marc Molino; Christine Ramos; Beverly Ross; Jessica Sandler; Andrew Stavisky; and James Vitarello made key contributions to this report." ], "depth": [ 1, 2, 2, 2, 2, 1, 2, 2, 2, 2, 2, 2, 1, 2, 1, 2, 2, 2, 1, 1, 1, 1, 1, 2, 2, 2, 1, 1, 2, 3, 3, 3, 3, 2, 1, 1, 1, 1, 1, 2, 2 ], "alignment": [ "", "", "", "", "", "h0_full", "h0_full", "", "h0_full", "h0_full", "", "", "h1_full", "h1_full", "h2_full", "", "h2_full", "h2_full", "h4_full h1_full h2_full h0_full h3_full", "", "h4_full h2_full", "h0_full h3_full h2_full", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "" ] }

{ "question": [ "How has the federal government aided homeowners struggling to keep their homes?", "What agencies have aided in this effort?", "How have nonfederal entities aided with loan modifications?", "To what extent do these programs help all borrowers who applied?", "How has the number of federal modifications changed since 2010?", "What do participation rates in FHA suggest?", "How effective have the efforts been?", "What did GAO's 2011 review reveal?", "How were these loans geographically distributed?", "How do more recent indicators compare to historical lows?", "What is the preferred approach for tackling the foreclosure issue?", "How could foreclosure mitigation actions be improved?", "How could such analysis improve foreclosure mitigation rates?", "To what extent do agencies preform such analyses?", "How can principal forgiveness be used?", "To what extent has principal forgiveness been used?", "Why is this data analysis crucial?", "How do foreclosure rates affect the potential economic recovery?", "What did GAO examine in this report?", "How did GAO collect data for this report?", "How did Treasury, FHA, VA, and FHFA respond to the report?", "How did USDA respond to the report?", "How did GAO make use of USDA's response?" ], "summary": [ "In an effort to help the millions of homeowners struggling to keep their homes, a range of federal programs have offered relief in the form of loan modifications and refinancing into loans with lower interest rates, among other things.", "Under Treasury’s Home Affordable Modification Program (HAMP), initiated in early 2009, servicers have modified almost 1 million loans between 2009 and 2011. During the same period, servicers modified nearly 1 million additional loans under programs administered by the Departments of Agriculture (USDA) and Veterans Affairs (VA), Federal Housing Administration (FHA), and Fannie Mae and Freddie Mac (the enterprises).", "Servicers have also modified about 2.1 million loans under nonfederal loan modification programs resulting in a total of about 4 million modifications between 2009 and 2011.", "However, a large number of borrowers have sought assistance, but were unable to receive a modification. For example, approximately 2.8 million borrowers had their HAMP loan modification application denied or their trial loan modification canceled.", "Further, the volume of federal modifications has declined since 2010.", "However, low participation rates in FHA’s program raise questions about the need for Treasury’s financial support, which could reach a maximum of $117 million.", "In spite of these efforts, the number of loans in foreclosure remains elevated, and key indicators suggest that the U.S. housing market remains weak.", "GAO’s analysis of mortgage data showed that in June 2011 (most current data available for GAO’s use and analysis) between 1.9 and 3 million loans still had characteristics associated with an increased likelihood of foreclosure, such as serious delinquency and significant negative equity (a loan-to-value ratio of 125 percent or greater).", "These loans were concentrated in certain states, such as Nevada and Florida.", "Further, more recent indicators such as home prices and home equity remain near their postbubble lows. As of December 2011, total household mortgage debt was $3.7 trillion greater than households’ equity in their homes—representing a significant decline in household wealth nationwide.", "Despite the scope of the problem, most stakeholders GAO interviewed said that enhancing current foreclosure mitigation efforts would be preferable to new ones. GAO found that agencies could take steps to make their programs more effective.", "Collectively, FHA and the enterprises had 1.8 million loans in their portfolios that were 90 days or more past due as of December 2011. GAO found that most of the agencies and enterprises, with the exception of USDA, had stepped up their efforts to monitor servicers’ outreach to struggling borrowers. However, not all the agencies were conducting analyses to determine the effectiveness of their foreclosure mitigation actions.", "Experiences of Treasury and the enterprises and GAO’s econometric analysis strongly suggest that such analyses can improve outcomes and cut program costs. For example, GAO’s analysis showed that the size of payment change, delinquency status, and current loan to value ratio, can significantly influence the success of the foreclosure mitigation action taken.", "In contrast, not all federal agencies consider redefault rates and long-term costs when deciding which loan modification action to take. Nor have they assessed the impact of loan and borrower characteristics. In some cases, agencies do not have the data needed to conduct these analyses.", "GAO found some evidence to suggest that principal forgiveness could help some homeowners—those with significant negative equity—stay in their homes, but federal agencies and the enterprises were not using it consistently and some were not convinced of its merits. In addition, there are other policy issues to consider in how widely this option should be used, such as moral hazard.", "The Federal Housing Finance Agency (FHFA), for instance, has not allowed the enterprises to offer principal forgiveness. Treasury recently offered to pay incentives to the enterprises to forgive principal, and FHFA is reevaluating its position.", "Until agencies and the enterprises analyze data that will help them choose the most effective tools and fully utilize those that have proved effective, foreclosure mitigation programs cannot provide the optimal assistance to struggling homeowners or help curtail the costs of the foreclosure crisis to taxpayers.", "Historically high foreclosure rates remain a major barrier to the current economic recovery.", "To assist policymakers and housing market participants in evaluating foreclosure mitigation efforts, GAO examined (1) the federal and nonfederal response to the housing crisis, (2) the current condition of the U.S. housing market, and (3) opportunities to enhance federal efforts.", "To address these objectives, GAO analyzed government and mortgage industry data, including loan-level data purchased from a private vendor; reviewed academic and industry literature; examined federal policies and regulations; and interviewed housing industry participants and observers.", "Treasury, FHA, VA and FHFA agreed to consider or concurred with the report’s recommendations.", "USDA provided additional information in its comments.", "In response, we clarified the text and recommendation on USDA’s monitoring of servicers’ outreach efforts." ], "parent_pair_index": [ -1, 0, 0, -1, 3, -1, -1, -1, 1, 1, -1, 0, 1, 1, 0, 4, 0, -1, -1, 1, -1, -1, 1 ], "summary_paragraph_index": [ 1, 1, 1, 1, 1, 1, 2, 2, 2, 2, 3, 3, 3, 3, 3, 3, 3, 0, 0, 0, 5, 5, 5 ] }

{ "title": [ "Background", "CMS’s Oversight Is Hindered by Insufficient Expenditure and Utilization Data", "Expenditure Data", "Utilization Data", "CMS Has a Key Initiative to Improve Medicaid Data, but Uncertainty Exists Regarding its Implementation and Effect on Program Oversight", "CMS Officials Cite T-MSIS as the Key Effort among Several to Improve Medicaid Data and Program Oversight", "Uncertainty Surrounds States’ T-MSIS Implementation and CMS’s Plans for These Data in Enhancing Program Oversight", "Conclusion", "Recommendation for Executive Action", "Agency Comments and Our Evaluation", "Appendix I: Comments from the Department of Health and Human Services", "Appendix II: GAO Contact and Staff Acknowledgements", "GAO Contact", "Staff Acknowledgments", "Related GAO Products" ], "paragraphs": [ "Medicaid, by design, allows significant flexibility for states to design and implement their programs. Within broad federal guidelines and under federally approved plans, states have some discretion in setting Medicaid eligibility standards and provider payment rates; determining the amount, scope, and duration of covered benefits, and how these benefits are delivered; and developing their own administrative structures. For example, states may pay health care providers for each service they provide on a fee-for-service (FFS) basis; contract with managed care organizations (MCO) to provide a specific set of Medicaid-covered services to beneficiaries and pay them a set amount per beneficiary per month; or rely on a combination of both delivery systems. This flexibility has influenced the development of the program and has resulted in over 50 distinct state-based programs that vary in how health care is delivered, financed, reimbursed, and overseen.\nMedicaid expenditures are financed by both the federal government and the states. The rate at which the federal government matches most state expenditures—the Federal Medical Assistance Percentage (FMAP)—also varies by state and by beneficiary eligibility type, which also contributes to program variation. Specifically, the federal government pays a higher portion of Medicaid expenditures in states with low per capita incomes relative to the national average, and pays different portions for expenditures for beneficiaries qualifying for Medicaid under traditional eligibility rules and those qualifying under a PPACA expansion. The resulting variation complicates program oversight efforts, which are shared by the federal government and the states, and are aimed, in part, at ensuring that funds are used appropriately and that enrollees have access to covered benefits. (See table 1.)\nTo help inform its oversight, CMS relies on data that states submit from their respective Medicaid Management Information Systems (MMIS). MMIS are claims processing and information retrieval systems that support the administration of the program, which states are required to implement in order to receive federal matching funds. Two data sets derived from state MMIS provide CMS with state data on program expenditures and utilization.\nThe CMS-64 contains service expenditures and administrative expenses that are not linked to individual enrollees. State Medicaid agencies must submit this information each quarter 30 days after a quarter has ended. CMS-64 data are reported at a state aggregate level, such as a state’s total expenditures for such categories as inpatient hospital services and prescription drugs, and are the basis for determining federal reimbursements to states for Medicaid expenditures. The CMS-64 also includes expenditures for supplemental payments, including disproportionate share hospital (DSH) payments.\nThe Medicaid Statistical Information System (MSIS) is an eligibility and claims data set, and is the federal source of state Medicaid expenditure and utilization data that can be linked to a specific enrollee. For each Medicaid beneficiary, MSIS provides data on eligibility status, service utilization, and expenditures, and CMS uses these data for policy analysis and forecasting expenditures. State Medicaid agencies are required to provide CMS, through MSIS, quarterly electronic files approximately 45 days after a quarter has ended. These files contain (1) information on persons covered by Medicaid, known as “eligible files”; and (2) adjudicated claims, known as the “paid claims file,” for medical services reimbursed by the Medicaid program.\nTo support external researchers’ analyses of the Medicaid program, CMS also makes excerpts of MSIS data available through the Medicaid Analytic eXtract (MAX), which includes data on Medicaid enrollment, service use, and expenditures, and the MSIS Annual Person Summary file, which includes aggregated expenditure and utilization data for each beneficiary. (See fig. 1.)", "Based on our review of reports issued by GAO and other entities, we determined that available Medicaid expenditure and utilization data do not provide CMS with sufficient information to consistently ensure that payments are proper or that beneficiaries have access to covered services, which is inconsistent with federal internal control standards that state that management should use quality information to achieve the entity’s objectives. CMS should rely on quality information to oversee the Medicaid program.", "The CMS-64, which serves as the basis of calculating the amount of federal matching funds for states, and MSIS, which is designed to report individual beneficiary claims data, have the potential to offer a robust view of payments and overall spending in the Medicaid program. However, as the following examples from our work on supplemental payments, states’ sources of financing, and beneficiary eligibility under PPACA demonstrate, the usefulness of the CMS-64 and MSIS data is limited, because of issues with completeness, accuracy, and timeliness. For example, neither the CMS-64 nor the MSIS is designed to capture detailed information on payments made to individual providers or the non- state sources of the state share of Medicaid payments. Without more transparent information on program payments and state funding sources, CMS is unable to determine the appropriateness of program expenditures and ensure the fiscal integrity of the program.\nStates report aggregate data regarding supplemental payments on the CMS-64, but neither the CMS-64 nor MSIS identifies supplemental payments made to individual providers. As a result, we had to rely on alternative sources to determine Upper Payment Limit (UPL) supplemental payment amounts in conducting two reviews. In particular, we examined states’ mandatory DSH reports, which include some information on UPL supplemental payments made to DSH hospitals, and interviewed providers from selected states to identify their uses of these payments. Based on these efforts, we made the following observations, among others.\nThirty-nine states made UPL supplemental payments to 505 hospitals that, along with their regular Medicaid payments, exceeded those hospitals’ total costs of providing Medicaid-funded care by $2.7 billion.\nCertain hospitals use these payments for a wide range of purposes, from covering the costs of uninsured patients to funding general hospital operations, maintenance, and capital purchases, such as a helicopter.\nThese findings suggest that further examination of UPL supplemental payments is warranted; however, data on these payments are incomplete as states are not required to report such payments to non-DSH hospitals or to other providers at the provider level. By not collecting complete or consistent data about these payments to all providers—either through the CMS-64 or another vehicle—CMS is missing an opportunity to ensure that such payments were made for Medicaid purposes and were consistent with Medicaid payment principles.\nStates’ sources of financing States have increasingly relied on health care providers and other non- state sources to fund the state share of Medicaid payments. However, CMS does not collect accurate and complete data on state sources of funds to finance the Medicaid program, thus complicating CMS’s ability to fully assess whether state financing of the nonfederal share complies with federal law, or the extent to which the increased reliance on providers and local governments serves to provide fiscal relief to states and shifts costs to the federal government.\nWe and MACPAC found that CMS does not have complete data on the sources or amounts of local government funds states use to finance their nonfederal share.\nWe and CRS also determined that the CMS-64 contained incomplete data on provider taxes, and we noted that CMS has not assessed the accuracy and completeness of those data. For a 2014 report, we asked states to identify and quantify the sources of their nonfederal share, and 47 states indicated that they had at least one provider tax or donation in effect in 2012. In comparing these responses to the provider tax and donation data they reported on the CMS-64 for the same year, we found that 6 states did not report one or more provider taxes.\nAs of October 2016, over 30 states have opted to expand their Medicaid program under PPACA. Because the FMAP rate can vary by beneficiary eligibility type, it is critical that CMS apply the correct matching rate for each respective eligibility group in these states to ensure proper payment amounts. However, CMS does not collect accurate state data on Medicaid enrollment by eligibility type in the CMS-64, thus complicating its ability to identify erroneous expenditures due to incorrect eligibility determinations. For example\nWe reviewed state eligibility reviews and noted that, in 8 of the 9 states reviewed, the state identified errors that resulted in incorrect eligibility determinations, including enrollment of individuals with incomes exceeding Medicaid standards—totaling up to $48,000 in improper payments identified in one state alone.\nAt the time of our review, CMS had not reviewed federal Medicaid eligibility determinations in the 10 states that had delegated authority to the federal government to make these determinations, thus creating a substantial gap in its oversight of Medicaid eligibility determinations.", "MSIS is the primary data source available to CMS on beneficiaries’ utilization of services as it includes claims data submitted by FFS providers and encounter data submitted by MCOs. However, we and HHS-OIG have identified incomplete and untimely state MSIS data, particularly managed care encounter data. Without better MSIS data, CMS may not be able to identify billing patterns that indicate inappropriate provider billing or ensure that beneficiaries have access to covered services.\nIn July 2015, HHS-OIG reviewed states’ compliance with federal requirements regarding the submission of Medicaid encounter data and determined that 11 states did not report encounter data for all managed care plans operating in their states as required. In that same year, we could not assess utilization patterns for Medicaid managed care beneficiaries in 32 states, because MSIS data were either not available or were unreliable. The lack of complete and reliable encounter data presents a significant oversight challenge for CMS given that over three-quarters of Medicaid beneficiaries were enrolled in managed care in 2014.\nWe and HHS-OIG found evidence of states not reporting MSIS data on time. For example, in an October 2012 report examining consistencies between CMS-64 and MSIS data, we found that 37 states were late reporting their quarterly MSIS data by six quarters in July 2012. Although CMS requires states to submit MSIS data within 45 days of the end of a fiscal quarter, we found that states’ reporting of MSIS data and the subsequent validation process are up to 3 years late. Similarly, the July 2015 HHS-OIG report noted above, also identified 8 of the 38 states it reviewed as not reporting any MSIS encounter data by the required deadline.\nIn a 2015 review of Medicaid prescription-drug fraud controls, we also identified how inaccurate and incomplete encounter data can affect state program integrity efforts. Data from 4 of the 11 states we reviewed had missing or unreliable provider information or encounter data, thus affecting those states’ ability to identify incidents of fraud, waste, or abuse.", "CMS officials identified the Transformed Medicaid Statistical Information System (T-MSIS) initiative as the agency’s primary effort to improve Medicaid expenditure and utilization data, and highlighted aspects of the initiative intended to improve their accuracy, completeness, and timeliness. However, less than half of the states are submitting T-MSIS data files to CMS, and it is uncertain when the remaining states will submit these data or how CMS will ensure their quality or use them for oversight purposes.", "CMS has acknowledged the need for improved Medicaid data, and has undertaken a number of steps aimed at streamlining and improving the quality of data currently reported by states and available to CMS for oversight purposes. For example, since 2011, CMS has been working to implement the T-MSIS initiative to increase and improve the data collected through MSIS. T-MSIS is to include data about enrollees, services, and costs, including FFS claims, managed care encounters, beneficiary eligibility and demographics, and provider enrollment. According to CMS officials, T-MSIS includes aspects designed to improve the completeness, accuracy, and timeliness of available state data, as well as their utility for states.\nCompleteness: T-MSIS is designed to capture significantly more data from states than is the case with MSIS. CMS requires states to report data on approximately 550 variables across eight data files in T-MSIS, a significant contrast to the approximately 200 variables required in MSIS.\nT-MSIS requires states to report three additional data files, including specific files on providers, third-party liability, and MCOs, thus collecting data not previously reported that could provide CMS information to enhance its oversight efforts.\nThe provider file includes a unique identifier for each provider, as well as data fields to show provider specialty and practice locations. Each of these has the capacity to assist CMS oversight in terms of providing insight on provider referrals, Medicaid payments to specific providers, and identifying ineligible providers.\nThe third party liability file includes data on whether a beneficiary has any health insurance in addition to Medicaid, which would provide CMS with data on potentially liable third parties.\nThe managed care file includes more detailed information on MCOs, such as type and name of managed care plans, covered eligibility groups, service areas, and reimbursement arrangements. In addition to identifying failure to report encounter data, this file could help CMS’s oversight by allowing the agency to identify excess plan profit and volatility of expenditures for some enrollee groups across states.\nIn addition to the data variables associated with the three new files, CMS expanded the scope of data to be collected through the existing MSIS files. For example, according to CMS officials, T-MSIS is to collect more detailed information on enrollees, including their citizenship, immigration, and disability status, as well as expanded diagnosis and procedure codes associated with their treatments.\nAccuracy: Within T-MSIS, there exist aspects aimed at improving the accuracy of data initially submitted by states. For example, T-MSIS includes approximately 3,500 automated quality checks, which provide states with feedback on data format and consistency, in contrast to MSIS, which has relatively few automated checks. T-MSIS quality checks include ensuring that a beneficiary’s date of birth is a valid date and that a beneficiary’s age is under a reasonable limit. Other quality checks are to ensure logical relationships across T- MSIS files, such as ensuring that the beginning date of service on claims are on or after a beneficiary’s date of birth. According to agency officials, CMS accepts state data for subsequent processing, provided the data are correctly formatted. According to CMS officials, states have access to error reports that are generated as a result of processing their T-MSIS data.\nTimeliness: CMS requires states to report T-MSIS data to CMS monthly, versus quarterly, as is the case with MSIS data.\nUtility for states: T-MSIS includes aspects aimed at improving state oversight and reducing state burden. For example, while states have not relied on MSIS data to oversee their Medicaid programs, T-MSIS is intended to eventually provide states with the capability to analyze and compare their program data to other states, potentially enhancing their ability to manage expenditures and identify concerns regarding access to care. According to CMS officials, the agency also intends to access certain state data directly through T-MSIS, rather than separately requesting such data from the states, thereby reducing the number of data requests that CMS makes to states.\nIn addition to its ongoing implementation of T-MSIS, CMS has taken other actions—for example, issuing regulations and guidance—to improve data reporting and enhance available data; however, given the recent nature or future implementation dates of these actions, their effect on CMS’s ability to oversee the Medicaid program is not fully known.\nThe May 2016 managed care rule includes provisions intended to strengthen data the agency collects on managed care utilization and relevant for program integrity, which could help improve MCO oversight, the need for which was identified in several GAO reports. For example, the rule requires states to include provisions regarding the maintenance of encounter data in contracts with MCOs and limited benefit plans, to have procedures in place to ensure that enrollee encounter data these entities submit are complete and accurate, and includes financial consequences for lack of compliance. Although MCOs have been expressly required to report encounter data under statute since 2010, CMS’s May 2016 rule provides more clarity regarding the format and collection of these data. However, because these rules will not take effect until 2017 and 2018, their success in improving data is dependent on state and CMS implementation. In addition, the managed care rule increases and clarifies state responsibilities related to overseeing payments to and by MCOs, which addresses a GAO recommendation that CMS hold states accountable for managed care program integrity by requiring them to conduct audits of MCOs. In particular, the managed care rule requires that states, at least once every 3 years, audit encounter and financial data submitted by MCOs.\nA December 2015 final rule includes more targeted financial consequences for states that do not comply with data submission requirements, including T-MSIS. While CMS previously had the authority to reduce federal financial participation for system operations from 75 percent to 50 percent if any system failed to meet any or all requirements, the final rule provides CMS with the option to tailor the federal matching rate reduction to the specific operational expenditures related to the system component that does not meet applicable requirements. Having the ability to impose more targeted funding reductions may enable CMS to more effectively leverage improved state compliance with reporting requirements.\nIn December 2015, in response to a GAO recommendation to routinely monitor and share information regarding key third-party liability efforts and challenges across states, CMS provided states with an updated guide on Medicaid third-party liability practices with information to help make states more aware of such efforts and challenges. This updated guide is an important tool that could help states ensure that Medicaid pays only after other liable third parties.\nIn its Comprehensive Medicaid Integrity Plan for fiscal years 2014- 2018, CMS noted that it is leveraging available Medicare data to assist states in identifying providers who are enrolled in both Medicare and Medicaid, and may be involved in fraudulent or abusive billing practices. CMS officials also reported they adjusted the CMS-64 to improve states’ reporting of eligibility categories and UPL supplemental payments and trained states on how to report UPL supplemental payments.", "Although T-MSIS may ultimately provide CMS with improved data to enhance its oversight of the Medicaid program, it is unclear when T-MSIS data will be available from all states. Federal internal control standards require agency management to complete actions to improve deficiencies on a timely basis; however, T-MSIS implementation, which began in March 2011 as a pilot program in 12 states, has been delayed for several years. The original date for nationwide submission was July 2014; as of October 2016, 18 states were submitting T-MSIS data, and CMS officials were uncertain as to when the remaining 33 states would begin submitting these data. Agency officials stated that for a state to be considered submitting T-MSIS data, it must submit all eight data files, but not necessarily all data variables within each file. CMS officials currently estimate that states representing over 70 percent of the Medicaid population will be submitting T-MSIS data by the end of calendar year 2016.\nTo expedite states’ implementation of T-MSIS, CMS officials noted that they are focusing their efforts on the states they have determined are closest to implementing T-MSIS. According to these officials, CMS has had calls with these states to inquire about their plans, including what help the state may need from the agency. CMS has categorized the remaining states according to their readiness to begin submitting T-MSIS data.\nCMS and state officials identified several factors contributing to states’ delayed T-MSIS implementation. For example, in addition to requiring states to submit significantly more information than they have in the past, T-MSIS implementation also coincides with the ongoing efforts of over 30 states to redesign or replace their Medicaid information technology systems—an effort that states are undertaking, in part, to facilitate their efforts to comply with a multitude of federal requirements, only one of which is T-MSIS. A group representing state Medicaid directors also noted that state efforts to implement T-MSIS have been hindered by unclear and changing federal requirements. According to this group, CMS’s ongoing revisions to T-MSIS requirements have created challenges and costs for states.\nIn addition to uncertainty regarding states’ implementation of T-MSIS, CMS has not fully developed its plans for assessing and ensuring the quality of state data and, according to agency officials, is still trying to determine the best way to summarize and communicate what it has learned about the data’s quality to internal users and to states. According to CMS officials, the agency is producing data quality reports for internal users and anticipates sharing such reports with the public in 2017. While CMS officials identified seven broad priority areas for assessing the quality of the data—eligibility, expenditures, all utilization, FFS utilization, managed care utilization, providers, and third party liability—they have not yet delineated priorities within these areas for further review or identified specific data variables for priority validation—associated with improper payments or otherwise. Nonetheless, CMS officials noted that they have taken some steps to address the quality of state data. For example, in addition to the automated front-end data quality checks, the agency’s contractor has developed 2,000 quality measures to determine whether data are within expected ranges. For instance, if a state’s data suggested a Medicaid population that is 70 percent male, CMS would examine the data further as its data indicate the Medicaid population is predominantly female. CMS officials emphasized that they continue to develop processes to ensure data quality and expect to identify trends in the data that would allow them to develop new quality checks or determine which checks are no longer relevant. Without fully developing, implementing, and expediting efforts to assess the quality of T-MSIS data, CMS cannot ensure the accuracy and completeness of T-MSIS data that states submit.\nCMS’s plans for using T-MSIS to oversee states’ Medicaid programs also remain preliminary, and the agency has not established specific time frames for their use. Officials report that the agency is currently examining available state T-MSIS data to identify any problematic trends and developing analytic tools designed to assist with monitoring and oversight. For example, CMS’s Center for Program Integrity has begun to crosswalk T-MSIS provider data to Medicare data to develop an algorithm to assist with program integrity efforts. Additionally, CMS established the Division of Business and Data Analysis in 2015 to lead analysis and dissemination of Medicaid and CHIP data. Such efforts include working with states on improving the quality of their T-MSIS data and to support other CMS offices’ use of data for program management and monitoring. According to CMS officials, the improved data will be used by CMS, states, and researchers for program monitoring, policy implementation, improving beneficiary health care, and lowering costs. Officials reported they anticipate that as more states submit T-MSIS data, and both states and CMS gain more experience with the process, the agency will develop additional and more complex uses of T-MSIS for program oversight purposes.", "The continuing increase in federal Medicaid improper payments— estimated at over $36 billion in fiscal year 2016—underscores the need for improved program oversight. We and others have expressed long- standing concerns about the completeness, accuracy, and timeliness of available Medicaid data, and the effect of these insufficiencies on CMS’s ability to ensure the fiscal integrity of the program. CMS’s continued reliance on inaccurate, incomplete, and untimely data, and the ongoing uncertainty about the scope and timing of its remedial actions, is inconsistent with federal internal control standards. As a steward of the program, CMS must take immediate steps to ensure the appropriate use of scarce federal and state dollars.\nCMS acknowledges the need for improved Medicaid data and is taking actions aimed at improving available data. Thus far, CMS actions have focused on guidance and regulations, continued oversight of program integrity, and improved reporting of specific expenditures, such as supplemental payments. It is unknown whether these actions, while important, will significantly improve CMS’s ability to oversee this complex and growing program. In the longer term, CMS cites T-MSIS as its primary effort to streamline and improve data. T-MSIS includes aspects aimed at improving the quality of state data available to CMS, yet uncertainty remains as to when these data will be available from all states; how CMS will ensure their quality; or how CMS will use these data for oversight purposes. Without an improved focus on ensuring the accuracy of data—and setting priorities for the data that are most likely to improve program oversight—the effectiveness of T-MSIS cannot be assured.", "We recommend that the Administrator of CMS take immediate steps to assess and improve the data available for Medicaid program oversight, including, but not limited to, T-MSIS. Such steps could include refining the overall data priority areas in T-MSIS to better identify those variables that are most critical for reducing improper payments, and expediting efforts to assess and ensure the quality of these T-MSIS data.", "We provided a draft of this report to HHS for comment. In its written comments, HHS concurred with our recommendation and acknowledged the importance of having robust, timely, and accurate data to ensure the highest financial and program performance in the Medicaid program. HHS highlighted aspects of T-MSIS aimed at improving state data, which would strengthen program monitoring and oversight, policy implementation, and provide a framework for identifying potential areas of concern so that additional efforts may be taken that could reduce future instances of potential fraud, waste, and abuse. Further, HHS noted its ongoing efforts to work with states to ensure compliance with T-MSIS reporting requirements, reduce reporting errors, and improve the quality of their data submissions. HHS also provided a technical comment, which we incorporated. HHS’s comments are reproduced in appendix I.\nAs arranged with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days after its issuance date. At that time, we will send copies of this report to the Secretary of Health and Human Services and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov.\nIf you or your staff members have any questions, please contact me at (202) 512-7114 or yocomc@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Major contributors to this report are listed in appendix II.", "", "", "", "In addition to the contact named above, Susan Anthony (Assistant Director), Manuel Buentello (Analyst-in-Charge), Ricky Harrison Jr., and Kate Nast Jones made key contributions to this report. Also contributing were Sandra George and Drew Long.", "The following are selected GAO products pertinent to the issues discussed in this report. Other products may be found at GAO’s web site at www.gao.gov.\nMedicaid: Federal Guidance Needed to Address Concerns About Distribution of Supplemental Payments. GAO-16-108. Washington, D.C.: February 5, 2016.\nMedicaid: Improving Transparency and Accountability of Supplemental Payments and State Financing Methods. GAO-16-195T. Washington, D.C.: November 3, 2015.\nMedicaid: Additional Efforts Needed to Ensure that State Spending is Appropriately Matched with Federal Funds. GAO-16-53. Washington, D.C.: October 16, 2015.\nMedicaid: Key Issues Facing the Program. GAO-15-677. Washington, D.C.: July 30, 2015.\nMedicaid: Additional Reporting May Help CMS Oversee Prescription-Drug Fraud Controls. GAO-15-390. Washington, D.C.: July 8, 2015.\nMedicaid: Service Utilization Patterns for Beneficiaries in Managed Care. GAO-15-481. Washington, D.C.: May 29, 2015.\nMedicaid: CMS Oversight of Provider Payments is Hampered by Limited Data and Unclear Policy. GAO-15-322. Washington, D.C.: April 10, 2015.\nHigh-Risk Series: An Update. GAO-15-290. Washington, D.C.: February 11, 2015.\nMedicaid: Additional Federal Action Needed to Further Improve Third- Party Liability Efforts. GAO-15-208. Washington, D.C.: January 28, 2015.\nMedicaid Program Integrity: Increased Oversight Needed to Ensure Integrity of Growing Managed Care Expenditures. GAO-14-341. Washington, D.C.: May 19, 2014.\nMedicaid Financing: States’ Increased Reliance on Funds from Health Care Providers and Local Governments Warrants Improved CMS Data Collection. GAO-14-627. Washington, D.C.: July 29, 2014.\nMedicaid: Completed and Preliminary Work Indicate that Transparency around State Financing Methods and Payments to Providers Is Still Needed for Oversight. GAO-14-817T. Washington, D.C.: July 29, 2014.\nMedicaid: More Transparency and Accountability for Supplemental Payments are Needed. GAO-13-48. Washington, D.C.: November 26, 2012.\nMedicaid: Data Sets Provide Inconsistent Picture of Expenditures. GAO-13-47. Washington, D.C.: October 29, 2012.\nMedicaid: States Reported Billions More in Supplemental Payments in Recent Years. GAO-12-694. Washington, D.C.: July 20, 2012.\nNational Medicaid Audit Program: CMS Should Improve Reporting and Focus on Audit Collaboration with States. GAO-12-627. Washington, D.C.: June 14, 2012.\nMedicaid and CHIP: Reports for Monitoring Children’s Health Care Services Need Improvement. GAO-11-293R. Washington, D.C.: April 5, 2011." ], "depth": [ 1, 1, 2, 2, 1, 2, 2, 1, 1, 1, 1, 1, 2, 2, 1 ], "alignment": [ "", "h0_full h2_full", "h0_full", "", "h1_title", "h1_full", "h1_full", "h1_full", "", "", "", "", "", "", "" ] }

{ "question": [ "What did GAO find about CMS' data sources?", "What two data sources does CMS rely on?", "What is the outlook for these programs?", "How does CMS plan to improve Medicaid data?", "What is the current status of T-MSIS?", "What is the timeline for data submission?", "What factors led to states' delayed T-MSIS implementation?", "To what extent has CMS improved these problems?", "What is the impact of CMS's data problems?", "What was GAO asked to examine?", "What does this report describe?", "How did GAO conduct its review?" ], "summary": [ "GAO found that available Medicaid expenditure and utilization data do not provide CMS with sufficient information to consistently ensure that payments are proper or that beneficiaries have access to covered services.", "The Centers for Medicare & Medicaid Services (CMS), the agency within the Department of Health and Human Services (HHS) that administers the Medicaid program, relies on two key data sources for program oversight: the CMS-64, which serves as the basis for calculating the amount of federal matching funds for states, and the Medicaid Statistical Information System (MSIS), which is designed to report individual beneficiary claims data.", "The CMS-64 and MSIS have the potential to offer a robust view of payments, overall spending, and services in the Medicaid program; however, GAO found that the usefulness of these data is limited because of issues with completeness, accuracy, and timeliness.", "CMS has acknowledged the need for improved Medicaid data and cites the Transformed Medicaid Statistical Information System (T-MSIS) as its key initiative to improve Medicaid data and program oversight.", "T-MSIS includes aspects aimed at improving the completeness, accuracy, and timeliness of state data available to CMS, yet uncertainty remains as to when these data will be available from all states as implementation has been delayed for several years.", "As of October 2016, 18 states were submitting T-MSIS data. Although CMS officials were uncertain when the remaining states would begin submitting data, they estimated that states representing over 70 percent of the Medicaid population would be submitting T-MSIS data by the end of calendar year 2016.", "CMS officials identified several factors contributing to states' delayed T-MSIS implementation, such as coinciding with the ongoing efforts of over 30 states to redesign or replace their Medicaid information technology systems. Moreover, CMS has not fully developed its plans to ensure the quality of T-MSIS data, and its plans for using these data for oversight purposes remain preliminary.", "Through rulemaking and other guidance, CMS has taken other actions to improve data; however, given that these actions have recently or not yet been implemented, it is unclear how they will affect CMS's oversight.", "CMS's continued reliance on inaccurate, incomplete, and untimely data, and the ongoing uncertainty about the scope and timing of its remedial actions, hamper effective oversight and are inconsistent with federal internal control standards, which require entities to rely on quality and timely information to oversee their programs and take timely actions to improve deficiencies.", "GAO was asked to examine the usefulness of Medicaid data for oversight purposes and any efforts to improve known limitations.", "This report (1) describes how available Medicaid expenditure and utilization data affect CMS's ability to oversee the Medicaid program; and (2) examines CMS's efforts to improve these data.", "To address these objectives, GAO reviewed agency guidance, laws, regulations, and federal internal control standards; reviewed reports from GAO and others published from March 2010 through September 2016; and interviewed CMS officials about continuing data challenges and initiatives to improve data." ], "parent_pair_index": [ -1, 0, 1, -1, 0, 1, 0, 3, 3, -1, -1, 1 ], "summary_paragraph_index": [ 2, 2, 2, 5, 5, 5, 5, 5, 5, 1, 1, 1 ] }

{ "title": [ "Background", "Medicare and Medicaid Coverage for Disabled Dual-Eligible Beneficiaries", "Characteristics of Disabled Dual-Eligible Beneficiaries Compared with Aged Dual-Eligible Beneficiaries", "Special Needs Plans", "CMS Financial Alignment Demonstration", "Overall Spending for High-Expenditure Disabled Dual-Eligible Beneficiaries Driven Largely by Medicaid Spending", "Medicaid Spending— Particularly for Users of Community-based LTSS— Accounted for Nearly Two- Thirds of Overall Spending for High-Expenditure Beneficiaries", "States with High Medicaid Spending Often Had Lower Medicare Spending but Greater Overall Spending for High- Expenditure Beneficiaries", "Service Use and Characteristics Differed Widely between High- Medicare-Expenditure and High-Medicaid- Expenditure Disabled Dual-Eligible Beneficiaries", "Beneficiaries with High Medicare Expenditures Were More Likely to Use Inpatient Services; Beneficiaries with High Medicaid Expenditures Were More Likely to Use LTSS", "Beneficiaries with High Medicare Expenditures Were Far More Likely than Those with High Medicaid Expenditures to Have Multiple Health Conditions", "Fully Integrated D-SNPs Often Provided High Quality Care, but Had Limited Experience Serving Disabled Dual-Eligible Beneficiaries or Demonstrating Medicare Savings", "Fully Integrated D-SNPs Often Met Criteria for High Quality, but Relatively Few of Those Plans Served Disabled Dual-Eligible Beneficiaries", "Relatively Few High Quality FIDE-SNPs Showed Potential for Medicare Savings, Regardless of Whether They Served Disabled Dual-Eligible Beneficiaries", "Moderately Better Health Outcomes for Disabled Dual-Eligible Beneficiaries in D-SNPs Relative to Those in Traditional MA Plans Did Not Translate into Lower Levels of Costly Medicare Services", "Concluding Observations", "Agency Comments", "Appendix I: Disabled Dual-Eligible Beneficiaries’ Service Use and Health Conditions by Expenditure Level, 2009", "Appendix II: GAO Contact and Staff Acknowledgments", "GAO Contact", "Staff Acknowledgments" ], "paragraphs": [ "", "Beneficiaries under age 65 may qualify for Medicare coverage on the basis of disability (such as a physical disability, developmental disability, or disabling mental health condition). Disabled individuals typically enroll in the federal Social Security Disability Insurance program and then have a 24-month waiting period before Medicare benefits begin. During the waiting period, low-income individuals who qualify for the Supplemental Security Income program (SSI) in their state can also qualify for Medicaid coverage. SSI is a means-tested income assistance program that provides cash benefits to individuals who meet certain disability criteria and have low levels of income and assets. After the Medicare waiting period ends, beneficiaries become dually enrolled in both programs. Medicare becomes the primary payer for most services, but Medicaid continues to cover benefits not offered by Medicare.\nMedicare coverage for dual-eligible beneficiaries includes hospitalizations, physician services, prescription drugs, skilled nursing facility care, home health visits, and hospice care. Under Medicaid, states are required to cover certain items and services for dual-eligible beneficiaries, including nursing facility services and home health services. Although states are required to cover certain populations and services, they have the option to expand coverage beyond these mandatory levels, and accordingly state Medicaid programs vary in scope.", "Compared with aged dual-eligible beneficiaries, disabled dual-eligible beneficiaries in 2009 were more likely to be male and African-American, and they tended to have a much higher incidence of mental illness. However, they had a far lower incidence of three or more chronic conditions and were less likely to be institutionalized.\nIn terms of relative spending, disabled dual-eligible beneficiaries had lower per capita Medicare spending but higher per capita Medicaid spending in 2009. However, among beneficiaries who did not use LTSS, per capita Medicare and Medicaid spending were both slightly higher for disabled dual-eligible beneficiaries. Disabled dual-eligible beneficiaries were less likely to live in an institution than aged dual eligible beneficiaries; however, among those that did, Medicaid spending was significantly higher than for aged dual-eligible beneficiaries in institutions. See table 1.", "In addition to requiring SNPs to meet all the requirements of other MA plans, CMS requires SNPs to provide specialized services targeted to the needs of their unique beneficiaries, including beneficiaries with certain severe and disabling chronic conditions, beneficiaries who live in institutions, or beneficiaries dually enrolled in both the Medicare and Medicaid programs. SNPs that provide specialized services, such as case management, for dual-eligible beneficiaries are referred to as D-SNPs.\nCMS pays D-SNPs the same way that it pays other MA plans, that is, a monthly amount determined by the plan bid—the plan’s estimated cost of providing Medicare Part A and Part B benefits—in relation to a benchmark, which is the maximum amount the Medicare program will pay MA plans in a given locality. CMS then adjusts the monthly payments to MA plans on the basis of beneficiaries’ risk scores. For MA plans that bid below the benchmark, CMS provides a rebate that is modified by an overall assessment of quality at the contract level using a 5-star rating scale based on measures of clinical quality and patients’ reported care experience for Medicare Part C and Part D.\nCMS designates certain D-SNPs as FIDE-SNPs, which is a designation for plans that integrate Medicare and Medicaid program benefits for dual- eligible beneficiaries through a single MCO. All FIDE-SNPs are financially at risk for enrollees’ nursing facility services for at least 6 months of the year. In 2013, CMS designated 35 FIDE-SNPs that enrolled about 98,000 beneficiaries across seven states.\nBeginning in contract year 2013, CMS may give certain D-SNPs that meet a high standard of integration and specified performance and quality-based standards the flexibility to offer supplemental benefits beyond those that CMS currently allows for other MA plans if the agency determines these benefits would better integrate care. This benefits flexibility is designed to assist dual-eligible beneficiaries who are at risk of institutionalization to remain in the community and may prevent health status decline and reduce the quantity and cost of health care services. As part of the qualifying criteria that CMS currently applies to benefits flexibility, the agency requires D-SNPs either to be in a contract with a 3 star (or higher) overall rating for the previous contract year or, if the D-SNP is part of a contract that does not have sufficient enrollment to generate a star rating, to score 75 percent or above on five of seven specific SNP plan-level HEDIS measures. For 2013, CMS approved 21 highly integrated D-SNPs for benefits flexibility that enrolled about 75,000 beneficiaries.", "In 2011, CMS announced a financial alignment demonstration that is intended to align Medicare and Medicaid services and funding to reduce costs and improve the quality of care for dual-eligible beneficiaries. As of June 2014, 12 states have been approved to participate in the demonstration and 4 states have active proposals pending.demonstration is authorized for at least 3 years.\nMost states participating in the financial alignment demonstration plan to use a capitated model. Under the capitated model, CMS and states provide a single capitated payment to health plans to provide all Medicare and Medicaid benefits to enrolled dual-eligible beneficiaries. Payment rates to health plans will be reduced up front each year based on a predetermined combined Medicare and Medicaid savings estimate by CMS. In general, CMS and states expect the savings percentages to increase during the second and third years of the demonstration. Furthermore, to encourage quality of care improvements, CMS and states will withhold a portion of the payments—starting at 1 percent in the first year and up to 3 percent in the third year—that participating health plans can earn back by meeting a certain threshold of performance on quality measures.\nCMS expects that the capitated model will result in savings (1) to Medicare by reducing hospital admissions, emergency room visits, and skilled nursing care, and (2) to Medicaid by avoiding costly long-term nursing home care. At the same time, CMS expects that there may be increased use of primary care services, outpatient services, behavioral health services, and community-based LTSS, due to a greater emphasis on care coordination and maintaining beneficiaries in the community. Although CMS projects that approximately 61 to 75 percent of savings will come from reductions in costly Medicare-covered services, the agency requires that—as part of a more integrated approach—both the Medicare and Medicaid programs adjust their payment rates to plans based on aggregate savings percentages.\nIn Massachusetts’s demonstration, only disabled dual-eligible beneficiaries between the ages of 21 and 64 are eligible for enrollment. Voluntary enrollment for the program began on October 1, 2013, and passive enrollment—whereby individuals are automatically enrolled in the program but can opt out—began January 1, 2014. Since 2004, Massachusetts has separately participated in a financial alignment program for dual-eligible beneficiaries age 65 and older known as Senior Care Options. This program provides all of the services covered by Medicare and MassHealth—the Massachusetts Medicaid program—and is funded by a combined capitated payment from both programs.", "", "High Medicaid spending for disabled dual-eligible beneficiaries drove high combined (Medicare and Medicaid) program spending for these beneficiaries. Beneficiaries ranked within the top 20 percent—or top quintile—of spending in their respective states accounted for more than 60 percent of national combined program spending for disabled dual- eligible beneficiaries. Furthermore, for these high-expenditure beneficiaries, nearly two-thirds (63 percent) of combined program spending was Medicaid spending and slightly over one-third (37 percent) was Medicare spending. (See fig. 1.)\nHigh-expenditure beneficiaries in the top combined spending quintile were also more likely to be in the top Medicaid spending quintile in their states than in the top Medicare spending quintile. Specifically, 72 percent of high-expenditure beneficiaries were in the top Medicaid spending quintile, while 54 percent of these beneficiaries were in the top Medicare spending quintile. Only 26 percent of high-expenditure beneficiaries were in both the top Medicare and the top Medicaid spending quintiles in their states. (See fig. 2.)\nJust over half (52 percent) of Medicaid spending for high-expenditure disabled dual-eligible beneficiaries was for those who used community- based LTSS, while for low-expenditure beneficiaries (those in the bottom combined spending quintile), community-based LTSS users accounted for only 4 percent of Medicaid spending. Inpatient stays accounted for the largest share (39 percent) of Medicare spending for high-expenditure beneficiaries but accounted for less than 1 percent of Medicare spending for low-expenditure beneficiaries.", "Because Medicaid benefits differ across states, per capita Medicaid spending for high-expenditure disabled dual-eligible beneficiaries varied more across states than per capita Medicare spending did. Per capita Medicaid spending for these beneficiaries ranged from about $27,000 in Michigan to about $188,000 in New York, while per capita Medicare spending ranged from about $18,000 in North Dakota to about $49,000 in Florida. Largely because of the variation in Medicaid spending, combined program spending ranged from about $68,000 in Alabama to about $220,000 in New York.\nAlthough states with greater per capita Medicaid spending for high- expenditure beneficiaries often had less per capita Medicare spending, they were usually among the states with the greatest per capita combined (See fig. 3.) For example, 5 of the 10 states with the greatest spending.per capita Medicaid spending had per capita Medicare spending that was less than the average across states. Nevertheless, all 10 states were among those with the greatest per capita combined spending. In fact, 17 of the 20 states with the greatest per capita Medicaid spending were also among those with the greatest per capita combined spending.\nBecause the majority of spending for high-expenditure disabled dual- eligible beneficiaries was for beneficiaries who used community-based LTSS, and because CMS expects to see an increase in the use of these services under the financial alignment demonstration, we repeated this analysis for only beneficiaries who used community-based LTSS and found similar results. States that had greater per capita Medicaid spending for high-expenditure beneficiaries who used community-based LTSS tended to have less per capita Medicare spending but greater per capita combined spending for these beneficiaries. (See fig. 4.) In particular, 8 of the 10 states with the greatest per capita Medicaid spending for community-based LTSS users had per capita Medicare spending that was less than the average across states. Nevertheless, 9 of the 10 states with the greatest per capita Medicaid spending were among the 10 states with the greatest per capita combined spending.", "", "The services most commonly used by disabled dual-eligible beneficiaries in the top Medicare-spending quintile and those in the top Medicaid- spending quintile often differed widely. As expected—because Medicare is the primary payer for acute hospital stays—beneficiaries with high Medicare expenditures were highly likely to use inpatient services. However, a relatively low percentage of beneficiaries with high Medicaid expenditures used these services. In contrast, beneficiaries with high Medicaid expenditures were much more likely than beneficiaries with high Medicare expenditures to use LTSS—particularly community-based LTSS. (See fig. 5.) Beneficiaries with high Medicaid expenditures were also more likely to use community-based LTSS and less likely to use inpatient services than most beneficiaries with lower Medicaid expenditures.\nDespite differences in service use, high-Medicare-expenditure and high- Medicaid-expenditure disabled dual-eligible beneficiaries had similar utilization levels of Medicare-covered primary care and mental health services. Nearly 80 percent of beneficiaries in each group received at least one primary care service, and approximately 40 percent of beneficiaries in each group received at least one mental health service. Both groups also were more likely to receive primary care or mental health services than beneficiaries with lower expenditures in their respective programs. (See app. I for more information on the use of selected Medicare and Medicaid services by disabled dual-eligible beneficiary expenditure levels.)", "Disabled dual-eligible beneficiaries with high Medicare expenditures were considerably more likely than beneficiaries with high Medicaid expenditures to have multiple chronic or mental health conditions. About 35 percent of beneficiaries with high Medicare expenditures had six or more chronic conditions, compared with 14 percent of beneficiaries with high Medicaid expenditures. In addition, 25 percent of beneficiaries with high Medicare expenditures had three or more mental health conditions, compared with 13 percent of beneficiaries with high Medicaid expenditures.\nThe presence of multiple health conditions may drive the use of costly Medicare services among beneficiaries with high Medicare expenditures. As the number of chronic and mental health conditions increased among these beneficiaries, the average number of emergency room visits, inpatient stays, and readmissions also increased. The increase in the average number of emergency room visits was particularly dramatic as the number of mental health conditions increased. (See fig. 6.) Furthermore, as the number of chronic conditions increased, the percentage of beneficiaries with high Medicare expenditures who had at least one inpatient admission increased substantially, although as the number of mental health conditions increased, the percentage was relatively stable.", "", "FIDE-SNPs in 2013 were far more likely than other D-SNPs to meet criteria for high quality. Among those that reported sufficient data to receive a quality score, 14 (56 percent) of the 25 FIDE-SNPs met criteria for high quality but only 24 (14 percent) of all other 169 D-SNPs met these criteria. While FIDE-SNPs often received an overall quality score within the top two quintiles, 7 FIDE-SNPs (28 percent) scored below this mark, including 6 FIDE-SNPs that scored below the 40th percentile and 3 FIDE-SNPs that scored below the 25th percentile. The 14 high quality FIDE-SNPs operated across four states under programs through which all D-SNPs fully integrated Medicare and Medicaid benefits. In contrast, all 6 FIDE-SNPs that operated outside of these four states received a quality score below the 60th percentile.\nWhile 207 (64 percent) of the 323 D-SNPs in 2013 served disabled dual- eligible beneficiaries, only 13 (37 percent) of the 35 FIDE-SNPs served this population (see fig. 7). The proportion of disabled dual- eligible beneficiaries in each of these 13 FIDE-SNPs ranged from 12 percent to nearly all of plan enrollment. These 13 D-SNPs operated across four states. Among the 22 FIDE-SNPs that did not serve disabled beneficiaries, most operated in state fully integrated programs that excluded this population from enrollment in those plans. Furthermore, only 2 FIDE-SNPs met criteria for high quality and served disabled beneficiaries.\nWhile 11 of the 21 highly integrated D-SNPs that CMS approved for 2013 benefits flexibility were high quality FIDE-SNPs, CMS’s quality requirements did not prevent some D-SNPs with relatively low quality from being approved for benefits flexibility. Although CMS approved 18 of the 21 D-SNPs for benefits flexibility through their contract star rating, only D-SNPs without a star rating are assessed for quality at the plan level. Just 3 of the 18 D-SNPs approved through their contract star rating would have met CMS’s plan-level quality requirements. Furthermore, 3 of the 18 D-SNPs approved for benefits flexibility through their star rating performed below the median quality score, including the only two D-SNPs approved with an overall star rating of 3.0.", "Only 8 of the 35 FIDE-SNPs—and 3 of the 14 with high quality—bid below Medicare FFS spending in 2013, an indication that these plans can provide standard Medicare Part A and B benefits at a lower cost than what Medicare would have likely spent for these beneficiaries in FFS. Also, only 3 FIDE-SNPs that served disabled dual-eligible beneficiaries bid below Medicare FFS spending, and none of these met criteria for high quality.Medicare FFS spending, only 2 bid within 3 percentage points of FFS spending. On average (weighted by July 2013 enrollment), the 35 FIDE- SNPs bid 6 percent above FFS spending, and the 14 high quality FIDE- Among the 11 high quality FIDE-SNPs that bid at or above SNPs bid 3 percent above FFS spending.FIDE designation bid 4 percent below FFS spending.\nIn contrast, D-SNPs without a Prior GAO research found that MA plans in service areas with high Medicare FFS spending were more likely to bid below Medicare FFS spending than MA plans in service areas with low FFS spending; FIDE- SNPs in 2013 generally followed that pattern. that bid below FFS spending, five operated in the 70th percentile or higher of MA service area FFS spending, two operated between the 60th and 70th percentiles, and only one operated below the median. In addition, among the 10 FIDE-SNPs that bid below FFS spending or had high quality and bid within 3 percentage points above FFS spending, 5 operated in the same service area as D-SNPs that were not fully integrated. In each of these 5 cases, total bids as a percentage of FFS spending were lower for D-SNPs with less integration of Medicare and Medicaid benefits. Furthermore, FIDE-SNPs were not notably more likely to bid below FFS spending based on CMS approval for benefits flexibility, not-for-profit status, relatively smaller projected profit margin, or plan enrollment size above 1,000.\nSee GAO, Medicare Advantage: Comparison of Plan Bids to Fee-for-Service Spending by Plan and Market Characteristics, GAO-11-247R (Washington, D.C.: Feb. 4, 2011).", "D-SNPs’ performance for disabled dual-eligible beneficiaries relative to traditional MA plans’ was similar on average for process measures, but was moderately better on health outcome measures. On average, D-SNPs’ relative performance on 23 process measures (including screening for certain diseases and annual monitoring for patients on certain prescriptions) was 1 percentage point higher both for all beneficiaries and for those with six or more chronic conditions. While D-SNPs performed better on approximately two-thirds of the process measures,from 6 percentage points lower to 9 percentage points higher for all beneficiaries, and by an even wider range for those with six or more chronic conditions. In contrast, on average, D-SNPs’ performance on seven health outcome measures (including maintaining healthy cholesterol, blood pressure, and blood sugar levels) was 5 percentage points higher for all beneficiaries and 7 percentage points higher for those with six or more chronic conditions. D-SNPs’ relative performance was consistently better on each health outcome measure—ranging from 3 to 6 percentage points higher for all beneficiaries and 2 to 16 percentage points higher for those with six or more chronic conditions. (See table 2.)", "These results suggest that CMS’s expectations regarding the extent to which integration of benefits will produce savings through lower use of costly Medicare services may be optimistic. Whether CMS and participating states will be able to improve quality without increasing overall program spending for disabled dual-eligible beneficiaries is uncertain.\nWhile increasing the use of community-based LTSS may improve the quality of care for disabled dual-eligible beneficiaries who utilize those services, community-based LTSS users drove high combined program spending for disabled dual-eligible beneficiaries. Likewise, states with the highest per capita Medicaid spending for disabled dual-eligible beneficiaries were usually among the states with the highest overall program spending. In addition, the wide differences in health characteristics between disabled dual-eligible beneficiaries with the highest Medicare spending and those with the highest Medicaid spending may indicate the potential challenge of providing additional services without disproportionately impacting the costs of each program. Although most disabled dual-eligible beneficiaries with the highest Medicaid spending used community-based LTSS to assist them with activities of daily living, these beneficiaries generally did not have the numerous chronic conditions associated with those who had the highest Medicare spending.\nFurthermore, if the models of care in the financial alignment demonstrations or other integrated models build on fully integrated D-SNP models, these efforts may improve the care provided to dual- eligible beneficiaries but may not produce significant Medicare savings for dual-eligible beneficiaries. D-SNPs that fully integrated Medicare and Medicaid benefits were far more likely than other D-SNPs to meet criteria for high quality but usually operated under fully integrated state programs that excluded disabled dual-eligible beneficiaries from enrollment. Regardless of whether they served disabled beneficiaries, high quality fully integrated D-SNPs did not usually demonstrate the potential for Medicare savings. In addition, many fully integrated D-SNPs that demonstrated the potential for Medicare savings operated in service areas where D-SNPs with less integration of benefits demonstrated more potential for Medicare savings.\nOur findings also suggest that even if there is moderate improvement in the performance of health outcome measures, and if dual-eligible beneficiaries are enrolled in plans specifically designed for them, instead of enrolled in traditional MA plans, these conditions are not necessarily sufficient to reduce disabled dual-eligible beneficiaries’ use of costly Medicare services. Despite moderately better performance on health outcome measures for both disabled and aged dual-eligible beneficiaries, the fact that D-SNPs had similar levels of costly Medicare-covered services (i.e., inpatient admissions, readmissions, and emergency room visits) as traditional MA plans for this population has significant implications for program costs. Furthermore, for dual-eligible beneficiaries with six or more chronic conditions—a group that is at risk for high Medicare spending—although D-SNPs had better relative performance on health outcome measures, they still had similar, if not higher, levels of costly Medicare-covered services.", "We provided a draft of this report to CMS for comment. CMS did not have any general comments. The agency provided technical comments, which we incorporated as appropriate.\nAs agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Secretary of Health and Human Services, interested congressional committees, and others. The report also is available at no charge on GAO’s website at http://www.gao.gov.\nIf you or your staffs have any questions regarding this report, please contact me at (202) 512-7114 or cosgrovej@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix II.", "Any long-term services and supports (LTSS)", "", "", "In addition to the contact named above, individuals making key contributions to this report include Catina Bradley, Assistant Director; Phyllis Thorburn, Assistant Director; Alison Binkowski; Aubrey Naffis; and Luis Serna III. Todd Anderson, Emily Johnston, Elizabeth T. Morrison, and Hemi Tewarson also provided valuable assistance." ], "depth": [ 1, 2, 2, 2, 2, 1, 2, 2, 1, 2, 2, 1, 2, 2, 1, 1, 2, 1, 1, 2, 2 ], "alignment": [ "h1_title", "", "", "h1_full", "", "h0_title", "h0_full", "h0_full", "h0_title", "h0_full", "h0_full", "h2_title h1_title", "", "h2_full h1_full", "", "h1_full", "", "", "", "", "" ] }

{ "question": [ "What drove spending for high-expenditure disabled duel-eligible beneficiaries?", "How did Medicare, Medicaid, and overall spending compare?", "What characterized dual-eligibility beneficiaries?", "What is the status of dual-eligible special needs plans?", "How did CMS's D-SNPs compare to other D-SNPs?", "Even though FIDE-SNPs are of high quality, what problems do they have?", "What else do FIDE-SNPs demonstrate in terms of savings and benefits?", "What did GAO analyze?", "What did GAO identify?", "Why did GAO use 2011 data?" ], "summary": [ "Overall spending for high-expenditure disabled dual-eligible beneficiaries—those in the top 20 percent of spending in their respective states—was driven largely by Medicaid spending, and the service use and health status often differed widely between those with high Medicare expenditures and high Medicaid expenditures.", "For these beneficiaries, Medicaid expenditures accounted for nearly two-thirds of overall spending. Also, states with high Medicaid spending often had lower Medicare spending but nearly always had greater overall spending for these beneficiaries.", "Furthermore, service use and health status often differed widely between high-Medicare-expenditure and high-Medicaid-expenditure disabled dual-eligible beneficiaries. Those with high Medicare expenditures were considerably more likely than those with high Medicaid expenditures to have multiple health conditions and use inpatient services but far less likely to use long-term services and supports.", "Dual-eligible special needs plans (D-SNP)—Medicare Advantage (MA) private plans designed to target the needs of dual-eligible beneficiaries—that fully integrated Medicare and Medicaid benefits often met criteria for high quality but had limited experience serving disabled dual-eligible beneficiaries or demonstrating Medicare savings.", "D-SNPs that the Centers for Medicare & Medicaid Services (CMS)—the agency that administers Medicare and oversees Medicaid—designated as Fully Integrated Dual-Eligible (FIDE) SNPs were far more likely to meet high quality criteria compared with other D-SNPs.", "However, relatively few FIDE-SNPs with high quality served disabled dual-eligible beneficiaries or reported lower costs for Medicare services than expected Medicare fee-for-service (FFS) spending in the same areas.", "Additionally, FIDE-SNPs that demonstrated the potential for Medicare savings often operated in service areas where D-SNPs with less integration of Medicaid benefits demonstrated more potential for Medicare savings (i.e., lower relative costs for Medicare services).", "To do this work, GAO analyzed Medicare and Medicaid 2009 claims and summary data—the most recent data available.", "GAO identified D-SNPs that met standards of quality and integration and compared their 2013 costs to expected Medicare FFS spending.", "GAO used 2011 data—the most recent data available when GAO began its analysis—from the Health Care Effectiveness Data and Information Set to evaluate D-SNPs' and traditional MA plans' performance." ], "parent_pair_index": [ -1, 0, 0, -1, -1, 1, 1, -1, 0, -1 ], "summary_paragraph_index": [ 3, 3, 3, 4, 4, 4, 4, 2, 2, 2 ] }

{ "title": [ "Background", "Motor Carrier Industry Diversity", "FMCSA’s Role", "SMS Carrier Performance", "Interventions", "Carrier Fitness to Operate", "CSA Program Increases Carrier Interventions, but FMCSA Faces Challenges in Identifying High Risk Carriers", "CSA Expands FMCSA’s Reach and Raises the Profile of Safety in the Industry", "Relationship between Violation of Most Regulations and Crash Risk Is Unclear", "Most Carriers Lack Sufficient Information to Reliably Compare Safety Performance across Carriers", "FMCSA Has Worked to Address Issues with Precision, but Its Methods Do Not Fully Address Limitations", "Data Sufficiency Standards", "Safety Event Groups", "Strengthened Data Sufficiency Standards Can Improve FMCSA’s Ability to Identify High Risk Carriers", "Precision Required in SMS Scores Depends on How They Are Used", "Conclusions", "Recommendations for Executive Action", "Agency Comments", "Appendix I: Scope and Methodology", "Appendix II: Estimating Rates of Regulatory Violations in the Safety Measurement System", "Statistical Methods for Estimating Violation Rates and Their Sampling Variance", "Applying Rate Estimation Methods to Motor Carrier Data", "Appendix III: Evaluating the Statistical Validity of the Safety Measurement System", "Structure and Assumptions of SMS", "SMS as a Latent Variable Measurement Model", "Appendix IV: Prior Evaluations of SMS Scores as Measures of Safety for Specific Carriers and Risk Groups", "Appendix V: Analysis of Regulatory Violations and Crash Risk", "Data and Methods", "Evaluation of Models", "Model Results", "Model Predictive Power", "Conclusions", "Appendix VI: Descriptive Statistics on Motor Carrier Population and Results of GAO’s Analysis", "Appendix VII: GAO Contact and Staff Acknowledgments", "GAO Contact", "Staff Acknowledgments" ], "paragraphs": [ "", "The commercial motor carrier industry represents a range of businesses, including private and for-hire freight transportation, passenger carriers, and specialized transporters of hazardous materials. As of 2012, FMCSA estimates that there were more than 531,000 active motor carriers, a number that fluctuates over time due to the approximately 75,000 new applications that enter the industry each year combined with thousands of carriers annually leaving the market. Among carriers we assessed for this report, most that operate in the United States are small firms; 93 percent of carriers own or operate 20 or fewer motor vehicles. Nonetheless, a large percentage of vehicles on the road are operated by large carriers. Approximately 270 carriers have more than 1,000 vehicles each and account for about 29 percent of all vehicles that FMCSA oversees.", "FMCSA is responsible for overseeing this large and diverse industry. FMCSA establishes safety standards for interstate motor carriers as well as intrastate hazardous material carriers operating in the United States. To enforce compliance with these standards, FMCSA partners with state agencies to perform roadside inspections of vehicles and investigations of carriers. In fiscal year 2012, FMCSA had a budget of approximately $550 million and more than 1,000 FMCSA staff members located at headquarters, four regional service centers, and 52 division offices.\nIn 2008, FMCSA launched an operational model test of CSA in four states and began implementing the CSA program nationwide in 2010. CSA is intended to improve safety beyond the prior SafeStat program by identifying safety deficiencies through better use of roadside inspection data, assessing the safety fitness of more motor carriers and drivers, and using less resource-intensive interventions to improve investigative and enforcement actions. From fiscal year 2007 through fiscal year 2013, FMCSA obligated $59 million to its CSA program, including CSA development and technical support, information technology upgrades, and training. For fiscal year 2014, FMCSA requested $7.5 million for CSA.\nCSA has three main components:\nSafety Measurement System. SMS uses data obtained from federal or state roadside inspections and from crash investigations to identify the highest risk carriers. SMS was designed to improve on SafeStat by incorporating all of the safety-related violations recorded during roadside inspections. Carriers potentially receive an SMS score in seven categories based on this information. Intervention. A set of enforcement tools, such as warning letters, additional investigations, or fines are used to encourage the highest risk carriers to correct safety deficiencies, or place carriers out-of- service.\nSafety Fitness Determination Rule. This future rulemaking will amend regulations to allow a determination—based in part on some of the same information used to calculate SMS—as to whether a motor carrier is fit to operate on the nation’s roads.", "SMS, the measurement system component of CSA, uses the data collected from roadside inspections and crash reports to quantify a carrier’s safety performance relative to other carriers. Specific carrier violations recorded during roadside inspections are assigned to one of six Behavioral Analysis and Safety Improvement Categories (BASIC).\nAccording to FMCSA, these BASICs were developed under the premise that motor carrier crashes can be traced to the behavior of motor carriers and their drivers. A seventh category, called the Crash Indicator, measures a carrier’s crash involvement history (see table 1). Each SMS score is designed to be a quantitative determination of a carrier’s safety performance.\nFor each of the approximately 800 violations that fall under the various BASICs, FMCSA assigns a severity weight that is meant to reflect the violation’s association with crash occurrence and crash consequence when compared with other violations within the same BASIC. For example, reckless driving violations, categorized in the Unsafe Driving BASIC, are assigned a severity weight of 10 out of a possible 10 because FMCSA determined that these violations have a stronger relationship to safety risk than some other types of violations. Unlawfully parking, by comparison, is also categorized in the Unsafe Driving BASIC, but is assigned a severity weight of 1 out of 10.\nFMCSA calculates SMS scores for carriers every month through a process that has three main steps, each of which is made up of several calculations.\nRelevant inspections are either a driver inspection, in which the inspection focuses on driver-related requirements, such as the driver’s record of duty or medical certificate, or a vehicle inspection, which focuses on the condition of the motor vehicle. Driver inspections are the relevant inspection for the Unsafe Driving, Hours-of-Service Compliance, Driver Fitness, and Controlled Substances and Alcohol BASICs. Vehicle inspections are considered relevant inspections for the Vehicle Maintenance BASIC. For the Hazardous Materials BASIC, carriers that transport placardable quantities of hazardous materials are also subject to vehicle inspections as the relevant inspections. Throughout the report, we will refer to relevant inspections as simply inspections. another calculation—the number of vehicles a carrier operates adjusted by the number of vehicle miles.\nFMCSA accounts for exposure in order to make the scores comparable across carriers. This approach has tradeoffs; while carriers can be compared without penalizing some for having had more inspections or road activity, exposure itself can be considered an element of risk. All else being equal, carriers with more road activity are involved in more crashes and potentially pose more risk to safety.\nStep 2: Data sufficiency. Depending on the BASIC, carriers generally receive SMS scores if they meet minimum thresholds of exposure (i.e., number of vehicles or inspections), or a minimum number of inspections with violations (i.e., “critical mass”). For purposes of display on FMCSA’s public website and identifying the highest risk carriers for directing enforcement resources, FMCSA does not include scores for carriers that do not meet a so-called critical mass of violations. For each BASIC, this typically requires a minimum number of inspections that include violations in that BASIC, a violation in that BASIC in the last 12 months, and, for some BASICs, a violation during the most recent inspection.\nStep 3: Dividing carriers into peer groups. After calculating violation rates, FMCSA assigns carriers it determines have sufficient exposure to peer groups with similar levels of on-road activity, or what the agency refers to as safety event groups. According to FMCSA, safety event groups are designed to account for the inherent greater variability in violation rates based on limited levels of exposure and the stronger level of confidence in violation rates based on carriers with higher exposure. FMCSA assigns carriers to safety event groups based on their number of inspections, the number of inspections with violations, or crashes the carriers have accrued in the previous 2 years. Within each safety event group, FMCSA calculates SMS scores by ranking carriers’ violation rates (obtained in step 1 above) and assigning each carrier a percentile score ranging from 0 to 100, where 100 indicates the highest violation rate and the highest estimated risk for future crashes. FMCSA displays scores for five of the BASICs on its public website.", "Once SMS scores are calculated, FMCSA begins a Safety Evaluation that uses SMS scores to identify carriers with safety performance problems requiring intervention. FMCSA has defined a fixed percentage threshold for each BASIC that identifies those carriers that pose the greatest safety risk. (For example, the threshold for the Unsafe Driving BASIC is 65 for most carriers.) These carriers are then subject to one or more FMCSA actions from a suite of intervention tools that were expanded as part of CSA. Tools such as warning letters and on- and off-site investigations allow FMCSA and state investigators to focus on specific safety behaviors. FMCSA can also use enforcement strategies such as fines or placing a carrier out-of-service. The range of available enforcement options gives FMCSA investigators flexibility to apply interventions commensurate with a carrier’s safety performance (see table 2). Seven of the nine interventions are currently implemented nationwide. Prior to CSA, FMCSA investigators’ only tool was a labor intensive, comprehensive on-site investigation. With the additional set of interventions, FMCSA aims to reach more carriers with its existing resources.\nAccording to FMCSA and state safety officials, an investigation or other intervention can also be initiated based on the results of a crash investigation, a complaint against a carrier, or a consistent pattern of unsafe behavior by a carrier. FMCSA further designates some carriers that exceed multiple BASIC thresholds as “high risk.” According to FMCSA, many of these carriers are assigned a Safety Investigator, who must complete a comprehensive review within a year regardless of any changes in the carrier’s score. A carrier is considered high risk if it either: has an SMS score of 85 or higher in the Unsafe Driving BASIC or Hours-of-Service Compliance BASIC or the Crash Indicator, and one other BASIC at or above the intervention threshold, or exceeds the intervention threshold for any four or more BASICs.", "Currently, FMCSA can only declare a carrier as unfit to operate upon a final unsatisfactory rating following an on-site inspection. In addition, FMCSA can order a carrier to cease interstate operations if it determines that the carrier is an imminent hazard. FMCSA can make this determination for several reasons including:\nFMCSA determining the carrier to be an imminent hazard. receiving an “unsatisfactory” safety rating during an on-site comprehensive investigation and failing to improve the rating within 45 or 60 days; failing to pay a fine after 90 days; failing to meet the standards required for a New Entrant Audit; or According to FMCSA, during fiscal year 2012, the agency issued 855 out- of-service orders due to an unsatisfactory rating, 1,557 for failing to pay a fine, and 47 because a carrier was determined to be an imminent hazard.\nFMCSA has indicated its plans to propose using the same performance data that inform SMS scores to determine whether a carrier is fit to continue to operate. According to FMCSA, the Safety Fitness Determination rulemaking would seek to allow FMCSA to determine if a motor carrier is not fit to operate based on a carrier’s performance in five of the BASICs, an investigation, or a combination of roadside and investigative information. FMCSA proposes doing this through a public rulemaking process; it currently estimates that it will issue a proposed rule in May 2014.", "CSA has been successful in raising the profile of safety in the motor carrier industry and providing FMCSA with more tools to increase interventions with carriers. However, FMCSA faces two major challenges in reliably assessing safety risk for the majority of carriers in the industry and prioritizing the riskiest carriers for intervention. First, we found that the majority of regulations used to calculate SMS scores are not violated often enough to strongly associate them with crash risk for individual carriers. Second, for most carriers, FMCSA lacks sufficient safety performance information to ensure that FMCSA can reliably compare them with other carriers. FMCSA mitigates this issue by—among other things—establishing data sufficiency standards. However, we found that these standards are set too low, and by strengthening data sufficiency standards SMS would better identify risky carriers and better prioritize intervention resources to more effectively reduce crashes. Setting a data sufficiency standard involves tradeoffs between scoring more carriers and ensuring that the scores calculated are reliable for the purposes for which they are used.", "CSA has helped FMCSA reach more carriers and provided benefits to a range of stakeholders. Since CSA was implemented nationwide in 2010, FMCSA has intervened with more carriers annually than under SafeStat. From fiscal year 2007 to fiscal year 2012, FMCSA increased its number of annual interventions from about 16,000 to about 44,000, largely by sending warning letters to carriers deemed to be above the intervention threshold in one or more BASICs (see table 3). FMCSA and state partners also took advantage of new ways to investigate carriers, such as off-site investigations and on-site focused investigations, to complete 23 percent more investigations in fiscal year 2012 compared to fiscal year 2007 when only compliance reviews were used.\nIn addition, CSA provides data for law enforcement and industry stakeholders about the safety record of individual carriers. For example, as part of the CSA program, FMCSA publicly provides historical individual carrier data on inspections, violations, crashes, and investigations on its website. According to law enforcement and industry stakeholders we spoke with, CSA organizes violation information for law enforcement and carrier data related to the BASICs help guide the work of state inspectors during inspections.\nLaw enforcement officials and industry stakeholders generally supported the structure of the CSA program. These stakeholders told us that CSA’s greater reach and provision of data have helped raise the profile of safety issues across the industry. According to industry stakeholders, carriers are now more engaged and more frequently consulting with law enforcement for safety briefings. In Colorado, law enforcement officials told us that CSA has improved awareness and engagement within the motor carrier industry there. A state industry representative told us that CSA has improved safety because carriers are in a competitive business and can feel pressure to improve safety scores to gain an advantage over the competition.", "The relationship between violation of most regulations FMCSA included in the SMS methodology and crash risk is unclear, potentially limiting the effectiveness of SMS in identifying carriers that are likely to crash. According to FMCSA, SMS was designed to improve on its previous approach to identify unsafe motor carriers by incorporating into the BASICS all of the safety-related violations recorded during roadside inspections. For SMS to be effective in identifying carriers that crash, the violation information that is used to calculate SMS scores should have a relationship with crash risk. Carriers that violate a given regulation more often should have a higher chance of a crash or a higher crash rate than carriers that violate the regulation less often. However, we found that FMCSA’s safety data do not allow for validations of whether many regulatory violations are associated with higher crash risk for individual carriers. Our analysis found that most of the regulations used in SMS were violated too infrequently over a 2-year period to reliably assess whether they were accurate predictors of an individual carrier’s likelihood to crash in the future. We found that 593 of the approximately 750 regulations we examined were violated by less than one percent of carriers. Of the remaining regulations with sufficient violation data, we found 13 regulations for which violations consistently had some association with crash risk in at least half the tests we performed, and only two violations had sufficient data to consistently establish a substantial and statistically reliable relationship with crash risk across all of our tests. (For more information, see app. V.) FMCSA attempted to compensate for the infrequency of violations by, among other things, evaluating aggregate data to establish a broader relationship between a However, evaluations completed by group of violations and crash risk.outside groups have found weaker relationships between SMS scores and the crash risk of individual carriers than FMCSA’s evaluations of aggregate data (for more information, see app. IV). SMS is intended to provide a safety measure for individual carriers, and FMCSA has not demonstrated relationships between groups of violations and the risk that an individual motor carrier will crash. Therefore, this approach of aggregating data does not eliminate the limitations we identified.", "Most carriers lack sufficient safety performance information to ensure that FMCSA can reliably compare them with other carriers. As mentioned, SMS is designed to compare violation rates across carriers for the purposes of prioritizing intervention resources. These violation rates are calculated by summing a carrier’s weighted violations relative to each carrier’s exposure to committing violations, which for the majority of the industry is very low. About two-thirds of carriers we evaluated operate fewer than four vehicles and more than 93 percent operate fewer than 20 vehicles. Moreover, many of these carriers’ vehicles are inspected infrequently. (See table 14 in app. VI) Generally, statisticians have shown that estimations of any sort of rate—such as the violation rates that are the basis for SMS scores—become more reliable when they are calculated from more observations. In other words, as observations increase, there is less variation and thus more confidence in the precision of the estimated rate. Given that SMS calculates violation rates for carriers having a very low exposure to violations, such as operating one or two vehicles or subject to a few inspections, many of the SMS scores Carriers with based on these violation rates are likely to be imprecise.few inspections or vehicles will potentially have estimated violation rates that are artificially high or low and thus not sufficiently precise for comparison across carriers. Further, because SMS scores are calculated by ranking carriers in relation to one another, imprecise rate estimates for some carriers can cause other carriers’ SMS scores to be higher or lower than they would be if they were ranked against only carriers with more reliable violation rates. This creates the likelihood that many SMS scores do not represent an accurate or precise safety assessment for a carrier. As a result, there is less confidence that SMS scores are effectively determining which carriers are riskier than others. (App. II provides a more technical discussion of these issues.)\nFor the five SMS BASICs for which FMCSA uses relevant inspections as a measure of exposure—Hours-of-Service Compliance, Driver Fitness, Controlled Substances and Alcohol, Vehicle Maintenance, and Hazardous Materials—estimated violation rates can change by a large amount for carriers with few inspections even when the number of their violations changes by a small amount. For example, for a carrier with 5 inspections, a single additional violation could increase that carrier’s violation rate 20 times more than it would for a carrier with 100 inspections. This sensitivity can result in artificially high or low estimated violation rates that are potentially imprecise for carriers with few inspections. As an example, our analysis of FMCSA’s method shows that among carriers for which we calculated a violation rate for the Hours-of- Service Compliance BASIC, violation rate estimates are more variable for carriers with fewer inspections. As shown in figure 1, violation rates tend to vary by a larger amount across carriers with few inspections than across carriers with more inspections. As a consequence, a high estimated violation rate for a carrier with few inspections may reflect greater safety risk, an imprecise estimate, or both. Further, comparisons among carriers are meaningful only to the extent they involve carriers with sufficient inspections and thus more precise estimated violation rates.\nSimilar to carriers with few inspections, carriers with few vehicles are also subject to potentially large changes in their estimated violation rates, which can affect a carrier’s SMS scores. For the Unsafe Driving BASIC and the Crash Indicator, FMCSA measures exposure using a hybrid approach that considers a carrier’s number of vehicles and its vehicle miles traveled—when the latter information is available. Figure 2 shows that among carriers for which we calculated a violation rate using FMCSA’s method for the Unsafe Driving BASIC, carriers that operate fewer vehicles, for example fewer than 5, experience a greater range in violation rates per vehicle than carriers operating more vehicles, for example, greater than 100. (For similar results on other BASICs, see figures 10 to 16 in app. VI.)\nResearchers have raised additional concerns about the quality and accuracy of the data FMCSA uses to calculate SMS scores that could potentially compound the problems with the precision of violation rate estimates. These issues further limit the precision of carriers’ estimated violation rates, and consequently their SMS scores. For example:\nThe frequency of an individual carrier’s inspections varies depending on where the carrier operates. States vary on inspection and enforcement practices. Some studies have shown that inspectors or law enforcement officers in some states cite vehicles for certain violations more frequently than in other states.\nDelays in reporting crash data to FMCSA, as well as missing or inaccurate data, can affect a carrier’s Crash Indicator SMS scores. These delays can vary by state.\nData elements used to calculate violation rates for the Unsafe Driving BASIC and Crash Indicator are based on information that is self reported by the carrier. Inaccurate, missing, or misleading reports by a carrier could directly influence their SMS scores. Additionally, among carrier data we evaluated, more than 50 percent did not report their vehicle miles traveled to FMCSA.", "FMCSA acknowledges that violation rates for carriers with low exposure can be less precise and they attempt to address this limitation in two main ways, but the methods incorporated do not solve the underlying problems. As a result, SMS scores for these carriers are less reliable as relative safety performance indicators, which may limit FMCSA’s ability to more effectively prioritize carriers for intervention.", "FMCSA established minimum data sufficiency standards to eliminate carriers that lack what it has determined to be a minimum number of inspections, inspections with violations, or crashes to produce a reliable SMS score. For example, in the Hours-of-Service Compliance BASIC, FMCSA does not calculate SMS scores for a carrier unless it has at least three inspections and at least one violation within the preceding two years. In addition, as previously mentioned FMCSA applies another data sufficiency standard requiring a carrier to have a “critical mass” of inspections with violations in order for an SMS score to be a basis for potential intervention, or to be publicly displayed.\nWhile this approach helps address the problems for carriers with low exposure, it is not sufficient to ensure that SMS scores effectively prioritize the riskiest carriers for intervention. For most BASICs, we found FMCSA’s data sufficiency standards too low to ensure reliable comparisons across carriers. In other words, many carriers’ violations rates are based on an insufficient number of observations to be comparable to other carriers in calculating an accurate safety score. Our analysis shows that rate estimates generally become more precise around 10 to 20 observations, higher than the numbers that FMCSA uses for data sufficiency standards. However, the determination of the exact data sufficiency standard needs to based on a quantitative measure of confidence to fully consider how precise the scores need to be for the (For more information, see purposes for which the scores are used.app. II.)", "FMCSA groups the carriers meeting FMCSA’s data sufficiency standards for each BASIC into safety event groups in order to, according to FMCSA, “account for the inherent greater variability in violation rates based on limited levels of exposure and the stronger level of confidence in violation rates based on higher exposure.” based on inspections or inspections with violations depending on the BASIC or on crashes for the Crash Indicator. For example, the first safety event group in the Hours-of-Service Compliance BASIC includes carriers that received from 3 to 10 inspections; the second group includes carriers that received from 11 to 20 inspections, and so forth. Within each safety event group, FMCSA rank orders carriers by violation rate and assigns a percentile as an SMS score.\nCSA, CSMS Methodology, Version 3.0.1, Revised August 2013. exceed FMCSA’s intervention thresholds at disproportionately higher rates than carriers with more exposure. For example, FMCSA’s Hours-of- Service Compliance BASIC has five safety event groups. The group of carriers with the fewest number of inspections in each safety event group tends to have a higher percentage of carriers identified as above the intervention threshold than the group of carriers with a greater number of inspections (see fig. 3). This suggests that FMCSA’s methodology is not adequately accounting for differences in exposure, as it is intended to do, but rather is systematically assigning higher scores for carriers with fewer inspections. (See figs. 17 to 25 in app. VI for other BASICs.)\nFMCSA’s method of categorizing the carriers into safety event groups for the remaining BASICs also demonstrates how imprecision disproportionately affects small carriers. For the Unsafe Driving and Controlled Substances BASICs, FMCSA forms safety event groups based on the number of inspections with violations. Similarly, for the Crash Indicator, safety event groups are based on a carriers’ number of crashes. By using infractions or crashes to categorize carriers, FMCSA is not addressing its stated intent of having safety event groups account for differences in variability due to exposure. As a result, FMCSA derives SMS scores for the Unsafe Driving BASIC and the Crash Indicator by directly comparing small carriers with greater variability in their violation rates—including many carriers with a violation rate based on one vehicle—to larger carriers for which violations rates can be calculated with greater confidence. We found that among carriers that received an SMS score in Unsafe Driving, carriers with fewer than 20 vehicles are more than 3 times as likely to be identified as above the intervention threshold than carriers with 20 or more vehicles (see fig. 4). Of the carriers operating one vehicle, nearly all were identified as above the intervention threshold. (See figs. 26 to 32 in app. VI for other BASICs.)\nFMCSA contends that these results are expected because only small carriers that exceed critical mass standards receive an SMS score, and small carriers that exceed this threshold have demonstrated several occurrences of risky behavior despite their limited exposure. However, this illustrates the volatility of rates and the disproportionate effect a single violation can have given how FMCSA has structured SMS. For example, using FMCSA’s data sufficiency standards, a carrier with one vehicle (forty percent of the carriers in our analysis population have one vehicle) and two inspections with unsafe driving violations does not have sufficient information to be displayed or considered for intervention. However, a single additional violation, regardless of the severity of the violation, would likely mean that the carrier would be scored above threshold and prioritized for intervention. A relatively small difference in the number of violations could change a carrier’s status from “insufficient information”, to “prioritized for intervention” with potentially no interim steps. Conversely, a carrier such as this will have a very difficult time improving its SMS score to be below threshold.", "Our analysis shows that FMCSA could improve its ability to identify carriers at higher risk of crashing by applying a more stringent data sufficiency standard. As previously discussed, FMCSA uses SMS scores to identify carriers with safety performance problems—those above the threshold in any BASIC—for prioritization for intervention, and considers carriers with SMS scores above the intervention threshold in multiple BASICs as high risk. Overall, SMS is successful at identifying a group of high risk carriers that have a higher group crash rate than the average crash rate of all carriers that we evaluated. However, further analysis shows that a majority of these high risk carriers did not crash at all, meaning that a minority of carriers in this group were responsible for all the crashes. As a result, FMCSA may devote significant intervention resources to carriers that do not pose as great a safety risk as other carriers, to which FMCSA could direct these resources. Given the issues with precision discussed above, we developed and tested an alternative to FMCSA’s method that sets a single data sufficiency standard, based on the relevant measure of exposure—either at least 20 inspections or at least 20 vehicles (depending on the BASIC), and eliminates the use of safety event groups. This approach is designed to illustrate how a stronger data sufficiency standard can affect the identification of higher risk carriers and is not meant to be a prescriptive design to replace current SMS methods.effect that including carriers with low levels of exposure and highly variable violation rates can have on FMCSA’s prioritization of carriers for intervention. Using this illustrative alternative, we found that FMCSA would have more reliably identified a higher percentage of carriers that actually had crashed than when compared to its existing methods. (Apps. I and VI provide more detail on this approach.) Specifically: The result of this analysis demonstrates the\nThis illustrative alternative identified about 6,000 carriers as high risk.\nDuring the evaluation period of our analysis, these carriers’ group crash rate was approximately the same as the rate for FMCSA’s high risk group (about 8.3 crashes per 100 vehicles). However, a much greater percentage of carriers (67%) identified as high risk using alternative higher data sufficiency standards crashed, and these carriers were associated with nearly twice as many crashes (see table 4).\nFor five out of six BASICs, the Crash Indicator, and the high-risk designation, the illustrative alternative identified a higher percentage of individual carriers above the intervention threshold that actually crashed compared with FMCSA’s existing method. (See fig. 5.)\nUsing both FMCSA’s method and the illustrative alternative, for most of the BASICs and the Crash Indicator the carriers identified above the intervention threshold had a higher crash rate (crashes per 100 vehicles) than those below the intervention threshold (see table 5). However, using FMCSA’s method, crash rates for the Controlled Substances and Alcohol BASIC have the opposite, negative association (3.2 crashes per 100 vehicles for carriers above threshold versus 5.2 crashes per 100 vehicles for carriers below threshold), whereas the illustrative alternative produces a positive association (4.7 crashes per 100 vehicles for carriers above threshold versus 3.8 crashes per 100 vehicles for carriers below threshold).\nOverall, these results raise concerns about the effectiveness of the existing SMS as a tool to help FMCSA prioritize intervention resources to most effectively reduce crashes. FMCSA’s existing SMS method successfully identified as high risk more than 2,800 carriers whose vehicles were involved in 12,624 crashes. However, FMCSA would have potentially prioritized limited resources to investigate more than 4,000 carriers that did not crash at all. Prioritizing resources to these carriers would limit FMCSA’s ability to reduce the number of overall crashes, resulting in lost opportunities to intervene with the carriers associated with many crashes.\nImplementing a stronger data sufficiency standard as presented involves tradeoffs between the number of carriers FMCSA can score, and the reliability of those scores. Our analysis found that by increasing the data sufficiency standards, fewer carriers would receive at least one SMS score (approximately 44,000 carriers in the illustrative alternative versus approximately 89,000 using FMCSA’s method). The carriers assigned an SMS score under the illustrative alternative accounted for 78.2 percent of all crashes during our evaluation period. FMCSA’s existing method scores carriers responsible for about 85.9 percent of all crashes (see table 6). On the other hand, by setting a higher standard for data sufficiency, the illustrative alternative focuses on carriers that have a higher level of road activity, or exposure, to more reliably calculate a rate that tracks violations and crashes over the 2-year observation period. In addition, exposure itself is a large determinant of overall risk, when defined as a combination of threat and consequence, and could be used as a factor to identify carriers that analysis suggest present a higher future crash risk. This is consistent with the results in table 4 above, which show that a larger proportion of the higher risk carriers in the illustrative alternative crashed and were associated with a larger number and proportion of crashes.\nRegardless of where the data sufficiency standard is set, using only SMS scores limits risk assessment for carriers that do not have sufficient performance information. Our analysis shows that using FMCSA’s existing method, about 28% of carriers have at least one SMS score, leaving approximately 72% of carriers without any SMS scores—largely due to insufficient information. The illustrative alternative scores fewer carriers—14%, leaving 86% of carriers without any SMS scores. However, according to an FMCSA official, there are other enforcement mechanisms to assess and place unsafe carriers out-of-service, including when a carrier fails to improve from an unsatisfactory safety rating during a comprehensive review, fails to pay a fine, or FMCSA determines a carrier is an imminent hazard. Further, the FMCSA official said carriers that do not receive an SMS score can still be monitored because the officials can initiate investigations and remove carriers based on complaints and other initiatives. For example, FMCSA conducts inspection strike forces targeting unsafe drivers and carriers in a particular safety aspect, such as drug and alcohol safety records. These tools used in conjunction with the performance data, including roadside inspection and crash data, could provide FMCSA with complementary means to assess and target carriers that do not otherwise have sufficient data to reliably calculate SMS scores.", "The safety scores generated by SMS are used for many purposes, thus the appropriate level of precision required depends on the nature of these applications. According to FMCSA’s methodology, SMS is intended to prioritize intervention resources, identify and monitor carrier safety problems, and support the safety fitness determination process. In setting a data sufficiency standard, FMCSA needs to consider how precise the scores need to be, and a score’s required precision depends on the purposes for which the scores are used.\nFMCSA officials told us the primary purpose of SMS is to serve as a general radar screen for prioritizing interventions. However, as discussed above, due to insufficient data, SMS is not as effective as it could be for this purpose. Further, if the same safety performance data used to inform SMS scores are intended to help determine a carrier’s fitness to operate, most of these same limitations will apply. According to FMCSA, the Safety Fitness Determination rulemaking would seek to allow FMCSA to determine if a motor carrier is not fit to operate based on a carrier’s performance in five of the BASICs, an investigation, or a combination of roadside and investigative information. FMCSA has postponed the planned rulemaking until May 2014. However, basing a carrier’s safety fitness determination on limited performance data may misrepresent the safety status of carriers, particularly those without sufficient data from which to reliably draw such a conclusion.\nIn addition to using SMS for internal purposes, FMCSA has also stated that SMS provides stakeholders with valuable safety information, which can “empower motor carriers and other stakeholders…to make safety- based business decisions.” publicly released SMS scores stating that the data are intended for agency and law enforcement purposes, and readers should not draw safety conclusions about a carrier’s safety condition based on the SMS score, but rather the carrier’s official safety rating. Nonetheless, entities outside of FMCSA are also using SMS scores to assess and compare the safety of carriers. For example: FMCSA includes a disclaimer with the\nThe Department of Defense has written SMS scores into its minimum safety criteria for selecting carriers of hazardous munitions.\nFMCSA has released a mobile phone application—SaferBus—that is designed to provide safety information, including SMS scores, for consumers to use in selecting a bus company.\nMultiple stakeholders have reported that entities such as insurers, freight shippers and brokers, and others use SMS scores.\nGiven such uses, it is important that any information about SMS scoresmake clear to users, including FMCSA, the purpose of the scores, their precision, and the context around how they are calculated. Stakeholders have said that there is a lot of confusion in the industry about what the SMS scores mean and that the public, unlike law enforcement, may not understand the relative nature of the system and its limitations.\nCSA, CSMS Methodology, Version 3.0.1 Motor Carrier Preview, Revised August 2013.", "With the establishment of its CSA program, FMCSA has implemented a data-driven approach to identify and intervene with the highest risk motor carriers. CSA helps FMCSA to reach more carriers through interventions and provides the agency, state safety authorities, and the industry with valuable information regarding carriers’ performance on the road and problems detected during roadside inspections.\nGAO continues to believe a data-driven, risk-based approach holds promise and can help FMCSA effectively identify carriers exhibiting compliance or safety issues—such as violations or involvement in crashes. However, assessing risk for a diverse population of motor carriers—many of which are small and inspected infrequently—presents several significant challenges for FMCSA. As a result, the precision and confidence of many SMS scores is limited, a limitation that raises questions about whether SMS is effectively identifying carriers at highest risk for crashing in the future.\nAs presented in the report, strengthening data sufficiency standards is one of several potential reforms that might improve the precision and confidence of SMS scores. However, strengthening data sufficiency standards involves a trade-off between assigning scores to more carriers and ensuring that those scores are reliable. Our analysis shows how improving the reliability of SMS scores by strengthening data sufficiency standards could better account for limitations in available safety performance information and help FMCSA better focus intervention resources where they can have the greatest impact on reducing crashes. In addition, if these same safety performance data are going to be used to determine whether a carrier is fit to operate, FMCSA needs to consider and address all identified data limitations, or these determinations will also be at risk.", "To improve the CSA program, the Secretary of Transportation should direct the FMCSA Administrator to take the following two actions: Revise the SMS methodology to better account for limitations in drawing comparisons of safety performance information across carriers; in doing so, conduct a formal analysis that specifically identifies: limitations in the data used to calculate SMS scores including variability in the carrier population and the quality and quantity of data available for carrier safety performance assessments, and limitations in the resulting SMS scores including their precision, confidence, and reliability for the purposes for which they are used.\nEnsure that any determination of a carrier’s fitness to operate properly accounts for limitations we have identified regarding safety performance information.", "We provided a draft of this report to the USDOT for review and comment. USDOT agreed to consider our recommendations, but expressed what it described as significant and substantive disagreements with some aspects of our analysis and conclusions. USDOT’s concerns were discussed during a meeting on January 8, 2014, with senior USDOT officials, including the FMCSA Administrator. Following this meeting, we made several clarifications in our report. In particular, FMCSA understood our draft recommendation to be calling for specific changes to its SMS methodology. It was not our intent to be prescriptive, so we revised our first recommendation to state that FMCSA should conduct a formal analysis to inform potential changes to the SMS methodology. In addition, we clarified in the analysis and conclusions our meaning of reliability in context of the purpose for which SMS is used.\nWe are sending copies of this report to relevant congressional committees and the Secretary of Transportation. In addition, the report is available at no charge on GAO’s website at http://www.gao.gov.\nIf you or your staff have any questions about this report, please contact me at (202) 512-2834 or flemings@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix VII.", "This report addresses the effectiveness of the Compliance, Safety, Accountability (CSA) program in assessing safety risk for motor carriers. To assess how effectively CSA assesses the safety risk of motor carriers, we reconstructed the models the Federal Motor Carrier Safety Administration (FMCSA) uses to compute the SMS scores for all six Behavior Analysis and Safety Improvement Categories (BASICs) and the crash indicator. We then assessed the effect of changes to key assumptions made by the models. Using data collected by the U.S. Department of Transportation’s Motor Carrier Management Information System (MCMIS) and historical SMS scores, and referencing the SMS algorithm and methodological documentation, we replicated the algorithm for calculating the SMS BASIC scores for the SMS 3.0 methodology. Reconstructing FMCSA’s models and replicating the SMS scores FMCSA produced for carriers was a necessary step to ensure that we understood the complexities of the models, the data used in the calculation of the SMS scores, and that the results we present in this report are comparable to FMCSA’s outcomes. To corroborate our models with FMCSA’s, we compared the SMS violation rates (measure scores) to FMCSA’s results for December 2012. We assessed the reliability of data used, for our purposes, by reviewing documentation on FMCSA’s data collection efforts and quality assurance processes, talking with FMCSA and Volpe National Transportation Systems Center officials about these data, and checking the data for completeness and reasonableness. We determined that the data were sufficiently reliable for the purpose of our data analysis.\nWe established a population of about 315,000 carriers for analysis that were under FMCSA’s jurisdiction and showed indicators of activity over a 3 and a half year analysis period from December 2007 through June 2011. The criteria used to identify these carriers were:\nU.S.-based carriers; interstate or intrastate hazardous materials carriers; carriers with at least one inspection or crash during the 2-year analysis observation period (December 18, 2007 to December 17, 2009); and carriers with a positive average number of vehicle count at any point during the analysis observation period (December 18, 2007, to December 17, 2009) and at any point during the evaluation period (December 17, 2009, to June 17, 2011).\nDuring the first 2 years of this period, December 2007 through December 2009, we used each carrier’s inspection, crash, and violation history to calculate SMS scores. This period is referred to as the observation period. The remaining 18 months, December 2009 through June 2011, were classified as the evaluation period. We used data from this period to identify carriers involved in a crash and estimate crash rates for these carriers. For the approximately 315,000 carriers in our analysis, there were approximately 120,000 crashes during the evaluation period. We chose the lengths of time for observation and evaluation, in part, to match FMCSA’s effectiveness testing methods.\nWe tested the effectiveness of SMS by identifying and making changes to key assumptions of the model. Given FMCSA’s use of these scores as quantitative determinations of a carrier’s safety performance, we assessed the reliability of SMS scores as defined by the precision, accuracy, and confidence of these scores when calculated for carriers with varying levels of carrier exposure—measured by FMCSA as either inspections or an adjusted number of vehicles. We tested changes to the following characteristics of the model: the SMS measures of exposure, the method used to calculate time weights, the organization of the violations to the six BASICs, and the data sufficiency standards. To evaluate the results produced by each model, including FMCSA’s, we examined the SMS scores and classifications of carriers into the high risk group. We compared the results from our revised models to the results from a baseline model, SMS 3.0. For each model, we measured whether carriers were involved in a crash, calculated group crash rates, and calculated total crashes in the evaluation period for carriers that were and were not classified as high risk in the observation period. Due to ongoing litigation related to CSA and the publication of SMS scores, we did not assess the potential effects or tradeoffs resulting from any public use of these scores.\nTo determine the extent to which CSA identifies and intervenes with the highest risk carriers, we examined how our changes to FMCSA’s key assumptions affected the safety scores and identification of high risk carriers. Specifically, we identified the carriers with SMS scores above FMCSA’s intervention threshold in each BASIC and the carriers considered high risk according to FMCSA’s high risk criteria. Using this analysis, we designed an illustrative alternative method that incorporates the following changes: including only carriers with at least 20 observations in the following measures of exposure: driver inspections when calculating scores for the Hours-of- Service Compliance, Driver Fitness, and Controlled Substances BASICs; vehicle related inspections for the Vehicle Maintenance BASIC; vehicle related inspections where placardable quantities of hazardous materials are being transported for Hazardous Materials BASIC; and average power units for the Unsafe Driving and Crash Indicator assigning an SMS score to any carrier meeting these data sufficiency standards (e.g., 20 inspections), even if that carrier does not have any violations, was free of violations for 12 months, or had a clean last inspection; eliminating safety event groups because of the stricter data sufficiency using only the average number of vehicles as the measure of exposure for carrier’s assessed in the Unsafe Driving and Crash Indicator BASICs.\nAppendix VI provides the complete results of our replication of FMCSA’s existing SMS and our illustrative revision to it.\nWe also examined the extent to which the regulatory violations that largely determine SMS scores can predict future crashes. We developed eight model groups to test the relationship between violations and violation rates, and crashes. We tested only the violations that had non- zero variance and observations for at least 1 percent of the test population. To control for small exposure measures when estimating rates, we estimated models comparing carriers’ observed crash status to Bayesian crash rates; used observed violation rates versus Bayesian violation rates; and compared a full model sample to a restricted model sample of carriers with at least 20 vehicles.sensitivity analysis to validate the predictive power of the models we developed. We ran multiple variations of these models to determine the number and types of violations that were predictive versus unstable. For We also conducted a more information on this specific analysis and model results, please see appendix V.\nIn addition, we spoke with FMCSA officials in Washington, D.C., and at the Western Service Center and the Colorado Division Office in Lakewood, Colorado, and reviewed existing studies and stakeholder concerns about the SMS model and its outcomes. To understand the impact of CSA on law enforcement, we spoke with law enforcement officials at the Colorado State Patrol. We selected Colorado because it was one of the initial pilot states for CSA, and has been implementing the program since early 2008. We also interviewed representatives from industry and safety interest groups from the Colorado Motor Carriers Association, the Commercial Vehicle Safety Alliance, and the American Trucking Associations. Additionally, we attended meetings of the Motor Carrier Safety Advisory Committee’s CSA subcommittee and reviewed the minutes and related documentation from other meetings we did not attend. We also reviewed congressional testimony from industry and safety interest representatives from a September 2012 hearing for the House Transportation and Infrastructure Committee. We reviewed stakeholder comments submitted between March 2012 and July 2012 in response to FMCSA’s planned improvements to SMS.\nWe conducted this performance audit from August 2012 to February 2014 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.", "The FMCSA Safety Measurement System (SMS) methodology involves the calculation of weighted violation rates for regulations within each of six Behavioral Analysis and Safety Improvement Categories (BASICs) and a given time period. (A seventh indicator measures weighted crash rates in previous time periods, or “crash history.”) Carriers are assigned to Safety Event Groups based on measures of their exposure to committing violations, such as the number of driver or vehicle inspections, depending on the BASIC, and the weighted violation rates are transformed into percentiles for carriers within the same group. These percentiles ultimately determine carriers’ alert or high-risk statuses. Because regulatory violation rates strongly influence SMS scores, the precision with which these rates can be calculated becomes important for developing reliable measures of safety, as we discuss in the body of this report.\nIn this appendix, we summarize statistical methods for estimating rates and assessing their precision, or sampling error. We use these methods to estimate crash rates and their sampling error for a population of motor carriers that were active from December 2007 through December 2009. Carriers may vary widely in their level of activity, known as “exposure.” Both statistical theory and our analysis show that the precision of estimated rates for carriers with low exposure, measured by vehicles or inspections, is lower than for carriers with more exposure, and that rate estimates can become distorted to artificially low or high values for these low-exposure carriers. These results support our findings in the body of this report on the precision of FMCSA’s current approach to calculating safety risk scores and setting data sufficiency standards.", "Estimating rates of regulatory violations requires data on the number of violations that carriers incur within a given time period. If one makes the assumption that the number of violations is proportional to some measure of exposure (activity) and also assumes that the probability of observing violations within a large number of small independent exposure periods is small, the sampling error of a rate estimate decreases as exposure increases.\nSpecifically, assume that each carrier in a population of interest has a unique violation rate, λ. For a fixed time period and known exposure, t, the number of violations, V, is distributed as V ~ Poisson (λ t), with E(V) = Var(V) = λ t. Since λ is unknown, it must be estimated from data on regulatory violations and exposure.\nThe maximum likelihood (ML) estimator for a single carrier’s λ, given the model above, is λı� = v / t, with Var(λı�) = λı� / t = v / t.the rate estimate increases exponentially as exposure decreases. Accordingly, an estimated rate for a specific carrier and time period can vary substantially from λ, particularly when exposure is low.\nSMS is primarily concerned with measuring how regulatory violation rates vary over a population of active motor carriers. Even though ordinary methods of estimating these rates are unbiased and consistent, the collection of estimated rates for the population, 𝛌� = {λestimates, such as the percentiles that SMS uses to place carriers into alert and high-risk status, may be similarly prone to error.\nEmpirical Bayesian methods correct for this problem by estimating λı� for each carrier to better estimate the distribution of rates across a population. Bayesian methods prevent estimates from converging to artificially extreme values for carriers whose raw rate estimates are based on small samples (low exposure). The estimator does this by effectively “borrowing information” from other, larger carriers whose rates can be estimated more precisely. In the evaluation of the CSA Pilot Test for FMCSA, the University of Michigan Transportation Research Institute used empirical Bayesian rate estimation methods to evaluate the association between SMS scores and crash risk, and cited similar benefits to those we discuss here.\nFor example, see Roger J. Marshall, “Mapping Disease and Mortality Rates Using Empirical Bayes Estimators,” Journal of the Royal Statistical Society, Series C (Applied Statistics) 40, no. 2 (1991): 284, or J. N. K. Rao, Small Area Estimation (Hoboken, NJ, 2003), 206.\nSpecifically, assume that regulatory violation rates over a population of carriers are distributed as λı� ~ Gamma(α, β), the prior distribution of the parameter of interest. Parameter values for the prior distribution can be assumed, based on historical data on the population of interest, or estimated using a particular sample. Conditional on these rates, the data on regulatory violations are distributed as V | λ , t ~ Poisson(λ t), and the posterior distribution for a specific carrier is given by λ | v, t ~ Gamma(α + v, β + t) (1)\nSince the mean of a Gamma variate is α / β and the variance is α / β, the posterior mean and variance of the rate for a given carrier are given by E(λ | v , t) = (α + v) / (β + t) (2)\nVar(λ | v , t) = (α + v) / (β + t), and the mean of the prior distribution, α / β. When enough data are available, as indicated by a large exposure term relative to the violation term, the estimate converges to the ordinary, carrier-specific rate estimate. When exposure is low, however, the method combines data from the specific carrier with the mean rate for all carriers.\nThe variance of Bayesian rate estimates decreases with increased exposure, similar to the variance of ordinary rate estimates. Figure 6 shows how hypothetical rate estimates and 90% posterior intervals for a carrier that experienced 5 crashes vary with the carrier’s exposure, as measured by the number of vehicles. (Although we illustrate rate estimation issues using crash rates, we likely would have obtained similar results if we had estimated regulatory violation rates.) As expected, the precision of the estimates decreases exponentially as the number of vehicles increases. The variance is high in the range of 1 to 5 vehicles and begins to decrease less quickly at approximately 20 vehicles, consistent with our discussion in the body of this report and prior evaluations of SMS.\nThresholds in this approximate range are consistent with criteria used by the Centers for Disease Control and Prevention (CDC) to suppress or caveat rate estimates for the purpose of public display. For example, in its compendium of health statistics in the United States, CDC cautions that “hen the number of events is small and the probability of such an event is small, considerable caution must be observed in interpreting the conditions described by the figures.”\nEven though the Bayesian estimates do not converge to extremely low or high values when exposure is low, the uncertainty around the estimates remains high. As figure 6 shows, statistical methods for modeling and estimating rates can quantify this uncertainty explicitly, in order to reflect the varying precision of estimates for motor carriers with more or less observed data. Although the amount of uncertainty that is acceptable in practice depends on the purpose of the estimates, both statistical theory and government agencies estimating rates similar to those involved in the calculation of SMS scores have recognized the need to express the uncertainty of these estimates, particularly when the derived from small samples. This contrasts with FMCSA’s approach, which reports SMS scores as safety risk estimates with no quantitative measures of precision.", "To illustrate the rate estimation issues discussed above in the context of motor carrier safety, we estimated individual crash rates for a population of motor carriers that were actively operating in each of two time periods, December 2007 through December 2009, and December 2009 through June 2011, as measured in FMCSA’s Motor Carrier Management Information System (MCMIS). An “active” carrier was one that, in each time period, had at least one inspection or crash and had been recorded as a US-based interstate or intrastate Hazmat carrier. This definition resembled the one we used in replicating SMS, as described in the body of this report and appendix I. We obtained these data from the December 2010 and December 2012 MCMIS “snapshot” data files, as well as a historical file of carrier-specific information that covered all snapshots.\nWe estimated the raw and empirical Bayesian crash rates for each carrier in the first time period, using data on the number of crashes and vehicles for these carriers and the formulas above. We used the “empirical Bayes” version of the rate estimator, in which the parameters of the prior distribution were estimated from the data. Specifically, we fit the observed rate data for all carriers in the first time period to the negative binomial distribution, parameterized with exposure measured by number of vehicles, and estimated α and β using standard methods of maximum likelihood estimation. The final rate estimates for each carrier were a combination of these parameter estimates and carrier-specific data, according to equation 2 above.\nAs theory would predict, Bayesian methods prevented crash rates from converging to zero or extremely high values for carriers with low exposure. The left half of figure 7 presents the raw crash rates for our analysis carriers, while the right half presents the empirical Bayesian estimates. The raw estimates for carriers with about 1 to 10 vehicles can be 10 to 20 times higher than for carriers with more than 10 vehicles. In addition, the raw rates cluster at zero for a large number of carriers, particularly for those with low exposure. An underlying crash rate of zero is implausible for active carriers. In contrast, the Bayesian rate estimates are more stable, with no inflation or deflation to extreme values. Since the body of this report finds that 93 percent of carriers in our replication of SMS had fewer than 20 vehicles, Bayesian methods may provide more stable estimates for many specific carriers and may better approximate the distribution of rates across carriers.\nIn addition to stabilizing rates for small carriers, Bayesian rate estimation methods provide an explicit measure of precision for each carrier’s rate, regardless of size. In figure 8, we show the Bayesian rate estimates for a random sample of 109 carriers in the first period of our analysis population, along with 90 percent Bayesian posterior intervals. (We present these results for a sample to make the intervals readable.) The posterior interval expresses the range over which the true rate exists with a 90 percent probability. Consistent with theory, the precision of the rate estimates increases with exposure—in this case, the number of vehicles. These results apply to actual carriers in the sample, but the results are consistent with those expected by theory. The width of the posterior intervals does not decrease monotonically, however, because the relative number of crashes also affects the variance and is not held constant in the plot.", "In this appendix, we express the Safety Management System (SMS) as a statistical measurement model, in order to make its assumptions explicit, and describe how estimating the model could validate those assumptions. We find that FCMSA’s SMS makes a number of strong assumptions about motor carrier safety that empirical data cannot easily validate.\nThe SMS uses administrative data on inspections of commercial motor carriers, violations of regulations, and crashes to measure carrier safety. Statisticians and other researchers have developed methods to validate measures of such broad concepts as safety, referred to as “latent variables,” using empirical data. These methods are known as “measurement models.” For example, mental health professionals have created scales to measure the existence of broad disorders, such as depression, by combining responses to multiple items on patient questionnaires. SMS has a similar goal: to create scales to measure motor carrier safety risk on several dimensions, such as “Unsafe Driving” or “Vehicle Maintenance,” by combining violation rate data across multiple regulations. Latent variable measurement methods can assess whether these broader measures are valid and reliable, and whether the empirical indicators that go into them actually measure the intended concepts. Estimating the degree to which various indicators measure a broader concept helps confirm and often improve the reliability and validity of the scales constructed.", "Much of the SMS involves calculating weighted regulatory violation rates for motor carriers in a given time period. FMCSA assigns weights that, in principle, reflect the violations’ associations with one of six dimensions of safety, known as Behavioral Analysis and Safety Improvement Categories (BASICs), such as “Unsafe Driving” and “Vehicle Maintenance.”\nThe weights represent what FMCSA considers to be the strength of each violation’s association with safety, relative to other violations in the same BASIC. All violations that are categorized in a BASIC get a positive weight ranging from 1 to 10, which implies that they have some association with safety. These weighted violation rates strongly influence the final SMS measures of safety on these dimensions. Each BASIC is linked to a set of violations, which are all assumed to measure the same dimension of safety. Each violation maps to exactly one BASIC, though BASICs map to multiple violations in their associated groups. .\nVij measures the number of times that carrier i violated regulation j in a given time period. 𝜆𝑗 is a weight for each violation. It is the product of a “severity” weight, measuring what FMCSA considers the violation’s “crash risk relative to the other violations comprising the BASIC measurement,” in addition to outcomes thought to be particularly severe (e.g., out-of- service violations), and a time weight, measuring what FMCSA considers the importance of violations from different time periods to estimating a carrier’s current level of safety. By defining Vij for fixed time periods, such as 6 or 12 months prior to the measurement time, we collapse the separate weights used in SMS into 𝜆𝑗, in order to simplify the notation.\nLastly, T measures exposure to committing violations in the time period, which is either a function of carrier’s vehicles and vehicle miles traveled (VMT) or the time-weighted sum of relevant inspections, depending on the BASIC.\nSMS transforms the weighted violation rates for each carrier into percentile ranks, after applying a number of “data sufficiency standards” to exclude carriers with few violations, inspections, and/or vehicles. Carriers with percentiles that exceed established thresholds are “alerted” on the relevant BASICs and, if enough alerts or other conditions exist, are identified as “high risk.” As a result, the ultimate measures of safety risk are ordered groups, with cut-points defined by BASIC percentiles for carriers that meet FMCSA’s standards for data sufficiency.", "The SMS can be viewed as an attempt to measure latent concepts of “safety,” such as “Unsafe Driving” or “Vehicle Maintenance,” using observed data on regulatory violations and the opportunity to commit them (exposure). Consider the latent variable measurement model below, using notation from a prominent textbook: The weights describing the relationship between the latent and observed The model assumes that a vector of 𝑘=∑ 𝑛𝑔𝑝𝑔 observed variables, r, are determined by p latent variables, 𝜉, and random measurement error, 𝛿. variables make up the block diagonal matrix Λ, with p blocks of weights applied to the corresponding blocks of observed variables. This structure latent variable. In many applications, the model assumes that Cov(𝜉 implies that each group of observed variables is related to exactly one , 𝛿)=0 and E(𝛿 ) = 0 but allows other variances and covariances to be estimated from the data as parameters or fixed to known values.\nThe SMS is a particular form of the model above. Specifically, SMS defines r as violation rates for k = 826 regulations, where r may include variables measured at different times. It sets p = 6 and relates the violation rates to the BASICs, or latent variables 𝜉 measuring safety, through the weighting matrix Λ. FMCSA created fixed time and severity assumes that 𝛿=0. A graphical version of SMS as a measurement weights for each regulation through a combination of statistical analysis and the opinions of stakeholders. Since SMS is not a stochastic model, it model appears in figure 9 below.\nWhen expressed as a measurement model, the strong assumptions of SMS —and their potential detrimental effect on its usefulness—become clear. FMCSA’s assumption of zero measurement error is unusual for statistical approaches to measurement, given that any particular violation is likely to represent variation in latent variables (in this case, safety) as well as unmeasured variables summarized by the error term. SMS makes specific assumptions about the number of safety dimensions—the latent variables assumed by the model above—as well as their relationships to violation rates. Exactly six dimensions of safety exist (involving regulations), and each violation rate measures only one of them. In other efforts to measure broad concepts using numerous indicators, inference about the existence and relationships among observed and latent variables are endogenous parameters (determined by the model) to be estimated, rather than exogenous parameters (determined outside the model) that are fixed ex ante, ahead of time, as they are here. Finally, SMS takes the unusual step of fixing the values of the weights relating the latent variables measuring safety to violation rates at values other than 0. This assumes a high degree of prior knowledge about the relationships between latent and observed variables. Although FMCSA has conducted several studies of how regulatory violation rates are associated with crash risk, these studies do not directly estimate the degree to which each type of violation reflects one of several dimensions of safety.\nOne approach to validating the assumptions of SMS is to estimate the parameters of the measurement model above using empirical data on regulatory violation rates. This approach is known as Confirmatory Factor Analysis, which is a special type of measurement model. Because SMS makes specific assumptions about the number of BASICs and the violations that go into them, we can express the system as a measurement model, as discussed above, and estimate the degree to which its assumptions are consistent with reality. For example, SMS assumes that six dimensions of safety exist—labeled BASICs in SMS— and that each violation reflects only one dimension. However, a model that assumes three BASICs and allows violations to reflect multiple dimensions of safety might be a plausible alternative. High violation rates for brake maintenance regulations may indicate worse performance on both the Vehicle Maintenance and Unsafe Driving dimensions of safety. Measurement modeling can identify which of these approaches better fits empirical patterns of regulatory violations. More generally, analyzing SMS as a measurement model can validate its assumptions, such as the values of the severity and time weights, and suggest improvements to better measure safety.\nWe can extend the SMS measurement model to predict empirical data on crash risk, in order to further validate its ability to identify high-risk carriers. This structural equation modeling (SEM) approach combines the measurement model above with a model that describes how the latent dimensions of safety predict crash risk, generically known as “endogenous observed variables.”\nTo incorporate outcomes, we extend the measurement model above to assume that the six BASICs are directly related to an empirical measure of crash risk: C measures crash risk; 𝛾 are parameters describing how the latent safety dimensions are related to crash risk; 𝜉 are the safety dimensions; and 𝜀𝑖 parameters describing how the SMS scores relate to crash risk, 𝛾. Strong is a random error term. Estimating this larger model would yield the original parameters of the measurement model, in addition to the correlations between SMS scores and crash risk would further support their ability to identify higher-risk carriers. This is known as “criterion validity” in statistics and social research.\nA key strength of this validation approach is that it accounts for the error in measuring broad dimensions of safety when predicting crash risk. Because empirical data on violation rates and SMS scores are indicators of latent concepts of safety, measurement error can distort the underlying relationships between these broader concepts and crash risk. For example, poor vehicle maintenance may be positively associated with higher crash risk, but empirical data on violations of vehicle maintenance regulations may measure both the concept of interest and the enforcement efforts of state and local governments. As a result, the violation rates may be uncorrelated with crash risk simply due to error in measuring the concept of interest. SEM models estimate the relationships among latent variables more precisely by accounting for this measurement error. This contrasts with simpler regression models of crash risk as a function of observed violation rates, which assume that violation rates measure the dimensions of safety without error.", "Previous evaluations of SMS have focused on estimating the correlations between crash risk and regulatory violation rates and Safety Measurement System (SMS) scores. These evaluations have found mixed evidence that SMS scores predict crash risk with a high degree of precision for specific carriers or groups of carriers. This appendix synthesizes the results of these prior evaluations.\nSeveral prior evaluations of SMS have analyzed grouped data, rather than directly analyzing how a carrier’s individual regulatory violation rates and SMS scores predict its own future crash risk. For example, in a pilot evaluation conducted for FMCSA, the University of Michigan Transportation Research Institute (UMTRI) estimated group crash rates within percentiles of SMS scores for each Behavioral Analysis and Safety Improvement Category (BASIC), pooling several hundred carriers in each percentile, to trace out the aggregate relationship between SMS scores and crash risk. Similarly, FMCSA’s Violation Severity Assessment Study analyzed grouped violation data from roadside inspections conducted from 2003 through 2006, in order to compare rates cited in post-crash reports to rates in the general population of carriers.\nIbid., 4-2, 4-6. that did and did not exceed the SMS thresholds to be placed in “alert” or “high risk” statuses.\nAggregate approaches, such as those used in several prior evaluations, do not directly assess the ability of SMS and regulatory violations to predict future crash risk for specific carriers. Well-known findings in statistics on “ecological fallacies” show that associations at higher levels of analysis are not guaranteed to exist at lower levels of analysis. In this application, carriers that crash may have higher violation rates or SMS scores as a group than carriers that do not crash, but this pattern does not necessarily apply to specific carriers within the groups. Because less variation exists at the carrier level, aggregation can overstate the strength and precision of these correlations for individual carriers.\nEven when similar correlations exist at the carrier level, comparing average crash rates for SMS percentiles or risk groups does not assess the prediction error for any particular carrier. The average crash rate may be higher for groups of carriers with increasingly high SMS percentiles, but crash rates may vary significantly around these means. This residual variation, not differences in means or other aggregate statistics, is more directly relevant for assessing the quality of predicted crash rates for a particular carrier. In statistical terms, the prediction error summarized by the residual variance of a linear regression model or the classification matrix of a categorical model is what matters for assessing predictive power for individual carriers, not the models’ coefficients, which estimate mean crash rates conditional on these percentiles.\nThus, it is not surprising that previous evaluations of carrier-level data have found weaker relationships between crash risk and SMS scores and regulatory violations than have the evaluations of aggregated data.\nUMTRI estimated the relationship between exceeding thresholds in the six non-crash BASICs and mean crash rates, using an empirical Bayesian negative binomial model estimated on carrier-level data. The results showed that carriers exceeding the thresholds for the Unsafe Driving and Vehicle Maintenance BASICs had average crash rates that were 1.1 to 1.8 times higher than carriers not exceeding the thresholds—usually lower than the rate ratios of 1.0 to 5.4 reported by UMTRI’s aggregate analysis and FMCSA’s December 2012 Effectiveness Testing. However, this relationship was negative for the Driver Fitness and Loading/Cargo (currently Hazardous Materials) BASICs, with mean crash rates for alerted carriers that were 0.85 and 0.91 times the rates of non-alerted carriers, respectively. The ratios were not significantly greater than 1 for the Fatigued Driving and Substance Abuse/Alcohol BASICs. Similarly, the American Transportation Research Institute (ATRI) found that alerted carriers in the Unsafe Driving, Vehicle Maintenance, Hours-of-Service, and Controlled Substances/Alcohol BASICs had mean crash rates that were 1.3 to 1.7 times larger than scored carriers not in alert status, but carriers exceeding the Driver Fitness thresholds had mean crash rates that were 0.87 times those of non-alert scored carriers.\nAlthough UMTRI and ATRI analyzed carrier-level data, they validated SMS measures using regression coefficients and similar statistics that describe aggregate correlations. As we discuss above, this approach does not directly quantify predictive power for specific carriers.\nTwo studies that have directly estimated prediction error for specific carriers, conducted by Wells Fargo Securities and James Gimpel of the University of Maryland, found weaker evidence of the model’s predictive effectiveness. Gimpel found that mean crash rates increased by small amounts as SMS scores increased on the Unsafe Driving, Hours-of- Service, and Vehicle Maintenance BASICs increased.found a similarly positive association for the Unsafe Driving BASIC, but a Wells Fargo negative association for the Hours-of-Service BASIC, in its analysis of 4,600 carriers with at least 25 vehicles and 50 inspections. More critically, the authors showed that scores on these BASICs predict crash rates with a large amount of error, with most R-squared fit statistics ranging from nearly zero to 0.07 for reasonably large analysis samples. Although these studies do not report critical estimates of the residual variance, the R-squared statistics likely imply confidence intervals around predicted crash rates for individual carriers with widths that are several times larger than the predictions themselves. This implies that SMS scores predict future crash risk for specific carriers with substantial error, even though mean crash rates can be higher among carriers with higher SMS scores.\nFMCSA used aggregate data to dispute the findings of the Wells Fargo evaluation. Specifically, the agency cited the UMTRI findings that aggregate crash rates were 3.0 to 3.6 times higher for carriers exceeding thresholds for the Unsafe Driving and Hours-of-Service BASICs than for carriers that did not exceed thresholds for any BASIC. In addition, FMCSA highlighted analyses by UMTRI and the Volpe Center of aggregate crash rates across percentiles of SMS scores in the Unsafe and Fatigued Driving BASICs, respectively, which they claimed to show a stronger correlation to crash risk. FMCSA’s approach to evaluating the predictive power of SMS scores resembles its Effectiveness Testing, which compares aggregate crash rates for carriers above and below thresholds for various BASICs.\nHowever, as we discuss above and Wells Fargo discussed in its response to FMCSA, the fact that SMS scores predict aggregate crash rates more strongly at the alert-group or percentile level does not necessarily imply that the scores will predict the crash risk of individual carriers. Recognizing this, the UMTRI evaluation analyzes the data at both the aggregate and carrier levels, and finds that mean crash rate ratios are far smaller at the carrier level than at the alert-group or percentile levels. It should be intuitive that aggregate evidence of effectiveness, stressed in some FMCSA evaluations, shows stronger predictive power than the carrier-level analyses of ATRI, Gimpel, UMTRI, and Wells Fargo. Aggregating violation and crash rates within larger groups effectively increases the sample size used to calculate rates, which reduces their sampling error when compared to the equivalent carrier-level measures. The reduction of sampling error can strengthen the correlations between violation rates and SMS scores and crash risk.\nEvaluations of SMS that focus on carrier-level prediction error provide the most appropriate evidence of effectiveness for assessing the safety of individual carriers. FMCSA has stated that one purpose for SMS scores is to predict the future crash risk of individual motor carriers, in order to prioritize resources for intervention and enforcement. In addition, FMCSA reports SMS scores as measures of safety on a public website and the SaferBus Mobile app. To assess the validity of SMS scores for this purpose, evaluations should focus on the system’s ability to predict the crash risk at the carrier level, not its ability to identify groups of carriers with larger crash rates on average or collectively. Measures of predictive accuracy—such as the residual error made when predicting crash rates or the classification error made when assigning carriers to risk groups— are the critical metrics of success, not aggregated crash rate ratios and regression coefficients. When evaluated on these criteria, prior studies show that SMS predicts future crash risk for individual carriers with substantial imprecision.\nNone of the prior studies has explicitly incorporated measurement error into evaluations of SMS. Since SMS is ultimately a method of creating measures of latent variables, as we discuss in appendix III, the regulations used to calculate scores and the scores themselves have some degree of measurement error. Because existing studies have used statistical methods that assume zero measurement error, more comprehensive attempts to model the measurement structure of SMS and validate its assumptions and predictive power, such as those we discuss in appendix III, may produce different results. The correlations among SMS scores, violation rates, and crash risk may reflect measurement error as much as the underlying relationships among the variables of interest. This more complex analysis is critical for future evaluations of SMS and its ability to measure safety risk.", "As a more basic approach to validating SMS, which focuses on the ability of data on regulatory violations in one time period to predict crash risk in a subsequent period, we analyzed the relationship between violation rates and crash risk using a series of statistical models. These models predicted the probability of a crash and crash rates as a function of regulatory violation rates for a population of motor carriers that were actively operating over a recent 3.5-year time period (described below).\nWe find that a substantial portion of regulatory violations in SMS cannot be empirically linked to crash risk for individual carriers. Consistent with prior research, about 160 of the 754 regulations with data available in this time period had sufficient variation across carriers for analysis. Of the approximately 160 regulations with sufficient violation data, less than 14 were consistently associated with crash risk, across statistical models. These results suggest that the specific weights that SMS assigns to many regulations when calculating safety risk cannot be directly validated with empirical data, and many of the remaining regulations do not have meaningful associations with crash risk at the carrier level.", "We assembled data for a population of motor carriers using the MCMIS snapshot files dated December 2010 and 2012. Specifically, we identified carriers that were actively operating in each of two time periods: from December 2007 through December 2009 (the “pre-period”) and from December 2009 through June 2011 (the “post-period”). We defined an active carrier as one that is as outlined in Appendix I, consistent with FMCSA’s definition of active carriers for its Effectiveness Testing and other analyses. For each of the approximately 315,000 carriers that met these criteria, we extracted data on the number of regulatory violations and crashes incurred in each time period, along with the number of inspections, vehicles, and use of straight versus combo trucks, among other variables, from the crash and inspection tables in MCMIS.\nThe goal of our analysis was to predict crash risk in the post-period, using data on regulatory violations, crash data, and carrier characteristics measured in the pre-period. We developed a series of linear and generalized linear regression models to predict two measures of crash risk for individual carriers: a binary indicator for having crashed in the post-period and the ratio of crashes to vehicles. Estimating and evaluating all potential models and model types was not the goal of these analyses. Rather, we sought to estimate the associations between regulatory violation rates and crash risk at the carrier level, in order to validate the violations’ severity weights in SMS.\nWe reduced the list of 754 regulations whose violations are tracked in MCMIS to those that had enough variation across carriers for analysis. After excluding 593 violations that had zero variance or zero counts for more than 99 percent of the analysis carriers, we retained data on the violation of approximately 160 regulations for use in predicting crash risk.\nAs we discuss in appendix II and the body of this report, crash and violation rates based on small exposure measures, generally resulting from carriers with few vehicles, may be estimated with less precision than rates based on larger exposure measures. To better understand and attempt to overcome these rate estimation issues and assess the sensitivity of our results, we used both ordinary and empirical Bayesian estimators of crash and violation rates. In addition, we estimated separate models limited to carriers that had more than 20 vehicles.\nThese methodological choices produced 8 groups of models, as described in table 7. The groups were defined by the combined categories of crash measure (binary crash status versus Bayesian crash rate), methods of violation rate estimation (ordinary versus Bayesian), and carrier size (full data or restricted to more than 20 vehicles). These parallel analyses allowed us to assess the sensitivity of our results to different assumptions.\nFor each of the eight model groups, we include three sets of covariates to predict crash risk in the post-period: “Simple model:” indicator (binary) for crashing in the pre-period, carrier size, and carrier type (percent straight versus combo). “Full model:” predictors in the simple model, plus all violation rates with viable data in the pre-period. “Stepwise full model:” We applied a stepwise selection algorithm applied to all predictors in the “full model,” in order to select the most predictive covariates. The algorithm’s constraints required a p-value of 0.30 for a covariate to enter the model and 0.35 to remain in the model.\nTo avoid over-fitting our models to any particular sample of data, we divided our data using a random method to form a model-building sample and a validation sample. We used the model-building sample to estimate the models described above and the validation sample to assess the accuracy of the model’s predictions of crash probability against new data. When seeking to develop statistical methods for predictive purposes, this type of out-of-sample validation is extremely useful to ensure that any method identified can consistently predict well on all samples of data, not just the sample that was used to develop the method. This is an important limitation of prior evaluations of SMS, which, to our knowledge, have not used replication samples to avoid over-fitting when identifying predictive violation types or methods of identifying higher-risk carriers.\nModel selection required addressing statistical estimation issues, such as instability of the parameter estimates caused by co-linearity of predictors or lack of variability in the predictors, and other model fitting concerns.\nFor the linear crash rate models, the dependent variable required a log transformation to remove non-constant error variance, which would invalidate results if left untreated. These statistical issues resulted in sub- models within the major model groups that were explored until a stable model resulted. Therefore, the results within each model group focus on three sub models, when applicable: simple, stepwise and full, where stepwise is the model that eliminated independent variables until a stabilized model with estimable coefficients resulted. See table 8 for the final list of 30 models and subsamples.", "Models that use the SMS violation information do not fit well according to various measures discussed below. In addition, the violation rates, as measured in SMS, do not have a strong predictive relationship with crashes, regardless of whether the observed or the Bayesian violation rates are used as inputs.\nModels for crash status (yes/no) were examined for stability of parameter estimates, fit statistics, number and types of violations that were predictive and that were stable, and future predictive performance according to these measures. Models for Bayesian crash rates were examined for stability of parameter estimates, fit statistics, number and types of violations that were predictive, predictive power and future predictive power. Some of the diagnostics cannot be compared in absolute terms, but rather should be compared across models fit to the same data. For example, the AIC must be compared across competing models fit on the same data.\nThe crash status (yes/no) model was evaluated in the out-of-sample validation data, where each model was re-fit on the validation sample, and the diagnostics were examined and compared to those from the model-building sample. As an additional sensitivity analysis, the same set of inputs for each of the model groups one through four were also fit using a Bayesian crash rate outcome, via a linear regression fit to the model- building sample. Results were compared.", "Since diagnostics will differ according to the outcome measure, crash status (yes/no) versus crash rate, information for these outcome types is displayed separately. For results of models for the crash status (yes/no), see tables 9 and 10. For results for the Bayesian crash rates, see table 11. Given that a high value of the H-L p-value (close to 1) indicates good model fit, according to this measure, most of the models fail to fit acceptably, and none of the models fit well.\nWithin the same data, a lower value of the AIC indicates better fit; therefore, the stepwise models perform best, and do nearly as well regarding the ROC and generalized R-squared when compared to the more complicated full model. But even for the stepwise models, the ROC and R-squared do not indicate a strong predictive relationship. This finding is echoed by the number of effects in the model, relative to the number of potential violations (about 160) and the number of stable effects.\nOne aspect of predictive power is the ability for a model to discriminate the observed outcomes based on model predictions. Classification tables describe a model’s classification accuracy with correct and incorrect classifications, as measured by sensitivity (correctly predict an event) and specificity (correctly predict a non-event), and false positive (incorrectly predict a non-event) and negative rates (incorrectly predict an event).\nClassification tables for the simple, full, and stepwise model within a model group are presented in table 10. The observed proportion of crashes, approximately 0.2 for the unrestricted data and 0.66 for the data restricted to carriers with more than 20 vehicles, is used as the cut-point to classify predicted probabilities for a carrier into a predicted event (crash) versus non-event (no crash). The predicted crash status for a particular model is compared to the actual post-crash status, resulting in a series of table rows, one for each model, that examine the false positives, false negatives, and other quantities that help evaluate the predictive quality of a model.\nFor unrestricted data, the false negative rate (or the rate that results from incorrectly classifying a carrier to a non-alert status), is relatively low (around 11 percent) compared to the false positive rate (ranges from about 56 to 58 percent). This is a desired result if it is considered more appropriate to be conservative and put a carrier in alert status, even if that alert status is incorrect (false positive), compared to misclassifying a carrier into non-alert when an alert would be called for (false negative). The restricted data have a higher false negative rate (from 42 to 44 percent) than false positive rate (around 14 to 19 percent), and this false negative rate is also higher than the full data false negative rate. For the restricted data with higher false negative rates, this means a higher percentage of carriers are being classified in non-alert when they have crashed than the percent classified as alert, but that did not crash, and such a scenario is not desirable under a conservative preference toward low false negative rates. In addition, the sensitivity and specificity are both moderate at best within data (restricted versus full), further evidence of the inability for models to discriminate.\nTo address whether crash status (yes/no) has a different relationship with violations than the crash rate, we compare conclusions of crash status (yes/no) versus crash rate models. Examining sensitivity to the prediction of crash status (yes/no) versus crash rate, the stepwise selected model will be compared to logistic regression results for the model-building and the validation sample (see Table 11).model indicates that the numbers of effects that are related to crash rate are small, and that the better fitting models tend to have only a few predictors included. Specifically, Mallow’s Cp statistic indicates a model is preferable when Cp is around or smaller than the number of effects (p), and the model is more parsimonious than competing models. The model fit to the restricted data, where carriers have greater than 20 vehicles, (stepwise model number 22), includes only 34 stable effects, and 72 effects altogether, but the model fit is more stable (i.e., relatively fewer unstable effects) and has the best (lowest) Cp, while also having similar explained variance and low AIC. However, it is interesting to note that the simple model, model 21, performs similarly according to some measures, such as Root MSE and R-squared, though this model does not contain violation rate information.", "Comparing how well the models perform when applied to the validation sample that consists of new observations——which are not included in the model-building sample—informs the precision of SMS with respect to predicting crashes. We examine the number of violations and the violation types that are included across the model groups (logistic and linear) and sub-models (stepwise and full). We compare this to the number of models within which each violation was found to be a significant and a stable predictor of crash outcomes. Importantly, of the reduced set of approximately 160 violations considered, only 13 violations were significant in at least half of the 24 models that incorporate violations (i.e., stepwise and full models).\nThere were 10 different possible models for the logistic model-building sample, and these were also evaluated on the validation sample and on the model-building sample, but with a linear regression setting, resulting in 30 possible models. However, we regarded only 24 of these 30 models as informative since we exclude the 6 simple models that ignore the pre- violation information. Of the violations considered, only speeding (violation 3922S) and failure to use a seatbelt while operating CMV (39216) were significant and stable in all 24 models. A similar picture arises for some other violations, though many of the models did not result in a significant relationship between the violation in question and the crash outcome, as indicated in table 12. Only 41 violations were significant in 5 or more models out of 24. However, even for the top 13 violations with respect to frequency of significance and stability across the 24 models, predictive power is still affected by poor model diagnostics. This is echoed in the results from the predictive relationship when compared to the linear regression model for Bayesian crash rates (results in table 11), where the model that excluded all violations performed similarly to models that included some significant violations. Whether modeling crash status (yes/no) or a crash rate, the predictive power of SMS violations is weak.\nWhen comparing the predictive power of the models that result from the model-building sample, once applied to the validation sample, there is a consistent picture regarding the model fit (see table 13). In particular, the model fit is generally poor according to the H-L value; the stepwise model tends to perform better according to the AIC, but the ROC, adjusted R2, and percent discordant do not indicate the models have a strong ability to discriminate and predict future crashes. Classification tables that result from evaluating the model-building sample models, but estimated from the validation sample, generally resulted in similar results to those presented in table 10.", "The predictive power observed in these modeling and sensitivity analyses indicates that SMS may be less precise than what is reported and that the available information on violations is limited for the purpose of scoring carriers or predicting their crash risk. Regardless of which type of model we fit, we see that the predictive power of our models is low, and the use of the SMS violations in predicting future crashes is not very precise. The number of stable and significant effects across the various model-fitting scenarios that include violations is small. For the about 800 violations in SMS, only around 160 met the basic criteria of non-zero variance and non-zero counts for at least 1 percent of the sample. Of these, only two violations (speeding and failure to wear a seatbelt while operating a CMV) consistently appeared as a stable predictor of crashes, regardless of data and model. While some other violations appeared in models, only 13 were significant and stable in at least half of the models, most were significant in no more than half the models examined, and most often in fewer than 5 of the models. The results did not vary substantially according to whether observed versus Bayesian violation rates, crash versus Bayesian crash rates, or restricted data (carriers with more than 20 vehicles) versus full data were used to estimate crashes. Therefore the modeling attempts did not overcome the issues that result from small exposures. The results were generally confirmed when evaluated on a validation sample, indicating the future prediction is stable, yet not strong. Ultimately, much of the variance in crash predictions remains unexplained, regardless of the model and model-building data, so that the SMS might be less precise when the objective is to predict crashes.", "This appendix provides additional information and illustrations of the distribution of motor carrier population included in our analysis such as carrier size, number of crashes, inspections, and high risk status (see table 14). It also provides results of our analysis on the number and percentage of carriers above or below intervention thresholds, as well as the frequency and rate of crashes for each of those groups of carriers within each BASIC using FMCSA’s methodology and the illustrative alternative methodology (i.e., using a stronger data sufficiency standard) demonstrated earlier in the report. In addition, this appendix provides summary statistics of the various motor carrier populations used in FMCSA and GAO analysis. These statistics include, among other things, the numbers of carriers with an SMS score (i.e., “measure”) and the number of carriers above an intervention threshold in at least one BASIC. Finally, this appendix provides the complete graphical results of our analysis of FMCSA’s violation rates, safety event groups, and distribution of SMS scores for carriers above FMCSA’s intervention threshold using FMCSA’s methodology.\nTable 15 contains the results of our analysis using FMCSA’s SMS 3.0 methodology. This analysis calculated the number and percentage of carriers above and below intervention thresholds for each BASIC using carrier data from December 2007 through December 2009, and determined which carriers subsequently crashed during the 18-month evaluation period, December 2009 through June 2011. The analysis also presents aggregate crash rates for comparison purposes.\nTable 16 contains the results of our analysis using an illustrative alternative incorporating a stronger data sufficiency standard, among other things, as described elsewhere in this report (e.g. carriers with 20 or more inspections or 20 or more vehicles, depending upon the BASIC). As in the previous table, this analysis calculated the number of carriers above and below intervention thresholds for each BASIC using carrier data from December 2007 through December 2009, and determined which carriers subsequently crashed during the subsequent 18-month period, December 2009 through June 2011. The analysis also presents aggregate crash rates for comparison purposes.\nTable 17 contains selected SMS outcomes based on results reported by FMCSA’s and from GAO’s analysis.\nThe following figures are graphical results of our analysis of the average and range of violation rates for carriers, percentage of carriers above FMCSA’s intervention thresholds for various safety event group categories, and distribution of SMS scores for carriers above FMCSA’s intervention thresholds using FMCSA’s methodology as discussed in the body of this report above. Figures 10 through 16 contain the average and range of violation rates for all carriers (where a violation rate could be calculated) by carrier size, for all the BASICS. Figures 17 through 25 contain the percentage of carriers above intervention thresholds within safety event groups for each BASIC. Finally, figures 26 through 32 show the distribution of carriers above intervention thresholds for each BASIC by carrier size.", "", "", "In addition to the individual named above, H. Brandon Haller, Assistant Director, Russell Burnett, Melinda Cordero, Jennifer DuBord, Colin Fallon, David Hooper, Matthew LaTour, Grant Mallie, Jeff Tessin, Sonya Vartivarian, and Joshua Ormond made key contributions to this report." ], "depth": [ 1, 2, 2, 2, 2, 2, 1, 2, 2, 2, 2, 3, 3, 2, 2, 1, 1, 1, 1, 1, 2, 2, 1, 2, 2, 1, 1, 2, 2, 2, 2, 2, 1, 1, 2, 2 ], "alignment": [ "h0_title h2_title h3_title", "h3_full", "h3_full", "h0_full", "", "h2_full", "h0_full h2_title h1_title", "", "h0_full", "h0_full", "h0_full h1_full", "", "", "h0_full h2_full h1_full", "", "h3_full h2_full h4_full", "h5_full h2_full", "h5_full", "h4_full", "", "", "", "", "", "", "", "", "", "", "", "", "", "h1_full", "", "", "" ] }

{ "question": [ "How does SMS related to FMCSA?", "What is one challenge that FMCSA has faced?", "What is another challenge with SMS?", "To what extent has FMCSA addressed this problem?", "What was the outcome of this predictability issue?", "Why is FMCSA's methodology limited?", "How can FMCSA improve its methodology?", "What are the tradeoffs of this approach?", "What does FMCSA with SMS scores?", "What would be necessary in order for FMCSA to use this information to assess carriers?", "What is the mission of FMCSA?", "How can FMCSA better achieve this goal?", "What is the scale of commercial truck and bus crashes?", "How does FMCSA identify the riskiest vehicles?", "What is the purpose of CSA?", "How does CSA operate?", "What was GAO directed to do?", "What does this report examine?", "How did GAO come to understand SMS?", "What methodology did GAO use?", "What else did GAO do?", "What does GAO recommend?", "What should be taken into account when determining operationability?", "How did GAO respond to comments from USDOT?", "How did USDOT respond to GAO?" ], "summary": [ "A key component of CSA--the Safety Measurement System (SMS)--uses carrier performance data collected from roadside inspections or crash investigations to identify high risk carriers for intervention by analyzing relative safety scores in various categories, including Unsafe Driving and Vehicle Maintenance. FMCSA faces at least two challenges in reliably assessing safety risk for the majority of carriers.", "First, for SMS to be effective in identifying carriers more likely to crash, the violations that FMCSA uses to calculate SMS scores should have a strong predictive relationship with crashes. However, based on GAO's analysis of available information, most regulations used to calculate SMS scores are not violated often enough to strongly associate them with crash risk for individual carriers.", "Second, most carriers lack sufficient safety performance data to ensure that FMCSA can reliably compare them with other carriers. To produce an SMS score, FMCSA calculates violation rates for each carrier and then compares these rates to other carriers. Most carriers operate few vehicles and are inspected infrequently, providing insufficient information to produce reliable SMS scores.", "FMCSA acknowledges that violation rates are less precise for carriers with little information, but its methods do not fully address this limitation. For example, FMCSA requires a minimum level of information for a carrier to receive an SMS score; however, this requirement is not strong enough to produce sufficiently reliable scores.", "As a result, GAO found that FMCSA identified many carriers as high risk that were not later involved in a crash, potentially causing FMCSA to miss opportunities to intervene with carriers that were involved in crashes.", "FMCSA's methodology is limited because of insufficient information, which reduces the precision of SMS scores.", "GAO found that by scoring only carriers with more information, FMCSA could better identify high risk carriers likely to be involved in crashes.", "This illustrative approach involves trade-offs; it would assign SMS scores to fewer carriers, but these scores would generally be more reliable and thus more useful in targeting FMCSA's scarce resources.", "In addition to using SMS scores to prioritize carriers for intervention, FMCSA reports these scores publicly and is considering using a carrier's performance information to determine its fitness to operate.", "Given the limitations with safety performance information, determining the appropriate amount of information needed to assess a carrier requires consideration of how reliable and precise the scores need to be for the purposes for which they are used.", "Ultimately, the mission of FMCSA is to reduce crashes, injuries, and fatalities.", "GAO continues to believe a data-driven, risk-based approach holds promise; however, revising the SMS methodology would help FMCSA better focus intervention resources where they can have the greatest impact on achieving this goal.", "From 2009 to 2012, large commercial trucks and buses have averaged about 125,000 crashes per year, with about 78,000 injuries and over 4,100 fatalities.", "In 2010, FMCSA replaced its tool for identifying the riskiest carriers--SafeStat--with the CSA program.", "CSA is intended to reduce the number of motor carrier crashes by better targeting the highest risk carriers using information from roadside inspections and crash investigations.", "CSA includes SMS, a data-driven approach for identifying motor carriers at risk of causing a crash.", "GAO was directed by the Consolidated Appropriations Act of 2012 to monitor the implementation of CSA.", "This report examines the effectiveness of the CSA program in assessing safety risk for motor carriers.", "GAO spoke with FMCSA officials and stakeholders to understand SMS.", "Using FMCSA's data, GAO replicated FMCSA's method for calculating SMS scores and assessed the effect of changes--such as stronger data-sufficiency standards--on the scores.", "GAO also evaluated SMS's ability to predict crashes.", "GAO recommends that FMCSA revise the SMS methodology to better account for limitations in drawing comparisons of safety performance information across carriers.", "In addition, determination of a carrier's fitness to operate should account for limitations in available performance information.", "In response to comments from the Department of Transportation (USDOT), GAO clarified one of the recommendations.", "USDOT agreed to consider the recommendations." ], "parent_pair_index": [ -1, 0, 0, 2, 3, -1, 0, 1, -1, 0, -1, 2, -1, -1, 1, 2, -1, -1, -1, -1, 3, -1, 0, -1, 2 ], "summary_paragraph_index": [ 3, 3, 3, 3, 3, 4, 4, 4, 5, 5, 5, 5, 0, 0, 0, 0, 1, 1, 1, 1, 1, 6, 6, 6, 6 ] }

{ "title": [ "", "Introduction", "Amending Mortgage Rules", "Background10", "Provisions and Selected Analysis", "Section 101—Qualified Mortgage Status for Loans Held by Small Banks", "Provision", "Analysis", "Section 102—Charitable Tax Deduction for Appraisals", "Section 103—Exemption from Appraisals in Rural Areas", "Provision", "Section 104—Home Mortgage Disclosure Act Adjustment", "Provision", "Section 105—Credit Union Loans for Nonprimary Residences", "Provision", "Section 106—Mortgage Loan Originator Licensing and Registration", "Provision", "Section 107—Manufactured Homes Retailers", "Provision", "Section 108—Escrow Requirements Relating to Certain Consumer Credit Transactions", "Provision", "Section 109—Waiting Period Requirement for Lower-Rate Mortgage", "Provision", "Regulatory Relief for Community Banks", "Background39", "Provisions and Selected Analysis", "Section 201—Community Bank Leverage Ratio", "Provision", "Analysis", "Section 202—Allowing More Banks to Accept Reciprocal Deposits", "Provision", "Analysis", "Section 203 and 204—Changes to the Volcker Rule", "Provision", "Analysis", "Section 205—Financial Reporting Requirements for Small Banks", "Provision", "Section 206—Allowing Thrifts to Opt-In to National Bank Regulatory Regime", "Provision", "Section 207—Small Bank Holding Company Policy Statement Threshold", "Provision", "Section 210—Frequency of Examination for Small Banks", "Provision", "Section 213—Identification When Opening an Account Online", "Provision", "Section 214—Classifying High Volatility Commercial Real Estate Loans", "Provision", "Consumer Protections", "Background73", "Credit Reporting", "Veterans and Active Duty Servicemembers", "Student Loans83", "Provisions and Selected Analysis", "Section 215—Reducing Identity Theft", "Provisions", "Section 301—Fraud Alerts and Credit Report Security Freezes", "Provisions", "Analysis", "Section 302—Veteran Medical Debt in Credit Reports", "Provisions", "Section 303—Whistleblowers on Senior Exploitation", "Provision", "Section 304—Protecting Tenants at Foreclosure", "Provision", "Section 307—Real Property Retrofit Loans", "Provision", "Section 309—Protecting Veterans from Harmful Mortgage Refinancing", "Provision", "Section 310—Consider Use of Alternative Credit Scores for Mortgage Underwriting", "Provisions", "Section 313—Foreclosure Relief Extension for Servicemembers", "Provisions", "Section 601—Student Loan Protections in the Event of Death or Bankruptcy", "Provisions", "Section 602—Certain Student Loan Debt in Credit Reports", "Provisions", "Regulatory Relief for Large Banks", "Background", "Provisions and Selected Analysis", "Section 401—Enhanced Prudential Regulation and the $50 Billion Threshold", "Provision", "Analysis", "Section 402—Custody Banks and the Supplementary Leverage Ratio", "Provision", "Analysis", "Section 403—Municipal Bonds and Liquidity Coverage Ratio", "Provision", "Analysis", "Capital Formation", "Background", "Provisions and Selected Analysis", "Section 501—National Security Exchange Parity", "Provisions", "Section 504—Registration Requirements for Small Venture Capital Funds", "Provision", "Section 506—U.S. Territories Investor Protection", "Provision", "Section 507—Disclosure Requirements for Companies Paying Personnel in Stock", "Provision", "Section 508―Expanding Regulation A+ Access to Reporting Companies", "Provisions", "Section 509—Streamlined Closed-End Fund Registration", "Provisions", "Miscellaneous Proposals in P.L. 115-174" ], "paragraphs": [ "", "The Economic Growth, Regulatory Relief, and Consumer Protection Act ( S. 2155 ) was reported out by the Senate Committee on Banking, Housing, and Urban Affairs on December 18, 2017. It was then passed by the Senate on March 14, 2018, following the inclusion of a manager's amendment that added a number of provisions to the bill as reported. The House passed P.L. 115-174 on May 22, 2018, and President Donald Trump signed it into law on May 24, 2018.\nP.L. 115-174 changes a number of financial regulations; its six titles alter certain aspects of the regulation of banks, capital markets, mortgage lending, and credit reporting agencies. Many of the provisions can be categorized as providing regulatory relief to banks and certain companies accessing capital markets. Others are designed to relax mortgage lending rules and provide additional protections to consumers, including protections related to credit reporting, veterans' mortgage refinancing, and student loans.\nSome P.L. 115-174 provisions amend the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act; P.L. 111-203 ), regulatory reform legislation enacted following the 2007-2009 financial crisis that initiated the largest change to the financial regulatory system since at least 1999. Other provisions amend certain rules implemented by bank regulators under existing authorities and which closely adhere to the Basel III Accords—the international bank regulation standards-setting agreement. Finally, other provisions address long-standing or more recent issues not directly related to Dodd-Frank or Basel III.\nProponents of the legislation assert it provides targeted financial regulatory relief that eliminates a number of unduly burdensome regulations, fosters economic growth, and strengthens consumer protections. Opponents of the legislation argue it needlessly pares back important Dodd-Frank safeguards and protections to the benefit of large and profitable banks.\nPrior to passage of P.L. 115-174 , the House and the Administration had also proposed wide-ranging financial regulatory relief plans. In terms of the policy areas addressed, some of the changes in P.L. 115-174 are similar to those proposed in the Financial CHOICE Act (FCA; H.R. 10 ), which passed the House on June 8, 2017 (see Appendix B ). However, the two bills generally differ in the scope and degree of proposed regulatory relief. The FCA calls for widespread changes to the regulatory framework across the entire financial system, whereas P.L. 115-174 is more focused on the banking industry, mortgages, capital formation, and credit reporting. Likewise, many of the provisions found in P.L. 115-174 parallel regulatory relief recommendations made in the Treasury Department's series of reports pursuant to Executive Order 13772, particularly the first report on banks and credit unions. The Treasury reports are more wide-ranging than P.L. 115-174 , however, and more focused on changes that can be made by regulators without congressional action.\nThe Congressional Budget Office (CBO) estimated that P.L. 115-174 would reduce the budget deficit by $23 million over 10 years. CBO estimated that only one provision would reduce the deficit—Section 217 requires the Federal Reserve (Fed) to transfer $675 million from its surplus account to the Treasury, where it is added to general revenues. CBO estimated that this provision would increase revenues by $478 million on net over 10 years. CBO assumed when making the estimate that the Fed would finance the transfer by selling Treasury securities, which otherwise would have earned $177 million in income that would have been remitted to the Treasury in the next 10 years. Thus, the provision can be thought of as shifting Fed remittances from the future to the present, as opposed to representing new economic resources available to the federal government. Various other provisions are forecast to increase the deficit, with the three provisions with the largest effect on the deficit being the community bank leverage ratio (Section 201), changes to the enhanced regulation threshold (Section 401), and changes to the supplementary leverage ratio for custody banks (Section 402).\nThis report summarizes P.L. 115-174 as enacted and highlights major policy proposals of the legislation. Most changes proposed by P.L. 115-174 , as passed, can be grouped into one of five issue areas: (1) mortgage lending, (2) regulatory relief for \"community\" banks, (3) consumer protection, (4) regulatory relief for large banks, and (5) regulatory relief in securities markets. The report provides background on each policy area, describes the P.L. 115-174 provisions that make changes in these areas, and examines the prominent policy issues related to those changes. In its final section, this report also provides an overview of provisions that do not necessarily relate directly to these five topics. This report also includes a contact list of CRS experts on topics addressed by P.L. 115-174 , a summary of various exemption thresholds created or raised by P.L. 115-174 in Appendix A , and a list of provisions in P.L. 115-174 that address similar issues as a number of House bills in Appendix B .", "Title I of P.L. 115-174 is intended to reduce the regulatory burden involved in mortgage lending and to expand credit availability, especially in certain market segments. Following the financial crisis, in which lax mortgage standards are believed by certain observers to have played a role, new mortgage regulations were implemented and some existing regulations were strengthened. Some analysts are now concerned that certain new and long-standing regulations unduly impede the mortgage process and unnecessarily restrict the availability of mortgages. To address these concerns, several provisions in P.L. 115-174 are designed to relax mortgage rules, including by providing relief to small lenders and easing rules related to specific mortgage types or markets. Other analysts argue that market developments have contributed to a tightening of mortgage credit and, though some changes to regulations may be desirable, the regulatory structure in place prior to the enactment of P.L. 115-174 generally provided important consumer protections.", "The bursting of the housing bubble in 2007 preceded the December 2007-June 2009 recession and a financial panic in September 2008. As shown in Figure 1 , house prices rose significantly between 1991 and 2007 and then declined sharply for several years. Nationwide house prices did not return to their peak levels until the end of 2015. The decrease in house prices reduced household wealth and resulted in a surge in foreclosures. This had negative effects on homeowners and contributed to the financial crisis by straining the balance sheets of financial firms that held nonperforming mortgage products.\nMany factors contributed to the housing bubble and its collapse, and there is significant debate about the underlying causes even a decade later. Many observers, however, point to relaxed mortgage underwriting standards, an expansion of nontraditional mortgage products, and misaligned incentives among various participants as underlying causes.\nMortgage lending has long been subject to regulations intended to protect homeowners and to prevent risky loans, but the issues evident in the financial crisis spurred calls for reform. The Dodd-Frank Act made a number of changes to the mortgage system, including establishing the Consumer Financial Protection Bureau (CFPB) —which consolidated many existing authorities and established new authorities, some of which pertained to the mortgage market—and creating numerous consumer protections in Dodd-Frank's Title XIV, which was called the Mortgage Reform and Anti-Predatory Lending Act.\nA long-standing issue in the regulation of mortgages and other consumer financial services is the perceived trade-off between consumer protection and credit availability. If regulation intended to protect consumers increases the cost of providing a financial product, some lenders may charge a higher price and provide the service more selectively. Those who still receive the product may benefit from the enhanced disclosure or added legal protections of the regulation, but that benefit may result in a higher price for the product.\nSome policymakers generally believe that the postcrisis mortgage rules have struck the appropriate balance between protecting consumers and ensuring that credit availability is not restricted due to overly burdensome regulations. They contend that the regulations are intended to prevent those unable to repay their loans from receiving credit and have been appropriately tailored to ensure that those who can repay are able to receive credit.\nCritics counter that some rules have imposed compliance costs on lenders of all sizes, resulting in less credit available to consumers and restricting the types of products available to them. Some assert this is especially true for certain nonstandard types of mortgages, such as mortgages for homes in rural areas or for manufactured housing. They further argue that the rules for certain types of lenders, usually small lenders, are unduly burdensome.\nA variety of experts and organizations attempt to measure the availability of mortgage credit, and although their methods vary, it is generally agreed that mortgage credit is tighter than it was in the years prior to the housing bubble and subsequent housing market turmoil. Figure 2 shows that mortgage originations to borrowers with FICO credit scores below 720 have decreased in absolute and percentage terms. However, no consensus exists on whether or to what degree mortgage rules have unduly restricted the availability of mortgages, in part because it is difficult to isolate the effects of rules and the effects of broader economic and market forces. For example, the supply of homes on the market, demand for those homes, and demographic trends may also be playing a role. In addition, whether a tightening of credit should be interpreted as a desirable correction to precrisis excesses or an unnecessary restriction on credit availability is subject to debate.", "Title I contains 10 sections that amend various laws that affect relatively small segments of the nation's mortgage market. Some sections pertain to consumer protection, and are generally intended to relax consumer protections in areas and markets in which the costs of these regulations are thought by some observers to be high relative to the rest of the mortgage market. In some cases, the legislation removes perceived regulatory barriers to the efficient functioning of specific segments of the mortgage market. Other provisions aim to balance safety and soundness concerns with concerns about access to credit.", "", "Section 101 creates a new qualified mortgage (QM) compliance option for mortgages that depositories with less than $10 billion in assets originate and hold in portfolio. To be eligible, the lender has to consider and document a borrower's debts, incomes, and other financial resources, and the loan has to satisfy certain product-feature requirements.", "Title XIV of the Dodd-Frank Act established the ability-to-repay (ATR) requirement to address problematic market practices and policy failures that some policymakers believe fueled the housing bubble that precipitated the financial crisis. Under the ATR requirement, a lender must verify and document that, at the time a mortgage is made, the borrower has the ability to repay the loan. Lenders that fail to comply with the ATR rule could be subject to legal liability, such as the payment of certain statutory damages.\nThe CFPB issued regulations in January 2013 implementing the ATR requirement. A lender can comply with the ATR requirement in different ways, one of which is by originating a QM. When a lender originates a QM, it is presumed to have complied with the ATR requirement, which consequently reduces the lender's potential legal liability for its residential mortgage lending activities. The definition of a QM, therefore, is important to a lender seeking to minimize the legal risk of its residential mortgage lending activities, specifically its compliance with the statutory ATR requirement.\nThe Dodd-Frank Act provides a general definition of a QM, but also authorizes CFPB to issue \"regulations that revise, add to, or subtract from\" the general statutory definition. The CFPB-issued QM regulations establish a S tandard QM that meets all of the underwriting and product-feature requirements outlined in the Dodd-Frank Act. However, the QM regulations also establish several additional categories of QMs, one of which is the Small Creditor Portfolio QM, which provide lenders the same presumption of compliance with the ATR requirement as the Standard QM. Compared with the Standard QM compliance option, the Small Creditor Portfolio QM has less prescriptive underwriting requirements. It is intended to reduce the regulatory burden of the ATR requirement for certain small lenders.\nA mortgage can qualify as a Small Creditor Portfolio QM if three broad sets of criteria are satisfied. First, the loan must be held in the originating lender's portfolio for at least three years (subject to several exceptions). Second, the loan must be held by a small creditor , which is defined as a lender that originated 2,000 or fewer mortgages in the previous year and has less than $2 billion in assets. Third, the loan must meet the underwriting and product-feature requirements for a Standard QM except for the debt-to-income ratio.\nSome argue that the QM definition has led to an unnecessary constriction of credit and has been unduly burdensome for lenders. In particular, critics argue that not all of the lender and underwriting requirements included in the Small Creditor Portfolio QM are essential to ensuring that a lender will verify a borrower's ability to repay, and instead argue that holding the loan in portfolio is sufficient to encourage thorough underwriting.\nBy keeping the loan in portfolio, lenders have added incentive to consider whether the borrower will be able to repay the loan. Keeping the loan in portfolio means that the lender retains the default risk and could be exposed to losses if the borrower does not repay. This retained risk, the argument goes, encourages small creditors to provide additional scrutiny during the underwriting process, even in the absence of a legal requirement to do so. The expanded portfolio option, according to supporters, will spur lenders to offer more mortgages and reduce the burden associated with the more prescriptive underwriting standards of the existing QM options. The less prescriptive standards could most benefit creditworthy borrowers with atypical financial situations, such as self-employed individuals or seasonal employees, who may have a difficult time conforming to the existing standards.\nAs summarized in Table 1 , P.L. 115-174 creates a new compliance option for lenders who keep a mortgage in portfolio in addition to the existing Small Creditor Portfolio QM. Compared with the CFPB's Small Creditor Portfolio QM, P.L. 115-174 allows larger lenders to use the portfolio compliance option (raising the asset threshold from $2 billion to $10 billion and eliminating the origination limits) but limits the new option to insured depositories (banks and credit unions) rather than to both depository and nondepository lenders. The new portfolio option created by P.L. 115-174 has more restrictive portfolio requirements, requiring lenders to hold the loan in portfolio for the life of the loan (with certain exceptions) rather than for just three years. However, the P.L. 115-174 option has more relaxed loan criteria. Lenders have to comply with some product-feature restrictions, but those restrictions are generally less stringent than under the other compliance option. In addition, P.L. 115-174 relaxes underwriting criteria, requiring lenders to consider and document a borrower's debts, incomes, and other financial resources in accordance with less prescriptive guidance than is required under certain other QM option criteria.\nAlthough supporters of the expanded portfolio QM option in P.L. 115-174 argue that the new compliance option will expand credit availability and appropriately align the incentives of the borrower and lender, critics of the proposal counter that the incentives of holding the loan in portfolio are insufficient to protect consumers and that the protections in the rule in place prior to the enactment of P.L. 115-174 are needed to ensure that the hardships caused by the housing crisis are not repeated.", "Under current law, appraisers who meet certain criteria (such as an appraiser who is not an employee of the mortgage loan originator) are required to be compensated at a rate that is customary and reasonable for appraisal services in the market in which the appraised property is located. During the buildup of the housing bubble and its subsequent bust, house prices rose quickly and then fell steeply in many parts of the country, causing some policymakers to question the accuracy of the appraisals that supported the mortgage loans during the housing bubble, and the independence of the appraisers. The customary-and-reasonable fee requirement in current law is intended to help ensure that appraisers are acting with appropriate independence and not in the interest of the lender, seller, borrower, or other interested party. However, some have argued that the requirement for appraisers to receive a customary and reasonable fee made it difficult for them to donate their services to charitable organizations. Section 102 allows appraisers to donate their appraisal services to a charitable organization eligible to receive tax-deductible charitable contributions, such as Habitat for Humanity, by clarifying that a donated appraisal service to a charitable organization would not be in violation of the customary-and-reasonable fee requirement.", "", "The Dodd-Frank Act strengthened appraisal requirements after concerns were raised about the role that inaccurate appraisals played in the housing crisis. In recent years, there have been reports of shortages of qualified appraisers, especially in rural areas. Section 103 waives the general requirement for independent home appraisals for federally related mortgages in rural areas where the lender has contacted three state-licensed or state-certified appraisers who could not complete an appraisal in \"a reasonable amount of time.\" An originator who makes a loan without an appraisal could sell the mortgage only under certain circumstances, such as bankruptcy.", "", "Section 104 exempts banks and credit unions from certain Home Mortgage and Disclosure Act (HMDA; P.L. 94-200 ) reporting requirements—generally new requirements implemented by the Dodd-Frank Act. Lenders that have originated fewer than 500 closed-end mortgage loans in each of the preceding two years qualify for reduced reporting on those loans and lenders originating fewer than 500 open-end lines of credit in each of the preceding two years qualify for reduced reporting on those loans, provided they achieve certain Community Reinvestment Act compliance scores.\nHMDA, which was originally enacted in 1975, requires most lenders to report data on their mortgage business so that the data can be used to assist (1) \"in determining whether financial institutions are serving the housing needs of their communities\"; (2) \"public officials in distributing public-sector investments so as to attract private investment to areas where it is needed\"; and (3) \"in identifying possible discriminatory lending patterns.\" The Dodd-Frank Act required lenders to collect additional data through HMDA, such as points and fees payable at origination, the term of the mortgage, and certain information about the interest rate. Currently, depository lenders generally have to comply with the HMDA reporting requirements if they have $45 million or more of assets, originated at least 25 home purchase loans in each of the previous two years, and satisfied other criteria. Section 104 exempts additional depository lenders from most of the HMDA requirements that were added by the Dodd-Frank Act.", "", "Section 105 excludes loans made by a credit union for a single-family home that is not the member's primary residence from the definition of a member business loan . Credit unions face certain restrictions on the type and volume of loans that they can originate. One such restriction relates to member business loans. A member business loan means \"any loan, line of credit, or letter of credit, the proceeds of which will be used for a commercial, corporate or other business investment property or venture, or agricultural purpose,\" with some exceptions, made to a credit union member. The aggregate amount of member business loans made by a credit union must be the lesser of 1.75 times the credit union's actual net worth, or 1.75 times the minimum net worth amount required to be well capitalized. A loan for a single-family home that is a primary residence is not considered a member business loan, but a similar loan for a nonprimary residence, such as an investment property or vacation home, was considered a member business loan prior to the enactment of P.L. 115-174 . Section 105 modifies the definition such that nonprimary residence transactions are excluded from the member business loan definition.", "", "Section 106 allows certain state-licensed mortgage loan originators (MLOs) who are licensed in one state to temporarily work in another state while waiting for licensing approval in the new state. It also grants MLOs who move from a depository institution (where loan officers do not need to be state licensed) to a nondepository institution (where they do need to be state licensed) a grace period to complete the necessary licensing.\nUnder the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 ( P.L. 110-289 ; SAFE Act), MLOs who work for a bank must register with the National Mortgage Licensing System and Registry (NMLS), and those working for a nonbank mortgage lender must be licensed and registered in their state. Supporters of the original 2008 legislation argued that without registration and licensing, unscrupulous or incompetent MLOs may be able to move from job to job to escape the consequences of their actions. For MLOs at nonbank lenders, the process of becoming licensed and registered in a state can be time intensive, involving criminal background checks and prelicensing education. This could potentially be problematic for individuals moving (1) from a bank lender to a nonbank lender, or (2) from a nonbank lender in one state to a nonbank lender in another state. To address transition issues, Section 106 provides grace periods to allow individuals who are transferring positions in the situations mentioned above (and meet other performance criteria, such as not having previously had his or her license revoked or suspended) to become appropriately licensed and registered.", "", "In response to problems in the mortgage market when the housing bubble burst, the SAFE Act and the Dodd-Frank Act established new requirements for mortgage originators' licensing, registration, compensation, and training, among other practices. A mortgage originator is someone who, among other things, \"(i) takes a residential mortgage loan application; (ii) assists a consumer in obtaining or applying to obtain a residential mortgage loan; or (iii) offers or negotiates terms of a residential mortgage loan.\" The definition used in implementing the regulation in place at the time of the enactment of P.L. 115-174 excluded employees of manufactured-home retailers under certain circumstances, such as \"if they do not take a consumer credit application, offer or negotiate credit terms, or advise a consumer on credit terms.\" Section 107 expands the exception such that retailers of manufactured homes or their employees are not be considered mortgage originators if they do not receive more compensation for a sale that included a loan than for a sale that did not include a loan, and if they provide customers certain disclosures about their affiliations with other creditors.", "", "Section 108 exempts any loan made by a bank or credit union from certain escrow requirements if the institution has assets of $10 billion or less, originated fewer than 1,000 mortgage loans in the preceding year, and meets certain other criteria.\nAn escrow account is an account that a \"mortgage lender may set up to pay certain recurring property-related expenses ... such as property taxes and homeowner's insurance.\" Escrow accounts may only be used for the purpose they were created. For example, a mortgage escrow account can only be used to pay for expenses (such as property taxes) for that mortgage, not for the mortgage lender's general expenses. Escrow accounts provide a way for homeowners to make monthly payments for annual or semi-annual expenses. Maintaining escrow accounts for borrowers are potentially costly for some banks, such as certain small institutions.\nHigher-priced mortgage loans have been required to maintain an escrow account for at least one year pursuant to a regulation that was implemented before the Dodd-Frank Act. The Dodd-Frank Act, among other things, extended the amount of time an escrow account for a higher-priced mortgage loan must be maintained from one year to five years, although the escrow account can be terminated after five years if certain conditions are met. It also provided additional disclosure requirements.\nThe Dodd-Frank Act gave the CFPB the discretion to exempt from certain escrow requirements lenders operating in rural areas if the lenders satisfied certain conditions. The CFPB's escrow rule included exemptions from escrow requirements for lenders that (1) operate in rural or underserved areas; (2) extend 2,000 mortgages or fewer; (3) have less than $2 billion in total assets; and (4) do not escrow for any mortgage they service (with some exceptions). Additionally, a lender that satisfies the above criteria must intend to hold the loan in its portfolio to be exempt from the escrow requirement for that loan. Section 108 amends the exemption criteria such that a bank or credit union also are exempt from maintaining an escrow account for a mortgage as long as it has assets of $10 billion or less, originated fewer than 1,000 mortgage loans in the preceding year, and met certain other criteria.", "", "The Dodd-Frank Act directed the CFPB to combine mortgage disclosures required under the Truth in Lending Act (P.L. 90-321; TILA) and Real Estate Settlement Procedures Act ( P.L. 93-533 ; RESPA) into a TILA-RESPA Integrated Disclosure (TRID) form. On November 20, 2013, the CFPB issued the TRID final rule that would require lenders to use the streamlined disclosure forms. Under current law, a borrower generally must receive the disclosures at least three days before the closing of the mortgage. After receiving their required disclosures, borrowers have in some cases been offered new mortgage terms by their lender, which requires new disclosures and potentially delays their mortgage closing. Section 109 waives the three-day waiting period between a consumer receiving a mortgage disclosure and closing on the mortgage if a consumer receives an amended disclosure that includes a lower interest rate than was offered in the previous disclosure.\nSection 109 also expresses the sense of Congress that the CFPB should provide additional guidance on certain aspects of the final rule, such as whether lenders receive a safe harbor from liability if they use model disclosures published by the CFPB that do not reflect regulatory changes issued after the model forms were published.", "Title II of P.L. 115-174 is focused on providing regulatory relief to c ommunity bank s . Although small banks qualify for various exemptions from certain regulations, whether the regulations have been appropriately tailored is the subject of debate. Certain Title II provisions raise previous asset thresholds or create new ones at which banks and other depositories are exempt from regulation or otherwise qualify for reduced regulatory obligations.", "The term community bank typically refers to a small bank focused on a traditional commercial bank business of taking deposits and making loans to meet the financial needs of a particular community. Although conceptually size does not necessarily have to be a determining factor, community banks are nevertheless often identified as such based on having a small asset size. No consensus exists on what size limit is compatible with the community bank concept, and some observers doubt the effectiveness of size-based measures in identifying community banks.\nCommunity banks are more likely to be concentrated in core commercial bank businesses of making loans and taking deposits and less concentrated in other activities like securities trading or holding derivatives. Community banks also tend to operate within a smaller geographic area. Also, these banks are generally more likely to practice relationship lending , wherein loan officers and other bank employees have a longer-standing and perhaps more personal relationship with borrowers.\nDue in part to these characteristics, proponents of community banks assert that these banks are particularly important credit sources to local communities and otherwise underserved groups, as big banks may be unwilling to meet the credit needs of a small market of which they have little direct knowledge. If this is the case, imposing burdens on small banks that potentially restrict the amount of credit they make available could have a cost for these groups. In addition, relative to large banks, small banks individually pose less of a systemic risk to the broader financial system, and are likely to have fewer employees and resources to dedicate to regulatory compliance. Arguably, this means regulation aimed at systemic stability might produce little benefit at a high cost when applied to these banks.\nThus, one rationale for easing the regulatory burden for community banks would be that regulation intended to increase systemic stability need not be applied to such banks since they individually do not pose a risk to the entire financial system. Sometimes the argument is extended to assert that because small banks did not cause the 2007-2009 crisis and pose less systemic risk, they need not be subject to new regulations.\nAnother potential rationale for easing regulations on small banks would be if there are economies of scale to regulatory compliance costs, meaning that as banks become bigger, their costs do not rise as quickly as asset size. From a cost-benefit perspective, if regulatory compliance costs are subject to economies of scale, then the balance of costs and benefits of a particular regulation will depend on the size of the bank. Although regulatory compliance costs are likely to rise with size, those costs as a percentage of overall costs or revenues are likely to fall. In particular, as regulatory complexity increases, compliance may become relatively more costly for small firms. Empirical evidence on whether compliance costs are subject to economies of scale is mixed. Some argue for reducing the regulatory burden on small banks on the grounds that they provide greater access to credit or offer credit at lower prices than large banks for certain groups of borrowers. These arguments tend to emphasize potential market niches small banks occupy that larger banks may be unwilling to fill. For these reasons, community banks differ from large institutions in a number of ways besides size that arguably could result in their being subject to certain regulations that are unduly burdensome —meaning the benefit of the regulation does not justify the cost.\nOther observers assert that the regulatory burden facing small banks is appropriate, citing the special regulatory emphasis already given to minimizing small banks' regulatory burden. For example, during the rulemaking process, bank regulators are required to consider the effect of rules on small banks. In addition, they note that many regulations already include an exemption for small banks or are tailored to reduce the cost for small banks to comply. Supervision is also structured to put less of a burden on small banks than larger banks, such as by requiring less frequent bank examinations for certain small banks. Furthermore, they counter that although small institutions were not a major cause of the past crisis, they did play a prominent role in the savings and loan crisis of the late 1980s, a systemic event that cost taxpayers $124 billion, according to one analysis. Also, they note that systemic risk is only one of the goals of regulation, along with prudential regulation and consumer protection, and argue that the failure of hundreds of banks during the crisis illustrates that precrisis prudential regulation for small banks was not stringent enough.", "This section reviews eight provisions in Title II that amend various laws and regulations that affect depositories, including banks, federal savings associations, and credit unions. Although some provisions relax certain regulations for all banks, Title II provisions are generally aimed at providing regulatory relief to institutions under certain asset thresholds. Several sections amend prudential regulation rules, including minimum capital requirements and the Volcker Rule, whereas others are designed to reduce supervisory requirements by decreasing exam frequency and reporting requirements for small banks. Other sections in Title II are related to public housing, insurance, and the National Credit Union Administration and are described in the \" Miscellaneous Proposals in P.L. 115-174 \" section.", "", "Section 201 directs regulators to develop a Community Bank Leverage Ratio (CBLR) and set a threshold ratio of between 8% and 10% capital to unweighted assets—compared with the general leverage ratio requirement of 5%—to be considered well capitalized. If a bank with less than $10 billion in assets maintains a CBLR above that threshold, it will be exempt from all other leverage and risk-based capital requirements. Banking regulators may determine that an individual bank with under $10 billion in assets is not eligible to be exempt based on its risk profile.", "Capital—defined by the legislation as tangible equity (e.g., ownership shares) —gives a bank the ability to absorb losses without failing, and regulators set minimum amounts a bank must hold. These capital requirements are expressed as capital ratio requirements —ratios of a bank's assets and capital. The ratios are generally one of two main types—a risk-weighted capital ratio or a leverage ratio. Risk-weighted ratios assign a risk weight—a number based on the riskiness of the asset that the asset value is multiplied by—to account for the fact that some assets are more likely to lose value than others. Riskier assets receive a higher risk weight, which requires banks to hold more capital—to better enable them to absorb losses—to meet the ratio requirement. In contrast, leverage ratios treat all assets the same, requiring banks to hold the same amount of capital against the asset regardless of how risky each asset is.\nWhether multiple risk-based capital ratios should be replaced with a single leverage ratio is subject to debate. Some observers argue that it is important to have both risk-weighted ratios and a leverage ratio because the two complement each other. Riskier assets generally offer a greater rate of return to compensate the investor for bearing more risk. Without risk weighting, banks may have an incentive to hold riskier assets because the same amount of capital would be required to be held against risky, high-yielding assets and safe, low-yielding assets. Therefore, a leverage ratio alone—even if set at higher levels—may not fully account for a bank's riskiness because a bank with a high concentration of very risky assets could have a similar ratio to a bank with a high concentration of very safe assets.\nHowever, others assert the use of risk-weighted ratios should be optional, provided a high leverage ratio is maintained. Risk weights assigned to particular classes of assets could potentially be an inaccurate estimation of some assets' true risk, especially because they cannot be adjusted as quickly as asset risk might change. Banks may have an incentive to overly invest in assets with risk weights that are set too low (they would receive the high potential rate of return of a risky asset, but have to hold only enough capital to protect against losses of a safe asset), or inversely to underinvest in assets with risk weights that are set too high. Some observers believe that the risk weights in place prior to the financial crisis were poorly calibrated and \"encouraged financial firms to crowd into\" risky assets, exacerbating the downturn. For example, banks held highly rated mortgage-backed securities (MBSs) before the crisis, in part because those assets offered a higher rate of return than other assets with the same risk weight. MBSs then suffered unexpectedly large losses during the crisis.\nSome critics of the current requirements are especially opposed to their application to small banks. They argue that the risk-weighted system involves \"needless complexity\" and is an example of regulator micromanagement. Furthermore, they say, that complexity could benefit the largest banks that have the resources to absorb the added regulatory cost compared with small banks that could find compliance costs relatively more burdensome. Thus, they contend that a simpler system should be implemented for small banks to avoid giving large banks a competitive advantage over them.\nIn its cost estimate, CBO assumed that regulators would select a 9% leverage ratio and estimates that 70% of community banks will opt in to the new leverage regime. As a result, they forecasted that some community banks would take on more risk and increase the likelihood that more community banks will fail than would under the general capital and leverage ratio regime. CBO estimated that this will raise costs to the Deposit Insurance Fund by $240 million, about half of which would be offset by higher insurance premiums over the 10-year budget window.\nFor further information on leverage and capital ratios, see CRS In Focus IF10809, Financial Reform: Bank Leverage and Capital Ratios , by [author name scrubbed].", "", "Section 202 makes reciprocal deposits —deposits that two banks place with each other in equal amounts—exempt from the prohibitions against taking brokered deposits faced by banks that are not well capitalized (i.e., those that may hold enough capital to meet the minimum requirements, but not by the required margins to be classified as well capitalized), subject to certain limitations.", "Certain deposits at banks are not placed there by individuals or companies utilizing the safekeeping, check writing, and money transfer services the banks provide. Instead, brokered deposits are placed by a third-party broker that places clients' savings in accounts paying higher interest rates. Regulators consider these deposits less stable, because brokers are more willing to withdraw them and move them to another bank than individuals and companies who face higher switching costs and inconvenience when switching banks (e.g., filling out and submitting new direct deposit forms to one's employer, getting new checks, and changing automatic bill payment information). Due to these characteristics, regulators generally prohibit not-well-capitalized banks from accepting brokered deposits in order to limit potential losses to the Federal Deposit Insurance Corporation (FDIC) in the event the bank fails.\nSection 202 allows certain not-well-capitalized banks to accept a particular type of brokered deposit called r eciprocal deposits , an arrangement between two banks in which each bank places a portion of its own customers' deposits with the other bank. Generally, the purpose of this transaction is to ensure that large accounts stay under the $250,000-per-account deposit insurance limit, with any amount in excess of the limit placed in a separate account at another bank. Like other brokered deposits, reciprocal deposits are funding held by a bank that does not have a relationship with the underlying depositors. However, reciprocal deposits differ from other brokered deposits in that if reciprocal deposits are withdrawn from a bank, the bank receives its own deposits back and thus may better maintain its funding.\nCBO estimated that Section 202 would increase the budget deficit by $25 million over 10 years because permitting reciprocal deposits will increase deposit insurance payouts from bank failures, imposing losses on the FDIC insurance fund that would not fully be offset by higher deposit insurance premiums within the 10-year budget window.", "", "Section 203 creates an exemption from prohibitions on propriety trading—owning and trading securities for the bank's own portfolio with the aim of profiting from price changes—and relationships with certain investment funds for banks with (1) less than $10 billion in assets, and (2) trading assets and trading liabilities less than 5% of total assets. Pursuant to Section 619 of the Dodd-Frank Act, often referred to as the \"Volcker Rule,\" bank organizations generally face these prohibitions. In addition to Section 203's exemption for small banks, Section 204 eases certain Volcker Rule restrictions on all bank entities, regardless of size, related to sharing a name with hedge funds and private equity funds they organize.", "The Volcker Rule generally prohibits banking entities from engaging in proprietary trading or sponsoring a hedge fund or private equity fund. Proponents of the rule argue that proprietary trading adds further risk to the inherently risky business of commercial banking. Furthermore, they assert that other types of institutions are very active in proprietary trading and better suited for it, so bank involvement in these markets is unnecessary for the financial system. Finally, proponents assert moral hazard is problematic for banks in these risky activities. Because deposits—an important source of bank funding—are insured by the government, a bank could potentially take on excessive risk without concern about losing this funding. Thus, support for the Volcker Rule has often been posed as preventing banks from \"gambling\" in securities markets with taxpayer-backed deposits.\nSome observers doubt the necessity and the effectiveness of the Volcker Rule in general. They assert that proprietary trading at commercial banks did not play a role in the financial crisis, noting that issues that played a direct role in the crisis—including failures of large investment banks and insurers, and losses on loans held by commercial banks—would not have been prevented by the rule. In addition, although the activities prohibited under the Volcker Rule pose risks, it is not clear whether they pose greater risks to bank solvency and financial stability than \"traditional\" banking activities, such as mortgage lending. Taking on additional risks in different markets potentially could diversify a bank's risk profile, making it less likely to fail. Some contend the rule poses practical supervisory problems. The rule includes exceptions for when bank trading is deemed appropriate—such as when a bank is hedging against risks and market-making—and differentiating among these motives creates regulatory complexity and compliance costs that could affect bank trading behavior.\nIn addition to the broad debate over the necessity and efficacy of the Volcker Rule, whether small banks should be subjected to the rule is also a debated issue. Proponents of the rule contend that the vast majority of community banks do not face compliance obligations under the rule, and so do not face an excessive burden by being subject to it. They argue that those community banks that are subject to compliance obligations can comply simply by having clear policies and procedures in place that can be reviewed during the normal examination process. In addition, they assert the small number of community banks that are engaged in complex trading should have the expertise to comply with the Volcker Rule.\nOthers argue that the act of evaluating the Volcker Rule to ensure banks' compliance is burdensome in and of itself. They support a community bank exemption so that community banks and supervisors do not have to dedicate resources to complying with and enforcing a regulation whose rationale is unlikely to apply to smaller banks.", "", "Section 205 directs the federal banking agencies to issue regulations to reduce the reporting requirements that banks with assets under $5 billion must comply with in the first and third quarters of the year. Currently, all banks must submit a report of condition and income to the federal bank agencies at the end of every financial quarter of the year, sometimes referred to as a \"call report.\" Completing the call report involves entering numerous values into forms or \"schedules\" in order to provide the regulator with a detailed accounting of many aspects of each bank's income, expenses, and balance sheet. The filing requires an employee or employees to dedicate time to the exercise and in some cases banks purchase certain software products that assist in the task. Section 205 directs the regulators to shorten or simplify the reports banks with assets under $5 billion file in the first and third quarter.\nFor more information about bank supervision, including a discussion about bank financial reporting, see CRS In Focus IF10807, Financial Reform: Bank Supervision , by [author name scrubbed] and [author name scrubbed].", "", "Section 206 creates a mechanism for federal savings associations (or \"thrifts\") with under $20 billion in assets to opt out of the federal thrift regulatory regime and enter the national bank regulatory regime without having to go through the process of changing their charter. An institution that makes loans and takes deposits can have one of several types of charters—including a national bank charter and federal savings association charter, among others—each of which subjects the institutions to regulations that can differ in certain ways. Without this provision, if an institution wanted to switch from one regime to another, it would have to change its charter.\nHistorically, thrifts were intended to be institutions focused on residential home mortgage lending, and as such they are subject to regulatory limitations on how much of other types of lending they can do. Certain thrifts may want to expand their lending in other business lines, but be unable to do so because of these limitations. Without the mechanism provided by Section 206, if a thrift wanted to exceed the limitations, it would have to convert its charter to a national bank charter, which could potentially be costly.\nFor more information on federal thrift chartering issues, see CRS In Focus IF10818, Financial Reform: Savings Associations or \"Thrifts\" , by [author name scrubbed] and [author name scrubbed].", "", "Section 207 raises the asset threshold in the Federal Reserve Small Bank Holding Company (BHC) and Small Saving and Loan Holding Company Policy Statement from $1 billion to $3 billion in total assets. In the policy statement, the Federal Reserve permits BHCs under the asset threshold to take on more debt in order to complete a merger (provided they meet certain other requirements concerning nonbank activities, off-balance-sheet exposures, and debt and equities outstanding) than would be allowed for a larger BHC. In addition, Section 171 of the Dodd-Frank Act (sometimes referred to as the \"Collins Amendment\") exempts BHCs subject to this policy statement from the requirement that banking organizations meet the same capital requirements at the holding company level that depository subsidiaries face. The significance of the Collins Amendment arguably depends on the extent to which a BHC has activities in nonbank subsidiaries, and many small banks do not have substantial activities in nonbank subsidiaries.\nFor more information on the Federal Reserve's Small Bank Holding Company Policy Statement, see CRS In Focus IF10837, Financial Reform: Small Bank Holding Company Threshold , by [author name scrubbed] and [author name scrubbed].", "", "Section 210 raises the asset threshold below which banks can become eligible for an 18-month examination cycle instead of a 12-month cycle from $1 billion to $3 billion. Generally, federal bank regulators must conduct an on-site examination of the banks they oversee at least once in each 12-month period. However, if a bank below the asset threshold meets certain criteria related to capital adequacy and scores received on previous examinations, then it can be examined only once every 18 months. Raising this threshold allows more banks to be subject to less frequent examination.\nFor more information about bank supervision, including a discussion about bank examinations, see CRS In Focus IF10807, Financial Reform: Bank Supervision , by [author name scrubbed] and [author name scrubbed].", "", "Section 213 permits financial institutions to use a scan of, make a copy of, or receive the image of a driver's license or identification card to record the personal information of a person requesting to open an account or for some other service through the internet.", "", "Section 214 allows banks to classify certain credit facilities (e.g., business loans, revolving credit, and lines of credit) that finance the acquisition, development, or construction of commercial properties as regular commercial real estate exposures instead of high volatility commercial real estate (HVCRE) exposures for the purposes of calculating their risk-weighted capital requirements, previously discussed in the Section 201 \" Analysis \" section. Prior to the enactment of P.L. 115-174 , banks generally were required to classify facilities financing commercial real estate projects as HVCRE, unless the developer contributed capital of at least 15% of the estimated \"as completed value\" of the project. Under that rule, capital included cash, unencumbered readily marketable assets, and out of pocket-expenses. Being classified as HVCRE means the exposure must be given a risk weight of 150% instead of the 100% weight given to other CRE exposures, thus requiring banks to hold more capital to finance those projects.\nSection 214 offers a number of additional avenues for commercial real estate exposures to avoid or shed HVCRE status. It allows the appraised value of the property being developed to count as a capital contribution, providing another avenue for projects to reach the minimum 15% threshold. In addition, Section 214 allows certain credit facilities financing the acquisition or improvement of already-income-producing properties to avoid classification as HVCRE, provided the cash flow is sufficient to support the property's debt service and other expenses. Finally, a HVCRE could achieve reclassification when the property development is substantially completed or when it begins generating cash flow sufficient to support the property's debt service and other expenses. A lower capital requirement gives banks greater incentive to make HVCRE loans, but provides banks with less capital cushion against potential losses on what has been historically a risky category of lending.\nFor further information on leverage and capital ratios, see CRS In Focus IF10809, Financial Reform: Bank Leverage and Capital Ratios , by [author name scrubbed].", "Title III, Title VI, and Section 215 of Title II are intended to address various consumer protection challenges facing the credit reporting industry and borrowers in certain credit markets, such as active duty servicemembers, veterans, student borrowers, and borrowers funding energy efficiency projects.", "", "The credit reporting industry collects and subsequently provides information to companies about behavior when consumers conduct various financial transactions. A credit report typically includes information related to a consumer's identity (such as name, address, and Social Security number), existing or recent credit transactions (including credit card accounts, mortgages, and other forms of credit), public record information (such as court judgments, tax liens, or bankruptcies), and credit inquiries made about the consumer.\nCredit reports are prepared by credit reporting agencies (CRAs). The three largest CRAs—Equifax, TransUnion, and Experian—are the most well-known, but they are not the only CRAs. Approximately 400 smaller CRAs either are regional or specialize in collecting specific types of information or information for specific industries, such as information related to payday loans, checking accounts, or utilities.\nCompanies use credit reports to determine whether consumers have engaged in behaviors that could be costly or beneficial to the companies. For example, lenders rely upon credit reports and scoring systems to determine the likelihood that prospective borrowers will repay mortgage and other consumer loans. Insured depository institutions (i.e., banks and credit unions) rely on consumer data service providers to determine whether to make checking accounts or loans available to individuals. Insurance companies use consumer data to determine what insurance products to make available and to set policy premiums. Employers may use consumer data information to screen prospective employees to determine, for example, the likelihood of fraudulent behavior. In short, numerous firms rely upon consumer data to identify and evaluate the risks associated with entering into financial relationships or transactions with consumers.\nMuch of what is thought of as the business of credit reporting is regulated through the Fair Credit Reporting Act (FCRA; P.L. 91-508). The FCRA requires \"that consumer reporting agencies adopt reasonable procedures for meeting the needs of commerce for consumer credit, personnel, insurance, and other information in a manner which is fair and equitable to the consumer, with regard to the confidentiality, accuracy, relevancy, and proper utilization of such information.\" The FCRA establishes consumers' rights in relation to their credit reports, as well as permissible uses of credit reports. For example, the FCRA requires that consumers be told when their information from a CRA has been used after an adverse action (generally a denial of a loan) has occurred, and disclosure of that information must be made free of charge. Consumers have a right to one free credit report every year from each of the three largest nationwide credit reporting providers in the absence of an adverse action. Consumers have the right to dispute inaccurate or incomplete information in their report. The CRAs must investigate and correct, usually within 30 days. The FCRA also imposes certain responsibilities on those who collect, furnish, and use the information contained in consumers' credit reports.\nAlthough the FCRA originally delegated rulemaking and enforcement authority to the Federal Trade Commission (FTC), the Dodd-Frank Act transferred that authority to the Consumer Financial Protection Bureau. The CFPB coordinates its enforcement efforts with the FTC's enforcements under the Federal Trade Commission Act. Since 2012, the CFPB has subjected the \"larger participants\" in the consumer reporting market to supervision . Previously, CRAs were not actively supervised for FCRA compliance on an ongoing basis.\nHow consumers' personal information is used and protected has been an area of concern. For example, if a fraudster is able to obtain a consumer's personal identifying information he or she could \"steal\" that person's identity, using it to obtain credit with no intention of repaying. The unpaid debt would then appear on the consumer's credit report, making him or her appear uncreditworthy and potentially resulting in a denial of credit or other adverse outcomes. In September 2017, Equifax announced a security breach in which the sensitive information of an estimated 145.5 million U.S. consumers was potentially compromised, which highlighted the importance of this issue.", "Active duty military members are subject to sudden and often times dangerous deployments and assignments that require them to be away from home in a way that is unique from other professions and could adversely affect servicemembers' ability to meet financial obligations. As a result, a number of U.S. laws dating at least as far back as World War I are designed to ease the financial burden on military members and protect them from being financially mistreated. More recently, the Servicemembers Civil Relief Act (SCRA; P.L. 108-189 ) amended and expanded certain protections for active duty servicemembers. However, some observers assert servicemembers remain inadequately protected in certain transactions and markets, including in the reporting of medical debt to credit reporting agencies, home mortgage refinancing, and mortgage foreclosures.", "Aggregate student loan debt in the United States has increased markedly over time. According to the U.S. Department of Education (ED), \"[a]verage tuition prices have more than doubled at U.S. colleges and universities over the past three decades, and over this time period a growing proportion of students borrowed money to finance their postsecondary education \" The ED's Federal Student Aid Data Center estimated that the total amount of outstanding federal student loan debt exceeded $1.37 trillion at the end of the 2017 fiscal year.\nAs overall student loan indebtedness has increased, some studies have suggested that repayment burdens facing many borrowers and co-signers have also increased. For example, statistics published by ED suggest that many borrowers face an average educational debt burden that exceeds the \"manageable percentage of income that a borrower can\" realistically \"be expected to devote to loan payment,\" although other studies have come to different conclusions. This has led some observers to broadly question whether appropriate protections are in place in this market. A specific area of concern are private student loans, which generally are not required to offer the same repayment relief, loan rehabilitation, and loan discharge options that are offered in federal student loans.", "", "", "Section 215 directs the Social Security Administration (SSA) to allow certain financial institutions to receive customers' consent by electronic signature to verify their name, date of birth, and Social Security number with SSA. In addition, the section directs SSA to modify their databases or systems to allow for the financial institutions to electronically and quickly request and receive accurate verification of the consumer data.\nSome identity thefts use a technique called synthetic identity theft in which they apply for credit using a mixture of real, verifiable information of an existing person with fictitious information, thus creating a \"synthetic\" identity. Often these identity thieves use real Social Security numbers of people they know are unlikely to have existing credit files, such as children or recent immigrants. The SSA Consent-Based Social Security Number Verification system was created to fight identity fraud such as this, but prior to the enactment of P.L. 115-174 it required financial institutions to obtain a physical written signature to make a verification request. Some observers feel this requirement is outdated and time consuming, undermining the effectiveness of the program. Section 215 aims to modernize and make the SSA's verification system more efficient by allowing the use of electronic signatures.", "", "Section 301 amends the FCRA to require credit bureaus to provide fraud alerts for consumer files for at least one year (up from 90 days) when notified by an individual who believes he or she has been or may become a victim of fraud or identity theft. It also provides consumers the right to place (and remove) a security freeze on their credit reports free of charge. In addition, Section 301 creates new protections for the credit reports of minors.\nA fraud alert is the inclusion in an individual's report, at the request of the individual, of a notice that the individual has reason to believe they might be the victim of fraud or identity theft. Generally, when a lender receives a credit report on a prospective borrower that includes a fraud alert, the lender must take reasonable steps to verify the identity of the prospective borrower, thus making it more difficult for a fraudster or identity thief to take out loans using the victim's identity. Prior to the enactment of P.L. 115-174 , when an individual requested a fraud alert, the CRAs were required to include the alert in the credit report for 90 days, unless the individual asked for its removal sooner. Section 301 increases this period to one year.\nA security freeze can be placed on an individual's credit report at the request of the individual (or in the case of a minor, at the request of an authorized representative), and generally prohibits the CRAs from disclosing the contents of the credit report for the purposes of new extensions of credit. If a consumer puts a security freeze on his or her credit report, it would make it harder to fraudulently open new credit lines using that consumer's identity.", "By lengthening the time fraud alerts stay on credit reports and by allowing consumers to place security freezes on their credit reports, Section 301 gives consumers the ability to make it more difficult for identity thieves to get credit using a victim's identity. Reducing the prevalence of erroneous information appearing on credit reports as a result of fraud would reduce the occurrence of defrauded consumers being denied credit on the basis of erroneous information. However, these protections can create some potential costs for lenders and consumers. While a fraud alert is active, the increased verification requirements could potentially increase costs for the lender. A security freeze restricts the use of credit report information in a credit transaction, reducing the information available to lenders and possibly reducing the consumer's access to credit. Although requesting a fraud alert or credit freeze be turned off or \"lifted\" during a period when a consumer expects to apply for new credit is not especially difficult, doing so is an additional step facing consumers seeking credit and requires some time and attention.\nSection 301 also is related to broader debates over the availability, use, and control of personal financial information. Information that financial institutions and service providers have about consumers allows those firms to make better assessments of the consumers' needs and creditworthiness. Credit reports that contain accurate and complete information may improve the efficiency of consumer credit markets, potentially reducing the cost of consumer credit and the frequency of loan default while also increasing the availability of credit. However, as availability of personal financial information increases, it raises questions about what control individuals have over their own personal, sensitive financial information, particularly in cases in which firms use the information to make adverse decisions against an individual and in which an individual's information is in some way compromised as in the case of fraud. By requiring CRAs to place security freezes at the request of consumers and lengthening the time fraud alerts placed by consumers stay on their reports, Section 301 gives greater control to individuals over how and when their credit reports are used.", "", "Section 302 amends the FCRA to mandate that certain information related to certain medical debt incurred by a veteran be excluded from the veteran's credit report. This medical debt cannot be included in the credit report until one year had passed from when the medical service was provided. The CRAs have already implemented a six-month delay on reporting medical debt for all individuals, so Section 302 gives veterans an additional six months before their medical debts are reported. In addition, Section 302 requires that any information related to medical debt that had been characterized as delinquent, charged off, or in collection be removed once the debt was fully paid or settled. Furthermore, Section 302 establishes a dispute process for veterans wherein a CRA must remove information related to a debt if the veterans notifies and provides documentation to a CRA showing that the Department of Veterans Affairs is in the process of making payment. Finally, Section 302 requires credit reporting agencies to free credit monitoring to active duty military members that would alert them to material changes in their credit scores.", "", "Section 303 protects certain financial institution employees from liability for disclosing suspected fraudulent or unauthorized use of the resources or assets of a person 65 years of age or older by another individual, such as a caregiver or fiduciary.", "", "Section 304 repeals the sunset provision of the Protecting Tenants at Foreclosure Act ( P.L. 111-22 ), which expired at the end of 2014, thus restoring certain notification and eviction requirements related to renters living in foreclosed-upon properties.", "", "Section 307 requires the CFPB to issue regulations requiring creditors to assess a borrower's ability to repay a home improvement loan that is financed through a property lien and included in real property tax payments.\nSome states have encouraged retrofitting homes through Property Assessed Clean Energy (PACE) financing programs that allow state and local governments to issue bonds and use the funds raised to finance residential, commercial, or industrial energy efficiency and renewable energy projects. The proceeds from PACE bonds are lent to property owners, who use the funds to invest in energy efficiency upgrades or renewable energy property. The loans are added to property tax bills through special assessments and paid off over time. PACE programs offer an alternative to traditional loans and repayments. Some observers have expressed concerns that PACE loans could lead to mortgage defaults, as PACE loans often have relatively high interest rates compared with home-purchase loans. To address this issue, Section 307 extends consumer protections of the ability-to-repay requirement to PACE loans.", "", "Section 309 enhances consumer protections for veterans when they refinance housing loans by (1) placing restrictions on the new loan terms to keep refinancing costs reasonable and (2) requiring lenders to provide borrowers with information illustrating how the borrower benefits from a refinancing. These protections are designed to address the practice of offering veterans with VA-backed loans—which have more relaxed credit score standards than other mortgages and typically have no down payment requirement—lower monthly payments but charging them deceptively high upfront fees. Section 309 requires the VA to only insure or guarantee refinancing that met certain standards. For example, the borrower must be able to \"recoup\" upfront fees in the form of lower monthly payments within 36 months; the new interest rate must be a certain minimum level below the rate of the original loan; and the lender must provide the borrower with a net tangible benefit test demonstrating that the borrower would benefit from the refinancing. In addition, Section 309 directs the VA to provide annual reports to Congress on market activity pertaining to certain veteran mortgage refinancing.", "", "Section 310 requires Fannie Mae and Freddie Mac to solicit applications to evaluate additional credit scores to their mortgage underwriting (evaluating) process. In addition, it directs Fannie Mae and Freddie Mac to establish approval criteria in the areas of integrity, reliability, and accuracy. Fannie Mae, Freddie Mac, and the Federal Housing Finance Agency could add additional requirements.\nCurrently, when determining whether to buy a mortgage, Fannie Mae and Freddie Mac use a particular version of a Fair Isaac Corporation's FICO credit scoring model that was first developed in the late 1990s. This version, sometimes called classic FICO , is used to score a homebuyer's credit files from each of the three major credit reporting agencies (Experian, Equifax, and TransUnion). Some observers see shortcomings with how this score is calculated, including its lack of consideration of rent, utility, and cell phone payments, and believe it to be outdated. Fair Isaac has recently developed new credit scores, and a company owned by the three major credit reporting agencies has developed another called the VantageScore. Furthermore FHFA, Fannie Mae, and Freddie Mac are evaluating the merits of the various scores, and FHFA issued a request for feedback about issues that they should consider in evaluating various scoring options, which closed on March 30, 2018. Section 310 directs Fannie Mae and Freddie Mac to create a process by which other credit models can be approved and validated for use in their mortgage purchase decisions.", "", "Section 313 makes permanent the length of the one-year protection period active duty servicemembers have against the sale, foreclosure, or seizure of their mortgage properties. The Servicemembers Civil Relief Act (SCRA; P.L. 114-142 ) grants protections pertaining to the sale, foreclosure, or seizure of a servicemember's mortgaged property. Specifically, a legal action to enforce a real estate debt against a servicemember on \"active duty\" or \"active service\" (or a spouse or dependent of a servicemember) may be stopped by a court if such action occurs within a certain protection period (unless the creditor has obtained a valid court order). The original length of the protection period was 90 days from the servicemember's end of active service. Congress temporarily extended the protection period pursuant to the SCRA to one year at various times, most recently in the National Defense Authorization Act for Fiscal Year 2018 enacted on December 12, 2017 (as P.L. 115-91 ). Absent the enactment of P.L. 115-174 , the protection period would have reverted to 90 days on January 1, 2020.", "", "Section 601 enhances consumer protections for student borrowers and cosigners of student loans by (1) prohibiting lenders from declaring automatic default in the case of death or bankruptcy of the co-signer; and (2) requiring lenders to release cosigners from obligations related to a student loan in the event of the death of the student borrower. Prior to the enactment of P.L. 115-174 , a private lender could declare an otherwise performing student loan as being in default if the cosigner—typically a parent of the student who shares the obligation to repay the loan—declares bankruptcy or dies. In addition, whereas a federal student loan had to be discharged when the primary student borrower died, a private lender of a student loan could potentially require the cosigner to continue paying the loan.", "", "Section 602 amends the FCRA to allow a consumer to request that information related to a default on a qualified private student loan be removed from a credit report if the borrower satisfies the requirements of a loan rehabilitation program offered by a private lender (with the approval of prudential regulators).\nBorrowers who default on some federal student loan programs (defined as not having made a payment in more than 270 days ) have a one-time loan rehabilitation option. If the defaulted borrower makes nine on-time monthly payments during a period of 10 consecutive months, the loan is considered rehabilitated. The borrower's credit report would then be updated to show that the loan is no longer in default, although the information pertaining to the late payments that led up to the rehabilitation generally would still remain on the report for seven years. Students who default on private loans do not necessarily have a similar rehabilitation option. Section 307 does not require banks to offer rehabilitations, but each bank has the discretion to do so in light of various business, accounting, and regulatory considerations. If a financial institution does choose to offer a rehabilitation program—after getting permission from its federal bank regulator—and the consumer completes the terms of the program, Section 307 allows for the exclusion of default information related to the rehabilitated loan from the consumer's credit report.", "Title IV is intended to provide regulatory relief to certain large banks. In general, there is widespread agreement that the largest, most complex financial institutions whose failure could pose a risk to the stability of the financial system should be regulated differently than other institutions. However, identifying which institutions fit this description and how their regulatory treatment should differ are subjects of debate.", "The 2007-2009 financial crisis highlighted the problem of \"too big to fail\" (TBTF) financial institutions—the concept that the failure of a large financial firm could trigger financial instability, which in several cases prompted extraordinary federal assistance to prevent their failure. In addition to fairness issues, economic theory suggests that expectations that a firm will not be allowed to fail create moral hazard —if the creditors and counterparties of a TBTF firm believe that the government will protect them from losses, they have less incentive to monitor the firm's riskiness because they are shielded from the negative consequences of those risks.\nEnhanced prudential regulation is one pillar of the policy response for addressing financial stability and ending TBTF. Under this regime, the Fed is required to apply a number of safety and soundness requirements to large banks that are more stringent than those applied to smaller banks. Enhanced regulation is tailored, with the largest banks facing more stringent regulatory requirements than medium-sized and smaller banks. Specifically, under criteria set by Dodd-Frank and the Basel III accords, organizations were divided into the following three tiers that determine which enhanced regulations they are subject to\n1. about 38 U.S. bank holding companies or the U.S. operations of foreign banks with more than $50 billion in assets; 2. a subset of 15 a dvanced a pproaches banks with $250 billion or more in assets or $10 billion or more in foreign exposure; and 3. a further subset of g lobally s ystemically i mportant b anks (G-SIBs), designated as such based on a bank's cross-jurisdictional activity, size, interconnectedness, substitutability, and complexity. There are currently 8 G-SIBs headquartered in the United States out of 30 G-SIBs worldwide.\nTitle I of the Dodd-Frank Act created a new enhanced prudential regulatory regime that applied to all banks with more than $50 billion in assets (unless noted below):\nStress tests and capital planning ensure banks hold enough capital to survive a crisis. Living wills provide a plan to safely wind down a failing bank. Liquidity requirements ensure that banks are sufficiently liquid if they lose access to funding markets. These liquidity requirements are being implemented through three rules: (1) a 2014 final rule implementing firm-run liquidity stress tests, (2) a 2014 final rule implementing a Fed-run liquidity coverage ratio (LCR) to ensure that banks hold sufficient \"high quality liquid assets,\" and (3) a 2016 proposed rule that would implement the Fed-run net stable funding ratio (NSFR) to ensure that banks have adequate sources of stable funding. Counterparty limits restrict the bank's exposure to counterparty default through a single counterparty credit limit (SCCL) and credit exposure reports. Risk management standards require publicly traded companies with more than $10 billion in assets to have risk committees on their boards, and banks with more than $50 billion in assets to have chief risk officers. F inancial stability requirements mandate that a number of regulatory interventions can be taken only if a bank poses a threat to financial stability. For example, the Fed may limit a firm's mergers and acquisitions, restrict specific products it offers, terminate or limit specific activities, or require it to divest assets. Other emergency powers include a 15 to 1 debt to equity ratio; FSOC reporting requirements; early remediation requirements; and enhanced FDIC examination and enforcement powers.\nMost of these requirements were already in place at the time of enactment of P.L. 115-174 , but some proposed rules had not yet been finalized. Some of these requirements had been tailored so that more stringent regulatory or compliance requirements were applied to advanced approaches banks or G-SIBs. For example, versions of the LCR, NSFR, and SCCL applied to advanced approaches banks are more stringent than those applied to banks with more than $50 billion in assets that are not advanced approaches banks. The SCCL as proposed also includes a third, most stringent requirement that applies only to G-SIBs.\nPursuant to Basel III, banking regulators have implemented additional prudential regulations that apply only to large banks. For these requirements, $50 billion in assets was not used as a threshold. The following requirement applies to advanced approaches banks, with a more stringent version applied to G-SIBs, and are affected by a provision in P.L. 115-174 :\nS upplementary L everage R atio (SLR) . Leverage ratios determine how much capital banks must hold relative to their assets without adjusting for the riskiness of their assets. Advanced approaches banks must meet a 3% SLR, which includes off-balance-sheet exposures. G-SIBs are required to meet an SLR of 5% at the holding company level in order to pay all discretionary bonuses and capital distributions and 6% at the depository subsidiary level to be considered well capitalized as of 2018.\nLarge banks are also subject to other Basel III regulations that are not directly affected by P.L. 115-174 . The c ountercyclical c apital b uffer requires advanced approaches banks to hold more capital than other banks when regulators believe that financial conditions make the risk of losses abnormally high. It is currently set at zero (as it has been since it was introduced), but can be modified over the business cycle. The G -SIB c apital s urcharge requires G-SIBs to hold relatively more capital than other banks in the form of a common equity surcharge of at least 1% and as high as 4.5% to \"reflect the greater risks that they pose to the financial system.\" G-SIBs are also required to hold a minimum amount of capital and long-term debt at the holding company level to meet t otal loss-absorbing c apacity (TLAC) requirements. To further the policy goal of preventing taxpayer bailouts of large financial firms, TLAC requirements are intended to increase the likelihood that equity- and debt-holders can absorb losses and be \"bailed in\" in the event of the firm's insolvency.", "", "", "Section 401 of P.L. 115-174 automatically exempts banks with assets between $50 billion and $100 billion from enhanced regulation, except for the risk committee requirements. Banks with between $100 billion and $250 billion in assets will still be subject to supervisory stress tests, and the Fed has discretion to apply other individual enhanced prudential provisions (except for most of those included in the \"Financial Stability\" bullet above) to these banks if it would promote financial stability or the institutions' safety and soundness. Banks that have been designated as domestic G-SIBs and banks with more than $250 billion in assets remain subject to enhanced regulation. To illustrate how specific firms might be affected by P.L. 115-174 , Table 2 matches the criteria found in the three categories created by the legislation to firms' assets as of September 30, 2017. The $250 billion threshold matches one of the two thresholds used to identify advanced approaches banks (it does not include the foreign exposure threshold).\nPrior to the enactment of P.L. 115-174 , foreign banking organizations that have more than $50 billion in global assets and operate in the United States were also potentially subject to enhanced regulatory regime requirements. P.L. 115-174 replaces that threshold with $250 billion in global assets (with Fed discretion to impose individual standards between $100 billion and $250 billion). All of the IHCs in Table 2 belong to a foreign parent with more than $250 billion in global assets. During the period the threshold was set at $50 billion, the implementing regulations in practice imposed significantly lower requirements on foreign banks with less than $50 billion in U.S. nonbranch assets compared to those with more than $50 billion in U.S. nonbranch assets. Foreign banks with more than $50 billion in U.S. nonbranch assets must form intermediate holding companies (IHCs) for their U.S. operations, which are essentially treated as equivalent to U.S. banks for purposes of applicability of the enhanced regime and bank regulation more generally. The manager's amendment to P.L. 115-174 clarified that the increase in the $50 billion threshold to $250 billion would not invalidate the rule implementing an IHC, capital planning, stress tests, risk management, and liquidity requirements for banks with more than $100 billion in global assets and would not limit the Fed's authority to establish an IHC or implement enhanced prudential standards for banks with more than $100 billion in global assets. Thus, it remains at the discretion of the Fed how to tailor enhanced regulation for foreign banks with a smaller U.S. presence, including what IHC threshold to use.\nP.L. 115-174 makes tailoring of the regime (e.g., imposing different compliance standards on different banks) mandatory instead of discretionary. For banks with less than $100 billion in assets, Section 401 took effect immediately. For banks with more than $100 billion in assets, the changes take effect within 18 months of enactment, although the Fed has discretion to alter any prudential standard for banks with $100 billion to $250 billion in assets before that date.\nThe legislation also makes changes to specific enhanced prudential requirements. Section 401 gives regulators the discretion to reduce the number of scenarios used in stress tests. It also gives regulators the discretion to reduce the frequency of company-run stress tests and supervisory stress tests for banks with $100 billion to $250 billion in assets. It increases the asset thresholds for company-run stress tests from $10 billion to $250 billion and for a mandatory risk committee at publicly traded banks from $10 billion to $50 billion. The bill makes the implementation of credit exposure report requirements discretionary for the Federal Reserve instead of mandatory. To date, the Fed has not finalized a rule implementing credit exposure reports.\nBanks and thrifts with $50 billion to $100 billion in assets no longer must pay assessments to finance the cost of enhanced regulation, and any bank or thrift with $100 billion to $250 billion in assets will have its assessments adjusted to reflect changes in its regulatory status. Banks with $50 billion to $250 billion no longer pay assessments to fund the Office of Financial Research.", "Supporters and opponents of P.L. 115-174 generally agree that enhanced prudential regulation should apply to systemically important banks, but disagree about which banks could pose systemic risk. Prior to the enactment of P.L. 115-174 , there had been widespread support for raising the $50 billion threshold, including from certain prominent regulators, but no consensus on how it should be modified. In particular, critics of the $50 billion threshold distinguish between regional banks (which tend to be at the lower end of the asset range and, it is claimed, have a traditional banking business model comparable to community banks) and Wall Street banks (a term applied to the largest, most complex organizations that tend to have significant nonbank financial activities). If there are economies of scale to regulatory compliance, the regulatory burden of enhanced regulation is disproportionately higher for the banks with closer to $50 billion in assets. Thus, if the legislation reduces the number of banks that are subject to enhanced regulation but are not systemically important, a significant reduction in cost could be achieved without a significant increase in systemic risk.\nDefinitively identifying banks that are systemically important is not easily accomplished, in part because potential causes and mechanisms through which a bank could disrupt the financial system and spread distress are numerous and not well understood in all cases. In addition, there is not an exact correlation between size and traditional banking activities.\nMany economists believe that the economic problem of \"too big to fail\" is really a problem of firms that are too complex or too interdependent to fail. Size correlates with complexity and interdependence, but not perfectly. Size is a much simpler and more transparent metric than complexity or interdependence, however. As a practical matter, if size is well correlated with systemic importance, a dollar threshold could serve as a good proxy that is inexpensive and easy to administer. Designating banks on a case-by-case basis could raise similar issues that have occurred in the designation of nonbanks, such as the slow pace of designations; difficulty in finding objective, consensus definitions of what constitutes systemic importance; and legal challenges to overturn their designation.\nP.L. 115-174 attempts to maximize the benefits and minimize the problems by using both approaches—an automatic designation for banks with assets of more than $250 billion and a case-by-case application of standards for banks with assets between $100 billion and $250 billion. This approach can mitigate the drawbacks inherent in both approaches, but cannot eliminate them. Any dollar threshold still potentially includes banks that do not pose systemic risk with assets above that threshold. Compared with a dollar threshold, any case-by-case application of standards would be more expensive, time-consuming, and subjective, and could potentially create opportunities for legal challenges.\nAside from the effects on financial stability, reducing the number of banks subject to enhanced regulation also reduces second-order benefits, such as protecting taxpayers against FDIC insurance losses. It could also worsen the \"too big to fail\" problem if market participants perceive the banks subject to enhanced regulation as officially too big to fail. This could lead to greater moral hazard—if the creditors and counterparties of a TBTF firm believe that the government will protect them from losses, they have less incentive to monitor the firm's riskiness because they are shielded from the negative consequences of those risks. One rationale for (1) setting the asset threshold low and (2) subjecting any bank above it to enhanced prudential regulation automatically is that this method would reduce the likelihood that banks in the regime would be viewed as having a de facto TBTF designation.\nP.L. 115-174 makes tailoring of the regime mandatory instead of discretionary, and likely will result in more tailored regulation for banks with between $100 billion and $250 billion in assets because the Fed will likely consider the application of each provision separately. In contrast, systemic risk regulation may be less tailored overall, because the legislation mostly eliminates two existing tiers of regulations—those that apply at $10 billion and $50 billion in assets. However, expanding beyond systemic risk regulation, overall bank regulation will be more tailored because of the new size-based exemptions included in other titles of the legislation.\nCBO estimated that Section 401 would increase the deficit by $114 million, for two reasons. First, CBO estimated that the probability of a large bank failing would be greater if fewer banks were subject to enhanced regulation, imposing losses on the FDIC insurance fund that would not fully be offset by higher deposit insurance premiums within the 10-year budget window. Although CBO believed a large bank failure would be a relatively large cost to the government (via the FDIC), the change in probability of failure under the legislation is small. Thus, CBO's estimate of the provision's budgetary effect was small. Second, CBO estimated that the reduction in banks paying fees to cover the costs of the Fed's duties under enhanced regulation would exceed the reduction in costs to the Fed of no longer subjecting those banks to enhanced regulation.\nFor more information about the enhanced prudential regulation threshold, see CRS Report R45036, Bank Systemic Risk Regulation: The $50 Billion Threshold in the Dodd-Frank Act , by [author name scrubbed] and [author name scrubbed].", "", "Section 402 allows custody banks—defined by the legislation as banks predominantly engaged in custody, safekeeping, and asset servicing activities—to no longer hold capital against funds deposited at certain central banks to meet the SLR, up to an amount equal to customer deposits linked to fiduciary, custodial, and safekeeping accounts. As discussed in the leverage section above, under leverage ratios, including the SLR, the same amount of capital must be held against any asset, irrespective of risk.", "Custody banks provide a unique set of services not offered by many other banks, but are generally subject to the same regulatory requirements as other banks. Custodian banks hold securities, receive interest or dividends on those securities, provide related administrative services, and transfer ownership of securities on behalf of financial market asset managers, including investment companies such as mutual funds. Asset managers access central counterparties and payment systems via custodian banks. Custodian banks play a passive role in their clients' decisions, carrying out instructions. Generally, banks must hold capital against their deposits at central banks under the leverage or supplemental leverage ratio, but custody banks argue that this disproportionately burdens them because of their business model. However, other observers argue that the purpose of the leverage ratio is to measure the amount of bank capital against assets regardless of risk, and to exempt \"safe\" assets undermines the usefulness of that measure.\nP.L. 115-174 leaves it to bank regulators to define which banks meet the definition of \"predominantly engaged in custody, safekeeping, and asset servicing activities.\" Other large banks that offer custody services but do not qualify for relief under the \"predominantly engaged\" definition may be at a relative disadvantage under this provision. A CRS analysis of call report data identified three banks that had a significantly greater amount of assets under custody than total exposures—Bank of New York Mellon, Northern Trust, and State Street. If determined to be custody banks, Northern Trust (as an advanced approaches bank) would be able to reduce its capital by $3 for every $100 it deposits at central banks, and Bank of New York Mellon and State Street (as G-SIBs) would be able to reduce their capital by $6 for every $100 of banking subsidiary deposits at central banks. The FDIC reports that Bank of New York Mellon held $36 billion, Northern Trust held $23 billion, and State Street held $25 billion of deposits at the Federal Reserve at the end of December 2017. The FDIC does not separately report bank deposits at foreign central banks, which will also receive capital relief under the legislation for some deposits, or custodial or safekeeping deposits, which could potentially limit the amount of capital relief. As mentioned earlier, whether banks in addition to the three identified here will also receive relief under Section 402 will be up to the regulators' discretion.\nCBO estimated that Section 402 would increase the budget deficit by $45 million over 10 years because a reduction in capital held by custody banks would result in a greater likelihood that a custodial bank would fail, imposing losses on the FDIC insurance fund that would not fully be offset by higher deposit insurance premiums within the 10-year budget window. Although CBO believed a large bank failure would be a relatively large cost to the government (via the FDIC), the change in probability of failure under the legislation is small. Thus, CBO's estimate of the provision's budgetary effect was small.\nFor more information on custody banks and the SLR, see CRS In Focus IF10812, Financial Reform: Custody Banks and the Supplementary Leverage Ratio , by [author name scrubbed].", "", "Section 403 requires bank regulators to treat any municipal bond \"that is both liquid and readily marketable and investment grade\" as a level 2B high-quality liquid asset for purposes of complying with the LCR. Municipal bonds are debt securities issued by state and local governments or public entities. Prior to the enactment of P.L. 115-174 , the Fed allowed banks to count a limited amount of municipal securities as level 2B assets, but the FDIC and the Office of the Comptroller of the Currency (OCC) did not. Half of the value of a level 2B asset may be counted toward fulfilling the LCR, and level 2B assets may not exceed 15% of total high-quality liquid assets (HQLA).", "To the extent that the LCR reduces the demand for bank holding companies to hold municipal securities, it would be expected to increase the borrowing costs of states and municipalities. The impact of the LCR on the municipal bond market may be limited by the fact that relatively few banks are subject to the LCR. Finally, even banks subject to the LCR are still allowed to hold municipal bonds, as long as they have a stable funding source to back their holdings. CRS estimates that banks subject to the LCR held $187 billion in state and municipal bonds in the third quarter of 2017, compared with total outstanding municipal debt of $3.8 trillion. CRS was unable to determine what portion of these bonds meet the \"liquid and readily marketable and investment grade\" criteria.\nArguments that municipal bonds should qualify as HQLA because most pose little default risk confuse default risk, which is addressed by capital requirements, with liquidity risk, which is addressed by the LCR. The purpose of the LCR is to ensure that banks have ample assets that can be easily liquidated in a stress scenario; a municipal bond may pose very little default risk, but nevertheless be illiquid (i.e., hard to sell quickly).\nFor more information on municipal bonds and the liquidity coverage ratio, see CRS In Focus IF10804, Financial Reform: Muni Bonds and the LCR , by [author name scrubbed] and [author name scrubbed].", "Title V of P.L. 115-174 is focused on providing regulatory relief to participants of capital markets . Certain provisions of Title V provide streamlined registration and disclosure requirements for certain securities issuers as well as market intermediaries (e.g., asset managers and stock exchanges). These provisions allow for reduced regulatory obligations in relation to selected aspects of capital formation.", "Companies turn to a variety of sources to access the funding they need to grow, including by accessing capital markets. Capital markets are segments of the financial system in which funding is raised through issuing equity or debt securities. Equity securities—also called stocks or shares—represent part ownership of a firm. Debt securities, such as bonds, represent indebtedness of a firm. Capital markets are the largest source of financing for U.S. nonfinancial companies, representing 65% of all financing for such companies in 2016, significantly more than bank loans and other forms of financing. U.S. capital markets are considered the deepest and most liquid in the world. U.S. companies are generally more reliant on capital markets for funding than companies in other countries with developed economies, which rely more on bank loans. The principal regulator of U.S. capital markets is the Securities and Exchange Commission (SEC).\nCapital markets are often the focus of policy discussions. Access to capital allows businesses to fund their growth, to innovate, to create jobs, and to ultimately help raise society's overall standard of living. Capital formation also involves investor protection challenges, including the challenge to ensure that investors, such as less sophisticated retail investors, could comprehend the risks of their investments. Policymakers frequently debate the balance between these two potentially conflicting objectives: (1) facilitating capital formation and (2) fostering investor protection largely through mandatory disclosure and compliance. Proposals that reduce the regulatory compliance that a securities issuer or a market intermediary must comply with can decrease these market participants' compliance costs and increase the speed and efficiency of capital formation. However, this reduced regulation may also expose investors to additional risks. These risks could potentially include the reduction in information that is important to investment decisionmaking; and the lack of compliance that could hinder an intermediary's capacity to safeguard investor assets or act in the best interest of investors, among other investor protection concerns. In addition, investor protection can help contribute to healthy and efficient capital markets because investors may be more willing to provide capital, and even at a lower cost, if they have faith in the integrity and transparency of the underlying markets.\nMany of the provisions in Title V involve some version of the policy debate mentioned above. On the one hand, some observers generally believe that capital markets require updated regulations to ensure that companies have adequate access to markets and that they are not unduly burdened by inefficient or outdated regulations with limited benefits. In particular, they argue that small- and medium-sized companies have more difficulty accessing capital relative to larger companies, and should be given regulatory relief. On the other hand, other observers generally believe that capital market regulations in place prior to the enactment of P.L. 115-174 strike an appropriate balance between capital access and investor protection, and that paring back protections unnecessarily exposes investors to risks, particularly among investors that may lack sophisticated knowledge or the ability to withstand unexpected financial losses.", "", "", "Section 501 alters a criterion that exempts covered securities from state securities regulation under the Securities Act of 1933. Prior to the enactment of P.L. 115-174 , \"covered\" securities were defined as securities that are listed on the New York Stock Exchange, the American Stock Exchange, and the National Market System of the Nasdaq Stock Market, or on an exchange that the SEC determines has securities listing standards that are \"substantially similar\" to those three. If a security meets the definition of a covered security, then it is exempt from certain state regulations. Section 501 removes the substantially similar criterion and gives covered status to any securities listed on exchanges that are SEC-registered, which is generally required of all domestic exchanges.\nThe provision's advocates claim that the substantially similar criterion was outdated, and as a result, the SEC could have been limiting the number of potentially innovative and competitive exchanges. Furthermore, they argue that some of these innovative exchanges could help alleviate the lack of access small companies have to secondary capital markets. Critics, however, are concerned that eliminating the SEC's regulatory authority in this area could help spur the development of securities exchanges with lower listing standards and fewer regulatory requirements, and thus increase the opportunities for investor fraud.\nFor more information on securities exchange reform proposals, see CRS In Focus IF10862, Securities Exchanges: Regulation and Reform Proposals (Section 501 of P.L. 115-174 , Section 496 of H.R. 10, and H.R. 4546) , by [author name scrubbed].", "", "Section 504 creates a new subset of venture capital fund s called qualifying venture capital fund s (QVCFs) and exempts them from the definition of investment company under the Investment Company Act of 1940 (ICA; P.L. 76-768). No longer being classified as an investment company under the ICA reduces the qualifying fund's registration and disclosure requirements. Venture capital funds are investment pools that manage the funds of generally wealthy investors interested in acquiring private equity stakes in emerging small- and medium-sized firms and startup firms with perceived growth potential. The funds often take an active role in the businesses, including providing managerial guidance and occupying corporate board seats. The ICA requires certain pooled investments—including venture capital funds—to register with the SEC. Registration triggers certain reporting responsibilities, including disclosures about investment objectives, financial condition, structure, operation, and product offerings. In addition, registered investment companies are obligated to safeguard investor assets and act in the best interest of investors, among other requirements. Investment company registration and compliance are intended to (among other things) mitigate certain conflicts of interest that may arise, but impose compliance costs on funds. Under the ICA, an investment pool generally must register if it has more than 100 beneficial shareholders, unless it otherwise qualifies for an exemption. Section 504 allows a venture capital fund to qualify as a QVCF and avoid registration requirements if it has no more than 250 beneficial investors (up from 100 beneficial investors), provided it had no more than $10 million in invested capital (no size threshold is currently in place) before triggering the ICA registration requirement.\nSome observers argue capital access for small businesses could be improved by allowing venture capital funds to have a broader shareholder base before they are subjected to registration requirements. However, others are concerned that limiting federal regulatory oversight of investment funds of larger size unnecessarily weaken protections for the underlying venture fund investors.\nFor more information on venture capital fund threshold proposals, see CRS Insight IN10681, Venture Capital Funds: Proposals to Expand Investor Thresholds Required for Registration (Section 504 of P.L. 115-174 , Section 471 of H.R. 10, H.R. 1219, S. 444, and Section 914 of H.R. 3280) , by [author name scrubbed].", "", "Section 506 repeals the exemption available to mutual funds organized in domestic territories—including Puerto Rico, the Virgin Islands, and Guam—from compliance with the Investment Company Act of 1940 (P.L. 76-768; ICA). The ICA generally requires investment pools—including mutual funds—to register with the SEC. Registration subjects investment pools to SEC enforcement and regulatory oversight and triggers certain reporting responsibilities, including disclosures about the fund's investment objectives, financial condition, structure, operation, and product offerings. According to a congressional report, when the ICA was enacted in 1940, Congress determined that it would be too costly for the SEC to travel to and inspect investment companies located beyond the continental United States. Subsequently, some areas lost the exemption (e.g., Alaska and Hawaii), but others (e.g., Puerto Rico, the Virgin Islands, and Guam) still retained it prior to the enactment of P.L. 115-174 . A general argument for Section 506 is that the earlier logistical challenges presented by noncontinental territories have diminished over time.", "", "Section 507 requires the SEC to increase the threshold amount of stock a company can sell to its corporate personnel without becoming subject to additional disclosure requirements from $5 million over any 12-month period to $10 million over any 12-month period. A company that offers or sells its securities to the public is required to register them with the SEC, a process that requires the company to make certain disclosures about its business. This process imposes certain compliance costs, which potentially could be disproportionately burdensome to small- and medium-sized businesses and startups. In 1988, the SEC adopted Rule 701 under the Securities Act of 1933. The rule created an exemption from certain registration requirements to nonpublic companies, including startups that offer their own securities (such as stock options and restricted stock) as part of formal written compensatory benefit agreements to employees, directors, general partners, trustees, officers, specified advisers, and consultants. Certain conditions must be met for eligibility, including a limit on the issuance of stock to the aforementioned corporate personnel during a 12-month period not to exceed the greater of $1 million, or 15% of the issuer's total assets, or 15% of all the outstanding securities of the class of securities being offered. In addition, prior to the enactment of P.L. 115-174 , if the issuance of securities to corporate personnel exceeded $5 million during any 12-month period, the company was required to provide investors with additional disclosures on a recurring basis, including information on risk factors, the plans under which the offerings have been made, and certain financial statements. Section 507 raises the $5 million threshold, which could result from one of the two aforementioned 15% asset or securities scenarios being triggered, to $10 million.\nFor more information on proposed changes to regulation related to employee ownership of company securities, see CRS Insight IN10680, Employee Ownership of Registration-Exempt Company Securities: Proposals to Reform Required Corporate Disclosures (Section 507 of P.L. 115-174 , S. 488, H.R. 1343, and Section 406 of H.R. 10) , by [author name scrubbed].", "", "Section 508 expands the SEC's Regulation A+ to allow certain \"fully reporting\" companies to be eligible for certain exemptions from disclosure requirements. The offers and sales of securities must either be registered with the SEC (as a public offering) or be undertaken with an exemption from registration (as a private offering). A fully reporting company is a company that files registration statements and other reports with the SEC, either voluntarily or through public offering requirements. Regulation A+, a type of exemption from registration, is a private offering designed to facilitate capital access for small- to medium-sized companies by subjecting them to fewer disclosure requirements. Prior to enactment of P.L. 115-174 , Regulation A+ applied to nonreporting companies only. By broadening the base of eligible issuers of Regulation A+ offerings, thousands of SEC reporting companies qualify for a more streamlined registration and disclosure approach under Regulation A+. That reduced disclosure will likely reduce costs for companies but also will likely reduce the information available to investors.\nFor more information about Regulation A+, including a discussion about the general background and related legislative proposals, see CRS In Focus IF10848, Capital Access: SEC Regulation A+ (\"Mini-IPO\") , by [author name scrubbed].", "", "Section 509 directs the SEC to allow closed-end funds to use certain streamlined reporting procedures available through the well-known seasoned issuer (WKSI) status. A closed-end fund is a publicly traded investment company that sells a limited number of shares to investors in an initial public offering and the shares are traded on secondary markets. The WKSI status has generally been granted to operating companies that produce goods and services, rather than investment companies such as closed-end funds. Prior to enactment of P.L. 115-174 , registered investment companies, including closed-end funds, generally could not be granted WKSI status even when required conditions are met. Examples of distinct WKSI benefits include (1) certain simplified registration statements filed beforehand to automatically take effect without SEC review, also referred to as shelf registration ; (2) communication with potential investors before and during the offering period; and (3) deliver of electronic instead of physical prospectuses (formal legal documents describing the details of the securities offerings). Section 509 enables closed-end funds that meet WKSI requirements to partake of the benefits of such status. In addition, if the SEC fails to finalize the rules within one year of enactment, closed-end funds would be subject to the Securities Offering Reform of 2005, which provide regulatory relief for noninvestment companies and are currently not applicable to closed-end funds.\nThe number of close-end funds has decreased in recent years from 662 funds at the previous peak in 2007 to 530 funds in 2016. Some argue this is the result of unduly burdensome regulation. However, isolating the effects of regulations across time in a dynamic market is difficult, and no consensus exists over what role various market forces have played in this decline.", "The Economic Growth, Regulatory Relief, and Consumer Protection Act contains a number of provisions that do not necessarily pertain directly to the issue areas examined above, including the following:\nDeposits in U.S. Territ or ies . Section 208 extends the applicability of Expedited Funds Availability Act ( P.L. 100-86 ) requirements (which relate to how quickly deposits, once made, are available to account holders) to American Samoa and the North Mariana Islands. Small Public Housing Agencies. Section 209 classifies public housing agencies administering 550 housing units or fewer that predominately operate in rural areas as small public housing agenc ies (SPHAs) and reduce administrative requirements faced by such agencies, including less frequent inspections and reduced environmental review requirements. In addition, Section 209 creates a process for corrective action to be undertaken for troubled SPHAs and an incentive program for SPHAs to reduce energy consumption. Insurance . Section 211 creates an \"Insurance Policy Advisory Committee on International Capital Standards and Other Insurance Issues\" at the Federal Reserve made up of 21 members with expertise on various aspects of insurance. It requires an annual report and testimony from the Federal Reserve and the Department of the Treasury on the ongoing discussions at the International Association of Insurance Supervisors through 2022, and a report prior to supporting any specific international insurance standards. N ational C redit U nion A dministration Budget . Section 212 requires the National Credit Union Administration to publish a draft of its annual budget in the Federal Register and hold public hearings on the draft. Federal Reserve Surplus. The Fed's capital comprises paid-in capital issued to member banks and retained earnings deposited in its surplus account. Section 217 reduces the statutory cap on the Fed's surplus account from $7.5 billion to $6.825 billion and requires funds in excess of that amount to be remitted to Treasury as general revenues. CBO estimated that this provision would increase revenues by $478 million on net over 10 years. CBO assumed that the Fed would finance the transfer by selling Treasury securities, which otherwise would have earned $177 million in income that would have been remitted to the Treasury in the next 10 years. Thus, the provision can be thought of as shifting Fed remittances from the future to the present, as opposed to representing new economic resources available to the federal government. Remediating Lead and Asbestos Hazards . Section 305 directs the Secretary of the Treasury to use loan guarantees and credit enhancements to remediate lead and asbestos hazards in residential properties backing mortgages acquired by the Treasury. Family Self Sufficiency Program . Section 306 makes alterations to the Family Self Sufficiency Program (FSS), an asset-building program for residents of public and assisted housing. The changes are designed to harmonize separate FSS programs into one, unified program; expand the range of services that can be provided to participating residents; and make other technical changes to the program. Overpayments to the SEC. Section 505 permits national securities exchanges that have made overpayments to the SEC in excess of their required fees to offset those payments against future fees owed within 10 years of the overpayment. Studies and Best Practices . Section 216 requires a Treasury report on cyber threats to financial institutions and capital markets. Section 308 requires a Government Accountability Office (GAO) report on consumer reporting. Section 311 requires a GAO report on foreclosures in Puerto Rico. Section 312 requires a Department of Housing and Urban Development report on lead-based paint hazard prevention. Section 502 requires an SEC report on algorithmic trading in capital markets. Section 503 amends the Small Business Investment Incentive Act of 1980 (SBIIA; P.L. 96-477 ) by requiring the SEC to release (1) a public assessment of the findings and recommendations of the annual Government-Business Forum on Small Business Capital Formation; and (2) a public report on what actions, if any, it will be taking to address those findings and recommendations. Section 603 directs the Financial Literary and Education Commission to establish best practices for institutions of higher learning regarding methods to teach financial literacy skills and to provide information to students at those institutions to assist them when making financial decisions.\nAppendix A. Asset Size and Other Thresholds in P.L. 115-174\nTable A-1 lists provisions in P.L. 115-174 that create or change size-based threshold criteria that alter the regulatory treatment of certain institutions or activities.\nAppendix B. Similar Policy Issues in Selected House Bills\nP.L. 115-174 addresses a number of policy issues that are also addressed by the Financial CHOICE Act ( H.R. 10 ), which was passed by the House on June 8, 2017, and other House bills that have seen legislative action in the 115 th Congress. Table B-1 lists such policy issues and identifies the sections of P.L. 115-174 , the sections of H.R. 10 , and House bills that have seen action that propose changes in those areas. It should be noted, however, that while certain issues addressed in the various pieces of legislation are similar, how the bills address them may differ to varying degrees, some quite significantly. An examination and discussion of how the various proposals differ across the each piece legislation is beyond the scope of this report." ], "depth": [ 0, 1, 1, 2, 2, 3, 4, 4, 3, 3, 4, 3, 4, 3, 4, 3, 4, 3, 4, 3, 4, 3, 4, 1, 2, 2, 3, 4, 4, 3, 4, 4, 3, 4, 4, 3, 4, 3, 4, 3, 4, 3, 4, 3, 4, 3, 4, 1, 2, 3, 3, 3, 2, 3, 4, 3, 4, 4, 3, 4, 3, 4, 3, 4, 3, 4, 3, 4, 3, 4, 3, 4, 3, 4, 3, 4, 1, 2, 2, 3, 4, 4, 3, 4, 4, 3, 4, 4, 1, 2, 2, 3, 4, 3, 4, 3, 4, 3, 4, 3, 4, 3, 4, 1 ], "alignment": [ "h0_title h2_title h1_title h3_title", "h0_full h1_full", "h0_title h2_full", "h0_full", "h2_title", "h2_title", "h2_full", "", "", "", "", "h2_title", "h2_full", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "h0_title h3_title", "h0_full h3_full", "h3_title", "h3_title", "h3_full", "", "", "", "", "h3_title", "h3_full", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "" ] }

{ "question": [ "What did the financial crisis of 2007-2009 reveal?", "How did Congress respond to this realization?", "What do observers argue about the Dodd-Frank Act?", "How was the Economic Growth, Regulatory Relief, and Consumer Protection Act signed into law?", "How does this law modify Dodd-Frank?", "What does Title I of P.L. 115-174 do?", "What is an example of these exemptions?", "What else does Title I of P.L. 115-174 do?", "What does Title IV do?", "What banks are still subject to enhanced regulation?", "What banks are exempt from enhanced regulation?", "What else does P.L. 115-174 do?" ], "summary": [ "Some observers assert the financial crisis of 2007-2009 revealed that excessive risk had built up in the financial system, and that weaknesses in regulation contributed to that buildup and the resultant instability.", "In response, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203; the Dodd-Frank Act), and regulators strengthened rules under existing authority.", "Following this broad overhaul of financial regulation, some observers argue certain changes are an overcorrection, resulting in unduly burdensome regulation.", "The Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155, P.L. 115-174) was signed into law by President Donald Trump on May 24, 2018.", "P.L. 115-174 modifies Dodd-Frank provisions, such as the Volcker Rule (a ban on proprietary trading and certain relationships with investment funds), the qualified mortgage criteria under the Ability-to-Repay Rule, and enhanced regulation for large banks; provides smaller banks with an \"off ramp\" from Basel III capital requirements—standards agreed to by national bank regulators as part of an international bank regulatory framework; and makes other changes to the regulatory system.", "Title I of P.L. 115-174 relaxes or provides exemptions to certain mortgage lending rules.", "For example, it creates a new compliance option for mortgages originated and held by banks and credit unions with less than $10 billion in assets to be considered qualified mortgages for the purposes of the Ability-to-Repay Rule.", "In addition, P.L. 115-174 exempts certain insured depositories and credit unions that originate few mortgages from certain Home Mortgage Disclosure Act reporting requirements.", "Title IV alters the criteria used to determine which banks are subject to enhanced prudential regulation from the original $50 billion asset threshold original set by Dodd-Frank.", "Banks designated as global systemically important banks and banks with more than $250 billion in assets are still automatically subjected to enhanced regulation.", "However, under P.L. 115-174 banks with between $100 billion and $250 billion in assets are automatically subject only to supervisory stress tests, while the Federal Reserve (Fed) has discretion to apply other individual enhanced prudential provisions to these banks. Banks with assets between $50 billion and $100 billion will no longer be subject to enhanced regulation, except for the risk committee requirement.", "In addition, P.L. 115-174 relaxes leverage requirements for large custody banks, and allows certain municipal bonds to be counted toward large banks' liquidity requirements." ], "parent_pair_index": [ -1, 0, 1, -1, 0, -1, 0, 0, -1, 0, 0, 0 ], "summary_paragraph_index": [ 0, 0, 0, 1, 1, 3, 3, 3, 6, 6, 6, 6 ] }

{ "title": [ "", "Background", "Regulations Implementing UIGEA", "Designated Payment Systems & Due Diligence", "Non-exclusive Examples of Compliant Policies and Procedures", "Card Systems", "Money Transmitting Businesses", "Wire Transfer Systems", "Automated Clearing House System", "Regulatory Enforcement of UIGEA", "Federal Enforcement Actions Under UIGEA", "Legislation in the 112th Congress", "Internet Gambling Regulation, Consumer Protection, and Enforcement Act", "Internet Gambling Regulation and Tax Enforcement Act of 2011", "Internet Gambling Prohibition, Poker Consumer Protection, and Strengthening UIGEA Act of 2011", "U.S. Department of Justice Office of Legal Counsel's Recent Opinion on the Wire Act", "State Internet Gambling Laws and Recent State Legislative Activity" ], "paragraphs": [ "", "Passage of the Unlawful Internet Gambling Enforcement Act (UIGEA) in 2006 as Title VIII of the SAFE Port Act represented the culmination of legislative consideration that began with the recommendations of the National Gambling Commission published in a 1999 report. The legislative history of UIGEA indicates that Congress wanted the law, in part, to address the perceived problem of foreign Internet gambling operations that made their services available to U.S. customers.\nUIGEA prohibits anyone \"engaged in the business of betting or wagering\" from knowingly accepting checks, credit card charges, electronic transfers, and similar payments in connection with unlawful Internet gambling. UIGEA expressly excludes from the definition of the term \"business of betting or wagering\" the services of financial institutions as well as communications and Internet service providers that may be used in connection with the unlawful bet; however, such entities may nonetheless incur liability under UIGEA if they are directly engaged in the operation of an Internet gambling site. A violation of UIGEA is subject to a criminal fine of up to $250,000 (or $500,000 if the defendant is an organization), imprisonment of up to five years, or both. In addition, upon conviction of the defendant, the court may enter a permanent injunction enjoining the defendant from making bets or wagers \"or sending, receiving, or inviting information assisting in the placing of bets or wagers.\"\nAny person or entity that violates UIGEA and its implementing regulations may also be subject to civil and regulatory enforcement actions. For example, the Attorney General of the United States or a state attorney general may bring civil proceedings to enjoin a transaction that is prohibited under UIGEA. However, UIGEA expressly limits the instances when the attorneys general may bring a civil suit against financial institutions and Internet service providers, as follows: they may only bring a civil proceeding against financial institutions to block transactions involving unlawful Internet gambling (unless the institution is directly involved in an unlawful Internet gambling business, in which case criminal prosecution is available). The attorneys general may also initiate civil proceedings against Internet service providers under UIGEA only to block access to unlawful Internet gambling sites or to hyperlinks to such sites under limited circumstances.\nUIGEA's definition of \"unlawful Internet gambling\" does not specify what gambling activity is illegal; rather, the statute relies on underlying federal or state gambling laws to make that determination—that is, UIGEA applies to an Internet bet or wager that is illegal in the place where it is placed, received, or transmitted:\nThe term \"unlawful Internet gambling\" means to place, receive, or otherwise knowingly transmit a bet or wager by any means which involves the use, at least in part, of the Internet where such bet or wager is unlawful under any applicable Federal or State law in the State or Tribal lands in which the bet or wager is initiated, received, or otherwise made.\nHowever, this statutory definition expressly exempts certain intrastate and intratribal Internet gambling operations, including state lotteries and Indian casinos that operate under state regulations or compacts. To qualify for the intrastate exception under UIGEA, a bet must (1) be made and received in the same state; (2) comply with applicable state law that authorizes the gambling and the method of transmission including any age and location verification and security requirements; and (3) not violate various federal gambling laws. The intratribal exception is similar, but slightly different. Compliance with the various federal gambling laws remains a condition and there are also similar security, age, and location verification requirements. Intratribal gambling, however, may involve transmissions between the lands of two or more tribes and need not be within the same state.\nUIGEA further defines the term \"bet or wager\" to mean \"the staking or risking by any person of something of value upon the outcome of a contest of others, a sporting event, or a game subject to chance, upon an agreement or understanding that the person or another person will receive something of value in the event of a certain outcome.\" The statutory definition includes lottery participation, gambling on athletic events, and information relating to financing a gambling account, but a \"bet or wager\" does not include the following:\nsecurities transactions; commodities transactions; over-the-counter derivative instruments; indemnity or guarantee contracts; insurance contracts; bank transactions (transactions with insured depository institutions); games or contests in which the participants do not risk anything but their efforts; or certain fantasy or simulation sports contests.\nUIGEA leaves in place questions as to the extent to which the Interstate Horseracing Act curtails the reach of other federal laws, an issue that was at the center of World Trade Organization (WTO) litigation. The statute instructs the Secretary of the Treasury and the Board of Governors of the Federal Reserve, in consultation with the Attorney General, to issue implementing regulations within 270 days of passage.\nOn September 1, 2009, a federal appeals court ruled that UIGEA is not unconstitutionally vague. The Interactive Media Entertainment & Gaming Association had filed a lawsuit alleging that UIGEA was facially unconstitutional, and sought to enjoin the enforcement of the act and its regulations. The U.S. Court of Appeals for the Third Circuit disagreed with Interactive's assertion that UIGEA was void for vagueness because of the lack of an \"ascertainable and workable definition\" of the statutory phrase \"unlawful Internet gambling\":\nThe Supreme Court has explained that a statute is unconstitutionally vague if it \"fails to provide a person of ordinary intelligence fair notice of what is prohibited, or is so standardless that it authorizes or encourages seriously discriminatory enforcement.\" United States v. Williams, 128 S. Ct. 1830, 1845, 170 L. Ed. 2d 650 (2008).... We reject Interactive's vagueness claim. The Act prohibits a gambling business from knowingly accepting certain financial instruments from an individual who places a bet over the Internet if such gambling is illegal at the location in which the business is located or from which the individual initiates the bet. 31 U.S.C. §§ 5362(10)(A), 5363. Thus, the Act clearly provides a person of ordinary intelligence with adequate notice of the conduct that it prohibits.\nThe appellate court noted that UIGEA \"itself does not make any gambling activity illegal,\" but rather, the definition of \"unlawful Internet gambling\" references federal and state laws related to gambling. Therefore, the court suggested that \"to the extent that [there is] a vagueness problem, it is not with the Act, but rather with the underlying state law.\"", "UIGEA calls for regulations that require \"each designated payment system, and all participants therein, to identify and block or otherwise prevent or prohibit restricted transactions through the establishment of policies and procedures\" reasonably calculated to have that result. On October 4, 2007, the Board of Governors of the Federal Reserve System and the Treasury Department (the Agencies) issued proposed regulations implementing UIGEA. The proposal invited commentators to suggest alternatives and critiques before the close of the comment period on December 12, 2007. The proposal offered to exempt substantial activities in those payment systems in which tracking is not possible now and in which it may ultimately not be feasible. It also noted that the two Agencies felt that they have no authority to compel payment system participants to serve lawful Internet gambling operators. After taking into consideration the public comments on the proposed rule and consulting with the Department of Justice (as required by the UIGEA), the Agencies adopted a final rule implementing the provisions of the UIGEA; the rule was effective January 19, 2009, with a compliance date of June 1, 2010 (originally December 1, 2009).", "The final rule identifies five relevant payment systems that could be used in connection with, or to facilitate, the \"restricted transactions\" used for Internet gambling: Automated Clearing House System (ACH), card systems, check collection systems, money transmitting business, and wire transfer systems. The rule defines a \"restricted transaction\" to mean any transactions or transmittals involving any credit, funds, instrument, or proceeds that the UIGEA prohibits any person engaged in the business of betting or wagering from knowingly accepting, in connection with the participation of another person in unlawful Internet gambling. However, the rule does not provide a more specific definition of the term \"unlawful Internet gambling;\" instead, it restates the UIGEA's definition.\nWhile the Agencies expect that card systems will find that using a merchant and transaction coding system is \"the method of choice\" to identify and block restricted transactions, the Agencies felt that the most efficient way for other designated payment systems to comply with the UIGEA is through \"adequate due diligence by participants when opening accounts for commercial customers to reduce the risk that a commercial customer will introduce restricted transactions into the payment system in the first place.\"\nThe rule directs participants in the designated systems, unless exempted, to \"establish and implement written policies and procedures reasonably designed to identify and block or otherwise prevent or prohibit restricted transactions,\" and then provides non-exclusive examples of reasonably compliant policies and procedures for each system. Participants may comply by adopting the policies and procedures of their payments system or by adopting their own. Participants that establish and implement procedures for due diligence of their commercial customer accounts or commercial customer relationships will be considered in compliance with the regulation if the procedures include the following steps:\n1. At the establishment of the account or relationship, the participant conducts due diligence of a commercial customer and its activities commensurate with the participant's judgment of the risk of restricted transactions presented by the customer's business. 2. Based on its due diligence, the participant makes a determination regarding the risk the commercial customer presents of engaging in an Internet gambling business. Such a determination may take one of the two courses set forth below: a. The participant determines that the commercial customer presents a minimal risk of engaging in an Internet gambling business (such as commercial customers that are directly supervised by a federal functional regulator, or an agency, department, or division of the federal government or a state government), or b. The participant cannot determine that the commercial customer presents a minimal risk of engaging in an Internet gambling business, in which case it must obtain a certification from the commercial customer that it does not engage in an Internet gambling business. If the commercial customer does engage in an Internet gambling business, the participant must obtain: (1) documentation that provides evidence of the customer's legal authority to engage in the Internet gambling business and a written commitment by the commercial customer to notify the participant of any changes in its legal authority to engage in its Internet gambling business, and (2) a third-party certification that the commercial customer's systems for engaging in the Internet gambling business are reasonably designed to ensure that the commercial customer's Internet gambling business will remain within the licensed or otherwise lawful limits, including with respect to age and location verification. 3. The participant notifies all of its commercial customers that restricted transactions are prohibited from being processed through the account or relationship, \"through a term in the commercial customer agreement, a simple notice sent to the customer, or through some other method.\"", "", "Of the five payment systems, a \"card system\" as understood by the regulations is one that settles transactions involving credit card, debit card, pre-paid card, or stored value product and in which the cards \"are issued or authorized by the operator of the system and used to purchase goods or services or to obtain a cash advance.\" Merchant codes are a standard feature of the system which permits the system to identify particular types of businesses. There are no card system exemptions from the regulations' requirements. Examples of reasonably compliant policies and procedures feature due diligence and prophylactic procedural components. The standards involve screening merchants to determine the nature of their business, a clause prohibiting restricted transactions within the merchant agreement, as well as maintaining and monitoring a business coding system to identify and block restricted transactions.", "\"Money transmitting businesses\" are entities such as Western Union and PayPal that are in the business of transmitting funds. They too are without exemption from the UIGEA implementing regulations. Examples of acceptable policies and procedures for money transmitting businesses feature procedures to identify the nature of a subscriber's business, subscriber agreements to avoid restricted transactions, procedures to check for suspicious payment patterns, and an outline of remedial actions (access denial, account termination) to be taken when restricted transactions are found.\nThe regulations contain exemptions in varying degrees for the other payment systems. In essence, because of the difficulties of identifying tainted transactions, they limit requirements to those who may deal directly with the unlawful Internet gambling businesses. In the case of \"check collection systems,\" the coded information available to the system with respect to a particular check is limited to information identifying the bank and account upon which the check is drawn, and the number and amount of the check. Information identifying the payee is not coded and a \"requirement to analyze each check with respect to the payee would substantially ... reduce the efficiency of the check collection system.\" Consequently, the final rule exempts all participants in a particular check collection through a check collection system except for \"the first U.S. institution to which a check is transferred, in this case the institution receiving the check deposit from the gambling business\" —namely, the depository bank.\nBanks in which a payee deposits a check are covered by the regulations as are banks which receive a check for collection from a foreign bank. The rule offers examples for both circumstances. In the case of a check received from a foreign bank, examples of a depositary bank's reasonably compliant policies and procedures are procedures to inform the foreign banking office after the depositary bank has actual knowledge that the checks are restricted transactions (such actual knowledge being obtained through notification by a government entity such as law enforcement or a regulatory agency). In the purely domestic cases, examples of reasonably compliant policies and procedures would include (1) due diligence in establishing and maintaining customer relations sufficient to identify the nature of a customer's business, and to provide for a prohibition on tainted transactions in the customer agreement, and (2) remedial action (refuse to deposit a check; close an account) should a tainted transaction be unearthed.", "\"Wire transfer systems\" come in two forms. One involves large volume transactions between banks; the second, customer-initiated transfers from one bank to another. Like the check collection systems, under current practices only the recipient bank is in a realistic position to determine the nature of the payee's business. The Agencies sought public comments on whether additional safeguards should be required of the initiating bank in such cases but ultimately decided to exempt all but the bank receiving the transfer.\nBanks that receive a wire transfer (the beneficiary's bank) are covered by the regulations, and examples of reasonably compliant policies and practices resemble those provided for check collection system participants: know your customer, have a no-tainted transaction customer agreement clause, and have a remedial procedure (transfer denied; account closed) when tainted transactions surface.", "The \"Automated Clearing House System\" (ACH) is a system for settling batched electronic entries for financial institutions. The entries may be recurring credit transfers such as payroll direct deposit payments or recurring debit transfers such as mortgage payments. The entries may also include one time individual credit or debit transfers. Banks periodically package credit and debit transfers and send them to a ACH system operator who sorts them out and assigns them to the banks in which the accounts to be credited or debited are found. Participants are identified not according to whether they are transferring credits or debits but according to which institution initiated the transfer, i.e., originating depository financial institutions (ODFI) and receiving depository financial institutions (RDFI).\nThe final rule exempts all participants processing a particular transaction through an ACH system, except for the RFDI in an ACH credit transaction, the ODFI in an ACH debit transaction, and the receiving gateway operator that receives instructions for an ACH debit transaction directly from a foreign sender. These entities are not exempt under the theory that in any tainted transaction they will be in the best position to assess the nature of the business of the beneficiary of the transfer and to identify and block transfers to unlawful Internet gambling operators. The ACH system operator, ODFIs in a credit transaction and RDFIs in a debit transaction are exempt from the regulations, however.\nThe examples of ACH system reasonably compliant policies and procedures are comparable to those for check collection and wire transfer systems: in purely domestic cases, know your customer, have a no-tainted transaction customer agreement clause, have a remedial procedure (disallow origination of ACH debit transactions; account closed) when tainted transactions surface; in the case of receiving transfers from overseas, know your foreign gateway operator, have a no-tainted transaction agreement, have a remedial procedure (ACH services denied; termination of cross-border relationship) when tainted transactions surface. The Agencies explained that U.S. participants processing outboun d cross-border credit transactions (ACH credits and wire transfers) are exempted \"because there are no reasonably practical steps that a U.S. participant could take to prevent their consumer customers from sending restricted transactions cross-border.\" The Agencies explained that there is insufficient information to allow U.S. participants to identify and block restricted transactions in cross-border ACH credit transactions and sending wire transfers abroad.", "Good faith compliance with UIGEA and its regulations insulates U.S. financial firms that participate in designated payment systems from both regulatory and civil liability. Regulatory enforcement is the responsibility of the Federal Trade Commission and the \"federal functional regulators\" within their areas of jurisdiction, that is, the Governors of the Federal Reserve, the Comptroller of the Currency, the Federal Deposit Insurance Commission, the Office of Thrift Supervision, the National Credit Union Administration, and the Securities and Exchange Commission.", "The enactment of UIGEA had an immediate impact on Internet gambling activities. For example, NETeller, a payment processing company based in the Isle of Man that reportedly processed more than $10 billion in gambling proceeds between U.S. customers and offshore Internet gambling business from 1999 to 2007, entered into a deferred prosecution agreement with the U.S. Department of Justice under which it agreed to discontinue U.S. operations, cooperate with investigators, and to pay the U.S. $136 million in sanctions and to return an additional $96 million to U.S. customers. Several offshore Internet gambling companies sought similar agreements after the enactment of UIGEA. A number of large banking institutions, which underwrote the initial public offers for offshore Internet gambling companies on the London stock exchange, were the targets of grand jury subpoenas as well.\nSome Internet gambling companies, however, were undeterred by the new federal law and attempted to rely on fraudulent methods to circumvent UIGEA's prohibitions. Yet despite their efforts to evade UIGEA, several of these companies have faced prosecution and been forced to shut down their operations. For example, on April 15, 2011, the U.S. Attorney for the Southern District of New York announced the unsealing of an indictment of 11 defendants, including the founders of the three largest Internet poker websites (Poker Stars, Full Tilt Poker, and Absolute Poker), that charged them with a variety of federal offenses including bank fraud, conspiracy, violating UIGEA, money laundering, and operating an illegal gambling business. For example, the offshore Internet poker companies allegedly \"arranged for the money received from U.S. gamblers to be disguised as payments to hundreds of non-existent online merchants purporting to sell merchandise such as jewelry and golf balls,\" thereby tricking U.S. banks and credit card issuers to process their payments. In addition, the indictment also accused the Internet poker companies of \"persuad[ing] the principals of a few small, local banks facing financial difficulties to engage in [payment] processing in return for multi-million dollar investments in the banks.\" As part of this enforcement action, the Federal Bureau of Investigation seized five Internet domain names that were used by the poker companies to host their illegal poker games; such domain name seizure \"effectively shuttered their doors.\"", "Since passage of UIGEA in 2006, there have been several attempts to repeal the law or loosen its restrictions, although no such legislation has been enacted. Several bills have been introduced in the 112 th Congress that would allow for lawful, government-regulated Internet gambling activities. Such legislative proposals have been supported by Members of Congress who have criticized the current Internet gambling restrictions for being, in their view, ineffective at stopping Internet gambling by millions of Americans, an infringement on individual liberty, and a lost opportunity to collect billions of dollars in tax revenue, among other things. Some interest groups also endorse legislation that would regulate, rather than prohibit, Internet gambling because they believe it would help protect American consumers (adults and minors) from the risks of fraud and other financial and societal costs associated with online gambling. What follows is a brief description of the bills in the 112 th Congress that would authorize and regulate some forms of Internet gambling.", "The Internet Gambling Regulation, Consumer Protection, and Enforcement Act ( H.R. 1174 ) is a bill introduced by Representative John Campbell. H.R. 1174 would establish a licensing regime under which Internet gambling operators may lawfully accept bets or wagers from individuals located in the United States. Under the bill, the Secretary of the Treasury would have full regulatory authority over the Internet gambling licensing program, including the power to approve, deny, renew, or revoke licenses to operate an Internet gambling facility. In addition, the Secretary of the Treasury would have the power to delegate his authority to \"qualified State and tribal regulatory bodies\" for the purposes of regulating the operation of Internet gambling facilities by licensees and determining the suitability of applicants to obtain a license. Qualified state or tribal authorities would also be allowed to enforce any requirement of the act that is within their jurisdiction.\nIn addition, H.R. 1174 would establish specific standards and requirements for Internet gambling licensees to satisfy, including the following:\n1. Establishing safeguards to verify that the customer placing a bet or wager is of legal age as defined by the law of the state or tribal area in which the individual is located at the time the bet or wager is placed. 2. Requiring mechanisms that verify that the customer placing a bet or wager is physically located in a jurisdiction that permits Internet gambling. 3. Ensuring the collection of all taxes relating to Internet gambling from customers and from any licensee. 4. Maintaining safeguards to combat fraud, money laundering, and the financing of terrorism. 5. Maintaining safeguards to protect the customer's privacy and security. 6. Establishing safeguards to combat compulsive Internet gambling. 7. Maintaining facilities within the United States for processing of bets or wagers made or placed from the United States. 8. Certifying that they have not committed an intentional felony in violation federal or state gambling laws. 9. Verifying that their customers are not delinquent on their child support.\nIndian tribes and states may opt out of the Internet gambling regime if they provide notice to the Secretary of the Treasury; Indian tribes must give notice within 90 days after enactment of the Internet Gambling Regulation, Consumer Protection, and Enforcement Act, while each state has a longer period of time to decide whether to opt-out—a period starting from the enactment of H.R. 1174 and ending on the date on which the state's legislation has conducted one full general legislative session. Therefore, customers located within Indian tribes and states that elected to opt out would be prohibited from engaging in Internet gambling activities, and licensees would be responsible for blocking access to those customers.\nThe Director of the Financial Crimes Enforcement Network, within 120 days after the bill's enactment, would be required to submit to the Treasury Secretary a list of \"unlawful Internet gambling enterprises\" that identifies any person who has violated UIGEA more than 10 days after the date of the bill's enactment; such a list is to be posted on the Department of the Treasury website for public access and also distributed to \"all persons who are required to comply with\" the regulations promulgated by the Federal Reserve and the Treasury Department. Another provision of H.R. 1174 provides safe harbor from liability for financial institutions that process transactions for licensees, unless they had knowledge that the specific financial activities or transactions are conducted in violation of federal or state laws.\nH.R. 1174 prohibits licensees from accepting credit cards as a form of payment with respect to Internet gambling. The bill also expressly states that no licensee may accept bets or wagers on sporting events, with the exception of pari-mutuel racing as permitted by law (such as horse racing and greyhound racing). In addition, the bill would exempt from the new regulatory regime Internet gambling conducted by any state or tribal lottery authority.", "Representative Jim McDermott introduced a companion bill to Representative Campbell's licensing legislation, the Internet Gambling Regulation and Tax Enforcement Act of 2011 ( H.R. 2230 ). This bill would establish a licensing fee regime within the Internal Revenue Code for Internet gambling operators; it essentially creates a tax on online gambling deposits. H.R. 2230 would require each licensee to pay a monthly Internet gambling license fee in an amount equal to 2% of all funds deposited by customers during that month. According to Representative McDermott, this fee \"would never be imposed on a land-based casino. It would level the playing field between online operators and brick-and-mortar gambling operations which are more expensive to run.\" In addition, the bill provides revenue incentives for states and Native American tribes, as states and tribal authorities have the option of accepting from licensees, on a monthly basis, an online gambling fee \"equal to 6 percent of all deposited funds deposited by customers residing in each State or area subject to the jurisdiction of an Indian tribal government.\" Acceptance of this fee by the state or tribal government relieves the licensee from any obligation to pay any other fee or tax to the state or tribal government relating to online gambling services.", "Introduced by Representative Joe Barton, the Internet Gambling Prohibition, Poker Consumer Protection, and Strengthening UIGEA Act of 2011 ( H.R. 2366 ) would legalize and regulate interstate Internet poker only, as opposed to other forms of Internet gambling that would be permitted under Representative Campbell's bill. Under H.R. 2366 , anyone wishing to operate an online poker website would need to obtain a license from \"qualified\" state or tribal gambling oversight commissions. Such state or tribal agencies would need to be approved by a new Office of Internet Poker Oversight that the bill establishes within the U.S. Department of Commerce. The new federal Office of Internet Poker Oversight would be responsible for ensuring that qualified state or tribal agencies comply with the requirements under the act and would have the power to investigate and take appropriate remedial action against them. H.R. 2366 specifies a range of minimum standards for state and tribal agencies to satisfy in order for them to be permitted to participate in the licensing program. The bill also sets forth several standards that qualified state and tribal agencies must apply in determining whether a party should be issued an Internet poker facility license. Like Representative Campbell's bill, H.R. 2366 allows states and Indian tribes to \"opt out\" of the license regime; in order to do so, the state's governor or the principal chief of the Indian tribe would need to inform the Secretary of Commerce of the \"nature and extent\" of the limitation on bets or wagers with respect to Internet poker that would apply to any person who resides in that state or who is located in the particular tribal land, respectively.\nH.R. 2366 also would require an Internet poker facility, in order to obtain a license, to demonstrate to the qualified state or tribal agency that it maintains certain safeguards and mechanisms that, among other things, (1) ensure that the person placing the bet or wager is at least 21 years of age or older; (2) ensure that the person is physically located in a jurisdiction that allows such bets or wagers; and (3) prevent fraud, money laundering, and terrorist financing.", "The federal Wire Act, 18 U.S.C. 1084, prohibits the use of interstate telephone facilities by those in the gambling business to transmit bets or gambling-related information. Early federal prosecutions of Internet gambling generally charged violations of the Wire Act. However, one federal appeals court concluded that the Wire Act applies only to sports gambling, while a subsequent district court concluded that it applies to non-sports gambling as well. The U.S. Department of Justice's Criminal Division has consistently maintained that the Wire Act applies not only to sports wagering but can also be applied to other forms of interstate gambling, including non-sports Internet gambling. Such an expansive view of the Wire Act by the Justice Department dissuaded state governments from expressly authorizing and implementing Internet gambling within their jurisdictions. However, in late 2011, in response to a request by the states of Illinois and New York for an opinion regarding whether their proposed use of the Internet to sell lottery tickets to in-state adults would violate the Wire Act, the Justice Department's Office of Legal Counsel (OLC) reversed its interpretation of the Wire Act, opining that \"interstate transmissions of wire communications that do not relate to a 'sporting event or contest,' 18 U.S.C. §1084(a), fall outside the reach of the Wire Act.\" Some observers predict that this change in position will cause \"an explosion of poker, instant lotteries and casino games on the Internet, run or licensed by the states.\" In addition, because of the OLC's opinion, states may be able to enter into compacts with one another to operate online gambling across state lines.", "Most states prohibit any gambling that they do not expressly permit. All states except Hawaii and Utah authorize some form of gambling by their residents, such as lotteries, bingo, card games, slot machines, or casinos. Seven states (Illinois, Indiana, Louisiana, Montana, Oregon, South Dakota, and Washington) expressly outlaw Internet gambling. However, in light of growing state budget deficits and state legislators' desire to find ways of raising revenue without increasing taxes, several states are considering measures that would legalize, license, and tax Internet gambling within their borders. Such legalization would take advantage of UIGEA's \"intrastate exemption\" provision; states also no longer need to be concerned about prosecution under the Wire Act for enacting such laws due to the recent Department of Justice OLC opinion.\nIn April 2011, the District of Columbia authorized the District's lottery commission to offer games of skill or chance including poker via the Internet in the District of Columbia, becoming the first jurisdiction in the nation to legalize intrastate Internet gambling. However, after some D.C. lawmakers criticized the apparently covert manner in which online gambling was approved (it was a late-night amendment to a budget law that received no public debate or hearings before passage), the Council of the District of Columbia voted to repeal the law in February 2012.\nIn June 2011, Nevada amended its state law to allow certain gaming licensees to conduct Internet gambling operations, effective upon passage of federal authorizing legislation or United States Justice Department notification that federal law permits such activity. In late December 2011, the Nevada Gaming Control Board approved regulations to allow Internet poker within its borders, becoming the first state to do so.\nOn March 4, 2011, the governor of New Jersey vetoed a bill that would have permitted intrastate Internet gambling, based in part on concerns that the New Jersey constitution limits casino gambling to within the boundaries of Atlantic City and also the uncertainty regarding the applicability of the federal Wire Act. A bill is currently progressing through the New Jersey legislature to permit Atlantic City casinos to take bets from gamblers via the Internet.\nThe Utah legislature passed a bill, signed by the Utah governor on March 19, 2012, that specifically prohibits Internet gambling within its borders and also provides for the state to opt-out of the federal licensing regime that would be created by H.R. 1174 , the Internet Gambling Regulation, Consumer Protection, and Enforcement Act, should Congress pass the law.\nIowa directed its state racing commission to study and report on \"the creation of a framework for the state regulation of intrastate Internet poker.\" The report, issued in December 2011, concluded that intrastate online poker could be conducted safely and would raise revenue of $3 million to $13 million per year. The Iowa senate in March 2012 approved a measure that allows the state's casinos and racetracks to offer Internet poker." ], "depth": [ 0, 1, 1, 2, 2, 3, 3, 3, 3, 2, 1, 1, 2, 2, 2, 1, 1 ], "alignment": [ "h0_title h2_title h1_title", "h0_full", "h0_full h1_title", "h0_full h1_full", "h1_title", "", "h1_full", "", "h1_full", "", "h1_full", "h2_full", "h2_full", "", "", "", "" ] }

{ "question": [ "What problem does UIGEA address?", "What does UIGEA restrict?", "What actors does UIGEA collaborate with?", "With what federal agencies does UIGEA work?", "How did the Agencies adopt these provisions?", "What does the final rule address?", "What does the final rule suggest about financial institutions?", "What requirements does it make of these institutions?", "What does possibilities does it identify?", "What did the Agencies argue in response to the rule?", "Why have Congresspeople criticized the current Internet gambling regulations?", "What related hearings has the 112th Congress held?", "What legislation has been brought up at these hearings?" ], "summary": [ "The Unlawful Internet Gambling Enforcement Act (UIGEA) seeks to cut off the flow of revenue to unlawful Internet gambling businesses.", "It outlaws receipt of checks, credit card charges, electronic funds transfers, and the like by such businesses.", "It also enlists the assistance of banks, credit card issuers and other payment system participants to help stem the flow of funds to unlawful Internet gambling businesses.", "To that end, it authorizes the Treasury Department and the Federal Reserve System (the Agencies), in consultation with the Justice Department, to promulgate implementing regulations.", "The Agencies adopted a final rule implementing the provisions of the UIGEA, 73 Federal Register 69382 (November 18, 2008); the rule was effective January 19, 2009, with a compliance date of June 1, 2010.", "The final rule addresses the feasibility of identifying and interdicting the flow of illicit Internet gambling proceeds in five payment systems: card systems, money transmission systems, wire transfer systems, check collection systems, and the Automated Clearing House (ACH) system.", "It suggests that, except for financial institutions that deal directly with illegal Internet gambling operators, tracking the flow of revenue within the wire transfer, check collection, and ACH systems is not feasible at this point. It therefore exempts them from the regulations' requirements.", "It charges those with whom illegal Internet gambling operators may deal directly within those three systems, and participants in the card and money transmission systems, to adopt policies and procedures to enable them to identify the nature of their customers' business, to employ customer agreements barring tainted transactions, and to establish and maintain remedial steps to deal with tainted transactions when they are identified.", "The final rule provides non-exclusive examples of reasonably designed policies and procedures to prevent restricted transactions.", "The Agencies argued that flexible, risk-based due diligence procedures conducted by participants in the payment systems, in establishing and maintaining commercial customer relationships, is the most effective method to prevent or prohibit the restricted transactions.", "Some Members of Congress have criticized the current Internet gambling restrictions for being, in their view, ineffective at stopping Internet gambling, an infringement on individual liberty, and a lost opportunity to collect tax revenue, among other things.", "The 112th Congress has held several hearings concerning Internet gambling and related issues, and several bills have been introduced that would allow for lawful, government-regulated Internet gambling activities.", "The legislation includes H.R. 1174 (Internet Gambling Regulation, Consumer Protection, and Enforcement Act), which would establish a licensing program administered by the U.S. Treasury Secretary under which Internet gambling companies may legitimately operate and accept bets or wagers from individuals located in the United States; H.R. 2230 (Internet Gambling Regulation and Tax Enforcement Act of 2011), which would establish a licensing fee regime within the Internal Revenue Code for Internet gambling operators; and H.R. 2366 (Internet Gambling Prohibition, Poker Consumer Protection, and Strengthening UIGEA Act of 2011), which would create an office within the U.S. Department of Commerce responsible for overseeing qualified state agencies that issue licenses to persons seeking to operate an Internet poker facility." ], "parent_pair_index": [ -1, 0, 0, 0, 3, -1, 0, 1, 0, 0, -1, 0, 1 ], "summary_paragraph_index": [ 0, 0, 0, 0, 0, 1, 1, 1, 1, 1, 2, 2, 2 ] }

{ "title": [ "Background", "Trust Oversight Includes Mandatory Reporting and Voluntary Periodic Performance Audits", "The Trust Regularly Communicates with the Board and Other Federal Agencies", "The Trust Has Commissioned Periodic Performance Audits Since 2002, but Has Not Established a Formal Policy for Such Audits", "Performance Audit Practices of Comparable Entities Can Differ from the Trust in Scope and Frequency", "Most Comparable Entities Are Subject to Multiple Levels of Performance Audits, but the Nature and Frequency of Reviews May Vary", "Subject to Independent External Auditors", "Number of Independent External Auditors", "Frequency of External Performance Audits", "Internal Audit Offices", "State and Federal Audits Cover Certain Areas Not Included in Trust Reviews", "According to Experts, the Trust’s Performance Audit Practices Are Similar to Those of Large Private Sector Plans", "Key Parties Noted Tradeoffs with Expanded Trust Oversight", "Key Parties Disagreed about Need and Extent of Additional Oversight", "Stakeholders Identified Important Tradeoffs with Enhanced Trust Oversight Policy Options", "Require Periodic Audits with External Input on Scope", "Establish External Investigative Authority", "Establish Office of Internal Audit", "Statutory Amendment or Administrative Agreement", "Concluding Observations", "Agency Comments", "Appendix I: Objectives, Scope, and Methodology", "Appendix II: Comments from the National Railroad Retirement Investment Trust", "Appendix III: Comments from the Railroad Retirement Board", "Appendix IV: Comments from the Railroad Retirement Board Office of Inspector General", "Appendix V: GAO Contacts and Staff Acknowledgments", "GAO Contact", "Staff Acknowledgments" ], "paragraphs": [ "The Trust was established by statute as a tax-exempt entity to manage and invest the assets used to pay a portion of Railroad Retirement Program benefits. Congress anticipated that the Trust would be managed much like a private sector pension plan trust.seven trustees that, like trustees of multiemployer plans established The Trust is governed by through collective bargaining, include representatives of both management and labor. Three of the trustees are selected by railroad management, three by railroad labor, and one independent trustee is selected by the other six. The Trust may invest Trust assets in stocks, bonds and other investment vehicles in a manner similar to other defined benefit (DB) plans. While the Trust is not subject to the Employee Retirement Income Security Act of 1974 (ERISA), which governs private sector pension plans, its trustees are subject to fiduciary standards comparable to the fiduciary duties under ERISA. For example, each member of the Board of Trustees must act solely in the interests of the Board and, thereby, plan participants and beneficiaries; for the exclusive purpose of providing plan benefits and defraying administrative costs; with the care, skill, prudence, and diligence that a prudent person familiar with such matters would use; and diversify investments to minimize the risk of large losses and avoid disproportionate influence over any industry or firm. As of September 2013, the Trust held about $25 billion in assets, placing it among the 50 largest DB plan trusts in the nation as of 2013. Trust assets consist mostly of equity and fixed income investments, but also include substantial assets allocated to alternative investments such as private equity, absolute return strategies, and commodities. From 2003 through 2013, according to a Trust representative, the Trust has had an average annual return on investment of about 6.4 percent. However, along with other plans, the Trust also suffered substantial investment losses during the financial crisis of 2008 and 2009. The Trust lost 19 percent in 2008 alone and suffered much lower losses in 2009 and 2011.\nThe Trust operates in coordination with the Board, a federal agency established in 1937 to provide old-age pensions to retired employees of the nation’s railroads. In 2013, the Board oversaw the payment of about $11.6 billion in retirement and survivor benefits to about 568,000 beneficiaries. The Board pays two types of benefits to retired workers and their spouses, which are funded through federal payroll taxes assessed on private railroads and their employees. Tier I benefits are calculated to be comparable to Social Security benefits, for which railroad retirees generally are not eligible. The Board also pays Tier II benefits, which are intended to provide a benefit similar to that of a DB plan. Benefits under Tier II are based on a worker’s 5 years of highest earnings and the number of years spent in railroad employment. Assets not needed for immediate payment of Tier II benefits are invested by the Trust in accordance with its investment policy.\nThe legislation creating the Trust includes language making it clear that the Trust is not part of the federal government. Specifically, the Trust is not a department, agency, or instrumentality of the federal government, and it is exempted from title 31 of the U.S. Code which governs the financial operations of the federal government and establishes the powers In addition, the and duties of the U.S. Government Accountability Office. Board is not represented on the Board of Trustees because the Board is a federal agency. However, as required by law, an independent qualified public accountant audits the Trust’s financial statements each year. It has been reported that these aspects of the Trust stemmed from concerns about government involvement in investment decisions that were repeatedly raised in Congress and elsewhere. It was reportedly feared, for example, that politically motivated investment decisions would lead to suboptimal investment returns and would provide political advantages to those influencing the decisions. Concerns about this “political risk” were of particular concern because the partial privatization of the much larger Social Security Trust Fund was a prominent public policy issue at the time. These concerns led to a desire to eliminate even the appearance of possible political influence and significantly influenced the Trust’s current structure.\nWhile the Trust manages the pool of assets in a manner similar to that of a private or public sector traditional DB plan, it also differs significantly from such plans in certain ways. As figure 1 illustrates, the Trust’s role is important but relatively narrow—its sole purpose is to manage and oversee the assets used to ensure payment of Tier II railroad retirement benefits. The Board assumes various other responsibilities of a DB pension plan, such as keeping track of benefit accruals and ensuring benefit payments. As a result, the Trust is a relatively small organization compared to the Board and pension plans of comparable size. While the Trust employs about 18 staff, the Board, which has many other duties— including unemployment and sickness benefit programs—and regional offices around the United States, employs about 865. A public pension plan like the Pennsylvania State Employees’ Retirement System, whose assets under management are comparable to that of the Trust, employs about 200 staff.\nOther essential aspects of a typical DB plan, such as maintaining records of accrued benefits, providing technical assistance to participants, and authorizing and making benefit payments, are carried out by the Board or the Department of the Treasury (Treasury). In addition, the Board assumes responsibility for interacting with workers or beneficiaries as needed. The Trust is thus free of these responsibilities, and is able to focus on overseeing its invested assets. Table 1 compares the Trust and the Tier II program to typical public and private DB plans.\nAlthough the Trust does not have its own OIG, since the Trust’s inception, the Board’s OIG has repeatedly expressed concerns about the adequacy of Trust oversight. In November 2002, the OIG contacted the Trust’s Chief Investment Officer to inquire about investment practices and the transfer of assets from Board accounts at Treasury to the Trust. The OIG requested written confirmation that transferred funds had been received, which investments had been purchased, and current investment yields. The Trust Chair responded by noting that the Trust transmits investment information in a statutorily-required annual report, as well as monthly reports pursuant to a memorandum of understanding with the Board, Treasury, and the Office of Management and Budget (OMB). In a subsequent correspondence, the Chairman noted that Congress had specified that the Trust was to be audited by an independent auditor, and delegated to the Board the responsibility to bring civil action if it believes the Trust is not complying with the statute. Since that time, the Trust has declined to provide any information directly to the OIG, although the Board has opted to share information pertaining to the Trust in some cases. In 2008, the OIG issued a report expressing concern that the Trust’s authorizing legislation provided the Board with a passive oversight role, and did not provide the Board with the ability to uncover circumstances requiring enforcement action. The report further noted limitations of annual financial statement audits, stating that such audits provide a “snapshot” of an organization’s financial health at a point in time, are not equivalent to a performance audit, and cannot assess program performance compared to applicable criteria. The report concluded that the annual financial statement audit should be supplemented by performance audits, which can offer information about the effectiveness of internal controls, assess compliance with law, and assess the efficiency of recruitment and retention strategies.\nThe overall importance of adequate oversight of pension assets has been highlighted in recent years by a number of incidents involving officials responsible for managing large pools of retirement assets. For example, in 2011, high ranking officials of a large state pension plan were implicated in practices that violated fiduciary and ethical duties. Specifically, they were found to have guided investments to certain middlemen known as “placement agents” in exchange for trips and other benefits, possibly to the detriment of beneficiaries. Similarly, in 2009, the PBGC Office of Inspector General (PBGC OIG) issued a report regarding a former PBGC Director’s inappropriate involvement in contracting for investment services. Among other things, the PBGC OIG found that the former Director was communicating directly with some bidders at the same time he was actively considering their proposals, and so had clearly violated prohibitions against contact with potential service providers.", "", "Under the law, the Trust must submit an annual management report to the Congress, President, Board, and Director of OMB. This report is required to address various matters pertaining to the Trust’s administration and financial position. As table 2 outlines, the most recent annual report contains information about the investment results, financial activity, operations and management. For example, the report includes a discussion of the evolution, current status and performance of the Trust’s investment portfolio. It also includes a history of asset transfers and current book and market values. The report also includes a section on internal accounting and administrative controls including a description of the custodial arrangements under which Trust assets are primarily in the custody of a custodial bank, as well as the custodian’s responsibility to provide the Trust with a full record of all transactions involving Trust assets. The Annual Management Report also includes relevant Trust policies such as Trust by-laws, investment guidelines, and a conflicts of interest policy statement. In addition to Annual Management Reports, the Trust also submits monthly and quarterly reports to the Board. The monthly reports include financial information such as information on the purchase and sale of federal and non-federal securities, the monthly cash balance, and aggregate administrative expenses. Quarterly reports include a summary of investment objectives, quarterly investment returns, and aggregate asset values.\nUnder the terms of a memorandum of understanding with three federal agencies, the Trust also submits a monthly report to the Board.memorandum states that because the Board is responsible for the overall management of the Railroad Retirement System, it is responsible for all budgetary and proprietary reporting of Trust transactions. Consequently, as table 2 describes, the Trust must submit information on investment and other transactions to the Board, and may do so on a 1-month delayed basis. The Board then uses this information to prepare monthly financial reports submitted to Treasury.\nIn addition to reviewing these reports, Board and Trust officials stated that the organizations conduct regular formal meetings. In addition, the Board, in cooperation with the Trust, receives and reviews communications and information throughout the year. Board officials explained that Board members and trustees meet face-to-face twice annually, during which the Board receives a presentation on economic, legal, and other issues that could affect the Trust and its investments. The presentation may also include a detailed discussion of investment performance and outlook by asset class. A Board official said that such meetings typically include a question and answer session. These meetings are supplemented by quarterly conference calls between Trust and Board financial and legal staff in which investment performance, ongoing audits, or other issues are discussed.\nBoard officials indicated that, after more than 10 years of experience working with and overseeing the Trust, they saw no need for enhanced oversight, noting that these reports and communications effectively provide continuous oversight, and in the event of a participant complaint, the Board would stand in for a claimant’s interest and take action in the event of malfeasance or mismanagement. Further, Board and Trust representatives told us that the Trust has never declined to share information that the Board has requested. Based on this working relationship, Board officials stated they believe they would be aware of any cause to file a lawsuit under the statute.", "While not required by law to do so, the Trust has commissioned four performance audits since the Trust was organized in 2002. As table 3 illustrates, these audits have occurred roughly every 2 to 3 years, and have covered a wide range of issues from technical compliance with the terms of the MOU between the Board, OMB, and Treasury, to the Trust’s approach to non-traditional investments such as hedge funds and private equity.\nThese performance audits varied considerably in subject matter and breadth. For example, the 2004 audit, conducted by the internal audit departments of two railroad firms, sought to ensure that various core functions, including financial reporting functions, were in place and operating as intended. In contrast, the 2009 review sought to examine various aspects of investment related practices, for which a railroad internal audit department would not likely have sufficient expertise. Instead, according to a Trustee, the Trust hired a consulting firm that it believed to have considerable expertise in investment strategy and management. This report went into some detail about the nature and management of the Trust’s alternative investments such as hedge funds and private equity, and examined the Trust’s “due diligence” procedures regarding the search for investment managers and ongoing manager oversight.\nEach report contained recommendations and, according to Trust documents, the Trust either implemented, committed to implement, or explained why it would not implement each recommendation. In at least one instance, the Trust has not pursued the auditor’s recommendations. Specifically, while the 2006 internal risk assessment generally found few gaps in Trust processes and controls of risk, the auditor also proposed a second audit phase to explore a number of issues more deeply. According to a Trust representative, the Trust audit committee opted not to commit to the significant cost of this second phase, since the risk analysis found only a few “gaps” out of the 19 areas evaluated, and because the Trust either took corrective action or determined that the Trust’s existing policies sufficiently addressed the concern. Since that time, some of the specified issues have been addressed in subsequent reviews, but others have not. For example, the audit proposed a more in- depth review of recruiting, staff compensation, and organizational culture, but the Trust has not followed up with an audit of these issues.\nAlthough Trust representatives indicated that they intended to continue the practice of periodic performance audits, the Trust does not have a written policy regarding performance audits, their frequency, or their subject matter. For example, the Trust’s Audit Committee Charter specifically assigns the Committee responsibility for, among other items, 1) retaining and working with the independent financial auditor, 2) overseeing the Trust’s conflict of interest and confidentiality policies, and 3) overseeing Trust staff compliance with the MOU. However, the charter is silent on performance audits.\nRecently, a second MOU—developed between the Trust and the Board— has been drafted that would formalize the practice of commissioning periodic performance audits. Under a draft MOU, starting in 2015, performance audits would be performed at least every 3 years, in consultation between the Trust and the Board. The document also lists 12 areas that would be appropriate subjects of the audits, and provides that the Trust and the Board would meet to review the audit results and assess what changes to Trust practices or procedures would be warranted. However, the document does not include some audit subjects, such as fiduciary responsibility and conflict of interest policies, and does not specify timeframes for addressing particular areas subject to audit.", "", "", "Unlike the Trust, most state plans and both federal programs we contacted are subject to performance audits that can be initiated and conducted by an independent entity. As figure 2 shows, 42 of the 50 state plans we contacted are subject to external audits conducted by the states’ Auditor General or a comparable entity with authority to audit or otherwise review them. External audits of these plans can be initiated and conducted independent of the plans’ governing board and management. The remaining 8 of these 50 state plans are not subject to external audit. Plan officials in these 8 states stated that oversight can be achieved in other ways, such as through the preparation of publically available reports as well as through board of trustee and legislative oversight.\nTwo federal programs that oversee large asset pools for the benefit of retirees and their beneficiaries are also subject to independently initiated performance audits. For example, PBGC’s single employer insurance program is subject to OIG audits and TSP is subject to Employee Benefit Security Administration (EBSA) audits.\nWhile the large majority of state and federal officials noted the importance of performance audits conducted by an independent external entity, officials of some state plans subject to audit noted potential drawbacks as well. A plan official in one state said auditors should be independent because they need to be unbiased, and conduct their work without influence. An EBSA official stated that given the value of TSP’s asset holdings, they would be concerned if EBSA was not able to initiate an audit to examine program areas they felt warranted closer review. Nonetheless, a plan official in one state said the plan resisted such audits in part out of a concern for politically motivated reviews and a perceived lack or expertise in investment matters. The official explained that the Auditor General’s office was seen as a stepping stone to the governorship, and that plan officials were concerned that audits could be used for political purposes. According to the official, when a state court ruled that the Auditor General had the power to initiate an audit, plan officials commissioned an external firm in 2006 to conduct a separate review so state legislators could consider the findings of both audits.", "In contrast to the Trust, several state and both federal programs we contacted are subject to multiple audits initiated by independent agencies. As indicated in figure 2, 13 of 50 state plans can be reviewed by two or more entities. In one state for example, the plan is subject to review by three state agencies: the Auditor General, a legislative oversight agency, and the state’s Inspector General. In some cases, state oversight agencies do not conduct audits but monitor investment strategy and activities in other ways. For example, one state’s legislative oversight committee informs and advises the legislature about different investment options for pension assets. Both federal programs we contacted are also subject to audit by multiple agencies. As noted above, PBGC is subject to audit by its OIG, and TSP is subject to audit by EBSA. In addition, unlike the Trust, both are subject to GAO’s audit jurisdiction.", "As illustrated in figure 3, the frequency with which the Trust has commissioned performance audits is comparable to or exceeds most state efforts. Unlike the Trust, 29 of the 50 state plans we contacted are subject to external audits on a specific calendar cycle. While 14 of the 42 state plans are subject to quarterly or annual external audits, most state plans are audited about as frequently as or less so than the Trust. For instance, similar to the Trust, nine state plans are audited at least once every 2 or 3 years. The remaining 19 state plans were subject to audits at longer set intervals that varied from state to state or were not reviewed according to any established time frame.\nWhile the Trust had not established time frames for periodic reviews of any topic, in some states, external auditors are required to review certain topics within specified intervals. In one state, the Auditor General conducts a performance audit every 2 years focusing on plan operations while a second state agency audits the plan’s investment strategy, performance, and practices every other year. In another state, a state agency is required to conduct an audit every 3 years related to investment strategy, performance, and practices as well as ethics and conflicts of interest. The most recent of these audits assessed whether fiduciaries act for the sole benefit of participants, and whether the highest ethical practices were being upheld. Plan officials in this state stated that the requirement is relatively new, resulting from allegations that investment firms made improper payments to politically connected intermediaries in exchange for managing the investment of state pension assets.", "Thirty-seven of the 50 plans we examined report being subject to performance audits by an office of internal audit located within the plan itself. In 32 of these plans, internal audits supplement external audits, but in 5 others, the office of internal audit is the only entity that conducts performance audits. According to plan officials, internal audits are typically conducted on an ongoing basis in accordance with an annual audit plan, and are conducted with a significant degree of independence. For example, plan officials in two states stated that, although the board of trustees must formally review and approve their annual audit plan, trustees do not influence what internal auditors should or should not review. One plan official said that such independence is important because—if problems or malfeasance were occurring—the board of trustees might try to divert the focus of these reviews. Nonetheless, an official of one state plan that, like the Trust, solely manages and invests pooled pension assets, told us that given their relatively small size, an office of internal audit would not be appropriate. Instead, the official said they plan to retain a third party firm to conduct a broad-based risk assessment related to the plan’s investment allocations.", "Trust performance audits are comparable to state and federal audits in terms of the breadth of topics reviewed. We examined relevant performance audit reports of plans in seven selected states and two federal entities and compared these to the four audits the Trust has commissioned. Our examination indicated that the range of topics the Trust has reviewed included some topics that state or federal audits have not included, and in some cases Trust audits addressed topics in more detail. For instance, as shown in table 4, unlike TSP and four states, a Trust audit included a review related to the qualifications and compensation of its Board of Trustees and Trust staff. Further, Trust audits of some topics have been more detailed than those of some state audits. For instance, the Trust’s 2009 audit included an assessment of its practices for selecting and monitoring external investment managers, as did several state audits. However, the Trust audit also assessed the Trust’s practices for terminating contracts based on the performance of external investment managers which one state audit did not include. Table 4 lists broad audit topics and indicates whether the Trust, state plans, and federal agencies have conducted related reviews.\nConversely, some state and federal performance audits have included findings on topics that Trust audits have not included, or addressed topics in more detail. As table 4 indicates, two federal and six state entities have audited plan ethics and conflicts of interest policies and practices whereas the Trust audits have not. In some cases, such reviews have resulted in findings and recommendations in areas that could be relevant to the Trust. For instance, one state audit found that the plan did not have a process to independently identify potential conflicts of interest. Several states have also conducted audits that solely assessed whether the plan was in compliance with law and plan policies whereas the Trust has not. Although limited in scope, officials in one state said these types of reviews have identified issues such as conflicts of interest and the misuse of state funds. Finally, while a 2006 Trust audit considered qualifications and compensation of the Board of Trustees and Trust staff as part of a broad risk assessment, some state audits examined this issue in more detail. For example, a Trust audit considered the risk that improper compensation of staff would drive inappropriate behavior or limit ability to attract and retain staff. The review found that the Trust has processes and controls in place to address this concern, including a staff handbook and an annual review for each employee. In contrast, an audit of a state plan appeared to encompass more, finding that while the plan has a consistently high quality investment staff, it has relatively low staffing levels in several asset classes, a tendency to leave vacancies unfilled for many months, and underdeveloped and underutilized human resources. As a result, the fund has had to make more extensive use of external consultants, which, according to the audit report, resulted in higher costs to the plan.", "According to experts on private sector pensions, the Trust’s practice of commissioning external firms to conduct performance audits every 2 to 3 years is comparable to the practices of large private sector plans. While such plans are generally not subject to independently-initiated audits, fiduciary experts stated that large private sector DB plans commission periodic audits that are typically conducted by external consulting firms. In discussing the Trust’s current practice of commissioning audits every 2 to 3 years, one investment fiduciary expert said that this is similar to many large private sector plans. Experts indicated that such audits are fairly common among large pension plans, but that smaller plans—those managing assets of fewer than $100 million—do not typically commission these reviews. One expert stated that smaller plans may have a more difficult time justifying the use of the resources necessary to commission performance audits. Nonetheless, where resources are available, experts said that audits can be beneficial to a plan’s trustees and management. For instance, one expert said these reviews help ensure the plan is complying with all reporting and disclosure requirements.\nIn addition to periodic audits, private plans are also subject to potential external review by ERISA enforcement agencies. To enforce the fiduciary standards established in ERISA, for example, EBSA may review private sector plans to ensure officials are in compliance with ERISA standards and, like plan participants and others, take civil action to enforce compliance. While not subject to ERISA, the Trust’s authorizing legislation includes similar fiduciary standards and the Trust is subject to potential civil action by the Board for violations of law. While such action is possible, Board officials stated that the Board has never had cause to take such action.", "", "The Board’s OIG officials emphasized their long-held belief that the current level of oversight is inadequate, and that the Trust should be In a 2011 report, the OIG subject to more rigorous performance audits.stated that without stricter accountability, transparency, and oversight on issues such as administrative expenses and overall financial health, the Trust runs the risk of fraud, waste and abuse. Further, according to the OIG, there is no comparable example where federal program assets are completely outside the jurisdiction of a federal agency’s appointed Inspector General. OIG officials told us that that the Board can take enforcement action if it believes the Trust is not in compliance with its founding legislation, but that without more transparency, fraud or mismanagement would be difficult to detect. The OIG maintained that an external organization should have oversight authority so that it can independently verify Trust reports. The OIG added that—despite explicit statutory language making it clear that the Trust is not an agency of the federal government—the Trust’s control of about $25 billion in federal government assets makes its status as a non-governmental organization somewhat illogical, and that it should be subject to greater oversight. The official added that if the railroad industry fell on hard times and the Trust was unable able to make benefit payments, industry officials would likely need to seek federal financial assistance.\nBoth Trust and Board representatives stated that, in their view, the current oversight is adequate, citing annual mandatory financial audits, regular reporting and communications between the Board and Trust, and voluntary periodic Trust-commissioned performance audits. Also, officials cited the statutory “tax ratchet”, which raises or lowers the Tier II employer and employee tax rate to ensure that the Trust assets equal between 4 and 6 years of expected benefit payments. Officials noted that this mechanism both ensures that the Trust’s financial position will not unduly deteriorate so long as there is a viable railroad industry in the United States to pay required taxes, and ensures that railroad labor and management have a self interest in overseeing a financially healthy Trust.\nSelected representatives of railroad management and labor generally concurred with Board and Trust officials. For example, representatives of the Association of American Railroads—an organization representing U.S. railroads—stated that they did not have concerns about the Trust’s current oversight structure. Similarly, an official of the Brotherhood of Maintenance of Way Employes indicated that the Trust is doing well financially, and did not have concerns with regard to Trust oversight because the Trust is quite transparent, and labor organizations are able to obtain periodic reports.", "Based on discussions with experts and key stakeholders, as well as our review of oversight models that apply to large state plans, private sector plans subject to ERISA, and comparable federal entities, we identified four possible policy options for expanding Trust oversight. We spoke with key stakeholders about these policy options and solicited their views on the potential benefits and drawbacks of each. Table 5 summarizes stakeholder views on these policy options.\nAn OIG official told us that, in their opinion, this would be the most logical option because the Trust controls Board assets and the OIG is responsible for overseeing the Board. However, the official noted that the OIG has limited staff, and that such authority would require additional staff resources. To make this option more agreeable to the Trust, an OIG official said that any necessary statutory language could clearly delineate what the OIG’s role would and would not be. The official said the OIG would seek to verify that there are proper checks and balances in place and to assess internal controls. The official stated the OIG would not seek to advise the Trust on investment policy, which is beyond the OIG’s area of expertise.\nHowever, representatives of the Trust and the Board that we contacted were unanimously opposed to such a proposal. Board officials stated that such a development would be counter to the Trust’s originating legislation, and one official stated that externally-initiated audits could open the door to political influence, stating that audit objectives could be framed in a way that would pressure the Trust’s investment policies in a particular direction. For example, an audit could be designed to review “politically incorrect” investments, or investments that might be portrayed as not environmentally conscious. Similarly, a Trustee expressed concern about “headline risk”, where an outside auditor might make an issue about the Trust’s investments in alternative investments such as private equity. Trust representatives also expressed concerns about what they perceived as an unconstructive, confrontational relationship with the OIG. One official said this has been manifest in a number of ways since the Trust was established, including on matters relating to investment management and returns. A Trust official noted that the OIG has commented on Trust investments and related issues, and said that should the OIG be granted authority to audit the Trust, such concerns could result in an audit that would influence Trust investments. The official added that the Trust has a professionally developed investment strategy, and does not wish to take advice about investments or about its selection of investment advisors from the OIG or any other government agency.\nAlso, as summarized below, Trust officials noted that the OIG’s stance with regard to the Statement of Social Insurance (SOSI) has led them to undertake a costly and, in their view, unnecessary second audit of their financial statements each year. An OIG official told us that because the SOSI is included in Board financial statements, in their view the audit of the December 31 asset values is necessary based on OMB guidance. The official further noted that while the difference in the value of Trust assets between September 30 and December 31 is generally not large, in 2008 there was an 18 percent difference.\nBackground U.S. generally accepted accounting principles require federal agencies charged with responsibility for selected federal social insurance programs such as the Railroad Retirement, Social Security and Medicare programs—to present the Statement of Social Insurance (SOSI) as a basic financial statement in their respective annually audited financial statements. The SOSI presents the projected actuarial present value of the estimated future revenue and estimated future expenditures of these social insurance programs over 75 years. In preparing its annual SOSI for the Railroad Retirement program, the Board considers projections of employment levels, economic factors, and demographic factors such as mortality rates, widow remarriage rates, retirement rates, as well as current asset values provided by the Trust. The Department of the Treasury has cautioned that the assumptions used to prepare SOSI’s are inherently subject to substantial uncertainty, and that depending on future events, there will be differences between the SOSI estimates and actual results.\nOIG Action In 2006, the OIG informed the Board that it would not provide an unqualified opinion on its financial statements if the Board continued to accept unaudited December 31 asset values from the Trust. The Board then requested that the Trust pay for an audit of the December 31 asset values.\nTrust Position A Trust official stated that this is unnecessary because Trust assets are audited at the end of the Trust’s fiscal year—September 30. Further, the Trust noted that the variance between audited December 31 and unaudited December 31 values are invariably quite small—averaging about .12 percent and never exceeding ½ of 1 percent. According to a Trust official, the various assumptions made by the Board actuary in preparing the SOSI have much more impact on the projections than the difference between the audited and unaudited asset values.\nImpact According to the Trust, the additional audit is also wasteful—costing $152,000 in 2013 and a total of about $1.6 million since 2005.\nFinally, Board and Trust officials indicated that the OIG would not have sufficient expertise to conduct performance audits of the Trust. One official noted that the internal audit departments of two railroad firms were hired for the first audit that covered various administrative issues. However, Trust officials decided that these auditors would not have the expertise to conduct subsequent reviews, the scope of which required greater knowledge of investment management. Instead, the Trust opted to hire private consulting firms with recognized expertise in the relevant subject matter. For the same reason, a Trust official contended that OIG lacks the expertise to conduct these audits.", "Key stakeholders—including Board and Trust officials—generally supported this option. The Trust does not have a formal policy regarding the frequency or subject matter of its performance audits, or a policy regarding obtaining external advice on the subject and scope of such audits. However, one trustee stated that, while the Trust has every intention of continuing the practice of conducting periodic audits, they would be amenable to formalizing this process. An OIG official also generally supported this idea, but had previously stated that reviews every 3 years would not be sufficient, and that more ongoing oversight is needed. Board and Trust officials were also supportive of the Board serving in an advisory role with regard to such audits.\nRecently, the Trust and the Board have been developing a memorandum of understanding (MOU). According to a draft version of this MOU, starting in 2015, performance audits would be performed at least every 3 years based on mutual agreement between the Trust and the Board. The draft MOU also lists 12 areas that would be appropriate subjects of such audits, and provides that the Trust and the Board would meet to review the results and assess what changes to Trust practices or procedures are warranted. However, the draft MOU does not mention some audit subjects, such as fiduciary responsibility and conflicts of interest policies, and does not specify that key subjects should be addressed within specified timeframes for addressing particular areas subject to audit.", "Larger private sector DB plans have, according to experts we contacted, performance audit practices resembling those of the Trust. However, in response to participant complaints or other information, such plans are also potentially subject to EBSA investigations. As we have previously reported, EBSA does not conduct routine compliance audits, but rather investigators rely on various sources for case leads, such as staff reviews of plan annual reports or media reports, participant complaints, or referrals from other agencies. As noted previously, the Board can bring a civil action against the Trust for violations of law. Trust officials are subject to fiduciary standards similar to those under ERISA, and are prohibited from transactions in the trustees’ own interest, or receiving any benefit from any party dealing with Trust assets. However, the Trust’s authorizing statute does not provide for any mechanism other than a lawsuit with regard to a violation.\nTrust officials stated that establishing an external investigative authority might have limited benefits because railroad retirees and survivors do not interact with the Trust in the same way that retirees interact with a DB plan. A Trust representative noted that because the Trust’s sole duty is to manage the assets pertaining to Tier II benefits, it does not have responsibility for determining benefit levels, making benefit payments, or the other matters about which a pension plan may communicate with beneficiaries. According to Board representatives, workers taking issue with some aspect of Trust management or actions would likely contact the labor representative on the Board, and management officials would likely contact the Board’s management representative.", "An office of internal audit is common in state plans, but according to stakeholders, the Trust may be too small an organization to justify such a unit. The majority of the state plans were subject to audits conducted by an internal audit department. Internal auditors generally conducted audits on an ongoing basis, following a routine audit plan.\nBoth Board and Trust officials stated that, given the small size of the Trust’s staff, an office of internal audit would not be suitable. One Trust representative noted that, if the Trust was comparable in size to a large public pension plan, establishing an internal office would make some sense. However, he noted that the Trust employs few staff, and investment management is entirely carried out by external firms. The official stated that such an entity would need considerable skill—including in-depth expertise in investment, accounting, and financial controls—and such a professional would likely command a much higher salary than the Trust would be willing to pay for someone who would have limited responsibility for most of the year. A trustee also expressed concern about the substantial cost of such a position given that there would not be much for them to do most of the time.\nA representative of the OIG stated that establishing an internal compliance officer or auditor is a reasonable idea, but expressed concern about the operational independence of such a position. This official was not familiar with the status of internal audit offices within public pension plans, but indicated that such an office would need to be independent of management and Trustees, just as the OIG is independent of the Board.", "With respect to the policy options we discussed with stakeholders, Trust and Board officials stated that they would prefer any changes be established through an interagency agreement such as an MOU as opposed to a statutory amendment. Representatives of the Trust and the Board strongly preferred to avoid a statutory change. Trust representatives explained that any statutory amendments would offer less flexibility and opportunity for modification than would an administrative agreement such as an MOU. Further, Trust and Board officials expressed concern that the process of a statutory change might bring unexpected and disruptive consequences. For example, once begun, industry or labor might use the legislative process to impose additional amendments, which could cause unnecessary strife. An OIG official noted advantages and drawbacks to both options, noting for example that while the statutory option could be more difficult to achieve, it would have the benefit of greater permanence, since the Trust could not legally opt to discontinue new oversight practices.", "The National Railroad Retirement Investment Trust manages a $25 billion pool of federal assets that are critical to providing retirement benefits for railroad workers and their families. To protect these assets—and the entity that manages them—from political influence, the Trust was established independent of the federal government and explicitly exempted from the title 31 of the U.S. Code, which governs the financial operations of the federal government and establishes the powers and duties of GAO. However, the Trust is not without oversight beyond mandatory financial audits. Through regular reports and other communications, the Trust’s financial condition is monitored by the Board and other agencies of the federal government. Further, the Trust has appropriately recognized the importance of oversight and transparency by taking the initiative to commission four performance audits since it was organized in 2002. These voluntarily initiated audits are comparable to and in some cases more comprehensive than those of the state pension plans we reviewed.\nNonetheless, our review suggests that there are aspects of the approach to accountability for the Trust that could be strengthened. First, while 42 of the 50 state plans we surveyed and both federal agencies we reviewed are subject to performance audits that are initiated and conducted by external entities, the Trust is not. Instead, it has commissioned private firms to conduct audits whose subject and scope the Trust defines. However, a lack of independently initiated audits raises the risk that auditors could be directed away from potentially problematic issues. Second, 29 of the 50 state plans we contacted are subject to external audits on a specific calendar cycle, and those plans with an internal auditor are audited on an ongoing basis. Although the Trust has opted to commission performance audits every 2 to 3 years since its creation, it does not have a written policy requiring such audits, defining their scope, or establishing their frequency. Finally, while some states require that specific subjects be periodically reviewed, the Trust does not. For example, one state now requires plans to undergo ethics and conflict of interest reviews every 3 years—the most recent of which assessed whether fiduciaries act for the sole benefit of participants, and whether the highest ethical practices were being upheld.\nAny improvement in Trust’s performance audit oversight should help ensure that its investment decisions are insulated from political influence. Our review of state pension plans and selected federal programs suggests that while external audits are not necessarily a source of such influence, such influence may not be beyond the bounds of possibility. However, concerns about such “political risk” should be balanced against the management and financial risk that exists in situations where oversight is not clearly independent.\nThe Trust’s recent initiative to document a performance audit policy and to involve the Board in determining the subject and scope of future audits adds a welcome external perspective that is likely to enhance the independence of future audits. However, Trust action—including any interagency agreements—would not necessarily be permanent, and under current law the parties could revoke such an agreement at any time. After more than a decade of Trust operation, it may be time to consider whether such an arrangement should be made permanent, while still ensuring that Trust assets are managed solely with the long term best interest of railroad retirees and their families in mind.", "We provided a draft of this report to the National Railroad Retirement Investment Trust, the Railroad Retirement Board, and the Railroad Retirement Board Office of Inspector General for review and comment. We received formal written comments from all three organizations, and each generally agreed with our findings and analysis. Among other comments, the Trust indicated that it would seek to address two issues GAO noted with regard to the draft memorandum of understanding between the Trust and the Board regarding performance audits between the Trust and the Board. The Board’s OIG summarized some of its long- standing concerns about oversight of the Trust, and raised other concerns. For example, the OIG stressed the importance of audits conducted by independent external entities, and expressed opposition to any arrangement that would allow the Trust and the Board to control performance audits. The OIG also disagreed with the concern expressed by the Board that its audits could lack independence or be a source of political influence. The Trust, Board, and OIG formal comments are reproduced in appendixes II, III, and IV, respectively. The Trust and Board also provided a number of technical comments, which we incorporated as appropriate.\nBecause performance audit policies or the work of the Pension Benefit Guaranty Corporation, the PBGC Office of Inspector General, the Federal Retirement Thrift Investment Board, and the Department of Labor’s Employee Benefit Security Administration are reflected in our report, we also provided those agencies with a copy of the report for technical review and comment. None provided formal written comments, but the Federal Thrift Investment Board and the PBGC provided technical comments, which we have incorporated at appropriate.\nAs agreed with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days from its issue date. At that time, we will send copies of this report to appropriate congressional committees, the agencies named above, and other interested parties. In addition, this report will be available at no charge on the GAO website at http://www.gao.gov.\nIf you have any questions about this report, please contact Charles Jeszeck at (202) 512-7215 or jeszeckc@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are found in appendix V.", "Our objectives were to answer the following questions: 1. What performance audit policies and practices exist for the oversight of the National Railroad Retirement Investment Trust (Trust)? 2. What performance audit policies apply to comparable organizations, such as large state public pension plans? 3. What options, if any, could be pursued to improve Trust performance audit policies and what tradeoffs do stakeholders believe such options entail?\nTo answer our first question, we reviewed applicable federal laws, regulations, and Railroad Retirement Board (Board) policies and procedures regarding oversight of the Trust and the memorandum of understanding established between the Board, the Trust, the Office of Management and Budget (OMB), and the Department of the Treasury. Additionally, we interviewed representatives of the Board, the Trust, and the Railroad Retirement Board’s Office of Inspector General (OIG) to determine the nature and frequency of oversight and audit policies and practices regarding the Trust. We also obtained and reviewed relevant documents including each of the four Trust-commissioned performance audit reports, the Trust’s annual reports to Congress, and the Trust’s financial statement audit reports. Additionally, we reviewed relevant OIG reports and communications between the Board and OIG related to Trust audit and oversight.\nTo answer our second question, we conducted in-depth illustrative case studies of audit policies and practices in seven states: California, Florida, Illinois, New York, Tennessee, Texas, and Pennsylvania. We purposefully selected case studies based on region, plan participation, and governance and oversight structure.interviewed representatives of the state’s Auditor General or equivalent and either representatives of the state’s largest public employee pension plan or state agency that, similar to the Trust, solely managed the investment of pooled pension assets. Further, we obtained and reviewed As part of each case study, we relevant state performance audit reports. Specifically, we reviewed relevant state audit reports issued since 2008. We generally obtained these reports from the website of the states’ Auditors General or equivalent. During interviews with state Auditors General or equivalent and state pension officials, we discussed these reports and asked for copies of other relevant audit reports issued since 2008. Where available, we also reviewed audit reports produced by state plans’ offices of internal audit. As internal audit reports are generally not publically available, we asked officials to provide us with copies of these reports particularly those that reviewed aspects of the plan related to investment strategy and management that would be most applicable to the functions of the Trust. To obtain higher-level data regarding the performance audit policies and practices of the remaining 43 states, we also conducted structured interviews with officials of each state’s largest defined benefit (DB) public employee pension plan or pension investment entity as available. To identify the state DB plans or pension investment entities, we used information obtained from Pension and Investment’s Research Center and the National Association of State Retirement Administrators (NASRA).questions and held pre-tests with officials in two states to obtain feedback on the clarity and relevance of our questions. While the majority of our questions could be answered with a yes or no response, we also included more open ended questions regarding the frequency of external and internal performance audits and to what extent plan officials found such audits useful.\nBased on our audit objectives, we developed standard To obtain information on comparable federal entities, we also interviewed officials from the Pension Benefit Guaranty Corporation’s (PBGC) single employer insurance program and the Federal Retirement Thrift Investment Board that administers the Thrift Savings Plan. While the functions of these organizations are not completely analogous to the functions of the Trust, like the Trust, both programs manage large asset pools for the benefit of retirees and their beneficiaries. Further, we also interviewed officials from two federal agencies that have audit authority of these programs—respectively, PBGC’s Office of Inspector General and the Department of Labor’s Employee Benefit and Security Administration—to determine the nature and frequency of their audit practices. Additionally, we obtained and reviewed relevant federal audit reports issued since 2008. Further, we interviewed representatives of NASRA, and the Association of Public Pension Fund Auditors to discuss audit practices of public plans. To obtain information on the audit practices of private sector DB plans, we reviewed relevant provisions of the Employee Retirement Income Security Act of 1974 (ERISA) and interviewed private sector plan fiduciary experts, ERISA experts, and representatives of an external consulting firm that has been commissioned by private sector plans to conduct performance audits.\nTo answer our third question, we developed four policy options regarding improved Trust oversight. These options were based substantially on the oversight models that apply to state pension plans or comparable federal agencies, as developed under objective 2. We then interviewed experts and stakeholders familiar with the Trust—including representatives of the Board, the Trust, the OIG, and other federal officials, as well as railroad labor and management—to discuss the potential benefits of establishing independent performance audits of the Trust. We discussed with them the benefits and drawbacks of four possible policy options: 1) permitting OIG audits, 2) requiring periodic audits with external input on scope, 3) establishing external investigative authority, and 4) establishing an office of internal audit. We also solicited input on the mechanisms—statutory or otherwise—by which the options could be implemented. We also obtained and reviewed existing principles and guidelines regarding the audit and oversight of DB pensions plans, especially those applicable to investment management activities. Examples of such principles include the guidelines published by the Organisation for Economic Cooperation and Development (OECD) and the National Conference on Public Employee Additionally, we reviewed Retirement Systems (NCPERS) among others.academic articles on pension plan governance and oversight and relevant auditing and internal control standards such as the American Institute of Certified Public Accountants Statements on Auditing Standards, Government Auditing Standards, International Standards for the Professional Practice of Internal Auditing (Standards), and Standards for Internal Control in the Federal Government.\nWe conducted this audit from April 2013 to May 2014 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient and appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.", "", "", "", "", "", "In addition to the contact named above, David Lehrer (Assistant Director), Michael Hartnett, and Justin Dunleavy made key contributions to this report. In addition, key support was provided by Susanna Clark, Mimi Nguyen, Kate van Gelder, Walter Vance, and Craig Winslow." ], "depth": [ 1, 1, 2, 2, 1, 2, 3, 3, 3, 3, 2, 2, 1, 2, 2, 3, 3, 3, 3, 1, 1, 1, 1, 1, 1, 1, 2, 2 ], "alignment": [ "h3_full", "h0_title h2_title", "h0_full", "h0_full h2_full", "h1_title", "h1_title", "h1_full", "h1_full", "h1_full", "", "h1_full", "", "h2_title h1_title", "h2_full", "h2_full h1_title", "", "h1_full", "", "h2_full", "h0_full h3_full", "", "h3_full h1_full", "", "", "", "", "", "" ] }

{ "question": [ "What does oversight of the National Railroad Retirement Investment Trust include?", "What does the Trust's mandatory report include?", "What audits has the Trust commissioned?", "What have theses audits encompassed?", "How do performance audit practices of comparable entities differ?", "What is the nature of the audits of the other programs that GAO reviewed?", "What characterizes the majority of the state plans?", "How are the federal programs audited?", "How did GAO develop options to enhance the Trust's performance audit practices?", "How could the audits be performed independent of the Trust?", "Why are there reservations about this option?", "What do Trust and Board officials believe would be a good alternative?", "Why was the Trust established?", "How does the Trust invest?", "Why is the Trust established independent of the federal government?", "What are the implications of this independence?", "What did GAO assess?" ], "summary": [ "Oversight of the National Railroad Retirement Investment Trust (Trust) includes both regular reporting and communications with the Railroad Retirement Board (Board), and periodic performance audits that the Trust has opted to commission; however, no written requirement for such audits exists.", "The Trust's mandatory annual management report includes financial and descriptive information, including a discussion of the evolution, current status and performance of the Trust's investment portfolio and administrative costs, including investment manager fees.", "The Trust has also commissioned four external performance audits since its creation—the first in 2004 and the most recent in 2012.", "These reviews have encompassed a wide range of issues, including the accuracy of monthly reports, compliance with Trust investment manager hiring policies, processes to ensure accuracy of financial recordkeeping and internal controls, adequacy of due diligence procedures, and the role of non-traditional investments.", "Performance audit practices of comparable entities can differ from the Trust in scope and frequency. Experts told GAO that Trust performance audit practices are comparable to those of large private sector plans governed by the Employee Retirement Income Security Act of 1974.", "The large majority of state pension plans and two federal programs GAO reviewed that manage investment assets are subject to performance audits that can be initiated and conducted by an external entity, and some of these audits have addressed issues Trust-commissioned audits have not included. State and federal audits varied in subject and scope, and in some cases, examined issues that Trust-commissioned reviews have not yet included, such as ethics and conflict of interest policies.", "Forty-two of the 50 state plans GAO contacted are subject to performance audits that can be initiated and conducted by an external auditor, such as state Auditors General or equivalent, or by offices of internal audit. In some cases, the external auditor reviews the plan annually, while in others, plans are audited less frequently.", "Both federal programs—the Pension Benefit Guaranty Corporation's single-employer insurance program and the Thrift Savings Plan—are also subject to externally initiated and conducted performance audits.", "Based on our review of oversight models that apply to state plans and other information, GAO developed several options to enhance the Trust's performance audit practices, and stakeholders identified potential advantages and limitations pertaining to them.", "For example, the Board's Office of Inspector General (OIG) could be granted authority to conduct performance audits, which would help ensure these reviews are initiated and performed independent of the Trust.", "However, both Board and Trust officials had reservations about this option, stating that the OIG lacks sufficient expertise in aspects of the Trust investment program, and expressing concerns about what they perceive as an unconstructive working relationship.", "The Trust's practice of commissioning periodic performance audits could be established as a formal requirement, either through a memorandum of agreement between the key parties, or through a statutory amendment, with external input on subject and scope of the audits. Trust and Board officials stated that this would be a reasonable option, and in early 2014 developed an initial proposal to implement such an agreement.", "The Trust was established by federal statute effective in 2002 to manage a portion of the assets the Board uses to pay benefits to retired railroad workers, and managed about $25 billion in assets as of 2013.", "The Trust invests assets in stocks, bonds, and other investment vehicles in a manner similar to that of defined benefit plans.", "To insulate the Trust from political influence over its investment decisions, the Trust was established independent of the federal government.", "It is exempted from the federal law that governs the financial operations of the U.S. government and which establishes the duties and powers of the GAO.", "GAO assessed (1) the performance audit policies and practices that exist for oversight of the Trust; (2) the performance audit policies that apply to comparable organizations, such as large state public pension plans; and (3) what options, if any, could be pursued to improve Trust performance audit policies and what tradeoffs stakeholders believe such options entail." ], "parent_pair_index": [ -1, 0, 0, 2, -1, 0, 1, 1, -1, 0, 1, 2, -1, 0, 0, 2, -1 ], "summary_paragraph_index": [ 2, 2, 2, 2, 3, 3, 3, 3, 4, 4, 4, 4, 0, 0, 0, 0, 0 ] }

{ "title": [ "", "Introduction", "General Principles", "Prospective Obligations", "Canceling a Solicitation", "Declining to Exercise an Option46", "Not Allotting Additional Funds to Cost-Reimbursement Contracts", "Existing Obligations under Contract", "Limiting Orders Under Indefinite-Quantity Contracts65", "Changes in Scope", "Reductions in Scope", "Increases in Scope103", "Alterations in Performance Period", "Postponing Performance", "Acceleration of Performance", "Termination and Cancellation of the Contract", "Terminations for Default", "Terminations for Convenience", "Cancellation of Multi-Year Contracts", "Concluding Observations" ], "paragraphs": [ "", "The federal procurement process (i.e., the process whereby agencies obtain goods and services from the private sector) requires funding. Contractors are generally paid using appropriated funds, and agency personnel—who are generally also paid with appropriated funds—are responsible for entering and administering contracts on the agency's behalf. The use of appropriated funds to finance contract performance and/or administration means that federal contracts may be affected by actual or potential funding gaps or shortfalls, such as could arise from a failure to raise the debt limit, budget cuts, or sequestration, all of which have been topics of wide-spread congressional and public interest during recent years. While these occurrences are distinct in their causes and their effects upon federal procurement, as Table 1 illustrates, all prompt similar questions about what the government must or may do when confronted by a lack of funds, and how contractors could be affected by potential government actions.\nThis report provides an overview of the various options that the government has, pursuant to contract law or otherwise, when confronted with actual or potential funding gaps, funding shortfalls, or budget cuts. It begins by considering the legal principles underlying the government's generally broad rights not to incur new obligations (e.g., by canceling solicitations or declining to exercise options). The report then addresses the contractual and other rights that the government may exercise under existing contracts (e.g., changing certain terms of the contract or altering the performance period). Overall, these rights are comparatively well established. However, as the report concludes, the effects of the exercise of these rights upon contractors and, particularly, upon federal spending on procurement contracts are less clear and generally would depend upon the facts and circumstances of individual cases. The report does not address changes in contract policy that could also occur in response to funding shortfalls, nor does it address the effects that exercising certain of the rights noted here might have upon agency programs.", "In thinking about the government's contractual and other legal rights in this area, it helps to keep in mind the ways in which government contracts are—and are not—like other contracts. In many ways, federal procurement contracts are like other contracts between private parties, notwithstanding the fact that certain terms of these contracts are required by law. Like other contracting parties, the government generally has a duty to perform largely as specified in the contract, absent modification, excuse, or discharge of its obligations. Also like other contracts, government contracts are construed in light of the parties' intent, and the parties' intent could potentially be found to be contrary to the literal meaning of the contract. For example, a contract that purports to be a fixed-price contract (i.e., a contract whereby the contractor agrees to supply certain goods or services to the government at a predetermined price) could be found to be a cost-reimbursement contract (i.e., a contract that provides for the government to pay the contractor, at a minimum, allowable costs incurred in performing the contract up to a total cost specified in the contract) because other terms of the contract indicate that this was the parties' intent. Similarly, as with other contracts, certain implied duties, such as the duty of good faith and fair dealing, will be read into federal procurement contracts even when they are not express terms of the contract. Such duties could potentially become important where changes to existing contractual obligations, like those discussed below, are involved because one of the implied duties that contracting parties generally have is mitigating the damages they incur due to the other party's conduct. In addition, like other contracting parties, the government and/or government contractors could potentially waive certain terms of the contract, or their failure to perform could be excused.\nCertain standard terms of federal procurement contracts, discussed below, do permit the government to take certain actions that could potentially give rise to liability for breach under the common law of contracts. For example, the various changes clauses—allowing the government to unilaterally change certain terms of the contract —run contrary to the general rule that modifications to a contract must be bilateral. However, to the degree that these rights arise from terms of the contract, private parties could, and sometimes do, enter contracts granting themselves such rights. Perhaps the best example of this is the clause allowing the government to terminate the contract for its convenience, which the Federal Acquisition Regulation (FAR) requires to be included in all federal procurement contracts. Termination for convenience clauses are also used in contracts between private parties to give the parties some flexibility as to the quantity of goods or services delivered under the contract, as well as limit the scope of potential liability under the contract. Such clauses are necessary, particularly in private contracts, to avoid the operation of the general rule that a buyer who informs a seller that he does not intend to purchase certain goods or services provided for in a contract has anticipatorily repudiated, or breached, the contract and is liable for damages, potentially including anticipatory profits and consequential damages. Anticipatory profits are profits that the non-breaching contractor would reasonably have realized had the contract been performed. Consequential damages are damages that, while not a direct result of the breach, are a consequence of it.\nThere are, however, several ways in which government contracts differ from other contracts precisely because the government is the sovereign. One way is that certain standard contract terms, such as the clause allowing the government to terminate the contract for its convenience, will be read into contracts from which they are lacking. The grounds upon which this is done, and potentially also the types of clauses that will be read in, have arguably shifted over time. The most recently articulated grounds for doing so are that (1) the clause represents a \"deeply ingrained strand of public procurement policy,\" and (2) federal regulations can \"fairly be read\" as permitting the clause to be read into the contract because they require agencies to incorporate the clause in their contracts. However, courts had previously held that termination for convenience clauses, in particular, should be read into government contracts because the government should be given broad latitude to act in the \"public interest. \" Another way in which government contracts differ from other contracts is that, in certain cases, the government could avoid liability for conduct that would otherwise give rise to liability for breach because it acted in its sovereign capacity when it took the action. For example, in one recent case, the U.S. Court of Appeals for the Federal Circuit found that the government was not liable for damages incurred by a contractor after the government blocked the contractor's access to a construction site on a military base for 41 days following the terrorist attacks of September 11, 2001. According to the court, the government took this action in its capacity as a sovereign, and the action was not \"specifically targeted at appropriating the benefits of a government contract.\"", "The government's rights are broadest where prospective contracts, or prospective obligations (i.e., definite commitments to spend appropriated funds) under existing contracts, are concerned. The Supreme Court has held that, \"[l]ike private individuals and businesses, the Government enjoys the unrestricted power to produce its own supplies, to determine those with whom it will deal, and to fix the terms and conditions upon which it will make needed purchases.\" This generally means that the government may cancel a solicitation, decline to exercise an option under a contract, and not allot additional funding to cost-reimbursement contracts, even if the contractor has expended costs in preparing a bid or offer in response to the solicitation, or otherwise relied upon the expectation that the government would exercise the option, or allot additional funding. The contractor's ability to recover when the government opts not to incur new obligations is generally limited, although it is broader when the government does not allot additional funds to incrementally funded cost-reimbursement contracts than in other cases.\nThe Anti-Deficiency Act generally bars agencies from incurring new obligations during funding gaps by prohibiting the obligation of funds in excess or advance of appropriations. Agencies would generally not be similarly barred from incurring new obligations when the debt limit is not increased, or spending is cut, but they may voluntarily limit such obligations in order to reduce spending.", "Even if the government has already issued a solicitation (i.e., a request for interested persons to submit bids or offers to the government ), it generally has broad discretion to cancel the solicitation at any stage in the procurement process prior to award of the contract. The Federal Acquisition Regulation (FAR) expressly authorizes cancellation of solicitations in certain circumstances, although these circumstances differ depending upon the method of source selection (i.e., sealed bidding, negotiated procurement ) and the timing of cancellation, in the case of procurements conducted using sealed bidding. Pursuant to the FAR, agencies arguably have the broadest discretion in canceling solicitations in negotiated procurements, where cancellation will generally be upheld so long as there was a \"reasonable basis\" for it. However, even in the case of cancellations after bid opening in sealed-bidding procurements, where agencies have the least discretion, they arguably retain considerable discretion. While a \"cogent and compelling reason\" is required for cancellation after bid opening, judicial and other tribunals have found that the determination of whether a sufficiently compelling reason for cancellation exists is \"primarily within the discretion of the administrative agency and will not be disturbed absent proof that the decision was clearly arbitrary, capricious, or not supported by substantial evidence.\" In practice, this means that agencies will generally prevail so long as they can articulate reasonable, supportable grounds for the cancellation. Such grounds can include changes in agency mission or operations, lack of funds, or deciding to perform the work in-house, any or all of which could occur in response to funding shortfalls or budget cuts. In contrast, a showing of bad faith or fraud on the part of the agency (e.g., canceling a solicitation to avoid an award to a specific offeror ) could result in a cancellation determination being found unreasonable and, thus, improper.\nWhen cancellation is found to have been improper, the contractor could potentially recover its bid preparation and proposal costs (although not its protest costs). However, proving that cancellation was pretextual, in particular, can be difficult because public officials are presumed to act in good faith, and \"[p]laintiffs must do more than assert what amounts to mere naked charges of arbitrary and capricious action.\" The fact that contractors may have incurred costs in responding to the solicitation does not, in itself, entitle them to any recovery in the event that the solicitation is canceled.", "An option is a \"unilateral right in a contract by which, for a specified time, the Government may elect to purchase additional supplies or services called for by the contract, or may elect to extend the term of the contract.\" The FAR generally authorizes agencies to incorporate options in contracts whenever it is \"in the Government's interest\" to do so, and it provides several option clauses that could be used in agency contracts. While these clauses differ depending upon the nature of the option being exercised (e.g., to increase quantity, extend services, or extend the term of the contract), they all provide that the government may, by exercising the option within certain time frames prescribed in the contract, increase the quantity of goods or services purchased under the terms specified in the contract.\nBecause the decision to exercise an option rests solely with the government, the contractor is not entitled to recover any lost profits if the government decides not to exercise an option. This is true regardless of whether (1) the government decides to perform the work in-house; (2) the contractor's bid was based on the assumption that all of the maximum option quantity would be ordered; or (3) the government allegedly gave notice of its intent to exercise the option. One board of contract appeals (i.e., an administrative tribunal established to hear disputes between contractors and the government ) has suggested that a contractor might be entitled to some recovery if it can show that the government's decision not to exercise the option was made in bad faith, but few, if any, contractors appear to have prevailed in challenging the government's declining to exercise an option under this theory.", "Cost-reimbursement contracts are contracts that provide for the government to pay the contractor, at minimum, any allowable, reasonable, and allocable costs incurred in performing the contract, up to a total cost specified in the contract. While the government is generally obligated to pay the contractor's costs up to the total specified in the contract, absent modification or termination of the contract, limitation of cost/limitation of funds clauses included in cost-reimbursement contracts expressly provide that the government is generally not obligated to pay costs in excess of this amount, although the contractor is not obligated to continue performance unless the government provides additional funds. Specifically, these clauses state that\nExcept as required by other provisions of this contract, specifically citing and stated to be an exception to this clause—\n(1) The Government is not obligated to reimburse the Contractor for costs incurred in excess of (i) the estimated cost specified in the [contract] or, (ii) if this is a cost-sharing contract, the estimated cost to the Government specified in the [contract]; and\n(2) The Contractor is not obligated to continue performance under this contract … or otherwise incur costs in excess of the estimated cost specified in the Schedule, until the Contracting Officer (i) notifies the Contractor in writing that the estimated cost has been increased and (ii) provides a revised estimated total cost of performing this contract.\nThe contractor is generally not entitled to have additional funds allotted to the contract unless it could not reasonably have known that its costs had exceeded the amount established in the contract. This is true even if the contractor and the agency anticipated increasing the amount of funds allotted, or the contractor's incurred costs exceed those originally anticipated. However, a contractor under an incrementally funded cost-reimbursement contract, subject to the limitation of funds clause, could potentially recover termination costs, discussed below, pursuant to the contract, if additional funds are not allotted. Termination is also possible with fully funded cost-reimbursement contracts. However, the limitation of cost clause distinguishes between termination and additional funds not being allotted to the contract, and provides for the equitable distribution of \"all property produced or purchased under the contract\" as the recovery in either case.", "The existence of a contract between two parties (including the government) generally serves to constrain their options in so far as they are obligated to perform and/or pay as called for in the contract, absent modifications to the contract or special circumstances. While this general rule would seem to suggest that the government's options to reduce procurement spending are significantly more circumscribed with existing obligations under contracts than with prospective obligations, the government has broad contractual and inherent rights that give it some flexibility in responding to funding gaps, funding shortfalls, and budget cuts (e.g., by reducing the scope of the contract when there are budget cuts, or delaying performance in anticipation of a potential funding gap). In some cases, these rights reflect the type of contract used. For example, because indefinite-quantity contracts obligate the government to purchase only a minimum quantity of goods or services from the contractor, while allowing it to purchase more, the government could generally forgo purchases in excess of the minimum without incurring liability to the contractor. In other cases, the contract expressly or impliedly includes terms allowing the government to (1) change the scope of the contract, including the quantity of goods or services purchased under it, (2) delay or accelerate performance of a contract, or (3) terminate a contract, all without incurring liability for breach.", "Certain federal procurement contracts are known as indefinite-quantity contracts because they obligate the government to obtain an \"indefinite quantity, within stated limits, of supplies or services [from the contractor] during a fixed period.\" Such contracts must provide for a minimum quantity of orders, which the contractor is assured of receiving, and they may provide for a maximum quantity of orders, orders in excess of which the contractor is generally not obligated to fulfill. However, contractors are not entitled to any orders in excess of the minimum quantity, even if the parties contemplated that the contract would result in additional orders, or the contractor incurs costs due to the lack of orders. This inherent flexibility as to quantity built into indefinite-quantity contracts could make such contracts promising vehicles for responding to funding shortfalls and budget cuts, in particular.\nProvided that the contractor has obtained the minimum quantity of orders required under the contract, the agency would generally face no liability for failure to place additional orders with the contractor, per se, although it could be found to have violated the Federal Acquisition Streamlining Act (FASA) if the contract is a multiple-award contract, and the agency continues placing awards under the contract without giving the contractor a \"fair opportunity to be considered\" for such orders. A multiple-award contract is one awarded by a federal agency to multiple vendors, each of whom is eligible to receive orders under the contract or blanket purchase agreements placed against it. As amended, FASA generally requires agencies to provide contractors with a \"fair opportunity to be considered\" when they issue task or delivery orders valued in excess of $3,000, and specifies what constitutes a \"fair opportunity to be considered\" for orders valued in excess of $5.5 million. Thus, an agency arguably could not cease considering one specific vendor under a multiple award contract in the placement of orders on the grounds that it needs to cut spending, and has already ordered the minimum quantity from the vendor. Rather, the agency would need to partially terminate the contract.", "Unlike indefinite-quantity contracts, other contracts generally obligate the federal government to purchase a fixed quantity of goods or services from the contractor (e.g., so many computers, so many hours of labor). Such contracts also specify the nature of the products or services to be provided (e.g., wedges composed of molded acrylonitrile butadiene styrene and light blue in color), as well as various other aspects of performance (e.g., time, place, and method of delivery). The general rule is that, absent special circumstances, parties are bound by the terms of their contracts, and one party cannot unilaterally decide that it will purchase fewer goods or services than were contracted for, or otherwise reduce the scope of the contract. Instead, the parties must bilaterally modify the contract. Such bilateral modifications have historically been the government's preferred method of modifying the terms of its contracts. However, changes clauses, discussed below, generally included in government contracts would permit the government to make certain unilateral modifications to a contract, either by reducing or increasing its scope.\nWhile reductions in scope might be the most likely response to funding shortfalls or spending cuts, in particular, the government could also potentially increase the scope of certain contracts in order to compensate for reductions under other contracts, or for other reasons. The contractual basis for the government's right to make such changes is generally the same so long as the changes are within the scope of the contract. However, because major reductions are treated differently from other changes to the nature of the work, reductions and increases are discussed separately below. In either case, the government may need to compensate the contractor for the changed work, although the basis for and extent of such compensation could vary.", "Federal procurement contracts generally include changes clauses, which would permit the government to make certain reductions in the scope of the contract (e.g., purchase fewer goods or services than contracted for). Different versions of the changes clause are used in different types (e.g., fixed price ) and kinds (e.g. construction) of contracts. However, all variants of the changes clause provide that \"[t]he Contracting Officer may, at any time, by written order, … make changes within the general scope of this contract\" to certain terms of the contract, such as\nthe contract specifications, the method or manner of performing the work, any government-furnished property or services to be used in performing the contract, the method of shipping or packing, the place of delivery, the time of performance, for services, and the place of performance, for services.\nIn some cases, the changes clause applies only to changes to specifically enumerated terms of the contract, while in other cases, it is drafted so as to apply to terms of the same general type as those enumerated. However, \"specifications\" are included in every case, and this term has been construed broadly to encompass changes in quantity, as well as in certain other aspects of the work to be performed (e.g., product features). Changes are \"within the general scope of the contract\" when the parties should have \"fairly and reasonably\" contemplated them at the time when they entered the contract. Reductions that would not have been fairly and reasonably contemplated by the parties are generally treated not as changes, but as partial terminations for convenience, as discussed below.\nIn determining whether particular reductions in scope would have been fairly and reasonably contemplated by the parties at the time of contracting, the focus is largely upon the magnitude of the work deleted as compared to the total work. For example, deletion of a requirement that the contractor remove brick veneer from two walls of a building was found to be within the scope of the contract where the deletion involved only 400 square feet of the 1,600 square feet of bricks whose removal and replacement the parties had contracted for. The same was true of the deletion of 47 of the 48 hours of instructional services that a contractor was to provide as part of a contract for extensive repairs and improvements to a federal facility. In contrast, deletion of more than 73% of unit-priced electrical and telephone outlets from a contract for mechanical, electrical, and plumbing work at a federal facility was found to be beyond the scope of the changes clause, as was deletion of approximately 50% of the work on a contract for cleaning, inspecting, and coating the roofs of family housing units. As these examples suggest, while there is no \"bright-line test\" for determining when a change is within the scope of the contract, the greater the magnitude of the change, in comparison to the total work called for, the more likely it is that the change will be found to be beyond the scope of the contract. Likewise, deletions that go to the \"heart\" of the contractual bargain are more likely to be found to be beyond the contract's scope than are deletions of work that was arguably peripheral.\nWhen reductions are within the scope of the changes clause, the government may be entitled to a downward adjustment in the contract price. All variants of the changes clause expressly contemplate such equitable adjustments by providing that\n[i]f any such change causes an increase or decrease in the cost of, or the time required for, performance of any part of the work under this contract, whether or not changed by the order, the Contracting Officer shall make an equitable adjustment in the contract price, the delivery schedule, or both, and shall modify the contract.\nPursuant to this clause, the amount of any downward adjustment is measured by the net cost savings to the contractor. If the contractor saved costs because of the deletion, the deleted work is priced at the amount it would have cost the contractor to perform the deleted work. However, if the contractor realized no cost savings from the change, there will be no price reduction, and if the deleted work increased the contractor's costs, the contractor could be entitled to an upward equitable adjustment, as discussed below. This is true even if the contract price included greater costs than were necessary for performance of the changed work, since the purpose of an equitable adjustment is to maintain the basic profit or loss position of the parties before the change occurred. The fact that reductions in scope could potentially result in no reduction to the overall contract price (e.g., by increasing the costs of the work that is not terminated) could potentially complicate the government's efforts to respond to funding shortfalls by reductions under the changes clause. Because reductions in quantity or other aspects of the contract's scope would not necessarily result in reductions in overall contract price on all contracts, the government would arguably need to ascertain the effects of particular reductions upon contractors' costs under individual contracts.", "While reductions in scope may be the most likely response to funding shortfalls and budget cuts, increases in quantity could also be possible under certain contracts. The various changes clauses, discussed above, would generally accommodate such increases in scope, including quantity, so long as the work done in compliance with the change is \"essentially the same work as the parties bargained for.\" In determining whether the work, as changed, is essentially the same work that the parties bargained for, the focus is primarily upon the nature of the work, and not the magnitude of the change (or the number of change orders). For example, changes requiring the contractor to use different and, in some cases, more expensive materials in building a hospital were found to be within the scope of a contract to construct a hospital because the completed hospital:\nwas in the same location, looked the same, had the same number of rooms and floors and the same facilities as the one shown on the original plans and specifications. Apart from the substitution of materials, it differed not at all from the building that had been contemplated when the contract was awarded.\nSimilarly, \"extensive\" changes to the details of a building, requiring over 50% additional performance time, were found to be within the scope of the contract because the resultant building was not substantially different from that contracted for. In contrast, a change requiring the contractor to provide a worldwide telecommunications system was found to be outside the scope of a contract to provide a telecommunications system in the Washington, DC, area. A change requiring the contractor to redesign part of a building was similarly found to be outside the scope of a contract calling for construction work. Increases in scope that fundamentally change the nature of what the parties contracted for, as in the latter two cases, are known as cardinal changes and constitute breaches of contract.\nMuch as the government may be entitled to a reduction in price when work is deleted, the contractor may be entitled to additional compensation when work is added. The basis for such compensation, however, depends upon whether the changes were within or beyond the scope of the changes clause. Where the work is within the scope of the changes clause, the contractor could potentially be entitled to an equitable adjustment if the change caused an increase in the cost of performing any part of the work under the contract. An equitable adjustment is a fair adjustment intended to cover the contractor's costs, as well as profit on the work performed. The amount of recovery is based upon the \"difference between what it would have reasonably cost to perform the work as originally required and what it reasonably cost to perform the work as changed.\" If there was no increase in cost, then the contractor is not entitled to an upward adjustment, although it may be entitled to additional time to perform, as discussed below. If there is an increase in cost, the contractor could be entitled to an upward adjustment, although there are two potentially significant limitations upon the amount recoverable. First, the contractor is only entitled to those costs that a reasonable contractor in the contractor's situation would have incurred. It cannot simply assert that these were the costs it incurred, and therefore is entitled to, unless it can be established that it behaved reasonably—given its situation—in incurring these costs. Further, costs must generally be allowable (i.e., permissible) under the Cost Accounting Standards (CAS) in order to be recoverable. The CAS are a series of accounting standards originally issued by the Cost Accounting Standards Board to promote \"uniformity and consistency\" in \"estimating, accumulating, and reporting costs in connection with the pricing, administration, and settlement\" of certain federal contracts and subcontracts. The CAS generally only apply to cost-reimbursement contracts (i.e., contracts that provide for the government to pay the contractor, at a minimum, allowable costs incurred in performing the contract up to a total cost specified in the contract). However, the FAR requires that \"applicable subparts\" of the FAR pertaining to the CAS be used in pricing fixed-price contracts, subcontracts, and modifications to contracts \"whenever … a fixed-price contract clause requires the determination or negotiation of costs.\"\nWhen the changes are cardinal changes and the contractor does not accept the changes, the contractor could potentially recover damages for breach. In theory, this could mean (1) expectancy damages , or damages designed to give the injured party the benefit of the bargain; (2) reliance damages , or damages designed to compensate injured parties for their damages in performing the contract, or in anticipation of performance; or (3) restitutionary damages , or damages based on the amount of benefit conferred by the non-breaching party upon the breaching party. In practice, parties and courts generally do not explicitly identify claims for damages as belonging to one of these three types, at least not when addressing cardinal changes to government contracts, and contractors' actual recovery often resembles that under an equitable adjustment or termination settlement. For example, in one case where the government, among other things, doubled the length of the levee that the contractor was to construct, the court found that the contractor was entitled to recover damages in an amount equivalent to the costs of performing certain work required by the changes. In another case, the court found that the contractor was entitled to recover \"damages as if the contract had been terminated for the government's convenience\" where the government improperly terminated a contractor for default after it refused to perform as required by an order that constituted a cardinal change. However, in other cases, courts have awarded, or recognized an entitlement to, damages more like those typically awarded in breach of contract suits. Such awards have included anticipatory profits; \"monetary damages not to exceed the cost of the contract;\" and (3) direct losses due to the change, coupled with anticipated profits and overhead. The possibility that the contractor could recover anticipatory profits in the event of a cardinal change suggests that the government would need to exercise some caution in determining which contracts to add work to, or otherwise modify, in response to spending cuts or other budgetary issues. Contracts with arguably broader scopes might be the preferred vehicles for any such changes because there would be less likelihood that these changes would be beyond the contract's scope, and contractors are only entitled to an equitable adjustment when the changes are within the contract's scope. While contractors receiving equitable adjustments are entitled to profit, it is profit only on the work performed; it does not include anticipatory profit. Consequential damages are also excluded from equitable adjustments, but have seldom been recovered in suits against the government for breach in any case.\nIt should also be noted that certain contracts include terms that could obligate the contractor to perform even if the government breaches the contract by a cardinal change or otherwise. Such contracts include a variant of the disputes clause which provides that\n[t]he Contractor shall proceed diligently with performance of this contract, pending final resolution of any request for relief, claim, appeal, or action arising under or relating to the contract , and comply with any decision of the Contracting Officer.\nThis clause avoids the operation of the general rule that the non-breaching party need not continue performance when the other party breaches the contract. However, contractors whose contracts are modified by changes within the scope of the contract must generally continue performance pending a formal change order, in the case of constructive changes (i.e., changes that are not ordered pursuant to the procedures established in the contract), or agreement upon the amount of any equitable adjustment. Failure to do so could result in their being terminated for default, as discussed below, or subjected to other sanctions under the contract (e.g., liquidated damages, excess costs of reprocurement).", "Alterations in the performance period (i.e., postponing performance or requiring performance more quickly than is required or permitted under the contract) is also possible in response to funding shortfalls and budget cuts. Because partial or complete performance of the contract's requirements by the contractor is often a precondition to payment, altering the time frame for performance could, in some cases, help the government control when funds are paid out. This could be helpful in the event that the debt limit were not increased, for example. Similarly, delaying or accelerating performance that would otherwise be scheduled to begin during a possible funding gap could also help avoid damages potentially incurred by any delays in accessing government facilities or property that a shutdown might cause.\nOn their face, such alterations in performance period might seem to fall within the scope of the changes clause, discussed above, because the performance schedule is part of the specifications, and specifications are included in all variants of the changes clause. Some alterations in performance period are, in fact, so treated, although generally only if the delay or acceleration is linked to a change in the work performed. Otherwise, \"pure delays\" are handled under a number of other, more specific, clauses which could permit the contractor to recover certain costs arising from the delay and/or additional time to perform, free from sanctions for late performance.", "There are three standard contract clauses addressing the compensability of government-caused delays in contractor performance that could potentially appear in government contracts. These clauses differ in the types of contracts in which they are used and in their specific provisions as to the recoverability of particular costs. One of these clauses—the suspension of work clause—applies only to construction contracts, and authorizes the contracting officer to order the contractor to suspend, delay, or interrupt \"all or any part of the work of this contract for the period of time that the Contracting Officer determines appropriate for the convenience of the Government.\" The clause further provides that the contractor is entitled to an adjustment for any increase in the cost of performing the contract if performance of \"all or any part of the work\" is suspended, delayed, or interrupted for an \"unreasonable period of time\" by (1) an act of the contracting officer in the administration of this contract, or (2) the contracting officer's failure to act within the time specified in this contract (or within a reasonable time, if a time is not specified in the contract). Adjustments pursuant to this clause generally cover costs incurred due to the suspension, although the contractor has a duty to mitigate its damages. Allowance for profit, however, is expressly excluded from adjustments pursuant to the suspension of work clause. The clause also does not make any provision for the contractor to receive an adjustment in schedule as a result of the government-ordered delays, which means that contractors would generally need to seek such an extension under one of the \"excusable delay\" provisions, discussed below. In addition, the clause expressly provides that it does not apply to any suspensions, delays or interruptions for which an equitable adjustment is \"provided for or excluded under any other term or condition of the contract.\"\nWhen contracts other than construction contracts are involved, two different clauses could apply, depending upon whether the delay is ordered (i.e., made pursuant to the notice procedures required under the contract) or constructive (i.e., not made pursuant to such procedures). The stop-work order clause permits the contracting officer \"stop all, or any part, of the work called for by this contract for a period of 90 days after the order is delivered to the Contractor, and for any further period to which the parties may agree.\" This clause applies only to ordered delays, in part because it requires that any such \"order[s] shall be specifically identified as … stop-work order[s] issued under this clause.\" The delay need not be \"unreasonable,\" as with the suspension of work clause. After 90 days (or any extension of time agreed to by the parties), the stop-work order shall be canceled, or the work covered by the order shall be terminated for default or convenience, as discussed below. If the work is resumed, the contractor is entitled to an equitable adjustment in contract price and/or delivery schedule to cover the costs allocable to the work covered by the order during the period of work stoppage. Equitable adjustments include allowance for profit, unlike adjustments under the suspension of work clause. Also unlike the suspension of work clause, the stop-work order clause does not expressly exclude delays for which equitable or other adjustments are provided or excluded under other terms of the contract.\nThe government delay of work clause, in contrast, applies to constructive delays under contracts for goods and services (other than construction). It provides that, if the performance of \"all or any part of the work of this contract\" is delayed or interrupted due to (1) an act of the contracting officer that is not expressly or impliedly authorized by the contract, or (2) the failure of the contracting officer to act with the time specified by the contract (or within a reasonable time, if no time is specified), the contractor is entitled to an \"adjustment\" to the contract price, the delivery or performance date, and/or \"any other contractual term or condition affected by the delay or interruption.\" Because this is an \"adjustment,\" and not an \"equitable adjustment,\" no allowance is made for profit. The clause also expressly provides that it does not apply to any delays \"for which an adjustment is provided or excluded under any other term or condition of this contract.\"\nDepending upon the circumstances, these three clauses could potentially allow contractors to recover certain costs associated with government-caused delays, such as might result from funding gaps or shortfalls. However, the use of such clauses is optional in certain contracts, unlike with the variants of the changes clauses, discussed above, which are generally required. While one board of contract appeals (i.e., an administrative tribunal established to hear disputes between contractors and the government ) has found that, in the absence of a clause giving government the right to order a suspension of work, the government has the inherent right to do so, the general rule appears to be that in the absence of a contract clause dealing with the suspension of work, the contractor is generally not entitled to compensation for delays unless they are the fault of the government. When the delay is compensable, the contractor can generally recover those costs that resulted from the lack of productivity during the period of delay, including the costs of performing otherwise unnecessary work, altering the sequence of its operations, using inefficient methods of performance, working in later time periods, etc. However, it is important to note that the contractor is required, whether as an express or implied term of the contract, to mitigate its damages in the event of delay. This means that the contractor may need to seek alternate work, give workers other things to do, etc., in order to recover its costs. If it fails to do so, the amount of its recovery could be reduced. In addition, the government could potentially avoid liability for certain costs because it acted in its sovereign capacity. For example, in Contractors Northwest, Inc. , the Department of Agriculture Board of Contract Appeals denied the contractor's claim for damages allegedly resulting from a 39-day suspension of work due to a fire on the grounds that the government acted in a sovereign capacity when it suspended work. While the government may be unlikely to act in a sovereign capacity when it orders a delay due to budget issues, it is possible that budget issues could prompt changes in government programs or operations that could constructively delay work, in which case the \"sovereign acts doctrine\" could potentially be relevant.\nHowever, even in situations where the contractor is not entitled to compensation for a government-caused delay, it could potentially be entitled to additional time to perform its obligations under the contract. Federal procurement contracts can include a number of \"excusable delay\" provisions that allow the contractor to avoid the potentially severe consequences for late performance provided for in the contract (e.g., termination for default) when their performance is delayed due to certain causes specified in the contract. \"[A]cts of the Government in either its sovereign or contractual capacity\" are invariably among the causes listed. While such clauses may have limited applicability in the case of delays ordered for budgetary reasons, they could potentially come into play if contractors' performance is constructively delayed due to budget-related changes in government operations, for example.", "While postponing performance is one possible response to funding shortfalls and budget cuts, another possible response is accelerating or speeding up performance, so as to complete it before a possible funding gap occurs, for example. Actual acceleration occurs when an agency expressly requires a contractor to complete some or all of the work sooner than required under the contract. Constructive acceleration , in contrast, occurs when an agency effectively requires a contractor to speed up work to meet the current contract schedule in the face of excusable delays. Acceleration is generally treated as a change under the changes clause. Some changes clauses address this explicitly. In other cases, courts and boards of contract appeals have found that the performance schedule is part of the contract's specifications, which are included in all variants of changes clause. The contractor could potentially also recover under the suspension of work clause if costs were incurred in mitigation of a government-caused delay, but the work was not changed.", "In addition to changing or delaying performance under the contract, the government could also terminate or cancel the contract in response to funding shortfalls or budget cuts. Terminations can be of two types—based on the contractor's default, or for the government's convenience—depending upon the circumstances, and some commentators have suggested that the government may be more assertive in exercising its right to terminate on both grounds in light of sequestration. Government contracts grant the government the right to terminate its contracts for either default or convenience, but the government has also been found to have an inherent right to terminate contracts for its convenience, regardless of whether the contract provides for this right. But for these contractual and/or inherent rights, the government could potentially be found liable for breach, even if the termination were based on the contractor's default (i.e., breach). While the common law of contracts does permit a party to cease performance when the other party anticipatorily repudiates or materially breaches the contract, that party does so at the risk of being incorrect as to whether repudiation or a material breach occurred. However, the government avoids the operation of this principle by providing, as a term of its contracts, that any termination for default found to be improper will be converted into a termination for convenience. Recovery in the event of a termination for convenience is generally less than that for breach. Termination differs from cancellation primarily in that cancellation occurs between years on a multi-year contract, whereas termination can occur at any time on multi-year or other contracts.", "A termination for default occurs when the government exercises its contractual right to terminate a contract, in whole or in part, due to the contractor's failure to perform its obligations. It does not automatically occur when the contractor is in default; rather, the contracting officer must affirmatively determine that the contract should be terminated for default, and that it is in the government's interest to do so. For a fixed-price contract, the FAR lists factors that the contracting officer must consider, including the contractor's specific failure and any excuses for it, as well as the urgency of the need for the supplies or services and the time it would take to get them from someone else. If a termination for default is found to be improper for any reason, it will generally be treated as a constructive termination for convenience, which would allow the contractor to recover under the termination for convenience clause, as discussed below.\nWhen the termination for default is proper, the contractor is generally entitled to some recovery, although the basis and amount of the potential recovery differ depending upon the type of the contract. For example, the standard default clauses for fixed-price contracts generally provide that the amount the contractor may recover is the contract price for completed supplies or work, as well as certain other costs (e.g., for materials and protection or preservation of property). The clauses generally allow the government to charge the contractor with the excess costs of any reprocurement, or to recover common law damages. In contrast, the standard default clause for a cost-reimbursement contract permits the contractor to recover allowable costs plus any fee. The allowed fee will generally be proportionate to the portion of the contract that was actually completed. Furthermore, in the event of a partial termination, the standard clause requires the contracting officer and contractor to agree to any equitable adjustment for the fee for the continued (i.e., non-terminated) part of the contract.", "Under the standard termination for convenience clauses, the government has the unilateral right to terminate contracts when it is in its interest to do so. The government has broad discretion to terminate a contract for convenience, although it may not do so in bad faith or abuse of discretion. As with terminations for default, the contractor is generally entitled to some recovery, although the basis and extent of recovery differ depending upon the type of contract, as discussed below. As a rule, however, contractors recover more in the event of terminations for convenience than in terminations for default.\nUnder the standard long-form termination for convenience clause for fixed price contracts, the contractor is entitled to recover its allowable costs, as well as a reasonable profit. The FAR provides that standard cost principles are to be used when determining the allowability of settlement costs, subject to the general principle that the purpose of a termination settlement is to \"fairly compensate\" the contractor (i.e., the principles will not be strictly applied). In the event of a partial termination, the standard clause provides that the contractor may file a claim for an equitable adjustment of the prices under the contract's continued portions (i.e., \"reprice\" the non-terminated part of the contract), out of recognition that a partial termination could increase the costs to the contractor of performing the remaining parts of the contract. The standard clause does not allow the contractor to recover anticipatory profits. Furthermore, a contractor is generally not allowed to recover any profit if the contract would have been performed at a loss. Rather, the government may adjust the termination settlement to account for the loss, thus reducing the contractor's recovery.\nSimilarly, the standard termination clauses for cost-reimbursement contracts generally provide that the contractor may recover allowable costs plus a fee, if any. In the event of a partial termination, the termination contracting officer is required to \"limit the settlement to an adjustment of the fee, if any, and with the concurrence of the contracting office, to a reduction in the estimated cost.\"", "While the prototypical federal contract is for one year (potentially extended to five years through the exercise of options ), certain contracts are multi-year contracts in that their term extends for more than one year without the government having to establish and exercise an option for each program year after the first. Because authority to contract is distinct from the availability of appropriations, and appropriations are generally annual, multi-year contracts contain clauses that generally authorize the government to cancel the contract if \"funds are not available for contract performance for any subsequent program year,\" or if the contracting officer \"fails to notify the Contractor that funds are available for performance of the succeeding program year requirement.\" The government generally has broad discretion as to the use of any available funds. However, multi-year contracts are viewed as \"single, indivisible entities,\" and the government could be found to have partially terminated the contract for convenience, as discussed above, if it awards a new contract for goods or services similar to those provided for in a multi-year contract that was canceled for lack of funds. The rationale for this is that the \"contract binds the Government to purchase the entire multi-year procurement quantity and to fund successive Program Years. This obligation is mandatory unless there is an appropriate and justified cancellation or the bona fide unavailability of funds.\"\nWhen the government does properly exercise its right to cancel a multi-year contract, the contractor is generally paid a \"cancellation charge.\" This charge covers:\n(1) costs (i) incurred by the Contractor and/or subcontractor, (ii) reasonably necessary for performance of the contract, and (iii) that would have been amortized over the entire multiyear contract period but, because of the cancellation, are not so amortized, and\n(2) a reasonable profit or fee on the costs.\nThis charge generally cannot exceed the \"cancellation ceiling\" specified in the contract. The cancellation ceiling represents the maximum amount that the contractor may recover (although the contractor will not necessarily recover this amount). The ceiling is lowered each year to exclude amounts allocable to items included in the prior year's program requirements.", "The contractual and other rights that the government could exercise in modifying procurement spending in light of funding gaps, funding shortfalls, or budget cuts are arguably well-established. Determining what the exercise of these rights might mean for federal contractors and, particularly, federal spending on procurement contracts is, in contrast, less clear for multiple reasons. First, individual contracts could contain specific terms that are contrary to the standard terms discussed here, and that would generally be found to prevail over the standard terms. For example, while the suspension of work clause, discussed above, would generally not allow contractors to recover costs resulting from the impact of a government-caused delay upon the vendor's other contracts, some contracts have expressly allowed for such costs. Second, there is incredible variation in the types, terms, and performance of individual contracts, and in how particular government actions might affect the contractors' costs and/or schedule. Two contractors performing apparently identical functions for an agency could potentially be doing so under fundamentally different contracts, and the same agency action (e.g., reductions in scope, issuance of a stop-work order) could have profoundly different effects upon them depending upon how they planned to perform, where they are in the course of performance, and other aspects of their business operations (e.g., availability and desirability of other work). Relatedly, the government often has multiple ways, pursuant to its contracts, to get to the same outcome (e.g., a reduction in the quantity of goods or services to be supplied under the contract). Depending upon the circumstances, it could potentially be more beneficial to treat such a reduction as a partial termination for convenience or as a change, and the government has some discretion in determining how to proceed, provided the change is \"minor.\" Finally, government contracts are subject to interpretation by various courts and boards of contract appeals, which have had differing opinions on various questions, such as whether contingent costs may be recovered as part of an adjustment.\nIn short, individual contractors could be more or less affected by individual government actions in this area, depending upon the terms of their contract, the course of performance, the nature of the government action, and the tribunal hearing their case, among other things. The government's spending upon procurement contracts could similarly be more or less affected, depending upon how it exercises its rights. For example, reductions in scope effectuated pursuant to the changes clause might or might not lead to savings, depending upon the effects that the reductions have upon contractor costs. If reductions could be targeted to contracts where contractors' costs would decrease due to the reduction, the government could potentially realize savings through reductions. If, however, the reductions were not so targeted, the government might save nothing, or even incur higher costs on particular work." ], "depth": [ 0, 1, 1, 1, 2, 2, 2, 1, 2, 2, 3, 3, 2, 3, 3, 2, 3, 3, 3, 1 ], "alignment": [ "h0_title h2_title h1_title", "h0_full h1_full", "h0_full", "h1_full", "h1_full", "", "", "h0_full h2_full", "", "h2_full", "h2_full", "h2_full", "h2_title", "h2_full", "", "h0_title h2_full", "h0_full", "", "", "" ] }

{ "question": [ "What are some options the federal government has in situations of fiscal uncertainty?", "From where do these options arise?", "What have courts found about these rights?", "How are these rights characterized?", "What are the government's rights after it has issued a solicitation for a proposed contract?", "What options do agencies have prior to contract award?", "What does the extent of the government's rights on existing contracts depend on?", "What is an example of a condition at which the government could cease business with a contractor?", "What are other examples of these rights?", "What is a contractor entitled to when the government exercises its rights on existing contracts?", "In what cases could the government avoid such entitlements?" ], "summary": [ "When confronted with actual or potential funding gaps, funding shortfalls, or budget cuts, the federal government has a number of options as to prospective and existing procurement contracts. Among other things, these clauses may allow the government to (1) unilaterally change certain terms of the contract, such as the specifications or the method and manner of performing the work; (2) delay, suspend, or \"stop work\" on the contract; and (3) terminate the contract for the government's convenience.", "Many of these options arise from contract law and, in particular, certain standard clauses included in federal procurement contracts.", "However, courts have also found that the government has certain rights because it is the government, regardless of whether the contract provides for these rights.", "Such rights are commonly described as \"inherent rights,\" and include the right to terminate the contract for convenience and, according to one tribunal, the right to suspend work.", "The government's rights are broadest where prospective contracts are concerned. Prospective contractors generally do not have a right to a government contract, and the government, like private persons, is generally free to determine whether to enter a contract to procure goods or services. This is true even if the agency has issued a solicitation for a proposed procurement, and prospective contractors have expended time and money in responding to that solicitation.", "Agencies have broad discretion in canceling solicitations prior to contract award, and contractors must generally show that cancellation was in bad faith or otherwise unreasonable in order to recover the costs of preparing bids or proposals for canceled solicitations. The exercise of an option is, similarly, a unilateral right of the government.", "The extent of the government's rights where existing contracts are concerned depends upon the type of contract (e.g., indefinite-quantity), the nature of the goods or services being procured (e.g., construction), and the facts and circumstances of the case.", "For example, the terms of indefinite-quantity contracts would generally permit the government to cease ordering goods or services from the contractor once the guaranteed minimum has been ordered.", "For example, the terms of indefinite-quantity contracts would generally permit the government to cease ordering goods or services from the contractor once the guaranteed minimum has been ordered. Various changes clauses would similarly permit the government to make certain unilateral reductions, or increases, in the work to be performed under the contract, including the quantity of goods and services provided. Other clauses provide for suspension or delay of work by the government, or permit the government to order the contractor to stop work. In addition, the government may terminate all or part of a contract for its convenience, as well as cancel multi-year contracts.", "When the government exercises these rights, the contractor could potentially be entitled to an equitable or other adjustment, other compensation, or an extension of time in which to perform.", "The nature of such recourse varies significantly, however, and in some cases, the government could potentially avoid liability for actions that delayed or increased the costs of the contractor's performance because it acted in its sovereign capacity." ], "parent_pair_index": [ -1, 0, 0, 2, -1, 0, -1, 0, 0, 0, 3 ], "summary_paragraph_index": [ 0, 0, 0, 0, 1, 1, 2, 2, 2, 2, 2 ] }

{ "title": [ "", "Introduction", "Background", "Why Does Risk Matter in Health Insurance?", "Why Is the Mitigation of Health Insurance Risk and Uncertainty Relevant Under Current Federal Law?", "What Health Insurance Risk Mitigation Programs Are Included Under Current Federal Law?", "How Is the Risk Adjustment Program Supposed to Reduce an Insurer's Risk?", "Mechanics of the Risk Adjustment Program", "How Are Data for the Risk Adjustment Program Collected?", "How Are Enrollee Risk Scores Determined for the Risk Adjustment Program?", "How Is Diagnosis Information Categorized to Calculate Enrollee Risk Scores?", "What Factors Are Used to Determine an Enrollee's Risk Score?", "What Is an Example of an Enrollee Risk Score Calculation?", "How Are Payments and Charges Determined Under the Risk Adjustment Program?", "How Are Predicted Costs Determined for a Plan?", "Plan Liability Risk Score", "Induced Demand Factor", "Geographic Cost Factor (GCF)", "How Is Expected Premium Revenue Determined for a Plan?", "Actuarial Value", "Allowable Rating Factor", "Induced Demand Factor and Geographic Cost Factor", "What Is an Example of How Risk Adjustment Payments and Charges May Be Distributed Across Insurers in a State and Market?", "How Is the Risk Adjustment Program Expected to Impact Premiums?", "How Do Insurers Determine Premiums?", "The Risk Adjustment Program in Practice", "When Will the Risk Adjustment Payments and Charges Be Published?", "What Has Been the Experience of the Risk Adjustment Program Thus Far?", "What Changes Are Being Implemented in the Risk Adjustment Program?", "Inclusion of Prescription Drugs", "High-Cost Risk Pool" ], "paragraphs": [ "", "The Patient Protection and Affordable Care Act (ACA; P.L. 111-148 , as amended) created a permanent risk adjustment program that aims to reduce some of the incentives insurers may have to avoid enrolling individuals who are at risk of high health care costs in the private health insurance market—specifically in the individual (nongroup) and small-group markets. Section 1343 of the ACA established the risk adjustment program, which is designed to assess charges to health plans that have relatively healthier enrollees compared with other health plans in a given state. The program uses collected charges from plans with comparatively healthy enrollees to make payments to plans in the same state that have relatively sicker enrollees. The Centers for Medicare & Medicaid Services (CMS) administers the risk adjustment program as a budget-neutral program, so that payments made are equal to the charges collected in each state. Risk adjustment transfers are intended to account for differences in health risk among plans in each state while allowing for premium differences based on allowable rating factors.\nCMS assesses payments and charges on an annual basis, beginning in the 2014 benefit year. All nongrandfathered, individual market and small-group market health plans, both inside and outside of the exchanges, participate in this program.\nPrior to the ACA, most state laws (and federal law under limited circumstances) allowed insurers to minimize their exposure to high-risk individuals by charging higher or lower premiums to potential enrollees based on factors such as age, gender, and health status. However, under current federal law, insurers in the individual and small-group markets are unable to set premiums based on gender or health status and are limited in how much they may vary premiums by age. Without being permitted to account for the risk from individuals who expect or plan for high use of health services on the basis of the aforementioned criteria, insurers still may attempt to avoid such individuals by using benefit designs, networks, formularies, and/or marketing techniques that are not likely to appeal to them (though insurers are limited by other ACA requirements, such as being required to offer coverage for the Essential Health Benefits).\nUnder the ACA's permanent risk adjustment program, the Secretary of the Department of Health and Human Services (HHS) established criteria and methods to determine the actuarial risk of plans within a given state in order to make payments and assess charges. Enrollees in health plans differ in their degree of risk based on such factors as their health status, with sicker individuals considered high risk and expected to have greater health costs than healthier, or low-risk , individuals. Individuals who perceive themselves as high risk, as opposed to those who perceive themselves as low risk, are likely to have different behaviors related to health insurance. High-risk individuals, who perceive that they will need more health services, may be more motivated to seek out and enroll in plans with more comprehensive coverage and benefits than might low-risk individuals. Since individuals have more information about their own health status than does an insurer, they are able to consider this information when choosing a health plan; by contrast, an insurer is not able to take this information into account when establishing coverage, benefits, and premiums for the plan. The risk adjustment program is intended to reduce the likelihood that an insurer will aim to enroll only low-risk individuals and help ensure that price differences of plans reflect the plan design and benefits available rather than risk.\nRisk adjustment is a risk mitigation strategy that has been incorporated into other insurance programs. It is a component of the Medicare program, as well as some state Medicaid programs. Other countries with regulated, private health insurance markets, such as the Netherlands, Switzerland, Germany, Australia, and South Africa, also have risk adjustment mechanisms. In addition, risk adjustment was part of the Commonwealth Care program in Massachusetts from 2009 through 2016. Although risk adjustment programs may have similar aims, program designs may vary. HHS used the Medicare risk adjustment program as the basis for the ACA risk adjustment program, although HHS made modifications especially to account for the different populations in the programs.\nThe risk adjustment program is the only permanent program that was part of the three ACA risk mitigation programs, including the transitional reinsurance program and the temporary risk corridors program. This report provides responses to frequently asked questions related to the risk adjustment program. The first several questions pertain to background on insurance markets, why risk mitigation matters, and the role of risk adjustment in risk mitigation. The following questions relate to the mechanics of the risk program, including how enrollee risk scores are calculated and how risk adjustment payments and charges are determined. Responses to the concluding questions provide information on the experience of the risk adjustment program thus far and future changes to the program.", "Understanding the sources of private health insurance coverage and how such coverage is regulated at the federal level may be useful in providing context around the current federal law and the permanent risk adjustment program (see text box \"Sources and Regulation of Private Health Insurance Coverage\").", "The concept underlying insurance is risk (i.e., the likelihood and magnitude of experiencing a financial loss). In any type of insurance arrangement, all parties seek to manage their risk, subject to certain objectives (e.g., coverage and/or profit goals). In health insurance, consumers (or patients, as insurance enrollees) and insurers (as sellers of insurance) approach the management of health insurance risk differently. From the consumer's point of view, a person (or family) buys health insurance to protect against financial losses resulting from the unpredictable use of potentially high-cost medical care. The insurer employs a variety of methods to manage the risk it takes on when providing health coverage to consumers to assure that the insurer operates a viable business (e.g., balancing premiums against the collective risk of the covered population). The insurer uses these methods when pooling risk so that premiums collected from all enrollees generally are sufficient to fund claims (plus administrative expenses and profit).\nWhere insurers have discretion, they are likely to act in their own financial self-interest to limit their exposure to risk. Prior to the ACA, insurers in the individual and small-group markets could assess the risk of an individual or group applying for insurance coverage using characteristics such as health status, gender, and age with certain exceptions. Using such characteristics, insurers could charge higher premiums for higher-risk individuals, or they could deny coverage if an individual represented too much risk, so long as the denial of coverage was permitted under state law. Similarly, before the ACA, an individual with a preexisting condition may have had that condition excluded from coverage or coverage for a preexisting condition may have been delayed for a period of time (e.g., 6 to 36 months, or indefinitely) depending on state laws and other federal requirements. The converse was also true—insurers had been able to charge lower premiums to lower-risk individuals based on health status, gender and age, with some exceptions.", "The ACA includes provisions that aim to restructure the private health insurance market by implementing several market reforms targeting the individual and small-group markets, including some that impose requirements on health insurance plans. As part of a larger set of private health insurance market reforms, the ACA requires private health insurers to provide coverage to individuals regardless of health status, medical history, and preexisting conditions. Prior to the ACA, insurers in the small-group market already were prohibited from denying coverage based on these factors. Under current federal law, insurers can adjust premiums based solely on certain factors (i.e., individual or family enrollment, geographic rating area, tobacco use, and age).\nAdditional market reforms aim to expand the pool of individuals seeking to purchase health insurance coverage. Under the ACA reforms, some individuals may be eligible for financial assistance (i.e., premium tax credits and cost-sharing subsidies) through the health insurance exchanges (also known as the marketplaces ), which may make these individuals more likely to purchase health insurance. In addition, the ACA, as originally enacted, had required that most individuals maintain health insurance coverage or pay a penalty for noncompliance (i.e., the individual mandate ), but the penalty associated with the individual mandate will be effectively eliminated beginning in 2019. The expanded pool created by the ACA reforms contributes to the uncertainty that insurers face. (Uncertainty was particularly high in the early years of ACA implementation.) Much of the uncertainty centers on the types of individuals who may or may not seek coverage in the expanded pool. For example, to what extent will healthy individuals decide to seek coverage in addition to unhealthy individuals? Also, will the expanded pool extend to individuals who previously were uninsured and/or may have delayed receiving health care services? Furthermore, what will be the demand for health care services for this expanded pool of individuals?\nIn addition to the risks and uncertainty described above, one phenomenon that exists in health insurance markets is that individuals who expect or plan for high use of health services are more likely to seek out coverage and enroll in plans with more benefits than individuals who do not expect to use many or any of the health services. Prior to the ACA, state law (and federal law, under limited circumstances) determined whether insurers could minimize their exposure to this risk by charging higher or lower premiums to potential enrollees based on factors such as gender, age and health status. However, under current federal law, insurers in the individual and small-group markets are unable to set premiums based on gender or health status, and insurers are limited in how much they can vary premiums by age. Notwithstanding this change, and although insurers are limited by other ACA requirements, insurers still could attempt to gain a competitive advantage by avoiding individuals who expect or plan for high use of health services (e.g., sicker, older individuals) by using benefit designs, networks, formularies, and/or marketing techniques that are not likely to appeal to these individuals.\nFinancial assistance, such as premium tax credits and cost-sharing subsidies (and the individual mandate, though the penalty has been effectively eliminated), are intended to encourage enrollment for all individuals and to reduce the risk that only individuals who expect or plan to have high use of health services will purchase health insurance. However, some risk remains, and an insurer may experience losses if it enrolls a disproportionate share of enrollees with high health care claims costs during the year.", "The ACA established three risk mitigation programs to mitigate the financial risk that insurers face and to stabilize the price of health insurance in the individual and small-group markets: (1) the transitional reinsurance program, (2) the temporary risk corridors program, and (3) the permanent risk adjustment program. These three programs—administered by CMS with participation by private insurers—are designed to make the health insurance market more stable and predictable. They also are designed to encourage insurers to participate and compete with one another on quality, level of service, and price rather than on the risk of enrollees who select a particular plan.\nTable 1 summarizes the goals and methods of each of the ACA's three risk mitigation programs and the potential sources of uncertainty or risk that each program aims to moderate to encourage insurers to participate in the market.\nTable 1 does not include information on program implementation.", "Individuals differ in their health insurance risk based on their health status, with sicker individuals considered as high risk and as expected to have greater health costs than healthier individuals (i.e., low-risk individuals). Without a risk adjustment mechanism, a plan that enrolls a larger proportion of sicker (i.e., high-risk) enrollees than other plans in the market would need to charge a more costly average premium (across all of its enrollees) to be financially viable, all else being equal. Under the risk adjustment program, an insurer can set premiums for plans with sicker-than-average (i.e., high-risk) enrollees lower than the expected cost of claims because the insurer will receive a risk adjustment transfer payment to make up some or all of the difference. Conversely, an insurer of a plan with healthier-than-average (i.e., low-risk) enrollees will set premiums higher than what is anticipated to be needed to cover enrollees' claims cost because part of that premium will be owed to other insurers in the form of risk adjustment charges. The risk adjustment program is intended to encourage insurers to set premiums that reflect differences in the plan design and the benefits available rather than the risk of enrollees who choose a particular plan.", "Figure 1 provides a summary of risk adjustment program operations for a given benefit year. The below steps provide an overview of the operational steps to determine plan transfer payments.\nStep 1: Collect Data\nInsurers submit enrollment and claims data for their plans in a state and market using the CMS distributed data collection process.\nStep 2: Determine Enrollee Risk Scores\nCMS uses the data to measure an insurer's risk for each plan. The initial calculation is to determine a risk score for individuals actually enrolled for a particular benefit year based on the enrollee's demographic information and diagnoses for that year using CMS's risk adjustment model. The risk score is a relative measure of how costly that enrollee is anticipated to be for the plan.\nStep 3: Calculate Plan Liability Risk Score\nCMS uses the risk scores for each enrollee in the plan to calculate the plan liability risk score—the insurer's risk—for the plan in a rating area.\nStep 4: Determine Insurer Payment or Charge\nThe plan liability risk score is used in the payment transfer formula, which compares the predicted costs of enrollees to the expected premiums that a plan may collect. This complex formula also includes various other factors that may impact predicted costs and expected premiums. The differences between predicted costs and expected premiums (both relative to the state average for the market) for all of the plans within a state are compared to the state average premiums to translate these differences into payments and charges. Payments and/or charges are then aggregated across rating areas by plan and then by insurer in the individual or small group market in each state. All nongrandfathered, individual market, and small-group market health plans both inside and outside of the exchanges participate in this program.\nStep 5: Inform Insurers/States of Payments and Charges\nCMS releases a final report for the risk adjustment program with the transfers. The final risk adjustment report for the benefit year is due to be released on June 30 following the benefit year.", "Data for the risk adjustment program are collected using a distributed data approach. Insurers submit data for all eligible plans including enrollee information, medical claims, pharmacy claims, and supplemental diagnosis information from their proprietary systems to a server controlled by the insurer. The server runs software developed by CMS to verify the data submitted and execute the risk adjustment process. Once the risk adjustment process is completed, CMS and insurers receive plan-level, summarized data files and insurers receive additional detailed, individual-level data. CMS uses the data files to calculate risk adjustment payments and charges. Data are collected for each benefit year, with all data gathered for consideration in the risk adjustment program—including adjudicated claims—by April 30 of the following benefit year.", "CMS uses the Truven MarketScan® Commercial Claims and Encounter Data to approximate (i.e., model) the relationship between diagnoses and health care expenditures and then develops coefficients used to calculate an enrollee's risk score—a relative measure of how costly the enrollee is anticipated to be for the plan—based on the enrollee data submitted by the insurer. There are three risk adjustment models—one for adults (aged 21+), one for children (aged 2-20) and one for infants (aged 0-2). Several factors are used to determine a risk score for an enrollee, including an enrollee's diagnosis information and demographics (i.e., age and sex), how many months the enrollee was covered, and whether an enrollee participated in a plan with cost-sharing subsidies (see \" What Factors Are Used to Determine an Enrollee's Risk Score? \" for more information). Coefficients are determined separately for each health plan metal level designation (see \"Actuarial Value and Metal Level\" text box in section \" What Factors Are Used to Determine an Enrollee's Risk Score? \").", "CMS reviewed input from clinician consultants along with empirical analysis and background research they conducted to adapt the diagnoses used in the Medicare risk adjustment model for use in the ACA risk adjustment program. The diagnoses for the risk adjustment model were first grouped into diagnostic groups (DXGs) and then further aggregated into condition categories (CCs). CCs describe a set of largely similar diseases that are related clinically to one another and are similar with respect to cost (e.g., Diabetes with Acute Complications is a CC that includes DXGs for Type II Diabetes with Ketoacidosis or Coma as well as Type I Diabetes with Ketoacidosis or Coma).\nOnly the most severe manifestation among related diseases for an enrollee is included for risk adjustment. Hierarchies are imposed among similar CCs to determine hierarchical condition categories (HCCs), which identify the most severe manifestation among related diseases (see the text box \"Risk Score Example\" in section \" What Factors Are Used to Determine an Enrollee's Risk Score? \").", "The main factors used to determine an enrollee's risk score are the demographic factor and the HCCs. The demographic factor is determined based on an enrollee's age category (21-24, 25-29, etc., up to the age of 60+ for adults; 2-4, 5-9, etc., up to the age of 20 for children) and sex (male and female). Diagnosis codes for an enrollee in the adult and child models are mapped to the appropriate CCs, and then the hierarchy is applied to groups of CCs to determine the HCCs. For an example of how diagnosis codes are categorized into CCs and HCCs, see the text box \"Risk Score Example.\"\nTwo additional factors are used in the adult model only. A new factor was added to the adult model starting in the 2017 benefit year to capture costs for enrollees who are enrolled in a plan for only part of a year. The adult model also includes a severity interaction factor. There are eight HCCs that are considered to be indicators of severe illness (e.g., HCC 126: Respiratory Arrest). When these indicators of severe illness are present along with certain HCCs, the increased costs related to those interactions are included in the model.\nA cost-sharing factor is included for any enrollees who participate in cost-sharing plans. Individuals enrolled in cost-sharing plans face lower cost-sharing requirements (e.g., lower deductibles). Therefore, enrollees in cost-sharing plans may use more health services than they would without the available cost-sharing subsidies.", "CRS developed a sample risk score calculation for a fictitious enrollee (see text box entitled \"Risk Score Example, Continued: Calculating an Enrollee's Risk Score\"). This example builds on the previous example of determining the HCCs for a hypothetical enrollee (see the section \" How Are Enrollee Risk Scores Determined for the Risk Adjustment Program? \" and text box labeled \"Risk Score Example\"). The coefficients used by CRS in this example came from the HHS Notice of Benefit and Payment Parameters.", "The payment transfer formula is used in the risk adjustment program to determine the flow of money from low-risk plans to high-risk plans. CMS administers risk adjustment as a budget-neutral program within each state, so the sum of all charges for plans with lower-than-average risk equals the payments made to plans with higher-than-average risk in a state and market (i.e., individual and small group). A plan's risk adjustment payment or charge is determined by calculating the predicted costs considering the health status of the plan's actual enrollees relative to the statewide average and subtracting expected premium revenue based on allowable rating factors (i.e., individual or family enrollment, geographic rating area, tobacco use, and age) relative to the statewide average. Risk adjustment transfers are intended to account for differences in health risk among plans while allowing premium differences based on allowable rating factors.\nThe difference between predicted costs and expected revenues is then multiplied by the average premium for the state and the market (i.e., individual or small group) to determine the plan charge (if expected revenue is greater than predicted costs) or payment (if predicted costs are greater than expected revenue). Figure 2 shows the different factors used when calculating the predicted costs and the expected premium revenue. Each factor is explained in greater detail below. The transfer formula is applied to each plan for each rating area within a state, so when a plan exists in multiple rating areas within a state, transfers are calculated in separate plan segments , one per rating area, and then are aggregated by plan and then plans are aggregated for each insurer within a state. CMS reports risk adjustment payments and charges for a given benefit year in a yearly report which according to regulation is released on June 30 th of the following benefit year, and transfers are paid/charged on a rolling basis after that point.", "Three factors are used in the risk adjustment transfer formula to determine a plan's predicted costs: (1) plan liability risk score (PLRS), (2) induced demand factor, and (3) geographic cost factor (GCF).", "The PLRS is calculated based on the risk scores for each enrollee (see \" How Are Enrollee Risk Scores Determined for the Risk Adjustment Program? \" for additional information). Risk scores are calculated for each enrollee regardless of the type of plan (e.g., HMO, PPO) that enrollee is in or whether the enrollee is in an individual or a family policy. The PLRS is calculated by multiplying the enrollee's risk score and the months enrolled, then summing this month-weighted risk score across all enrollees in a plan and rating area. Then, the result of that sum is divided by the sum of the months enrolled that are considered \"billable\" in the plan (i.e., months enrolled for all of the individuals in that plan, but only including the first three children for family policies).", "The induced demand factor measures how an enrollee's use of health services can be attributed to the more generous benefits provided by a plan. This factor varies by metal level and is intended to prevent insurers from receiving payments through risk adjustment due to differences in the plan design and benefits (see the text box \"Actuarial Value and Metal Level\" in section \" What Factors Are Used to Determine an Enrollee's Risk Score? \" for more information).", "The GCF accounts for differences in input prices and medical care utilization that vary geographically within a state and may affect premiums. The GCF is determined by comparing the average silver plan premiums in a rating area to the state average silver plan premiums.", "Four factors are used in the risk adjustment transfer formula to determine the expected premium revenue: (1) actuarial value (AV) of the plan, (2) allowable rating factor (ARF) based on age, (3) induced demand factor, and (4) GCF.", "The plan's AV accounts for differences in the percentage of enrollee costs that the plan will cover if its enrollees represent a \"typical\" population (see Text Box \"Actuarial Value and Metal Level\" in section \" What Factors Are Used to Determine an Enrollee's Risk Score? \" for more information).", "The ARF reflects the ages of enrollees in a plan and the impact on the premium the plan would collect based on the age rating rules. The rating for the most expensive group cannot be more than three times as high as the rating of the lowest group (e.g., an enrollee who is 21 years of age has an ARF of 1.00, and the maximum rating for an enrollee aged 64 and older is 3.00). A plan with a higher ARF can collect more premium revenue due to the age rating than a plan with a lower ARF. For example, an insurer has a Plan A with an ARF of 2.00 and a Plan B with an ARF of 1.60. The insurer would be able to collect 25% more Plan A premiums than Plan B premiums, given the differences in age rating.", "The induced demand factor and GCF are included on both sides of the transfer equation. See \" Induced Demand Factor \" for an explanation of the Induced Demand Factor and \" Geographic Cost Factor \" for an explanation of the GCF.", "Under the risk adjustment program, an insurer can set premiums for plans with sicker-than-average (i.e., high-risk) enrollees lower than the expected cost of claims because the insurer will receive a risk adjustment transfer payment to make up some or all of the difference. Conversely, an insurer of a plan with healthier-than-average (i.e., low-risk) enrollees will set premiums higher than what is anticipated to be needed to cover enrollees' claims cost because part of that premium will be owed to other insurers in the form of risk adjustment charges. Since risk adjustment payments or charges impact an insurer's net premiums, CMS expects that insurers will try to anticipate transfer payments or charges and adjust their premiums accordingly. Premiums are often determined in the spring prior to open enrollment (e.g., for the 2019 benefit year, spring 2018) which begins on November 1 (e.g., for the 2019 benefit year, November 1, 2018). Data are collected for risk adjustment during the benefit year and are due on April 30 the following benefit year (e.g., for the 2019 benefit year, risk adjustment data collection will be due on April 30, 2020).\nIn the following hypothetical example which is drawn from the American Academy of Actuaries report Insights on the ACA Risk Adjustment Program , there are three insurers in a hypothetical state and market (i.e., individual or small group): Insurer A, Insurer B, and Insurer C.\nInsurer A's premium is 10% below the market average ($270, compared to a state market average of $300), and it attracted a healthier-than-average population (relative risk of negative 10%, as compared to the market). Therefore, Insurer A had a risk adjustment charge of $30 (10% of $300, the state market average premium). Although the $30 charge is 10% of the state average premium, it amounts to about 11% of Insurer A's collected premiums ($270). Given its relative risk, Insurer A would have expected the net premium after the risk adjustment charge to be $243 ($270 in premium charges, minus $27 in risk adjustment charge). However, since the risk adjustment charge of $30 was calculated using the market average premium ($300), as opposed to Insurer A's premium ($270), the net premium is actually $240 ($270-$30) after the risk adjustment charge, so Insurer A is left with a shortfall of 1% of premium. In this example, Insurer B set premiums to match the market average, and also has the largest market share. Insurer's B's relative risk is the market average, so thus there is not a risk adjustment transfer. Insurer C has a premium of $330, and it attracted a sicker-than-average population (relative risk of positive 10%). Insurer C will receive a risk adjustment payment of $30, which is 10% of the $300 state average premium, but only 9% of its collected premiums, so Insurer C also is left with a shortfall of approximately 1% of premium.\nAs discussed in the American Academy of Actuaries report Insights on the ACA Risk Adjustment Program , the relative position of an insurer's premiums within the market will affect whether or not the premium amounts, after accounting for risk adjustment transfers, are adequate for the insurer. An insurer's premiums are designed to reflect the risk of the entire market and not just the risk of the insurer's enrollees. If premiums for an insurer do not correctly account for the difference between their enrollees' risk and the risk of the entire market, then premiums may be incorrect (i.e., too high or too low), which may result in unanticipated losses or gains. For example, similar to Insurer A in Table 2 , if an insurer sets premiums lower than the average within the market because of incorrectly anticipating the risk in the total market and then has healthier-than-average enrollees, the insurer will be assessed a risk adjustment charge. It is possible that the insurer may not have enough premiums to cover the risk adjustment charge and could face solvency issues if there are not enough premiums to cover claims and administrative costs.\nSmall insurers and new insurers may find it more difficult to set premiums due to greater variability in their risk profiles. Also, new insurers may not have tools that help manage health care spending, such as provider discounts or utilization management programs, but may choose to set premiums competitively to attract enrollees.", "The risk adjustment program is intended to allow insurers that enroll a high-risk (e.g., sicker) population and those that enroll a low-risk (e.g., healthier) population in the same market to refrain from charging different premiums based on enrollee risk, ideally allowing price differences to reflect plan benefits, efficiency, and value. CMS expects that insurers will try to anticipate transfer payments or charges and adjust their premiums accordingly.\nThough the risk adjustment program protects insurers from a portion of financial losses related to having an enrollee population with higher-than-average risk (i.e., a sicker enrollee population) relative to other insurers, the program is not intended to ensure that premiums can cover the costs of average claims within a state. If the costs of enrollees in the state and the market are greater than expected, the statewide average premium likely will be too low. Though the risk adjustment program would still transfer funds between insurers, it does not add money into the system, so the premiums may not cover the cost of enrollees in the entire state or market. In addition, the risk adjustment program does not ensure more stable premiums from one year to the next. These forms of risk and uncertainty were supposed to be addressed by the other temporary risk mitigation programs included in the ACA: the transitional reinsurance program and the temporary risk corridors programs (see the section titled \" What Health Insurance Risk Mitigation Programs Are Included Under Current Federal Law? \" for additional information).", "Insurers develop rates for premiums based on a number of factors, including the population covered in the risk pool, projected medical costs, administrative costs insurers face, and laws and regulations. Insurers pool risk so that premiums from enrollees that do not get sick can help cover the costs of enrollees who do get sick, and premiums are set to reflect the health status of the risk pool as a whole at the state level, rather than just the plan's risk pool. Plan design (e.g., services in a plan, expected utilization of health services, cost sharing) and underlying health care costs (e.g., the price for health care services in a geographic area, fees negotiated with providers) also are considered when determining premiums. Most of the collected premiums go to paying medical claims. Premiums also must be able to cover an insurer's administrative costs (e.g., product development, sales, enrollment, claims processing) as well as profit or surplus (for not-for-profit insurers). Some laws, regulations, and policy changes affect premiums as well (e.g., fees, taxes, the presence of risk sharing programs). For example, in 2017, the American Academy of Actuaries cited several factors impacting premiums, including the end of the transitional reinsurance program, the repeal of the expansion of the small-group market, and the delay in the health insurer fee. In 2018, it cited legislative and regulatory uncertainty (e.g., funding cost-sharing subsidies, the enforcement of the individual mandate) as factors influencing premiums.", "The risk adjustment program began in 2014 and recently completed calculations for the 2017 benefit year (its fourth year).", "According to regulation, the risk adjustment report for a given benefit year will be published on June 30 of the following benefit year (e.g., the risk adjustment report for the 2016 benefit year was published on June 30, 2017). The final risk adjustment report and its appendixes can be found at on the Center for Consumer Information and Insurance Oversight website at https://www.cms.gov/CCIIO/Programs-and-Initiatives/Premium-Stabilization-Programs/index.html . Although CMS suspended collections and payments on July 7, 2018, based on a court decision related to the risk adjustment methodology, the agency issued a final rule on July 24, 2018, which reissued the risk adjustment methodology with additional explanation, which CMS stated would allow the agency to continue operating the program.", "Since the risk adjustment program is a relatively new program, there has not yet been a lot of analysis done on this program. However, both the American Academy of Actuaries and CMS found evidence suggesting that the risk adjustment program was functioning as intended in 2014. The American Academy of Actuaries reported that risk adjustment transfers reduced the medical loss ratios for insurers with high loss ratios and increased the loss ratios among insurers with low cost ratios, generally bringing the loss ratios closer together for insurers that received payments and those that experienced charges. The medical loss ratio for an insurer is the percentage of premium spent on health care claims and other expenses related to improving health care quality. By bringing the loss ratios for insurers closer together, the risk adjustment program is evening out an insurer's experience in a particular market. Premiums include factors other than risk associated with claims cost, such as administrative costs and profit. Thus, even if risk adjustment perfectly captured each insurer's risk (and compensated accordingly), the American Academy of Actuaries stresses that it would expect to see some variation in loss ratios. Also, CMS found that insurers with risk adjustment charges generally had relatively low plan liability risk scores and relatively low amounts of paid claims per enrollee; conversely, insurers that had a relatively high amount of paid claims per enrollee also had higher plan liability risk scores and were more likely to receive a risk adjustment payment.\nIn their respective reports, both the American Academy of Actuaries and CMS analyzed the relative impact of risk adjustment according to the size of the insurer. Both organizations found that smaller insurers (i.e., those with less market share) had more variability in their risk adjustment payments and charges as a percentage of premium. The American Academy of Actuaries reported that smaller insurers were somewhat more likely than larger insurers to have a higher risk adjustment transfer relative to the percentage of premium. This correlation was attributed to the nature of the risk adjustment program, because insurers with a higher market share are by definition more likely close to the market average than insurers with smaller market share, which are more likely to have enrollees skewed toward either lower-than-average or higher-than-average risk. CMS also reported that the size of an insurer did not determine whether or not it received a risk adjustment payment or charge.\nIn addition, both reports enumerated potential operational difficulties insurers may have experienced during the first year of the risk adjustment program. The American Academy of Actuaries suggested that because risk adjustment was a new program in 2014, some insurers may have experienced technical difficulties with the distributed data collection process and that these difficulties may have impacted small and new insurers more than larger, more established insurers, though not necessarily. CMS noted that some insurers had difficulty submitting data. Both organizations suggested that over time, data submission would become easier.\nFurthermore, both organizations suggested that pricing premiums to take into account risk adjustment transfers for the first year of the risk adjustment program may have been difficult and that pricing would be more accurate as time passed.", "While there have been several changes made to the risk adjustment program since it began, two more substantial changes to the risk adjustment program were finalized to be implemented for the next benefit year (2018). They are (1) adding prescription drugs in the risk adjustment model to help improve the accuracy of an enrollee's risk score and (2) creating a high-cost risk pool. Below is a brief description of the changes.", "Prescription drugs were added to the adult risk adjustment model starting in the 2018 benefit year. CMS created prescription drug categories (RXCs) to group drugs to be included in the risk adjustment model. Some RXCs are used to impute (i.e., ascribe) diagnoses, and some are used to indicate the severity of a diagnosis that is included through medical coding. CMS worked with clinician consultants and staff clinicians to determine RXCs both for ascribing diagnoses and for indicating a more severe case of the related diagnosis (making it likely that the enrollee will incur greater medical expenses than an enrollee who has the diagnosis but not a prescription drug). CMS included prescription drug classes where there is a low risk of unintended impacts on provider prescribing behavior. The agency intends to monitor prescription drug utilization for any unintended impacts and may make changes to the RXCs in the future if it finds evidence of such impacts.\nThe American Academy of Actuaries suggested including prescription drugs in the risk adjustment model in its report on risk adjustment. During the rulemaking process for the 2018 benefit year, the academy commented that including prescription drugs would improve the model's accuracy, enhance the prediction of costs for partial-year enrollees, and improve payments for conditions that are treated with high-cost drugs.", "Starting in the 2018 benefit year, CMS created a national-level, high-cost risk pool for the individual market and the small group market to remove any potential incentive for insurers to avoid extremely high-cost enrollees and to better capture the risk associated with these enrollees in risk adjustment payments and charges. While an enrollee who is considered high-risk is expected to have higher overall claims cost, other enrollees who are not high-risk may have (one time) expensive claims and thus be considered high-cost in a given year. For high-cost enrollees (whether high risk or not) an insurer will receive an adjustment to their transfer amounts equal to 60% of the costs above a defined threshold (the threshold for high-cost enrollee is defined as enrollees with total claims costs above $1 million in a benefit year). To maintain budget neutrality, CMS first will calculate the total amount of paid claims costs above the threshold to determine the amount to be transferred. Then, CMS will calculate an adjustment as a percentage of an insurer's total premiums in each market. Once determined, this amount will be added to or subtracted from an insurer's transfer amount calculated by excluding costs above the threshold the high-cost enrollees. CMS indicated that it expects this adjustment to be a very small percentage of premiums, estimating less than 0.5% of premiums for either market.\nThe American Academy of Actuaries noted in its risk adjustment report that risk adjustment typically does not compensate insurers adequately for very high-cost enrollees and that it may be appropriate for the risk adjustment program to incorporate a process for transfers for high-cost outliers. CMS also reported that most risk adjustment programs do not predict the existence of high-cost enrollees very precisely because the risk scores reflect the average costs for individuals in a specific age group, with a specific sex, and with specific diagnoses. Since most spending for insurance companies is related to high cost enrollees, insurers may still have an incentive to avoid very high cost enrollees. Additionally, other research also has found that risk adjustment programs do not adequately account for high-cost cases and, as a result, that insurers have an incentive to avoid these high-cost enrollees.\nThe creation of a high-cost risk pool to provide payments to insurers for a portion of the costs of high-cost enrollees works similarly to how the ACA's transitional reinsurance program did. However, the attachment point (referred to as the threshold under the high-cost risk pool) is significantly higher (i.e., $1 million) than the attachment points that were used for the transitional reinsurance program (i.e., $90,000 in 2016). See the text box labeled \"High Cost Risk Pool Example\" for an illustration of the difference." ], "depth": [ 0, 1, 1, 2, 2, 2, 2, 1, 2, 2, 3, 3, 3, 2, 3, 4, 4, 4, 3, 4, 4, 4, 3, 2, 2, 1, 2, 2, 2, 3, 3 ], "alignment": [ "h0_title h2_title h1_title", "h0_full h2_full", "h0_title", "h0_full", "h0_full", "", "", "h1_full", "h1_full", "h1_full", "", "", "", "h1_full", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "" ] }

{ "question": [ "What concept underlies insurance?", "What are ways that insurers are exposed to risk?", "Prior to the ACA, what factors were insurers allowed to use to calculate premiums?", "How did this change under the ACA?", "What do insurers do now to avoid insuring individuals with higher risk?", "What does CMS's software calculate?", "How does CMS use the risk score they calculate?", "How do insurers use this data?", "What does this report provide information on?", "What areas of risk mitigation does this report discuss?", "How is the information in this report organized?" ], "summary": [ "The concept of risk (i.e., the likelihood and magnitude of experiencing financial loss) is at the root of any insurance arrangement.", "One of the ways that insurers are exposed to risk is that individuals have more information about their own health status than an insurer does. Individuals who expect or plan for high use of health services (e.g., older or sicker individuals) are more likely to seek out coverage and enroll in plans with more benefits than individuals who do not expect to use many or any health services (e.g., younger or healthier individuals).", "Prior to the ACA, most state laws (and federal law under limited circumstances) allowed insurers to minimize their exposure to this risk by charging higher or lower premiums to potential enrollees based on factors such as age, gender, and health status.", "However, under current federal law, insurers in the individual and small-group markets are unable to set premiums based on gender or health status and are limited in how much they may vary premiums by age.", "Without being permitted to account for the risk from individuals who expect or plan for high use of health services using the aforementioned criteria, insurers still may attempt to avoid such individuals enrolling by using networks, formularies, and other techniques that are not likely to appeal to them, though insurers are limited by other ACA requirements (e.g., they are required to offer certain benefits).", "CMS's software calculates a risk score for an enrollee using that enrollee's demographic and diagnosis information and obtains summary data for each plan.", "CMS uses the risk scores for a plan's enrollees to calculate the difference between the plan's predicted costs for its enrollees relative to the predicted state average cost, given the health status of the plan's enrollees and the estimated premium revenue that the plan would be able to collect based on allowable rating factors, relative to the estimated state average. This difference is then multiplied by the state average premium and results in either a risk adjustment payment or charge for a given plan.", "Under the risk adjustment program, insurers place enrollee and claims data for a benefit year on a computer server that they own but that runs CMS software.", "This report provides responses to some frequently asked questions (FAQs) about the ACA risk adjustment program.", "The report begins with background on the health insurance market, discusses why risk mitigation matters, and introduces the role of risk adjustment in risk mitigation.", "The report begins with background on the health insurance market, discusses why risk mitigation matters, and introduces the role of risk adjustment in risk mitigation. The next section describes the mechanics of the program, including how enrollee risk scores are determined and how they are used to calculate payments and charges. The report concludes with questions regarding the program's experience thus far and future changes to the program." ], "parent_pair_index": [ -1, 0, -1, 2, 3, -1, 0, 0, -1, 0, 0 ], "summary_paragraph_index": [ 1, 1, 1, 1, 1, 3, 3, 3, 4, 4, 4 ] }

{ "title": [ "Background", "FDA’s Approval of Drugs", "The EU’s Equivalence Process", "FDA Takes Steps to Help Ensure the Safety of Imported Seafood from Unsafe Drug Residues and Could Strengthen Its Efforts with Foreign Country Agreements", "FDA Requires Seafood Processors and Importers to Follow HACCP and Conducts a Limited Number of Inspections to Assess Compliance", "FDA Conducts a Limited Number of Port-of-Entry Examinations and Tests a Small Sample of Seafood Imports to Identify Unsafe Drug Residues", "FDA Could Strengthen Its Efforts by Pursuing Agreements with Other Countries Requiring That They Test Seafood Exported to the United States", "FSIS Takes Steps to Help Ensure the Safety of Imported Catfish from Unsafe Drug Residues and Could Strengthen Its Efforts", "Upon Assuming Responsibility for Catfish Oversight, FSIS Allowed an 18-Month Transition Period", "Through Its Equivalence Determination Process, FSIS Relies on Other Countries to Ensure the Safety of the Food They Export to the United States", "FSIS Could Strengthen Its Efforts to Ensure the Safety of Imported of Catfish", "FDA and FSIS Took Key Steps to Coordinate the Transfer of Catfish Oversight, but They Have Not Fully Coordinated on Drug Residue Testing Methods", "FDA and FSIS Took a Number of Steps to Coordinate the Transfer of Catfish Oversight", "FDA and FSIS Have Not Fully Coordinated on Drug Residue Testing Methods", "Conclusions", "Recommendations for Executive Action", "Agency Comments and Our Evaluation", "Appendix I: Objectives, Scope and Methodology", "Appendix II: FDA’s Drug Residue Testing for Imported Seafood", "Appendix III: Comments from the Department of Health and Human Services", "Appendix IV: Comments from the U.S. Department of Agriculture", "Appendix V: GAO Contact and Staff Acknowledgments", "GAO Contact", "Staff Acknowledgments", "Related GAO Products" ], "paragraphs": [ "Fishery products (i.e., seafood), including wild catch, aquaculture, and processed fish products, are one of the most highly traded commodities in the world today, and more than half of this commodity originates in developing countries. The EU is the largest market for imported seafood, followed by the United States and Japan. Roughly 20 years ago, about 60 percent of the seafood consumed in the United States was imported. As of April 2016, over 90 percent of the seafood consumed in the United States was imported, about half of which was produced from aquaculture operations, also known as fish farms. In 2015, China was the overall leading exporter of seafood to the United States, India was the leading exporter of shrimp, and Vietnam was the leading exporter of catfish. Figure 1 shows the proportion of U.S. imports from the five countries exporting the most seafood to the United States in 2015. The “others” category represents 137 countries that also exported seafood to the United States in 2015. Figure 2 shows the countries that in 2015 were the major exporters of shrimp, salmon, tilapia, and catfish to the United States.\nAs with seafood more generally, the volume of imported catfish has been increasing in recent years. In 2005, the United States imported over 30 million pounds of catfish. In 2010, the United States imported about 137 million pounds; the major catfish exporters were Vietnam, with 79 percent, and China, with 13 percent. By 2015, total catfish imports were almost 250 million pounds, with Vietnam alone accounting for over 95 percent of all such imports. Domestically, catfish production is concentrated in Alabama, Arkansas, Louisiana, and Mississippi. In general, according to USDA, domestic catfish production has trended downward in recent years, but data in this regard are incomplete. For example, data reported by USDA’s National Agricultural Statistics Service showed a general decline in domestic catfish production from 2006 through 2012, including a 36 percent decline from 2010 to 2012, from about 472 million pounds in 2010 to about 300 million pounds in 2012. But this agency did not collect and report similar data for the period 2013 through 2016.\nBefore 2002, various fish in the order Siluriformes were commonly labeled and sold as “catfish.” However, in 2002 Congress amended FFDCA to allow only fish from the family Ictaluridae (in the order Siluriformes) to use the name catfish in labeling. All other fish, such as those from the Pangasiidae family (in the order Siluriformes) that had previously been labeled as catfish had to have other names on labels, such as basa, swai, or tra. However, as discussed, the 2014 Farm Bill made all fish in the order Siluriformes subject to FSIS inspection upon the issuance of final regulations. For purposes of this report, we refer to all fish potentially subject to FSIS regulations as “catfish,” including fish in the family Ictaluridae, which are primarily of domestic origin, and Pangasiidae, which come primarily from Vietnam.", "In the United States, new animal drugs (veterinary drugs) used in animals that are used for food, including seafood, generally must be approved by FDA. According to FDA officials, the process for obtaining a new animal drug approval, including drugs used in aquaculture, originates with an entity or individual (sponsor) submitting an application for review. FDA may approve a drug for, among other things, certain disease conditions in specific species (e.g., catfish). When FDA approves a drug, it may establish a tolerance for the safe use of the drug. If residues of the approved drug are detected in a food product above the tolerance, the product is unsafe and therefore adulterated under FFDCA. Once residues are confirmed above a tolerance, which can vary by species and drug, FDA may take regulatory action. In addition, if any residue of a drug unapproved by FDA is detected, the food product is likewise unsafe and adulterated under FFDCA. In general, drugs used in aquaculture may include anesthetics, antibiotics, disinfectants, hormones, parasiticides, and germicidal agents. Table 1 lists the drugs that FDA has approved for aquaculture use in the United States as of February 2017.\nFor testing drug residues, FDA has established three types of maximum residue levels (MRL) for seafood intended for consumption in the United States. FDA applies two of these levels—the “tolerance” and “regulatory” levels—to domestic and imported seafood. The third, “import tolerance” applies only to imported seafood. FDA regards the presence of drug residues above any of these levels to be potentially harmful to human health and may consider taking regulatory action, such as refusing a product’s entry into the United States if it contains drug residues above such levels. More specifically, the three levels are as follows:\nTolerance: For drugs FDA has approved for use in aquaculture, the approval is often for specific species, disease conditions, and a maximum drug residue tolerance. A food product with a residue above the tolerance established for the drug in that food is adulterated under FFDCA. Tolerances for approved drugs are established in regulation and codified in the U.S. Code of Federal Regulations. FDA applies established tolerances for FDA approved drugs to imported and domestic seafood.\nRegulatory level: For certain unapproved drugs, FDA has also established maximum drug residue levels that for purposes of this report, we refer to as regulatory levels. In general, these levels correspond to the limits of detection achievable by the testing methods and equipment used by FDA laboratories. FDA does not generally publicly disclose regulatory levels for residues of unapproved drugs. According to agency officials, FDA is concerned that disclosing its regulatory levels for unapproved drugs may encourage some foreign fish farmers to use these drugs if they believe that they can do so in a manner that would result in residue levels below FDA’s regulatory levels.\nImport tolerance: For certain drugs that may be used by foreign fish farmers, FDA has established import tolerances. These drugs are not approved for use by domestic fish farmers. FDA has established import tolerances for three drugs that can be used in other countries on seafood, but none of them are for catfish.", "The EU, which is the largest importer of seafood worldwide, takes a wide- ranging review of the food safety systems of foreign countries that want to export their seafood products to it. Specifically, the EU requires that other countries seeking to export seafood to it demonstrate that their seafood safety systems meet its or equivalent requirements or comply with specific requirements established in an agreement between the EU and the exporting country. According to EU regulations, for other countries to demonstrate that their seafood safety systems meet EU or equivalent requirements, they must provide information on their food safety systems, including relevant laws, regulatory enforcement powers, and the laboratories that test seafood products. According to EU officials, once they determine that a country has an equivalent food safety system for a particular food product, the government of that country is then responsible for meeting the EU’s safety requirements. Moreover, that government becomes the single point of contact to address any identified problems, such as seafood products with drug residues above the EU’s accepted MRLs, and is expected to take regulatory actions across that country’s supply chain, from farm to processing facility, as necessary.\nThe EU generally conducts an on-site audit of a country’s food safety system governing the product that country seeks to export to the EU. The audit focuses on the ability of the competent government authority responsible for food safety to carry out its tasks and provide the necessary guarantees for the safety of food to be exported to the EU. The EU’s on-site audits include visiting fish farms and processing facilities as well as reviewing the capabilities and quality of the country’s food testing laboratories. In addition, to ensure continuous compliance with EU requirements, the EU periodically conducts follow-up audits of a country’s food safety system for specific food products, such as seafood.\nCountries that export food to the EU also are required to implement national residue monitoring plans, which include sampling and testing of food products for residues of specific drugs of concern to the EU. The EU must approve a country’s residue monitoring plan as a prerequisite for export of food of animal origin, such as seafood, from that country to the EU. Countries exporting food to the EU must submit their residue monitoring plans to the EU for approval each year. The EU can prohibit a country from exporting seafood to the EU if drugs of concern to the EU are not included in the country’s national residue monitoring plan or the country does not otherwise fully implement its plan.", "To help ensure the safety of imported seafood from unsafe drug residues, FDA generally depends on the actions of foreign processors and U.S. importers. Specifically, FDA requires processors and importers to follow its Hazard Analysis and Critical Control Point (HACCP) regulations to identify hazards and the critical control points where the hazards, such as pathogen contamination, are likely to occur and to take corrective action. FDA also performs a limited number of (1) inspections of processors and importers each year to ensure HACCP compliance, and (2) samples and tests of imported seafood for contaminants, including unsafe drug residues. However, FDA has not entered into agreements with other countries requiring that they test seafood exported to the United States for the specific drugs the agency tests for—drugs of concern to FDA.", "Since 1997, FDA has used HACCP as its main safety oversight tool for imported seafood. Under HACCP requirements, seafood processing firms, including firms that manufacture, pack, or label, are responsible for conducting a hazard analysis and for developing and implementing HACCP plans whenever an analysis shows that one or more hazards, such as pathogens or chemicals, are reasonably likely to occur. Under HACCP requirements, processors are also responsible for addressing hazards that may have been introduced before the seafood reached their facilities, including hazards from unsafe drug residues. FDA inspects a limited number of foreign seafood processing facilities each year to (1) identify potential seafood safety problems before seafood products arrive in the United States, (2) help the agency make admissibility decisions when seafood products are offered for importation into the United States, and (3) help ensure that imported seafood products under FDA’s jurisdiction meet U.S. safety requirements, among other things.\nIn fiscal year 2016, FDA inspected 144 foreign seafood processer facilities for HACCP compliance, or nearly 2 percent of the 7,669 total processors that exported seafood to the United States that year. According to FDA officials, limited resources dictate the number of inspections the agency can conduct. Similarly, in our January 2015 report, we found that FDA was not keeping pace with FSMA’s mandate for increasing the number of these inspections of foreign food facilities. According to FDA officials, the agency did not plan to meet this FSMA mandate because of limited funding. Regarding potential drug residues, FDA’s inspections of foreign seafood processor facilities are limited. These inspections involve reviewing the processors’ HACCP plans and other records to ensure that the processors considered drug residues as a hazard that is reasonably likely to occur if the seafood products it receives are from fish farms. However, the inspections do not include visiting the fish farms that supply the processor facilities to evaluate drug use or controls; it is at these farms where drugs are introduced. FDA’s inspections also do not include visiting laboratories that may be asked by processors to test for unsafe drug residues in seafood to assess the laboratories capabilities and competence.\nAccording to FDA officials, neither fish farms nor laboratories are subject to the HACCP regulations and therefore are not part of FDA’s processor inspections. Our review of a random sample of 74 foreign processor inspection reports prepared by FDA for fiscal years 2013 through 2015 generally confirmed that FDA’s processor inspections did not include visiting farms that supply the fish to the processor and laboratories that conduct testing for the processor. From the 74 reports, we found only one case where the FDA inspectors also visited a fish farm supplying the processor. In that case, the farm was located near the processing facility.\nFDA also requires U.S. importers to verify that foreign processing facilities are HACCP compliant. HACCP regulations require all importers of seafood to the United States to demonstrate that the seafood they import has been processed in accordance with HACCP requirements. For example, under HACCP requirements, importers of seafood products must (1) obtain seafood products from processing facilities in foreign countries that have an agreement with FDA documenting that the country’s food safety system complies with or is equivalent to the U.S. system; or (2) maintain written verification procedures that include product specifications designed to ensure that products are not adulterated and take at least one of six affirmative steps to document that the foreign processing facilities supplying their seafood products comply with HACCP requirements. These steps may include, for example, maintaining on file a copy of the foreign processor’s HACCP plan and a written guarantee from the processor that the imported seafood is processed in accordance with HACCP requirements, or obtaining a certificate from a foreign government inspection authority or competent third party certifying that the imported fish was processed in accordance with HACCP requirements.\nAs of June 2017, FDA had no equivalence agreements with other countries, according to FDA officials, precluding importers of seafood products from using the first of the two options noted above. Instead, according to FDA officials, U.S. seafood importers generally comply with HACCP regulations by obtaining (1) a copy of a foreign processor’s HACCP plan and an attestation that the firm processes its seafood products in compliance with HACCP regulations and (2) lot-by-lot certifications from either a foreign government authority or third-party auditor attesting to the foreign processor’s compliance with HACCP regulations. However, according to FDA officials, under HACCP regulations, importers are not required to either visit foreign seafood processors to ensure that these processors implement their HACCP plans or assess the competence or ability of foreign governments or third- party auditors to issue lot-by-lot certifications.\nEach year FDA inspects a small number of U.S. seafood importers to determine if they have obtained the appropriate documentation from foreign seafood processors indicating that the processors had met HACCP requirements. For fiscal years 2010 through 2015, FDA inspected, on average, 178 seafood importers annually, or about 4 percent of the average number of seafood importers (4,009) registered with FDA each year during that period. As with processing facility inspections, FDA officials stated that the number of importer inspections was affected by limited resources. Our review of nine random—a non- generalizable sample—FDA reports of importer inspections for fiscal year 2015 showed various problems with importer compliance with HACCP requirements. For example, of the nine reports, five noted that the importer inspected did not identify the affirmative step taken to document that the foreign processors supplying some or all of that importer’s seafood products were in compliance with HACCP requirements. In some cases, the inspection report also noted that an earlier FDA inspection had also found that the importer had failed to identify an affirmative step that was required in order to comply with HACCP regulations.", "FDA uses a computerized tool for admissibility screening and to determine, in part, which seafood products to examine. This tool is called the Predictive Risk-based Evaluation for Dynamic Import Compliance Targeting (PREDICT). We previously reported on FDA’s use of PREDICT in May 2016. Examinations may include physical inspection (e.g., appearance and smell) of the seafood; inspection of the label; or sampling and laboratory testing of the seafood to identify any contaminants, including unsafe drug residues, that may render the seafood adulterated. FDA tests imported seafood for all drugs of concern to the agency and compares results to its corresponding MRL if one exists, according to FDA officials. FDA uses a multi-residue method (MRM) that tests for 26 drugs. FDA also uses other methods to test for drug residues. In cases in which the MRL is exceeded, the imported seafood is adulterated under FFDCA and subject to refusal.\nIf FDA finds adulterated seafood through testing or examination, the agency can refuse the shipment’s entry into the United States. From fiscal years 2010 through 2015, FDA refused entry (import refusal) into the United States of 1,726 seafood products for drug-related violations. The majority of the refusals were of exports from four countries: China (37 percent), Malaysia (28 percent), Indonesia (12 percent), and Vietnam (11 percent). Shrimp represented 54 percent of all FDA refusals; other seafood, 32 percent; tilapia, 7 percent; catfish, 6 percent; and salmon, less than 1 percent. FDA officials said that import refusals may also occur based on FDA inspections of foreign processors but that they were not aware of a refusal based on FDA inspectional findings related to the use of an unsafe drug. Appendix II provides our analysis of FDA’s drug testing results for fiscal years 2010 through 2015.\nIn fiscal year 2015, FDA examined 2.2 percent of all imported seafood entry lines for a variety of food safety issues. The number of examinations is limited by available resources, according to FDA officials. Further, regarding drug residues, in fiscal year 2015 FDA tested 0.1 percent of about 1 million seafood entry lines for drugs of concern to FDA in an effort to detect unsafe residues. Of the imported seafood tested, the percentage that tested positive, by type of seafood was as follows: catfish, about 9 percent (3 of 33 samples); salmon, 0 (0 of 86); shrimp, about 12 percent (67 of 550); tilapia, about 11 percent (28 of 258); and “other” seafood, about 7 percent (14 of 213). Based on this level of testing, seafood shipments from a foreign processing facility would have a roughly 1 in 1,000 chance of being selected by FDA for drug residue testing, unless other information in PREDICT, such as the results of sampling of prior shipments, processing facility inspection records, and country of origin, among other factors, elevated or lowered that facility’s risk score. According to FDA officials, the level of testing of seafood imports for drug residues is affected by the availability of resources. Figure 3 shows fiscal year 2015 data for FDA’s examinations and sampling of imported seafood, including sampling specifically for drug residues.\nRegarding imported catfish specifically, FDA’s sampling and testing for unsafe drug residues generally increased from fiscal years 2010 through 2012, but then dropped significantly in the following 3 fiscal years, even as the volume of catfish imports remained relatively the same. For example, as shown in figure 4, from fiscal years 2012 through 2015, FDA’s sampling and testing of imported catfish for unsafe drug residues declined by 75 percent, even as the volume of catfish imports averaged about 250 million pounds annually during this period.\nFurther, in comparison to FDA’s sampling and testing of other popular imported seafood species, such as salmon, shrimp, and tilapia, for unsafe drug residues, FDA’s sampling and testing of imported catfish showed the greatest drop relative to import volume for fiscal years 2010 through 2015. For example, as shown in figure 5, FDA’s sampling and testing of imported catfish experienced the greatest drop per 10 million pounds of imports, particularly from fiscal years 2012 through 2015. However, as shown in the figure, the level of sampling and testing per 10 million pounds of imports is limited for all of the seafood species depicted. Appendix II provides information on the total number of imported seafood samples, including for catfish, FDA tested for fiscal years 2010 through 2015. require FDA to address that outbreak and potentially reduce resources for drug residue testing.", "FDA is not pursuing agreements with other countries requiring that they test seafood exported to the United States for unsafe drug residues, according to FDA officials, as the EU does. Establishing such agreements is a practice that we have previously recommended to FDA. FSMA requires FDA to develop a comprehensive plan to expand the technical, scientific, and regulatory capacity of foreign governments and their respective food industries in countries that export foods to the United States. To meet FSMA’s requirement, in 2013 FDA developed its International Food Safety Capacity-Building Plan. This plan states, in part, that FDA will (1) coordinate with other countries to, among other things, increase their capabilities related to the safety of the food they export to the United States and (2) better leverage other countries’ resources. Such leveraging may enable FDA to perform its work to ensure food safety more efficiently. Further, the plan states that agreements and other arrangements with foreign regulatory authorities or other entities are useful in ensuring the safety of food products and avoiding duplication of oversight efforts.\nEven with the development of this plan in 2013, as of June 2017 FDA had not entered into any agreements or other arrangements to involve another country in ensuring the safety of the seafood it exports to the United States from unsafe drug residues, according to FDA officials. Further, as of that time, FDA was not actively pursuing such agreements or other arrangements. When asked why, agency officials said that it might be worthwhile for FDA to pursue agreements with some countries, but the agency would have to carefully consider a number of factors in determining which countries would be appropriate and has not done so. According to these FDA officials, some countries exporting seafood to the United States might not be ready for such agreements. For example, they said that these countries may lack the laboratory infrastructure and capabilities needed to test for the drugs of concern to FDA, including at the corresponding MRLs that the agency established for these drugs, and their laboratory staff may need additional training and education.\nAccording to EU officials, the foreign laboratories that test seafood products exported to the EU for drug residues should ideally be accredited and have the required methods included in the scope of accreditation. Further, these officials stated that those methods must be validated or the residue monitoring plan will not be approved by the EU. Countries seeking to export seafood to the EU must either demonstrate that their seafood safety systems meet EU or equivalent requirements or comply with specific requirements established in an agreement between the EU and the exporting country. The United States may still be a market for at least some seafood that did not meet the seafood safety standards of the EU because FDA does not have agreements with these countries.\nMoreover, precedent exists for FDA’s use of country agreements in another area. Specifically, the agency has used them with respect to pathogen hazards in molluscan shellfish intended for export to the United States. For example, FDA entered into an agreement with Mexico in 2012 in which Mexico committed that its sanitation program guidelines for harvesting, processing, transporting, and labeling molluscan shellfish would comply with U.S. requirements to reduce potential pathogen hazards. In addition, under the agreement, Mexico committed that its competent government authority would restrict the harvest of molluscan shellfish from unapproved growing areas and take enforcement action against persons or companies harvesting from unapproved areas.\nIn addition, in the course of doing work for our September 2012 report, officials from three major seafood exporting countries described the benefits of countries entering into agreements with them. Noting that they had such agreements with the EU, these officials said that their countries would be open to establishing similar agreements with the United States. For example, see the following:\nThai officials said that because Thailand has a formal (government-to- government) agreement with the EU, the Thai government can better ensure that its seafood processing facilities meet the EU’s safety standards for seafood exported to EU countries. These officials also said that, because of this agreement, their government can more efficiently address problems with Thai seafood exports identified by an EU country, including any drug residue problems.\nNoting that their country has a formal agreement with the EU, Ecuadoran officials said staff from their government inspect and certify processor facilities that export seafood products to the EU. Further, these officials said the Ecuadorian government developed a national control plan to address specific EU requirements and standards for seafood exports, including those related to drug residues.\nNoting that Indonesia has formal agreements with other countries, including the EU, Indonesian officials said that all Indonesian processing facilities that export seafood to those countries must meet HACCP certification requirements; obtain a health certificate; and meet any additional requirements of the importing country, which may include requirements related to drug residues.\nFurther, the results of FDA’s “country assessments” of other countries exporting seafood to the United States point to the potential benefit of having formal agreements with these countries. FDA conducts these assessments to provide the agency with a broad view of a country’s regulatory infrastructure and the capacity of its seafood industry to control unsafe drug residues. According to FDA guidance, when the agency determines there is a significant risk that a country may be exporting seafood with unapproved drug residues to the United States, FDA may undertake an assessment of the country’s drug residue control program. FDA has conducted 10 foreign country assessments focused on the use of drugs in aquaculture in eight countries from 2006 through December 2016. The most recent assessments of China and Indonesia, major exporters of seafood, were conducted in 2006 and 2007, respectively. According to the guidance, FDA’s determination may be based on the results of its own sampling and testing of seafood exported from that country or on other information, such as a significant change in a country’s competent government authority responsible for seafood safety oversight. As described in the guidance, in the course of doing an assessment, FDA officials may visit seafood processors, fish farms, drug testing laboratories, feed mills, and veterinary drug distributors and retailers in the country.\nAt the conclusion of a country assessment, FDA may offer suggestions or recommendations to government officials and seafood industry representatives for improving the country’s seafood safety program. However, as noted in some of these assessments, the country involved reported that it could not act on these suggestions or recommendations in the absence of a formal agreement with the United States, or it was otherwise apparent that the absence of an agreement was likely an impediment. For example, see the following: In its 2012 assessment of Vietnam, FDA recommended that the Vietnamese government reinstate a requirement that its processors test all farmed seafood consignments intended for the U.S. market for unsafe drug residues until such testing showed that unsafe drug residues were no longer a problem. However, according to the assessment, Vietnam responded that under its new food safety law, it can only conduct mandatory consignment testing when required by a formal agreement with the receiving country. Vietnam noted that it has such agreements with other countries, such as Canada, the EU, Japan, and Korea, but does not have an agreement with the United States.\nIn its 2013 assessment of Ecuador, FDA strongly suggests that the competent government authority require that seafood processors exporting to the United States meet all requirements in Ecuador’s drug residue plan. However, according to the assessment, Ecuador responded that its plan is voluntary and thus the country cannot require that its processors comply with the plan’s requirements except in cases where Ecuador has a formal agreement with another country. Ecuador noted that it has such agreements with Argentina, Brazil, China, the EU, and Russia but not with the United States. Those countries that have agreements with Ecuador are regulated by EU standards, according to the assessment. As a result, shrimp or tilapia that cannot be shipped to EU countries because of concerns about violative drug residues may be shipped to the United States.\nIn its 2011 assessment of Malaysia, FDA said that Malaysian testing of seafood exported to the United States was limited to three drugs and it was not possible to verify that this seafood met U.S. requirements and was free of unsafe drug residues. In response to FDA’s concerns, the competent government authority declined to make changes in its testing, stating it is the responsibility of U.S. importers to ensure that seafood imports comply with U.S. requirements. In contrast, FDA determined that the Malaysian seafood safety control system underwent major changes in response to an EU audit, and the country is on the list of countries approved to export fishery products to the EU.\nIn its 2010 assessment of India, FDA noted that drug residue testing required by the Indian government for seafood exports to the EU and the United States differed. Specifically, a greater level of testing was required for seafood exports to the EU. According to FDA’s assessment, the Indian government said the type of testing done on seafood intended for the EU would also be done on seafood intended for the U.S. market if FDA required that seafood exports be accompanied by a health certificate, as is required by the EU, Japan, and South Korea. However, FDA does not require health certificates and took no action to require them after completing this assessment, according to FDA officials.\nAs of June 2017, FDA had not entered into any agreements or other arrangements with any country for ensuring the safety of the seafood exported to the United States from unsafe drug residues.\nIn light of FDA’s limited inspections of foreign seafood processors and U.S. importers, its limited sampling and testing of imported seafood for unsafe drug residues, and the limitations of FDA’s country assessments to obtain other countries’ voluntary cooperation in ensuring that their seafood exports to the United States are free of unsafe drug residues, FDA not pursuing formal country agreements is counter to the agency’s International Food Safety Capacity-Building Plan. Under the plan, FDA is to coordinate with other countries to, among other things, increase their capabilities related to the safety of food exported to the United States and better leverage other countries’ resources. Such leveraging may enable FDA to more efficiently perform its work to ensure food safety. However, FDA has not pursued formal agreements with countries exporting seafood to the United States that commit the countries to take actions, such as testing for drugs of concern to FDA and the corresponding MRLs, that would leverage those countries’ resources, according to FDA officials. The EU and other countries have successfully pursued such agreements.\nBy pursuing formal agreements with countries exporting seafood to the United States that commit these countries to test for drugs of concern to FDA and the corresponding MRLs that the agency established for these drugs, FDA could strengthen its efforts toward ensuring that imported seafood does not contain unsafe drug residues. Further, such agreements would allow FDA to leverage other countries’ resources to improve imported seafood safety and further protect U.S. consumers from unsafe drug residues. FDA officials acknowledged that such agreements would be helpful in protecting U.S. consumers from unsafe drug residues.", "In assuming responsibility for inspecting imported catfish, FSIS provided for an 18-month transition period—March 1, 2016, through September 1, 2017—to provide foreign countries, importers, and other stakeholders time to transition to the full implementation of the agency’s catfish inspection program for imports. Following the transition period, a foreign country seeking to continue exporting catfish to the United States after September 1, 2017, is to request an equivalence determination and provide documentation showing that its catfish safety inspection system is equivalent to that of the United States. However, FSIS has not made farm visits a routine part of initial equivalence determination and verification on-site audits. FSIS also does not plan to require other countries to test catfish exported to the United States for the same drugs it tests for—the drugs of concern to FSIS—at the agency’s MRLs.", "As of March, 1, 2016, countries exporting catfish to the United States and intending to continue those exports after September 1, 2017, were required to provide FSIS with documentation demonstrating that their food safety systems generally comply with U.S. requirements, including the use of HACCP. In addition, by that date, these countries were to provide FSIS with a list of processors intending to continue exporting catfish to the United States. As of June 2017, 13 countries submitted the documentation required to continue exporting catfish to the United States during the transition period.\nIn April 2016, FSIS assumed responsibility for inspecting imported catfish at ports of entry. FSIS refers to this as re-inspection, and it generally included (1) physical examinations and (2) collecting samples for testing for unsafe drug residues or other contaminants. During the transition, FSIS targeted shipments for re-inspection on at least a quarterly basis. As part of the re-inspection, FSIS tested for unsafe drug residues, including for all drugs of concern to the agency and their corresponding MRLs. FSIS used, in part, an MRM that tested for 61 drugs. In cases in which an MRL was exceeded, FSIS considered the imported catfish to be adulterated and subject to refusal. For drugs approved by FDA for use in catfish, FSIS’s MRLs are based on FDA’s tolerances for these drugs. For unapproved drugs, FSIS’s MRLs are based on levels determined by the agency.\nAccording to FSIS re-inspection data, from May 1, 2016, through July 9, 2017, the agency collected and tested 382 samples from 195 shipments of imported catfish for unsafe drug residues. Those shipments totaling over 4.4 million pounds came from 57 processors. FSIS found unsafe drug residues in 20 of the shipments and refused their entry into the United States. Together, these 20 shipments included about 422,000 pounds of catfish and came primarily from processors either in China or Vietnam. The drugs involved included dyes used as anti-fungal agents and antibiotics that are not approved for use in catfish in the United States.", "As discussed, under FSIS’s December 2015 final rule for its catfish inspection program, a country wanting to continue exporting catfish to the United States after September 1, 2017, is to submit specified documentation and information to FSIS by that date. According to an FSIS document, the agency will use a country’s documentation and information to begin assessing whether the country’s sanitary measures for catfish provide an equivalent level of public health protection as found in the United States. According to FSIS documents, a country is expected to provide information about its food safety laws and regulations; inspection procedures, including manuals and directives; enforcement and compliance programs and policies; and inspection training programs. According to FSIS documents, the equivalence determination process may take several years to complete. During that time, FSIS may ask the country for additional information, as needed, and FSIS officials are to conduct an on-site (in-country) audit, and in many cases more than one to verify the information provided by the country. FSIS conducts an on-site audit at least once during an initial equivalence determination and again periodically during subsequent verification audits. According to agency officials, FSIS will conduct periodic on-site audits in countries with equivalence determinations to verify that their food safety systems remain equivalent. FSIS uses a data analysis tool, known as the Country Performance Algorithm, to prioritize the countries subject to these audits. The agency also publishes the related audit reports on its website. In the course of an on-site audit, FSIS officials generally visit government offices, commercial food processing facilities, and food testing laboratories in the country.\nIn essence, FSIS intends to use the same equivalence determination process for imported catfish that it currently uses for imported meat, poultry, and processed egg products, according to agency officials. As part of the equivalence determination, FSIS also requires a foreign country to develop a residue monitoring plan that includes testing for drug residues. According to FSIS documents, these plans must include, in part, random sampling of food products at slaughter and the use of approved sampling and testing analytical methods. We also discussed, in part, FSIS’s equivalence determination process in an April 2017 report.\nIn October 2016, FSIS finalized its Self-Reporting Tool (SRT), a standardized questionnaire that the agency provides to countries that request an equivalence determination for catfish. The SRT describes the types of documentation and information that the country must provide to FSIS for the agency to initiate the equivalence determination process. In general, this documentation and information relates to the country’s food safety system and regulatory infrastructure. For example, the SRT asks for documentation and information on the following six equivalence components of a country’s food safety system statutory authority for food safety and other consumer protection regulations, chemical residue testing programs, and microbiological testing programs.\nAccording to FSIS officials, as of May 2017, 10 countries had requested an equivalence determination and FSIS provided them with the SRT. These countries were Bangladesh, China, the Dominican Republic, El Salvador, Guyana, Jamaica, India, Nigeria, Thailand, and Vietnam. Furthermore, as of June 2017, Guyana and Thailand had provided sufficient information for FSIS to begin the equivalence determination process.\nAccording to FSIS documents, once it has completed its review and analysis of a country’s documentation and information, including the results of its own on-site audits, if deemed satisfactory, FSIS is to then publish a proposed rule in the Federal Register indicating its intention to add the country to FSIS’s list of countries eligible to export a particular food commodity to the United States. After receiving and reviewing any public comments on the proposed rule, FSIS will make a final equivalence determination decision and, as appropriate, publish a final rule in the Federal Register regarding the country’s eligibility to export the commodity to the United States. As discussed, the equivalence determination process can take several years from the time a country completes and submits the SRT until FSIS makes its final determination. According to agency officials and FSIS documentation, FSIS will allow a country that submitted an SRT to continue exporting catfish to the United States pending completion of its equivalence determination as long as that country continues to respond to FSIS’s requests for additional information within the timeframe indicated.\nAccording to FSIS officials and documents, after an equivalence determination is completed, the country reviewed is authorized to export the related food product to the United States. Thereafter, on an annual basis, FSIS expects the country’s government to review and update its SRT responses, as appropriate, and notify FSIS of any changes to the country’s food safety system. SRT revisions may be necessary because of country-initiated changes, or revisions may be needed because of new policies adopted by the United States. FSIS will also require the country to submit, on an annual basis, specific documents, including an updated list of all certified food processing facilities eligible to export to the United States, and an updated description of the country’s residue monitoring plan, including the previous year’s test results and any actions taken in response to unsafe drug residue test results.\nAccording to FSIS officials, after the transition period, all shipments of imported catfish from countries that the agency has determined to have an equivalent food safety system will have to be presented to FSIS inspectors for reinspection. In addition, a subset of reinspected shipments will be sampled. According to FSIS officials, after the 18-month transition period, the agency will update the sampling program based on sampling results and findings from the transition period. Furthermore, according to agency officials and FSIS documents, shipments of imported catfish may be subject to the same three levels of sampling used for imported meat and poultry: (1) normal sampling, which is based on random sampling; (2) increased sampling, which is above-normal sampling resulting from an agency management decision; and (3) intensified sampling, which is additional sampling undertaken when a previous sample failed to meet U.S. requirements, such as drug residues that are above the corresponding MRL. According to FSIS officials and documents, after equivalence determinations have been done, the intent of the reinspection process is to verify the effectiveness of the foreign country’s food safety system, not to evaluate the performance of individual catfish processing facilities or as the primary effort/point to identify unsafe drug residues in imported catfish.", "As discussed, during FSIS’s on-site audits, which the agency conducts at least once to verify the accuracy of the documentation and information a foreign country seeking an equivalence determination has provided in an SRT, FSIS generally visits government offices, commercial food processing facilities, and food testing laboratories in the foreign country. However, FSIS has not made farm visits—where catfish exported to the United States are grown and where drugs are potentially first introduced into catfish—a routine part of initial equivalence determination and verification on-site audits. In addition, although FSIS will require foreign countries to develop and implement residue monitoring plans, the agency will not require these countries to test for drugs of concern to FSIS. In contrast, the EU requires countries to test for drugs of concern to the EU.\nThe 2014 Farm Bill directs USDA to consider the conditions under which catfish are raised and transported to the processing establishment for examination and inspection. According to agency officials, this directive allows FSIS to visit catfish farms in exporting countries as part of its on- site audits related to an initial equivalence determination or a subsequent verification audit. However, these officials said FSIS has not made farm visits a routine part of initial equivalence determination and verification on-site audits, because the agency has not yet decided whether to make visits to fish farms routine like visits to foreign laboratories or processing facilities.\nIt is at the fish farms where drugs are first introduced and used. Other seafood regulators conduct such visits to fish farms, including FDA and the EU. For example, according to FDA’s procedures for conducting country assessments, visiting fish farms is a critical element in evaluating a country’s seafood safety oversight program because farms are where the potential hazard of unsafe drug residues originates. At such farms, FDA officials said they review (1) preventive controls to guard against unapproved drug use; (2) water quality or other factors that may lead farmers to use drugs; (3) drug use records, including drug withdrawal times (4) information on countries’ fish farm oversight programs (e.g., registration, inspection, and sampling); (5) data that can be compared to seafood processor records to determine the accuracy and reliability of these records; and (6) biosecurity measures meant to prevent the spread of disease and keep fish healthy. According to FDA documents, FDA officials visit farms that supply the products to the seafood processing facilities scheduled to be visited by FDA during the assessment. This is done to verify the controls stated in the processors’ seafood HACCP plans. Further, by visiting fish farms, FDA gathers useful information about any foreign government oversight of the farms, as well as the drugs that are actually being used on the farms in that country, according to agency documents. For example, as part of FDA’s country assessment for Ecuador, FDA staff visiting two fish farms in that country discovered that the farms were using an antibiotic on shrimp that FDA had not approved for that product.\nThe EU also visits fish farms in foreign countries during its initial equivalence determinations and periodic verification audits. According to EU officials, by visiting these farms and other locations in a country, the EU audit team occasionally learns of drugs being used by farms that are not included in the country’s residue monitoring plan. For example, during the EU’s 2012 verification audit of Ecuador, EU inspectors visited fish farms and found them using a hormone that the Ecuadorian government could not verify it had approved for use in aquaculture. In addition, the information on the drug label did not indicate that it was authorized for use in Ecuador. Furthermore, one of the farms visited had barrels of an antibiotic that did not bear numbers or labels, indicating that the antibiotic was authorized for use in Ecuador.\nIt is not clear how FSIS could consider the conditions under which imported catfish are raised, as directed by the 2014 Farm Bill, without visiting foreign catfish farms. In addition, the agency will already have its inspectors in the foreign country for an on-site audit. Without visiting at least a sample of farms whose catfish are exported to the United States, FSIS may be missing an opportunity to fully understand the conditions under which the catfish are being raised. For example, FSIS could choose to visit farms that supply catfish to seafood processing facilities that the agency plans to visit during its on-site audits, like FDA does.\nFSIS also does not plan to require countries exporting catfish to the United States to test for drugs of concern to FSIS as part of a country’s drug residue monitoring plan, according to agency officials. Instead, as part of an equivalence determination, FSIS will require a country to have a national residue monitoring plan. Further, the officials said that FSIS will expect this plan to include such information as the (1) chemicals, including drugs, that will be tested for; (2) proposed number of samples to be taken; (3) testing methods to be used for screening and confirming the presence of chemicals, including drugs; (4) MRLs to be used; (5) chemicals, including drugs, newly approved or banned in the past year; and (6) corrective actions to be taken when a residue violation is found. However, while agency officials said that FSIS expects another country to provide an overall level of sanitary protection similar to that in the United States, the country has flexibility regarding its regulatory practices, including the specific drugs included in its national residue monitoring plan.\nEven if a country allows its catfish farmers to use drugs not approved for use in the United States, that country’s catfish exports must still comply with FSIS’s requirements (i.e., MRLs) for allowable drug residues. As noted by agency officials, FSIS expects imported catfish to be subject to the same level of scrutiny as domestic catfish. However, while FSIS will test domestic catfish for at least 61 drugs using its MRM and other methods, it is not clear how many drugs or which drugs other countries will test for in catfish exported to the United States because FSIS will not have such specific requirements for a foreign country’s residue monitoring plan after the transition period. Further, FSIS will assess the safety of drug residues found in domestic catfish against MRLs determined by the agency, although other countries may use their own MRLs in their drug residue monitoring plans. For example, Vietnam, the largest exporter of catfish to the United States, developed its drug residue monitoring plan and MRLs to meet the EU’s requirements. In comparing FSIS’s MRLs to Vietnam’s levels for 14 drugs that could be used in catfish, we found 9 drugs for which Vietnam had higher MRLs than FSIS’s. For one antibiotic, the residue level that Vietnam considers a violation is 30 times greater than FSIS’s level.\nThe first time imported catfish may be subject to drug residue testing similar to the testing done of domestic catfish, including the same 61 drugs and associated MRLs, is likely to be when, and if, the imported catfish is selected for sampling by FSIS in U.S. ports of entry. As a result, even after equivalence determinations are completed, FSIS’s sampling and testing of imported catfish shipments will become the primary mechanism for identifying the potential presence of unsafe residues of drugs of concern to FSIS. According to FSIS officials, as of July 2017, the agency has not yet documented the size of the samples that it will test for during fiscal year 2018.\nIn contrast, the EU requires countries exporting seafood to the EU to include drugs of concern to the EU in their residue monitoring plans. Although FSIS officials said that the agency expects imported catfish to be subject to the same level of scrutiny as domestic catfish and that reinspection is to verify the effectiveness of the exporting country’s food safety system, the agency is not requiring that the foreign countries test for the drugs of concern to FSIS and the corresponding MRLs, which would qualify as the initial foreign country inspection. By having countries exporting catfish to the United States include in their national residue monitoring plans the drugs of concern to FSIS and the corresponding MRLs, as a precondition for an equivalence determination, FSIS would have better assurance that U.S. food safety requirements were being met and that U.S. consumers were being protected.", "FDA and FSIS took steps to accomplish the transfer of catfish oversight from FDA to FSIS, as called for in the 2014 memorandum of understanding (MOU) that both agencies signed. However, they generally have not coordinated on drug residue testing methods, resulting, in some cases, in differences in MRLs—specifically for unapproved drugs. FDA and FSIS agreed in their 1984 MOU to exchange information on their drug testing methods and ensure the comparability of their results.", "In April 2014, FDA and FSIS entered into an MOU to improve interagency cooperation on food safety and fraud prevention and maximize the effectiveness of personnel and resources related to examination and inspection, and to plan for an orderly transition of catfish safety oversight from FDA to FSIS. The 2014 Farm Bill, which required the agencies to develop this MOU, directed that the MOU should build upon any prior agreements between the agencies to improve interagency cooperation. Pursuant to this MOU, FDA and FSIS took a number of steps to coordinate the transfer, including the following:\nAccording to FDA officials, in January 2015, FDA established an internal FDA work group that compiled a list of questions and answers for FDA and FSIS management officials on topics related to the transfer.\nAccording to FSIS officials, FDA and FSIS established a transition work group comprising of FDA and FSIS management officials and subject matter experts. According to FSIS officials, members of this workgroup met periodically to discuss issues pertaining to the transition of jurisdiction and regulatory oversight of catfish from FDA to FSIS. According to FDA officials, the first transition group conference call was held on May 19, 2015.\nAccording to FSIS officials, from May 2015 through June 2016, FDA and FSIS held three teleconferences to coordinate activities related to the transfer. Specifically, agency officials discussed inspection methodologies, sampling, and laboratory testing; FDA’s previous strategy for regulatory oversight of imported catfish, including relevant FDA import alerts; and sharing of FDA’s knowledge of fish farms and processing facilities in the United States that handle catfish.\nAccording to FSIS officials, before publishing the final rule for its catfish oversight program in December 2015, FSIS provided a draft of this rule to FDA for its review and comment.\nFDA and FSIS agreed—as FSIS assumed responsibility for domestic catfish oversight on March 1, 2016, and imported catfish oversight on April 15, 2016—that there would be no duplication of the inspection and testing of catfish between the two agencies. Further, FDA agreed not to inspect domestic or foreign catfish processing facilities or test catfish products unless FSIS requested such inspections.\nFurther, after the agencies took these steps and the transfer was completed, in discussions with FDA and FSIS officials in January 2017, we mentioned that FDA appeared to have information that might be useful to FSIS in carrying out its catfish oversight program that FDA had not shared with FSIS. We suggested that FDA share with FSIS its past (1) drug residue testing data for catfish, (2) catfish processor inspection reports, and (3) foreign country assessments for catfish-exporting countries. For example, we suggested that information in FDA’s foreign country assessments might be useful to FSIS in doing equivalence determinations for some of the same countries. After these meetings, FSIS requested, and FDA provided, this additional information.", "Although FDA and FSIS took steps to implement the 2014 MOU and ensure the smooth transfer of catfish oversight responsibility from FDA to FSIS, the agencies have not fully coordinated on drug residue testing methods. For example, the agencies generally did not coordinate in developing drug residue testing methods and the corresponding MRLs— specifically, for unapproved drugs—that define unsafe drug residues in imported seafood, including catfish. As a result, the agencies are not leveraging each other’s knowledge and resources to develop drug residue testing methods.\nAs discussed, FDA and FSIS staff held three teleconferences from May 2015 through June 2016 to discuss the transfer of catfish oversight to FSIS. According to agency officials, the sampling and testing of catfish for drug residues was among the topics discussed, including the drug testing methods being used by each agency. Nevertheless, during the course of our work, we found examples where FDA and FSIS officials, including program directors and laboratory officials, said that they were unaware of the other agency’s development and use of more efficient methods to detect drug residues in seafood, including catfish. These examples include the following:\nFDA officials first learned from us in May 2016 about an MRM used by FSIS that could identify a significantly greater number of drug residues present in food, including catfish, than the MRM being used by FDA for other seafood. Specifically, at that time, FSIS’s MRM could identify 61 drug residues, and FDA’s MRM could identify 26 residues.\nFDA had not informed FSIS that it was developing a new MRM for testing shrimp, although according to agency officials FDA also expected to adapt the MRM for use in other seafood, including finfish such as catfish. FSIS officials said that they became aware of FDA’s work on this new MRM after hearing FDA officials discuss it at a public workshop (the North American Chemical Residue Workshop) in July 2016.\nAt the time of our work, FDA was developing two new MRMs that would test for, among other drugs, the antibiotics flumequine, naladixic acid, and oxolinic acid—drugs that do not have FDA approval for use in aquaculture. Pending development of these MRMs, FDA had been using other methods—such as the MRM that tests for 26 drugs—to test for these drugs, including in catfish when FDA had this responsibility. According to FDA officials, the agency tested for these drugs because they were of high enforcement priority based on human food safety concerns and on the extent of use in the aquaculture industry. However, FSIS officials told us in May 2016 that FDA had not informed them of its efforts to develop these two new MRMs, and FSIS did not have its own method to test for these drugs, meaning imported catfish had not been tested for these antibiotics since FSIS assumed responsibility for their safety in April 2016.\nAs these examples illustrate, neither FDA nor FSIS was aware of MRMs or other testing methods that the other agency was using or developing that might have been helpful for carrying out its oversight program. As we have previously reported, when responsibilities cut across more than one federal agency—as they do for the safety of imported seafood—it is important for agencies to work collaboratively. Taking into account the nation’s long-range fiscal challenges, we noted that the federal government must identify ways to deliver results more efficiently and in a way that is consistent with its multiple demands and limited resources. We also identified key practices that can help enhance and sustain federal agencies’ collaboration, including identifying and addressing needs by leveraging resources across agencies to support the common outcome. Moreover, in 1984, FDA, FSIS, and the Environmental Protection Agency entered into an MOU committing the agencies, in part, to coordinate their regulatory activities concerning the presence of drug and other residues in food. More specifically, under this MOU, the agencies agreed to exchange information related to analytical methods for identifying and quantifying residues of drugs, pesticides, and environmental contaminants in food, and to cooperate in developing and implementing analytical and statistical methodologies to ensure comparability of results in the examination of food. Thus, by not coordinating on testing methods, FDA and FSIS have not fully met the terms outlined in the 1984 MOU.\nLack of coordination in developing drug residue testing methods has resulted, in some cases, in differences in MRLs for unapproved drugs. These are the levels or thresholds at which the agencies will take regulatory action. In some cases, particularly for an unapproved drug, the MRL may correspond to the limits of detection associated with an agency’s particular testing method. In the course of our work, we noted a number of cases where the agencies were using different MRLs for the same unapproved drug. For example, for one antibiotic, the MRL that FSIS considers unsafe is 20 times higher than FDA’s level, yet FDA considers anything above its MRL to be a human health concern. In essence, this means that FSIS does not consider catfish with residue levels greater than FDA’s MRL, but less than FSIS’s MRL, to be adulterated. However, when FDA had oversight of catfish, the same level would have rendered the product adulterated. We discussed this and other cases with FSIS officials, and they said that FSIS uses FDA’s tolerances for drugs that FDA has approved. However, FSIS developed its own MRLs for unapproved drugs, as according to FSIS officials, the agency has the discretion to do so using its own testing methods.\nAccording to FSIS officials, the agency was not aware of FDA’s MRLs for unapproved drugs. FSIS officials acknowledged that the agency had not requested information from FDA on its MRLs for unapproved drugs used on finfish, including catfish. For their part, FDA officials said that they do not make public their MRLs for unapproved drugs out of concern that some fish farmers may use these drugs if they believe they can do so in a way that results in residues below FDA’s MRLs. Under federal standards for internal control, management should communicate information externally through reporting lines so that external parties can help achieve its objectives. Without coordinating and communicating on their development of drug residue testing methods and corresponding MRLs for imported seafood, including catfish, the agencies do not have reasonable assurance that they are taking a consistent approach to protecting consumer safety from unsafe drug residues.", "FDA and FSIS face difficult challenges in ensuring the safety of the U.S. food supply, particularly as that food supply increasingly includes imported foods such as seafood. Because much of imported seafood is raised in confined conditions on farms, drugs are used to prevent or treat disease and increase survival rates. According to FDA, residues of some drugs can cause cancer or allergic reactions when consumed by humans. In addition, some drugs administered to food-producing animals may cause bacteria of human health concern to become resistant to antibiotics used in humans. It is therefore important that federal oversight is effective in ensuring that seafood is free of unsafe drug residues As required in FSMA, FDA developed a plan in 2013 to expand the capacity of foreign governments and their respective food industries in countries that export foods to the United States. The plan was to include recommendations for formal agreements with other countries that would include provisions to place greater responsibility on these countries for the safety of their seafood exports. However, while FDA has used such agreements for addressing pathogen hazards in molluscan shellfish, it has not done so with respect to drug residues in seafood and has no plans to do so. Without pursuing formal agreements with countries exporting seafood to the United States that commit these countries to test for drugs of concern to FDA and the corresponding MRLs that the agency established for these drugs, FDA will not have reasonable assurance that imported seafood does not contain unsafe drug residues.\nFSIS has not decided whether to include, as part of an initial equivalence determination or subsequent verification audits, visits to any foreign catfish farms as part of its on-site audit in another country. However, the 2014 Farm Bill directs FSIS to consider, in part, the conditions under which catfish are raised, and catfish farms are the place where drugs are introduced. Without visiting at least a sample of farms whose catfish are exported to the United States, such as the farms that supply catfish to the seafood processing facilities that FSIS plans to visit during its on-site audits, FSIS may be missing an opportunity to fully understand the conditions under which the catfish are being raised. In addition, FSIS does not plan to require countries exporting catfish to the United States to test for drugs of concern to FSIS as part of their drug residue monitoring plans. By having countries exporting catfish to the United States include in their national residue monitoring plans the drugs of concern to FSIS and the corresponding MRLs, as a precondition for equivalence determinations, FSIS would have better assurance that U.S. food safety requirements were being met and that U.S. consumers were being protected.\nFinally, FDA and FSIS are independently developing drug testing methods and MRLs for use in seafood, and lack of coordination and communication in developing drug residue testing methods has resulted, in some cases, in differences in MRLs—specifically, for unapproved drugs. Without coordinating and communicating on their development of drug residue testing methods and corresponding MRLs for imported seafood, including catfish, the agencies do not have reasonable assurance that they are taking a consistent approach to ensuring consumer safety from unsafe drug residues.", "We are making a total of five recommendations, including two to FDA and three to FSIS: The Commissioner of FDA should pursue formal agreements with countries exporting seafood to the United States that commit these countries to test for drugs of concern to FDA and the corresponding MRLs that FDA established for these drugs. (Recommendation 1)\nThe Administrator of FSIS should ensure that agency staff doing an on- site audit in another country for an equivalence determination visit at least a sample of farms whose catfish are exported to the United States to determine the conditions under which the catfish are being raised, including the drugs being used. (Recommendation 2)\nThe Administrator of FSIS should require as part of an equivalence determination that countries exporting catfish to the United States include in their residue monitoring plans the drugs of concern to FSIS and the corresponding maximum residue levels. (Recommendation 3)\nThe Commissioner of FDA should coordinate and communicate with FSIS in developing drug residue testing methods and corresponding maximum residue levels for imported seafood that may also be applicable to imported catfish. (Recommendation 4)\nThe Administrator of FSIS should coordinate and communicate with FDA in developing drug residue testing methods and corresponding maximum residue levels for imported catfish that may also be applicable to other imported seafood. (Recommendation 5)", "We provided a draft of this report to USDA and the Departments of Commerce, Health and Human Services, and Homeland Security for their review and comment. In written comments, Health and Human Services’s FDA agreed with one of the recommendations and partially agreed with the other. FDA also provided technical comments, which we incorporated as appropriate. In written comments, USDA’s FSIS partially agreed with two of the recommendations and stated that its current policy already addresses the third recommendation. Copies of Health and Human Services’s and USDA’s comments are presented in appendixes III and IV, respectively. In an email, the Department of Homeland Security’s GAO- Office of Inspector General Liaison Office stated that, because there were no recommendations directed to the department, it would forego a formal management response letter but provided one technical comment, which we incorporated. Likewise in an e-mail, the Department of Commerce's National Oceanic and Atmospheric Administration Audits Office stated that the agency did not have any technical comments.\nIn its written comments, FDA agreed with our recommendation that it should coordinate and communicate with FSIS in developing drug residue testing methods and corresponding maximum residue levels for imported seafood that may also be applicable to imported catfish. FDA stated that it has a process in place to notify FSIS of new tolerances and changes in tolerances for FSIS-regulated products and that it will extend this process to notify FSIS of concentrations of specific unapproved drugs in catfish over which FDA has public health concerns. In addition, FDA stated that it has contacted FSIS about rejoining the quarterly meetings FDA holds on aquaculture method prioritization and development.\nFDA partially agreed with our recommendation that it should pursue formal agreements with countries exporting seafood to the United States that commit these countries to test for drugs of concern to FDA and the corresponding MRLs that FDA established for these drugs. FDA stated that, while it had not received any requests to establish this type of arrangement, it concurs that the agency could explore pursuing such arrangements. FDA also stated that factors outside its control that could limit robust implementation of this recommendation include the country’s ability and readiness to comply with the requirements necessary to have a successful arrangement. FDA added that applicable test methods, analytical capacity and adequate government oversight would be among essential criteria. We recognize that there are external factors that could affect FDA’s implementation of this recommendation, but we do not believe such factors should prevent FDA from pursuing formal agreements with other countries related to testing seafood for drugs of concern and the related MRLs for these drugs, as these factors have not hindered the EU and other countries that have successfully pursued such agreements.\nIn its written comments, FSIS stated that the draft report contains a few either misleading or inaccurate statements that it believes we use to support our recommendations directed at USDA. For example, FSIS points to our statement that \"FSIS has not made farm visits a routine part of initial equivalence determinations and verification on-site audits....\" According to FSIS, this statement is somewhat misleading, because FSIS has not made any initial equivalence determinations for foreign catfish fish inspection systems; therefore, FSIS has not yet had the opportunity to conduct on-site verification audits of foreign catfish inspection programs for initial equivalence determinations. FSIS stated that it partially agrees with the recommendation that FSIS visit at least a sample of farms whose catfish are exported to the United States to determine the conditions under which the fish are raised. We are aware that FSIS has not yet conducted on-site audits, and we discuss in our report the timing of those audits once the agency receives the required information and documentation from foreign governments. However, we nonetheless believe it is important that FSIS visit at least a sample of catfish farms as a routine matter during its equivalence determination on-site audits, instead of relying on a review of documentation describing a foreign country’s fish farm oversight program. We believe that FSIS can best understand the conditions under which catfish are raised and obtain information about the drugs actually used on farms through in-person visits to these farms, as FDA and the EU do as part of their seafood oversight efforts. As noted in our report, FSIS will already have its inspectors in the foreign country for on-site audits, so these individuals could also visit the farms that supply catfish to the seafood processing facilities that FSIS plans to visit during its on-site audits. FSIS could also independently verify any foreign country information about its catfish farm oversight program through visits to catfish farms.\nFSIS stated that its current policy already addresses our recommendation that it require, as part of an equivalence determination, that countries exporting catfish to the United States include in their residue monitoring plans the drugs of concern to FSIS and the corresponding maximum residue levels. FSIS identifies as misleading or inaccurate our statement that, “while FSIS will test domestic catfish for at least 61 drugs using its multi-residue method and other methods, it is not clear how many drugs or which drugs other countries will test for in catfish exported to the United States.” According to FSIS, this statement is incorrect, as foreign countries are required to provide drug testing information to the agency as part of the Self-Reporting Tool (SRT), which is a requirement for an initial or ongoing equivalence determination. In addition, FSIS stated that it will also have access to information on a foreign country’s testing for drug residues through the SRT and the country’s residue monitoring plan. Further, after reviewing those plans, according to FSIS, the agency can request changes to the plan for testing for drug residues. We disagree that FSIS policy already addresses our recommendation. In our report, we explain the type of information that foreign countries will provide in the SRT as well as the information that foreign countries will be required to include in their residue monitoring plan. However, a foreign country will decide what drugs it will test for. FSIS could question the design of the residue monitoring plan if it identified unsafe drug residues based on its own testing. Nevertheless, FSIS does not plan to test all catfish imports because its reinspection program is not designed to be the primary means by which the agency identifies unsafe drug residues in imported catfish. Rather than address potential testing gaps in a foreign country’s residue monitoring program piecemeal, FSIS should require that foreign countries test for all drugs of concern to FSIS at the outset of the equivalence determination, thus ensuring that foreign countries are demonstrating that their measures are as effective as FSIS’s in addressing the safety of imported catfish.\nFSIS partially agreed with our recommendation that FSIS should coordinate and communicate with FDA in developing drug residue testing methods and corresponding MRLs for imported catfish that may also be applicable to other imported seafood. In its comments, FSIS noted that while we found examples where FDA and FSIS officials, including program directors and laboratory officials, were unaware of the other agency's development and use of more efficient methods to detect drug residues in seafood, including catfish, they believe that the characterization of this finding is overstated. FSIS stated that while our audit work may have found examples where officials were unaware of a specific activity, the U.S. Agricultural Research Service, FSIS, and FDA regularly share information related to analytical methods for identifying and quantifying residues of drugs, pesticides, and environmental contaminants. Nevertheless, FSIS stated that it fully intends to implement the provisions of the MOU with FDA on coordinating on testing methods and that it also intends to enhance residue testing coordination through other interagency mechanisms as well, such as the Surveillance Advisory Team and the Interagency Residue Control Group.\nAs agreed with your office, unless you publicly announce the contents earlier, we plan no further distribution of this report until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees; the Secretaries of Agriculture, Commerce, Health and Human Services, and Homeland Security; and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov.\nIf you or your staff members have any questions about this report, please contact me at (202) 512-3841 or morriss@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff members who made contributions to this report are listed in appendix V.", "This report addresses how the Food and Drug Administration (FDA) and U.S. Department of Agriculture’s (USDA) Food Safety and Inspection Service (FSIS) ensure the safety of imported seafood from unsafe drug residues. Specifically, this report examines (1) how FDA helps ensure the safety of imported seafood from unsafe drug residues and ways the agency could strengthen its efforts, (2) how FSIS helps ensure the safety of imported catfish from unsafe drug residues and ways the agency could strengthen its efforts, and (3) the extent to which FDA and FSIS coordinate their oversight efforts. Unsafe drug residues may include residues from drugs unapproved for aquaculture use in the United States, of approved drugs that exceed allowed levels, or of drugs that are approved for use on one seafood species but are being inappropriately used on another seafood species.\nTo review how FDA helps ensure the safety of imported seafood from unsafe drug residues, we examined FDA regulations, including Hazard Analysis and Critical Control Point (HACCP) regulations. We also reviewed information on FDA’s primary oversight mechanism—HACCP inspections of seafood importers and foreign country processing facilities—and its seafood import sampling program, including information on the major components and requirements of these mechanisms. We reviewed relevant sections of FDA guidance manuals, including its Compliance Program Guidance Manual, Regulatory Procedures Manual, Office of Regulatory Affairs Laboratory Manual, and Fish and Fishery Products Hazards and Controls Guidance - Fourth Edition. We also reviewed plans and other documents detailing FDA’s drug residue sampling program and procedures for its import alert and refusal processes. We analyzed FDA mechanisms for protecting imported seafood from violative drug residues. Specifically, we analyzed 74 randomly selected foreign facility (e.g., processing) inspection reports from a total of 318 reports for fiscal years 2013 through 2015. We also analyzed 9 non generalizable, randomly selected importer inspection reports out of 232 total reports for fiscal year 2015.\nTo examine the ways FDA could strengthen its efforts to ensure the safety of imported seafood from unsafe drug residues, we reviewed FDA’s use of agreements with foreign countries that address FDA requirements regarding drug residues in farmed seafood and their importance, given limitations in other activities FDA undertakes to ensure the safety of imported seafood. We reviewed legal and planning documents regarding the use of agreements by FDA, including the FDA Food Safety Modernization Act and FDA’s 2013 International Food Safety Capacity-Building Plan. We reviewed a 2012 agreement with Mexico intended to ensure that all molluscan shellfish exported to the United States from Mexico are safe. In addition, we reviewed FDA’s foreign country assessment criteria and reports for Ecuador (2013), India (2010), Malaysia (2011), the Philippines (2015), and Vietnam (2012) and how any FDA-identified deficiencies were resolved. FDA conducts foreign country assessments to provide the agency with a broad view of a foreign country’s industry and regulatory infrastructure capacity to control aquaculture drugs. We also compared FDA activities to the activities FSIS and the European Union (EU) undertake as part of their equivalence determinations to determine if there are any elements of their activities that if included in FDA activities, have the potential to enhance FDA’s oversight process for imported seafood.\nIn addition, we analyzed FDA’s import refusal data and data on FDA’s import drug residue test results for fiscal years 2010 to 2015. For FDA’s import drug residue test data, we corrected the product codes for some entries for which the code did not match the product description and two analysts reviewed any changes made to FDA records to ensure that the revised codes were correct. We also reviewed controls for the systems that house these data and interviewed FDA officials regarding these controls and determined that the data were sufficiently reliable for the purposes of our reporting objectives. We analyzed the National Oceanic and Atmospheric Administration’s (NOAA) seafood import volume data for 2010 through 2015 that it acquired from the Department of Commerce and U.S. Customs and Border Protection (CBP) to enable us to identify how many millions of pounds were imported for each type of seafood so that we could compare this to FDA sampling data. We reviewed controls related to the reliability of these data and determined that they were sufficiently reliable for the purposes of our reporting objectives. Specifically, we reviewed a document on the data quality assessment of this information by the U.S. Census Bureau and compared the data to import data generated by another federal agency—USDA’s Economic Research Service.\nThe final year selected for FDA data (foreign processing facility and importer inspection reports and import refusal data and data on FDA’s import drug residue test results) and NOAA import volume data was the most recent year for which complete data were available at the time of our analysis.\nTo examine how FSIS helps ensure the safety of imported catfish from unsafe drug residues, we reviewed information on how the agency was implementing its catfish inspection program during the program’s transition period from March 1, 2016, to September 1, 2017, and how it planned to implement its equivalence determination process for catfish. Specifically, for the transition period, we reviewed the 2015 final rule that established the catfish inspection program; FSIS notice and other information on the catfish inspection program requirements; sampling and testing guidance during the transition period, including Hold and Test Protocols; FSIS data on sampling and testing and the results; FSIS data on catfish import sampling from May 1, 2016, through July 9, 2017; and FSIS’s Chemistry Laboratory Guidebook, including the Screening and Confirmation of Animal Drug Residues Method (CLG-MRM1.06). We also reviewed the agency’s controls for the systems that house these data and determined that the data were sufficiently reliable for the purposes of our reporting objectives. For example, we interviewed FSIS officials regarding supervisory approvals of test results input into their system and controls included in their efforts to comply with international standards.\nFor FSIS’s plans for implementing its equivalence determination process after the end of the transition period, we reviewed FSIS regulations, guidance, and other documentation related to FSIS’s equivalence determination process as currently used for meat, poultry, and processed egg products. Specifically, we reviewed the steps FSIS takes to determine equivalence, including the Self-Reporting Tool that the agency provides to the foreign governments that ask for equivalence determinations, which contains the general information required from the foreign countries. We reviewed FSIS guidance on the agency’s periodic audits of countries to verify continued equivalence and two reports resulting from these audits that FSIS conducted of countries that have already been determined to be equivalent for meat and poultry. We also reviewed FSIS’s reinspection program for monitoring the effectiveness of exporting countries’ inspection systems and overall food safety programs through imported product examinations and residue testing. We reviewed an example of how FSIS places responsibility on foreign governments to take corrective actions when the agency finds that imported products are adulterated because of contaminants such as violative drug residues.\nTo examine the ways, if any, FSIS could strengthen its efforts to ensure the safety of imported catfish from unsafe drug residues, we reviewed FSIS plans for its on-site equivalence determinations and verification audits and compared these activities to the activities FDA and the EU undertake as part of their foreign country assessments and equivalence determinations, respectively, to determine if there are any elements of their activities that if included in FSIS activities, have the potential to enhance FSIS’s equivalence determinations and verification on-site audits. We also reviewed FSIS’s proposed requirements for foreign countries’ residue monitoring plans. Lastly, we reviewed the EU’s requirements for foreign countries’ residue monitoring plans as well to determine whether there were any specific EU requirements that could enhance FSIS’s residue monitoring plan requirements. We reviewed the EU’s equivalence determination process and, in particular, its seafood import program to determine whether its practices for ensuring the safety of seafood imports have the potential to enhance the U.S. agencies’ practices. We discussed the EU equivalence determination process and verification audits with EU officials from the Food and Veterinary Office (Grange, Ireland) to gain a better understanding of its programs and oversight controls for seafood imports. We included the EU program in the scope of our work because the EU is the largest importer of seafood in the world.\nTo review the extent to which FDA and FSIS collaborate and coordinate in imported seafood and catfish safety programs, we reviewed a 1984 memorandum of understanding (MOU) signed by FDA, FSIS, and the Environmental Protection Agency that was developed to help promote more effective, efficient, and coordinated federal regulatory activities concerning drug residues. We reviewed the general activities of the Interagency Residue Control Group and Surveillance Advisory Team, which constitute the primary vehicles through which these agencies coordinate their regulatory activities concerning the presence of drug residues. We reviewed the April 2014 MOU between FDA and FSIS that was developed, in part, to improve interagency cooperation on food safety and fraud prevention with regard to the transfer of catfish inspection from FDA to FSIS. We reviewed steps FDA and FSIS have taken to collaborate on transferring responsibility for the oversight of catfish. We reviewed general information on the multi-residue methods (MRM) FDA is developing to test for drug residues in seafood and the MRM FSIS developed for testing catfish for drug residues. We reviewed a March 2010 USDA Office of Inspector General report on how the Interagency Residue Control Group and Surveillance Advisory Team were established and currently functioning. We compared their coordination activities to key practices that can help enhance and sustain federal agencies’ collaboration that we previously identified, particularly the practice of identifying and addressing needs by leveraging resources when responsibilities cut across more than one federal agency.\nWe met with FDA and FSIS officials to discuss information for all objectives, including obtaining their views on the pros and cons of opportunities to strengthen their programs regarding unsafe drug residues in imported seafood. We reviewed past GAO reports relevant to this topic.\nWe interviewed CBP officials in headquarters and at selected U.S. ports of entry to gain a better understanding of the agencies’ programs. We interviewed CBP officials at the Port of New York in Newark, New Jersey—the largest port of entry for seafood products in the United States—and toured CBP’s facilities to observe its examination of seafood. We also interviewed FSIS officials at a reinspection facility in Newark and observed the reinspection process. In addition, we visited and interviewed CBP officials at the Port of Long Beach in Long Beach, California—the second largest port of entry for seafood in the United States. Further, we interviewed CBP officials at the Otay Mesa Land Crossing and Cargo Facility in Otay Mesa, California, to learn about CBP’s activities related to ensuring the safety of seafood imports and CBP’s interaction with FDA and FSIS, and observed CBP’s review process for imported seafood. The Otay Mesa crossing is in proximity to the Long Beach Port. We selected the largest and second largest ports of entry for seafood into the United States and selected a land port that is in close proximity to one of the seaports. We also interviewed FDA officials at the agency’s Southwest Import District’s Resident Post at Otay Mesa, California, and at the Los Angeles District Office and Pacific Regional Laboratory in Irvine, California, to discuss FDA’s testing of seafood imports for drug residues with laboratory officials. In addition, we visited an FSIS import inspection establishment in Vernon, California—close to the Long Beach port—to learn about the measures FSIS uses to ensure that imported catfish do not have unsafe drug residues. We also interviewed officials from the National Marine Fisheries Service in the Department of Commerce to gather information on their imported seafood inspection services performed on a fee-for-service basis for private companies, including any data on sampling of imported seafood for drug residues and associated results.\nFor informational purposes, we spoke with representatives from one large and one medium-sized catfish farm, Tackett Fish Farms and Pentecost Brothers, respectively; one large catfish processor, Heartland Catfish Company; a large feed mill that produces medicated feed, Fishbelt Feed, Inc.; and the National Warmwater Aquaculture Center at the Mississippi State University Extension Service. To gain stakeholders’ perspectives on FDA’s and FSIS’s efforts to address the safety of seafood imports, we also spoke with representatives from the National Fisheries Institute. According to its website, the institute focuses on education about seafood safety and other issues, and includes more than 200 member companies including seafood processors, importers, and exporters. We also spoke with a representative of the Consumer Federation of America. According to its website, the Consumer Federation of America is an association of non-profit consumer organizations that was established to advance the consumer interest through research, advocacy, and education. Today, nearly 300 groups participate in the federation and govern it through representatives on the organization’s Board of Directors.\nWe conducted this performance audit from January 2016 to September 2017 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.", "Table 1 shows the number of seafood samples that the Food and Drug Administration tested for drugs and the number and percentage of those samples that contained unsafe drug residues, as well as the volume of seafood imported, for fiscal years 2010 through 2015.", "", "", "", "", "In addition to the contact named above, Anne Johnson (Assistant Director), James R. Jones, Jr. (Assistant Director), David Moreno (Analyst-in-Charge), Beverly Peterson, and Zachary Sivo made key contributions to this report. Important contributions were also made by Kevin Bray, John Delicath, Michele Fejfar, Ying Long, Danny Royer, and Kiki Theodoropoulos.", "Seafood Safety: Status of Issues Related to Catfish Inspection. GAO-17-289T. Washington, D.C.: December 7, 2016.\nImported Food Safety: FDA’s Targeting Tool Has Enhanced Screening, but Further Improvements Are Possible. GAO-16-399. Washington D.C.: May 26, 2016. 2015 Annual Report: Additional Opportunities to Reduce Fragmentation, Overlap, and Duplication and Achieve Other Financial Benefits. GAO-15-404SP. Washington D.C.: April 14, 2015.\nFood Safety: Additional Actions Needed to Help FDA’s Foreign Offices Ensure Safety of Imported Food. GAO-15-183. Washington D.C.: January 30, 2015.\nFood Safety: FDA Can Better Oversee Food Imports by Assessing and Leveraging Other Countries’ Oversight Resources. GAO-12-933. Washington D.C.: September 28, 2012.\nSeafood Safety: Responsibility for Inspecting Catfish Should Not Be Assigned to USDA. GAO-12-411. Washington D.C.: May 10, 2012.\nFood Safety: FDA Needs to Reassess Its Approach to Reducing an Illness Caused by Eating Raw Oysters. GAO-11-607. Washington D.C.: September 8, 2011.\nSeafood Safety: FDA Needs to Improve Oversight of Imported Seafood and Better Leverage Limited Resources. GAO-11-286. Washington D.C.: April 14, 2011.\nSeafood Fraud: FDA Program Changes and Better Collaboration among Key Federal Agencies Could Improve Detection and Prevention. GAO-09-258. Washington D.C.: February 19, 2009.\nResults-Oriented Government: Practices That Can Help Enhance and Sustain Collaboration among Federal Agencies. GAO-06-15. Washington D.C.: October 21, 2005).\nFood Safety: FDA’s Imported Seafood Safety Program Shows Some Progress, but Further Improvements Are Needed. GAO-04-246. Washington D.C.: January 30, 2004.\nFood Safety: Federal Oversight of Shellfish Safety Needs Improvement. GAO-01-702. Washington D.C.: July 9, 2001.\nFood Safety: Federal Oversight of Seafood Does Not Sufficiently Protect Consumers. GAO-01-204. Washington D.C.: January 31, 2001." ], "depth": [ 1, 2, 2, 1, 2, 2, 2, 1, 2, 2, 2, 1, 2, 2, 1, 1, 1, 1, 1, 1, 1, 1, 2, 2, 1 ], "alignment": [ "h2_full", "", "", "h0_full", "", "", "h0_full", "h2_title", "h2_full", "", "", "h1_full", "", "", "h2_full h1_full", "h3_full", "h3_full", "", "", "", "", "", "", "", "" ] }

{ "question": [ "How does the FDA identify potential hazards in imported seafood?", "How does the FDA enforce HACCP compliance?", "How will FDA improve its efforts to ensure the safety of imported seafood?", "How does FDA choose which countries with which to partner?", "How has FDA used country agreements in the past?", "Why did FDA transfer catfish oversight to FSIS?", "What was lacking from this agreement?", "What effect does the FDA and FSIS's lack of coordination have on consumers?", "How is most seafood consumed in the US raised?", "Why do farmers use drugs on farmed seafood?", "What is the effect on consumers of drugs used on seafood?", "What recommendations did GAO make to FDA and FSIS?", "What were FDA and FSIS's reactions to GAO's recommendations?", "How did GAO then respond?" ], "summary": [ "To help ensure the safety of imported seafood from unsafe drug residues, the Food and Drug Administration (FDA) generally depends on the actions of foreign processors and U.S. importers. FDA requires processors and importers to follow its Hazard Analysis and Critical Control Point (HACCP) regulations to identify hazards and the critical control points where the hazards, such as pathogen contamination, are likely to occur and take corrective action.", "FDA also performs a limited number of (1) inspections of processors and importers each year to ensure HACCP compliance, and (2) tests of imported seafood for contaminants, including unsafe drug residues.", "FDA could strengthen its efforts to ensure the safety of imported seafood from unsafe drug residues by pursuing agreements with other countries requiring that they test seafood exported to the United States for unsafe drug residues. Under an agency plan, FDA is to coordinate with other countries to increase their capabilities related to the safety of food exported to the United States and better leverage their resources.", "According to FDA officials, it might be worthwhile for the agency to pursue agreements with some countries, but FDA would have to carefully consider a number of factors in determining which countries would be appropriate, which it has not yet done.", "FDA has used country agreements with respect to pathogen hazards in molluscan shellfish intended for export to the United States.", "FDA and FSIS took steps to accomplish the transfer of catfish oversight from FDA to FSIS, as called for in the 2014 memorandum of understanding (MOU) that both agencies signed.", "However, they generally have not coordinated on drug residue testing methods, resulting, in some cases, in differences in drug residue levels used to determine if seafood is unsafe—specifically for unapproved drugs—as called for in the 1984 MOU.", "Without this coordination, the agencies do not have reasonable assurance that they are consistently protecting consumers from unsafe drug residues.", "Most seafood consumed in the United States is imported, and about half of it is raised on fish farms.", "Because farmed seafood is raised in confined areas and susceptible to infections, farmers may use drugs like antibiotics.", "The use of unapproved drugs or the misuse of approved drugs may result in unsafe residues in seafood that can cause cancer or allergic reactions, according to FDA, which is charged with ensuring the safety of most seafood.", "GAO is making five recommendations, including that FDA pursue agreements with other countries to test seafood exported to the United States and that FSIS visit a sample of fish farms as part of foreign country on-site audits; and that FDA and FSIS coordinate in developing testing methods and corresponding residue levels for imported seafood.", "FDA agreed with or partially agreed with two; FSIS partially agreed with two and stated it already addresses a third.", "GAO disagrees and believes the recommendations should be implemented." ], "parent_pair_index": [ -1, -1, -1, 2, 2, -1, 0, 1, -1, -1, 1, -1, 0, 1 ], "summary_paragraph_index": [ 2, 2, 2, 2, 2, 4, 4, 4, 0, 0, 0, 5, 5, 5 ] }

{ "title": [ "", "Introduction", "Economic Issues", "Context", "Economic Effects of Too Big to Fail", "Do TBTF Firms Enjoy a Funding Advantage or Implicit Subsidy?", "Policy Options and the Policy Response After the Crisis", "End or Continue \"Bailouts\"?", "Current Policy", "Policy Debate", "Limiting the Size of Financial Firms", "Current Policy", "Policy Debate", "Limiting the Scope of Financial Firms", "Current Policy", "Policy Debate", "Regulating TBTF", "Current Policy", "Policy Debate", "Minimize Spillover Effects", "Current Policy", "Policy Debate", "Resolving a Large, Interconnected Failing Firm", "Current Policy", "Policy Debate", "Conclusion", "Appendix. Enhanced Prudential Requirements for Large Banks Under the Dodd-Frank Act, as Amended by P.L. 115-174" ], "paragraphs": [ "", "Although \"too big to fail\" (TBTF) has been a perennial policy issue, it was highlighted by the near-collapse of several large financial firms in 2008. Bear Stearns (an investment bank), GMAC (a non-bank lender, later renamed Ally Financial), and AIG (an insurer) avoided failure through government assistance. Lehman Brothers (an investment bank) filed for bankruptcy after the government decided not to offer it financial assistance. Fannie Mae and Freddie Mac (government-sponsored enterprises) entered government conservatorship and were kept solvent with government funds. The Federal Deposit Insurance Corporation (FDIC) arranged for Wachovia (a commercial bank) and Washington Mutual (a thrift) to be acquired by other banks without government financial assistance. Citigroup and Bank of America (commercial banks) were offered government guarantees on selected assets they owned.\nIn many of these cases, policymakers justified the use of government resources on the grounds that the firms were \"systemically important,\" popularly called \"too big to fail.\" TBTF is the concept that a firm's disorderly failure would cause widespread disruptions in financial markets that could not easily be contained. Although the government had no explicit policy to rescue TBTF firms, several were rescued on those grounds once the crisis struck. TBTF subsequently became one of the systemic risk issues that policymakers grappled with in the wake of the recent crisis.\nSystemic risk mitigation, including eliminating the TBTF problem, was a major goal of the Dodd-Frank Wall Street Reform and Consumer Protection Act (hereinafter, the Dodd-Frank Act; P.L. 111-203 ), comprehensive financial regulatory reform enacted in 2010. Different parts of this legislation jointly address the \"too big to fail\" problem through requirements for enhanced regulation for safety and soundness for \"systemically important\" (also called \"systemically significant\") financial institutions (SIFIs), limits on size and the types of activities a firm can engage in (including proprietary trading and hedge fund sponsorship), and the creation of a new receivership regime for resolving failing non-banks that pose systemic risk. In addition, Basel III, an international agreement, placed heightened requirements on the largest banks. Title IV of the Economic Growth, Regulatory Relief, and Consumer Protection Act ( P.L. 115-174 ) reduced the number of banks to which the Dodd-Frank Act and Basel III provisions apply. (There has not yet been legislation enacted to reform Fannie Mae and Freddie Mac, which remain in government receivership.)\nSome critics argue that the Dodd-Frank and Basel III policy reforms do not go far enough to solve the TBTF problem, and others argue they have had the perverse effect of exacerbating the TBTF problem. Ultimately, the failure of a large firm is the only test of whether the TBTF problem still exists.\nThis report discusses the economic issues raised by TBTF, broad policy options, and policy changes made by the relevant Dodd-Frank provisions, as amended.", "", "Evidence on the size of financial firms can be viewed in absolute and relative terms—relative to other industries and within the industry (i.e., concentration). In the first quarter of 2018, there were 13 financial holding companies with more than $250 billion in assets in the United States, of which four had more than $1.9 trillion in assets. In 2003, there was only one U.S. holding company with more than $1 trillion in assets.\nIn recent decades, the U.S. banking industry has become more concentrated, meaning that a greater percentage of total industry assets is held by large banks. According to one study, the three largest banks held 5% to 15% of total commercial banking depository assets from the 1930s until the 1990s. The share of the top three then rose until it had reached about 40% by 2008. Assets of the five largest bank holding companies (BHCs) totaled 48% of total BHC assets as of December 31, 2017. This share has been relatively steady in recent years. By international standards, U.S. banks are not that large, however. Relative to GDP, the combined assets of the top three U.S. banks were the lowest of any major OECD economy in 2009.\nThe four largest BHCs each held a majority of their assets in commercial bank subsidiaries. Not all very large financial institutions are commercial banks, however. Companies with more than $100 billion in assets include insurers, broker-dealers, investment funds, specialized lenders, and government-sponsored enterprises (Fannie Mae and Freddie Mac are among the largest firms overall by assets). As the financial system has evolved over the long run, large non-banks have emerged, which may or may not be chartered as bank holding companies or thrift holding companies. Today, a bank can incorporate as a financial holding company that has depository subsidiaries, insurance subsidiaries, and broker-dealer subsidiaries, for example. The financial crisis reduced the number of large financial firms, but also led to an increase in the size of the remaining large firms, through a series of mergers and acquisitions.\nCompared with other industries, financial firms are large in dollar terms when measured by assets and liabilities, but not by measures such as revenue because of the nature of financial intermediation. For example, there is only one firm (Berkshire Hathaway) with revenues from financial businesses—and it also has substantial non-financial revenues—and no BHCs among the 10 largest Fortune 500 firms in 2018 when measured by revenue, but financial companies are the only Fortune 500 firms in the top 10 for assets or with more than $1 trillion in assets. Financial firms are also not as concentrated as some other industries. The top four firms' shares of industry revenues in 2012 were 29.9% in credit intermediation, 17.3% in securities and commodities, and 14.1% in insurance, respectively. In layman's terms, there is no \"Pepsi/Coke\" dominance in the financial sector. These comparisons may help to illustrate why traditional policy tools such as antitrust have not been used against large financial firms recently and suggest that the TBTF phenomenon in finance lies in the nature of financial intermediation, which is the topic of the next section.", "Contagion can be transmitted from small or large financial institutions (see the following text box), but large firms pose unique problems. Firms are likely to have more counterparty exposure to large firms, and the losses or disruptions caused by counterparty exposure when a large firm fails could be severe enough to lead to failure of third parties. Problems at large firms could also lead to \"fire sales\" in specific securities markets that depress market prices, thereby imposing losses on other holders of similar securities. Some economists argue that the real problem is some firms are \"too interconnected to fail.\" That is, it is not the sheer size of certain firms that causes contagion, but the fact that most activity in certain key market segments flows through those firms. According to the International Monetary Fund (IMF), a few large firms \"dominate key market segments ranging from private securitization and derivatives dealing to triparty repo and leveraged investor financing.\" Were the interconnected firm to fail, other firms would have difficulty absorbing the failed firm's business, and there would be disruptions to the flow of credit. If problems in one market segment undermine an interconnected firm, problems can spread to the other market segments in which the firm operates. The systemic risk posed by Lehman Brothers suggests that a firm that is not one of the largest in absolute terms can nevertheless be too interconnected to fail. Finally, since policymakers cannot be certain beforehand which firms pose systemic risk, more firms could be politically TBTF than economically TBTF.\nWhile some policymakers have dismissed the claim that any firm could be too big to fail, many analysts believe the failure of Lehman Brothers, occurring in the context of difficulties at several large financial firms, was the proximate cause of the worsening of the crisis in September 2008. It is debatable whether policy actions in the months leading up to Lehman Brothers' failure made its failure more or less disruptive, but it is fair to say that it is unlikely that the panic that followed could have been avoided since the nature of the disruptions its failure caused (notably, its effect on money markets) was not widely foreseen. \"Bailing out\" TBTF firms may not be an intended policy objective, but may become the second-best crisis containment measure when the failure of a TBTF firm is imminent to prevent fallout to the broader financial system and the economy as a whole.\nWhile many people object to rescuing TBTF firms on moral or philosophical grounds, there are also economic reasons why having firms that are TBTF is inefficient. In general, for market forces to lead to an efficient allocation of resources, finding a good use of resources must be financially rewarded and a bad use must be financially punished. Firms generally run into financial problems when they have persistently allocated capital to inefficient uses. To save such a firm would be expected to retard efforts to shift that capital to more efficient uses, and may allow the firm to continue making more bad decisions in the future. The TBTF problem results in too much financial intermediation taking place at large firms and too little at other firms from the perspective of economic efficiency, although not necessarily from the perspective of non-economic policy rationales. Because large and small financial firms do not serve exactly the same customers or operate in exactly the same lines of business, too much capital will flow to the customers and in the lines of business of large firms and too little to those of small firms in the presence of TBTF.\nPreventing TBTF firms from failing is argued to be necessary for maintaining the stability of the financial system in the short run. But rescuing TBTF firms is predicted to lead to a less stable financial system in the long run because of moral hazard that weakens market discipline. Moral hazard refers to the theory that if TBTF firms expect that failure will be prevented, they have an incentive to take greater risks than they otherwise would because they are shielded from at least some negative consequences of those risks. In general, riskier investments have a higher rate of return to compensate for the greater risk of failure. If TBTF firms believe that they will not be allowed to fail, then private firms capture any additional profits that result from high-risk activities, while the government bears any extreme losses. Thus, if TBTF firms believe that they will be rescued, they have an incentive to behave in a way that makes it more likely they will fail.\nTo see how the moral hazard problem is transmitted, it is helpful to examine who gets directly \"rescued\" when the government intervenes to prevent the fallout to the overall financial system and broader economy. The direct beneficiaries of a rescue will include some combination of the firm's management, owners (e.g., shareholders), creditors (including depositors), account holders, and counterparties. Under bankruptcy, these groups would bear losses to differing degrees depending on the legal priority of their claims. Government assistance, depending on its terms, can protect some or all of these groups from losses. In some recent government rescues, management has been replaced; in others, it has not. Even if management believes that losses will lead to removal, managers may prefer excessive risk-taking (with higher expected profits) because they are not personally liable for the firms' losses. In some cases, shareholders have borne some losses through stock dilution, although their losses may have been smaller than they would have been in a bankruptcy. Creditors, account holders, and counterparties have generally been shielded from any losses. Thus, government rescues have not mitigated the moral hazard problem for creditors and counterparties. Because the government will only intervene in the case of extreme losses, moral hazard may manifest itself primarily in areas affected only by systemic events (referred to as \"tail risk\"). For example, extreme losses from counterparty risk may be ignored by counterparties to TBTF firms if they believe that government will always intervene to prevent failure; if so, costs (such as the amount of margin a counterparty will require) will be lower for TBTF firms than competitors in these markets.", "Economic theory predicts that in the presence of moral hazard, creditors and counterparties of TBTF firms provide credit at an inefficiently low cost. Some studies have provided evidence that the funding advantage exists, although many of these studies cover time periods that end before the enactment of the Dodd-Frank Act. Identifying a lower funding cost for large banks alone is not enough to prove a moral hazard effect because lower cost could also be due to other factors, such as greater liquidity or lower risk (e.g., greater diversification). A Government Accountability Office (GAO) review of the empirical literature found that a funding advantage for large firms during the financial crisis had declined by 2011. Its own econometric analysis found evidence of a funding advantage during the crisis, but mixed evidence on the existence of a funding advantage in 2012 and 2013—indeed, more versions of their model found higher funding costs for large banks rather than the expected lower costs, holding other factors equal.\nSome view the decision by certain credit rating agencies to rate the largest financial firms more highly because they assume the firms would receive government support as evidence of the funding advantage, although two of the three major rating agencies have reduced the magnitude of this \"ratings uplift\" in recent years. (It should be noted that credit ratings do not directly determine funding costs.)\nThis funding advantage is sometimes referred to as the TBTF subsidy, although a subsidy typically implies a government willingness to provide the recipient with a benefit. Note also that a subsidy typically takes the form of an explicit direct payment, financial support, or guarantee, whereas in this case, if the funding advantage exists, it would derive from the expectation of future support that has not been pledged.", "This report organizes policy options for addressing TBTF into the following six broad categories:\n\"Bailouts\"; Limiting Firm Size; Limiting Scope of Activities; Regulation; Minimizing Spillovers; and Resolving a Failing Firm.\nThe Dodd-Frank Act contained provisions in each of these categories, but its most significant changes were in the areas of regulation and resolution. Likewise, recent legislative proposals can be found in each of these areas.\nPolicy options for TBTF can be categorized as preventive (how to prevent TBTF firms from either emerging or posing systemic risk) or reactive (how to contain the fallout when a TBTF firm experiences a crisis). A comprehensive policy is likely to incorporate more than one approach because different approaches are aimed at different parts of the problem. A policy approach that would not solve the TBTF problem in isolation could be successful in conjunction with others. Some policy approaches are complementary—others could counteract each other.\nWhen considering each policy option discussed in this section, an alternative perspective to consider is that problems at large firms during the crisis—such as overleveraging, a sudden loss of liquidity, concentrated or undiversified losses, and investor uncertainty caused by opacity—were not TBTF problems per se. If, in fact, they were representative of problems that firms of all sizes were experiencing, policy should directly treat these problems in a systematic and uniform way for all firms, and not just for TBTF firms, in this view. In other words, prudential regulation, a special resolution regime, and policies limiting spillover effects could be applied to all firms operating in a given area rather than just large firms, so arguments for and against these policy options do not apply only to their application to large firms. If the causes of systemic risk are not tied to firm size or interconnectedness, then policies based on differential treatment of TBTF firms could result in systemic risk migrating to non-TBTF firms rather than being eliminated.", "\"Bailouts\" are defined differently by different people. For the purposes of this report, they are defined as government assistance to a single firm to prevent it from failing (i.e., allow it to meet all ongoing obligations in full), in contrast to widely available emergency government programs to provide liquidity to solvent firms. TBTF bailouts could be delivered through assistance unique to the firm or through existing government programs on a preferential, subsidized basis. They could come in the form of federal loans, insurance, guarantees, capital injections, or other firm-specific commitments.\nWhen addressing TBTF, the first question to ask is, what should happen to large financial firms when they are no longer financially viable—should they be bailed out, as was the case for some firms during the crisis, or should they be wound down in some way?", "TBTF policy before the crisis could be described as purposeful ambiguity—policy was not explicit about what would happen in the event that large financial firms become insolvent, or which firms were considered TBTF. (Certain statutory benefits conferred to Fannie Mae and Freddie Mac came closer to an explicit TBTF status, and markets treated them as such by lending to them at interest rates closer to government than private-sector borrowing costs.)\nArguably, a TBTF policy was not explicit because it did not have to be—there had not been a comparable episode of financial instability since the Great Depression. Aside from a couple of isolated incidents, such as the bank Continental Illinois and the hedge fund Long Term Capital Management, there was also little experience since then with large firms needing to be rescued. Financial turmoil in the decades prior to the crisis had been neutralized using the Federal Reserve's normal monetary and \"lender of last resort\" tools. The Fed was authorized to provide liquidity to banks through collateralized loans at the discount window, with limitations for banks that are not well capitalized. In previous episodes of financial turmoil such as 1987 and 1998, the Fed's decision to flood markets with liquidity had proven sufficient to restore confidence. There was no standing policy to provide liquidity to non-bank financial firms to guard against runs before the recent crisis, perhaps because there was less historical experience with non-bank runs, and perhaps because non-bank financial firms have become a more important part of the financial system over time. The Fed had broad existing emergency authority under Section 13(3) of the Federal Reserve Act to lend to non-banks, but prior to the crisis had not done so since the 1930s or articulated under what circumstances it would do so.\nPolicy during the recent crisis could be described as reactive, developing ad hoc in fits and starts in reaction to events. Ultimately, some banks and non-bank financial firms received federal assistance, despite the lack of an explicit safety net and federal prudential regulation in the case of non-banks AIG and Bear Stearns. In the absence of explicit authority to rescue a TBTF firm, as the crisis unfolded, broad standing authority was used: Section 13(3) was used to prevent the failures of Bear Stearns and AIG. Section 13(3) and the FDIC's systemic risk authority were used to offer asset guarantees to Bank of America and Citigroup. These authorities were also used to create broadly based emergency programs. Other programs were created after the crisis began under authority granted by Congress in 2008. Assistance was given under the Housing and Economic Recovery Act (HERA; P.L. 110-289 ) to prevent Fannie Mae and Freddie Mac from becoming insolvent. In October 2008, Congress passed the Emergency Economic Stabilization Act (EESA; P.L. 110-343 ), creating the Troubled Asset Relief Program (TARP), which was used, among other things, to inject capital into several large financial firms. The HERA and EESA authority expired in 2010 and were not replaced, although funds continued to be available after expiration under several outstanding contracts.\nAt the time, it appeared that the ultimate cost to the government of TBTF \"bailouts\" could run into the hundreds of billions, collectively. In hindsight, all of the special assistance to large financial firms (Bear Stearns, the GSEs, Ally Financial, Chrysler Financial, AIG, Citigroup, and Bank of America), as well as the broadly based emergency programs that large and small financial firms accessed, turned out to be cash-flow positive for the government (i.e., income and principal repayments exceeded outlays). Cash-flow measures, however, do not reflect the economic cost of assistance, which would factor in the rate of return a private investor would have required to make a similar investment, incorporating risk and the time value of money. On an economic basis, the Congressional Budget Office has estimated that special assistance through TARP to Citigroup, Bank of America, the auto financing firms, and broadly based programs have generated positive profits for the government, while the TARP assistance to AIG was subsidized. Although there were ultimately no net losses in these cases, these government interventions exposed the government to large potential losses.\nMaintaining broad discretionary standing authority while attempting to limit its scope to prevent bailing out insolvent firms could be seen as the approach taken by Title XI of the Dodd-Frank Act. It limited the Fed to providing emergency assistance only through widely available facilities, required the Fed to issue rules and regulations on how such assistance will be provided, and prohibited the Fed from lending to failing firms. It also created new statutory authority for the FDIC to set up emergency liquidity programs in the future with restrictions and limitations, including that the recipient must be solvent, rather than allowing the FDIC to again rely on an open-ended systemic risk exception. Earlier, EESA ruled out future uses of the Exchange Stabilization Fund to guarantee money market funds. Few other standing authorities to intervene in financial markets are available.", "The crisis left many policymakers and observers criticizing ad hoc bailouts as arbitrary, unfair, lacking in transparency, and requiring too much taxpayer exposure (although funds were eventually repaid in full with interest). Many economists would also credit it with eventually restoring financial stability, however, by restoring healthy and unhealthy financial firms' access to liquidity and capital.\nThere has been widespread support among policymakers since the crisis for eliminating future bailouts. In theory, if creditors believed that a firm would not receive government support, they would not enable firms to take what they perceived to be excessive risks, and risky actions would be priced more efficiently. Unfortunately, imposing \"market discipline\" is not necessarily achieved simply by proclaiming a \"no bailouts\" policy. If the moral hazard problem is to be avoided, market participants must be convinced that when faced with a failure that could potentially be highly damaging to the broader economy—and just how damaging cannot be fully known until after the fact—policymakers will not deviate from the stated policy and provide bailouts. But current policymakers cannot prevent future policymakers from offering assistance to a failing TBTF firm. Although it is in the long-term interest of policymakers to withhold assistance to prevent moral hazard, it is in the short-term interest of policymakers to provide assistance to prevent systemic risk. This logic underpinned the decision to rescue firms in the crisis, and the fact that it happened then may lead creditors to conclude that the same thing would happen again in the next crisis. This makes it difficult to craft a \"no bailouts\" policy that is credible to market participants. Even if policymakers did intend to maintain a market discipline policy, as long as creditors disbelieved such a policy would be maintained in the event of a crisis, the moral hazard problem would remain.\nAlthough it is impossible to prevent future policymakers from making statutory changes to current policy, current policymakers can make it more difficult for future policymakers to \"bail out\" firms by repealing or limiting the existing standing authority that policymakers used to provide assistance in the recent crisis. Enacting new authority is likely to be a higher hurdle than invoking existing authority. The Dodd-Frank Act narrowed emergency authority to prevent future bailouts, but critics believe that emergency authority remains broad enough that regulators would be likely to use it to save TBTF firms in the future. Policymakers have debated repealing or further limiting standing authority such as the Fed's 13(3) emergency authority, the Treasury's Exchange Stabilization Fund, and the FDIC's systemic risk exception to least cost resolution.\nThe advantage to maintaining broad discretionary emergency authority is that it allows policymakers to react quickly to unforeseen contingencies, and the authority may be needed for purposes other than bailouts, as defined in this report. If assistance became necessary in a fast-moving crisis, new authority might take too long to enact. By then, the damage to the economy could be worse. In other words, eliminating broad authority could still result in a TBTF rescue, but after more financial disruption had occurred. TARP is an example of authority that was enacted unusually quickly during a crisis; nevertheless, its enactment took weeks, whereas contagion can spread in days.\nThree other disadvantages to the ad hoc approach to bailouts are often cited. First, assistance could be provided arbitrarily or on the basis of favoritism. Second, a lack of contingency planning shifted risk to the taxpayer. Third, it led to policy uncertainty, which can heighten systemic risk. Arguably, lack of explicit policy added to the panic after Lehman Brothers failed, because market participants may have incorrectly based decisions on the expectation that Lehman Brothers would receive the same type of government assistance that Bear Stearns received. All three of these disadvantages could be addressed through a no bailouts policy—or, alternatively, by explicitly stating the terms and conditions under which companies will receive assistance and creating a funding mechanism beforehand. The latter approach could make the moral hazard problem worse, however, by leaving no ambiguity about which firms will receive assistance.\nThe optimal approach to bailouts from an economic perspective is arguably the one that is least costly to the economy in the short and long run. The cost of TBTF to the economy includes the direct expenditures by the government and the costs of a less stable financial system due to moral hazard. Budgetary costs do not include preventing the broader costs of a systemic disruption to the economy, which would have feedback effects on the federal budget. It can be argued that a failure to bail out TBTF firms would be more costly in the short run because it would potentially allow systemic risk to spread. Alternatively, if bailouts increase moral hazard, it can be argued that greater moral hazard causes the system to be less stable in the long run by encouraging TBTF firms to act less prudently. However, even without moral hazard, firms would sometimes fail, as finance is inherently risky.\nThe 2008 experience lacks a counterfactual to definitively answer the question of which approach is least costly in the short run. In this sense, the question of whether it is more costly to bail out TBTF firms or allow them to fail cannot be definitively settled. The crisis worsened after Lehman Brothers was allowed to fail and ended after TARP and other broadly based emergency programs were created. Standard measures of financial stress, such as the spread between Treasury rates and the London Inter-bank Offering Rate (LIBOR), did not begin to fall until legislation creating TARP was enacted. Ad hoc rescues of failing TBTF firms had not succeeded in stabilizing financial markets to that point, but it is unknown whether financial conditions would have eventually normalized had that ad hoc policy been pursued for Lehman Brothers and beyond. There is also no counterfactual as to what would have happened if there had been a consistent policy of allowing firms to fail in the crisis dating back to Bear Stearns, but the outcome that policymakers believed would occur if Bear Stearns had not been rescued is similar to events following the Lehman Brothers bankruptcy.\nSuccessfully eliminating bailouts does not address the fundamental problem posed by TBTF—how can a large interconnected firm fail without causing financial instability? Effective market discipline may reduce the likelihood of a firm failing, but reducing the probability to zero is not a realistic or desirable goal of creditors. The experience of the Lehman Brothers bankruptcy suggests that the existing bankruptcy process can lead to financial instability, at least in an already stressed environment. Thus, if policymakers wish to eliminate bailouts and maintain financial stability, that goal must be paired with one or more of the other approaches below.", "One approach to eliminating TBTF is to alter the characteristics of firms that make them TBTF. If TBTF is primarily a function of size, policymakers could require TBTF firms to sell businesses, divest assets, or break up to the point that they are no longer TBTF. Alternatively, policymakers could tax size—explicitly or implicitly through punitive regulatory requirements—to put large firms at a competitive disadvantage (or eliminate advantages that stem from perceptions of TBTF).", "Size limits are in place in current law, but only to approve mergers or when there is a threat to financial stability. Before the crisis, mergers or consolidations were prohibited if they would result in a BHC holding more than 10% of national deposits and 30% of any state's deposits. Section 622 of the Dodd-Frank Act prevents mergers or consolidations that would result in a firm with more than 10% of total liabilities of certain financial firms or, in the case of a bank, 10% of the total amount of deposits of insured depository institutions in the United States. This limit can be waived in the case of the acquisition of a failing firm. The limit does not prevent firms from increasing their market share \"organically.\" The Financial Stability Oversight Council (FSOC) determined that Section 622 would limit the acquisitions of only the four largest BHCs in 2011.\nSection 121 of the Dodd-Frank Act, as amended by P.L. 115-174 , allows the Federal Reserve to prevent mergers and acquisitions, restrict the products a firm is allowed to offer, terminate activities, and sell assets if the Federal Reserve and at least two-thirds of FSOC believe that a firm that has more than $250 billion in assets poses a \"grave threat to the financial stability of the United States.\" It does not allow the Fed to undertake these actions simply because a firm is large.\nThe Dodd-Frank Act, as amended by P.L. 115-174 , allows fees to be assessed on banks with more than $50 billion, $100 billion, or $250 billion in assets, depending on the fee, and non-banks designated as systemically important. The fees were intended to finance the costs of supervision and resolution, as well as the budget of the Office of Financial Research, as opposed to being a deterrent on size, however. Regulations applying only to large financial firms that make size more costly are discussed in the section below entitled \" Regulating TBTF .\"\nUnder the terms of conservatorship, the GSEs have been reducing their investment portfolio balances by 15% a year until they reach $250 billion by the end of 2018. These size restrictions apply only to the GSE's investment holdings; they do not limit their other activities and are not set by statute.", "Size can be measured in different ways (assets, liabilities, revenues, etc.), and regulators would likely need to use discretion to weigh a number of measures. It is also not obvious at what size a firm becomes a source of systemic risk—should the line be drawn at, say, $1 trillion, $100 billion, or $50 billion of assets? A firm could be TBTF because of its overall size or because of its size or importance in a particular segment of the financial market, suggesting that overall size alone may not be a sufficient determinant of systemic importance. It is also possible that if all institutions were smaller because of a size cap, the largest institutions would still be systemically important, even though their size would not be large by today's standards. A parallel might be the decision to rescue Continental Illinois in 1984—it was the seventh-largest bank, but had assets of only $45 billion at its peak, as geographic restrictions meant that the average size of all banks was smaller.\nThe benefits of reducing the size of firms are that, if successful, it could eliminate the moral hazard and the need for future \"bailouts\" stemming from TBTF. Other potential costs and benefits are more ambiguous. Size restrictions may raise the cost or reduce the quality of financial products currently provided by TBTF firms to consumers and investors; whether this is good or bad from an economic perspective depends on the cause. If low costs currently stem primarily from the TBTF \"subsidy,\" then economic efficiency would improve if large firms are eliminated even if costs rose as a result. Alternatively, if low costs currently stem primarily from economies of scale, then economic efficiency would be reduced by size restrictions. Beyond cost, large firms may make markets more liquid and enhance customer convenience (such as a nationwide physical presence). Large non-financial firms may also have financial needs (such as the underwriting of securities) that would overwhelm small financial firms. Similarly, if the success of the largest firms comes primarily through their ability to innovate and provide more sophisticated or superior products, then size restrictions could reduce economic efficiency. Alternatively, if success of large firms comes primarily through the ability to extract monopoly rents, size restrictions could improve economic efficiency. While reducing size should reduce systemic risk, there is mixed evidence on whether large firms are more or less likely to fail than small firms. They could be less likely to fail because of greater diversification or more sophisticated risk management. Canada's unique experience in avoiding the 2007-2009 financial crisis is attributed by some to its highly concentrated banking system.\nUnless rules to limit the size of financial firms are global, size restrictions could place U.S. firms at a disadvantage at home and abroad in their competition with foreign financial firms. (Some types of financial activities can be performed abroad more easily than others, so the relevance of this factor depends on the activity in question.) If business were to shift to large foreign firms, the overall level of systemic risk in the financial system (which already involves large international capital flows) may not decline, or could even increase if prudential regulation in the foreign firm's home country were inferior to U.S. regulation.\nAn alternative to restricting size would be to penalize size through a tax or assessment on assets or liabilities above a stated threshold. In theory, the tax could be set at the rate that would neutralize any funding advantage that a bank enjoys because of its TBTF status. Given that it is uncertain at what size a financial firm becomes TBTF, a tax could be viewed as less harmful than a cap if set at the wrong threshold and perhaps more easily adjusted over time. Other policy options that raise funding costs for large firms, such as higher capital requirements, can be viewed as having a similar effect to a tax.\nIf policymakers decided to reduce the size of firms, a phase-in or transition period might be desirable to avoid significant short-term disruptions to the overall financial system as business shifted away from the largest firms. Likewise, when designing a policy that applies only to firms above a size threshold, one consideration is whether to make the threshold graduated to avoid cliff effects. Otherwise, firms might take actions to remain just below the threshold.", "Some policy options, such as Glass-Steagall and the Volcker Rule, focus on limiting the types of activities that certain financial firms may engage in.", "Most large financial firms are organized as bank holding companies. The activities in which bank subsidiaries may engage are restricted by statute, but BHCs may own non-bank subsidiaries. The subsidiaries of, and off-balance sheet entities associated with, the largest BHCs are active participants, to varying degrees, in multiple lines of business outside of traditional bank lending, including asset-backed securitization, trust services, insurance, money market mutual funds, and broker-dealers. Some large firms are predominantly engaged in one line of finance, while others are more evenly mixed. A large firm's presence throughout the financial system is one source of its \"interconnectedness.\"\nSection 619 of the Dodd-Frank Act, popularly referred to as the \"Volcker Rule,\" prohibited banks from engaging in proprietary trading and owning hedge funds and private equity funds in the United States, and required additional capital to be held by systemically important non-banks that engage in proprietary trading or own hedge funds and private equity funds in the United States. Insurance companies are largely excluded from the Volcker Rule. Exemptions from the Volcker Rule include the purchase and sale of assets for purposes of underwriting, market making, hedging, and on behalf of clients. Securities issued by federal, state, or local governments and government-sponsored enterprises (GSEs) are exempted, as are investments in small business investment companies. A final rule implementing the Volcker Rule was adopted in December 2013, with conformance required by June 2015. P.L. 115-174 exempted banks with less than $10 billion in assets and minimal trading activities from the Volcker Rule.\nSection 716 of the Dodd-Frank Act required banks to \"push out\" certain swap dealer activities outside of the depository subsidiary and into a separately capitalized subsidiary. The stated goal of the provision is to prevent swap dealers and major swap participants from accessing deposit insurance or the Fed's discount window. The rule implementing Section 716 was effective July 2013, with a two-year transition period. A provision in the FY2015 appropriations bill ( P.L. 113-235 ) limited the scope of the pushout rule.\nThe housing GSEs are an example of large financial firms with a charter that permits only a narrow range of business activities.", "Imposing a size restriction on firms is relatively straightforward—it requires establishing a measure of size, identifying the threshold size that makes a firm TBTF, and preventing firms from exceeding that threshold. Altering firms so that they are not too interconnected to fail is more complicated because there is less consensus on what characteristics make a firm \"too interconnected.\" If interconnectedness is taken to mean that the firm is an important participant in several different segments of financial markets, then policymakers could take what has popularly been described as the \"reinstate Glass-Steagall\" approach. Echoing Glass-Steagall's separation of banking and investing, the essence of this proposal is to prevent a single financial holding company from operating in multiple lines of financial business. Reintroducing the separation of lines of business alone would not necessarily prevent the existence of very large or interconnected firms within a market segment, however, in which case the TBTF problem would not be eliminated.\nThe benefits of reducing the scope of firms are that, if successful, it could reduce the riskiest activities of large firms and thus the need for future \"bailouts\" stemming from TBTF. It could also reduce the complexity of large firms, making it easier for regulators and creditors to monitor them. Weighed against those benefits would be a number of costs that lead other policymakers to prefer to eliminate policies that limit scope.\nFirst, there may be economies of scope that make the financial system more efficient and complete if firms are large, diversified, and interconnected. Customers may benefit from the convenience, sophistication, and savings of \"one-stop shopping\" and expertise in multiple market segments.\nSecond, large firms that operate in multiple lines of business may be better able to reduce risk through diversification, making them less prone to instability in that sense. Traditional banking is not inherently safe, so forbidding banks from engaging in other activities is no panacea to avoid bank failures. Fannie Mae and Freddie Mac are examples of firms that were deemed \"too big to fail\" and rescued on those grounds, although their business was narrowly focused in the mortgage market.\nThird, reintroducing Glass-Steagall separations of businesses without other changes to the regulatory system would reinforce a system in which banking is subject to close federal prudential regulation and other financial firms are not. This system would only mitigate systemic risk if non-banking activities and institutions could not be a source of systemic risk—the recent crisis experience casts doubt on that assumption. In some cases, activities may still be a source of systemic risk even if banks or TBTF firms are banned from conducting them. Further, the growth in \"shadow banking\" makes it more difficult to segregate activities and their regulation by charter—financial innovation has blurred the distinction between different lines of business in finance to the point where the distinction may not be meaningful. In other words, some activities of non-banks are not fundamentally different from core banking activities from an economic perspective. Thus, the activities that banks could undertake would be limited, but it would be difficult to prevent non-banks from engaging in bank-like activities with the same implications for systemic risk, but less or no prudential regulation. Similar arguments apply to the potential for activities to migrate abroad, where \"universal banking\" is common.\nAnother policy approach would be to limit or ban TBTF firms' participation in activities that are deemed inherently too risky—particularly those likely to generate large losses at times of financial stress—and not central to the business model of the firm. This approach usually focuses on banks because of their access to the \"federal safety net\" (deposit insurance and Fed lending), and hence justified in terms of limiting risk to taxpayers. For example, the Volcker Rule has been justified on the grounds that banks should not participate in proprietary trading of private securities with the bank's own funds. Although all financial activities are risky, some risks can be more easily managed through techniques such as hedging and supervised by regulators. Whether proprietary trading is an inherently riskier activity than other banking functions, such as lending, is subject to debate. In addition to proprietary trading, Thomas Hoenig and Charles Morris have proposed to also ban banks from acting as broker-dealers and market-makers in securities and derivatives.\nAnother variation of this proposal, made by the Vickers Commission in the United Kingdom and the Liikanen Group in the European Union, is to \"ring fence\" banking activities from these other types of activities into legally, financially, and operationally separate entities within a holding company structure. This type of approach can be seen in the United States in the swap push out rule.\nA drawback to limiting permissible activities is that there is unlikely to be any sharp distinction between the risky activity and similar activities that are central to the firm's core activities. As a result, regulators may have to make arbitrary distinctions between which activities fall under the ban, and firms would have an incentive to skirt the ban by designing transactions that resemble allowed activities but accomplish the same goals as the banned activity. For example, proprietary trading (\"playing the market\" with a firm's own assets) may be hard to distinguish from market-making (providing clients with a ready buyer and seller of securities) or hedging (buying and selling securities such as derivatives to reduce risk), and there may be economies of scale to market-making that concentrate those activities at large firms.\nIt should also be noted that proposals limiting scope would generally apply to all banks, small and large. As a practical matter, large banks are more likely to operate in a wide range of non-bank businesses, however.", "Another approach to addressing the TBTF problem takes as its starting point the view that no policy can prevent TBTF firms from emerging. In this view, the dominant role of a few firms in key segments of the financial system is unavoidable. Breaking them up or eliminating all spillover effects is unlikely to be practical or feasible, for reasons discussed elsewhere. If so, regulation could be used to try to counteract the moral hazard problem and reduce the likelihood of their failure. Prudential regulation, such as capital requirements, could be set to hold TBTF firms to higher standards than other financial firms, whether or not those firms are already subject to prudential regulation. This approach would involve a choice between setting a quantitative threshold (based on size, for example) and applying standards to all firms over that size or designating firms believed to systemically important to be subject to the standards on a case-by-case basis.", "Generally, the regulatory regime before the crisis was not based on firm size, but rather on charter type. A framework for prudential regulation is well established in depository banking regulation, featuring the establishment of safety and soundness standards and regulatory supervision to ensure adherence to those standards. Depository institutions were regulated for safety and soundness to minimize the costs of, and the moral hazard that results from, deposit insurance and access to the Fed's discount window. Because some non-bank financial firms did not receive analogous government protection before the crisis, there was not seen to be a moral hazard problem that justified regulating them for safety and soundness. Pre-crisis safety and soundness regulation did not explicitly address the additional moral hazard that results from TBTF, in part because TBTF firms were not explicitly identified.\nBefore the crisis, large financial firms were subject to Fed prudential oversight at the holding company level if they were organized as BHCs or financial holding companies. In 1997, the Fed and the Office of the Comptroller of the Currency (OCC) set up an internal team to supervise large complex banking organizations. Regulation at the holding company level did not mean that all subsidiaries were regulated in the same way as depository subsidiaries. \"Firewalls\" were meant to protect the depository subsidiary from losses at non-bank subsidiaries. The holding company had to demonstrate that it was a source of strength for the depository subsidiary. Government-sponsored enterprises, such as Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, were also subject to prudential regulation by their own regulators.\nSome of the large firms that experienced financial difficulties in the recent crisis, however, were not BHCs, under Fed regulation, at that time. Types of large firms that were not BHCs included some government-sponsored enterprises, insurance companies, investment banks (or broker-dealers), and hedge funds. Insurance subsidiaries were regulated for safety and soundness at the state level. Investment banks complied with an SEC net capital rule. Some large financial firms, including AIG and Lehman Brothers, were thrift holding companies supervised by the Office of Thrift Supervision before the crisis. The Office of Thrift Supervision was mainly concerned with the health of AIG's and Lehman Brothers' thrift subsidiaries, although those were a minor part of their businesses. Some large financial firms voluntarily became BHCs during the crisis. The five largest investment banks either merged with BHCs (Bear Stearns, Merrill Lynch), became BHCs (Goldman Sachs, Morgan Stanley), or declared bankruptcy (Lehman Brothers) in 2008.\nTitle I of the Dodd-Frank Act created an enhanced prudential regulatory regime for all large bank holding companies and \"systemically important\" non-bank financial firms. It grants the FSOC the authority to identify non-bank systemically important financial institutions (SIFI) by a two-thirds vote, which must be supported by the head of FSOC (the Treasury Secretary). Such a firm would be deemed systemically important on the basis of a council determination that \"material financial distress at the [firm] or the nature, scope, size, scale, concentration, interconnectedness, or mix of the activities of the [firm] could pose a threat to the financial stability of the United States.\" Foreign financial firms operating in the United States could be identified by the council as systemically important. By regulation, firms with consolidated assets of less than $50 billion are exempted. Besides the $50 billion threshold, FSOC stated in its final rule that under its three-stage process it would consider designating only firms with at least $30 billion in gross notional credit default swaps outstanding in which it was the reference entity, $3.5 billion of derivatives liabilities, $20 billion in debt outstanding, a 15 to 1 leverage ratio (a capital-asset ratio that is not risk-weighted), or a 10% short-term debt ratio.\nFSOC has designated three insurers (AIG, Metlife, and Prudential Financial) and one other firm (GE Capital) as systemically important, and therefore subject to heightened prudential regulation, but only Prudential Financial's designation remains in place. On March 30, 2016, the U.S. District Court for the District of Columbia struck down MetLife's designation; the government initially appealed this decision, but requested a dismissal of its appeal in 2018. In April 2015, GE announced that it intended to sell most of GE Capital over the next 18 months to 24 months in an effort, in part, to no longer be designated as systemically important. As a result, FSOC rescinded GE Capital's designation on June 28, 2016. In 2017, FSOC rescinded the designation of AIG, which played a central role in the financial crisis and was rescued by the government. FSOC has researched whether any \"asset managers\" (a diverse group that includes mutual funds, hedge funds, and private equity funds) are systemically important, but has not designated any to date.\nUnder Subtitle C of Title I of the Dodd-Frank Act, the Fed became the prudential regulator for firms that the FSOC has designated as a non-bank SIFI and any BHC with total consolidated assets of more than $50 billion. The Fed, with the FSOC's advice, is required to set \"enhanced\" safety and soundness standards that are more stringent than those applicable to other non-bank financial firms and BHCs that do not pose a systemic risk. P.L. 115-174 raised the $50 billion threshold to $250 billion in assets, but granted the Fed discretion to apply individual enhanced prudential provisions to individual BHCs with assets between $100 billion and $250 billion if it would promote financial stability or the institution's safety and soundness. There are currently 13 U.S. BHCs with more than $250 billion in consolidated assets. Under the \"Hotel California\" provision, BHCs that participated in the Capital Purchase Program (part of the Troubled Asset Relief Program) would not be able to change their charter to avoid this regulatory regime without FSOC's permission. To date, this has happened once. In 2018, Zions converted from a BHC to a bank without a holding company structure. Since enhanced regulation is applied only to BHCs and designated firms, Zions could not be released from enhanced regulation without FSOC's permission.\nA large number of foreign banks operating in the United States are also subject to the enhanced prudential regime, as amended by P.L. 115-174 , because they have over $250 billion in global assets. If these foreign banks are operating with more than $50 billion in assets in the United States, they are required to set up intermediate BHCs that will be subject to heightened standards comparable to those applied to U.S. banks. Less stringent requirements apply to large foreign banks with less than $50 billion in assets in the United States.\nRulemaking implementing enhanced regulation for non-bank SIFIs has not yet been finalized, to date. Final rules have been promulgated incorporating most enhanced regulatory standards for large BHCs, including stress tests, liquidity standards, capital planning, and risk management standards. At the recommendation of the council or on its own initiative, the Fed may propose additional prudential standards not required by the Dodd-Frank Act, and P.L. 115-174 requires the Fed to set different standards for different systemically important firms or categories of firms based on various risk-related factors. Fees are assessed on banks and non-banks regulated under this regime to finance the costs of supervision, as well as the budget of the Office of Financial Research.\nRegulation of large banks is tiered—it becomes increasingly stringent as asset size increases. In addition to the $250 billion threshold, the Dodd-Frank Act, as amended by P.L. 115-174 , requires banks with more than $10 billion in assets that are publicly held to establish risk committees on their corporate boards and banks with more than $100 billion in assets to undergo Fed-run stress tests.\nIn conjunction with the Dodd-Frank Act, bank regulation was reformed after the financial crisis by Basel III, a nonbinding international agreement implemented in the United States through the rulemaking process. One tier of enhanced regulation applies to banks subject to the Basel III \"Advanced Approaches\" rule, which are those banks with $250 billion or more in assets or $10 billion or more in foreign exposure. Another tier of regulation applies to \"global systemically important banks\" (G-SIBs). Since 2011, the Financial Stability Board (FSB), an international forum that coordinates the work of national financial authorities and international standard setting bodies, has annually designated G-SIBs, based on the banks' cross-jurisdictional activity, size, interconnectedness, substitutability, and complexity. The FSB has currently designated 30 banks as G-SIBs worldwide, 8 of which are headquartered in the United States. In addition, several of the foreign G-SIBs have U.S. subsidiaries. Tiered regulation for advanced approaches banks and G-SIBs includes the following:\nAdvanced approaches banks must meet a 3% supplementary leverage ratio, which includes off-balance sheet exposures. In April 2014, the U.S. bank regulators adopted a joint rule that would require the G-SIBs to meet a supplementary leverage ratio of 5% at the holding company level in order to pay all discretionary bonuses and capital distributions and 6% at the depository subsidiary level to be considered well capitalized as of 2018. Basel III also required G-SIBs to hold relatively more capital in the form of a common equity surcharge of at least 1% to \"reflect the greater risks that they pose to the financial system.\" In July 2015, the Fed issued a final rule that began phasing in this capital surcharge in 2016. Currently, the surcharge applies to the eight G-SIBs, but under its rule, it could designate additional firms as G-SIBs, and it could increase the capital surcharge to as much as 4.5%. The Fed stated that under its rule, most G-SIBs would face a higher capital surcharge than required by Basel III. In addition, the Fed issued a final rule implementing a Basel III counter-cyclical capital buffer that is applied to the \"Advanced Approaches\" banks that can be modified over the business cycle to counteract excessive credit growth. Since implementation, it has been set at zero, and it is unclear how likely it is that regulators would raise it above zero, and under what circumstances an increase would be triggered. Basel III also created two liquidity standards, the liquidity coverage ratio and the net stable funding ratio, that apply only to large banks. In September 2014, the banking regulators finalized a rule implementing the liquidity coverage ratio. The liquidity coverage ratio would require firms to hold enough liquid assets to meet cash flow needs during a stress period. In May 2016, the banking regulators proposed a rule implementing the net stable funding ratio. The net stable funding ratio would require firms to have stable funding to meet net outflows in a stressed environment over a year. These rules do not apply to non-bank SIFIs, but regulators indicated that non-bank SIFIs would face their own liquidity requirements.\nSize thresholds are also used in other regulations besides enhanced regulation. For example, in the Dodd-Frank Act as amended, the Volcker Rule and debit card interchange fees (the \"Durbin Amendment\") apply only to banks with over $10 billion in assets; CFPB supervision for consumer compliance applies only to banks with over $10 billion in assets; and executive compensation rules for financial firms apply only to firms with over $1 billion in assets, with more stringent requirements as asset size increases.\nThe FSB has also identified nine insurers as \"globally systemically important insurers,\" three of whom (AIG, Prudential Financial, and MetLife) are headquartered in the United States. FSB members have agreed to require designated insurers to develop recovery and resolution plans and hold more capital than other insurers by 2019. The FSB has released a methodology for identifying global systemically important firms that are not banks or insurers, but has not designated any to date.\nStatutory changes to GSE prudential regulation await broader GSE reform.", "Successfully containing TBTF through regulation involves a series of considerations. What types of financial firms pose systemic risk? How can the government best identify which firms are systemically important? Can prudential regulation be effective for all types of firms? Could regulation backfire and make the TBTF problem worse?\nHistorically, banks have been subject to a closer and more intense federal prudential regulatory regime than non-banks because of the systemic risk and moral hazard problems they posed. Some argue that banks generate unique sources of systemic risk (such as deposit taking) that have no analogue in other types of financial firms. If the recent crisis leads to the conclusion that TBTF non-bank financial firms can also be sources of systemic risk and contagion, the same arguments made for regulating banks for systemic risk also apply to TBTF non-banks, however.\nThere are a wide variety of types of large non-banks, with diverse features. Some non-banks have some of the features that have been viewed as a source of systemic risk, such as leverage and vulnerability to runs, while others do not. There are a few large insurers, which are already regulated for safety and soundness at the state level. On the other hand, state regulators may not be equipped to regulate noninsurance subsidiaries or the overall firm for systemic risk. A study by the Office of Financial Research (OFR) identified several channels through which \"asset managers\"—a diverse group that includes hedge funds, pension funds, and mutual funds—could pose systemic risks. Others have argued that only activities, not firms, in this industry pose systemic risk. The OFR report identified 10 asset managers each with more than $1 trillion in assets under management.\nA \"one size fits all\" model for regulating firms in different businesses for safety and soundness is unlikely to be practical. Bringing non-banks under the Fed's purview raises questions about whether rules designed for banks can be applied to non-banks, and whether the federal bank regulators have the expertise to do so effectively. For example, insurers have argued that bank regulations are not suitable for them, and the Fed does not have any specialized expertise in the area of insurance. Another issue is whether to regulate all of the activities of holding companies operating across several lines of business for safety and soundness, or regulate only certain activities that are deemed systemically important, perhaps with legal and financial \"firewalls\" that isolate the risks of nonregulated activities to the overall holding company.\nPrudential regulation does not and cannot prevent all failures from occurring—large, regulated depository institutions failed, and the GSEs were taken into conservatorship during the recent financial crisis. Nor is a system without any failures necessarily a desirable one, since risk is inherent in all financial activities. Regulation could aim to prevent large financial firms from taking greater risks than their smaller counterparts because of moral hazard. If successful, fewer failures or episodes involving disruptive losses would occur.\nThe success of the regulatory approach versus the market discipline approach depends on whether regulators or creditors can more accurately identify risk. Both markets and regulators failed to predict the losses and failures (of firms with and without access to the federal safety net) that led to the financial crisis. Even if market participants were more accurately able to identify risk than regulators, market participants have a higher tolerance for risk than society as a whole because they are unlikely to internalize the systemic risks associated with a TBTF firm's failure. In addition, regulators potentially have greater access to relevant information on risk than creditors and counterparties if opacity is a problem with large, complex firms.\nThose who are skeptical that regulation will succeed point out that the same regulators were arguably unable or unwilling to prevent excessive risk-taking before and during the crisis by at least a few of the firms that they regulated. Regulators have adapted to weaknesses raised by the crisis, but the next crisis is likely to pose a novel set of problems. Although regulation is intended to limit risky behavior, regulators may inadvertently cause greater correlation of losses across firms by encouraging all firms to engage in similar behavior. Some have argued that large firms are \"too complex to regulate,\" meaning regulators are incapable of identifying or understanding the risks inherent in complicated transactions and corporate structures. For example, the six largest BHCs had more than 1,000 subsidiaries each, and the two largest had more than 3,000 each in 2012. Further, their complexity has increased over time—only one BHC had more than 500 subsidiaries in 1990, and the share of assets held outside of depository subsidiaries has grown over time for the largest BHCs. One response to addressing this complexity is to make the regulatory regime more sophisticated, but some critics argue that this approach is likely to backfire and simple regulations are more likely to be robust. Others have argued that large firms are \"too big to jail,\" meaning regulators cannot take effective supervisory actions against firms if those actions would undermine the firm's financial health, and thus financial stability.\nOne way that a regulatory approach could potentially backfire is if a special regulatory regime for TBTF firms is not strict enough, in which case it would exacerbate the moral hazard problem. Critics fear that such a regime would be particularly vulnerable to \"regulatory capture,\" the phenomenon in which the regulated exercise influence over their regulators to ease the burden of regulation. If so, a special regulatory regime could wind up exacerbating the moral hazard problem by, in effect, making TBTF status explicit, signaling to market participants that firms in the special regime enjoyed a protected status and would not be allowed to fail. Instead of increasing the cost of being TBTF, firms in the special regulatory regime could end up borrowing at a lower cost than other firms (since, in effect, these firms would enjoy a lower risk of default).\nMany would point to the experience with the GSEs, Fannie Mae and Freddie Mac, before conservatorship as a historical example of how a special regulatory regime could backfire. The GSEs could borrow at a lower cost than other firms because markets believed that the government would not let them fail—they enjoyed even lower borrowing costs than firms that markets might believe were implicitly TBTF but not chartered by the government like the GSEs. Institutional shortcomings, critics argue, led to regulatory capture. The GSEs were subject to their own unique capital requirements, set by statute, under which they were found well capitalized by their regulator at the time, OFHEO, two months before being taken into conservatorship. Yet compared with depositories, GSEs held little capital, were not well diversified, and experienced large losses during the crisis. The worst-case scenario of opponents of a separate regulatory regime for TBTF firms is that such a regime would provide a competitive advantage, such as the GSEs' ability to borrow at lower cost than other firms, that would enable more risk-taking than before.\nEnhanced regulatory safeguards may increase overall costs in the financial system, but in the presence of TBTF, market costs may otherwise be too low from a societal perspective, since risk-taking is too high. For example, requiring loans to be backed with more capital may make lending more expensive and less available, but make the firm less likely to fail. If more capital succeeded in creating a more stable financial system, then the availability of credit could be less volatile over time. At least partly offsetting the higher costs of capital for firms designated as systemically important would be relatively lower costs of capital for other firms.\nEven if a heightened prudential regime worked as planned, it could still partly backfire from a systemic risk perspective. To the extent that it causes financial intermediation to migrate away from TBTF firms to firms that are not regulated for safety and soundness, the result could be a less regulated financial system.\nDetermining which financial firms should be subject to enhanced regulation can be done on a case-by-case basis (as with the FSOC designation process for non-bank SIFIs) or automatically according to some quantitative threshold (as with the $250 billion asset threshold for banks). Many economists believe that the economic problem of \"too big to fail\" is really a problem of too complex or interdependent to fail. Size correlates with complexity and interdependence, but not perfectly. It follows that a size threshold is unlikely to successfully capture all those—and only those—firms that are systemically important. A size threshold will capture some firms that are not systemically important if set too low or leave out some firms that are systemically important if set too high. (Alternatively, if policymakers believe that size is the paramount policy issue, then a numerical threshold addresses the issue most directly, although policymakers may debate the most appropriate number.) Size is a simpler and more transparent metric than complexity or interdependence, however.\nA case-by-case designation process would be more time-consuming and resource-intensive, however. For example, only four non-banks were designated as SIFIs in three years under the existing process. Furthermore, there is no guarantee that FSOC will correctly identify systemically important firms since there is no definitive proof that a firm is systemically important until it becomes distressed. Critics believe the designation process is not transparent enough—although FSOC modified the process to increase transparency in 2015 —and does not provide designated firms enough opportunity to address the reasons that FSOC deems them to be systemically important. Some fear that FSOC could make an incorrect judgment about a firm's systemic importance because most members of FSOC do not have expertise in any given business line or because the Treasury Secretary has effective veto power. Some Members of Congress have been concerned that the FSB designation process is superseding the FSOC designation process. Thus, policymakers face a trade-off between using a simpler, transparent but imperfect proxy for systemic importance, or trying to better target enhanced regulation on a more laborious case-by-case basis.", "One set of policy options focuses on mitigating contagion via a TBTF firm's spillover effects on other firms. Counterparty risk is the exposure to losses because a counterparty in a transaction cannot fulfill its obligations. If counterparty exposure is large enough, the failure of one firm could cause its counterparty to fail. Examples of how counterparty risk can be reduced include moving transactions to clearinghouses and exchanges, requiring capital/margins for transactions, requiring risk exposures to be hedged, and placing limits on exposure to specific counterparties (transactions, debt, equity holdings, etc.). If spillover effects could be adequately contained, then a firm might cease to be TBTF (or more precisely, too interconnected to fail), regardless of its size, in the sense that its failure would no longer cause contagion.", "The Federal Reserve's Regulation F (12 C.F.R., Part 206)—in place before the crisis—limits counterparty exposure for depository institutions. Under Title I of the Dodd-Frank Act, as amended by P.L. 115-174 , the Fed has set single counterparty credit exposure limits of 15% to 25% of a company's capital per counterparty for BHCs with more than $250 billion in assets. Counterparty limits for non-bank systemically significant financial institutions have not yet been proposed.\nTo reduce counterparty risk, Title VII of the Dodd-Frank Act requires certain swaps, particularly those that involve large financial institutions, to be traded through clearinghouses or exchanges and be subject to margin requirements. Title VIII of the Dodd-Frank Act allows the Financial Stability Oversight Council to identify certain payment, clearing, and settlement systems and activities as systemically important \"financial market utilities,\" and allows the Federal Reserve, Securities and Exchange Commission, or Commodity Futures Trading Commission to regulate those systems and activities for enhanced prudential supervision. It also allows systemically important systems to borrow from the Fed in \"unusual or exigent circumstances.\" In 2012, regulators issued a final rule implementing Title VIII and designated eight financial market utilities, including major clearinghouses, as systemically important.", "A criticism of regulation before the crisis was that regulators did not focus enough on how a firm's failure would affect its counterparties or broader financial conditions, or conversely, whether a firm could withstand a stressed environment. Another approach holds that if firms are TBTF because their failure would cause spillover effects that would impair the overall financial system, then regulators should try to neutralize spillover effects to the point where the failure of a firm would not impair the broader financial system. According to this view, once creditors believed that a firm could now safely be allowed to fail regardless of its size or interconnectedness, the moral hazard problem associated with TBTF would vanish.\nA drawback to this approach is that spillover effects cannot always be identified beforehand. If counterparty exposure were transparent, in theory all market participants could hedge themselves against failure ahead of time and the failure would not have contagion effects, or at least the government could manage the exposure to prevent contagion. In practice, linkages have proven complex and opaque, and the sources of contagion have proven hard to predict. For example, in September 2008, policymakers reasoned that market participants and policymakers had had several months after the rescue of Bear Stearns to prepare for the failure of Lehman Brothers (indicators such as credit default swaps had signaled an elevated risk of default for months), so allowing it to enter bankruptcy should not be disruptive. Nevertheless, few anticipated that Lehman Brothers' failure would lead to a run on money markets, which proved highly disruptive to commercial paper markets, causing financing problems for many financial and non-financial issuers.\nIdentifying spillover effects is likely to be more difficult if a firm is not already regulated for safety and soundness. Without a prudential regulator closely monitoring the firm's activities and examining its counterparties, it is less likely that policymakers could quickly and accurately identify who would be exposed to a firm's failure. In theory, creditors could demand a premium from firms that do not limit counterparty risk; in reality, much of the necessary information to make that judgment is unlikely to be identifiable or publicly available.\nAnother issue is that some solutions shift, rather than eliminate, counterparty risk. For example, moving certain activities on to an exchange or clearinghouse would increase the systemic importance of those entities. The Dodd-Frank Act addresses this issue by designating financial market utilities for enhanced prudential regulation and emergency access to Fed lending, but critics argue that designation causes moral hazard by creating expectations that they will be rescued.\nReducing counterparty risk may increase overall costs in the financial system. For example, counterparty limits and margin requirements could reduce liquidity and raise costs for transactions. In the presence of TBTF, however, market costs may otherwise be too low from a society-wide perspective, because firms lack the proper incentives to monitor or insure against counterparty risk.", "If a TBTF firm were to fail, there are potentially two established approaches that could be used to manage the failure. Prior to the financial crisis, failing banks were resolved through the FDIC's resolution regime, while certain other financial firms, such as broker-dealers, were resolved through the corporate bankruptcy system. Bankruptcy is a judicial process initiated by creditors in order to recover debts and other liabilities, while the FDIC's resolution regime is an administrative process initiated by the FDIC.", "If a bank is heading toward insolvency, the FDIC normally takes it into receivership and resolves it. Examples of the types of powers that the FDIC can exercise to resolve a depository include transferring and freezing assets, paying obligations, repudiating contracts, and obtaining judicial stays. One rationale behind a resolution regime for banks is that the need to safeguard federally insured deposits (which can be withdrawn rapidly) requires a swift resolution and gives the FDIC, which insures the deposits, priority over other creditors. Prompt corrective action and least cost resolution requirements are intended to minimize losses to the FDIC. The FDIC may initiate a resolution before failure has occurred—thereby limiting losses to the FDIC and other creditors—whereas a bankruptcy process cannot be initiated by creditors until default has occurred. Least cost resolution may also help to minimize moral hazard, because bailing out firms (i.e., making creditors whole) is often more costly than shutting a firm down. But, by statute, least cost resolution could be waived by the Treasury Secretary, upon the recommendation of the FDIC and Federal Reserve, if a systemic risk exception were invoked. Thus, market participants may have expected that the systemic risk exception would be invoked for large firms—as it was in the failure of Wachovia (although not ultimately needed) and to guarantee a portfolio of Citigroup's assets.\nThe FDIC typically resolves failed banks through the \"purchase and assumption\" method, under which the bank is closed and some or all of the assets and deposits of the failed bank are sold to healthy banks. If losses are too large to be absorbed by creditors, they are absorbed by the FDIC's deposit insurance fund, which is prefunded through assessments on depositories, to protect depositors. The purchase and assumption method avoids open-ended government assistance and keeps the FDIC out of the business of running banks.\nBefore the crisis, a failed non-bank was subject to the standard corporate bankruptcy process; there was no standing policy of government involvement in the failure of a non-bank, with the exception of federal resolution authority for Fannie Mae and Freddie Mac and state resolution authority for state insurance subsidiaries. In July 2008, Congress enacted the Housing and Economic Recovery Act (HERA), which included provisions creating a new regulator (the Federal Housing Finance Agency, or FHFA) for the housing GSEs (the Federal Home Loan Banks, Fannie Mae, and Freddie Mac). The FHFA was given augmented powers to resolve the GSEs. Under these powers, FHFA can manage assets, sign contracts, terminate claims, collect obligations, and perform management functions. In September 2008, FHFA determined that Fannie Mae and Freddie Mac were critically undercapitalized and they entered FHFA conservatorship, upon which FHFA took control of their operations while maintaining them as ongoing enterprises. HERA also gave the Treasury Secretary unlimited authority to lend or invest in the GSEs through the end of 2009. This authority has been used to cover the GSEs' losses and prevent insolvency during conservatorship, and funds from Treasury continued to be transferred until 2012. Fannie Mae and Freddie Mac have operated under government conservatorship ever since—unlike FDIC practice in bank resolutions. While existing shareholders saw their equity value plummet at the time of conservatorship, creditors and other counterparties have continued to be paid in full.\nTitle I of the Dodd-Frank Act, as amended by P.L. 115-174 , required systemically important firms (SIFIs) and BHCs with at least $250 billion in consolidated assets to periodically prepare resolution plans, also called \"living wills,\" explaining how they could be resolved in a rapid and orderly manner. Failure to submit a credible resolution plan would trigger regulatory action. Title I, as amended by P.L. 115-174 , also created early remediation requirements for domestic and foreign BHCs with at least $250 billion in assets and non-bank SIFIs that are in financial distress.\nTitle II of the Dodd-Frank Act created the Orderly Liquidation Authority (OLA), a resolution regime for any financial firm whose failure would have \"serious adverse effects on financial stability.\" (The firm does not have to have been previously subject to enhanced prudential regulation under Title I to be resolved under Title II.) However, subsidiaries that are insurance companies would be resolved under existing state resolution regimes, certain broker-dealers would be resolved by the Securities Investor Protection Corporation, and insured depository subsidiaries would be resolved under the FDIC's traditional resolution regime. The process for taking a firm into resolution has multiple steps and actors. First, a group of regulators (the group varies depending on the type of firm, but must always include the approval of two-thirds of the Federal Reserve's Board of Governors) must make a written recommendation to the Treasury Secretary that a firm should be resolved, explaining why bankruptcy would be inappropriate. Second, the Treasury Secretary must determine that resolution is necessary to avoid a default that would pose systemic risk to the financial system, and default cannot be prevented through a private-sector alternative. Prior identification by the FSOC could be used as evidence that the firm's failure poses systemic risk, but it is not a necessary condition. Third, if the company disputes the Treasury Secretary's findings, it has limited rights to appeal in federal court. Finally, the FDIC manages the resolution. If these steps are not met, then the failing firm would enter the standard bankruptcy procedure or any other applicable resolution process.\nThe Dodd-Frank Act provides the FDIC with receivership powers, modeled on its bank receivership powers, with some differences, such as requirements that the FDIC consult with the primary regulator. As receiver, the FDIC can manage assets, sign contracts, terminate claims, collect obligations, and perform management functions. The Dodd-Frank Act sets priorities among classes of unsecured creditors, with senior executives and directors coming last before shareholders in order of priority. It requires that similarly situated creditors be treated similarly, unless doing so would increase the cost to the government. The FDIC is allowed to create bridge companies, as a way to divide good and bad assets, for a limited period of time to facilitate the resolution. Unlike FHFA's resolution regime, the Dodd-Frank regime does not allow for conservatorship.\nThe Dodd-Frank Act calls for shareholders and creditors to bear losses and management \"responsible for the condition of the company\" to be removed. The FDIC is allowed to use its funds to provide credit to the firm while in receivership if funding cannot be obtained from private credit markets. Unlike the resolution regime for banks, there is no least cost resolution requirement and the regime is not pre-funded (the FDIC may borrow from Treasury to finance it). Instead, costs that cannot be recouped in the process of resolution must be made up after the fact through assessments on counterparties (to the extent that their losses were smaller under receivership than they would have been in a traditional bankruptcy process) and risk-based assessments on financial firms with assets exceeding $50 billion. Since the rationale for limiting losses to counterparties is to prevent systemic risk, it is unclear how those counterparties could be assessed after the fact without also posing some systemic risk. A lack of pre-funding means that a firm's resolution will, in effect, be financed temporarily by the taxpayers and ultimately by its competitors (i.e., firms with assets exceeding $50 billion) instead of itself. The FDIC is limited to providing assistance in the resolution up to 10% of the failed firm's total consolidated assets in the first 30 days of the resolution; thereafter the limit becomes 90% of total consolidated assets available for repayment.\nThe FDIC has stated that\nthe most promising resolution strategy [under Title II] from our point view will be to place the parent company into receivership and to pass its assets, principally investments in its subsidiaries, to a newly created bridge holding company. This will allow subsidiaries that are equity solvent and contribute to the franchise value of the firm to remain open and avoid the disruption that would likely accompany their closings....\nEquity claims of the firm's shareholders and the claims of the subordinated and unsecured debt holders will be left behind in the receivership....\nTherefore, initially, the bridge holding company will be owned by the receivership. The next stage in the resolution is to transfer ownership and control of the surviving franchise to private hands....\nThe second step will be the conversion of the debt holders' claims to equity. The old debt holders of the failed parent will become the owners of the new company....\nThis approach has been dubbed \"Single Point of Entry,\" and the FDIC proposed a rule implementing it in December 2013. For the Single Point of Entry approach to succeed, the holding company must hold sufficient common equity and debt at the parent level that can absorb losses in resolution; otherwise, investors will anticipate that public funds will be used to absorb losses. In December 2016, the Fed finalized a rule to require G-SIBs to meet a \"total loss-absorbing capacity\" (TLAC) requirement through equity and long-term debt held at the parent level of the holding company.", "Part of what makes some financial firms too big to fail is the nature of the bankruptcy process, according to some analysts. A firm that dominates important financial market segments cannot be liquidated without disrupting the availability of credit, it is argued. They argue that the deliberate pace of the bankruptcy process is not equipped to avoid the runs and contagion inherent in the failure of a financial firm, and that the effects on systemic risk are not taken into account when decisions are made in the bankruptcy process. The bankruptcy experience of Lehman Brothers is viewed as evidence of why the current bankruptcy process cannot be successful for a TBTF firm.\nThe Federal Reserve, with Treasury support, intervened to prevent the failure of Bear Stearns and AIG because it did not believe that those firms could be taken through the bankruptcy process without undermining financial stability. Thus, a resolution process removes one rationale for bailouts.\nProponents argue that a resolution regime for all TBTF financial firms, regardless of whether the firm is a depository, offers an alternative to propping up failing firms with government assistance (as was the case with Bear Stearns and AIG in 2008) or suffering the systemic consequences of a protracted and messy bankruptcy (as was the case with Lehman Brothers). Supporting the argument for a special resolution regime, the failures of large depositories during the crisis that were subject to the FDIC's resolution regime, such as Wachovia and Washington Mutual, were less disruptive to the financial system than the failure of Lehman Brothers, even though Wachovia and Lehman Brothers were sequential (46 th and 47 th largest, respectively) on Fortune 's list of the 500 largest companies of 2007. Neither resolution involved government assistance. Losses were imposed on stockholders and unsecured creditors in the resolution of Washington Mutual. (The FDIC arranged for Wells Fargo to acquire Wachovia before the FDIC formally became receiver.) Whether the resolution of a non-bank could be handled as smoothly as these two banks is an open question.\nTypically, banks in receivership are resolved through acquisition by healthy firms. In the case of a large failing firm, the only entity capable of absorbing it in whole might be an even larger institution, leading to greater concentration. Were one of the nation's very largest firms to fail, it is not clear what firm would have the capacity to acquire it, in which case some other method of resolution would be necessary.\nCritics argue that Title II gives policymakers too much discretionary power, which could result in higher costs to the government and preferential treatment of favored creditors during the resolution. In other words, it could enable \"backdoor bailouts\" that could allow government assistance to be funneled to the firm or its creditors beyond what would be available in bankruptcy, perpetuating the moral hazard problem. The normal FDIC resolution regime minimizes the potential for these problems through its statutory requirements of least cost resolution and prompt corrective action. It would be expected that a resolution regime for TBTF firms, by contrast, would at times be required to subordinate a least cost principle to systemic risk considerations, which the FDIC regime permits. Therefore, a resolution could be more costly to the government than the bankruptcy process. (On the other hand, an administrative resolution process could potentially avoid some of the costs of bankruptcy, such as some legal fees and runs by creditors that further undermine the firm's finances.) Critics also point to the conservatorship of Fannie Mae and Freddie Mac—which have received government support on an ongoing basis since 2008—as evidence that a resolution regime could turn out to be too open ended and be used to prop up TBTF firms as ongoing entities, competing with private-sector rivals on an advantageous basis because of direct government subsidies. Title II does not allow conservatorship, but the Housing and Economic Recovery Act (HERA; P.L. 110-289 ) required mandatory receivership for the GSEs if they became insolvent; quarterly transfers from Treasury prevented insolvency to allow conservatorship to continue.\nIf policymakers, wary of the turmoil caused by Lehman Brothers' failure, were unwilling to pursue the bankruptcy option in the future, opposing a resolution regime may be tantamount to tacitly accepting future \"bailouts,\" unless some other policy change is made that future policymakers view as a workable alternative. As an alternative to a special resolution regime, some critics call for amending the bankruptcy code to create a special chapter for complex financial firms to address problems that have been identified, such as a speedier process and the ability to reorganize. To some extent, these concerns are already addressed in the bankruptcy code. For example, the bankruptcy process already allows qualified financial contracts to be netted out. In the case of Lehman Brothers, healthy business units were sold to competitors relatively quickly through the bankruptcy process, and remain in operation today. But unlike Title II, the bankruptcy process could not—for better or worse—base decisions on financial stability concerns or ensure that a financial firm has access to the significant sources of liquidity it needs.\nUnlike the bailout of AIG, a failing firm would not continue as an ongoing concern with the same ownership under Title II, but that does not guarantee that creditors would suffer losses. Given the size of the firms involved and the unanticipated transmission of systemic risk, it remains to be seen whether the government could impose losses on creditors via Title II without triggering contagion—or would be willing to try. A receiver would face the same short-term incentives to limit losses to creditors to limit systemic risk that caused policymakers to rescue firms in the recent crisis in order to restore stability. If the receiver is guided by those short-term incentives, the only difference between a resolution regime and a \"bailout\" might turn out to be that shareholder equity is wiped out, which would presumably not generate enough savings to avoid costs to the government. (The TLAC requirement creates a strong explicit assumption that losses would be imposed on those debtholders, however.) Unlike bailouts, a mandatory funding mechanism exists in Title II to recoup losses to taxpayers. But since that mechanism is not \"pre-funded,\" there would be at least temporary taxpayer losses.\nUntil a TBTF firm fails, it is open to debate whether a special resolution regime could successfully achieve what it is intended to do—shut down a failing firm without triggering systemic disruption. As noted above, uncertainty before the fact about which firms are TBTF may lead policymakers to err on the side of taking more failing firms than necessary into the special resolution process instead of allowing them to enter bankruptcy. One key challenge that has been identified is the resolution of foreign subsidiaries, requiring intergovernmental cooperation.", "Contagion stemming from problems at TBTF (or too interconnected to fail) firms is widely regarded to have been one of the primary sources of systemic risk during the acute phase of the recent financial crisis. To avoid contagion, a series of ad hoc government interventions were undertaken that protected creditors and counterparties—and in a few cases, also managers and shareholders—of large and interconnected firms from losses. Economic theory predicts that these interventions exacerbated the moral hazard implications of TBTF, reducing the incentive for creditors and counterparties to safeguard against extreme outcomes, and increased the incentive to become larger and more interconnected going forward. Competing theories blame the lack of regulatory authority and failed regulation for the role of TBTF in the recent crisis. The failures of both highly regulated banks and lightly regulated non-banks suggest that neither lack of regulation nor failed regulation were solely responsible for TBTF.\nPolicy before the financial crisis could be characterized as an implicit market discipline approach with ambiguity about which firms policymakers considered to be TBTF and how the imminent failure of a systemically important firm might be addressed. This ambiguity was defended on the grounds that it would result in less moral hazard than if TBTF firms were explicitly identified, since the ambiguity would promote market discipline. As the crisis unfolded, policy quickly shifted to an expectation of government assistance, where Bear Stearns, Fannie Mae, Freddie Mac, and AIG received direct government support and several emergency programs were instituted to ensure that other financial firms remained liquid and solvent. Not every large failing firm received assistance, however, with Lehman Brothers being the notable exception. Both before and during the crisis, policy could be characterized as ad hoc because arguably no general approach or principles were articulated that clearly signaled to firms or investors how a systemically important firm could expect to be treated in different scenarios. Some believe that this policy uncertainty made the crisis worse.\nThe rapid shift from market discipline to government assistance during the crisis undermines the future credibility of the pre-crisis policy approach. If policymakers wanted to return to a market discipline approach, making that approach effective would arguably require statutory changes that \"tie the hands\" of policymakers to make assistance more difficult in the event of a future TBTF failure. This could be accomplished by eliminating broad, open-ended authority that was invoked during the last crisis, such as Section 13(3) of the Federal Reserve Act and the FDIC's systemic risk exception to least cost resolution. Policymakers dispute whether Dodd-Frank Act changes that narrow but preserve emergency authority have accomplished this goal.\nA Congress may not bind future Congresses, however. Policymakers cannot be prevented from enacting future legislation allowing assistance, much as TARP was enacted expeditiously when the crisis worsened in September 2008. If investors do not believe that market discipline will be maintained because policymakers face short-term incentives to provide government assistance in times of crisis, then a \"no bailouts\" promise would not prevent moral hazard. One view is that the genie cannot be put back in the bottle—market participants now believe that the government will provide assistance to TBTF firms based on the 2008 experience, in which case they face little incentive to monitor or respond to excessive risk-taking. If so, the policy options to mitigate moral hazard are to regulate TBTF firms for safety and soundness or use government policy to reduce the systemic risk posed by TBTF firms.\nIn theory, a special regulatory regime for TBTF firms, such as the one created by the Dodd-Frank Act, could set safety and soundness standards at a strict enough level to neutralize moral hazard effects. The complexity and interconnectedness of large firms complicates their effective regulation, however. Moreover, a special regulatory regime for TBTF firms could backfire if regulatory capture occurs. Special regulation makes explicit which firms are TBTF, removing any ambiguity that might promote market discipline. As market discipline wanes, the burden on regulators to mitigate moral hazard increases. If regulators are unwilling or unable to apply regulatory standards strict enough to negate the benefits of being TBTF, then being subject to the special regulatory regime could give TBTF firms a competitive advantage over their industry rivals. The experience of Fannie Mae and Freddie Mac points to the dangers of this approach. Those two firms were subject to their own regulatory regime prior to the crisis and were able to borrow at lower interest rates than other financial firms, presumably because of the implicit government guarantee of their obligations.\nSystemic risk stemming from TBTF can also be mitigated by reducing potential spillover and contagion effects. Examples of Dodd-Frank Act provisions intended to reduce contagion effects include a special resolution regime for failing systemically important firms (OLA) and placing limits on counterparty exposure to large firms. Events in 2008, however, demonstrate the challenge in eliminating systemic risk posed by TBTF firms because it is unlikely that policymakers will correctly anticipate all of the channels of contagion in a crisis. Moreover, in determining whether to use government resources to limit losses to creditors, the receiver faces the same short-term incentives to spare creditors from losses that lead to moral hazard. Critics point to the open-ended assistance to Fannie Mae and Freddie Mac since 2008 as a cautionary tale, although this was through government conservatorship, rather than receivership.\nSome argue for eliminating TBTF directly by reducing the size or scope of the largest firms. It is uncertain what size limit would eliminate TBTF—given that interconnectedness is a nebulous concept—and policymakers would only know if they had set the right size limit by observing what occurs after a firm fails. Weighed against the benefits of eliminating the TBTF problem by eliminating large firms, the benefits to the financial system that would be lost are also disputed. In the case of reducing scope, some very large firms would remain, and they would be less diversified against risk. Fannie Mae and Freddie Mac are examples of large, narrowly focused firms that many nonetheless viewed as TBTF.\nA comprehensive policy is likely to incorporate more than one approach because different approaches are aimed at different parts of the problem. Some approaches focus on preventive measures (keeping TBTF firms out of trouble), whereas others are reactive (addressing what to do in the event of a TBTF failure). Some policy approaches are complementary—others could undermine each other. A market discipline approach is arguably most likely to succeed if coupled with size limits—although size limits thwart market-based profit incentives and outcomes. Policies that involve identification of TBTF firms, such as a special regulatory regime, are less compatible with a market discipline approach. Efforts to minimize spillover effects could be more effective if the TBTF firms are regulated for safety and soundness, so that spillover effects can more easily be identified ahead of time. Policymakers have historically coped with the moral hazard associated with deposit insurance through a combination of safety and soundness regulation, a resolution regime, and limits on spillover effects (e.g., limits on counterparty exposure). (Market discipline's role is limited by deposit insurance, but it plays a role with uninsured depositors and other creditors.) Yet TBTF poses some additional challenges to the bank regulation model, such as the difficulties of imposing a strict least cost resolution requirement on a resolution regime and effectively regulating firms with complex and wide-ranging activities.\nEach of these policy approaches to coping with TBTF has strengths and weaknesses; there is no silver-bullet solution to the problem because future policymakers face incentives to deviate from the approach to avoid crises, please interest groups, increase financial innovation and the availability of credit, and so on. Judging the relative merits of each policy approach depends in part on which approach future policymakers can best commit to and effectively carry out.\nThe Dodd-Frank Act devised a strategy to end TBTF that, to varying degrees, incorporated each approach discussed in this report. Its attempts to limit the size and scope of firms were narrow and limited, however. Some take the fact that many of the largest financial firms have become larger since the crisis (at least in dollar terms) as a sign that the TBTF problem has not been solved. The existence of very large firms is necessary but not sufficient evidence that a TBTF problem exists. In principle, the TBTF problem can be eliminated even if large firms do not shrink, but it is difficult to verify success because ultimately, the only definitive test of whether the strategy succeeds is whether the failure of a large firm can be managed without a \"bailout\" and whether large firms stay healthy in a financial downturn—events that may not occur for years or even decades. Until then, perceptions of whether the TBTF problem still exists may develop (and be observable in market data), which could subsequently be proven true or false.\nAlthough TBTF was one source of systemic risk in the recent crisis, it was not the only one. Arguably, TBTF did not \"cause\" the crisis—TBTF firms were as much victims as perpetrators of the housing bubble and the collapse of the MBS market—but it did exacerbate the crisis. The Dodd-Frank Act also attempted to address other sources of systemic risk. Although the broader issue of systemic risk is beyond the scope of this report, some policy options discussed in this report may be more effective at mitigating systemic risk if applied more broadly than to TBTF firms exclusively. Otherwise, some sources of systemic risk may migrate to firms not regulated for safety and soundness, without increasing the stability of the overall financial system. If systemic risk mainly stems from certain activities, regardless of size, a policy focus on large institutions could risk creating a false sense of security.\nRisk is central to financial activity, so an optimal system is probably not one where large firms never fail. An optimal system is one in which a large firm can fail without destabilizing the financial system. The only system that can guarantee that large firms will not cause systemic risk is one without large firms, but a system without large firms may be less efficient and more prone to instability from other sources. Other approaches seek to limit systemic risk to acceptable levels. Creating a more stable financial system by mitigating the moral hazard associated with TBTF may result in credit becoming more expensive and less available in the short run, but the availability of credit could be less volatile over time. At least partly offsetting the higher costs of capital for firms designated as systemically important would be relatively lower costs of capital for other firms. Some policymakers would consider a tradeoff of less credit for a more stable financial system to be a tradeoff worth taking, considering that the recent crisis resulted in the deepest and longest recession since the Great Depression. Arguably, part of the cause of the crisis was that credit became too readily available, at least in some sectors (e.g., the housing bubble).", "Title I of the Dodd-Frank Act imposed a number of enhanced prudential regulatory requirements on bank holding companies and foreign banks operating in the United States with over $50 billion in assets, and non-banks designated as systemically important financial institutions (described in the section above entitled \" Regulating TBTF \"). P.L. 115-174 raised these thresholds, primarily to $250 billion in assets, but also gave the Fed the discretion to apply these requirements to banks in the $100 billion to $250 billion asset range on a case-by-case and bank-by-bank basis if necessary to promote financial stability or the bank's safety and soundness. This discretionary authority is not provided for most of the requirements classified in Table A-1 as emergency powers. The Fed may also apply these provisions to foreign banks operating in the United States with over $100 billion in global assets, although some provisions are currently applied only to foreign banks with over $50 billion in U.S. assets.\nTable A-1 divides these provisions into three broad categories:\n1. requirements, implemented through rulemaking, that large institutions must adhere to on an ongoing basis; 2. emergency powers that may be imposed only under certain conditions, such as if there is a finding that an institution poses a threat to financial stability; and 3. assessments on large institutions to finance the administration of certain duties.\nMost of the ongoing requirements have already been implemented, whereas the emergency powers have never been invoked." ], "depth": [ 0, 1, 1, 2, 2, 3, 1, 2, 3, 3, 2, 3, 3, 2, 3, 3, 2, 3, 3, 2, 3, 3, 2, 3, 3, 1, 2 ], "alignment": [ "h0_title h2_title h1_title", "h0_full", "h0_title", "", "h0_full", "h0_full", "h0_title h2_title h1_title", "h1_title", "", "h1_full", "h0_title h2_title", "", "h0_full h2_full", "", "", "", "h0_full", "", "", "", "", "", "h2_title h1_full", "h2_full h1_full", "", "h2_full", "" ] }

{ "question": [ "How are financial firms judged to be \"too big to fail\"?", "Why was \"TBTF\" of recent policy importance?", "What negative consequences does economic theory predict about TBTF?", "What authority does the Dodd-Frank Act give the Federal Deposit Insurance Corporation?", "What characterizes this regime?", "How has the Dodd-Frank Act impacted statutory authority?", "To what extent has the TBTF problem been resolved?", "What are other arguments about systemic risk regulation?", "To what extent has legislation addressed Fannie Mae and Freddie Mac?" ], "summary": [ "Financial firms are said to be TBTF when policymakers judge that their failure would cause unacceptable disruptions to the overall financial system. They can be TBTF because of their size or interconnectedness.", "Although \"too big to fail\" (TBTF) has been a long-standing policy issue, it was highlighted by the financial crisis, when the government intervened to prevent the near-collapse of several large financial firms in 2008.", "In addition to fairness issues, economic theory suggests that expectations that a firm will not be allowed to fail create moral hazard—if the creditors and counterparties of a TBTF firm believe that the government will protect them from losses, they have less incentive to monitor the firm's riskiness because they are shielded from the negative consequences of those risks. If so, TBTF firms could have a funding advantage compared with other banks, which some call an implicit subsidy.", "The Dodd-Frank Act also created the \"orderly liquidation authority\" (OLA), a special resolution regime administered by the Federal Deposit Insurance Corporation (FDIC) to take into receivership failing firms that pose a threat to financial stability.", "This regime has not been used to date, and has some similarities to how the FDIC resolves failing banks.", "Statutory authority used to prevent financial firms from failing during the crisis has either expired or been narrowed by the Dodd-Frank Act.", "The fact that most large firms have grown in dollar terms since the enactment of the Dodd-Frank Act has led some critics to question whether the TBTF problem has been solved and propose more far-reaching solutions, such as repealing parts of the Dodd-Frank Act, breaking up the largest banks, or restoring Glass-Steagall.", "Others argue that systemic risk regulation should focus on risky financial activities, regardless of firm size.", "(Fannie Mae and Freddie Mac remain in government conservatorship and have not been addressed by legislation to date.)" ], "parent_pair_index": [ -1, 0, -1, -1, 0, -1, -1, 0, 0 ], "summary_paragraph_index": [ 0, 0, 0, 3, 3, 3, 4, 4, 4 ] }

{ "title": [ "", "Challenge to the Boeing-Airbus Duopoly in Civil Aircraft: Issues for Competitiveness", "Growing Demand for Narrow-Body Aircraft: A Market Signal to New Entrants?", "Aircraft Development: A High Stakes Venture", "Investment Risk", "Fleet Complexity", "Reputational Risk, Uncertainty, and Inefficiency", "The Changing Economics of Small Commercial Jets", "Aircraft Investments and Forecasting", "Has the Boeing/Airbus Rivalry Left the Narrow-Body Market Open to New Competitors?", "Can Boeing and Airbus Stay Ahead of New Competitors?", "Is There Really a Market Opening for New Competitors?", "Will China's Market for Aircraft Remain Open to Competition?", "New Single-Aisle, Narrow-Body Market Entrants: A Brief Profile", "Boeing and Airbus: Response to Competition" ], "paragraphs": [ "", "The importance of a successful aerospace industry to the United States economy has been repeatedly acknowledged by President Obama and members of his Cabinet, many Members of Congress, and by all concerned with the competitive fortunes of the U.S. aircraft manufacturing industry. The U.S. aerospace industry is highly competitive and global in scope. Numerous U.S. firms manufacture a wide range of products for civil and defense purposes. In 2010, the value of aerospace industry shipments was estimated at $171 billion, of which civil aircraft and aircraft parts accounted for approximately half ($85 billion) of all U.S. aerospace shipments.\nIn 2010, the U.S. aerospace industry exported nearly $78 billion in products, of which $67 billion (or 86% of total exports) were civil aircraft, engines, equipment, and parts. The only U.S. manufacturer of large civil aircraft is Boeing. Civil aircraft engines are manufactured by General Electric (GE) in partnership with Safran (of France) and by Pratt & Whitney. Numerous firms manufacture sections and parts of the airframe, as well as original equipment for both domestic and foreign airframe manufacturers. The U.S. trade surplus (net exports) in aerospace products in 2010 was $43.6 billion—higher than for any other manufacturing industry. In 2010, the aerospace sector employed 477,000 workers, of which 228,400 were engaged in the manufacture of aircraft, 76,400 in the manufacture of engines and engine parts, and 97,600 in the manufacture of other parts and equipment. According to the International Trade Administration (ITA), \"more jobs in the United States were supported by exports of U.S. aerospace products than of any other manufacturing or service industry.\" A major issue for policymakers is whether the United States can sustain its preeminent position in aerospace, given the intentions of numerous foreign manufacturers to enter the small commercial jet aircraft segment by 2016. That segment accounts for nearly half of commercial aircraft revenues and for more than 60% of commercial aircraft deliveries.\nSome industry participants and analysts have recently suggested that the two dominant manufacturers of large civil aircraft, Boeing and Airbus, now face a new and significant group of competitors that are ready to challenge the incumbents for a potentially significant share of the market for small commercial jets. Currently that market is almost wholly owned by the Boeing 737 and Airbus A320 families of jets. In Boeing's 2010 Annual Report , W. James McNerny, Jr., chairman, president, and CEO of Boeing, writes:\nAt Boeing Commercial Airplanes, we must prepare now for increasing global competition. Aircraft manufacturers in several countries are poised to challenge us for a share of the market where we have been competing solely against EADS/Airbus. These emerging competitors see the same massive economic opportunity in commercial airplanes and related services that we do over the next 20 to 30 years.\nOn June 20, 2011, the opening day of the 2011 Paris Air Show, the president of Boeing Commercial Airplanes, Jim Albaugh, announced \"the days of the duopoly with Airbus are over.\" Albaugh was referring to long-standing dominance that Boeing and Airbus have held over the commercial jet aircraft business and, in particular, to the 90-220 seat aircraft segment that has seemingly come into play with the entry of competitors from Brazil, Canada, China, Russia, and Japan.\nTom Enders, the chief executive officer of Airbus, agreed in part, saying \"the duopoly is over in the 100 to 150 seat aircraft segment because that is where the new entrants ... want to be—so that doesn't mean the duopoly is over in the entire range of products.\" Enders also mentioned that he doubted that there was room for six competitors and that \"we think sooner or later there will be some consolidation.\" If the small commercial jet segment is about to enter a new competitive phase, there is no evidence that the dominance of Airbus and Boeing over large (or wide-body) aircraft or very large (or super-jumbo) aircraft will face a similar challenge anytime soon.\nThe small commercial jet segment represents a significant share of U.S. aerospace manufacturing sector output (see text box above for a discussion of aircraft types). In 2010, Boeing delivered 462 aircraft, of which 376 (81%) were Boeing 737s. Boeing also reported that it booked 486 net 737 orders in 2010, and had a firm order book of 2,186 737s as of December 31, 2010. Boeing's rival, Airbus, delivered 510 aircraft, of which 401 (79%) were A320s. Airbus booked 416 net orders for the A320 Family and had an order backlog of 2,418 A320 airplanes.\nBoeing and Airbus will likely face intense and determined competitors that see an opportunity to manufacture large civil aircraft in the 90–220 seat range. However, with the exception of Embraer's 190 and 195 E-Jets, none of the new competitors have yet to build any of the planes that they claim will be superior to Boeing and Airbus products. Both Boeing and Airbus recognize the possibility that one or more aircraft manufacturers may succeed in building planes that will compete with the Boeing 737 and the Airbus A320 families. Boeing's Jim McNerny has to do little more than look at Airbus—a company formed in 1970 by three European governments to ensure that a previously fragmented European aerospace industry would survive—to recognize that additional competitors have the potential to fundamentally change the global aircraft manufacturing industry. But history has not been kind to a market crowded with suppliers of commercial jet aircraft.\nBoeing and Airbus are the dominant producers of narrow-body commercial transport aircraft 90-220 seats). Two other aircraft manufacturers, Bombardier and Embraer, are the dominant producers of regional jets (RJs, which are defined as having fewer than 90 seats) and also manufacture narrow-body aircraft. The entry of new competitors into both the RJ and narrow-body markets could result in a much higher level of competition for both the dominant RJ manufacturers (Bombardier and Embraer) and the dominant narrow-body manufacturers (Airbus and Boeing).\nAll of the new entrants are almost certain to face a number of hurdles that will determine whether they succeed, go back to the drawing board, or exit large commercial aircraft manufacturing. Chinese, Russian, and Japanese manufacturers have not previously built commercially competitive large civil aircraft, and Canada's Bombardier and Brazil's Embraer have primarily manufactured regional jets, albeit with considerable success. The complexities that aircraft integrators, such as Boeing and Airbus, have faced with various aircraft development programs (including recent programs such as the Airbus A380 and A350 and the Boeing 787) would be sufficient to sink all but the strongest aerospace companies. However, because some of the new entrants into the large civil aircraft sector are state-owned and -controlled companies (i.e., Russia's United Aircraft Corporation and China's Commercial Aircraft Corporation of China) that are funded by the government, commercial considerations may be less important during the development phase of the Russian and Chinese commercial aerospace projects.", "One of the major market drivers for new narrow-body and RJ aircraft is projected high demand for efficient narrow-body aircraft in markets that are expected to grow rapidly during the next 20 years, especially in Asia and Latin America. The other major driver is the anticipated retirement of many of the airplanes in the current narrow-body fleet. Expected high demand for aircraft has attracted additional manufacturers, especially those that have the technical capacity to build such planes or those who possess a rapidly growing market for these, such as China and potentially India.\nSome of the new entrants have programs to build RJs that seat 70-90 passengers, but they could reasonably be expected to build larger aircraft in the not too distant future. Others are developing narrow-body aircraft that their manufacturers expect will compete head-to-head with the Boeing 737 and Airbus A320 families of narrow-body jets. The manufacturers of the new aircraft claim their planes will deliver substantially greater fuel efficiency than current versions of the 737 or A320 families, although it remains to be seen if the new planes will actually do so.\nSeveral of the entrants to the narrow-body and RJ markets are well established aircraft manufacturers or are producers of major sections of airframes for others. The established firms include Bombardier (Canada), Embraer (Brazil), and Mitsubishi Heavy Industries (MHI)(Japan). Others, such as United Aircraft Corporation (UAC)(Russia) and Commercial Aircraft Corporation of China (COMAC)(China), are new firms that reflect a reorganization of existing state-owned aerospace (defense and commercial) manufacturing resources by Russia and China. Their intent is to create industries that are viable international competitors. Both UAC and COMAC will produce RJs and narrow-body aircraft in cooperative partnerships with Western suppliers (see Table 1 ).\nWith the entry of additional competitors, the major producers of narrow-body airplanes (Boeing/Airbus) and RJs (Bombardier/Embraer) will potentially face disruptive competition. All of the newcomers will have to build market share quickly if their airplanes are to achieve viability. Bombardier and COMAC have signed a partnership agreement and are developing complementary, but non-overlapping, narrow-body airplanes that will seat 100-149 passengers (Bombardier) and 156-190 passengers (COMAC). This partnership may pose the most serious challenge to the Boeing/Airbus narrow-body franchise if COMAC and Bombardier are able to gain a significant share of the fast-growing Chinese market—a market that both Boeing and Airbus intend to contest. Embraer, which had considered and rejected stretching its 190/195 E-jet (98-122 seats), may also decide to build a larger narrow-body airplane, especially if China, Russia, and Japan move into Embraer's core RJ market. Embraer is considering the development of a new larger airplane, but has not yet announced whether it will proceed, a decision that may ultimately depend on Boeing's plans and schedule for developing a replacement aircraft for the 737.\nBoeing and Airbus are, at present, the premier manufacturers of large civil aircraft of all sizes, but the importance of narrow-body aircraft to both companies cannot be overstated. According to Boeing's forecast for 2011-2030, narrow-body jets are expected to account for about 60% of all sales and about 47% of all revenues during the period. Although the two companies have, in recent years, sold roughly equivalent numbers of narrow-body planes, the projected demand for 23,330 narrow-body airplanes through 2030 suggests that the market may be theirs to lose if they do not keep ahead of the competition or if they are not capable of producing enough airplanes to meet their customers' demands.\nAirbus has announced that it will upgrade the A320 family by 2015, offering two new models of high efficiency engines. Airbus has announced that it does not intend to develop a replacement for the A320 until the mid-2020s. On July 20, 2011, Boeing followed Airbus' lead and announced that it would re-engine the 737 rather than replace it with a new small aircraft by 2020. Neither company appears to take competition (with each other or with newcomers) for granted, but both companies appear to believe the risks that the newcomers are willing to assume will be greater than those that should taken by market leaders with strong reputations for building commercial aircraft. Boeing and Airbus, with complete access to the latest aerospace technologies, may believe that they can learn from the experience of the newcomers without compromising safety, their overall competitiveness, or their ability to deliver a plane within a time-frame necessary to remain competitive.", "The decision to develop (or \"launch\") a new airplane exposes commercial aircraft builders, jet engine manufacturers, and a host of other suppliers to very high levels of risk. Throughout the twentieth century, most firms made losing bets on aircraft and exited the commercial market entirely.\nVarious types of risk are associated with aircraft development, including a manufacturer's ability to access capital markets to bring a plane to market; to deliver a plane that meets the performance requirements that were promised to launch customers; to deliver the plane in a timely manner; to attract sufficient customer demand to recover launch costs and earn a profit; and to anticipate the response of competitors.", "Large capital investments are required to bring a new plane to market. For publicly traded, shareholder-owned (as opposed to state-owned) corporations that manufacture commercial aircraft, the inability to raise launch capital would be sufficient to doom most projects. For commercial aircraft manufacturers, the overall risks associated with the launch of a new airplane is high enough that the term \"betting the company\" is frequently used to describe it. According to the U.S. International Trade Commission (USITC), \"the development costs incurred by Boeing in 1966 for its 747 program are estimated to have been $1.2 billion—more than triple Boeing's total capitalization at that time.\" In other words, Boeing's level of risk was sufficiently high that failure could have brought the company down. Airlines and aircraft leasing corporations also bear similar risks: the purchase of a new airplane requires an airline to either borrow to finance the new airplanes or, as many airlines do, lease the new aircraft from one of the many companies that offer planes for lease. However, in the event that a particular aircraft does not generate enough sales to justify its place in the market, a launch customer (whether it be an airline or an aircraft leasing company) does not want to be the largest or only operator/owner of an airplane that is deemed a commercial failure.", "For airlines, who are the main customers of large civil aircraft manufacturers, fleet complexity provides flexibility but increases costs because of the need to support additional and different parts inventories and multiple training programs for aircraft crews and maintenance personnel. Fleet complexity emerges by design or by merger. It has been common for airlines to map out (or expand) a network and then acquire aircraft that best fit the needs of that network, or to outsource parts of the network to regional carriers that use RJs to feed the major airlines at their hubs. This was the strategy favored by legacy carriers (most of the airlines that predate airline deregulation in 1978). Bankruptcies and numerous airline mergers have also contributed significantly to fleet complexity, as large numbers of very different aircraft types were integrated into the merged enterprise. Fleet complexity is frequently necessary to support a varying mix of short- and medium-haul domestic and long-haul international operations.\nThe major weakness of fleet complexity is the impact of changing business conditions on airlines. Rapidly fluctuating fuel costs or a sharp drop in the number of passengers (due, for instance, to a recession or economic downturn) have potentially greater negative effects on airlines that purchased aircraft to fit a network than on airlines that built a network on the basis of a specific type of aircraft. After airline deregulation, many airlines sought to compete for the same high density routes. This competition frequently created overcapacity, and resulted in low passenger yields and low fares on high density routes—a business model that practically guaranteed poor financial results. Deregulation also resulted in the abandonment by airlines of many routes that generated too few passengers to be profitable—leaving some communities with limited service and few direct flights other than to the nearest hub or with no service at all. Many of the flights to \"thin\" markets use smaller turboprops or RJs flown by regional carriers under contract to legacy carriers.\nIn contrast, numerous low-cost carriers constructed networks based on a fleet of only one or two types of aircraft, including Southwest (737); AirTran (717, 737), JetBlue (Airbus A320, Embraer 190), and Ryan Air (737) of Ireland, among many others. This strategy has proved effective for growth and has allowed airlines like Southwest to move into territories that were once controlled by large legacy carriers.\nFleet complexity has direct and indirect effects on aircraft manufacturers. Aircraft manufacturers have found it easier to compete against one another for an airline's business if the airline owns various models of airplanes made by multiple aircraft manufacturers. Aircraft manufacturers typically work closely with launch customers to create an airplane that meets customer requirements. This has frequently led to bidding wars among major aircraft makers, which sometimes offer airplanes to launch customers at unrealistically low prices, which then requires the manufacturer to sell many more planes to reach a breakeven point.\nConversely, an airline that builds its network around one manufacturer/one type of aircraft creates a network effect that results in \"lock-in.\" A low-cost carrier with a network based on one aircraft model has little incentive to purchase a comparable airplane from another manufacturer, even if the upfront price of the alternative airliner is attractive. In the case of Southwest Airlines, this strategy works well for Boeing, but effectively locks-out other competitors as long as they do not produce a competing product that is so recognizably superior to the Boeing 737 that Southwest has little choice but to switch. On the other hand, the current generation of 737s appears to be moving toward the end of its product life cycle in terms of the technological improvements and efficiency gains that can be made to it.\nFor a number of months, Boeing engaged in a lively debate with its customers and itself about building a newer, more technologically advanced plane to replace the 737 by the end of the current decade. Southwest, Boeing's largest customer, has said that the replacement for the 737 is needed sooner rather than later. Against this customer pressure to replace the 737, the immediate success of the A320neo (new engine option) increased pressure on Boeing to put new, more efficient engines onto the 737, thus prolonging the life of one of the best known planes flying today. However, American Airlines, an all-Boeing customer, announced on July 20, 2011 a massive order for 430 narrow-body jets. In splitting its order between the A320 and 737, American announced that given its need to acquire the planes rapidly, no one company could deliver the all of the planes quickly enough.\nFor those manufacturers that do not currently control a significant share of the 90-200 seat aircraft market, whether Canadian, Brazilian, Chinese, Russian, or Japanese, the larger challenge will be to produce and sell a commercial product that is superior to the planes currently on offer by Airbus and Boeing. The prospect that Airbus and Boeing may deliver more efficient planes in a timeframe that approximates the challengers' schedules further complicates their ability to claim existing market share from Boeing and Airbus.\nThe difficulties, however, are more complex than building a more efficient airplane. Jet aircraft require a significant support network that is capable of supplying parts and assistance on a 24/7 basis with next-day delivery anywhere those planes fly. A plane that cannot fly because a part is not available cannot earn revenue, and airlines cannot afford to have a $50–$250 million piece of equipment sitting on the tarmac waiting on a part for very long. Bombardier and Embraer have both demonstrated that they can support the airlines that operate their aircraft. Russian aircraft manufacturers have traditionally had a poor reputation for service and parts supply. Russian and Chinese aircraft companies have announced that support services will be accomplished via joint ventures with European or North American partners. A proposed link between Bombardier and COMAC may help the Chinese manufacturer sell planes in some foreign markets.", "Reputational risk could be a significant problem for some manufacturers. This type of risk stems from many sources, but primarily affects the willingness of airlines and airline leasing companies to make large financial commitments to aircraft manufacturers that have not previously achieved success in competitive markets or who are new to the aircraft market segment they are entering. It seems highly unlikely that a major U.S. or European airline would commit to purchase a large number of expensive aircraft built by companies that have a limited track record and a poor reputation for after-sales support and quick parts delivery. Even if the airplanes are certificated in Europe or the United States, passenger airlines that purchase Russian-built airplanes could alienate their customers. From a competitive perspective, it will probably take years of solid service (including maintenance and parts support), possibly in the fleet of a reputable European air cargo operator, to convince passenger airlines and their customers that the airplane can deliver a level of service equivalent to that of Boeing and Airbus aircraft.\nOne reason for concern is that the major aircraft manufacturers in the Soviet Union (Ilyushin, Sukhoi, Antonov, and Yakovlev) were protected from competition and market forces for decades prior to the collapse of the Soviet Union. With the breakup of the Soviet Union, none of the Russian companies could produce a commercial airplane that was competitive against products by Boeing or Airbus. By 2005, the entire Russian aircraft manufacturing industry was producing an average of 10 commercial aircraft a year. A widely held view is that the major problem with Russian commercial aircraft was poor after-sales support and poor maintenance by the airlines that operated the airplanes. The collapse of the Russian aircraft industry led to its reorganization by the Russian government in 2006. The new umbrella company, United Aircraft Corporation (UAC), is more than 92% owned by the Russian Federation and the Russian Development Bank ( Vnesheconombank ). With government support, Sukhoi has launched the SuperJet 100, a regional jet, and Irkut is developing the MS-21, a narrow-body (150–210 seat) airplane that will compete directly with Airbus A320 and Boeing 737 aircraft.\nThe outlook for the Russian civil air transport sector, however, is problematic. In a 2008 study, the U.S. Commerce Department, citing the Russian Transport Ministry, reported that \"by 2005, of the 2,528 total civil aircraft currently in service, more than one-half had passed their legal operational limits and needed replacing ... [and] ... industry experts forecast that Russian airlines would need at least 620 ... aircraft in the next 20 years.\" Boeing's 2010 forecast for the Commonwealth of Independent States (C.I.S.), a group comprising Russia and eight former Soviet republics, projects that the region will acquire 960 new commercial airplanes between 2010 and 2029, with a market value of $90 billion (in 2009 dollars). The new aircraft will have an average value of $90 million each (in 2009 dollars). The number of commercial airplanes in the C.I.S. in 2009 was 1,150 and is projected to rise to 1,300 in 2029—an annual rate of 0.6%. Most of the new deliveries will replace older equipment. With limited future demand for new commercial airplanes in Russia and the rest of the C.I.S., Russian manufacturers will have to compete against both new and used Boeing and Airbus airplanes in non-C.I.S. markets where high demand is anticipated or where demand for replacement aircraft is high.\nIn contrast to Russia and the other C.I.S. countries, the outlook for China is highly positive. Boeing projects that Chinese demand for new aircraft between 2009 and 2029 will be 4,330 new airplanes, with a market value of $480 billion (in 2009 dollars), with an average airplane value of $110 million (in 2009 dollars). Of new deliveries, 71% are projected to be narrow-body airplanes and only 6% are expected to be regional jets.\nTo overcome the reputation issue, both Russian-owned UAC and Chinese-owned COMAC have sought well established international joint venture partners that will be involved in the design, manufacture, marketing, and maintenance of commercial aircraft manufactured by those state-owned companies. Their expectation is that such partnerships will increase credibility and reduce the risk to airlines that purchase or lease such planes—especially if the partnerships help those companies establish a reputation for product safety, performance, quality, comfort, and price competitiveness. Such partnerships may benefit the various partners in the short-run, but as the new aircraft firms gain confidence and market share, both Russian and Chinese companies are likely to seek higher levels of national (or indigenous) competency and competitiveness across the range of advanced technologies (e.g., engines, wing, and avionics and other systems) and after-sale support.\nCOMAC, the state-owned Chinese commercial aircraft company, has set out a number of basic principles for the development of a narrow-body aircraft that includes bringing into \"full play the political superiority of the socialist system,\" competitiveness with Western products, commercial independence, and \"independent intellectual property rights.\" These raise the possibility of a captive domestic market in which Chinese airlines will buy COMAC airplanes—even if they prove to be inferior to competing products (see text box below). The Chinese commercial aircraft industry is currently at a stage of developing domestic capabilities that require complex cooperative partnerships with foreign (chiefly European and American) suppliers. But COMAC's principles suggest an agenda that envisions a national policy of economic independence for its aircraft industry and possibly its aircraft market—a more autarkic vision that appears to differ from those of companies that are pursuing market opportunities within a free trade context in China and elsewhere.\nIn markets where the state owns or controls both the aircraft manufacturing industry and airlines (China, in particular), governments can apply pressure to ensure that airlines purchase domestically produced aircraft. In combination with industrial policies that could potentially hinder market access by foreign aircraft manufacturers, a protected market for aircraft sales could easily guarantee sufficient local demand to allow a domestic producer to achieve scale economies. Of course, the Chinese market is sufficiently large that it should be capable of supporting domestic production and imports. The question is whether China will protect the market for its own narrow-body and regional jet aircraft while continuing to purchase aircraft that it cannot yet produce (i.e. wide-body medium and large aircraft). Whether Airbus or Boeing could challenge such an approach without fear of retaliation (loss of sales of large airliners to large state-owned airlines) remains to be seen.", "The Boeing 737 and Airbus A320 families of airplanes (see Figure 1 for an illustration of the various models in the Airbus A320 family) overwhelmingly define the narrow-body, single-aisle market. Sales of 737s and A320s provide the bulk of orders and earnings for both Boeing Commercial Airplanes (BCA), based in Renton, WA, and Airbus SAS, based in Toulouse, France. These companies have been the sole competitors for the large commercial aircraft market since Boeing and McDonnell Douglas merged in 1997. Boeing is the sole U.S. producer of large commercial aircraft. Unlike many other manufacturers of aircraft, Boeing and Airbus are the only companies that produce a complete range of mainline commercial aircraft (small narrow-body to very large aircraft). The Boeing Company and EADS, Airbus' parent company, are also major international defense aerospace contractors. The Brazilian aerospace company, Embraer, produces the 190 and 195 E-Jets, which competes with smaller narrow-body planes by Airbus (the A318) and Boeing (the 737-600 series).\nLarge civil aircraft are typically used for 25 years or more before being sold to cargo fleets, non-scheduled carriers, or to foreign airlines that lack the resources to buy newer equipment. Some narrow-body passenger aircraft, including the DC-9, have flown in U.S. airline fleets for up to 40 years. The first Boeing 737s (the 100 and 200 series) were delivered in December 1967—or 43 years ago. Because of the longevity of commercial aircraft, manufacturer's must consider the entire life-cycle of the plane and the likelihood that there will continue to be a market for the jet for more than enough years to cover the development costs of the plane.\nAirlines use aircraft intensively for many years and incur various operating costs that play a critical role in measuring aircraft performance. Costs include salaries, wages, and benefits; fuel and oil; maintenance materials and repairs; landing fees and other rentals; depreciation and amortization; aircraft rentals; and other expenses. According to Southwest Airlines' most recent annual report, \"except for changes in the price of fuel, changes in operating expenses for airlines are largely driven by changes in capacity, or [available seat miles] ASMs.\"\nThe demand for commercial aircraft changed in significant ways during the last decade in response to a number of exogenous events, including 9/11 and the shock experienced by the aerospace industry as a whole; the deep recession of 2008-2009; and fuel costs that have generally been rising since 2004. Since 2008, the volatility of fuel prices have caused significant problems for the airline industry (see Figure 2 ). During a five-month period in 2008, airlines were buffeted by crude oil spot prices that peaked at $147/barrel (bbl.) before falling below $35/bbl. Again in April 2011, the refiner acquisition cost of a barrel of crude oil rose to approximately $112, or nearly $28 higher per barrel than the year before. The 2008 and 2011 spikes in fuel costs, associated with oil prices greater than $100 per barrel, is part of what spurred airlines to increase load factors by reducing the number of available seats miles (i.e., retiring or parking aircraft); reduce excess network capacity by reducing the number of scheduled flights and discontinuing service to some cities; eliminate formerly profitable 50-seat regional jets from many routes; increase ticket prices and impose \"ancillary fees\" for baggage and numerous other services; and retire many older aircraft and demand more fuel-efficient replacements.\nAirlines have constrained capacity by grounding many older planes and reducing the number of flights from 11.6 million per year in 2005 to 10.1 million per year in 2010. For the period between 1978, the year airlines were deregulated, and 2002, system-wide (domestic and international) load factors for all U.S. airlines averaged 64.5%. Between 2003 and 2010, load factors rose dramatically from 73.5% to 82.1%—the highest levels ever achieved. Together with the consolidation that has occurred within the airline industry and the numerous fees that airlines are using to boost revenues, the outlook for the industry has improved.\nAlthough maintenance, repair, and overhaul (MRO) spending generally amounts to less than 10% of total annual operating expenses, long lasting assets, such as airframes and engines, require ongoing maintenance and repairs, as well as overhauls as planes age. Over the course of an aircraft's lifespan, engines account for 46% of maintenance, repair, and overhaul (MRO) spending, while airframes account for the rest. Total global MRO spending was $42.6 billion in 2010.\nMany older airliners are being retired, including the Boeing 737-300/400/500 series (also called the \"737 Classic\" series) that seats 122-159 passengers depending on the specific model and seating configuration), the MD-80/90 series, the DC-9, and older model Airbus A320s. At the same time, the economics of regional jets have also changed. With high fuel prices, once profitable 50-seat RJs have become money-losers and airlines have shifted to larger aircraft.\nFigure 3 provides a chart that shows the average stage length (left axis of chart) of narrow-body mainline jets and wide-body jets and operating cost per ASM (CASM)(right axis of chart). In Figure 3 , the single-aisle narrow-body planes with the shortest average stage length usually have higher operating costs per available seat mile (CASM). The age of the plane also plays a role. The DC-9s, some of the oldest planes, have the highest cost per available seat mile, followed by the \"737 Classic\" series.", "The Federal Aviation Administration (FAA) and major aircraft companies produce an annual 20-year forecast for the aviation industry and markets. These forecasts consider numerous factors that weigh on the market for commercial aircraft, including carrier schedules, passenger load factors, average aircraft size, the average length of flights (or stages, which involve one take-off and one landing), airspace and airport capacities, fuel costs, and different rates of growth of various regions of the world economy, among many other variables. The various segments of the industry interact in a complex manner and there are many unknowns that can quickly undercut the accuracy of any forecast. Nevertheless, forecasts guide planners as they make very large investment decisions about the production and purchase of aircraft, infrastructure development, air traffic control modernization, and regulation. The forecasts provide guidance both to the private sector and to policymakers.\nThe range of narrow-body models produced by both Boeing and Airbus are designed to complement almost any fleet and, in some cases, comprise the entire fleet (e.g., Southwest: 737s; Virgin America: A319s and A320s; Ryanair: 737s). During the 2000-2010 period, more than 11,000 narrow-body units were delivered or on backlog. Because demand for narrow-body airplanes was so strong, production at Boeing and Airbus did not slump during the 2008-2009 recession. From 2000 through 2010, Boeing 737 orders averaged 395 per year. In 2010, Boeing 737 deliveries numbered a record 376 planes. According to Boeing, \"The 737 program currently produces 31.5 airplanes per month and expects to go to 35 per month in early 2012, 38 per month in second quarter 2013 and then to 42 per month in the first half of 2014.\" With Boeing 737 backorders of 2,101 airplanes as of May 31, 2011, it would take Boeing nearly 5.6 years (until the end of 2016) to deliver the current backlog of orders at current rates. At the end of May 2011, Airbus had backorders of 2,420 of the A320 family of aircraft and had also announced that it would gradually increase production of the A320 to 42 per month. The most recent order from American Airlines and an anticipated order from Delta Air Lines may raise production levels at both companies by as much as 20 additional planes a month.\nIn most forecasts, increased demand for new planes is expected to be boosted by the continued growth of low cost carriers (LCCs), by the rapid growth of emerging markets, and by continued market liberalization (access and deregulation). Through 2029, new airplane demand is expected to double, with 56% of deliveries supporting the expansion of air service in growing markets, and 44% of new airplanes replacing older, less efficient airplanes. Boeing projects that replacement of existing aircraft will result in 85% of the fleet having been delivered after 2010.\nBoeing, Airbus, and Embraer forecasts vary significantly. Airbus projects a rosier outlook for very large jets (A380s and 747s) than does Boeing: 1,740 deliveries versus 720. At a 2011 list price of US$375.3 million per A380 and about US$201 million per Boeing 747-8/9, the additional sales by Airbus and Boeing for very large aircraft could amount to about $300 billion (at current's prices) if each aircraft maker each sold half of the additional 1,020 large jets forecast by Airbus ; Boeing projects that large aircraft sales will amount to $220 million. Airbus, Boeing, Embraer, and Bombardier all project strong demand in the single-aisle, narrow-body category (see Figure 4 ). According to Boeing 2010–2030 forecast, the number of narrow-body aircraft will more than double, rising from 12,100 to 27,750, or from 62% of the total airplane fleet in 2010 to 70% in 2029 (see Figure 5 ). Boeing estimates that the market value of narrow-body aircraft sales will amount to $1.95 trillion, or 48% of the $4.0 trillion market for commercial aircraft in 2030.", "The single-aisle, narrow-body aircraft segment of the market is directly affected by larger and smaller aircraft programs, which influence investment decisions and competition among aircraft manufacturers. Manufacturers carefully consider their use of capital, labor, and engineering and manufacturing resources, and prioritize their projects accordingly. The ongoing or potential programs of competitors also receive scrutiny. A manufacturer that is developing a new plane will probably not take on additional projects that cannot be handled with available resources unless it believes it must do so to gain a competitive edge or to protect its market.\nIn the case of the Boeing/Airbus rivalry, there has been a willingness by both companies to pursue strategic goals that have involved attempts to outflank or pre-empt market segments. This has frequently led both companies to take on multiple projects to maintain parity or gain a competitive edge, with the two companies frequently producing similar families of planes. This strategy is not new: Douglas Aircraft, Lockheed, and Boeing earlier fought similar battles in the commercial sphere. One of the consequences of the three-way competition was oversupply of \"me too\" aircraft, especially large aircraft, and, with the arrival of Airbus, the exit of Lockheed from commercial production and Douglas Aircraft's merger with McDonnell, which effectively eliminated Boeing's U.S. commercial rivals, but left it with a single, stronger European challenger that had strong political and financial support from the governments of France, Germany, the UK, and Spain.\nAn intense competition between Boeing and Airbus in large wide-body aircraft (A380/747-8 and 787/A350) absorbed significant resources during most of the last decade. But competition in the very large, large, and medium aircraft market segments has been a normal pattern for companies that manufacture advanced commercial aircraft. The drivers of these programs are rising fuel prices, strong demand for more efficient, quieter, and less polluting aircraft, and growing demand for air travel.\nWhether the Boeing/Airbus competition in the wide-body market has had any overall effect on their narrow-body aircraft programs is arguable. Some airlines have pressed Boeing to develop a replacement for the 737 that incorporates the technologies that are used on the Boeing 787 (composite materials, newer flight deck technologies, new wing designs, and improved engines, among other features). However, Boeing's experience with production delays, supplier delays, cost overruns, and technical problems in the 787 program has resulted in estimated cost overruns of at least $12 billion more than Boeing's initial target development cost of $5 billion. Whether these technologies can be adapted to smaller planes at a cost that airlines could absorb is a significant part of debate over the futures of both the 737 and A320 programs.", "The most recent additions to the 737 and A320 families are relatively fuel efficient, operate over longer distances, and carry more passengers than earlier models. Boeing and Airbus will each probably spend more than $10 billion to develop replacement planes, but both appear to be somewhat hesitant to rush into full-scale replacement programs while their current jets remain popular. Airbus, in particular, has raised a concern that the technologies needed for a significantly improved narrow-body aircraft may not be available until the mid-2020s; instead, it has announced that it will re-engine the A319, A320, and A321 by the end of 2015, at an estimated cost of $3 billion.\nBoeing had been reluctant to pursue the new engine approach because it would cost several billion dollars without providing Boeing with a new replacement airplane that would deliver the greater efficiencies that customers want. In defending a replacement for the 737 over re-engining the current generation 737, James McNerny, Boeing's CEO, said in February 2011, \"Putting our backlog at risk twice, once with re-engining, not to mention the cost, and then with the new airplane, only makes sense if it's required in the 2025 timeframe. We are preserving the option if we're wrong - but I don't think so.\" However, after sales momentum shifted heavily in favor of the re-engined Airbus A320neo during the first half of 2011 (with an order backlog of 1,029 aircraft, including 667 orders announced during the Paris Air Show in June), Boeing came under pressure to provide customers with a re-engined 737 (dubbed the \"737RE\").\nAmerican Airlines (AA), with an all-Boeing fleet, reportedly entered into negotiations with Airbus in March 2011 for the replacement of its fleet of 271 aging MD-80s and 124 Boeing 757s. On July 20, 2011, at a press conference held jointly with Boeing and Airbus, AA announced that it was splitting its order between Airbus and Boeing after Boeing agreed to deliver a re-engined 737, using the CFM International (GE/Safran) LEAP-X engine—one of the two available options for the Airbus 320neo. The 460-aircraft order, the largest ever, is valued at $40 billion. AA will buy or lease 130 A320s, 130 A320neos, 100 737NGs, and 100 737REs, with deliveries of current generation models beginning in 2013. Airbus will begin deliveries of A320neos in 2017 with final deliveries expected in 2022. A decision on Boeing's schedule for delivering its re-engined 737 has not yet been determined.\nOne major benefit that AA gained was \"approximately $13 billion of committed financing provided by the manufacturers through lease transactions that will help maximize balance sheet flexibility and reduce risk. The financing fully covers the first 230 deliveries.\" Although AA's purchase of A320s could be viewed as a defeat for Boeing, Gerald Arpey, the president and CEO of American, said that such a large number of aircraft could not reasonably have been delivered by a single manufacturer in the timeframe required by American. Splitting the order between Airbus and Boeing provided AA with some earlier delivery slots that will presumably be created by expanding A320 and 737 production capacity. The negotiations with American Airlines also forced Boeing to make a decision in favor of re-engining rather than building a new replacement plane by the end of the decade—a win for Washington state (with its Boeing 737 production lines), and Kansas (where Spirit AeroSystems builds the 737 fuselage). Delta Air Lines, which is also expected to place a large order for narrow-body jets, reportedly also put pressure on Boeing to re-engine its 737 in response to the A320neo. Delta, formerly an all-Boeing airline, began flying Airbus A320s and A330s as a result of its merger with Northwest Airlines in 2008. Like American, Delta could also split its order between Boeing and Airbus. The result for Boeing and Airbus is overflowing order books that may carry 737 and A320 production into the 2020s.\nAlthough the new entrants into narrow-body production believe their products will have distinct advantages over the re-engined Boeing/Airbus products, high demand for the A320neo at the Paris Air Show by numerous international air carriers, the American Airlines order, and the expected large order by Delta Air Lines in the near future, suggest that many air carriers may be taking a wait-and-see approach toward the new competitors.", "The most significant effect of the two-way Boeing/Airbus competition may be that it has created a perception that the current narrow-body offerings by Boeing and Airbus are outdated. In contrast to this perception, the 737-700/800/900 series and the Airbus A320/A321 models are significantly larger capacity planes that can fly greater distances than earlier models (see Figure 6 , which shows the transcontinental reach of the 737NG family). The additional range, greater number of seats, and history of continuous incremental improvements, as well as major upgrades to engines, wings, cockpits, and interiors have allowed Boeing and Airbus to continue to reduce the cost per available seat mile (see Figure 3 ) on its 737s and A320s. The 737-800, for instance can carry 162 to 189 passengers, while the 737-900ER can carry 180 to 215 passengers. The Airbus A320 can carry 150 to 180 passengers, while the larger A321 can carry 185 to 220 passengers.\nThere is also perception that the market for 100-149-seat jet aircraft has been all but abandoned by Boeing and Airbus, thus leaving an opening for new entrants. As to the supposed 100-149-seat \"gap,\" there are several issues that cast the entire \"gap\" debate into question: Is there a need for such a new jet aircraft in emerging markets? If so, Bombardier, Embraer, Boeing, and Airbus all appear to be the companies best positioned to exploit the 100-149 seat gap. The Chinese appear to be more interested in using its C919 as an entry point to build larger, wide-body civil aircraft.\nWhether new, smaller (100-150 seat) narrow-body aircraft can profitably provide the increased fuel efficiency necessary to serve short-haul markets in many of the countries where air travel is expected to grow fastest may depend on jet fuel prices. Additionally, a new generation of larger, quieter (70-90 seat) turbo prop airplanes, such as the Bombardier Q Series and the ATR 72, can operate more efficiently on short-haul flights than the most efficient small jets—especially where passenger volumes are thin. The larger, more efficient turboprops are equally capable of replacing some smaller jets on short-haul U.S. and European routes.\nThe 100-150-seat jet aircraft currently being sold or marketed are capable of flying greater distances (2,000–6,400 miles) with increased passenger capacity (up to 150 seats). But the larger 737-800/900s and A320/A321 are capable of carrying more than 150 passengers at a lower cost per available seat mile than jets in the 100-150-seat range. Demand for the smaller Boeing and Airbus narrow-body jets has declined as airlines have shifted toward the more efficient Boeing 737-800 and 737-900ER models and Airbus A320s and A321s.\nEmbraer, traditionally a manufacturer of small regional jet aircraft, move into the lower end of the small narrow-body space in 2005/2006, with the E-190 and E-195. These airplanes seat 94-114 and 108-122 passengers, respectively. Embraer's E-Jet series has sold well and is flown by low-cost carriers, some legacy carriers, and a number of foreign airlines. Bombardier plans to deliver its CSeries jet in 2013, with two variants that will have 100-125 seats and 125-145 seats. Significantly, the Chinese and Russian narrow-body jets will not compete in the 100-150 seat market. Instead, they will compete directly against the largest narrow-body jets in the 737 and A320 series. The Chinese COMAC C919 will have 156-190 seats and the Russian UAC/Irkut MS-21 will have 150-212 seats.\nThe entry of Chinese, Russian, Canadian, and Brazilian competitors into the narrow-body segment has already forced both Airbus and Boeing to respond to increased competition. The Airbus A320 re-engining program is expected to provide an interim solution that allows it to sell a more fuel-efficient airplane beginning in late 2015—just before COMAC and UAC/Irkut deliver their first narrow-body jets. However, it appears that the Airbus decision was more directly aimed at Boeing. Its decision to re-engine the A320 was pragmatic because the A320 series (with the exception of the A318) was designed to be re-engined, whereas the 737 can only be re-engined by lengthening the landing gear or by using a smaller CFM LEAP-X engine. Because re-engining the A320 can be accomplished in five years, Airbus took the lead and airlines, desperate for greater fuel efficiency, responded quickly.\nWhile Airbus and Boeing landed billions of dollars in new orders at the Paris Air Show, the Chinese, Russian, Canadian, and Brazilian aircraft manufacturers apparently gained little. Bombardier announced a 30-order deal for the CSeries, but apparently could not conclude a deal with Qatar. Six customers have placed a total of 113 firm orders for the CSeries planes. The Russian-built Sukhoi Superjet gained one order for 12 planes, and China's COMAC reportedly signed an agreement with Ryanair to be a development partner, although it is unclear whether Ryanair will eventually buy the C919. Embraer's chief executive officer, Frederico Curado, said, \"Going up against Boeing and Airbus in head-to-head competition is really tough, not only because of their size, but because of their existing product line and industrial capacity. They can have a very quick response and literally flood the market.\"\nWhile anticipated demand for narrow-body aircraft is high, there is also the larger question of whether the market can accommodate four-to-six firms competing to sell narrow-body aircraft. The decision by Airbus and Boeing to re-engine their A320/737 families appears to have prevented any erosion of sales and has created a cushion against the challengers. With the combined experience that both Boeing and Airbus have in building mainline narrow-body, wide-body, and very large jet aircraft, neither appears ready to take risks that the newcomers have apparently embraced; that is, manufacturing a more efficient aircraft than the 737 or A320. Boeing and Airbus appear to have protected and extended their franchises from an untested group of competitors.", "The Chinese market is projected to be one of the major drivers for all civil aircraft manufacturers through 2029. Boeing's Commercial Market Outlook 201 0 -20 29 forecasts that demand for new planes could total 4,330 units worth $480 billion (in 2009 dollars). Single-aisle, narrow-body jets are projected to account for 71% of new deliveries (or 3,090 planes). In contrast, regional jet deliveries are projected to total 280, or 6% of new deliveries—a relatively small number. The Chinese fleet of civil aircraft is expected to increase from 1,570 planes in 2009 to 5,180 planes in 2029, with single-aisle mainline jets increasing from 1,170 to 3,770 between 2009 and 2029 (See Figure 7 for more detail).\nThe Asia Pacific region is forecast to account for a third of all new plane deliveries during the next 20 years. Although this figure is below total deliveries to slower-growing North America and Europe (which together will account for 13,390 deliveries, or 47% of new plane deliveries), the fleet growth rate for the Asia Pacific region is projected at 5.6% (including China at 6.2%), compared to North America at 1.6% and Europe at 2.3%. So rapidly growing markets are likely to be a major focus for aircraft manufacturers and suppliers, even as slower growth in mature markets continues to produce a significant number of aircraft replacement sales. One major issue for Western aircraft manufacturers and suppliers in the future is their access to the Chinese aircraft market. To date, Western aircraft manufacturers and suppliers have expressed concerns about the protection of their intellectual property and their ability to sell commercial jets in sectors with competing domestic products.\nSome Western aircraft manufacturers and suppliers, however, take the view that participation in a Chinese-backed joint venture may boost sales, especially if they expect government-owned airlines to purchase what the central or provincial governments tell them to buy. However, this strategy has not always worked: Embraer, for instance, established a joint venture with Harbin, a subsidiary of state-owned China Aviation Industry Corporation (AVIC), to manufacture ERJ-145 regional jets in China. The ERJ-145 program produced an average of only 5 planes a year (a disappointingly small number). With the conclusion of the ERJ-145 program in April 2011, Embraer had hoped to manufacture and sell its larger Embraer 190 E-Jet in China. However, the company was blocked by AVIC, which viewed a Chinese-built Brazilian jet as a competitor to the AVIC-designed 90-seat ARJ21 regional jet. Whether the ARJ21 will be accepted by consumers is unknown.\nUnlike Embraer's difficulty with regional jets, Bombardier and COMAC have signed an agreement to cooperate on future plane development, marketing, and customer support. The agreement includes sharing of parts between the CSeries and the C919. Additionally, Bombardier has outsourced production of the CSeries fuselage to a subsidiary of AVIC. According to a recent press release announcing the agreement, \"This long-term strategic cooperation agreement is based on both COMAC's and Bombardier's desire to build on the potential complementary nature of their products and respective expertise. This includes exploring collaboration in their marketing, customer relationship and customer support strategies to help each other increase overall market share in emerging and mature markets.\" The resulting planes may share many commonalities, with a view to achieving interoperability among CSeries/C919 aircraft. The 100-200-seat span of the Bombardier/COMAC planes also offers the potential for a credible challenge to the Boeing/Airbus duopoly and may reduce Boeing and Airbus sales in the China market.", "Bombardier CSeries . The Bombardier CSeries jet is the only mainline plane currently in development that specifically targets the 100-149 seat market. It will come in two versions that cover the alleged gap (or current lack of demand): the CS100 will seat between 100 and 125 passengers and the CS300 will seat between 125 and 145 passengers. Bombardier claims that the CS100 enter into service in 2013 and the CS300 will enter service in 2014. Bombardier's 2011-2030 forecast for the 100-149 seat commercial jet market calls for 7,000 deliveries over the next 20 years, with the retirement of 3,000 (57%) of the current 100-149-seat fleet. The total fleet of 100-149 seat jets is projected to grow from 5,200 units in 2010 to 9,200 by 2030. Bombardier's competitors in the CS100 (100-125 seats) segment include the Airbus A318 and A319 and Embraer's 190 and 195 aircraft. At a future date, it may also include a stretched Russian-built Sukhoi Superjet 100.\nCOMAC C919 . The COMAC C919 is frequently compared to the Airbus A320, possibly because Airbus has been assembling A320s and A319s in China since 2008, in partnership with AVIC. COMAC, which was spun off from AVIC in 2008, has signed agreements with a number of U.S. and European suppliers of airframe parts, engines, and various systems that will be critical to the success of the program. CFM International will assemble LEAP-X engines for the C919 in China. GE is also participating in a joint venture with AVIC to develop avionics for the C919.\nWhether the plane will achieve the efficiencies that COMAC has promised is an open question: reports that designers have had trouble with the plane's weight have apparently caused some of the major Chinese airlines to hold back on orders. The big three Chinese-owned airlines—China Southern, Air China, and China Eastern—apparently limited their exposure to 20 aircraft each. According to a recent study by the RAND Corporation, \"the 'big three' each committed only to purchasing five C919s,\" with soft options for the other 45 planes. The apparent hesitation of central-government owned airlines to purchase aircraft built by a state-owned company is due, according to RAND, to an unwillingness to \"take on more exposure to a program they regard as risky.\" General Electric's leasing arm, General Electric Commercial Aviation Services (GECAS) has ordered 10 planes, as has the leasing subsidiary of the China Development Bank.\nUAC/ Irkut MS-21 . The three-version (150, 180, and 210 seats) MS-21 aircraft has been described as \"Russia's great hope for the revival of its civil aircraft industry.\" The MS-21, which the company expects to cost $6.3 billion to develop, is scheduled to enter service in 2016. The Russian government is funding 40% of the MS-21's development costs, with the remainder coming through loans, and from Irkut's parent company, the government-owned UAC. According to the MS-21 chief designer and project director, Andrei Matveyev, the aircraft will include 40% composite content (including a composite wing), weigh 15% less, and achieve 25% improved fuel efficiency over current comparable Boeing or Airbus aircraft. Pratt & Whitney will supply engines, which will also power the A320neo (as one of two available engine options for that plane), the Bombardier CSeries, and the Mitsubishi Regional Jet. Irkut also has numerous U.S. partners supplying various systems for the MS-21. To date, 146 firm orders and 39 options have been placed for the MS-21, with 50 orders from Aeroflot, 50 orders from a Malaysian leasing company, and 46 orders from Russian leasing companies.\nEmbraer . The Embraer 190 E-Jet has 98-114 seats, while the larger Embraer 195 E-Jet has 108-122 seats. The first delivery of the E-190 was made in 2005 and the E-195 in 2006. Both planes are comparable to small mainline jets and, together with the Embraer 170/175 E-Jets, were designed specifically to fill what Embraer executives believed to be a gap in the 70-120 seat jet market.\nThe Embraer E-Jets represented a sharp departure from the RJs on which Embraer had built its reputation. Embraer used the E190 and E195 to beat Bombardier to market with a product that upstaged regional jets of comparable size. By the end of 2010, 266 E-190s had been delivered to low-cost carriers, U.S. legacy airlines, and foreign airlines, with a firm order backlog of 157 planes. During the same period, 61 E-195s were delivered, with a firm backlog of 41 planes. Embraer's chief competitor, Bombardier, delivered its first 100-seat CRJ-1000 regional jet (a stretched CRJ-900) in December 2010. As of January 2011, Bombardier had delivered 9 CRJ-1000s and had firm orders for another 40. Whether the Bombardier CSeries will lead Embraer to develop a larger plane is uncertain at this point. Nevertheless, some have speculated that Embraer could develop a new plane in response to Bombardier's challenge to Embraer's E-Jet series.\nSukhoi Superjet 100 . The first Sukhoi SJ100 was delivered to Armavia, an Armenian airline, on April 19, 2011, and was almost immediately placed in service. The Superjet 100 has a capacity of 86-103 passengers, depending on its seating configuration. After-sales support for the SJ100 will be provided by SuperJet International, a joint venture formed by Sukhoi and the Italian firm Alenia Aeronautica. Alenia owns 51% and Sukhoi 49% of the joint venture. Alenia also has a 25% stake in Sukhoi Civil Aircraft Co., the manufacturer of the SJ1000. The purpose of SJI is to provide the all important in-service support that airlines depend on. SJI provides pilot training, technical training for maintenance staffs, and operates spare parts warehouses for the SJ100 program. According to Aviation Week and Space Technology , \"Commercial services also will test whether the program can deliver the promised in-service support, of which many customers are skeptical, given the poor reputation of Russia's aerospace industry in this regard.\"\nCOMAC ARJ21 . A new Chinese regional jet, the ARJ21 (a 90-seat RJ), which is being manufactured by COMAC in partnership with Bombardier, is based on the McDonnell-Douglas MD-90. All of the COMAC ARJ21's major subsystems were sourced to North American and European suppliers. The project has experienced a number of delays and delivery slipped from 2010 to 2011. The ARJ21 was originally an AVIC project, but was transferred to COMAC when the latter assumed responsibility for commercial aircraft development. It is not clear whether regional jets will remain a focus for COMAC, because most forecasts do not anticipate much growth in the Chinese RJ market.\nLarge Regional Jet . One regional aircraft, the Japanese Mitsubishi Regional Jet (dubbed the \"MRJ\")(a 70-90 seat plane), appears to be primarily aimed at the Bombardier/Embraer RJ duopoly.", "The decision by Airbus and Boeing to put new high efficiency engines on their planes will provide airlines with upgraded products that have a reputation for dependability. Although Bombardier, COMAC, and Irkut are building narrow-bodies that represent a more radical departure from the 737 and A320, their programs are inherently riskier and have not yet demonstrated that the promised benefits can be delivered. Many airlines may decide to stay with aircraft that they know. It is too soon to know whether the newcomers will succeed. Bombardier and Embraer have established themselves as successful aircraft manufacturers and the Chinese appear to be determined to build a civil aviation industry that competes directly with Boeing and Airbus. Whether the Russians will succeed in building civil aircraft capable of competing in international markets remains to be seen.\nFor now, the real competition is between Boeing and Airbus. Neither company appears likely to walk away from the segment of the commercial aviation industry that accounts for almost half of revenues. Although the Boeing/Airbus duopoly in small commercial jets is clearly under challenge, it is not obvious that the civil aircraft market is large enough to sustain as many as five additional competitors. Nevertheless, all of the challengers to the Boeing/Airbus duopoly believe that their ability to compete in the narrow-body segment will be critical to the creation of successful domestic aerospace industries. It is clear that the United States, the European Union, Russia, China, Japan, Brazil, and Canada all consider the aerospace to be commercially and militarily strategic." ], "depth": [ 0, 1, 1, 1, 2, 2, 2, 1, 1, 1, 2, 2, 2, 1, 1 ], "alignment": [ "h0_title h2_title h1_title h3_title", "h0_full h3_full h2_full h1_full", "", "", "", "", "", "h2_full", "", "", "", "", "", "", "h3_full" ] }

{ "question": [ "What is the importance of the US aerospace industry?", "What is the nature of US aerospace manufacturing?", "How does US aerospace manufacturing compare to other industries?", "What jobs do workers hold in the aerospace industry?", "How are civil aircrafts manufactured in the United States?", "How are the civil and military aerospace sectors related?", "What aerospace issue are US policymakers concerned about?", "Why is this issue important?", "What challenges might Boeing and Airbus face in the next decade?", "What have the leaders of these corporations stated about this shift?", "What competition do Boeing and Airbus face?", "How do these factors influence the future of Boeing and Airbus in the next decade?" ], "summary": [ "The importance of a successful aerospace industry to the United States economy has been repeatedly acknowledged by President Obama and members of his Cabinet, many Members of Congress, and by all concerned with the competitive fortunes of the U.S. aircraft manufacturing industry. The U.S. aerospace industry is highly competitive and global in scope.", "U.S. firms manufacture a wide range of products for civil and defense purposes and, in 2010, the value of aerospace industry shipments was estimated at $171 billion, of which civil aircraft and aircraft parts accounted for over half of all U.S. aerospace shipments. In 2010, the U.S. aerospace industry exported nearly $78 billion in products, of which $67 billion (or 86% of total exports) were civil aircraft, engines, equipment, and parts.", "The U.S. trade surplus (net exports) in aerospace products in 2010 was $43.6 billion—higher than for any other manufacturing industry. According to the International Trade Administration, \"more jobs in the United States were supported by exports of U.S. aerospace products than of any other manufacturing or service industry.\"", "Aerospace employment totaled 477,000 workers, of which 228,400 were engaged in the manufacture of aircraft, 76,400 in the manufacture of engines and engine parts, and 97,600 in the manufacture of other parts and equipment.", "Boeing is the only U.S. manufacturer of large civil aircraft. Civil aircraft engines are manufactured by General Electric (GE), in partnership with Safran (of France), and by Pratt & Whitney. Numerous firms manufacture sections and parts of the airframe, as well as original equipment for both domestic and foreign airframe manufacturers.", "The civil and military aerospace sectors are complementary in that many firms manufacture products for both. Although the products tend to be dissimilar, workforce skills are transferable, so a decline in military aerospace budgets or private sector spending on civil aircraft have significant economic and competitive effects for the United States.", "A major issue for policymakers is whether the United States can sustain its preeminent position in aerospace, given the intentions of numerous foreign manufacturers to enter the small commercial jet aircraft segment by 2016.", "That segment accounts for nearly half of all commercial aircraft revenues and for more than 60% of commercial aircraft deliveries. It is also the gateway to building larger commercial aircraft.", "Boeing and Airbus are the sole rivals across all segments of large commercial aircraft manufacturing, but during the next decade both will confront a potentially serious challenge in one of the most important segments of their business, small commercial jets (which are also referred to as narrow-body or single-aisle aircraft).", "The CEOs of Boeing and Airbus have both agreed that their duopoly over small commercial jets is nearly at an end.", "Boeing and Airbus will face competition from government-owned and subsidized firms in Russia and China, as well as companies in Canada, Brazil, and Japan. Several factors will determine the outcome of the coming competition in small commercial jets, including the openness of markets to foreign commercial aircraft and aircraft engines and parts; whether state-owned aircraft manufacturers continue to receive substantial government subsidies; whether the challengers to Boeing and Airbus achieve their goal of building innovative, efficient aircraft that establish excellent safety and service records; whether airlines will buy aircraft from companies that have no track record; and the effect of collaborative partnerships with other aircraft manufacturers and suppliers as a strategy for success.", "Boeing and Airbus are engaged in a struggle to be the world's preeminent manufacturer of civil aircraft and both have a depth of resources unmatched elsewhere. The competitive stakes for both companies will be very high during the next decade." ], "parent_pair_index": [ -1, 0, 1, -1, -1, 0, -1, 0, -1, 2, -1, 0 ], "summary_paragraph_index": [ 0, 0, 0, 0, 1, 1, 2, 2, 2, 2, 3, 3 ] }

{ "title": [ "", "Introduction", "Legislative Activity", "113th Congress", "112th Congress", "King Amendment", "Egg Industry Overview", "Table Egg Production", "Production Systems", "UEP-HSUS Agreement", "United Egg Producers (UEP)", "The Humane Society of the United States (HSUS)", "The Agreement", "Pending Table Egg Legislation", "Housing Requirements", "Environmental Enrichments", "Minimum Floor Space", "Other Requirements", "Phase-In Conversion Requirements", "Labeling", "Exemptions", "Support and Opposition", "Issues Raised by Laying-Egg Hen Legislation", "Mandating Farm Animal Husbandry Practices", "Effect on Other Animal Agriculture Sectors", "Basis in Science", "High Transition Costs Expected", "Animal Welfare Issues", "Egg Production Systems and Hen Welfare", "U.S. Animal Welfare Legislation", "Other Legislation Covering Hen Welfare", "California Proposition 2", "Court Challenges", "Missouri Lawsuit", "Michigan Animal Welfare Law", "Europe's Ban on Battery Cages" ], "paragraphs": [ "", "The relationship between the livestock and poultry industries and animal protection groups is an antagonistic one, at best. The table egg industry, led in the United States by the United Egg Producers (UEP), has been widely criticized for decades for raising laying hens in cages. Many have argued that conventional cage systems widely used in the United States and elsewhere provide little or no welfare for laying hens because hens are not able to express natural behaviors. The Humane Society of the United States (HSUS) is one of many animal protection organizations that have led campaigns advocating cage-free egg production and the elimination of all cages.\nGiven the history between the egg industry and animal protection groups, UEP stunned the animal agriculture community in July 2011 with an announcement that it would work jointly with HSUS to push for federal legislation to regulate how U.S. table eggs are produced. The agreement between UEP and HSUS was signed July 7, 2011, and called for legislation that would set cage sizes, establish labeling requirements, and regulate other production practices. The goal of the agreement is to have federal legislation in place by June 30, 2012. As part of the agreement, HSUS agreed to immediately suspend state-level ballot initiative efforts in Oregon and Washington to end the use of conventional cages.\nLegislation—the Egg Products Inspection Act Amendments of 2012—was introduced in both the Senate and House during the 112 th Congress to address the UEP and HSUS agreement and goal to establish federal table-egg cage standards. No action was taken on these measures. Almost identical bills—the Egg Products Inspection Act Amendments of 2013 ( S. 820 and H.R. 1731 )—were introduced in the 113 th Congress on April 25, 2013. These bills also reflect the 2011 agreement between UEP and HSUS and would establish uniform, national cage size requirements for table egg-laying hen housing over a 15- to 16-year phase-in period. The bills also include labeling requirements to disclose how eggs are produced, and air quality, molting, and euthanasia standards for laying hens.\nUEP views the bills as being in the long-term survival interest of American egg farmers, and a wide range of groups have expressed support for the legislation. However, some agricultural and livestock producers, including some egg farmers, strongly oppose the bills, viewing them as an intrusion into their farming practices. Some animal protection groups have also opposed the bills.\nThis report provides an overview of the U.S. egg industry, the UEP-HSUS agreement, and the provisions of S. 820 and H.R. 1731 introduced in the 113 th Congress. The report also discusses supporting and opposing views of the bills, and some animal welfare issues for laying hens.", "", "On April 25, 2013, the Egg Products Inspection Act Amendments of 2013 were introduced in the Senate ( S. 820 ) and House ( H.R. 1731 ). The two bills are identical and reflect the 2011 agreement between UEP and HSUS (see \" UEP-HSUS Agreement ,\" below) that would establish uniform, national cage size requirements for table egg-laying hen housing over a 15- to 16-year phase-in period. The bills also include labeling requirements to disclose how eggs are produced, and air quality, molting, and euthanasia standards for laying hens. The two bills are nearly identical to those introduced in the 112 th Congress, with the exception of language specific to egg production in California, exceptions for temporary excess ammonia levels, and exemptions for research institutes, single cages, and other livestock and poultry. (See \" Pending Table Egg Legislation ,\" below, for more information on the bills.)\nAs in 2012, industry views on the egg legislation are divided. UEP supports Congress addressing egg legislation in the farm bill, while other livestock groups continue to strongly oppose it. Reportedly, Senate Agriculture Committee Chairwoman Stabenow considered including the egg bill in the committee draft of the 2013 omnibus farm bill. Senator Johanns expressed the view that the inclusion of egg legislation in the farm bill \"will bring the farm bill down,\" and that egg regulations should be left up to the states. The egg legislation was not included in the committee draft, nor was it considered during the May 14, 2013, Senate Agriculture Committee markup of the 2013 farm bill. During the floor debate on the Senate farm bill ( S. 954 ), Senator Feinstein submitted the egg bill as S.Amdt. 1057 , but it was not considered by the Senate.\nDuring the House Agriculture Committee markup of the 2013 farm bill ( H.R. 1497 ) on May 15, 2013, no egg bill amendment was offered, but Representative King's (IA) amendment—the Protect Interstate Commerce Act (PICA)—was offered and agreed to on a voice vote. PICA, often referred to as the King amendment (see \" King Amendment \"), which was included in the 2012 House reported farm bill, H.R. 6083 , would have prohibited states from setting standards or conditions for the production or manufacture of agricultural products that are produced in other states and sold in interstate commerce, if the standard or condition exceeded federal and state laws that apply where the agricultural product is produced or manufactured. The amendment would have curtailed state laws that could interfere with interstate commerce, such as California's ban on the sale of eggs that are produced in cages, no matter where produced, after January 1, 2015. PICA covered agricultural products as defined in Section 207 of the Agricultural Marketing Act of 1946 (7 U.S.C. 1626).\nDuring markup, Representative Denham offered a second-degree amendment that would have exempted some states and state standards from the King amendment. The Denham amendment failed on a committee roll call vote (13 yeas to 33 nays). During the June 17, 2013, Rules Committee hearing on H.R. 1947 , Representative Denham offered an amendment to replace Section 12314 of H.R. 1947 with the text of the egg bill, H.R. 1731 . The Rules Committee rejected the Denham amendment.\nAfter the House failed to pass H.R. 1497 , the King amendment was included in the new House version of the farm bill, H.R. 2642 , which the House passed on July 11, 2013. The Senate farm bill, S. 954 , had no similar provision. The farm bill conference committee, which commenced October 30, 2013, considered the King amendment, but the conference report ( H.Rept. 113-333 ) to H.R. 2642 , released January 27, 2014, did not include it.", "On January 23, 2012, H.R. 3798 —Egg Products Inspection Act Amendments of 2012—was introduced in the House by Representative Schrader of Oregon. The bill was referred to the House Committee on Agriculture and then to the Subcommittee on Livestock, Dairy, and Poultry. There was no further action on H.R. 3798 . On May 24, 2012, a companion bill, S. 3239 , was introduced by Senator Feinstein of California. The bill was referred to the Senate Committee on Agriculture, Nutrition, and Forestry. During the 112 th Congress, 153 cosponsors signed on to H.R. 3798 , and 19 Senate cosponsors signed on to S. 3239 .\nPrior to the Senate floor debate on the omnibus 2012 farm bill ( S. 3240 ), Senator Feinstein offered S.Amdt. 2252 , which would have inserted the language from S. 3239 into the Senate farm bill. However, the amendment was not one of the 77 amendments considered during the Senate farm bill floor debate of June 19-21. Reportedly, the amendment was withdrawn with the understanding that the Senate Agriculture Committee would address S. 3239 and the issues confronting egg producers. On July 26, 2012, the Senate Agriculture Committee held a hearing on S. 3239 with testimony from Senator Feinstein and four egg producers. Three producers testified in favor of S. 3239 and one opposed the legislation.\nDuring the House Agriculture Committee markup of the 2012 farm bill on July 11, 2012, no amendment was offered to include the language of H.R. 3798 in the House farm bill ( H.R. 6083 ). However, Representative King (IA) offered the Protect Interstate Commerce Act (PICA), an amendment designed to protect the U.S. Constitution's commerce clause (see \" 113th Congress \" and \" King Amendment \"). The House Agriculture Committee adopted the amendment by voice vote.", "According to Representative King (IA), the Protect Interstate Commerce Act (PICA) is necessary because of the 2010 California law that requires all eggs brought into or sold in the state to be produced in the manner required in California. King views California's 2010 egg law as protectionism and constitutional overreach, with one state attempting to impose its standards at the national level, when only the federal government can regulate interstate trade. The King amendment garnered support from livestock groups such as the National Cattlemen's Beef Association and the National Pork Producers Council. Supporters believed the amendment would have prevented a patchwork of states laws from setting agricultural production standards and protected free interstate movement of agricultural products.\nOpponents of the King amendment argued that it undercut state voters' rights to determine their state laws. In addition, opponents contended that the definitions of agricultural products and production and manufacturing are broad and would preempt hundreds of state laws and regulations. Opponents pointed to a compiled list of 150 state laws, covering such areas as animal welfare, environment, public health, and labor, that they argued would have been affected by the King amendment. In addition, in a letter to Ranking Member Peterson, 151 Members of Congress expressed their opposition to the King amendment. Some analyses of the amendment concluded that the actual affect was subject to interpretation and uncertainty, with courts making the final decision on the effects.\nThe King amendment was not included in the Agricultural Act of 2014 ( P.L. 113-79 ), and the challenge to the California egg law has shifted to the courts. On February 3, 2014, Missouri filed a lawsuit in the U.S. District Court in California to challenge the legality of the egg law (see \" Missouri Lawsuit \"). Other states that are large producers of eggs and ship eggs to California would be expected join Missouri in challenging the California egg law.", "", "In 2011, U.S. egg farmers produced 79 billion table eggs from a laying flock of 282 million birds. The vast majority of U.S. table egg production is concentrated in a few flocks. In 2011, more than 98% of the laying hens (277 million birds) were in flocks of 30,000 birds or larger. From 2001 to 2010, table egg production averaged 76 billion eggs, and the laying flock averaged nearly 283 million birds. Table egg productivity has improved over the past 10 years, as egg output has increased an average of about 1% each year while the laying flock has remained relatively flat.\nIn 2011, each hen averaged nearly 281 eggs, compared to 264 eggs 10 years earlier. In 2011, total egg production (including 13 billion hatching eggs) was valued at $7.4 billion. Geographically, U.S. table egg production is concentrated in the Midwest, with pockets of production in Pennsylvania, California, and Texas (see Figure 1 ).\nIowa produces nearly twice as many table eggs as any other state. In 2011, Iowa's table-egg-laying flock totaled 52.2 million hens and produced more than 14.3 billion eggs ( Table 1 ). Ohio follows, with a flock of 27.2 million birds, and Pennsylvania and Indiana have flocks of over 20 million birds. The midsize producing states of California, Texas, and Michigan have flocks ranging from 10 million to 19 million, and the bottom of the top 10, Minnesota, Florida, and Nebraska, have flocks from 9 million to nearly 10 million birds. The top 10 egg-producing states account for 70% of the total table-egg-laying flock. A complete breakdown of table egg production is not available because table egg production for 4 of the top 10 states is not disclosed by USDA due to reporting confidentiality rules. But the proportion of table-egg-laying hens to total hens indicates that the large majority of the four-state egg production is table eggs.", "An estimated 95% of all eggs in the United States are produced in conventional cage systems, sometimes called battery cages. Generally, conventional cages are wire cages that may hold 6-10 laying hens, and usually have automated feeding, watering, and egg collecting systems. According to UEP, conventional cage systems typically provide each laying hen an average of 67 square inches of floor space. In some egg operations, hens have less space.\nEgg producers started adopting conventional cage systems in the 1950s because they reduced disease and provided cleaner eggs compared with traditional barnyard production. Egg farmers also found that cage systems proved to be more economically efficient as systems were automated and more laying hens could be managed in less space. Over time, conventional cage systems have been heavily criticized for providing poor welfare for laying hens, especially in Europe (see \" Europe's Ban on Battery Cages ,\" below).\nThe other 5% of eggs are produced in either cage-free or free-range systems. There are two principal types of cage-free systems—floor and aviary. In both of these cage-free systems, laying hens have access to the barn or housing floor, usually covered with litter, and nesting boxes for egg laying. Aviaries provide several levels of perches that allow laying hens to be off the floor. In cage-free systems, laying hens are kept indoors. The free-range system is similar to the cage-free system, but laying hens have access to the outdoors.\nThe relatively new enriched cage systems—also called furnished, modified, or enriched colony cages—were developed in the 1980s in Europe in response to criticisms of conventional cages and legislation on cages. Enriched cages are larger and include perches, scratching pads, and nesting boxes designed to allow laying hens to express natural behaviors (see \" Egg Production Systems and Hen Welfare ,\" below).", "", "United Egg Producers (UEP) is the largest U.S. egg producer group in the United States. UEP is a Capper-Volstead cooperative of egg farmers that raise about 90% to 95% of all egg-laying hens in the United States. UEP members produce eggs in conventional cage, enriched cage, cage-free, free-range, and organic systems and also produce processed egg products. According to UEP, it provides leadership in legislative and regulatory affairs for its membership.\nUEP has taken the lead in setting laying-hen welfare standards for the egg industry through its UEP Certified program, established in April 2002. UEP Certified was the result of the work of an independent Scientific Advisory Committee for Animal Welfare, formed in 1999, that presented recommendations to UEP on animal husbandry for laying hens raised in conventional cages. Egg producers who want to market eggs as UEP Certified have to provide laying hens with 67-86 square inches of floor space for optimal welfare. In addition, producers have to follow guidelines on such flock management practices as beak trimming, molting, handling, catching, and transporting laying hens. Guidelines also cover euthanasia, bio-security, and keeping public trust. UEP Certified egg producers are to be annually audited to assure that UEP Certified guidelines are being followed.", "The Humane Society of the United States (HSUS), established in 1954, is the largest animal protection organization, with a reported membership of 11 million in the United States. The HSUS states its mission as \"Celebrating Animals, Confronting Cruelty,\" and part of that mission is to fight animal cruelty, exploitation, and neglect. Besides conducting well-known animal advocacy campaigns against cruelty in dog fighting or cockfighting, puppy mills, and wildlife protection, HSUS has conducted campaigns covering farm animals, particularly against animal confinement such as egg-laying hen cages and sow and veal crates.\nIn January 2005, HSUS launched its \"No Battery Eggs\" campaign to persuade food companies, retailers, restaurants, and other food providers to switch to eggs from cage-free production systems. HSUS has characterized laying hens as the \"most abused animals in agribusiness\" because of their cage conditions. HSUS has worked with state legislatures, local governments, corporations, and universities to change laws and egg buying practices. Most recently, HSUS trumpeted Burger King's announcement on April 25, 2012, that it would switch to cage-free eggs in its restaurants by 2017. Burger King began working with HSUS in 2007 to start phasing out the use of eggs from conventional cages.\nHSUS has pursued ballot initiatives in states with that option to add farm animal welfare provisions on laying hens, sows, and calves to state laws. HSUS was most successful in the 2008 California ballot initiative, where voters chose to ban the use of cages after January 1, 2015 (see \" California Proposition 2 ,\" below). HSUS also has waged campaigns in other states that have resulted in laws on laying-hen cages. In October 2009, Michigan enacted a law to phase out cages by 2019, and in June 2010, Ohio agreed to place a moratorium on the construction of new conventional cages as part of an agreement to stop a ballot initiative.", "On July 7, 2011, UEP and HSUS announced that they had reached an \"unprecedented agreement\" to jointly work together to enact federal legislation that would greatly alter production conditions for egg-laying hens in the United States. The agreement included seven key provisions pertaining to the production of shell eggs and egg products that would:\nrequire, over a phase-in period, that conventional cage systems be replaced with enriched cage systems that double the amount of floor space per laying hen; require that the new enriched cage systems provide perches, nesting boxes, and scratching areas so that laying hens can express natural behaviors; mandate labeling on all egg cartons nationwide to inform consumers of the housing method used to produce the eggs; prohibit withholding of feed or water to force molting to extend the laying cycle; require standards approved by the American Veterinary Medical Association for euthanasia for egg-laying hens; prohibit excessive ammonia levels in henhouses; and prohibit the buying and selling of eggs and egg products that do not meet the standards.\nUEP and HSUS have been adversaries for many years over the use of conventional cages in table egg production, and the agreement is a marked shift in direction for both organizations. UEP approached its position on conventional cage production based on what the available science indicated provided welfare for laying hens. That was the basis for more than a decade of work through its Scientific Advisory Committee and the UEP Certified program. Prior to this agreement, the HSUS position was firmly held that only cage-free systems provided adequate welfare for laying hens (see \" Egg Production Systems and Hen Welfare ,\" below).\nUnder the agreement, all U.S. egg producers would have to end the use of conventional cages by the end of the phase-in period and meet production standards defined in law. For its part, in addition to reversing its cage-free stance, the HSUS agreed (1) to suspend its ballot initiatives in Oregon and Washington; (2) to not initiate, fund, or support other state ballot initiatives or legislation; (3) to not initiate, fund, or support litigation or investigations of UEP or its members; and (4) to not fund or support other organizations' efforts that would undermine the agreement. For HSUS, the agreement to work with a major livestock group could result in significant federal farm animal welfare legislation.\nThe agreement was the result of negotiations that became possible when UEP learned that HSUS might be open to discussing enriched cages for the U.S. egg industry in lieu of cage-free standards. According to Wayne Pacelle, HSUS president and CEO, visits to EU egg farms that were implementing enriched cage systems led to consideration of such systems in the United States. Both UEP and HSUS have indicated that it was in the interest of both sides to halt costly state-by-state battles over caged eggs that result in a variety of laws across the country.\nThe decision by UEP to enter into the agreement with HSUS was made through several votes by UEP's executive committee; the votes were not unanimous. The agreement was not put to vote of UEP's general membership, and reportedly the board members who voted for the agreement represented 45% of the egg industry.", "On April 25, 2013, the Egg Products Inspection Act Amendments of 2013 ( S. 820 and H.R. 1731 ) were introduced in the Senate and House. Both of the bills would amend the Egg Products Inspection Act (see box below) by adding cage size and production requirements for shell eggs. The bills are the result of the negotiations between UEP and HSUS and reflect their agreement of July 7, 2011, to establish uniform national cage size requirements for table-egg-laying hens. The bills also include labeling requirements, and air quality and treatment standards for egg-laying hens. The bills are similar to S. 3239 and H.R. 3798 , introduced in the 112 th Congress.\nThe main differences between the bills introduced in the 113 th Congress and those from the 112 th Congress are the more detailed provisions for California egg producers. For California, S. 820 and H.R. 1731 set deadlines for adding enrichments and expanding floor space requirements based on whether cages are new or existing (see \" Housing Requirements ,\" below). In addition, the legislation includes a four-step phase-in period for California (see \" Phase-In Conversion Requirements ,\" below).\nThe legislation also requires that any eggs bought or sold in California meet the California requirements in the legislation, no matter where the eggs are produced. Because California law bans the use of conventional cages after January 1, 2015 (see \" California Proposition 2 \" below), this provision could protect California egg producers from a flood of eggs from egg producers in other states who have not yet converted operations to the new national requirements.\nBesides the California differences, S. 820 and H.R. 1731 include a new provision that allows for excess ammonia levels because of special circumstances. Also, three exemptions are added to the legislation. Educational and research institutes and cages with one egg-laying hen are exempt, and the legislation explicitly states that the provisions apply only to commercial egg production, and exempt other livestock and poultry production.", "S. 820 and H.R. 1731 would prohibit the commercial buying and selling of shell eggs and egg products from laying hens that are not raised according to the new housing requirements. For California, the bills contained different standards during the phase-in period in recognition that California state law, adopted through the ballot initiative process in 2008, has laying hen requirements that are scheduled to go into force on January 1, 2015 (see \" California Proposition 2 ,\" below).", "The bills would require that cages used to house egg-laying hens include environmental enrichments, such as perch spaces, dusting or scratching areas, and nesting areas. The Secretary of Agriculture is to define these enrichments based on the best available science at the time the regulations are written. Environmental enrichments for new cages would need to be in place within 9 years of the enactment of the legislation, and for existing cages (cages in use prior to December 31, 2011) would need to be in place within 15 years of enactment. For California, environmental enrichments for new cages would need to be in place three months after enactment, and enrichments for existing cages must be in place by January 1, 2024.", "S. 820 and H.R. 1731 would set minimum floor space requirements for existing and new cages. For existing conventional cages in use on or before December 31, 2011, egg farmers would have four years from the date of enactment of the legislation to provide each white laying hen a minimum of 67 square inches of floor space, and each brown laying hen 76 square inches. Fifteen years after enactment, laying hens would need to have 124 and 144 square inches.\nFor new cage systems, the floor requirements for laying hens would have been phased in during the 15 years following the enactment of the legislation. Table 2 lists the floor space requirements that would have been phased in over 15 years, culminating in cages of 124 and 144 square inches.\nFor California, S. 820 and H.R. 1731 would require that cages have 116 square inches for white hens and 134 square inches for brown hens from January 1, 2015, through December 31, 2023. Beginning January 1, 2024, California cages would need to be 124 and 144 square inches, the standard for all laying hen cages, but California would reach the national standard about four years earlier than other states.", "In addition to environmental enrichments and floor space measures, the egg legislation would require that within two years of enactment of the legislation egg producers (1) keep ammonia levels in the air in egg-laying houses to less than 25 parts per million, except for temporary periods due to extraordinary weather or unusual circumstances; (2) not withhold feed or water to force laying hens to molt (lose their feathers to rejuvenate egg laying); and (3) follow the guidelines set out by the American Veterinary Medical Association (AVMA) for euthanasia.\nCurrent law also gives USDA the authority to inspect egg imports. Egg and egg product imports, like meat and poultry, are allowed into the United States under equivalency agreements. This means that imported products are produced and inspected in foreign countries in a manner that provides equivalent food safety as in U.S. domestic production. S. 820 and H.R. 1731 would amend import provisions to require that imported eggs and egg products be produced according to the standards of the EPIA. This import aspect potentially could become a trade issue in the future if foreign egg and egg product imports were required to meet U.S. production standards. However, U.S. egg imports are relatively small and from few countries, and this likely would not arise as a trade issue until the U.S. egg industry has fully transitioned to enriched cages in the future.\nAlso, the legislation would prohibit the introduction of new conventional cages that have less than 67 and 76 square inches for white and brown laying hens, and to which environment enrichments could not be added.", "S. 820 and H.R. 1731 would establish several benchmarks for the egg-laying industry to meet as it transitions to new enriched cage systems. The goal is to have at least 25% of the commercial egg-laying hens in cages that afford 90 and 102 square inches for white and brown laying-hens six years after enactment of the legislation. In the period 12 years after enactment, the target is for 55% of commercial egg-laying hens to have 113 and 130 square inches of floor space. Then in the final phase, all egg-laying hens would have to have a minimum of 124 and 144 square inches and environmental enrichments as of December 31, 2029.\nThe phase-in periods would be different for California. The first phase-in period would be 2½ years after enactment of the legislation and would require that 25% of cages provide 116 and 134 square inches for white and brown laying hens. Five years after enactment, 50% of cages would have to meet the first phase-in period space requirement, and after 7½ years, 75% would have to meet the space requirement. Finally, 10 years after enactment, all California cages would have to provide 124 and 144 square inches of floor space.\nAt the end of the six-year phase-in period, the Secretary of Agriculture would use data from an independent national survey of the industry to determine if the phase-in targets have been met. If the targets have not been achieved, then existing conventional cage systems that had been in operation prior to January 1, 1995, would have to meet the 90 and 102 square inch requirement beginning January 1, 2020. If California has not met its requirement, then one year after the Secretary's finding, all cages would be required to provide 124 and 144 square inches for white and brown laying hens.\nThe legislation also would require the Secretary of Agriculture to submit compliance reports to the House and Senate Agriculture Committees after the 12-year mark and after December 31, 2029.", "The legislation would amend the EPIA to require housing labels on shell eggs and egg products that are legible markings on the side or top of packages. The four label options are:\nEggs from free-range hens —eggs or egg products from laying hens not housed in cages and provided with outdoor access; Eggs from cage-free hens —eggs or egg products from laying hens not housed in cages; Eggs from enriched cages —eggs or egg products from laying hens housed in cages with adequate environmental enrichments and a minimum of 101 and 116 square inches of individual floor space per white and brown hens; and Eggs from caged hens —eggs or egg products from laying hens housed in cages without adequate environmental enrichments and less than the minimum of 101 and 116 square inches of individual floor space per white and brown hens.\nThe responsibility for ensuring that shell eggs and egg products were properly labeled with the method of housing would fall to USDA. The housing label requirement would go into force one year after the enactment of the bill.", "S. 820 and H.R. 1731 would provide six exemptions to the new requirements: (1) egg farmers who installed new cages between January 1, 2008, and December 31, 2011, would have until December 31, 2029, to meet the floor space requirements; (2) laying-hen flocks that are in production when the bill was enacted would be exempt from the provisions until the flocks are removed from production; (3) small egg producers—defined as those with less than 3,000 laying hens—would be exempt from the requirements; (4) the provisions do not apply to educational and research institutions; (5) the enrichment provisions do not apply to cages with one egg-laying hen; and (6) the provisions of the legislation do not apply to production of pork, beef, turkey, dairy, broiler chicken, veal, or other livestock or poultry.", "The provisions of H.R. 3798 and S. 3239 were endorsed by agricultural, veterinary, consumer, and animal protection groups. Egg farmers and other family farms in more than 30 states also endorsed the bills. In what some supporters of H.R. 3798 and S. 3239 considered significant backing for the bill, the executive board of the American Veterinary Medical Association (AVMA) voted to support H.R. 3798 in March 2012. AVMA explained, \"The decision was not made lightly. There was extensive deliberation, and the board reasoned that the standards are consistent with AVMA policy, as well as industry long-term expectations about changes in egg-production practices.''\nSupporters of H.R. 3798 and S. 3239 also pointed to consumer support for changes in egg cages. In a two-part survey commissioned by UEP, survey respondents indicated by a 4-to-1 margin that they would support legislation transitioning from conventional cages to enriched cages. In the second part of the survey, respondents indicated support for federal legislation by a 2-to-1 margin. According to Dr. Jeffrey Armstrong, who has been a member of UEP's Scientific Advisory Committee from its beginnings, public perception is turning against conventional cages, and the UEP-HSUS agreement affords egg producers the chance to regain public trust.\nOther groups representing agriculture and livestock producers, such as the American Farm Bureau Federation (AFBF), the National Cattlemen's Beef Association (NCBA), and the National Pork Producers Council (NPPC), said that they vigorously opposed H.R. 3798 and S. 3239 . After the UEP-HSUS agreement was announced, NCBA stated, \"Cattlemen are rightfully concerned with the recent UEP-HSUS agreement to seek unprecedented federal legislation to mandate on-farm production standards.\" In its statement, the NPPC called such legislation on egg cages a \"dangerous precedent,\" and was \"gravely concerned that such a one-size-fits-all approach will take away producers' freedom to operate in a way that's best for their animals.\" In a December 6, 2011, letter to the House Agriculture Committee, eight farm groups expressed their opposition to any proposed legislation resulting from the USP-HSUS agreement.\nAlthough some animal welfare groups signed on with HSUS in endorsing the shift to enriched cages, other related groups remained strongly opposed to H.R. 3798 and S. 3239 because of their view that an enriched cage is still a cage that harms laying-hen welfare. The Humane Farming Association (HFA) is leading a campaign to \"Stop the Rotten Egg Bill\" emphasizing that H.R. 3798 and S. 3239 could nullify already enacted state law, take away citizens' right to vote on cages, and prevent state legislatures from passing laws to protect laying hens.", "UEP and supporters of the egg legislation argue that this legislation is the best path for the egg industry in order to avoid constant fights and growing costs to defend current production methods. According to Gene Gregory, president of UEP:\nEgg farmers believe a single national standard is the only way to shape their own future as sustainable, family-owned businesses. It is the only way to have some control over their own destiny and avoid a bleak future of overlapping, inconsistent, unworkable, state-based animal welfare standards that will result from ballot initiatives our industry cannot win even if we raise millions of dollars to try to educate the public, as we did in California in 2008.\nOpponents argue that pursuing legislation at the federal level had consequences that could impact all livestock and poultry producers. In addition, the costs are likely to be high and especially costly for small egg farmers. Several issues are highlighted below.", "UEP recognizes that federally mandated production methods would be a significant change, but one that is necessary to keep the egg industry from confronting a variety of inconsistent state standards. UEP believes that the egg market would function more efficiently if there were a single national standard. California and Michigan—two large egg-producing states—have enacted legislation that will require egg producers to abandon cage production by 2015 and 2019, potentially putting them at a cost disadvantage to caged production. It also is costly for the egg industry to challenge state ballot initiatives or proposed legislation on a state-by-state basis.\nOpponents argue mandatory standards are being driven \"largely on the political goals of an animal rights group that seeks to eventually shut down animal agriculture by government mandate.\" Current animal welfare law, the Animal Welfare Act (7 U.S.C. §§2131-2159), does not apply to farm animals. Other federal laws and regulations cover areas such as animal health and food safety, but do not prescribe how U.S. farmers raise their animals. Most livestock and poultry groups have developed voluntary guidelines on \"best practices\" for animal welfare that most producers follow. Opponents of H.R. 3798 and S. 3239 wanted producers to maintain control of production methods.\nAccording to Gene Gregory, UEP president, UEP forwent negotiating voluntary guidelines, similar to the UEP Certified program, which would have encouraged egg farmers to transition to enriched cages because of unresolved antitrust lawsuits that have been brought against UEP and some egg producers. UEP has been accused of using the UEP Certified welfare standards that increase cage space per laying hen to reduce egg production and drive up prices, as well as encouraging egg producers to cull flocks when feed prices climbed in 2008.", "In order to avoid affecting the production practices of other livestock sectors in the legislation, UEP and HSUS pushed their proposed legislation through an amendment to the EPIA, which only addresses the egg industry and not the livestock or poultry sectors. Both UEP and HSUS pointed out that the egg legislation could succeed in Congress only if the industry was in agreement. Similar legislation for other livestock or poultry industries seemed unlikely. Reportedly, UEP and HSUS agreed that if any similar legislation or amendments were proposed that involved other livestock or poultry sectors, the two groups would abandon their support for the bills.\nAlthough cage requirements would have been embedded in law that applied only to eggs and egg products, opposition groups believed that successful enactment of H.R. 3798 and S. 3239 would have encouraged future federal legislation mandating other animal husbandry practices. This view probably was held most strongly by many hog producers, whose use of sow gestation crates (small confined crates where sows birth their piglets) has been under attack for several years. The use of gestation crates is already being phased out by some state laws, and is banned in the EU in 2013.", "One of the main criticisms of the egg legislation is that cage requirements are not based on specific scientific research that says the requirements are optimal for laying-hen welfare. But as the AVMA pointed out when evaluating its position on H.R. 3798 , the available science suggests that the proposed standards of H.R. 3798 would likely still improve the lives of egg-laying hens. The AVMA also recognized opposition to the agreement among egg producers, and stated that it would work to make sure the legislation results in welfare improvements with minimal impacts on producers, associated industries, and consumers.\nOpponents were also concerned that the egg legislation would be a move away from the long established position shared among animal agriculture groups that animal husbandry decisions affecting welfare should be based on the best available science. Opponents argued that U.S. producers already raise and manage their animals with practices that are science-based and overseen by veterinarians, and that animal welfare is a priority for livestock and poultry producers. Most livestock and poultry groups have established voluntary programs, such as the pork producers' Pork Quality Assurance (PQA) and the cattlemen's Beef Quality Assurance (BQA), that include animal welfare guidance. Furthermore, opponents of the egg legislation argue that if standards were codified into law, then future science-based innovations in animal management and/or welfare could be limited, and that Congress would end up regularly amending federal standards as the science changed.", "Transition and production costs were a major concern for egg producers, especially small producers, because of the substantial investment required to convert from conventional cages to enriched cages. Estimated egg industry costs of H.R. 3798 and S. 3239 varied greatly. The July 2011 UEP-HSUS agreement announcement included an estimate of $4 billion over the transition period. Opponents of the bill said that the cost to the egg industry was much higher, at $8 billion-$10 billion.\nMost likely the cost would vary across egg farms, because some operations would have to invest in more than just new enriched cages, as some new housing structures would have to be built to accommodate enriched cages. Houses with enriched cages could also require more heating as there would be less natural heating as birds are spaced further apart. This could be a comparative advantage for house expansion in the South as compared to the colder Midwest.\nThe lead group on the December 2011 letter to the House Agriculture Committee opposing federal legislation was the Egg Farmers of America, a group composed of small egg producers. Egg Farmers of America was formed to oppose the UEP-HSUS agreement and H.R. 3798 and S. 3239 . According to one of its members, the per-hen cost to convert to enriched cages is $25-$30, nearly four times the cost of conventional cages. The member estimated that converting his 300,000 laying-hen flock would cost about $8 million-$9 million. In addition, conventional cages have a useful life of 25-30 years, which means that some farms could have to convert when their conventional cages were still useful. Obtaining bank loans when credit is tight could be difficult, especially if there was still a useful life for a farmer's conventional cages.\nThe shift to enriched cages could also lead to an acceleration of consolidation in the egg industry as the largest egg farms continue to expand, and capital costs squeeze small egg producers. An analyst at the Egg Industry Center at Iowa State University noted that medium egg farms (under 1 million laying hens) might try to expand or just exit the business, while the very small egg farms could produce eggs for niche markets such as cage-free or organic.\nBesides the large capital investment required to transition to enriched cages, questions have arisen about what future egg production operating costs would be compared with the current model using conventional cages. One study indicated that eggs produced in cage-free systems would cost 25% more than those produced in conventional cages. However, enriched cage production would not be exactly comparable to cage-free production. In a limited sample, JS West and Companies, a commercial egg producer in California, built an enriched cage house in 2010 and in January 2012 released results comparing production in its enriched cage (116 square inches) and conventional cage (67 square inches) systems. According to JS West:\nthe hen mortality rate in the enriched cages was less than in conventional cages, 4.22% vs. 7.61%; egg output per hen was higher in the enriched cages by 22 eggs, 421 vs. 399 eggs; the average weight of a case of eggs was higher from the enriched cages, 49.4 pounds compared to 47.93 pounds; feed use per 100 hens was 22.60 pounds in the enriched cages and 20.45 pounds in the conventional cages; and feed use per dozen eggs was 3.19 pounds for the enriched cages vs. 3.00 pounds for the conventional cages.\nThese limited data suggest that feed costs may be somewhat higher in an enriched cage system because of increased feed use, but there appear to be offsetting productivity gains that could make up for higher feed costs.\nOn June 1, 2012, UEP released a new study of the economic impacts of converting to enriched cages. The report estimated a baseline for capital investment, production costs, and consumer prices that will occur over the next 18 years under current table egg production methods. The study also estimated this for production under the provisions of the bills. In summary, the study found that production under enriched cages would require an additional $2.6 billion in capital investment ($3.1 billion v. $5.7 billion). The production costs for eggs from enriched cages are estimated to be about $0.06 (+8%) per dozen higher in 2030, the end of the phase-in period, than under current production methods. For retail eggs, the per-dozen price in 2030 is also estimated $0.06 higher, but would be a 3% increase over expected prices from current production methods.\nIt should be noted that this study examines the table egg industry in aggregate. Egg farmers could face different costs depending on individual circumstances.", "Animal welfare has become an increasingly salient public issue over the past decade. More recently, social media publication of graphic videos of the treatment of laboratory animals (e.g., apes, cats, dogs), commercial pet breeding operations (e.g., \"puppy mills\"), and farm animals (e.g., slaughter houses, swine and poultry farms) has contributed to rising public awareness of how humans use animals, and how these animals are treated. Some of this awareness has been expressed in appeals for more vigorous enforcement of state and local animal abuse and cruelty laws. Other individuals and groups, citing animal welfare issues, environmental issues, and/or social justice issues, have called for significantly reducing or even ending the consumption of meat and animal products. As the UEP-HSUS agreement and H.R. 3798 and S. 3239 suggest, animal agricultural producers likely will face more animal welfare campaigns and growing public interest in farm animal welfare. The following sections discuss recent animal welfare issues as they pertain to hens.", "Approximately 95% of laying hens in the United States are confined in conventional battery cages. The use of conventional battery cages accompanied the increasing concentration of the egg production sector. Producers found that the cages reduced their production costs (e.g., feed costs). There is little controversy over the idea that conventional battery cages cause many hen welfare problems. Battery cages are cramped structures that prevent hens from engaging in their most basic natural behaviors, such as fully turning their heads, stretching their wings, roosting, nesting, and standing upright. Battery cages typically have slanted wire mesh flooring and may be stacked several tiers high. Thousands of hens may be housed in a single laying house. Other housing systems, however, may create other types of hen welfare concerns.\nHen welfare is determined by, among other factors, genetics, disease, pest and parasite loads, stress, nutrition, and the birds' natural behaviors. Research on the influence of these factors on hen welfare is still in the early stages. Different housing systems have different effects on hen welfare. One housing system can improve hen welfare in some respects, while exacerbating other welfare issues. To better understand the relationship of housing and hen welfare, the Poultry Science Association convened an international symposium on the Social Sustainability of Egg Production in 2010. At this symposium, 11 animal scientists from U.S. and European universities and research laboratories presented a review of 202 research articles on hen behavior and housing systems published over the past three decades. This review outlined the welfare impacts attendant on four different housing systems: (1) conventional cages, (2) enriched cages, (3) cage-free systems, and (4) free-range outdoor systems. Two central findings from the review of the research on housing and hen welfare are that \"assessing hen health and welfare is difficult and multifactorial\" and that \"no single housing system is ideal from a hen welfare perspective.\" Characteristics of the various housing systems and their potential effects on hen behavior and welfare examined in the review are discussed briefly below.\nConventional cages inherently restrict hens from expressing \"highly motivated behaviors\" for their entire laying lives. Behaviors associated with body maintenance (e.g., wing flapping, tail wagging, stretching), locomotion, and regulating body temperature are significantly curtailed in conventional cages. At high densities, hens suffer plumage damage from rubbing against the cages and lose capacity to regulate body temperature. High densities and little space limit access to food and water as other hens block the path to food and more aggressive breeds defend the feeder from other hens. Higher densities can increase the incidence of feather pecking, cannibalism, and smothering, although these risks can be reduced by beak trimming and group selection. Nesting behavior is a behavioral priority, and conventional cages lack materials for nest building. The absence of nest building material is thought to reduce hen welfare given that hens seem to prefer depositing eggs in molded nests rather than slanted wire floors.\nEnriched cages (furnished cages or enriched colonies) were developed in response to the criticisms about conventional cages. Enriched cages typically have a nesting box, perches, and a dustbathing area. The review noted that these features permit hens more behavioral freedom than found with conventional cages. However, enriched cages have limited space per hen thus limiting their ability to run or flap their wings. Exercise is significantly restricted. Nesting and perching may also be restricted. Litter inside the cages may be quickly depleted and cause stress to the hens who are excluded from dustbathing by more dominant hens. While some regard enriched cages as an improvement over conventional battery cages, others see little improvement in this housing system.\nCage-free systems provide \"sufficient space for performance of a full repertoire of locomotory and body-maintenance behaviors.\" With larger flock sizes (>1,000), the review noted that cannibalism and feather pecking can increase, although beak trimming can lessen these behaviors, as can reducing flock size. Stocking densities in cage-free systems can have a bearing on hen behavior, with low densities possibly triggering aggressive defense behavior around certain resources in the cage-free housing. Cage-free systems may have all slatted floors or all litter floors, or a combination of the two. The opportunity to forage in litter is important for hen welfare. Foraging in litter can reduce the incidence of cannibalism and feather pecking. Accessibility to litter, quality of the litter, and experience with litter during rearing appear to be critical variables affecting behavior in cage-free systems. The research review also noted that perches appear to reduce aggression in hens, although in the United States, cage-free systems generally do not provide adequate perch space for all hens to perch at night. Some cage-free systems do not provide perches.\nFree-range (outdoor) systems permit hens to spread out when foraging and, in general, increase the hens' behavioral options. Outdoor systems permit the hens to eat preferred foods such as grass seeds, earthworms, and flying insects. They also can sun themselves and dust bathe. Cannibalism, feather pecking, and piling, however, can increase in larger free-range flocks. While the greater environmental complexity of free-range systems increases behavioral opportunity for hens, according to the research review, this complexity can also introduce difficulties in managing disease and parasites. Indoor barn systems, while not permitting access to the outdoors, may offer some compromise between cage and non-cage systems.\nAs this research review of egg production systems shows, very little research on hen housing and welfare is available that compares all factors affecting welfare under different housing systems. Mortality is greater in conventional cages than in enriched cage systems. In non-cage systems, mortality can be significant. Free-range housing may increase behavioral options for hens, but disease and parasite management can be more difficult, and welfare problems from cannibalism and predation can increase. The authors of the survey also noted that the overall management of each housing system is a critical component of hen welfare. Housing systems that may be superior along certain dimensions of hen welfare can be compromised by poor management. The authors conclude that the \"right combination of housing design, breed, rearing conditions, and management is essential to optimize hen welfare and productivity.\"", "The Animal Welfare Act (AWA, P.L. 91-579, 7 U.S.C. §§2131-2159) is the primary United States statute governing the treatment of animals, including marine mammals, and animals used in research. The AWA is administered by USDA's Animal and Plant Health Inspection Service. Animal health standards (e.g., medical treatment, feeding, watering, sanitation, enclosures, handling), transportation standards (e.g., carriers, primary means of conveyance, care in transit), animal exhibitions (e.g., zoos, carnivals, circuses), and animal fighting are major areas regulated under the AWA. However, the AWA explicitly excludes farm animals from its regulatory oversight. While most states have laws related to animal cruelty or animal welfare, most of these statutes also exclude farm animals from coverage. Farm animal welfare is, then, largely a matter of the actions of individual producers. Producer organizations (e.g., NCBA, NPPC, and UEP) may develop best-practice standards of animal care for their members, but these standards are voluntary and do not carry the force of law.\nLegislation has been introduced in the past several congresses to address farm animal welfare. In the 110 th Congress, the Farm Animal Stewardship Purchasing Act ( H.R. 1726 ) would have required that government purchases of animal products be restricted to livestock products from animals raised under specific welfare conditions. The Farm Animals Anti-Cruelty Act ( H.R. 6202 ) would have promoted farm animal well-being by imposing fines on producers who abuse animals in food production. In the 111 th Congress, the Prevention of Farm Animal Cruelty Act ( H.R. 4733 ) would, like H.R. 1726 , have required that government purchases of animal products be restricted to livestock products from animals raised under specific welfare conditions. None of these bills were enacted. With the exception of H.R. 3798 and S. 3239 , no other bills addressing farm animal welfare have been introduced in the 112 th Congress.", "", "Proposition 2, or the Standards for Confining Farm Animals, was a 2008 ballot initiative in California. The proposition, sponsored by HSUS, was approved by nearly 64% of the voters. Proposition 2 requires that all farm animals, \"for all or the majority of any day,\" not be confined or tethered in a manner that prevents them from lying or sitting down, standing up, turning around or fully extending their limbs without touching another animal or an enclosure such as a cage or stall. The law will go into effect on January 1, 2015.\nIn July 2010, California bill A.B. 1437 was enacted, requiring that all shelled (whole) eggs sold in California come from cage-free hens. The intent of the law is to \"protect California consumers from the deleterious health, safety, and welfare effects of the sale and consumption of eggs derived from egg-laying hens that are exposed to significant stress and may result in increased exposure to disease pathogens including salmonella.\" This law will also go into effect on January 1, 2015. While Proposition 2 applies only to laying hens in California, the effect of the 2010 law will require that egg farms in other states abide by California's law regarding layers if they wish to sell eggs in the state.\nOn May 6, 2013, the California Office of Administrative Law approved California Department of Food and Agriculture regulations setting standards for cage sizes. Under the approved regulation, enclosures with nine or more table-egg-laying hens must have a minimum of 116 square inches of floor space per bird. The regulation also includes a formula for calculating floor space requirements for enclosures with fewer than nine laying hens.", "Proposition 2 has been challenged in state courts by California egg producers three times since the law was enacted, primarily due to the vagueness of the law. These lawsuits were dismissed. Challenges to California's shell egg laws moved to federal court in February 2014 when Missouri challenged the 2010 law in U.S. District Court.\nIn December 2010, a commercial egg producer in California, JS West and Companies, filed suit against HSUS and the state of California to clarify what type of housing for hens was acceptable under Proposition 2, claiming that the statute did not define how much space is required for the specified animal behaviors. The egg company opened an \"enriched colony\" system in 2010 that provided 116 square inches of space per hen, significantly larger than the egg industry standard of 67-87 inches. The HSUS, in response, stated that Proposition 2 requires \"cage-free environments.\" While Proposition 2 does not specifically state cage sizes, the living conditions required by Proposition 2 would effectively require cage-free environments. The Association of California Egg Farmers (ACEF), representing 70% of California's egg farmers, joined the suit in March 2011. In July 2011, the California Superior Court ruled that JS West could not challenge California at the time because the state had not yet established a position on what types of housing would meet Proposition 2 requirements.\nIn April 2012, William Cramer, a California egg farmer in Riverside County, filed suit in the U.S. District Court, Central District of California, claiming that Proposition 2 is unconstitutionally vague and violates the U.S. Constitution's commerce clause. According to Cramer's complaint, California egg farmers cannot know if they are violating the law because of the vagueness of Proposition 2, and farmers will exit the egg business because it creates an uncertain investment environment. In addition, Cramer stated that California consumers will be harmed because egg prices will rise. The lawsuit also contended that the California law on egg production violates the commerce clause because it will interfere with the interstate sales of eggs. In September 2012, the District Court rejected Cramer's claims that Proposition 2 is vague and violated the commerce clause.\nIn November 2012, the ACEF filed another suit asking the Fresno County Superior Court to find that the language of Proposition 2 was unconstitutionally vague according to California's constitution. The ACEF claimed that the lack of size and density requirements in Proposition 2 make it impossible for California egg producers to alter cage sizes to comply with the January 1, 2015, deadline. On August 22, 2013, the court ruled against the plaintiffs, stating that \"[t]he fact that the statute defines confinement limitations in terms of animal behaviors rather than in square inches or other precise measurements does not render the statute facially vague.\"", "On February 3, 2014, the Missouri Attorney General filed a lawsuit in the U.S. District Court in Fresno, CA, to challenge the 2010 California egg law. Missouri claims that California's law violates the interstate commerce clause of the U.S. Constitution by imposing production requirements on out-of-state egg farmers. According to the lawsuit, Missouri ships about one-third of its 1.7 billion annual egg production to California, and Missouri egg producers would have to spend $120 million to meet the California cage requirements.", "In September 2009, Michigan became the second state to enact legislation (HB 1527) to restrict the use of conventional cages for laying hens. Similar to the California law, the Michigan law prohibits gestating sows, calves raised for veal, and egg-laying hens from being confined in a manner that prevents them from lying down, standing up, fully extending limbs, and turning around freely. The provisions of the Michigan legislation were the result of negotiations between the Michigan Pork Producers Association, the Michigan Allied Poultry Industries, the Michigan Agri-Business Association, and the HSUS. The legislation stopped the HSUS from pursuing a ballot initiative campaign in Michigan on animal confinement during 2010. The Michigan provisions for egg-laying hens go into force in 2019.", "Article 13 of the Treaty on the Functioning of the European Union recognizes animals as sentient beings and requires that full regard be given to the welfare of animals when formulating and implementing EU policy. A 1964 book — Animal Machines —significantly increased awareness of animal welfare in the EU, particularly the welfare of farm animals. The book also helped create public pressure in the EU to end the use of battery cages, the production method most in use in OECD countries. Subsequent research on non-cage systems led to an EU Directive that first specified a minimum size for battery cages in 1986. The Farm Animal Welfare Council, established by the UK government in 1979, issued an analysis of hen welfare and egg production systems in 1986, followed by two additional reports in 1991 and 1997 on the welfare of laying hens.\nOn June 17, 1999, the European Union announced passage of a new directive that would, over 13 years, phase out the use of battery cages for laying hens. The ban, effective January 1, 2012, and relying on advice from the EU's Scientific Veterinary Committee, prohibits the use of conventional battery cages for hens. Egg production in the EU now allows only enriched caging systems or non-cage systems. Enriched cages (sometimes referred to as colony cages) have a small perch, a litter area for scratching, and a nesting box. The enriched cage is somewhat higher than the conventional battery cage and has slightly more space per hen.\nThe European Commission announced plans in January 2012 to take legal action against 13 member states who are in breach of the new rules—Belgium, Bulgaria, Cyprus, Greece, Hungary, Italy, Latvia, the Netherlands, Poland, Portugal, Romania, Slovakia, and Spain. The EU Commission sent formal notices asking each of the 13 noncompliant member states for information about how it would correct deficiencies in implementing the ban on battery cages. The EU Commission noted that noncompliance had animal welfare consequences, and also distorted the egg market. By November 2012, only Cyprus, Greece, and Italy were not in compliance with the EU hen cage rules.\nSome EU countries transitioned to enriched cages ahead of the 2012 deadline for compliance. Sweden banned the use of conventional cages by the end of 2002; Austria banned their use by the end of 2008; and Germany followed by the end of 2009. Austria and Belgium also plan to ban enriched cages by 2020 and 2024, respectively. Outside the EU, Switzerland banned battery cages in 1992. Battery cages are still legal in non-EU countries, and there is no current ban on the import into the EU of eggs produced in non-EU countries in battery cages. Such eggs will require a country-of-origin label and must indicate that the farming method used to produce the eggs is \"non-EC standard.\"\nImplementation of the ban has imposed increased costs for eggs in the EU. According to the EU Commission, egg supplies fell and egg prices \"surged considerably\" in the weeks following the implementation of the January 2012 ban. Data released by the Commission showed that table egg prices increased 44% by March 2012 from the end of 2011. Prices for eggs used by the food industry—normally as much as 50% less expensive than supermarket eggs—also increased 10%-20% in price. The EU wholesale prices for whole pasteurized liquid egg increased 102% year-over-year. Based on the experience of Germany, which banned conventional cages in 2007, the Commission noted that they expected egg prices to stabilize by early May, even as they expect total egg production to fall by 2.5% in 2012. Indeed, EU egg prices peaked in March, remained relatively high in April, but moved lower throughout the rest of the year. Although 2012 EU egg prices were higher than a year earlier because of high input costs, the November 2012 price was 16% lower than the March peak.\nOn February 15, 2012, the European Commission issued its general strategy for the protection and welfare of animals. The EU already had directives on various aspects of animal welfare including transportation; slaughtering; and specific requirements for housing calves, pigs, laying hens, and broilers. EU rules on organic production also include high animal welfare standards for cattle, pig, and poultry production. The new EU strategy will consider introducing a simplified legislative framework with animal welfare principles for all animals. This framework would use science-based animal welfare indicators to simplify the legal framework, provide more information to consumers on animal welfare, create a common set of requirements for personnel handling animals, and establish a EU network of animal welfare centers." ], "depth": [ 0, 1, 1, 2, 2, 2, 1, 2, 2, 1, 2, 2, 2, 1, 2, 3, 3, 3, 2, 2, 2, 1, 2, 3, 3, 3, 3, 1, 2, 2, 1, 2, 3, 3, 2, 2 ], "alignment": [ "h0_title h2_title h4_title h3_title h1_title", "h0_full h2_full h1_full", "h1_title h4_title", "h4_full h1_full", "h4_full", "h4_full", "", "", "", "h2_title", "", "", "h2_full", "h1_full", "", "", "", "", "", "", "", "h2_full h4_title h3_title", "h4_title h3_title", "", "h3_full h4_full", "h3_full", "h3_full", "h1_title h3_title", "", "h3_full h1_full", "h3_title", "", "", "", "", "h3_full" ] }

{ "question": [ "Why are the United Egg Producers and the Human Society of the United States adversaries?", "Why did the UEP and HSUS agree to work together?", "What does the legislation they are pushing for hope to accomplish?", "What did HSUS agree to when it made an agreement to work with UEP?", "What characterizes the Egg Products Inspection Act Amendments of 2013?", "What issues do the S. 820 and H.R. 1731 seek to address?", "What specific things would the S. 820 and H.R. 1731 regulate nationally?", "Why does the UEP support the agreement and legislation?", "Why did HSUS compromise on this legislation?", "What groups have endorsed egg legislation in the past?", "Why are farm group opponents concerned about egg legislation?", "What do opponents believe about cage requirements?", "What economic concerns do opponents have?", "What was the legislative process for the egg bill?", "What egg bills were discussed during the farm bill debate?", "What would have been the implication of H.R.2642?" ], "summary": [ "The United Egg Producers (UEP), the largest group representing egg producers, and the Humane Society of the United States (HSUS), the largest animal protection group, have been adversaries for many years over the use of conventional cages in table egg production.", "In July 2011, the animal agriculture community was stunned when the UEP and HSUS announced that they had agreed to work together to push for federal legislation to regulate how U.S. table eggs are produced.", "The agreement between UEP and HSUS called for federal legislation that would set cage sizes, establish labeling requirements, and regulate other production practices.", "As part of the agreement, HSUS agreed to immediately suspend state-level ballot initiative efforts in Oregon and Washington.", "On April 25, 2013, the Egg Products Inspection Act Amendments of 2013 (S. 820 and H.R. 1731) were introduced in the 113th Congress. The bills are nearly identical to the legislation that was introduced during the 112th Congress (S. 3239 and H.R. 3798).", "The provisions in S. 820 and H.R. 1731 reflect the 2011 agreement between UEP and HSUS to establish uniform, national cage size requirements for table egg-laying hens.", "The bills would codify national standards for laying-hen housing over a 15- to 16-year phase-in period, including labeling requirements to disclose how eggs are produced, and set air quality, molting, and euthanasia standards for laying hens.", "UEP views the legislation as being in the long-term survival interest of American egg farmers. It says that egg producers would benefit from national egg standards that halt costly state-by-state battles over caged eggs that result in a variety of laws across the country.", "For HSUS, which has actively campaigned for cage-free egg production, accepting enriched cages was a compromise, but one that could result in significant federal farm animal welfare legislation.", "Egg legislation has been endorsed by a wide range of agricultural, veterinary, consumer, and animal protection groups.", "Farm group opponents have criticized egg legislation for several reasons. First, they are concerned that the bills federally mandate management practices for farm animals, something that has not been done in the past. These groups argue that the bills could set a precedent, paving the way for future legislation on animal welfare for other livestock and poultry industries.", "Opponents hold the view that the cage requirements are not science-based, and undermine long-standing views that animal husbandry practices should be based on the best available science. They also argue that codifying cage standards today ignores innovations that could appear in the future.", "Additionally, opponents are concerned that the capital cost of transitioning to enriched cages would be high, and could be prohibitive for small producers.", "UEP and HSUS and other supporters favor moving egg legislation forward through the farm bill process, but other livestock groups strongly oppose this legislative route. Reportedly, S. 820 was considered for inclusion in the Senate Agriculture Committee 2013 farm bill draft, but it was not included. The final Agricultural Act of 2014 (P.L. 113-79) did not include the amendment.", "Senator Feinstein's submitted egg bill amendment (S.Amdt. 1057) was not considered during the Senate farm bill (S. 954) floor debate.", "The House-passed farm bill (H.R. 2642) included Section 12312, known as the King amendment, which would have prohibited states from imposing standards on agricultural products produced in other states." ], "parent_pair_index": [ -1, 0, 1, 1, -1, 0, 0, -1, 0, -1, -1, 0, 0, -1, 0, -1 ], "summary_paragraph_index": [ 0, 0, 0, 0, 1, 1, 1, 3, 3, 3, 4, 4, 4, 5, 5, 5 ] }

{ "title": [ "", "Background", "Implementing the Peace Agreement", "1999-2002: Instability in the Devolved Government", "2003-2007: The Struggle to Restore Devolution", "2008-2010: The Transfer of Policing and Justice Powers", "Police Reforms", "Security Normalization", "Current Crisis in the Devolved Government", "The March 2017 Snap Assembly Elections", "Status of Negotiations", "Initiatives to Further the Peace Process", "The Haass Initiative", "The Stormont House Agreement and Implementation Problems", "The Fresh Start Agreement", "Ongoing Challenges", "Sectarian Sticking Points: Parading, Protests, and the Use of Flags and Emblems", "Dealing with the Past", "Remaining Paramilitary and Dissident Activity", "Paramilitary Concerns", "The Dissident Threat", "Economic Issues", "Possible Implications of Brexit55", "The Irish Border, the Peace Process, and Status Issues", "Economic Concerns", "U.S. Policy", "International Fund for Ireland" ], "paragraphs": [ "", "Between 1969 and 1999, almost 3,500 people died as a result of political violence in Northern Ireland, which is a part of the United Kingdom (UK). The conflict, which has its origins in the 1921 division of Ireland and is often referred to as \"the Troubles,\" has reflected a struggle between different national, cultural, and religious identities. Protestants in Northern Ireland (48%) largely define themselves as British and support continued incorporation in the UK ( unionists ). Catholics in Northern Ireland (45%) consider themselves Irish, and many Catholics desire a united Ireland ( nationalists ). More militant unionists are often termed loyalists , while more militant nationalists are referred to as republicans ; in the past, loyalists and republicans have been willing to use force to achieve their goals.\nThe latest version of the Troubles was sparked in late 1968, when a civil rights movement was launched in Northern Ireland mostly by Catholics, who had long faced discrimination in areas such as electoral rights, housing, and employment. This civil rights movement was met with violence by some unionists, loyalists, and the police, which in turn prompted armed action by nationalists and republicans. Increasing chaos and escalating violence led the UK government to deploy the British Army on the streets of Northern Ireland in 1969 and to impose direct rule from London in 1972 (between 1920 and 1972, Northern Ireland had its own regional government at Stormont, outside Belfast).\nFor years, the British and Irish governments sought to facilitate a negotiated political settlement to the conflict in Northern Ireland. After many ups and downs, the two governments and the Northern Ireland political parties participating in the peace talks announced an agreement on April 10, 1998. This accord became known as the Good Friday Agreement (for the day on which it was concluded); it is also known as the Belfast Agreement.\nAt the core of the Good Friday Agreement is the \"consent principle\"—that is, a change in Northern Ireland's status can come about only with the consent of the majority of its people (as well as with the consent of a majority in Ireland). While the agreement acknowledged that a substantial section of the population in Northern Ireland and a majority on the island desired a united Ireland, it recognized that the majority of people in Northern Ireland wished to remain part of the UK. If the preferences of these majorities were to change, the agreement asserted that both the British and Irish governments would have a binding obligation to bring about the wish of the people; thus, the agreement included provisions for future polls to be held in Northern Ireland on its constitutional status should events warrant.\nThe Good Friday Agreement set out a framework for devolved government—the transfer of specified powers over local governance from London to Belfast—and called for establishing a Northern Ireland Assembly and Executive Committee in which unionist and nationalist parties would share power. To ensure that neither unionists nor nationalists could dominate the Assembly, the agreement specified that \"key decisions\" must receive cross-community support. The Executive Committee would be composed of a first minister, deputy first minister, and other ministers with departmental responsibilities (e.g., health, education, employment).\nIn addition, the Good Friday Agreement contained provisions on several issues viewed as central to the peace process: decommissioning (disarmament) of paramilitary weapons; policing; human rights; UK security normalization (demilitarization); and the status of prisoners. Negotiations on many of these areas had been extremely contentious. Experts assert that the final agreed text thus reflected some degree of \"constructive ambiguity\" on such issues.\nFinally, the Good Friday Agreement created new \"North-South\" and \"East-West\" institutions. A North-South Ministerial Council was established to allow leaders in the northern and southern parts of the island of Ireland to consult and cooperate on cross-border issues. A British-Irish Council also was formed, composed of representatives of the two governments and the devolved administrations of Northern Ireland, Scotland, Wales, the Channel Islands, and the Isle of Man to discuss matters of regional interest.\nVoters in Northern Ireland and the Republic of Ireland approved the Good Friday Agreement in separate referendums on May 22, 1998. Elections to the new Northern Ireland Assembly, which had 108 seats at that time, took place on June 25, 1998. The two biggest and mainstream unionist and nationalist parties at the time—the Ulster Unionist Party (UUP) and the Social Democratic and Labour Party (SDLP)—won 28 and 24 seats respectively. The harder-line Democratic Unionist Party (DUP), despite its continued opposition to many parts of the Good Friday Agreement, won 20 seats; Sinn Fein, the associated political party of the Irish Republican Army (IRA), won 18; and a number of smaller parties claimed the rest of the Assembly seats.", "Despite a much-improved security situation since the signing of the Good Friday Agreement in 1998, full implementation has been difficult. For years, decommissioning and police reforms were key sticking points. Sporadic violence from dissident republican and loyalist paramilitary groups that refused to accept the peace process and sectarian strife between Protestants and Catholics also helped to feed ongoing mistrust between the unionist and nationalist communities.", "Although Assembly elections were held in June 1998, devolution of power from London to Belfast did not follow promptly because of unionist concerns about decommissioning, or the surrender of paramilitary weapons. The text of the agreement states \"those who hold office should use only democratic, non-violent means, and those who do not should be excluded or removed from office.\" Unionists argued, however, that Sinn Fein could not assume its ministerial posts on the Executive Committee until the IRA had surrendered at least some of its weapons. Sinn Fein countered that the Good Friday Agreement did not specify a start date for decommissioning. The IRA had been observing a cease-fire since 1997, but it viewed decommissioning as tantamount to surrender and had long resisted such calls.\nIn the fall of 1999, former U.S. Senator George Mitchell (who had chaired the peace talks) led a review of the Good Friday Agreement's implementation. This review succeeded in getting unionists to drop their precondition that the IRA had to decommission first, before Sinn Fein representatives could assume their ministerial posts. After 27 years of direct rule from London, authority over local affairs was transferred to the Northern Ireland Assembly and Executive on December 1, 1999. David Trimble, the leader of the UUP at the time, was elected First Minister; Seamus Mallon of the SDLP was elected Deputy First Minister.\nOn February 11, 2000, however, London suspended Northern Ireland's devolved government because First Minister Trimble was poised to resign to protest the continued absence of IRA decommissioning. British officials feared that Trimble would have been replaced as UUP party leader by someone less supportive of, if not opposed to, the peace agreement. After the IRA pledged to initiate a process to put its arms \"beyond use,\" Northern Ireland's power-sharing institutions were reinstated in June 2000.\nFor the next 12 months, unionists remained frustrated by the ongoing lack of actual IRA decommissioning. As a result, Trimble resigned as First Minister on July 1, 2001. Negotiations led by the British and Irish governments to restore the devolved government proved difficult. Finally, in late October 2001, the IRA announced that it had put a quantity of arms, ammunition, and explosives \"beyond use\" to \"save the peace process.\" The UUP agreed to rejoin the Executive, and the Assembly reconvened in November 2001. Trimble was reelected First Minister, and Mark Durkan, the new leader of the SDLP, was elected Deputy First Minister.\nIn April 2002, the IRA carried out a second act of decommissioning. Still, unionists continued to worry about the IRA's long-term commitment to the peace process. In early October 2002, police raided Sinn Fein's Assembly offices and arrested four officials as part of an investigation into a suspected IRA spy ring. Both the UUP and the DUP threatened to withdraw from the government unless Sinn Fein was expelled. With the political process in turmoil, London once again suspended the devolved government and reinstated direct rule on October 14, 2002.", "Despite the suspension of the devolved government, Assembly elections took place in November 2003. The elections produced a significant shift in the balance of power in Northern Ireland politics in favor of perceived hard-liners on both sides of the conflict. The DUP—led by the Reverend Ian Paisley—overtook the UUP as the dominant unionist party. Sinn Fein surpassed the more moderate SDLP to become the largest nationalist party. Immediately after the elections, the DUP asserted that it would not enter into government with Sinn Fein until the IRA disarmed and disbanded; the DUP also refused to talk directly to Sinn Fein.\nFor much of 2004, negotiations to restore the devolved government continued but remained stalemated. Talks were further complicated by a December 2004 bank robbery in Belfast, which police believed was carried out by the IRA, and the January 2005 murder of a Belfast man, Robert McCartney, during a bar brawl involving IRA members. These incidents increased pressure on the IRA and Sinn Fein to address the additional issue of IRA criminality. In April 2005, Sinn Fein leader Gerry Adams effectively called on the IRA to abandon violence and pursue politics as an \"alternative\" to \"armed struggle.\"\nIn July 2005, the IRA ordered an end to its armed campaign. It instructed all members to pursue objectives through \"exclusively peaceful means\" and to \"not engage in any other activities whatsoever.\" All IRA units were ordered to \"dump arms.\" Although many analysts asserted that the IRA's statement was the least ambiguous one ever, unionists were wary, noting that it did not explicitly address the issue of IRA criminality or whether the IRA would disband. The DUP and other unionists also wanted Sinn Fein to support Northern Ireland's new police service. In September 2005, Northern Ireland's Independent International Commission on Decommissioning (IICD) announced that the IRA had put all of its arms beyond use, asserting that the IRA weaponry dismantled or made inoperable matched estimates provided by the security forces.\nWith no real progress on restoring Northern Ireland's devolved government, then-UK Prime Minister Tony Blair and then-Irish Prime Minister Bertie Ahern called an all-party meeting in Scotland in October 2006. Blair and Ahern put forth a road map, known as the St. Andrews Agreement, intended to break the political stalemate. It called for negotiations between November 2006 and March 2007 on forming a new devolved government; during this time, the DUP would agree to share power with Sinn Fein and Sinn Fein would agree to support the police service and join the Policing Board. In January 2007, Sinn Fein members voted to support Northern Ireland's police and the criminal justice system in the context of the reestablishment of the political institutions. Many experts viewed Sinn Fein's resolution as historic, given the IRA's traditional view of the police as a legitimate target.\nOn March 26, 2007, Paisley and Adams met for the first time ever and announced a deal to form a power-sharing government on May 8, 2007. Observers contended that the image of Paisley and Adams sitting at the same table was unprecedented, as were the statements of both leaders pledging to work toward a better future for \"all\" the people of Northern Ireland.\nOn May 8, 2007, Paisley and Sinn Fein's chief negotiator, Martin McGuinness, were sworn in as First Minister and Deputy First Minister, respectively, and the power-sharing Assembly and Executive began work. Many experts believed that unlike past efforts, this deal would stick, given that it was reached by the DUP and Sinn Fein, viewed as the two most polarized forces in Northern Ireland politics. At the same time, tensions continued to persist within the devolved government and between the unionist and nationalist communities.", "At the time of the Good Friday Agreement's signing, the parties had been unable to reach an accord on the devolution of the sensitive matters of policing, prisons, and the criminal justice system. Consequently, the parties agreed to postpone the devolution of policing and justice powers until an undetermined point in the future. The 2006 St. Andrews Agreement called for the devolution of policing and justice powers by May 2008, but the DUP and Sinn Fein remained at odds over this timeline. The DUP maintained that May 2008 was merely an aspirational date to which it was not committed.\nIn July 2008, the lack of progress on devolving police and justice powers from London to Belfast prompted Sinn Fein to block the regular meetings of the Executive Committee, essentially bringing the formal work of the Assembly to a standstill. Executive Committee meetings resumed in late November 2008 following a DUP-Sinn Fein agreement on a road map for devolving authority for policing and justice affairs. As part of the road map, the DUP and Sinn Fein agreed that a Northern Ireland Justice Department would be established, as well as an independent attorney general for Northern Ireland. In addition, the parties agreed on a system for choosing a justice minister. Although Executive Committee ministerial portfolios are normally allocated based on party strength, the two sides asserted that given the sensitive nature of this position, the new justice minister would be elected by a cross-community vote in the Assembly.\nNevertheless, progress on transferring police and justice powers to the devolved government remained slow. Nationalists increasingly warned that the failure to do so could lead to renewed political instability. In late January 2010, then-British Prime Minister Gordon Brown and then-Irish Prime Minister Brian Cowen convened a summit with the parties to try to hammer out a deal and set a date for the devolution of authority for policing and justice affairs.\nOn February 4, 2010, the DUP and Sinn Fein announced that they had reached the Hillsborough Agreement, setting April 12, 2010, as the date for the devolution of policing and justice authority from London to Belfast. As part of the deal, the Hillsborough Agreement also established a timeline for developing a new mechanism to address how contentious sectarian parades in the region were managed. On March 9, 2010, the Northern Ireland Assembly approved the Hillsborough Agreement. On April 12, as agreed and for the first time in 38 years, London transferred power over policing and justice affairs to Belfast. That same day, David Ford, of the smaller, cross-community Alliance Party, was elected as Northern Ireland's new Justice Minister.", "Police reforms have long been recognized as a key element in achieving a comprehensive peace in Northern Ireland. The Royal Ulster Constabulary (RUC)—Northern Ireland's former, 92% Protestant police force—was long viewed by Catholics as an enforcer of Protestant domination. Human rights organizations accused the RUC of brutality and collusion with loyalist paramilitary groups. Defenders of the RUC pointed to its tradition of loyalty and discipline and its record in fighting terrorism. The Good Friday Agreement called for an independent commission to make recommendations to help \"ensure policing arrangements, including composition, recruitment, training, culture, ethos and symbols, are such that ... Northern Ireland has a police service that can enjoy widespread support from ... the community as a whole.\"\nIn September 1999, this independent commission (the so-called Patten Commission) released a report with 175 recommendations. It proposed a new name for the RUC, a new badge, and new symbols free of the British or Irish states. Other key measures included reducing the size of the force from 11,400 to 7,500, and increasing the proportion of Catholic officers (from 8% to 30% in 10 years). Unionists responded negatively, but nationalists were mostly positive.\nIn May 2000, the Blair government introduced the Police Bill in the UK House of Commons, and maintained that the reform bill was faithful to the Patten report's \"broad intention\" and \"detailed recommendations.\" Nationalists were critical, arguing that Patten's proposals had been gutted. London responded that amendments would deal with human rights training, promoting 50-50 recruitment of Catholics and Protestants, and oversight responsibilities. The Police (Northern Ireland) Bill became law in November 2000. Recruitment for the future Police Service of Northern Ireland (PSNI) began in March 2001, but it was unclear whether the SDLP or Sinn Fein would support it or join the 19-member Policing Board, a new democratic oversight body. To help ensure nationalist support, London proposed further concessions in July 2001, including halving the antiterrorist \"Special Branch\" and prohibiting new recruits from using plastic bullets.\nIn August 2001, the SDLP broke with Sinn Fein and accepted the British government's additional concessions on policing. The SDLP agreed to nominate representatives to the Policing Board and urged young Catholics to join the new police service. The UUP and the DUP also agreed to join the Policing Board, which came into being on November 4, 2001. That same day, the RUC was renamed the PSNI, and the first class of recruits drawn 50-50 from both Catholic and Protestant communities began their training. Sinn Fein maintained that the changes in the police service were largely cosmetic and continued to charge that the new PSNI—like the RUC before it—would be unduly influenced by elements of the security services opposed to the peace process. Some say that Sinn Fein's absence from the Policing Board discouraged more Catholics from joining the PSNI, and prevented the PSNI's full acceptance by the nationalist community.\nFollowing the suspension of Northern Ireland's devolved institutions in October 2002, Sinn Fein asserted that its acceptance of the PSNI and the Policing Board hinged on a deal to revive the devolved government and the transfer of policing and justice powers from London to a restored Assembly and Executive. As noted previously, in January 2007, Sinn Fein members voted to support the police and join the Policing Board. Sinn Fein members assumed their places on the Policing Board in late May 2007, following the reestablishment of the devolved government.\nIn March 2011, the 50-50 recruitment process for Catholic and Protestant PSNI officers was brought to a close. In making this decision, UK officials asserted that Catholic officers now made up almost 30% of the PSNI, and as such, the 50-50 process had fulfilled the goal set out by the Patten Commission. Although some nationalists viewed this decision as premature, many unionists applauded it, viewing the 50-50 rule as unfairly discriminating against Protestants.\nIn recent years, concerns have increased that not enough Catholics have been seeking to join the PSNI, partly because of lingering suspicions about the police within the Catholic/nationalist community but also because of fears that Catholic police recruits may be key targets of dissident republicans. According to one news report, of the 401 new officers recruited to join the PSNI between 2013 and 2015, only 77 were Catholic. Following a PSNI review of the recruitment process in 2016, the PSNI introduced a number of procedural changes in 2017 to help attract more Catholics (and more women).", "In July 2007, the British army ended its 38-year-long military operation in Northern Ireland in the context of the peace process and the improved security situation. Although a regular garrison of 5,000 British troops remains based in Northern Ireland, they no longer have a role in policing and may be deployed worldwide. Policing in Northern Ireland is now the responsibility of the PSNI.", "In light of the 2007 political agreement to restore Northern Ireland's devolved government, the transfer of policing and justice powers in 2010, and the extensive police reforms, many analysts view the implementation of the most important aspects of the Good Friday Agreement as having been completed. In March 2011, the Northern Ireland Assembly and Executive concluded its first full term in office in 40 years. The regularly scheduled Assembly elections in May 2011 and May 2016 produced successive power-sharing governments led by the DUP and Sinn Fein.\nNevertheless, deep distrust persists between unionists and nationalists and their respective political parties. A series of events over the past few years—including protests over the use of flags and emblems, a crisis over implementing welfare reform, a controversy over a past deal for republican \"on the runs,\" and the arrest of a Sinn Fein leader in connection with the murder of a former IRA member—have highlighted the fragility of community relations and periodically threatened the stability of the devolved government. In January 2017, after only 10 months in office, the devolved government led by First Minister Arlene Foster of the DUP and Deputy First Minister Martin McGuinness of Sinn Fein collapsed, prompting snap Assembly elections.", "The immediate cause of the devolved government's collapse in January 2017 was a scandal over flaws in a renewable energy program (the Renewable Heat Incentive, or RHI), initially overseen by First Minister Foster when she served as Northern Ireland's Enterprise Minister in 2012. The problems in the RHI, which sought to increase consumption of heat from renewable energy sources by offering businesses financial incentives to do so, are expected to cost Northern Ireland taxpayers £490 million (roughly $600 million). Sinn Fein called for Foster to temporarily stand aside as First Minister while an investigation was conducted into the energy scheme; she refused, and McGuinness resigned as Deputy First Minister in protest.\nUnder the rules governing Northern Ireland's power-sharing arrangements, if either the First Minister or the Deputy First Minister resigns (without a replacement being nominated), the government cannot continue and new elections must be held. New elections were called for March 2, 2017. Arlene Foster led the DUP's campaign, but McGuinness stepped down as Sinn Fein's northern leader due to health reasons (he passed away a few weeks after the election). Michelle O'Neill succeeded McGuinness as Sinn Fein's leader in Northern Ireland.\nTensions with the DUP on several issues besides the RHI scandal likely contributed to Sinn Fein's decision to force snap Assembly elections. The elections were called amid continued uncertainty over the implications for Northern Ireland of \"Brexit\"—the UK's pending exit from the European Union (EU). The DUP was the only major Northern Ireland political party to back Brexit ahead of the June 2016 referendum on EU membership, and Northern Ireland voted 56% to 44% against leaving the EU (the UK overall voted in favor, 52% to 48%). Other points of contention included the introduction of a potential Irish Language Act—a long-standing nationalist demand to give the Irish language the same official status as English in Northern Ireland—and legalizing same-sex marriage. Both measures are supported by Sinn Fein but opposed by the DUP.\nAs seen in Table 1 , the number of Northern Ireland Assembly seats contested in 2017 was 90 rather than 108 because of previously agreed reforms to reduce the size of the Assembly.\nThe DUP retained the largest number of seats, but Sinn Fein was widely regarded as the biggest winner given its success in reducing the previous gap between the two parties from 10 seats to 1. A high voter turnout of almost 65%—fueled by anger over the energy scandal and a perceived lack of concern from London about Brexit's impact on Northern Ireland—appears to have favored Sinn Fein and the cross-community Alliance Party.\nFor the first time in the Assembly, unionist parties will not have an overall majority (a largely symbolic status because of the power-sharing rules but highly emblematic for the unionist community). With fewer than 30 seats, the DUP also lost its unilateral ability to trigger a \"petition of concern,\" a procedure used by the DUP to block legislation on various social policy issues, including same-sex marriage. At the same time, the election results reinforced the DUP and Sinn Fein as the dominant voices for their respective communities, suggesting continued and possibly increased polarization in Northern Ireland's politics.", "Two years after Assembly elections, Northern Ireland remains without a devolved government. Negotiations have proceeded in fits and starts but appear to be stalemated at present. Press reports indicate that the biggest sticking point is Sinn Fein's demand for a stand-alone Irish Language Act, which the DUP continues to oppose. Some analysts suggest that the June 2017 UK general election, which resulted in Prime Minister Theresa May's Conservative Party losing its majority in the House of Commons and forming a minority government that relies on support from the DUP, has hardened the positions of the DUP and Sinn Fein and made reaching an agreement on a new devolved government more difficult.\nIn February 2018, media reports signaled that the DUP and Sinn Fein were close to reaching a deal to restore the devolved government. No deal materialized, however. DUP leaders apparently judged that the party's base would not support a possible \"package deal\" addressing both the Irish and Ulster Scots languages (and other cultural matters). Arlene Foster contended that it was not a \"fair and balanced package\" and there was \"no current prospect\" for reestablishing Northern Ireland's power-sharing institutions; she also urged the UK government to \"start making policy decisions.\" While Foster maintained that the DUP was committed to restoring devolved government, some nationalists interpreted her statements as calling for a return to direct rule. Sinn Fein's new leader, Mary Lou McDonald (who replaced Gerry Adams in early 2018), asserted that \"direct rule is not acceptable.\" London does not appear eager to reinstate direct rule or call new elections. Secretary of State for Northern Ireland Karen Bradley has stated that \"devolved government is in the best interests of everyone in Northern Ireland.\"\nIn February 2019, Secretary of State Bradley and Irish Foreign Minister Simon Coveney met with Northern Ireland's five main political parties; news reports indicate that both Bradley and Coveney pledged to present proposals to restart negotiations. Some observers contend that the ongoing internal debate within the UK on Brexit—and in particular, the \"backstop\" designed to ensure no \"hard\" land border between Northern Ireland and Ireland following the UK's departure from the EU—has consumed UK and Northern Ireland politicians' time and attention and largely overshadowed discussions on a new devolved government. Analysts suggest that any significant progress on reestablishing the devolved government likely will only occur after Brexit and the backstop issue are resolved (see \"Possible Implications of Brexit\" for more information).\nSeveral commentators have speculated that the British and Irish governments might seek to establish some sort of joint authority if a devolved government cannot be formed, but this approach is largely viewed as a nonstarter for the DUP and other unionists who would be leery of giving Dublin a formal role in Northern Ireland affairs. In the continued absence of a devolved government, Sinn Fein has called for the British-Irish Intergovernmental Conference—provided for in the Good Friday Agreement to promote bilateral cooperation between British and Irish government ministers—to be reconvened (it has not met since the DUP-Sinn Fein power-sharing agreement of 2007). In late 2017, Irish Prime Minister Leo Varadkar appeared to support this idea, but also noted that reviving the intergovernmental conference should not be construed as \"joint rule.\"", "Over the past few years, the Northern Ireland political parties and the British and Irish governments have made several attempts to resolve outstanding issues related to the peace process, reduce tensions between the unionist and nationalist communities, and promote reconciliation. Such efforts also have sought to address concerns such as ongoing sectarian strife, paramilitary and dissident activity, and Northern Ireland's legacy of violence (often termed \"dealing with the past\"). Major endeavors include the 2013 Haass initiative, the 2014 Stormont House Agreement, and the 2015 Fresh Start Agreement.", "In July 2013, the Northern Ireland Executive appointed former U.S. diplomat and special envoy for Northern Ireland Richard Haass as the independent chair of interparty talks aimed at tackling some of the most divisive issues in Northern Ireland society. In particular, Haass was tasked with setting out recommendations by the end of 2013 on dealing with the past and the sectarian issues of parading, protests, and the use of flags and emblems. At the end of December 2013, Haass released a draft proposal outlining the way forward in these areas, but was unable to broker a final agreement among the Northern Ireland political parties participating in the talks. (The specifics of the Haass proposals are discussed below in \" Ongoing Challenges .\")", "During the summer of 2014, the devolved government was tested by financial pressures and disagreement over UK-wide welfare reforms (passed by the UK parliament in February 2013 but which Sinn Fein and the SDLP opposed implementing in Northern Ireland). Northern Ireland also faced significant spending cuts given the imposition of austerity measures throughout the UK. Analysts contend that the welfare and budgetary disputes decreased public confidence in the devolved government's effectiveness and raised broader questions about its stability.\nIn September 2014, then-First Minister Peter Robinson asserted that the current governing arrangements were \"no longer fit for purpose\" and called for new interparty discussions to improve Northern Ireland's institutions and decisionmaking processes. A few weeks later, the UK government announced it would convene talks with Northern Ireland's main political parties (the DUP, Sinn Fein, the UUP, the SDLP, and the Alliance) on government stability and finances. The talks also would address the issues previously tackled by Richard Haass in 2013 (managing parades and protests, the use of flags and emblems, and dealing with the past).\nOn December 23, 2014, the Northern Ireland political parties and the British and Irish governments announced that a broad, multifaceted agreement had been reached on financial and welfare reform; governing structures; and the contentious issues of parades, flags, and the past (see \" Ongoing Challenges \" for more information on these latter provisions). As part of the resulting \"Stormont House Agreement,\" the five main political parties agreed to support welfare reform (with certain mitigating measures), balance the budget, address Northern Ireland's heavy economic reliance on the public sector, and reduce the number of Executive departments and Assembly members over the next few years to improve efficiency and cut costs.\nLondon and Dublin hailed the Stormont House Agreement as a welcome step forward. The five main Northern Ireland political parties also appeared largely satisfied with the new agreement, despite some reservations. Some Alliance and UUP members worried that the accord did not make greater progress toward resolving the parades issue, while Sinn Fein and the SDLP expressed disappointment that the deal did not call for an Irish Language Act, a bill of rights for Northern Ireland, or a public inquiry into the 1989 murder of Belfast lawyer Patrick Finucane.\nIn early 2015, as promised in the Stormont House Agreement, the devolved government brought forward a welfare reform bill to enact the required changes. In March 2015, however, as the bill was nearing completion in the Assembly, Sinn Fein announced it would block the bill. Sinn Fein accused the DUP of reneging on commitments to fully protect current and future welfare claimants and argued that the UK government must provide more money to assist welfare recipients negatively affected by the reforms. The DUP responded that Sinn Fein's behavior was \"dishonorable and ham-fisted.\"\nThe failure to resolve the welfare reform issue also stalled implementation of the other aspects of the Stormont House Agreement, including measures aimed at dealing with sectarian issues and the past. Some observers and analysts worried that the continued impasse was increasingly threatening to collapse the devolved government. On September 3, 2015, the UK and Irish governments decided to convene a new round of cross-party talks.\nOn September 9, 2015, the devolved government was further rocked by the arrest of Bobby Storey, a senior Sinn Fein leader (and former IRA commander). Storey was arrested in connection with the August 2015 murder of ex-IRA member Kevin McGuigan (believed to be a revenge killing for the murder of another former IRA commander in May). Shortly after the McGuigan murder, PSNI Police Chief George Hamilton claimed that the IRA continued to exist (with some of its structures and operatives still \"broadly in place\") but that McGuigan's murder did not appear to have been sanctioned or directed by the IRA. Sinn Fein asserted that the IRA had \"gone away\" and no longer existed. Storey and two others (described as \"senior republicans\") arrested as part of the McGuigan investigation ultimately were released without charge. Nevertheless, the McGuigan killing and Storey's arrest renewed lingering unionist concerns about continuing IRA activities and further complicated efforts to implement the Stormont House Agreement.", "After 10 weeks of talks in the fall of 2015 on the implementation of the Stormont House Agreement and the legacy of paramilitary activity, the British and Irish governments, the DUP, and Sinn Fein reached a new \"Fresh Start Agreement\" on November 17, 2015. The deal was broadly welcomed in Northern Ireland, although the other main Northern Ireland political parties—the SDLP, the UUP, and the Alliance Party—reportedly objected to some elements. Many Northern Ireland political leaders and human rights groups were dismayed that negotiators failed to reach final agreement on establishing new institutions to deal with the past, as called for in the Stormont House Agreement.\nA key part of the Fresh Start Agreement focused on welfare reform and improving the stability and sustainability of Northern Ireland's budget and governing institutions. The DUP and Sinn Fein agreed to allow the UK parliament to implement changes to the welfare system in Northern Ireland and on a financial package worth £585 million (roughly $832 million) to soften the effects of the welfare and tax credit cuts (funded from the Northern Ireland budget). In exchange, the UK government pledged up to £500 million (about $711 million) in new funding to tackle issues \"unique to Northern Ireland,\" such as addressing security concerns and removing Northern Ireland's \"peace walls\" (physical barriers that separate Protestant and Catholic neighborhoods).\nThe new accord also confirmed institutional reforms originally outlined in the Stormont House Agreement. These reforms included reducing the size of the Assembly from 108 to 90 members, which would have effect from the first Assembly election after the May 2016 election (and was thus implemented in the March 2017 snap elections). The Stormont House Agreement also decreased the number of government departments from 12 to 9 and made provision for an official opposition in the Assembly.\nParamilitary activity was the other main issue addressed in the Fresh Start Agreement. The new accord established \"fresh obligations\" on Northern Ireland's elected representatives to work together toward ending all forms of paramilitary activity and disbanding paramilitary structures. It also called for enhanced efforts to combat organized crime and cross-border crime. (See \" Ongoing Challenges \" for more information on these provisions in the Fresh Start Agreement.)", "Although Northern Ireland has made considerable progress in the years since the 1998 Good Friday Agreement, the search for peace and reconciliation remains challenging. Controversial issues include bridging sectarian divisions and managing key sticking points (especially parading, protests, and the use of flags and emblems); dealing with the past; curbing remaining paramilitary and dissident activity; and furthering economic development. As noted, the 2013 Haass initiative, the 2014 Stormont House Agreement, and the 2015 Fresh Start Agreement all attempted to tackle at least some aspects of these long-standing challenges. Some measures agreed in these successive accords have been delayed amid the current absence of a devolved government. Significant concerns also exist about the possible implications of Brexit for Northern Ireland.", "Observers suggest that Northern Ireland remains a largely divided society, with Protestant and Catholic communities existing in parallel. Peace walls that separate Protestant and Catholic neighborhoods are perhaps the most tangible sign of such divisions. Estimates of the number of peace walls vary depending on the definition used. Northern Ireland's Department of Justice recognizes around 50 peace walls for which it has responsibility; when other types of \"interfaces\" are included—such as fences, gates, and closed roads—the number of physical barriers separating Protestant and Catholic communities is over 100. Northern Ireland's Executive is working to remove the peace walls, but a 2015 survey of public attitudes toward the walls found that 30% of those interviewed want the walls to remain in place; it also found that more than 4 in 10 people have never interacted with anyone from the community living on the other side of the nearest peace wall. Furthermore, experts note that schools and housing estates in Northern Ireland remain mostly single-identity communities.\nSome analysts contend that sectarian divisions are particularly evident during the annual summer \"marching season,\" when many unionist parades commemorating Protestant history are held. Although the vast majority of these annual parades by unionist cultural and religious organizations are not contentious, some are held through or close to areas populated mainly by Catholics (some of whom perceive such parades as triumphalist and intimidating). During the Troubles, the marching season often provoked fierce violence. Many Protestant organizations view the existing Parades Commission that arbitrates disputes over parade routes as largely biased in favor of Catholics and have repeatedly urged its abolition.\nAlthough the Hillsborough Agreement called for a new parading structure to be established by the end of 2010, this process quickly stalled. The DUP-Sinn Fein-led Northern Ireland Executive proposed new parades legislation in mid-2010 that would have abolished the Parades Commission and promoted local solutions to disputed marches. However, the Protestant Orange Order—a group at the center of many contentious parades in the past—opposed several elements of the plan. The DUP asserted that it a new parading structure would not succeed without the support of the Orange Order.\nFrictions between the unionist and nationalist communities were also highlighted by a series of protests in late 2012-early 2013 following a decision to fly the union (UK) flag at Belfast City Hall only on designated days, rather than year-round (nationalist city councilors had originally wanted the flag removed completely but agreed to a compromise plan to fly it on certain specified days instead). The protests, mostly by unionists and loyalists, occurred in Belfast and elsewhere in Northern Ireland, and some turned violent. Northern Ireland leaders on both sides of the sectarian divide received death threats, and some political party offices were vandalized.\nAs mentioned previously, parading, protests, and the use of flags and emblems were discussed during the talks led by Richard Haass in the fall of 2013. According to Haass, dealing with flags and symbols was the \"toughest area of negotiations,\" and the draft agreement proposed at the end of December 2013 noted that the parties had been unable to reach consensus on any new policies surrounding the display of flags or emblems. Instead, the Haass proposals called for establishing a commission to hold public discussions throughout Northern Ireland on the use of flags and emblems (among other issues) to try to find a way forward. The December 2014 Stormont House Agreement essentially endorsed this idea and asserted that a new Commission on Flags, Identity, Culture and Tradition would be set up, composed of 15 members (with 7 to be appointed by Northern Ireland's main political parties and 8 drawn from outside the government).\nAs for parading, the Haass proposals recommended transferring authority over parading from the Parades Commission to the devolved government and establishing two new institutions: one to receive all event notifications and promote community dialogue and mediation; and another to make decisions in cases where parading and protest disputes remained. The Haass proposals also called for establishing in law a code of conduct for both marchers and protesters. In the Stormont House Agreement, the parties agreed that responsibility for parades and related protests should, in principle, be devolved to the Northern Ireland Assembly and that new legislation should be introduced. The Stormont House Agreement, however, did not provide further specifics and did not reference the parading institutions proposed by Haass.\nAs noted above, the crisis over welfare reform and paramilitary activity largely stalled implementation of the Stormont House Agreement. According to the Fresh Start Agreement of November 2015, the measures outlined in the Stormont House Agreement on the issues of flags and parades would move forward. The Commission on Flags, Identity, Culture and Tradition began work in June 2016. As for legislation on parading and related protests, the Fresh Start Agreement called for a discussion paper to be prepared for Northern Ireland's Executive Committee. This paper is expected to outline options for the regulation of parades and related protests and evaluate how key outstanding issues, such as a code of conduct, could be addressed in new legislation. To date, the discussion paper on parading has not yet been presented given the impasse in the devolved government.", "Fully addressing the legacy of violence in Northern Ireland remains controversial. The Good Friday Agreement asserted that \"it is essential to acknowledge and address the suffering of the victims of violence as a necessary element of reconciliation.\" In 2008, the Northern Ireland Assembly established a Commission for Victims and Survivors aimed at supporting victims and their families. Several legal processes for examining crimes stemming from the Troubles also exist. These include police investigations into deaths related to the conflict; investigations by the Police Ombudsman for Northern Ireland (PONI) of historical cases involving allegations of police misconduct; and public inquiries, such as the Saville inquiry (concluded in 2010) into the 1972 Bloody Sunday incident.\nCritics argue that these various legal processes represent a \"piecemeal\" approach and give some deaths or incidents priority over others. Some observers point out that more than 3,000 conflict-related deaths have never been solved. In 2005, a Historical Enquiries Team (HET) was established within the PSNI to review over 3,200 deaths relating to the conflict between 1968 and 1998, but, despite the HET's efforts, progress was slow; the HET was wound down at the end of 2014, and its work was taken over by another, smaller unit within the PSNI. Others note the expense and time involved with some of these processes; for example, the Bloody Sunday inquiry cost £195 million (more than $300 million) and took 12 years to complete. Some analysts and human rights advocates argue that Northern Ireland needs a comprehensive mechanism for dealing with its past, both to meet the needs of all victims and survivors and to contain costs.\nAt the same time, many commentators assert that there is no consensus in Northern Ireland on the best way to deal with the past. This is in large part because many unionists and nationalists continue to view the conflict differently and retain competing narratives. Recommendations issued in 2009 by the Consultative Group on the Past (set up by the UK government) were widely criticized for a variety of reasons by nearly all segments of Northern Ireland society.\nDealing with the past was a key focus of the talks chaired by Richard Haass in December 2013. Among other recommendations related to the past, the draft proposals put forward by Haass called for establishing new mechanisms to consolidate police investigations and better address the needs of victims and survivors. The December 2014 Stormont House Agreement largely endorsed the proposals suggested by Haass. Among other measures for dealing with the past, the Stormont House Agreement called for setting up four bodies:\nHistorical Investigations Unit (HIU) . This body would take forward outstanding cases from the HET process and the historical unit of the Police Ombudsman dealing with past police misconduct cases. The HIU would be overseen by the Northern Ireland Policing Board and would aim to complete its work within five years of its establishment. The HIU would be established through UK legislation, and the UK government pledged to make \"full disclosure\" to the HIU. Independent Commission for Information Retrieval (ICIR) . The ICIR would enable victims and survivors to seek and privately receive information about conflict-related violence. It would be established by the British and Irish governments with a five-year mandate and would be entirely separate from the justice systems in each jurisdiction. The ICIR would not disclose the identities of those coming forward with information to law enforcement authorities, and any information provided to it would be inadmissible in criminal and civil proceedings; individuals who provide information, however, would not be immune to prosecution for any crime committed should evidentiary requirements be met by other means. Oral History Archive. The Northern Ireland Executive would establish this archive by 2016 to provide a central place for people from all backgrounds to share experiences and narratives related to the Troubles. Implementation and Reconciliation Group (IRG) . This body would be set up to oversee work on themes, archives, and information recovery in an effort to promote reconciliation and reduce sectarianism.\nIn September 2015, the Secretary of State for Northern Ireland published a policy paper outlining the UK government's proposal for the legislation required to establish the HIU, the ICIR, and the Oral History Archive. Amid the crisis in the devolved government in the fall of 2015, however, work on setting up these new bodies largely came to a standstill. Controversy also arose over the UK government's assertion in its policy paper that \"the HIU must protect information that, if [publicly] disclosed, would or would be likely to prejudice national security\" and that \"where the HIU proposes to disclose information of this nature, it will be required to refer the matter to the UK government, which may prevent disclosure, if necessary.\" Victims groups and many nationalists strongly objected to such \"national security caveats,\" viewing them as essentially providing the UK government with a veto over the release of information by the proposed HIU.\nDivisions over such \"national security caveats\" appear to be a key reason that a final deal on establishing the HIU (and the other bodies to deal with the past) was not possible in the Fresh Start Agreement. In February 2016, then-Secretary of State for Northern Ireland Theresa Villiers stated that the proposed national security provisions have \"led some to assume that the government will be constantly seeking to block the onward disclosure by the HIU of information to victims' families and the public. This is simply not the case.\" She went on to note that during the Fresh Start talks, the UK government offered a \"significant compromise,\" in which families would be told whether the government had required the HIU to withhold certain sensitive information, and that the families or the HIU director would have the right to challenge this decision in Northern Ireland's High Court.\nPress reports indicate that victims groups and nationalists remained concerned that \"national security\" could be used to cover up criminal wrongdoing by state agents. Sinn Fein reportedly argued that an international panel of judges should be appointed to hear any appeals, rather than the High Court. Despite continued discussions in 2016 between the UK government, Sinn Fein, the DUP, and other stakeholders, the \"national security caveats\" continued to pose a stumbling block to implementing the \"dealing with the past\" provisions in the Stormont House Agreement. The stalemate since 2017 in reestablishing a devolved government further stalled work on mechanisms to address Northern Ireland's legacy of violence.\nIn May 2018, the UK government launched a public consultation process on a draft bill to establish the four legacy institutions called for in the Stormont House Agreement—the HIU, the ICIR, the Oral History Archive, and the IRG. The government envisions that the HIU would have a caseload of about 1,700 Troubles-related deaths. \"National security caveats\" for the HIU would remain, but, as described by former Secretary of State Villiers, families or the HIU director would be able to appeal government decisions to withhold information to Northern Ireland's High Court. At the same time, unionists have voiced concerns that the HIU could unfairly target former soldiers and police officers, and many argue that any measures to deal with the past in Northern Ireland should contain a statute of limitation on the prosecution of former soldiers. Nationalists strongly reject any such statute of limitations or amnesty to prosecutions. Human rights groups have complained that the government's proposals largely neglect the right of individuals injured during the Troubles to have their cases investigated. The public consultation process concluded in October 2018, but its findings have yet to be released.", "", "Experts contend that the major paramilitary organizations active during the Troubles are now committed to the political process and remain on cease-fire. However, the apparent continued existence of such groups and their engagement in criminality worries many in both the unionist and nationalist communities. In response to the heightened concerns about paramilitary activity in Northern Ireland in 2015, former Secretary of State for Northern Ireland Villiers commissioned a study on the status of republican and loyalist paramilitary groups. This review was drafted jointly by the PSNI and MI5 (the UK's domestic intelligence service) and reviewed by three independent observers. Published in October 2015, the assessment found that\nall the main paramilitary groups operating during the Troubles still existed, but they remained on cease-fire, and the leadership of each group, \"to different degrees,\" is \"committed to peaceful means to achieve their political objectives.\" although such paramilitary groups continue to \"organize themselves along militaristic lines,\" none are planning or conducting terrorist attacks and they do not have significant capabilities to do so. at the same time, individual members of paramilitary groups still represent a threat to national security. Some have committed murders or other violence, and many are engaged in organized crime. None of the leaderships have complete control over the activities of their members, and \"there is regular unsanctioned activity including behavior in direct contravention of leadership instruction.\"\nThe Fresh Start Agreement sought to address some of the most pressing concerns about the main paramilitary groups in Northern Ireland. Among the measures, the accord established\na new set of principles for members of the Executive and Assembly that commits them to work toward the disbandment of all paramilitary organizations and their structures, to challenge paramilitary attempts to control communities, and to take no instructions from such groups; an independent three-member panel tasked with recommending a strategy for disbanding paramilitary groups; a new, four-member international body to monitor paramilitary activity and to report annually on progress toward ending paramilitary activity; and a cross-border Joint Agency Task Force to bring together officials from the PSNI and UK and Irish police, intelligence, and tax agencies to tackle paramilitarism and organized crime throughout the island of Ireland.\nSome Northern Ireland politicians and analysts suggested that some of these proposals did not go far enough. Press reports indicated that some unionists were unhappy that the new international paramilitary monitoring body—unlike the former Independent Monitoring Commission (IMC)—would not have the power to recommend the exclusion of political parties from the Assembly should it be determined that the parties are not living up to their commitments to exclusively peaceful means. As part of the Fresh Start Agreement, the UK government pledged a total of £188 million (roughly $267 million) more in security-related spending, with the bulk of this amount (£160 million, or $228 million) going to the PSNI to improve its ability to tackle dissident groups, remaining paramilitarism, and organized crime.\nIn June 2016, the so-called Three Person Panel published its report with 43 recommendations for disbanding paramilitary groups; in July 2016, Northern Ireland's Executive set out an action plan on tackling paramilitary activity, criminality, and organized crime based on the panel's work. In September 2016, the British and Irish governments agreed to establish the four-person Independent Reporting Commission (IRC), tasked with monitoring progress on ending paramilitary activity, including the Executive's new action plan. In December 2016, the British and Irish governments named one representative each to the IRC and the Northern Ireland Executive named two. The IRC released its first annual report in October 2018; the IRC assessed that although some progress has been made, paramilitarism remains a \"stark reality of life in Northern Ireland\" and that the lack of political decisionmaking institutions since January 2017 has negatively affected efforts to tackle paramilitarism.", "Security assessments indicate that the threat posed by dissident republican and loyalist groups not on cease-fire and opposed to the 1998 peace agreement remains serious. The aforementioned October 2015 review of paramilitary groups maintained that the most significant terrorist threat in Northern Ireland was posed not by the groups evaluated in that report but rather by dissident republicans. The review described dissident loyalist groups as posing another, albeit \"smaller,\" threat. Some loyalists are heavily engaged in a wide range of serious crimes.\nAt the same time, experts note that dissident groups do not have the same capacity to mount a sustained terror campaign as the IRA did between the 1970s and the 1990s. Most of the dissident republican groups are small in comparison to the IRA during the height of the Troubles. Moreover, the actual number of individuals actively involved has not grown significantly in recent years, although such dissident republican groups have proliferated.\nUK security services assert that there are currently four main dissident republican groups: the Continuity IRA (CIRA); Óglaigh na hÉireann (ÓNH); Arm na Poblachta (ANP), and the New IRA (which reportedly was formed in 2012 and brought together the Real IRA, the Republican Action Against Drugs, or RAAD, and a number of independent republicans). These groups have sought to target police officers, prison officers, and other members of the security services in particular. Between 2009 and 2017, dissident republicans were responsible for the deaths of two PSNI officers, two British soldiers, and two prison officers.\nIn January 2018, ÓNH declared itself on cease-fire. However, the other groups remain active, and authorities warn that the threat posed by the New IRA in particular is severe. The New IRA has carried out about 40 attacks since 2012. Police believe the New IRA may have been responsible for the January 2019 car bomb that exploded in Londonderry (or Derry). Some experts are concerned that dissident republicans could seek to step up attacks in an effort to exploit the divisions due to Brexit.", "Many assert that one of the best ways to ensure a lasting peace in Northern Ireland and deny dissident groups new recruits is to promote continued economic development and equal opportunity for Catholics and Protestants. Northern Ireland's economy has made significant advances since the 1990s. Between 1997 and 2007, Northern Ireland's economy grew an average of 5.6% annually (marginally above the UK average of 5.4%). Unemployment decreased from over 17% in the late 1980s to 4.3% by 2007. The 2008-2009 global recession, however, significantly affected Northern Ireland. Economic recovery has been slow in Northern Ireland, although it appears to have gained momentum since 2017. In the four quarters ending September 2018, Northern Ireland's economic activity grew by approximately 2.1%, as compared to 1.5% growth for the UK overall. Unemployment in Northern Ireland is currently 3.8%, lower than the UK average (4.0%), and that in the Republic of Ireland (5.3%) and the EU (6.7%).\nIncome earned and living standards in Northern Ireland remain below the UK average. Of the UK's 12 economic regions, Northern Ireland had the third-lowest gross value added per capita in 2017 (£21,172), considerably below the UK's average (£27,555). Northern Ireland also has both a high rate of economic inactivity (27%) and a high proportion of working-age individuals with no qualifications. Studies indicate that the historically poorest areas in Northern Ireland (many of which bore the brunt of the Troubles) remain so and that many of the areas considered to be the most deprived are predominantly Catholic.\nAt the same time, Northern Ireland has made strides in promoting equality in its workforce. The gap in economic activity rates between Protestants and Catholics has shrunk considerably since 1992 (when there was a 10 percentage point difference) and has largely converged in recent years (in 2017, the economic activity rate was 70% for Protestants and 67% for Catholics). In addition, the percentage point gap in unemployment rates between the two communities has decreased from 9% in 1992 to 0% in 2017.\nTo improve Northern Ireland's economic recovery and strengthen its long-term performance, Northern Ireland leaders are seeking to promote export-led growth, decrease Northern Ireland's economic dependency on the public sector by growing the private sector, and attract more foreign direct investment. Reducing Northern Ireland's economic dependency on the public sector (which accounts for about 70% of the region's GDP and employs roughly 30% of its workforce) and devolving power over corporation tax from London to Belfast to help increase foreign investment were key issues addressed in the cross-party negotiations in both 2014 and 2015. In 2015, the UK passed legislation to permit the devolution of corporation tax-setting power to the Northern Ireland Assembly (subject to certain financial conditions). The Fresh Start Agreement set April 2018 as the target date for introducing a devolved corporate tax rate of 12.5% in Northern Ireland (the same rate as in the Republic of Ireland). In the absence of devolved government, however, reducing Northern Ireland's corporate tax rate is on hold.", "The UK is scheduled to exit the EU on March 29, 2019. Many officials and analysts are concerned about Brexit's possible implications for Northern Ireland's peace process, economy, and, in the longer term, constitutional status. At the time of the 1998 Good Friday Agreement, the EU membership of both the United Kingdom and the Republic of Ireland was viewed as essential to underpinning the peace process by providing a common European identity for both unionists and nationalists. In the years since, as security checkpoints were removed in accordance with the peace agreement, and because both the UK and Ireland belonged to the EU's single market and customs union, the circuitous 300-mile land border between Northern Ireland and Ireland effectively disappeared. This served as an important political symbol on both sides of the sectarian divide and helped produce a dynamic cross-border economy. Preventing a \"hard\" land border (with customs checks and physical infrastructure) on the island of Ireland has been a key goal, as well as a major stumbling block, in negotiating and finalizing the UK's withdrawal agreement with the EU.", "Many on both sides of Northern Ireland's sectarian divide have expressed concerns that Brexit could lead to a return of a hard border with the Republic of Ireland and destabilize the fragile peace in Northern Ireland, in part because it could pose a considerable security risk. During the Troubles, the border regions were considered \"bandit country,\" with smugglers and gunrunners, and checkpoints were frequently the site of sectarian conflict, especially between British soldiers and the IRA. PSNI Police Chief George Hamilton warns that if physical border posts were reinstated as a result of Brexit, they would be seen as \"fair game\" by violent dissident republicans opposed to the peace process, endangering the lives of police and customs officers. Such renewed violence not only would threaten the security and stability of the border regions but also could put the entire peace process at risk. In addition, establishing checkpoints would pose logistical difficulties given that estimates suggest there are upward of 275 crossing points along the Northern Ireland-Ireland border.\nUK, Irish, and EU leaders have asserted repeatedly that they do not want a hard border and have sought to prevent such a possibility. Resolving the border issue, however, has presented one of the most difficult challenges in UK-EU negotiations on Brexit. Analysts contend that ensuring an open border has been complicated by the UK government's pursuit of a largely \"hard Brexit\" that would keep the UK outside of the EU's single market and customs union.\nIn December 2017, the UK and the EU reached an agreement in principle on main aspects of three priority issues in the withdrawal negotiations (citizens' rights, financial settlement, and Ireland/Northern Ireland). Among other measures related to Northern Ireland, the UK pledged to uphold the Good Friday Agreement, avoid a hard border (and any physical infrastructure), and protect North-South cooperation on the island of Ireland. Crucially, the UK also committed to the so-called backstop—a mechanism designed to guarantee that the border would remain invisible under all circumstances.\nFinding agreement on precisely how this backstop would function, however, did not prove easy for UK and EU negotiators. In November 2018, the UK and the EU concluded a draft withdrawal agreement (outlining the terms of the \"divorce\") and a draft political declaration (setting out the broad contours of the future UK-EU relationship). The withdrawal agreement contains a 21-month transition period (in which the UK would cease to be an EU member but would continue to apply EU rules while negotiations continue on the details of the UK's future political and economic relationship with the EU). The backstop arrangement ultimately reached in the withdrawal agreement essentially would keep all of the UK in a customs union with the EU (with areas of deeper regulatory alignment between Northern Ireland and the EU) pending agreement on a more preferable solution in forthcoming negotiations on the future UK-EU relationship.\nVarious elements of the withdrawal agreement have faced opposition in the UK Parliament, but the backstop has emerged as the primary sticking point. Many critics argued that the backstop, if triggered, would tie the UK to an EU customs union indefinitely, prohibit the UK from concluding its own free trade deals with other countries, and leave the UK in the position of having to accept EU rules without having a say in EU decisionmaking. The DUP warned that the backstop would create regulatory divergence between Northern Ireland and the rest of the UK and thus would threaten the constitutional integrity of the United Kingdom. UK officials maintain that it will never be necessary to implement the backstop.\nOn January 15, 2019, the UK Parliament decisively rejected the withdrawal agreement by a vote of 432 to 202. This has intensified fears about a disorderly \"no deal\" scenario in which the UK would \"crash out\" of the EU at the end of March without a transition period and settled arrangements in place. Prime Minister May has approached the EU about devising \"alternative arrangements\" to the backstop or modifying it in an effort to secure the UK Parliament's approval. UK officials have proposed possibly imposing a time limit on the backstop or a mechanism by which the UK could withdraw from the backstop. The EU insists that the backstop and the withdrawal agreement are not open for renegotiation, and press reports suggest that the UK government has been unsuccessful to date in gaining any EU concessions. Prime Minister May intends to put the withdrawal agreement to another vote in the UK Parliament on March 12, 2019. If Parliament again fails to approve the withdrawal agreement, it is then expected to consider whether to back \"no deal\" or direct the government to seek to extend the March 29 deadline. Extending the deadline for the UK's departure from the EU would require the unanimous agreement of the other 27 EU member states.\nAlthough the UK, the EU, and Ireland have escalated contingency planning for a \"no deal\" Brexit, the Irish government continues to resist making any plans for physical infrastructure on the Irish border. The Irish government maintains that there will be no hardening of the Irish border under any circumstances and insists that an arrangement similar to the backstop would have to be negotiated even if there is no approved UK withdrawal agreement. Irish Prime Minister Varadkar admits that a \"no deal\" scenario would entail \"difficult discussions\" with the EU and the UK. Some analysts assert, however, that in the event of a \"no deal\" Brexit, protecting the integrity of the single market will be an EU priority, which will necessitate customs checks and some sort of border infrastructure.\nSome \"Brexiteers\"—or those in the UK who strongly favor a \"hard Brexit\"—contend that the border issue is being exploited by the EU and those in the UK who would prefer a \"soft Brexit\" (in which the UK remains inside the EU single market and/or customs union). Some Brexiteers have ruminated whether the Good Friday Agreement has outlived its usefulness, especially in light of the stalemate in reestablishing Northern Ireland's devolved government. The Prime Minister's office responded that the UK government remains \"fully committed\" to the Good Friday Agreement.\nBrexit also has revived questions about Northern Ireland's constitutional status within the UK in the longer term. Sinn Fein argues that \"Brexit changes everything\" and could generate greater support for a united Ireland. At the same time, most experts believe that the conditions required to hold a \"border poll\" on Northern Ireland's constitutional status do not currently exist. Opinion polls indicate that a majority of people in Northern Ireland continue to support Northern Ireland's position within the UK, although some surveys suggest that a \"damaging Brexit\" could increase support for a united Ireland. According to one recent press report, concerns appear to be growing within the UK government that a \"no deal\" Brexit could change the dynamics and lead to a border poll on Irish unification.", "Many experts contend that Brexit could have serious negative economic consequences for Northern Ireland. According to a UK parliamentary report, Northern Ireland depends more on the EU market (and especially that of the Republic of Ireland) for its exports than does the rest of the UK. Approximately 52% of Northern Ireland exports go to the EU, including 38% to the Republic of Ireland. UK government statistics indicate that Ireland is the top external export and import partner for Northern Ireland. Analysts worry in particular that a \"hard Brexit\" outside of the EU's single market and customs union could jeopardize Northern Ireland's extensive cross-border trade with Ireland, as well as integrated labor markets and industries that operate on an all-island basis. Some analysts note that access to the EU single market has been one reason for Northern Ireland's success in attracting foreign direct investment, and they suggest that Brexit could deter future investment. Post-Brexit, Northern Ireland also stands to lose EU regional funding (roughly $1.3 billion between 2014 and 2020) and agricultural aid (direct EU farm subsidies to Northern Ireland are nearly $375 million annually).\nUK officials assert that the government is determined to safeguard Northern Ireland's interests and \"make a success of Brexit\" for Northern Ireland. UK and DUP leaders maintain that the rest of the UK is more important economically, historically, and culturally to Northern Ireland than the EU. They note, for example, that the UK is the most significant market for businesses in Northern Ireland, with sales to other parts of the UK worth one and a third times the value of all Northern Ireland exports and nearly four times the value of exports to Ireland (in 2016). UK and DUP officials insist that Northern Ireland will continue to trade with the EU (including Ireland) and that Brexit offers new economic opportunities for Northern Ireland outside the EU.", "Successive U.S. Administrations have viewed the Good Friday Agreement as the best framework for a lasting peace in Northern Ireland. The Clinton Administration was instrumental in helping the parties forge the agreement, and the George W. Bush Administration strongly backed its full implementation. U.S. officials welcomed the end to the IRA's armed campaign in 2005 and the restoration of the devolved government in 2007.\nThe Obama Administration remained engaged in the peace process. In October 2009, then-U.S. Secretary of State Hillary Clinton visited Northern Ireland, addressed the Assembly, and urged Northern Ireland's leaders to reach an agreement on devolving policing and justice powers. In February 2010, President Obama welcomed the resulting Hillsborough Agreement. In June 2013, President Obama visited Northern Ireland in the context of a G8 summit meeting and noted that the United States would always \"stand by\" Northern Ireland. The Obama Administration welcomed the conclusion of both the December 2014 Stormont House Agreement and the November 2015 Fresh Start Agreement.\nLike its predecessors, the Trump Administration has offered support and encouragement to Northern Ireland. In March 2017, Vice President Mike Pence noted that, \"the advance of peace and prosperity in Northern Ireland is one of the great success stories of the past 20 years\" and paid tribute to Senator Mitchell and his role in the peace process. In November 2017, the State Department spokesperson expressed regret at the impasse in discussions to restore Northern Ireland's power-sharing institutions, urged continued dialogue, and asserted that the United States remained \"ready to support efforts that ensure full implementation of the Good Friday Agreement and subsequent follow-on cross-party agreements.\"\nMany Members of Congress have actively supported the peace process for decades. Encouraged by progress on police reforms, several Members prompted the Bush Administration in December 2001 to lift a ban on contacts between the Federal Bureau of Investigation and the new PSNI. Congress had initiated this prohibition in 1999 because of the former RUC's human rights record. More recently, congressional hearings have focused on the peace process, policing reforms, human rights, and the status of public inquiries into several past murders in Northern Ireland in which collusion between the security forces and paramilitary groups is suspected; these murders have included the 1989 slaying of Belfast attorney Patrick Finucane and the 1997 killing of Raymond McCord, Jr. Some Members of Congress have urged the Trump Administration to name a special envoy for Northern Ireland to signal that the United States remains committed to the region, especially in light of the stalemate in reestablishing the devolved government.\nOn the economic front, the United States is an important source of investment for Northern Ireland. According to one study, foreign direct investment by U.S.-based companies in Northern Ireland totaled £1.48 billion (nearly $2.1 billion) between 2003-2004 and 2015-2016 and was responsible for creating 13,875 jobs. Between 2009 and 2011, a special U.S. economic envoy to Northern Ireland worked to further economic ties between the United States and Northern Ireland and to underpin the peace process by promoting economic prosperity.", "The United States has provided aid to the region through the International Fund for Ireland (IFI), which was created in 1986. Although the IFI was established by the British and Irish governments based on objectives in the Anglo-Irish Agreement of 1985, the IFI is an independent entity. The IFI supports economic regeneration and social development projects in areas most affected by the civil unrest in Northern Ireland and in the border areas of the Republic of Ireland; in doing so, it has also sought to foster contact, dialogue, and reconciliation between nationalists and unionists. The United States has contributed more than $540 million since the IFI's establishment, roughly half of total IFI funding. The EU, Canada, Australia, and New Zealand also have provided funding for the IFI. During the 1980s and 1990s, U.S. appropriations for the IFI averaged around $23 million annually; in the 2000s, U.S. appropriations averaged $18 million each year.\nAccording to the fund, the vast majority of projects that it has supported with seed funding have been located in disadvantaged areas that have suffered from high unemployment, a lack of facilities, and little private sector investment. In its first two decades, IFI projects in Northern Ireland and the southern border counties focused on economic and business development and sectors such as tourism, agriculture, and technology. In 2006, amid an improved economic situation, the IFI released a five-year \"Sharing this Space\" program, in which the IFI announced that it would began shifting its strategic emphasis away from economic development and toward projects aimed at promoting community reconciliation and overcoming past divisions.\nSuccessive U.S. Administrations and many Members of Congress have backed the IFI as a means to promote economic development and encourage divided communities to work together. Support for paramilitary groups in Northern Ireland has traditionally been strongest in communities with high levels of unemployment and economic deprivation. Thus, many observers have long viewed the creation of jobs and economic opportunity as a key part of resolving the conflict in Northern Ireland and have supported the IFI as part of the peace process. Many U.S. officials and Members of Congress also encouraged the IFI to place greater focus on reconciliation activities, and were pleased with the IFI's decision to do so in 2006.\nHowever, critics have questioned the IFI's effectiveness, viewing some IFI projects as largely wasteful and unlikely to bridge community divides in any significant way. Others suggest that the IFI was never intended to continue in perpetuity. Some also argue that it is time to move the U.S. relationship with Ireland and Northern Ireland onto a more mature and equal footing, and that U.S. development assistance undermines this goal.\nBetween FY2006 and FY2011, neither the Bush nor the Obama Administration requested funding for the IFI in the President's annual budget request. Administration officials maintained that the lack of a funding request for the IFI did not signal a decreased U.S. commitment to Northern Ireland; rather, they asserted that the IFI was expected to begin winding down as an organization. The 2006 \"Sharing this Space\" program was intended as the \"last phase\" of the IFI, and in its 2009 Annual Report, the IFI stated that it would no longer be seeking contributions from its donors. Despite the lack of an Administration request, Congress continued to appropriate funding for the IFI between FY2006 and FY2010 ($17 million for FY2010), viewing these contributions as an important and tangible sign of the ongoing U.S. commitment to the peace process.\nIn FY2011, however, amid the U.S. economic and budget crisis, some Members of Congress began to call for an end to U.S. funding for the IFI as part of a raft of budget-cutting measures. Many asserted that U.S. contributions to the IFI were no longer necessary given Ireland and Northern Ireland's improved political and economic situation (relative to what it was in the 1980s). The sixth FY2011 continuing resolution ( P.L. 112-6 ) did not specify an allocation for the IFI, nor did the final FY2011 continuing resolution ( P.L. 112-10 , the Department of Defense and Full-Year Continuing Appropriation Act of 2011).\nOther Members of Congress continued to support U.S. funding for the IFI, noting the financial woes in Ireland and Northern Ireland stemming from the 2008-2009 global recession and increasing concerns about the possibility of dissident violence, and ongoing sectarian tensions in the region. They pointed out that in light of these evolved circumstances, the IFI itself reversed course, announcing it would continue functioning for the near term. Press reports indicated that the British and Irish governments also supported the IFI's continuation, as did Northern Ireland's Executive. Subsequent to the FY2011 budget deliberations, the Obama Administration allocated $2.5 million from FY2011 Economic Support Fund (ESF) resources to the IFI in the form of a grant for specific IFI activities to support peace and security in Ireland and Northern Ireland.\nFor FY2012, the Obama Administration requested $2.5 million in ESF funding for the IFI in its annual budget request, asserting that \"a permanent political settlement in Northern Ireland remains a priority foreign policy goal of the United States\" and that \"cross-community relations continue to be hampered by a lack of economic development and high unemployment.\" The FY2012 budget request also noted an increase in sectarian-driven hate crimes and paramilitary-style shootings and assaults in Northern Ireland, and that U.S. assistance would seek to counter these negative trends \"by addressing the root causes of violence and intolerance.\" For similar reasons, in its FY2013 and FY2014 budget requests the Administration proposed $2.5 million for the IFI, as part of its ESF request for the Europe and Eurasia region aimed at promoting peace and reconciliation programs. The Obama Administration did not request funding for the IFI in its subsequent annual budget requests.\nAccording to the U.S. Agency for International Development (USAID), U.S. funding provided between FY2011 and FY2014 enabled the United States to meet an existing $7.5 million commitment to the IFI's Peace Impact Program, targeting those communities in Ireland and Northern Ireland most prone to dissident recruitment and activity. In June 2016, the Obama Administration allocated $750,000 from FY2015 ESF resources to the IFI in the form of a grant to support activities aimed at promoting a sustained peace in Northern Ireland and the border counties of Ireland; examples of programs to be supported included cross-community workshops on violence prevention and job training for unemployed youth in communities with high rates of joblessness and sectarian violence. For similar purposes as described for FY2015, the Obama Administration allocated $750,000 from FY2016 ESF funds to the IFI in the form of a grant in December 2016, and the Trump Administration allocated $750,000 from FY2017 ESF funds to the IFI in August 2018, also in the form of a grant. The Trump Administration did not request funding for the IFI in its FY2018 or FY2019 budget requests." ], "depth": [ 0, 1, 1, 2, 2, 2, 2, 2, 1, 2, 2, 1, 2, 2, 2, 1, 2, 2, 2, 3, 3, 2, 2, 3, 3, 1, 2 ], "alignment": [ "h5_title h0_title h2_title h4_title h3_title h1_title", "h0_full h2_full h1_full", "h2_full h3_title", "", "h3_full", "", "", "", "h3_full", "h3_full", "", "h4_full", "", "", "", "h4_full", "", "", "", "", "", "", "h4_full", "h4_full", "h4_full", "h5_full", "h5_full" ] }

{ "question": [ "What were \"the Troubles\"?", "What were the origins of this conflict?", "How do Protestants in Northern Ireland overwhelmingly identify?", "How do Catholics in Northern Ireland overwhelmingly identify?", "What happened on April 10th, 1998?", "What was the Good Friday Agreement?", "What did the Good Friday Agreement call for?", "How straightforward has the implementation of the peace accord been?", "What key points caused instability in the government?", "How did the government overcome this instability?", "To what extent have the tensions been resolved?", "Why were snap Assembly elections held in 2017?", "What were the results of these elections?", "How successful have attempts at forming a power-sharing government been?", "What challenges does Northern Ireland face in the peace process?", "How might Brexit affect Northern Ireland?", "How important was the Irish border in Brexit negotiations?", "How has Brexit affected the status of Northern Ireland in the UK?", "To what extent do U.S. officials support the Northern Ireland peace process?", "How has the United States helped the development of the peace process?", "What peace process issues are of particular interest to Congress?" ], "summary": [ "Between 1969 and 1999, almost 3,500 people died as a result of political violence in Northern Ireland, which is one of four component \"nations\" of the United Kingdom (UK).", "The conflict, often referred to as \"the Troubles,\" has its origins in the 1921 division of Ireland and has reflected a struggle between different national, cultural, and religious identities.", "Protestants in Northern Ireland (48%) largely define themselves as British and support remaining part of the UK (unionists).", "Most Catholics in Northern Ireland (45%) consider themselves Irish, and many desire a united Ireland (nationalists).", "On April 10, 1998, the UK and Irish governments and key Northern Ireland political parties reached a negotiated political settlement.", "The resulting Good Friday Agreement (also known as the Belfast Agreement) recognized the \"consent principle\" (i.e., a change in Northern Ireland's status can come about only with the consent of a majority of its people).", "It called for devolved government—the transfer of power from London to Belfast—with a Northern Ireland Assembly and Executive Committee in which unionist and nationalist parties would share power; it also contained provisions on decommissioning (disarmament) of paramilitary weapons, policing, human rights, UK security normalization (demilitarization), and the status of prisoners.", "Despite a much-improved security situation since 1998, full implementation of the peace accord has been challenging.", "For many years, decommissioning and police reforms were key sticking points that generated instability in the devolved government.", "In 2007, however, the hard-line Democratic Unionist Party (DUP) and Sinn Fein, the associated political party of the Irish Republican Army (IRA), reached a landmark power-sharing deal.", "Although many analysts view implementation of the most important aspects of the Good Friday Agreement as having been completed, tensions remain in Northern Ireland and distrust persists between the unionist and nationalist communities and their respective political parties.", "In January 2017, the devolved government led by the DUP and Sinn Fein collapsed, prompting snap Assembly elections in March 2017.", "Amid a renewable energy scandal involving DUP leader Arlene Foster and unease in much of Northern Ireland about \"Brexit\"—the UK's expected exit from the European Union (EU)—Sinn Fein made significant electoral gains.", "Negotiations to form a new power-sharing government have been unsuccessful to date.", "These challenges include reducing sectarian strife, fully grappling with Northern Ireland's legacy of violence (often termed dealing with the past); addressing lingering concerns about paramilitary and dissident activity; and promoting further economic development.", "Brexit also may have significant political and economic repercussions for Northern Ireland.", "The future of the border between Northern Ireland and the Republic of Ireland was a central issue in the UK's withdrawal negotiations with the EU and has posed a key stumbling block to approving the withdrawal agreement in the UK Parliament.", "Brexit also has renewed questions about Northern Ireland's status within the UK in the longer term.", "Successive U.S. Administrations and many Members of Congress have actively supported the Northern Ireland peace process.", "For decades, the United States provided development aid through the International Fund for Ireland (IFI).", "In recent years, congressional hearings have focused on the peace process, police reforms, and the status of public inquiries into several murders in Northern Ireland in which collusion between the security forces and paramilitary groups is suspected. Such issues may continue to be of interest in the 116th Congress." ], "parent_pair_index": [ -1, 0, 0, 0, -1, -1, 1, -1, 0, 1, -1, -1, 1, 1, -1, 0, 0, 0, -1, 0, 0 ], "summary_paragraph_index": [ 0, 0, 0, 0, 1, 1, 1, 2, 2, 2, 3, 3, 3, 3, 4, 4, 4, 4, 5, 5, 5 ] }

{ "title": [ "", "Energy for Water Use", "Energy for Water Supply and Wastewater Facilities", "Research and Information Needs" ], "paragraphs": [ "W ater and energy are critical resources that are reciprocally and mutually linked. Meeting energy needs depends upon the availability of water, often in large quantities, for mineral extraction and mining, fuel production, hydropower, and thermoelectric power plant cooling. Likewise, energy is required for the pumping, conveyance, treatment and conditioning, and distribution of water and for collection, treatment, and discharge of wastewater. This interdependence, which is often described as the water-energy nexus, or energy-water nexus, is illustrated in the following graphic from a U.S. Department of Energy report.\nFigure 1. Examples of Interrelationships Between Water and EnergySource: U.S. Department of Energy, Energy Demands on Water Resources, Report to Congress on the Interdependency of Energy and Water, December 2006, p. 13.\nThis report first discusses water-related energy use broadly and then energy for facilities that treat and deliver water to end users and also dispose of and discharge wastewater. There is growing recognition that \"saving energy saves water,\" and the report describes options and impediments for energy efficiency by these facilities. It also identifies several areas of research and information needs concerning energy for water uses.", "In the United States, more than 400 billion gallons of water are withdrawn daily from surface and ground water sources of freshwater and saline-water to supply domestic uses, agriculture including irrigation, industry, mining, and thermoelectric power. Information about the energy—especially electricity—that is needed to pump, transport, deliver, and process that water is fragmentary and not well documented overall. In particular, as described further below, energy needs for self-supplied domestic, industrial, and energy water are largely unknown, but are likely to be large. Interest has been growing in better understanding of the energy-related needs of providing water to diverse sectors of the economy.\nIn a 2002 report, the Electric Power Research Institute (EPRI) estimated that nearly 4% of the nation's electricity use goes toward moving and treating water and wastewater by public and private entities. EPRI's analysis covered public water supply agencies and publicly owned wastewater treatment facilities (accounting for 1.6% of U.S. electricity consumption in 2000) and self-generated private water and wastewater treatment (i.e., for industry and mining, agriculture, and commercial supply and treatment, accounting for 2.1% of U.S. electricity consumption in 2000). EPRI projected that electricity consumption by these sectors would increase by 23% in 2020 from 2000 levels and by 63% in 2050.\nToday that 4% estimate is considered a good starting place for understanding the magnitude of energy demands for providing these water services, but deficient in several respects.\nIt relied on secondary source data. It did not include future projections of electricity requirements for water supplies in the thermoelectric sector (because it assumed that energy for water use in this sector would decline). It did not consider on-site heating, cooling, pumping, and softening of water for end-use. It did not consider that in the future a large proportion of new water demands will be met by sources with greater energy intensities, such as groundwater pumped from greater depths and seawater desalination.\nOthers have attempted to expand on the EPRI analysis, using additional and updated data from a variety of sources, to develop a baseline estimate of water-related energy use in the United States. For example, a 2009 report by the River Network, a national advocacy group for freshwater conservation and watershed restoration, looked at data from the Energy Information Administration (EIA) concerning U.S. energy use for residential and commercial water heating, which comes from multiple fuel sources (e.g., electricity, natural gas, fuel oil). It found that more than 380 billion kilowatt hours (kWh) of energy is used for water heating by these sectors; 148 billion kWh, or nearly 40% of that energy, is supplied by electricity.\nResearchers at the University of Texas at Austin have attempted to quantify the energy embedded in the U.S. public water supply, which is the primary water source of residential, commercial, and municipal users. One such analysis concluded that energy use associated with the public water supply is 4.1% of the nation's annual primary energy consumption and 6.1% of national electricity consumption, but this analysis excluded energy requirements associated with water for agriculture, industrial, and self-supplied sectors (e.g., agriculture, thermoelectric, and mining). In this analysis, electricity consumption by public drinking water and wastewater utilities for pumping, conveyance, treatment, distribution, and discharge was 56.6 billion kWh, or 11.5% of primary energy and 21.6% of electricity consumption for water end-use, respectively, in 2009.\nA second analysis by these researchers looked more broadly at energy needs for water supply, adding industrial and thermoelectric sectors to others considered previously. Water-related energy use throughout the economy varies across sectors, and analysis of some sectors is complex and limited by incomplete data (e.g., cooking-related activities vary across residences and are not well documented). This analysis concluded that direct water-related energy consumption was 12.6% of national primary energy consumption in 2010. This amount of energy, 12.3 quadrillion BTUs, is the equivalent of annual energy consumption of about 40 million Americans. It also estimated that energy losses at the point of electricity generation, transmission and distribution, and end-use represent 58% of the total primary energy that was consumed for water-related purposes, reflecting varying efficiencies of water heating and boiler technologies. The estimate of waste heat losses is subject to uncertainty, the researchers said.\nBecause of inadequate data and other factors, missing from some analyses is water-related energy for several important end-use sectors.\nSelf-supplied water, which is a high percentage of power plant use and of some industrial uses such as mining. Some of this energy-for-water is in the form of electricity, but much of it is likely direct use of fuels on-site. Privately operated residential water supply wells also utilize energy for pumping, none of which is accounted for. Agricultural use of water for livestock and irrigation—second in volume only to water use for thermoelectric power, according to the U.S. Geological Survey—is generally omitted from these analyses, although substantial energy, which generally is self-supplied, is needed for pumping. The transportation sector, although the majority of energy consumed is for petroleum-based transportation fuels, which is presumably reflected in water-for-energy analyses. The bottled water industry, which is a substantial drinking water source in the United States and consumes energy to collect, treat, bottle, and distribute its products.\nEnergy use for water is a function of many variables, including water source (surface water pumping typically requires less energy than groundwater pumping), treatment (high ambient quality raw water requires less treatment than brackish or seawater), intended end-use, distribution (water pumped long distances requires more energy), amount of water loss in the system through leakage and evaporation, and level of wastewater treatment (stringency of water quality regulations to meet discharge standards). Likewise, the intensity of energy use of water varies depending on characteristics such as topography (affecting groundwater recharge), climate, seasonal temperature, and rainfall.\nNational data can obscure differences in water-related energy use that are regional or state-specific, as reflected in a 2005 study by the California Energy Commission, which found that \"water-related energy use [in California] consumes 19 percent of the state's electricity, 30 percent of its natural gas, and 88 billion gallons of diesel fuel every year—and this demand is growing.\" Pumps that move water from the San Joaquin Valley to southern California for domestic and irrigation water uses are the single largest power load in the state. Because of important regional differences, the United States is a difficult country to generalize. For example, the lifecycle energy-intensity of water in cities nationally is estimated to be 3,300-3,600 kWh per million gallons delivered and treated, but ranges from 2,700 kWh/million gallons in New York, New York, to 5,000 kWh per million gallons in Austin, Texas. Energy intensity varies within states, as well. In California, the energy intensity of the water use cycle ranges from 4,000 kWh per million gallons in the northern part of the state to 12,700 kWh per million gallons in southern California, reflecting differences in the volume of water pumped, lifted, and transported hundreds of miles and over mountains from points of collection to points of need in the southern part of the state. The energy intensity of a particular activity's water use, also described as the embedded energy of the activity, can have disproportionate impacts elsewhere. For example, policies that promote the use of energy-intensive water supply such as pumping and distributing water over long distances, rather than policies that promote water conservation, water reuse, or aquifer recharge, adversely impact one sector to serve another.\nIn every sector, there are opportunities for practices that would save energy and also save water. The Environmental Protection Agency's (EPA's) WaterSense program promotes this concept by emphasizing that \"saving water saves energy.\" Energy efficiency initiatives offer opportunities for delivering significant water savings, and likewise, water efficiency initiatives offer opportunities for delivering significant energy savings. In the commercial, industrial, and institutional sectors, potential water savings through energy efficiency and other measures could be 15%-30% without reducing the services derived from the water. The potential for significant water and energy savings also exists in other sectors such as agriculture.\nGenerating the energy associated with water use also produces carbon dioxide (CO 2 ) emissions that contribute to climate change. It has been estimated that water-related carbon emissions in 2005 were approximately 290 million metric tons, or 5% of all U.S. carbon emissions. Water-related CO 2 emissions were equivalent to the annual greenhouse gas emissions of 53 million passenger vehicles. By sector, water heating was responsible for 70% of the water-related carbon emissions, wastewater treatment was responsible for 18%, water supply was responsible for 8%, and agricultural activities were responsible for 6%. Thus, saving water saves energy and also reduces carbon emissions.", "There are about 200,000 drinking water treatment systems in the United States, of which about 52,000 are community water systems that serve 25 or more year-round residents. Most U.S. drinking water is provided by relatively large community water systems. Nearly 85% of the U.S. population is supplied by about 5% of these systems; the remaining 95% include a large number of small and very small systems serving 3,300 persons or fewer. Public agencies own and operate most community water systems; a small number are privately operated. Smaller utilities use more electricity and pay more per unit of water produced than do medium and large utilities, due to economies of scale. Nearly all of the energy consumed is electricity, about 80% of which is used by motors for pumping.\nThere are approximately 15,000 U.S. wastewater treatment plants. Most are publicly owned, and they serve more than 75% of the U.S. population. Nearly 70% of facilities are small, serving only 10% of the U.S. population. Approximately 22% are large (with flow greater than 1 million gallons per day); they serve over 85% of the U.S. population. Wastewater systems generally consist of collection systems (sewers and pumping stations), treatment facilities, and effluent disposal. Like water supply utilities, nearly all of the energy consumed is electricity. Wastewater aeration, pumping, and solids processing account for most of the electricity used in wastewater treatment.\nFor both types of systems, greater amounts of energy are required for more advanced treatment levels. Similarly, the age of the system and equipment are important: as systems age, equipment decreases in efficiency, resulting in an increase in electricity requirements.\nAs described above, EPRI's 2002 study estimated that public water supply agencies and wastewater treatment facilities accounted for 1.6% of electricity use in 2000, or 51.6 billion kWh. A 2013 EPRI study found that electricity use by these sectors has increased in absolute and percentage terms—to 69.4 billion kWh, or 1.8% of total U.S. electricity use in 2011. The 2013 study reported a 39% increase for public drinking water systems and a 74% increase for the municipal wastewater industry compared with the earlier study, likely due to population growth and implementation of more energy-intensive advanced treatment technologies in the interim. These data are important, because energy is the second-highest budget item for municipal drinking water and wastewater facilities, after labor costs, with utilities spending about $4 billion a year. Energy consumption by drinking water and wastewater utilities can comprise 30%-40% of a municipality's total energy bill.\nDrinking water and wastewater utilities are highly regulated entities whose primary goals are to meet regulatory requirements for protecting public health and the environment and to provide services for reasonable and fair rates. The energy efficiency of these utilities generally has not been a primary goal or considered as an element of rate determinations. Nevertheless, as populations grow and environmental requirements become more stringent, demand for electricity at drinking water and wastewater utility plants is expected to grow by approximately 20%. Moreover, as electricity rates increase, energy conservation and efficiency are issues of increasing importance to many utilities. Nevertheless, opportunities for efficiency exist in several categories. Potential energy savings by drinking water and wastewater utilities could be 8% of 2010 usage by 2030.\nOptimizing system processes , such as modifying pumping and aeration operations and implementing monitoring and control systems through SCADA (supervisory control and data acquisition) systems to increase the energy efficiency of equipment. EPRI has estimated that drinking water facilities can achieve energy savings of 5%-15% through adjustable speed drives and high-efficiency motors and drives and 10%-20% through process optimization and SCADA systems. In wastewater facilities, EPRI estimates that 10%-20% energy savings are possible through process optimization. Upgrading to more efficient equipment and right-sizing equipment for the capacity of the facility (plants and pipes often are oversized, to accommodate future peak load). Pumps and other equipment used beyond their expected life operate well below optimal efficiency. In addition, energy is embedded through pipe systems, since leaking drinking water pipes require more energy to deliver water to the end user. Leaky sewer lines allow groundwater to infiltrate and increase the flow of water into the wastewater treatment plant. All water systems have losses, which are cumulative along segments of the water-use cycle. Projects to address water loss and improve end-use efficiency can be promoted as both water- and energy-savings investments. Improved energy management . It is widely recognized that water utilities need to develop better understanding of their current energy use, and public and private research and programs have focused on this goal. For example, some states have developed programs to help water utilities better manage energy use. The New York State Energy Research and Development Authority has done extensive work to help water utilities benchmark their energy use and supports a range of initiatives through its Focus on Municipal Water and Wastewater Treatment program. It developed a best practices handbook for the water and wastewater sectors, including methods to track performance and assess program effectiveness. The California Energy Commission also has been active on energy management issues. It has reported on case studies of water facilities throughout the state that implemented energy efficiency measures, including resulting energy and cost savings. In 2006, the California Public Utilities Commission (CPUC) directed the state's largest electric utilities to partner with water agencies, undertake specific water conservation and efficiency programs, and measure the results. Because one of the largest end uses of electricity in California is in treating, heating, and conveying water, energy companies in that state are working with the water sector to help utilities and companies reduce their energy use and boost their efficiency. At the federal level, EPA has developed a number of tools for water utilities, including an energy management guidebook, energy conservation guides, and self-assessment and energy audit tools. Energy Star, a joint program of the Department of Energy and EPA, has developed a Portfolio Manager, an online benchmarking tool that allows drinking water and wastewater utilities to evaluate their energy use and compare their operations to similar facilities. Others have contributed research on best practices, energy conservation, and benchmarking energy use, including the Water Environment Research Foundation, the Water Research Foundation, and the American Council for an Energy-Efficient Economy. Some water utilities are generating energy on-site to offset purchased electricity. Beyond efficiency measures, they illustrate ways in which water utilities are reducing their energy costs by recovering energy from municipal waste and using the resulting biogas to generate electricity, heat the plant, and in some cases sell electricity back to the grid. For example, DC Water, the wastewater utility in Washington, DC, is constructing a project to convert residuals that remain after wastewater is treated into fuel for combined heat and power operations at the facility. The utility estimates that when the project is completed, it will save $10 million per year on electricity (powering one-third of the treatment plant) and another $10 million annually in solid waste management. Another example is the Gloversville-Johnstown, NY Joint Wastewater Treatment Facilities. In 2003, it began accepting dairy whey as a fuel for its own energy through a combined heat and power process. Reduced electrical costs save the utility about $550,000 per year, and accepting the dairy wastes results in additional revenue of $750,000 annually. Plants also are using other sources of renewable energy: solar panels at the Calera Creek Water Recycling Plant in Pacifica, California, provide 10%-15% of the plant's energy needs and save an estimated $100,000 per year. Savings from such projects are contingent upon recouping capital investment costs.\nSeveral barriers to improved energy efficiency by water and wastewater utilities are apparent. Many of them derive from the culture of water utilities and outside constraints placed on them.\nCost. Utilities have limited resources. Their capital and operations budgets are constrained, while the up-front costs of installing more energy-efficient equipment can be prohibitive. Some funding sources to finance projects do exist (e.g., private sector, municipal bonds), but may not be suitable or well known to water utility officials. Federal and state funding for energy efficiency projects is limited. Municipalities that own and operate water utilities generally are risk-averse, reluctant to change practices, and hesitant to implement new technologies. Water utilities are slow adopters of new technology in part because of environmental and public health risks if new technologies fail to perform and in part because of the economic, political, and regulatory consequences of failure. The tendency is to wait until equipment fails rather than be pro-active. Facility operators who could advocate for energy efficiency often are disconnected from those in the utility who pay the electricity bill. Most water and wastewater facilities were built decades ago when electricity costs were low enough to be of little concern. Facilities and equipment were designed to run continuously, without regard for wasted energy. To the extent that water utilities can pass on energy costs to customers, there may be little incentive to investigate energy efficiencies. Utility managers may not understand how energy is used at a plant and how to reduce, or even control, energy costs.\nRegulatory barriers also exist. Many state renewable portfolio standards require that a specified percentage of energy produced within the state comes from renewable sources. However, many of these state policies do not recognize biogas that is recovered from wastewater treatment as an energy source in renewable energy credit programs and renewable portfolio standards. This results in biogas use projects being ineligible for incentives for which other competing renewable energy projects are eligible. Further, some electric utilities restrict sale of excess power to the electric grid, impairing project economics. In some cases where excess power can be sold to the grid, the water utility musts accept low prices for wastewater-generated energy, which can be a disincentive to on-site energy generation projects.\nOther barriers stem from a lack of coherence and coordination between water and energy policies, planning, and decision-making roles. Energy and water decisions have historically been made independently of each other. Water planners typically assume that they have the energy that they need, and energy planners assume that they have the water that they need. Both are likely to use different strategic planning: private companies acting under market forces dictate the location of energy infrastructure, while water infrastructure is often located using public interest criteria. A mismatch in planning objectives by different actors can prevent the beneficial siting and combining of technologies. Likewise, water policy in the United States is usually structured in a bottom-up fashion with decisions driven by local water authorities, because water supply management is generally the responsibility of states. Energy policy, in contrast, is usually structured in a top-down fashion with federal agencies setting many standards and requirements.\nTo overcome such barriers, a 2013 report recommends that the electricity, water supply, and wastewater sectors should foster cross-sector communication and engage in collaborative planning. The report suggests that, to reduce potential disincentives and risks of cross-sector coordination, states could implement policies that incentivize wastewater plants to install energy projects and give credits to electric utilities for incorporating those generation sources into their portfolios. Although some states do this now (for example, Massachusetts), the report states that new policies are needed to build the confidence of leaders in the water and electric power sectors and motivate them to \"go beyond compliance.\"", "Several areas of research and information needs concerning energy for water uses have been identified by a range of researchers and stakeholders. They suggest:\nData that could help decision makers and users fill what is now an incomplete picture of energy needs for water uses are lacking. This is apparent across sectors and also within individual sectors. The U.S. Geological Survey collects national water use data, but the level of detail is limited, and related energy use is not considered. The Department of Energy collects energy data and forecasts energy use, but its work to address energy for water use is limited. No public or private entity systematically collects energy data from public water utilities, users who self-supply their water, or other end users of water. Data that exist are scattered and often are not available at a scale needed by decision makers, nor is there standardized terminology in reporting information that is needed to quantify energy use in the water industry. More integrated research is needed on water and energy operations. Information is needed to understand where energy is used in water and wastewater infrastructure facilities, what opportunities for improvement exist, and how to establish priorities for action. Ideally, consistent data collection methodology is needed to gather and track water and energy data across all sectors and within sectors, such as at the utility level, and to aid benchmarking. Standards for data collection, coordination, and quality control are lacking. Research is needed on advanced technologies that save energy and save water, and partnerships between government and the private sector that move research and development from bench-scale to implementation are needed. For example, technologies for energy recovery from wastewater generation are in their early stages of development and require more research, as well as onsite demonstration. Better understanding is needed of linkages between energy, water, land, and agriculture and risks of climate change and extreme weather events on water availability and energy supply. Policies and approaches are needed to encourage the water and energy sectors to move toward integrated resource management. Analysis is needed of incentives, disincentives, and lack of incentives to investing in cost-effective energy or water efficiency measures. One area of interest is regulatory barriers to co-implementation of efficiency programs in the water and energy sectors. Lowering end-use water demand can conserve both water and energy. Thus, more education and outreach to all types of water users, the general public, and public officials are needed on the water-energy nexus and how improving efficiency involves linkages between saving energy and saving water." ], "depth": [ 0, 1, 1, 1 ], "alignment": [ "h0_title h1_title", "h0_full", "h0_full h1_full", "" ] }

{ "question": [ "How are water and energy reciprocally linked?", "What is this relationship referred to as?", "How does the conservation of one resource affect the supply of the other?", "How can saving water reduce carbon emissions?", "How much energy is typically used by public water facilities?", "What are the largest energy uses at these facilities?", "Why is energy conservation so important at these facilities?", "How can energy use be made more efficient?", "What challenges does an increase in efficiency face?" ], "summary": [ "Water and energy are resources that are reciprocally and mutually linked, because meeting energy needs requires water, often in large quantities, for mining, fuel production, hydropower, and power plant cooling, and energy is needed for pumping, treatment, and distribution of water and for collection, treatment, and discharge of wastewater.", "This interrelationship is often referred to as the energy-water nexus, or the water-energy nexus.", "There is growing recognition that \"saving water saves energy.\" Energy efficiency initiatives offer opportunities for delivering significant water savings, and likewise, water efficiency initiatives offer opportunities for delivering significant energy savings.", "In addition, saving water also reduces carbon emissions by saving energy otherwise generated to move and treat water.", "Energy consumption by public drinking water and wastewater utilities, which are primarily owned and operated by local governments, can represent 30%-40% of a municipality's energy bill.", "At drinking water plants, the largest energy use (about 80%) is to operate motors for pumping. At wastewater treatment plants, aeration, pumping, and solids processing account for most of the electricity that is used.", "Energy is the second-highest budget item for these utilities, after labor costs, so energy conservation and efficiency are issues of increasing importance to many of them.", "Opportunities for efficiency exist in several categories, such as upgrading to more efficient equipment, improving energy management, and generating energy on-site to offset purchased electricity.", "However, barriers to improved energy efficiency by water and wastewater utilities exist, including capital costs and reluctance by utility officials to change practices or implement new technologies." ], "parent_pair_index": [ -1, 0, -1, 2, -1, 0, 0, 2, 2 ], "summary_paragraph_index": [ 0, 0, 0, 0, 2, 2, 2, 2, 2 ] }

{ "title": [ "Management of Arlington Contracts Improved, but Additional Steps Are Needed to Ensure Continued Progress", "Army Has Made Progress in Addressing Other Management Deficiencies at Arlington, but Challenges Remain", "Formal Collaboration between the Army and VA Could Lead to Improvements across All National Cemeteries", "Summary of Recommendations for Further Improvements at Arlington National Cemetery", "Contacts and Staff Acknowledgments" ], "paragraphs": [ "The Army has taken a number of steps since June 2010 at different levels to provide for more effective management and oversight of contracts supporting Arlington, including improving visibility of contracts, establishing new support relationships, formalizing policies and procedures, and increasing the use of dedicated contracting staff to manage and improve acquisition processes. While significant progress has been made, we have recommended that the Army take further action in these areas to ensure continued improvement and institutionalize progress made to date. These recommendations and the agency’s response are discussed later in this statement.\nArlington does not have its own contracting authority and, as such, relies on other contracting offices to award and manage contracts on its behalf. ANCP receives contracting support in one of two main ways, either by (1) working directly with contracting offices to define requirements, ensure the appropriate contract vehicle, and provide contract oversight, or (2) partnering with another program office to leverage expertise and get help with defining requirements and providing contract oversight. Those program offices, in turn, use other contracting arrangements to obtain services and perform work for Arlington. Using data from multiple sources, we identified 56 contracts and task orders that were active during fiscal year 2010 and the first three quarters of fiscal year 2011 under which these contracting offices obligated roughly $35.2 million on Arlington’s behalf. These contracts and task orders supported cemetery operations, such as landscaping, custodial, and guard services; construction and facility maintenance; and new efforts to enhance information-technology systems for the automation of burial operations. Figure 1 identifies the contracting relationships, along with the number of contracts and dollars obligated by contracting office, for the contracts and task orders we reviewed.\nAt the time of our review, we found that ANCP did not maintain complete data on contracts supporting its operations. We have previously reported that the effective acquisition of services requires reliable data to enable informed management decisions.leadership may be without sufficient information to identify, track, and ensure the effective management and oversight of its contracts. While we obtained information on Arlington contracts from various sources, limitations associated with each of these sources make identifying and tracking Arlington’s contracts as a whole difficult. For example: Without complete data, ANCP Internal ANCP data. A contract specialist detailed to ANCP in September 2010 developed and maintained a spreadsheet to identify and track data for specific contracts covering daily cemetery operations and maintenance services. Likewise, ANCP resource management staff maintain a separate spreadsheet that tracks purchase requests and some associated contracts, as well as the amount of funding provided to other organizations through the use of military interdepartmental purchase requests. Neither of these spreadsheets identifies the specific contracts and obligations associated with Arlington’s current information-technology and construction requirements.\nExisting contract and financial systems. The Federal Procurement Data System-Next Generation (FPDS-NG) is the primary system used to track governmentwide contract data, including those for the Department of Defense (DOD) and the Army. The Arlington funding office identification number, a unique code that is intended to identify transactions specific to Arlington, is not consistently used in this system and, in fact, was used for only 34 of the 56 contracts in our review. In October 2010 and consistent with a broader Army initiative, ANCP implemented the General Fund Enterprise Business System (GFEBS) to enhance financial management and oversight and to improve its capability to track expenditures. We found that data in this system did not identify the specific information-technology contracts supported by the Army Communications-Electronics Command, Army Geospatial Center, Naval Supply Systems Command Weapon Systems Support office, and others. Officials at ANCP and at the MICC-Fort Belvoir stated that they were exploring the use of additional data resources to assist in tracking Arlington contracts, including the Virtual Contracting Enterprise, an electronic tool intended to help enable visibility and analysis of elements of the contracting process.\nContracting support organizations. We also found that Army contracting offices had difficulty in readily providing complete and accurate data to us on Arlington contracts. For example, the National Capital Region Contracting Center could not provide a complete list of active contracts supporting Arlington during fiscal years 2010 and 2011 and in some cases did not provide accurate dollar amounts associated with the contracts it identified. USACE also had difficulty providing a complete list of active Arlington contracts for this time frame. The MICC-Fort Belvoir contracting office was able to provide a complete list of the recently awarded contracts supporting Arlington with accurate dollar amounts for this time frame, and those data were supported by similar information from Arlington.\nThe Army has also taken a number of steps to better align ANCP contract support with the expertise of its partners. However, some of the agreements governing these relationships do not yet fully define roles and responsibilities for contracting support. We have previously reported that a key factor in improving DOD’s service acquisition outcomes—that is, obtaining the right service, at the right price, in the right manner—is having defined responsibilities and associated support structures. Going forward, sustained attention on the part of ANCP and its partners will be important to ensure that contracts of all types and risk levels are managed effectively. The following summarizes ongoing efforts in this area:\nANCP established a new contracting support agreement with the Army Contracting Command in August 2010. The agreement states that the command will assign appropriate contracting offices to provide support, in coordination with ANCP, and will conduct joint periodic reviews of new and ongoing contract requirements. In April 2011, ANCP also signed a separate agreement with the MICC, part of the Army Contracting Command, which outlines additional responsibilities for providing contracting support to ANCP. While this agreement states that the MICC, through the Fort Belvoir contracting office, will provide the full range of contracting support, it does not specify the types of requirements that will be supported, nor does it specify that other offices within the command may also do so.\nANCP signed an updated support agreement with USACE in December 2010, which states that these organizations will coordinate to assign appropriate offices to provide contracting support and that USACE will provide periodic joint reviews of ongoing and upcoming requirements. At the time of our review, USACE officials noted that they were in the process of finalizing an overarching program management plan with ANCP, which, if implemented, provides additional detail about the structure of and roles and responsibilities for support. USACE and ANCP have also established a Senior Executive Review Group, which updates the senior leadership at both organizations on the status of ongoing efforts.\nANCP has also put agreements in place with the Army Information Technology Agency (ITA) and the Army Analytics Group, which provide program support for managing information-technology infrastructure and enhance operational capabilities. Officials at ANCP decided to leverage this existing Army expertise, rather than attempting to develop such capabilities independently as was the case under the previous Arlington management. For example, the agreement in place with ITA identifies the services that will be provided to Arlington, performance metrics against which ITA will be measured, as well as Arlington’s responsibilities. These organizations are also responsible for managing the use of contracts in support of their efforts; however, the agreement with ANCP does not specifically address roles and responsibilities associated with the use and management of these contracts supporting Arlington requirements. Although officials from these organizations told us that they currently understand their responsibilities, without being clearly defined in the existing agreements, roles and responsibilities may be less clear in the future when personnel change.\nANCP has developed new internal policies and procedures and improved training for staff serving as contracting officer’s representatives, and has dedicated additional staff resources to improve contract management. Many of these efforts were in process at the time of our review, including decisions on contracting staff needs, and their success will depend on continued management attention. The following summarizes our findings in this area:\nArlington has taken several steps to more formally define its own internal policies and procedures for contract management. In July 2010, the Executive Director of ANCP issued guidance stating that the Army Contracting Command and USACE are the only authorized contracting centers for Arlington. Further, ANCP is continuing efforts to (1) develop standard operating procedures associated with purchase requests; (2) develop memorandums for all ANCP employees that outline principles of the procurement process, as well as training requirements for contracting officer’s representatives; and (3) create a common location for reference materials and information associated with Arlington contracts. In May 2011, the Executive Director issued guidance requiring contracting officer’s representative training for all personnel assigned to perform that role, and at the time of our review, all of the individuals serving as contracting officer’s representatives had received training for that position.\nANCP, in coordination with the MICC-Fort Belvoir contracting office is evaluating staffing requirements to determine the appropriate number, skill level, and location of contracting personnel. In July 2010, the Army completed a study that assessed Arlington’s manpower requirements and identified the need for three full-time contract specialist positions. While these positions have not been filled to date, ANCP’s needs have instead been met through the use of staff provided by the MICC. At the time of our review, the MICC-Fort Belvoir was providing a total of 10 contracting staff positions in support of Arlington, 5 of which are funded by ANCP, with the other 5 funded by the MICC-Fort Belvoir to help ensure adequate support for Arlington requirements. ANCP officials have identified the need for a more senior contracting specialist and stated that they intend to request an update to their staffing allowance for fiscal year 2013 to fill this new position.\nPrior reviews of Arlington have identified numerous issues with contracts in place prior to the new leadership at ANCP. While our review of similar contracts found common concerns, we also found that contracts and task orders awarded since June 2010 reflect improvements in acquisition practices. Our previous contracting-related work has identified the need to have well-defined requirements, sound business arrangements (i.e., contracts in place), and the right oversight mechanisms to ensure positive outcomes. We found examples of improved documentation, better definition and consolidation of existing requirements for services supporting daily cemetery operations, and more specific requirements for contractor performance. At the time of our review, many of these efforts were still under way, so while initial steps taken reflect improvement, their ultimate success is not yet certain.", "The Army has also taken positive steps and implemented improvements to address other management deficiencies and to provide information and assistance to families. It has implemented improvements across a broad range of areas at Arlington, including developing procedures for ensuring accountability over remains, taking actions to better provide information- assurance, and improving its capability to respond to the public and to families’ inquiries. For example, Arlington officials have updated and documented the cemetery’s chain-of-custody procedures for remains, to include multiple verification steps by staff members and the tracking of decedent information through a daily schedule, electronic databases, and tags affixed to urns and caskets entering Arlington. Nevertheless, we identified several areas where challenges remain:\nManaging information-technology investments. Since June 2010, ANCP has invested in information-technology improvements to correct existing problems at Arlington and has begun projects to further enhance the cemetery’s information-technology capabilities. However, these investments and planned improvements are not yet guided by an enterprise architecture—or modernization blueprint. Our experience has shown that developing this type of architecture can help minimize risk of developing systems that are duplicative, poorly integrated, and unnecessarily costly to maintain. ANCP is working to develop an enterprise architecture, and officials told us in January that they expect the architecture will be finalized in September 2012. Until the architecture is in place and ANCP’s ongoing and planned information-technology investments are assessed against that architecture, ANCP lacks assurance that these investments will be aligned with its future operational environment, increasing the risk that modernization efforts will not adequately meet the organization’s needs.\nUpdating workforce plans. The Army took a number of positive steps to address deficiencies in its workforce plans, including completing an initial assessment of its organizational structure in July 2010 after the Army IG found that Arlington was significantly understaffed. However, ANCP’s staffing requirements and business processes have continued to evolve, and these changes have made that initial workforce assessment outdated. Since the July 2010 assessment, officials have identified the need for a number of new positions, including positions in ANCP’s public-affairs office and a new security and emergency-response group. Additionally, Arlington has revised a number of its business processes, which could result in a change in staffing needs. Although ANCP has adjusted its staffing levels to address emerging requirements, its staffing needs have not been formally reassessed. Our prior work has demonstrated that this kind of assessment can improve workforce planning, which can enable an organization to remain aware of and be prepared for its current and future needs as an organization. ANCP officials have periodically updated Arlington’s organizational structure as they identify new requirements, and officials told us in January that they plan to completely reassess staffing within ANCP in the summer of 2012 to ensure that it has the staff needed to achieve its goals and objectives. Until this reassessment is completed and documented, ANCP lacks assurance that it has the correct number and types of staff needed to achieve its goals and objectives.\nDeveloping an organizational assessment program. Since 2009 ANCP has been the subject of a number of audits and assessments by external organizations that have reviewed many aspects of its management and operations, but it has not yet developed its own assessment program for evaluating and improving cemetery performance on a continuous basis. Both the Army IG and VA have noted the importance of assessment programs in identifying and enabling improvements of cemetery operations to ensure that cemetery standards are met. Further, the Army has emphasized the importance of maintaining an inspection program that includes a management tool to identify, prevent, or eliminate problem areas. At the time of our review, ANCP officials told us they were in the process of developing an assessment program and were adapting VA’s program to meet the needs of the Army’s national cemeteries. ANCP officials estimated in January that they will be ready to perform their first self-assessment in late 2012. Until ANCP institutes an assessment program that includes an ability to complete a self- assessment of operations and an external assessment by cemetery subject-matter experts, it is limited in its ability to evaluate and improve aspects of cemetery performance.\nCoordinating with key partners. While ANCP has improved its coordination with other Army organizations, we found that it has encountered challenges in coordinating with key operational partners, such as the Military District of Washington, the military service honor guards, and Joint Base Myer-Henderson Hall. Officials from these organizations told us that communication and collaboration with Arlington have improved, but they have encountered challenges and there are opportunities for continued improvement. For example, officials from the Military District of Washington and the military service honor guards indicated that at times they have experienced difficulties working with Arlington’s Interment Scheduling Branch and provided records showing that from June 24, 2010, through December 15, 2010, there were at least 27 instances where scheduling conflicts took place. These challenges are due in part to a lack of written agreements that fully define how these operational partners will support and interact with Arlington. Our prior work has found that agencies can derive benefits from enhancing and sustaining their collaborative efforts by institutionalizing these efforts with agreements that define common outcomes, establish agreed-upon roles and responsibilities, identify mechanisms used to monitor and evaluate collaborative efforts, and enable the organizations to leverage their resources. ANCP has a written agreement in place with Joint Base Myer-Henderson Hall, but this agreement does not address the full scope of how these organizations work together. Additionally, ANCP has drafted, but has not yet signed, a memorandum of agreement with the Military District of Washington. ANCP has not drafted memorandums of agreement with the military service honor guards despite each military service honor guard having its own scheduling procedure that it implements directly with Arlington and each service working with Arlington to address operational challenges. ANCP, by developing memorandums of agreement with its key operational partners, will be better positioned to ensure effective collaboration with these organizations and help to minimize future communication and coordination challenges.\nDeveloping a strategic plan. Although ANCP officials have been taking steps to address challenges at Arlington, at the time of our review they had not adopted a strategic plan aimed at achieving the cemetery’s longer-term goals. An effective strategic plan can help managers to prioritize goals; identify actions, milestones, and resource requirements for achieving those goals; and establish measures for assessing progress and outcomes. Our prior work has shown that leading organizations prepare strategic plans that define a clear mission statement, a set of outcome-related goals, and a description of how the organization intends to achieve those goals. Without a strategic plan, ANCP is not well positioned to ensure that cemetery improvements are in line with the organizational mission and achieve desired outcomes. ANCP officials told us during our review that they were at a point where the immediate crisis at the cemetery had subsided and they could focus their efforts on implementing their longer-term goals and priorities. In January, ANCP officials showed us a newly developed campaign plan. While we have not evaluated this plan, our preliminary review found that it contains elements of an effective strategic plan, including expected outcomes and objectives for the cemetery and related performance metrics and milestones.\nDeveloping written guidance for providing assistance to families. After the Army IG issued its findings in June 2010, numerous families called Arlington to verify the burial locations of their loved ones. ANCP developed a protocol for investigating these cases and responding to the families. Our review found that ANCP implemented this protocol, and we reviewed file documentation for a sample of these cases. In reviewing the assistance provided by ANCP when a burial error occurred, we found that ANCP’s Executive Director or Chief of Staff contacted the affected families. ANCP’s Executive Director—in consultation with cemetery officials and affected families—made decisions on a case-by-case basis about the assistance that was provided to each family. For instance, some families who lived outside of the Washington, D.C., area were reimbursed for hotel and travel costs. However, the factors that were considered when making these decisions were not documented in a written policy. In its June 2010 report, the Army IG noted in general that the absence of written policies left Arlington at risk of developing knowledge gaps as employees leave the cemetery. By developing written guidance that addresses the cemetery’s interactions with families affected by burial errors, ANCP could identify pertinent DOD and Army regulations and other guidance that should be considered when making such decisions. Also, with written guidance the program staff could identify the types of assistance that can be provided to families. In January, ANCP provided us with a revised protocol for both agency-identified and family member-initiated gravesite inquiries. The revised protocol provides guidance on the cemetery’s interactions with the next of kin and emphasizes the importance of maintaining transparency and open communication with affected families.", "A transfer of jurisdiction for the Army’s two national cemeteries to VA is feasible based on historical precedent for the national cemeteries and examples of other reorganization efforts in the federal government. However, we identified several factors that may affect the advisability of making such a change, including the potential costs and benefits, potential transition challenges, and the potential effect on Arlington’s unique characteristics. In addition, given that the Army has taken steps to address deficiencies at Arlington and has improved its management, it may be premature to move forward with a change in jurisdiction, particularly if other options for improvement exist that entail less disruption. During our review, we identified opportunities for enhancing collaboration between the Army and VA that could leverage their strengths and potentially lead to improvements at all national cemeteries.\nTransferring cemetery jurisdiction could have both benefits and costs. Our prior work suggests that government reorganization can provide an opportunity for greater effectiveness in program management and result in improved efficiency over the long-term, and can also result in short- term operational costs.told us they were not aware of relevant studies that may provide insight into the potential benefits and costs of making a change in cemetery jurisdiction. However, our review identified areas where VA’s and the Army’s national cemeteries have similar, but not identical, needs and have developed independent capabilities to meet those needs. For example, each agency has its own staff, processes, and systems for determining burial eligibility and scheduling and managing burials. While consolidating these capabilities may result in long-term efficiencies, there could also be challenges and short-term costs.\nAt the time of our review, Army and VA officials Potential transition challenges may arise in transferring cemetery jurisdiction. Army and VA cemeteries have similar operational requirements to provide burial services for service members, veterans, and veterans’ family members; however, officials identified areas where the organizations differ and stated that there could be transition challenges if VA were to manage Arlington, including challenges pertaining to the regulatory framework, appropriations structure, and contracts. For example, Arlington has more restrictive eligibility criteria for in-ground burials, which has the result of limiting the number of individuals eligible for burial at the cemetery. If Arlington cemetery were to be subject to the same eligibility criteria as VA’s cemeteries, the eligibility for in-ground burials at Arlington would be greatly expanded. Additionally, the Army’s national cemeteries are funded through a different appropriations structure than VA’s national cemeteries. If the Army’s national cemeteries were transferred to VA, Congress would have to choose whether to alter the funding structure currently in place for Arlington.\nBurial eligibility at VA’s national cemeteries is governed by 38 U.S.C. § 2402 and 38 C.F.R. § 38.620. Burial eligibility at Arlington is governed by 38 U.S.C. § 2410 and 32 C.F.R. § 553.15.\nMission and vision statements. The Army and VA have developed their own mission and vision statements for their national cemeteries that differ in several ways. Specifically, VA seeks to be a model of excellence for burials and memorials, while Arlington seeks to be the nation’s premier military cemetery.\nMilitary honors provided to veterans. The Army and VA have varying approaches to providing military funeral honors. VA is not responsible for providing honors to veterans, and VA cemeteries generally are not involved in helping families obtain military honors from DOD. In contrast, Arlington provides a range of burial honors depending on whether an individual is a service member killed in action, a veteran, or an officer.\nCeremonies and special events. Arlington hosts a large number of ceremonies and special events in a given year, some of which may involve the President of the United States as well as visiting heads of state. From June 10, 2010, through October 1, 2011, Arlington hosted more than 3,200 wreath-laying ceremonies, over 70 memorial ceremonies, and 19 state visits, in addition to Veterans Day and Memorial Day ceremonies, and also special honors for Corporal Frank Buckles, the last American servicemember from World War I. VA officials told us that their cemeteries do not support a similar volume of ceremonies, and as a result they have less experience in this area than the Army.\nDuring our review, we found that there are opportunities to expand collaboration between the Army and VA that could improve the efficiency and effectiveness of these organizations’ cemetery operations. Our prior work has shown that achieving results for the nation increasingly requires that federal agencies work together, and when considering the nation’s long-range fiscal challenges, the federal government must identify ways to deliver results more efficiently and in a way that is consistent with its limited resources. Since the Army IG issued its findings in June 2010, the Army and VA have taken steps to partner more effectively. The Army’s hiring of several senior VA employees to help manage Arlington has helped to foster collaboration, and the two agencies signed a memorandum of understanding that allows ANCP employees to attend classes at VA’s National Training Center.\nHowever, the Army and VA may have opportunities to collaborate and avoid duplication in other areas that could benefit the operations of either or both cemetery organizations. For example, the Army and VA are upgrading or redesigning some of their core information-technology systems supporting cemetery operations. By continuing to collaborate in this area, the agencies can better ensure that their information-technology systems are able to communicate, thereby helping to prevent operational challenges stemming from a lack of compatibility between these systems in the future. In addition, each agency may have specialized capabilities that it could share with the other. VA, for example, has staff dedicated to determining burial eligibility, and the Army has an agency that provides geographic-information-system and global-positioning-system capabilities—technologies that VA officials said that they are examining for use at VA’s national cemeteries.\nWhile the Army and VA have taken steps to improve collaboration, at the time of our review the agencies had not established a formal mechanism to identify and analyze issues of shared interest, such as process improvements, lessons learned, areas for reducing duplication, and solutions to common problems. VA officials indicated that they planned to meet with ANCP officials in the second quarter of fiscal year 2012, with the aim of enhancing collaboration between the two agencies. Unless the Army and VA collaborate to identify areas where the agencies can assist each other, they could miss opportunities to take advantage of each other’s strengths—thereby missing chances to improve the efficiency and effectiveness of cemetery operations—and are at risk of investing in duplicative capabilities.", "The success of the Army’s efforts to improve contracting and management at Arlington will depend on continued focus in various areas. Accordingly, we made a number of recommendations in our December 2011 reports. In the area of contracting, we recommended that the Army implement a method to track complete and accurate contract data, ensure that support agreements clearly identify roles and responsibilities for contracting, and determine the number and skills necessary for contracting staff. In its written comments, DOD partially concurred with these recommendations, agreeing that there is a need to take actions to address the issues we raised, but indicating that our recommendations did not adequately capture Army efforts currently underway. We believe our report reflects the significant progress made by Arlington and that implementation of our recommendations will help to institutionalize the positive steps taken to date.\nWith regard to our recommendation to identify and implement a method to track complete and accurate contact data, DOD noted that Arlington intends to implement, by April 2012, a methodology based on an electronic tool which is expected to collect and reconcile information from a number of existing data systems. Should this methodology consider the shortcomings within these data systems as identified in our report, we believe this would satisfy our recommendations.\nDOD noted planned actions, expected for completion by March 2012 that, if implemented, would satisfy the intent of our other two recommendations.\nWith regard to other management challenges at Arlington, we recommended that the Army implement its enterprise architecture and reassess ongoing and planned information-technology investments; update its assessment of ANCP’s workforce needs; develop and implement a program for assessing and improving cemetery operations; develop memorandums of understanding with Arlington’s key operational partners; develop a strategic plan; and develop written guidance to help determine the types of assistance that will be provided to families affected by burial errors. DOD fully agreed with our recommendations that the Army update its assessment of ANCP’s workforce needs and implement a program for assessing and improving cemetery operations. DOD partially agreed with our other recommendations. In January, ANCP officials provided us with updates on its plans to take corrective actions, as discussed in this statement.\nWith regard to implementing an enterprise architecture, DOD stated that investments made to date in information technology have been modest and necessary to address critical deficiencies. We recognize that some vulnerabilities must be expeditiously addressed. Nevertheless, our prior work shows that organizations increase the risk that their information-technology investments will not align with their future operational environment if these investments are not guided by an approved enterprise architecture.\nRegarding its work with key operational partners, DOD stated that it recognizes the value of establishing memorandums of agreement and noted the progress that the Army has made in developing memorandums of agreement with some of its operational partners. We believe that the Army should continue to pursue and finalize agreements with key operational partners that cover the full range of areas where these organizations must work effectively together.\nWith regard to a strategic plan, DOD stated that it was in the process of developing such a plan. As discussed previously, ANCP officials in January showed us a newly developed campaign plan that, based on our preliminary review, contains elements of an effective strategic plan.\nRegarding written guidance on the factors that the Executive Director will consider when determining the types of assistance provided to families affected by burial errors, DOD stated that such guidance would limit the Executive Director’s ability to exercise leadership and judgment to make an appropriate determination. We disagree with this view. Our recommendation does not limit the Executive Director’s discretion, which we consider to be an essential part of ensuring that families receive the assistance they require in these difficult situations. Our recommendation, if implemented, would improve visibility into the factors that guide decision making in these cases.\nFinally, we recommended that the Army and VA implement a joint working group or other such mechanism to enable ANCP and VA’s National Cemetery Administration to collaborate more closely in the future. Both DOD and VA concurred with this recommendation. As noted, VA stated that a planning meeting to enhance collaboration is planned for the second quarter of 2012.\nChairmen Wilson and Wittman, Ranking Members Davis and Cooper, and Members of the Subcommittees, this completes our prepared statement. We would be pleased to respond to any questions that you may have at this time.", "For questions about this statement, please contact Belva Martin, Director, Acquisition and Sourcing Management, on (202) 512-4841 or martinb@gao.gov or Brian Lepore, Director, Defense Capabilities and Management, on (202) 512-4523 or leporeb@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this testimony. Individuals who made key contributions to this testimony include Brian Mullins, Assistant Director; Tom Gosling, Assistant Director; Kyler Arnold; Russell Bryan; George M. Duncan; Kathryn Edelman; Julie Hadley; Kristine Hassinger; Lina Khan; and Alex Winograd.\nThis is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately." ], "depth": [ 1, 1, 1, 1, 1 ], "alignment": [ "h0_full", "h1_full", "h2_full", "h0_full h2_full h1_full", "h1_full" ] }

{ "question": [ "What contracts related to Arlington National Cemetary did GAO identify?", "What tasks did these contracts cover?", "How has the Army attempted to make these contracts more efficient?", "What does the success of the Army's efforts depend on?", "What did GAO find regarding the contracts?", "How did DOD respond to GAO's recommendations?", "How well has the Army addressed management deficiencies?", "How have the Army's efforts affected Arlington?", "What management challenges remain?", "What recommendations did GAO make?", "How did DOD respond to these recommendations?", "How feasible would a transfer of Army national cemeteries to the VA be?", "What factors would affect any such transfer?", "To what extent is a transfer the optimal solution for the deficiencies at Arlington?", "What did GAO recommend?", "How did DOD and VA respond to GAO's recommendations?" ], "summary": [ "GAO identified 56 contracts and task orders that were active during fiscal year 2010 and the first three quarters of fiscal year 2011 under which contracting offices obligated roughly $35.2 million on Arlington’s behalf.", "These contracts supported cemetery operations, construction and facility maintenance, and new efforts to enhance information-technology systems for the automation of burial operations.", "The Army has taken a number of steps since June 2010 at different levels to provide for more effective management and oversight of contracts, establishing new support relationships, formalizing policies and procedures, and increasing the use of dedicated contracting staff to manage and improve its acquisition processes.", "The success of Arlington’s acquisition outcomes will depend on continued management focus from ANCP and its contracting partners to ensure sustained attention to contract management and institutionalize progress made to date.", "However, GAO found that ANCP does not maintain complete data on its contracts, responsibilities for contracting support are not yet fully defined, and dedicated contract staffing arrangements still need to be determined. GAO made three recommendations to continue improvements in contract management.", "The Department of Defense (DOD) partially concurred and noted actions in progress to address these areas.", "The Army has taken positive steps and implemented improvements to address other management deficiencies and to provide information and assistance to families.", "It has implemented improvements across a broad range of areas at Arlington, including developing procedures for ensuring accountability over remains and improving its capability to respond to the public and to families’ inquiries.", "Nevertheless, the Army has remaining management challenges in several areas—managing information-technology investments, updating workforce plans, developing an organizational assessment program, coordinating with key partners, developing a strategic plan, and developing guidance for providing assistance to families.", "GAO made six recommendations to help address these areas.", "DOD concurred or partially concurred and has begun to take some corrective actions.", "A transfer of jurisdiction for the Army’s two national cemeteries to VA is feasible based on historical precedent for the national cemeteries and examples of other reorganization efforts in the federal government.", "However, several factors may affect the advisability of making such a change, including the potential costs and benefits, potential transition challenges, and the potential effect on Arlington’s unique characteristics.", "In addition, given that the Army has taken steps to address deficiencies at Arlington and has improved its management, it may be premature to move forward with a change in jurisdiction, particularly if other options for improvement exist that entail less disruption.", "GAO identified opportunities for enhancing collaboration between the Army and VA that could leverage their strengths and potentially lead to improvements at all national cemeteries. GAO recommended that the Army and VA develop a mechanism to formalize collaboration between these organizations.", "DOD and VA concurred with this recommendation." ], "parent_pair_index": [ -1, 0, 0, 2, -1, 4, -1, 0, 0, -1, 3, -1, 0, 0, -1, 3 ], "summary_paragraph_index": [ 1, 1, 1, 1, 1, 1, 2, 2, 2, 2, 2, 3, 3, 3, 3, 3 ] }

{ "title": [ "Background", "Connectivity between Major Airports and Intercity Passenger Rail Remains Limited, as Does Passenger Usage", "Most Major Airports Are near Intercity Passenger Rail Stations, but Air-Rail Connectivity is Rare", "Few Passengers Use Air- Rail Connections", "Collocated Airport Terminals and Rail Stations Allow for Code Sharing", "Air-Rail Connectivity May Provide a Range of Benefits for Passengers and Others, but Costs Can Be Significant", "Benefits", "Costs", "Air-Rail Connectivity Is Influenced by a Variety of Factors", "Resource Availability", "Passenger Demand", "Ease of Connection", "Rail Service Operating Characteristics", "Strategies to Improve Air-Rail Connectivity May Require Substantial Coordination and Funding", "Collaborative Planning", "Funding and Flexibility", "Infrastructure Connectivity", "Awareness of Air-Rail Connections", "Agency Comments", "Appendix I: Objectives, Scope, and Methodology", "Appendix II: Experts Participating in GAO’s Survey on Air-Rail Connectivity", "Appendix III: Examples of Potential Federal Financing and Funding Sources for Air-Rail Projects", "Appendix IV: Distances between Large and Medium Hub Airport Terminals and Amtrak Stations in the Contiguous United States", "Distance between airport and nearest Amtrak station 0 to 5 miles (21 airports)", "Distance between airport and nearest Amtrak station", "Appendix V: GAO Contact and Staff Acknowledgments", "GAO Contact", "Acknowledgments" ], "paragraphs": [ "For the purposes of this report, an air-rail connection refers to a connection between an airport terminal and an intercity passenger rail station (in other contexts, an air-rail connection may refer to a connection between an airport terminal and an intracity rail station that serves other forms of local rail, such as commuter rail or a subway system). An air-rail connection facilitates mobility between a rail station and an airport terminal through a variety of modes and methods, such as an airport shuttle, local transit connection, automated people mover or guideway car, or by walking. Depending on the extent of the connectivity, intercity passenger rail can perform three main roles for air passengers.\nFirst, intercity passenger rail may serve as a short-distance connection to the nearest local airport from a metropolitan area along a more extensive intercity rail corridor.\nSecond, intercity passenger rail may serve as a competitive alternative to air travel. For example, for distances less than 500 miles, our prior work has shown that intercity passenger rail, particularly high-speed rail, offers some potential advantages over air travel, including reduced times for security screening and baggage checks.\nThird, intercity passenger rail can serve as part of an integrated intercity transportation solution with air travel, where the passenger travels significant distances using both modes. For these types of air- rail connections, travel may be further integrated by code-sharing, which refers to the practice of airlines applying their names and selling tickets to rail service operated by other organizations, such as Amtrak.\nAmtrak provides intercity passenger service to 46 states and the District of Columbia, operating over a 22,000-mile network, mainly using track owned by freight railroads. Amtrak owns about 655 miles of rail lines, primarily on the Northeast Corridor between Boston, Massachusetts, and Washington, D.C. Most of Amtrak’s passengers travel within the Northeast Corridor or over relatively short-distances, though Amtrak also operates a number of long distance routes across the country. The speed of service varies across the country. For example, according to Amtrak, its Heartland Flyer service connecting Oklahoma City, Oklahoma, and Fort Worth, Texas, averages about 50 miles per hour (mph) over the 206- mile corridor while its Acela Express higher-speed service averages less than 80 mph throughout the Northeast Corridor (reaching top speeds up to 150 mph). While Amtrak’s Acela Express service is currently the fastest intercity passenger rail service in the United States, California has begun developing a 520-mile high-speed rail line designed to operate at speeds up to 220 mph.\nTransportation projects at airports are typically initiated and developed by local transportation agencies, including some combination of state departments of transportation, local planning bodies, and other local agencies. While roles may vary, one or more state and local transportation agency will generally take the lead in project development and implementation. Airports typically are also heavily involved with developing intermodal capabilities on airport property. This is especially true if the project involves construction of a major intermodal facility. For example, the Miami International Airport, working in cooperation with the Florida Department of Transportation, has been one of the leaders in the development of the Miami Intermodal Center, which will provide on-site access to Amtrak, multiple other rail systems, local transit services, and a rental car center through the use of an automated people mover. Airlines also play a role in developing intermodal projects at airports. Use and lease agreements between airlines and airports are a major revenue source for most large airports, and because of this financial arrangement, airlines may have influence in or participate in airport decision making. The ability of airlines to participate in decision making depends on the specific airport and the structure of the lease agreements between the airport and airlines serving that airport. Amtrak generally becomes involved in the planning process at airports when a state or local government proposes a project that could potentially affect its intercity passenger rail service.\nAn automated people mover is a guided transit mode with fully automated operation, featuring vehicles that operate on “guideways” with exclusive right-of-way, such as an automated monorail system. development. Additionally, FAA’s 2012 reauthorization legislation directs the Secretary of Transportation to encourage airport planners to consider passenger convenience, airport ground access, and access to airport facilities during the development of intermodal connections on airport property. Similarly, the Passenger Rail Investment and Improvement Act of 2008 (PRIIA) authorized development of high-speed intercity passenger rail corridors and the American Recovery and Reinvestment Act of 2009 (Recovery Act) appropriated $8 billion to fund development of these corridors and intercity passenger-rail projects. In June 2009, the Federal Railroad Administration (FRA) established the High-Speed Intercity Passenger Rail (HSIPR) program that provides discretionary grants for high-speed or intercity passenger rail projects. In allocating funds, PRIIA directed FRA to give greater consideration to projects that, among other things, encourage intermodal connectivity among train stations, airports, subways, transit, and other forms of transportation. However, federal policy for surface transportation, aviation, and passenger rail is established through separate legislation. For example, the planning and funding for highway and transit projects are addressed under the Moving Ahead for Progress in the 21st Century Act,planning and funding of U.S. airports is addressed under the FAA Modernization and Reform Act of 2012, and the planning and funding for intercity passenger rail is addressed under PRIIA.\nWhile the federal government does not provide funding specifically for air- rail connections, it has established a number of other funding mechanisms that can be used to enhance elements of air-rail connectivity. (See app. III.) Most federal funding for transportation projects is provided through grant programs through the individual specific modal administration and reserved for improvements specific to that mode. For example, most direct federal financial support for airport capital projects has been provided through grants from FAA’s Airport Improvement Program (AIP). While AIP grants may be used to fund intermodal projects, an airport’s use of its funds is generally restricted to an airport project that is owned or operated by the airport sponsor and that is directly and substantially related to the air transportation of passengers or property. Airports have funded portions of light rail and transit (such as subway or bus) using AIP funds at airports meeting these restrictions. Funding for intercity passenger rail has been provided in the form of operating and capital subsidies to Amtrak, as well as the HSIPR grant program.\nFederal oversight of air-rail projects is primarily divided across DOT’s respective modal administrations, though DOT has established some practices to coordinate oversight of intermodal projects. For example, for an air-rail connection project, the aviation component is overseen by FAA, while the rail component is overseen by FRA. As another example, according to DOT, its Research and Innovative Technology Administration (RITA) works closely with DOT’s modal administrations to improve intermodal cooperation, solve transportation challenges that cut across modal boundaries, and remove barriers to intermodal projects In addition to these efforts, in 2012 through a variety of research efforts. DOT established a working group consisting of representatives from each modal administration to track intermodal initiatives and projects. The goal of the working group is to provide non-monetary resources such as recommendations of policies to promote intermodal transportation projects, including air-rail connectivity projects.\nRITA is responsible for coordinating, facilitating, and reviewing DOT’s programs and activities to identify research duplication and opportunities for joint efforts and to ensure that research, development, and technology activities are meeting intended goals.\nEuropean Commission has periodically published a common transportation policy in response to increased ground and air congestion, as well as concerns about the dependence on oil and the level of carbon emissions resulting from the current transportation system. A key component of the European Commission’s transportation policy is improving the connections between air and rail, thereby transforming competition between those modes into complementary service using high-speed train connections located at European airports. The current European Commission transportation policy, adopted in 2011, aims to connect all 37 core airports to the rail network, preferably through high- speed rail, and shift a majority of medium-distance passenger transportation (which the European Commission defines as under 300 kilometers or 186 miles) to the passenger rail network by 2050.\nBeyond these policy differences, our prior work has also noted that differences related to population density, geography, and private automobile use have contributed to differences in the development and use of air-rail connections in Europe compared to the United States. This prior work has highlighted the greater population density of European cities and that downtowns are major destination points for passengers as key differences that affect the use of intermodal systems. While some U.S. cities have population densities comparable to European cities, in general, U.S. cities are more decentralized. Furthermore, distances between many major cities in the United States are generally greater than in Europe, which can affect the ability of intercity passenger rail to be competitive with air travel, depending on price and the speed of service. In addition, private automobile use has affected air-rail connections. Specifically, the rate of car ownership is generally higher in the United States compared to Europe, while at the same time, retail gasoline prices in the United States are much lower than in Europe because of substantially lower taxes. Furthermore, in the United States, surface transportation policy has primarily focused on developing and improving highways, while the transportation policy of European countries have placed a greater comparative emphasis on the development of intercity passenger rail and public transportation. Accordingly, people traveling to airports in the United States are more likely than in Europe to drive and park their cars at the airports, which could reduce the demand for (as well as the benefits of) intercity passenger rail connections at U.S. airports.\nBeyond Europe and the United States, the integration of air travel and intercity passenger rail varies. For example, in Japan, air service and high-speed intercity passenger rail compete and do not complement each other as in Europe. The uniqueness of Japan’s transportation system stems from the fact that two-thirds of its population, or almost 100 million people, live in a narrow, densely populated corridor. Furthermore, Japan has nearly 5,600 miles of private tollways, which makes intercity travel by car expensive. In China, the Shanghai Railway Bureau and China Eastern Airlines commenced operations of air-rail combined services in May 2012 to and from Shanghai Hongqiao International Airport, marking China’s first air-rail combined service. The service allows passengers to transfer between domestic or international air services and train operations with a single ticket.", "", "Most major U.S. airports have some degree of physical proximity to intercity passenger rail stations; however, few are collocated with rail stations. Specifically, our analysis found that 42 of the 60 large and medium hub airports in the contiguous United States are located within 10 miles of an Amtrak station; 21 of the 42 airports are within 5 miles of a station. (See fig. 1.) Newark Liberty International Airport and Bob Hope (Burbank) Airport are the only airports where passengers can access the Amtrak stations via an automated people mover (Newark) or by walking (Burbank). Airline passengers at Miami International Airport will be able to connect to Amtrak via an automated people mover upon completion of the Miami Central Station in 2014. Amtrak officials noted that, in some locations, it provides service that may operate in close proximity to an airport, but may not have an Amtrak station near that airport. Passengers at the nation’s other major airports have to rely on another transportation mode such as shuttle, taxi, or transit (intracity rail, subway, or bus) to connect to an Amtrak station and some passengers must make multiple connections. For example, passengers at Baltimore/Washington International Thurgood Marshall (BWI) and Milwaukee’s General Mitchell International can take a free airport shuttle to and from Amtrak stations, while passengers choosing to take public transportation to access Amtrak from Norman Y. Mineta San Jose International Airport would have to take both a free shuttle and light rail. However, some officials we interviewed told us that passengers are less willing to consider intermodal travel as the number of modes needed to complete a single trip increases.\nStakeholders at many of the airports we visited have placed a greater emphasis on intracity connectivity (or connections within a local metropolitan region) to the airport through local rail or other transit, as opposed to connectivity through intercity passenger rail. While a local transit system may provide a connection between an airport and intercity passenger rail, such a connection is generally not the primary goal. For example, at Dallas/Fort Worth International Airport, officials are working with the Dallas Area Rapid Transit agency to provide an intracity rail connection to the airport from downtown Dallas by 2014. Officials noted that an intracity rail connection was preferable to connectivity through Amtrak because of the limited frequency of service provided by Amtrak in the region, among other factors. When the extension is completed, airport passengers would be able to connect to the Amtrak station located in downtown Dallas through the intracity rail connection. Similarly, officials at Norman Y. Mineta San Jose International Airport in California noted that policymakers should focus on connecting intracity rail to their airport, rather than intercity passenger rail, in part, because the San Jose airport is not a hub airport and most of its customers reside in the surrounding San Francisco Bay area.\nAmtrak and state transportation agencies are considering projects to expand connectivity with airports. Amtrak’s strategic plan states that it will increase connectivity with airports in key markets and has established a strategic goal to increase the number of air-rail connections in the Northeast Corridor from two to five by 2015. However, Amtrak officials we spoke with stated that they do not believe Amtrak will achieve this goal because of limited available funding for intercity passenger rail. Some states, such as California, Illinois, and Texas, are looking at options to enhance air-rail connectivity by developing high-speed rail connections at nearby large and medium hub airports. For example, in addition to Illinois’ development of high-speed rail between Chicago and St. Louis, several options for possible future opportunities for improving Amtrak passengers’ connectivity to Chicago O’Hare International Airport have been proposed.", "Studies and data, while limited, suggest that relatively few passengers and airport employees use the limited air-rail connections available to travel to and from U.S. airports. Ground access studies have shown that intercity passenger rail is rarely used to connect to airports compared to other modes of transportation. For example, a 2012 study stated that Amtrak accounted for 3 percent of ground access mode share at Newark Liberty International; 2 percent at BWI, and less than 1 percent at Bob Hope Airport. By comparison, another study observed that at some European airports with direct air-rail connections, long-distance intercity passenger rail accounts for 20 to 25 percent of the ground access mode share.for public transportation options to airports is limited, as the vast majority of passengers still use personal automobiles to access the airport.", "The only current code-sharing agreement for air and rail travel in the United States is at Newark Liberty International Airport, though code- sharing has been implemented or explored at other airports. The code- sharing agreement between United Airlines and Amtrak allows passengers to make reservations with United Airlines for both air and rail travel, and Amtrak provides the connecting service on its trains between Philadelphia, Pennsylvania; Wilmington, Delaware; Stamford or New Haven, Connecticut, and to anywhere United Airlines flies from Newark Liberty International Airport. According to Amtrak data, about 24,000 passengers a year take Amtrak to Newark to connect to United Airlines flights, with 90 percent of those passengers originating from Philadelphia. However, United Airlines representatives pointed out that most passengers at the Newark Liberty International Airport rail station—which Amtrak estimated at over 120,000 passengers in fiscal year 2012—are not traveling through the code-share agreement. No additional code share agreements are currently planned between Amtrak and other airlines we contacted. Representatives from the airlines and Amtrak told us that code-sharing agreements are generally most effective when the rail station is located at the airport and within a high-traffic rail corridor, which is the case with Newark Liberty International Airport and the Northeast Corridor. As previously noted, few rail stations are collocated with a major airport. Both airline and Amtrak officials indicate that for code-share agreements, airlines require frequent rail service with minimum passenger transfer time between modes. Amtrak officials stated that they provide that frequency of service in very few markets, generally located on Amtrak’s Northeast Corridor serving highly populated metropolitan areas.", "", "We found that air-rail connectivity has the potential to provide a range of mobility, economic, and environmental benefits. In our discussions with stakeholders, including state departments of transportation, local transportation-planning organizations, and airlines; our review of academic literature; and the expert opinions obtained from our survey, we found that a general consensus exists that air-rail connectivity can provide a range of mobility benefits for travelers; however, we found less agreement exists on the importance and extent of other types of benefits, including economic and environmental benefits. Table 1 shows the benefits most frequently cited as “very important” by the experts, five of which focus on mobility benefits. However, our review suggests that the particular benefits for a given project are generally site-specific, and depend on the particular characteristics of the rail operators, the airports, and underlying regional characteristics. As a result, the benefits we identified through our work are not generalizable to all air-rail connections.\nAir-rail connections can potentially provide mobility benefits, such as increased options for passengers connecting to the airport, and improved convenience for airport and airline customers. Specifically, over half of the experts responding to our survey agreed that increasing passenger convenience and travel options were “very important” benefits of air-rail connectivity, and airport representatives cited both benefits as driving factors for intermodal projects at a number of our site visits. For example, representatives at Miami International Airport noted that in the 1980s a lack of ground transportation options, including connectivity to rail, had reduced passenger traffic at the airport. Beginning in 2001, the Florida Department of Transportation began to construct an intermodal center, which will provide passenger access to the airport through multiple ground transportation modes, including intercounty and intercity passenger rail. According to airport representatives, directly connecting Amtrak service to the airport will provide an additional option to passengers connecting to the airport and encourage passengers to be more willing to try other non-automotive forms of transportation. Construction of the new Amtrak terminal (Miami Central Station) began in 2011, and representatives anticipate the terminal will be completed in 2014. (See fig. 2.) Furthermore, air-rail connections can provide airport access to commuter trains in addition to intercity trains operated by Amtrak, as many of the Amtrak stations located near airports are served by both types of services. In addition, rail connectivity to airports has the potential to improve the passenger experience traveling to the airport. In particular, half of the experts (22 of 41) rated increased reliability of travel to the airport, and nearly half (18 of 40) rated reductions in the travel time to and from the airport as very important benefits of air-rail connections. Representatives from the airlines and airports we interviewed noted that their employees might also similarly benefit from an air-rail connection, specifically by providing increased options to and from the airport and improved convenience for airport and airline employees. However, representatives from one airline cautioned that the extent of any benefits would depend upon the cost of the air-rail connection and how such a connection was funded.\nAir-rail connections also have the potential to provide economic benefits for some transportation operators, such as an increased customer base. We found that some of the experts (16 of 40) participating in our survey and a majority of the stakeholders at six of our eight site visits highlighted the potential for intercity rail to access populations outside of the major metropolitan area served by a large or medium hub airport. Specifically, the experts and stakeholders noted that an air-rail connection may increase an airport’s or airline’s passenger base by attracting additional passengers from outside an airport’s local market, thus potentially generating additional revenue for airports and airlines in that metropolitan area. Some studies suggest that the existence of an air-rail connection affects a passenger’s choice of airport in areas where multiple options exist. In particular, a recent study of passengers using Amtrak to connect to General Mitchell International Airport in Milwaukee found that approximately one-third of passengers reported that they would have used one of the two Chicago area airports if the Amtrak-Mitchell Airport connection was not available. In addition, Amtrak service can also complement existing rail connections made by commuter rail, offering additional frequencies between points served by the commuter trains. However, where transit already offers a connection between a city center and airport, stakeholders at two of our eight site visits noted that an intercity passenger rail connection to the airport may potentially compete with transit service in the same area, thus limiting any increase in airport or airline customers and benefits from enhanced connectivity.\nIn addition, air-rail connectivity could allow for the substitution of rail service for short-haul flights, freeing up capacity for long-haul flights and reducing airport and airspace congestion, though the importance of this benefit varies depending on the airport and the rail service’s operating characteristics. Specifically, nearly half of the experts (19 of 41) in our survey and stakeholders at three of our eight site visits noted that the potential replacement of short-haul flights by rail was a “very important” potential benefit of air-rail connectivity. Our prior work has found that intercity passenger rail, particularly high-speed rail, could serve as a substitute for air service for distances of up to 500 miles. Our previous work on intercity passenger rail has found that for rail transportation to capture the market share necessary to reduce air travel congestion, the distance between cities must be short enough to make rail travel times competitive with air travel times (at comparable costs and levels of comfort). In practice this has been observed to a great extent in the Northeast Corridor, where a number of major urban areas are located within close proximity and where there are significant constraints on the capacity within the air transportation system. For example, Amtrak’s share of the air-rail market for trips between Washington, D.C., and New York City has increased from 37 percent to 75 percent since the introduction of the higher speed Acela Express service in 2000. However, studies of air-rail connections in other countries suggest that the complete abandonment of air service in response to the introduction of rail service serving the same markets is rare. Furthermore, this benefit may be limited given that most airports in the United States are not currently capacity-constrained, though we have previously reported that FAA projects that a number of airports will be significantly capacity-constrained and thus congested within the next 15 years. For example, officials from Chicago O’Hare International Airport stated that because their airport is not capacity-constrained, the benefits from a direct connection with Amtrak would be limited. Amtrak officials noted that they are exploring options to connect to Chicago O’Hare International Airport, but noted that it was premature to speculate on the benefits of such a connection, particularly given Amtrak’s ongoing efforts to upgrade track speeds to major cities from Chicago.\nOver one-third of the experts participating in our survey rated environmental benefits, including reduced carbon emissions (17 of 41), and reduced energy use (15 of 40), as “very important” benefits of air-rail connectivity. For the European Commission, enhancing air-rail connectivity has been embraced as part of its strategy to reduce greenhouse gases, including carbon emissions, by 60 percent by 2050 while improving mobility. However, academic studies vary on the extent to which environmental benefits can be achieved from increased air-rail connectivity. For example, energy savings from high-speed rail connectivity may depend, in part, on the extent that passengers use rail to connect to the airport rather than other automotive transportation. Studies have also suggested that the substitution of long-distance flights for short-haul flights that have been replaced by rail service could potentially increase carbon emissions.", "Expanding the current intercity passenger rail network and connecting it to airports would be expensive. However, the costs of facilitating connections between intercity passenger rail stations and airports could vary significantly, depending in part on the complexity and scope of the project. (See table 2.) Air-rail connectivity efforts may be as simple as providing shuttle bus service between the Amtrak station and the airport terminal or as complex as relocating the intercity passenger rail station closer to the airport and integrating it into a multimodal transportation center. For example, BWI Airport operates a free passenger shuttle between the nearby Amtrak station and the airport terminal, at a cost of $2 million per year. In addition to the shuttle service, the Maryland Transit Administration has used $9 million from the HSIPR grant program to make BWI Airport Amtrak station improvements, including planning for track and rail station upgrades. In contrast, the development of the Miami Intermodal Center—which includes construction of a rail station collocating Amtrak, commuter rail, and heavy rail transit access at Miami International Airport, a rental car facility, and an automated people mover—is estimated to cost approximately $2 billion. Depending upon the scope of new infrastructure, project costs may include constructing stations, structures, signal systems, power systems, and maintenance facilities; relocating utilities; and obtaining rights-of-way, among other things. In addition to infrastructure costs, on-going operation and maintenance costs can be high for states and local transportation agencies. For example, airport officials estimate that the automated people mover system that connects Newark Liberty International Airport and the nearby Amtrak station costs $26 million per year to operate and maintain. Furthermore, PRIIA requires that operating and capital costs be allocated among the states and Amtrak in connection with the operation of certain Amtrak routes. Absorbing such costs could be challenging for states and localities as they continue to face near-term and long-term fiscal challenges resulting from increasing gaps between revenue and expenditures.\nIn addition to the direct financial costs of constructing, operating, and maintaining air-rail connections, economic costs may arise due to impacts on other transportation modes. For example, representatives from the Association of American Railroads noted that there is limited additional capacity on the freight rail lines shared between Amtrak and the freight railroads. Accordingly, these representatives stated that any additional intercity passenger traffic initiated to enhance air-rail connectivity on existing freight rail lines could increase the cost and reduce the timeliness of freight shipped on these lines. In such an event, Amtrak and the freight railroads may have to revisit agreements over the usage of the freight rail lines, which can be a lengthy and costly process for all stakeholders. Alternatively, Amtrak or other intercity passenger rail service operators may need to acquire additional right-of-way and construct additional tracks to accommodate increased connectivity between airports and intercity passenger rail, which, as discussed previously, could increase the cost of providing air-rail connectivity. Similarly, representatives from two of the four airlines we interviewed stated that developing intercity passenger rail service that provides an alternative to air travel could affect their profitability.\nAs with many large capital projects, committing financial resources for air- rail projects may also impose opportunity costs as a result of delaying or deferring other projects or initiatives. Specifically, the financial cost of air- rail connectivity projects could affect the ability of governmental entities to pursue other types of transportation projects, particularly in the current fiscal environment. For example, one airline representative we interviewed noted that air travel is in direct competition for resources with other modes of transportation and suggested that any federal funds provided to enhance air-rail connectivity could come at the expense of funding for other programs, including the Next Generation Air Transportation System (NextGen) air traffic control modernization initiative.\nGiven the high potential costs of air-rail connections, it is likely that only a limited number of places could demonstrate potential benefits high enough to justify improved air-rail connectivity investments. For example, if air passengers could access a nationwide rail network directly at an airport, some passengers might travel to that airport from other cities by train rather than on highways or short-haul flights, which might reduce highway or airport and aviation congestion. However, the demand for such service is likely to be low except in a few highly congested travel corridors, such as the Northeast Corridor, where the distances are short enough to make rail travel times competitive with air travel times. At airports that do not have substantial highway or airport congestion, such benefits would not be realized. There might still be some emission and energy benefits, but since the number of travelers likely to use these facilities at such airports is limited, these benefits will be limited as well. Amtrak officials noted that costs and benefits are relative to the scope and complexity of each air-rail connectivity option. For example, they noted that providing an air-rail connection that serves both intercity and local commuter rail, such as those provided by many of Amtrak’s airport- adjacent stations, can provide benefits that might not be justified if the station was served only by intercity rail. Furthermore, Amtrak officials noted that exploring air-rail integration early during the planning and development of an airport can help reduce the overall cost of developing air-rail connectivity, while still achieving substantial mobility benefits.", "Based on input from our expert survey; discussions with stakeholders, including state departments of transportation, local transportation planning organizations, airports, and airlines; and our review of academic literature, we identified five categories of factors that can greatly affect air- rail connectivity, including the degree of leadership and collaboration among stakeholders, resource availability, the extent of passenger demand for air-rail connectivity, the ease of the air-rail connection, and the passenger rail service operating characteristics. (See table 3.)\nThe degree of leadership and the extent of stakeholder collaboration across air-rail projects can affect project development. Specifically, almost half of the experts (18 of 40) rated the lack of leadership as greatly hindering air-rail connections. Stakeholders we interviewed during our site visits told us that when there is an absence of leadership, stakeholders are unlikely to assume roles outside of their typical responsibilities and interests, a limitation that makes project development more difficult. Conversely, leadership that helps build bridges across stakeholder groups can help develop a shared vision and foster collaboration, thereby facilitating project development.\nHowever, we found there is limited federal leadership for air-rail projects, and no modal administration has a primary responsibility to oversee air- rail projects, as responsibilities for transportation projects are segmented by mode. Furthermore, according to an academic study and stakeholders we interviewed, the United States is lacking a national policy framework and vision to guide investment in the needed infrastructure to develop air- rail connections. For example, FRA’s High-Speed Rail Strategic Plan does not address connectivity between airports and intercity passenger rail. In addition, while DOT’s 2012-2016 strategic plan broadly discusses connectivity between airports and intercity passenger rail, DOT has not established any specific goals for air-rail connectivity.with our previous work that concluded that the absence of specific This is consistent national goals to develop intermodal capabilities at airports is a significant barrier to developing air-rail connections. For example, half of the experts (20 of 40) rated integration of air-rail connections into an overall, multi-modal transportation plan or strategy as an approach that would greatly facilitate air-rail connectivity in the United States. In addition, officials we interviewed and over half of the experts (23 of 39) said that communication, collaboration, and consensus among stakeholders such as airlines; rail operators; airport management; and local, state, and federal government officials could greatly facilitate air-rail connectivity.", "Resource availability, including funding, right-of-way, and access to existing infrastructure can greatly affect the development of air-rail connectivity. As previously noted, the costs of linking existing intercity passenger rail infrastructure and airports can be significant, depending in part on the complexity and scope of the project. Slightly over half of the experts (21 of 40) rated the financial cost of a project as greatly hindering project development, while nearly three-fourths (29 of 40) rated availability of funding as greatly facilitating project development. In addition, about two-fifths of the experts (16 of 39) rated the level of funding for intercity passenger rail as a very important factor contributing to differences in air-rail connectivity development and use between the United States and Europe.\nWe found a number of barriers exist to securing funding for air-rail connectivity projects. For example, transportation officials and stakeholders we interviewed told us that the limitations on use of funds from federal grants and airport revenue collected from passenger facility charges are significant barriers. Furthermore, as noted previously in this report, the federal government does not provide funding dedicated to the development or operation of air-rail connections. If the trend of decreasing federal transportation funding over the past three decades continues, air-rail project sponsors may need to increasingly rely on state funds for air-rail connection projects. In addition, our prior work also identified challenges of funding intercity passenger rail projects. The federal government has recently begun to pursue investment in high- speed passenger rail through the FRA’s HSIPR grant program, and to date has obligated about $9.9 billion for 150 high-speed and intercity passenger rail projects from funds appropriated in fiscal years 2009 and 2010—with more than one-third of the amount obligated designated for the high-speed rail project in California. While this funding will allow many projects to begin construction, it is not sufficient to complete them. Furthermore, Congress has not appropriated any funding for the HSIPR program since fiscal year 2010.\nThe availability of other resources can also greatly affect the development of air-rail connectivity projects. Three-fifths of the experts (24 of 40) rated the lack of availability of land or physical space for direct air-rail projects, including the lack of existing intercity passenger rail infrastructure (e.g., tracks and stations) and rights of way, as factors that greatly influence the development of air-rail connections.", "Passenger demand for air-rail connectivity has a significant role in developing and using such connections. Approximately half of the experts rated passenger volume and demand as a factor that can either greatly facilitate (if sufficient) (21 of 39) or hinder (if lacking) (20 of 40) air-rail connectivity projects. However, as mentioned previously in this report, there is limited data on the demand for intercity passenger rail. Furthermore, it is often difficult to estimate ridership demand. As we have previously reported, limited data and information, especially early in a project before specific service characteristics are known, make developing reliable ridership demand forecasts difficult. Research on ridership forecasts for rail infrastructure projects around the world have shown that ridership forecasts are often overestimated. Furthermore, there are no industry standard or established criteria for developing or evaluating intercity passenger and high-speed rail ridership forecasts.", "Over three-quarters of the experts (31 of 40) rated close proximity between the airport terminals and rail stations as greatly facilitating air-rail connectivity. Connections that are easy to use and provide direct connection between the airport terminal and the rail station can greatly affect the development of air-rail connectivity. Officials we interviewed noted that air-rail connections should be designed to meet the needs of airport and intercity passenger users. Accordingly, they underscored that connections should be designed to make the experience as easy and seamless as possible for the traveler. Similarly, over half of the experts (21 of 39) rated the availability of information, including signage, about a connection as greatly facilitating air-rail connectivity. We found 20 of the 60 major airports in the contiguous United States included information about Amtrak on their respective websites, and 14 of the 20 airports provided specific instructions on how passengers could connect to or from Amtrak.", "Nearly two-thirds of the experts (26 of 40) and many of the stakeholders at our site visits cited frequency and reliability of rail service as factors that greatly influence air-rail connectivity. Stakeholders we interviewed noted that for the air-rail connection to be viable, the passenger rail operator needs to provide frequent service to multiple locations beyond the airport. The frequency of Amtrak service is highly variable across the nation. Similarly, a number of stakeholders we spoke with noted that the reliability of Amtrak service, specifically its on-time performance, affects the use of intercity passenger rail for travel, both between cities and to and from the airport. In addition, over half of the experts (25 of 40) rated the availability of high-speed intercity passenger rail service to connect to an airport as greatly facilitating an air-rail connectivity project. However, representatives from three of the four airlines we interviewed viewed high- speed rail as a potential competitor in diverting passengers away from, as opposed to feeding into, the airport.", "Experts participating in our survey suggested five key areas where implementing strategies could help improve air-rail connectivity: vision, coordinated planning, funding, infrastructure, and awareness and marketing of connections. We asked these experts to identify potential strategies, and then rate these strategies in terms of both their importance and their feasibility. Some of the strategies that experts rated as more important were also seen as less feasible. (See table 4.) In discussing these strategies with other stakeholders and reviewing academic studies, we found that a number of strategies were inter- related. For example, some of the strategies that experts suggested to improve connectivity, such as increasing connections with other transportation modes, could be related to the implementation of other strategies, such as providing additional funding for air-rail connections.\nExperts stated additional study of the demand for air-rail connectivity, as well as lessons learned in other countries, could help Amtrak and DOT clarify needs and develop priorities within their existing goals related to enhancing connectivity. Connectivity across modes has been emphasized broadly by DOT and Amtrak, though there has been limited emphasis placed by either for connectivity between airports and intercity passenger rail. For example, in its 2012-2016 strategic plan, DOT’s goal of encouraging livable communities emphasizes connectivity across modes, and identifies connectivity between intercity passenger rail and transit and continued investment in the intercity passenger rail network as means to achieve that goal. DOT’s strategic plan also notes that DOT will continue to work with Amtrak, states, freight railroads, airports, and other key stakeholders to ensure intercity passenger rail is effectively integrated into the national transportation system, though the department has not established any specific goals for air-rail connectivity. Similarly, DOT’s most recent update to its national rail plan, published in September 2010, encourages the integration of policies and investments across modes, including air transportation, to provide convenient options for accessing the passenger rail network, but does not establish specific goals or timelines for increasing air-rail connectivity. Amtrak’s strategic plan has set a goal of connecting to three additional airports in the Northeast Corridor by 2015 as part of its efforts to increase intercity passenger rail connectivity with other travel modes in key markets, but Amtrak officials we spoke with stated that they do not believe Amtrak will achieve this goal because of limited available funding for intercity passenger rail.\nShould DOT, Amtrak, or Congress choose to develop a more comprehensive approach to air-rail connectivity, experts we surveyed identified further study of passenger preferences and demand as one of the most important and most feasible steps policymakers could take to improve air-rail connections. For example, half of the experts (20 of 40) rated additional study of ridership preferences across all modes as very important to informing the federal government’s air-rail strategy. As previously noted, limited data on passenger preferences and demand for air-rail connectivity exists. For example, one expert emphasized that because passenger demand for air-rail connectivity varies across the country, additional study of passenger preferences at the local level could help identify approaches tailored to the specific needs of the area, noting that there is no “one size fits all” approach to air-rail connectivity. Furthermore, 24 of 40 experts rated studying lessons learned and policy responses from other countries as “very important” toward improving understanding of air-rail connectivity issues, though as previously discussed, air-rail connectivity approaches vary widely outside the United States.", "Experts in our survey and stakeholders at seven of our eight site visits highlighted the importance of coordinated transportation planning between airports and intercity passenger rail, which could help stakeholders develop multimodal solutions and facilitate problem solving. Amtrak officials noted that if airports, Amtrak, and other transportation stakeholders begin to plan for integration early, the costs of connecting air and rail transportation become part of a larger intermodal strategy and can provide benefits. Accordingly, both Amtrak officials and experts highlighted the importance of planning an intercity passenger rail connection as part of an overall ground access strategy. For example, 17 of 40 experts rated planning air-rail connections to the airport during the initial establishment of intercity passenger rail service as very important. Amtrak officials noted that planning for intercity rail connections at airports during the initial development of the airport can help minimize the incremental cost of making a connection while providing substantial benefits from air-rail connectivity. However, in many locations, particularly in the Northeast Corridor, the rail network was developed decades before the airport. In addition, such an approach may not be feasible, as federal funding and oversight is segmented by mode, a segmentation that can lead to competition, rather than collaboration for funding. Furthermore, collaboration across stakeholder groups can be a time-intensive process and may not necessarily change the willingness of stakeholders to collaborate.", "Experts we surveyed and stakeholders at six of our eight site visits we interviewed highlighted the importance of securing funding for air-rail connectivity projects. Because of the often substantial cost of the physical infrastructure to support air-rail connections, stakeholders at four of our eight site visits noted that the federal government may have to provide most of the funding to make development possible. Over half of the experts in our survey (22 of 41) as well as other stakeholders at five of our eight site visits suggested that dedicated funding for air-rail connections could help increase the number of connections between airports and intercity passenger rail. Alternatively, nearly half (17 of 41) of the experts in our survey suggested that increased funding for intercity passenger rail is a very important strategy related to increasing Amtrak’s ability to connect to airports. However, the current fiscal environment presents challenges to increasing federal funding for discretionary programs though some existing grant and loan programs—such as the HSIPR, Transportation Investment Generating Economic Recovery (TIGER), and Transportation Infrastructure Finance and Innovation Act of 1998 (TIFIA) programs—have some flexibility to fund air-rail connections if such a connection is a state or local priority. As previously noted, additional funding for air-rail connections could require tradeoffs with other transportation projects. With limited existing funds available for air- rail projects, two stakeholders we interviewed suggested that the federal government should focus on a few air-rail projects of national significance, rather than a number of smaller projects throughout the entire nation. Similarly, one stakeholder suggested that the federal government provide money for a few projects to demonstrate the potential benefits of air-rail connectivity, before moving forward on a nationwide program.\nStakeholders at four of our eight site visits also suggested that providing additional flexibility in permitted expenditures among existing federal programs could help improve airport connectivity via rail. In particular, they suggested changes to the airport passenger facility charge authority as well as to the AIP grant program. Among the funding strategies evaluated in our expert survey, experts generally rated the strategy of relaxing the restrictions on passenger facility charges among the most feasible strategies. Airport operators may currently use funds collected from air passengers through passenger facility charges to fund rail access at airports, if the project is owned by the airport, located on airport property, and used exclusively by airport passengers and employees. However, easing these restrictions on use of passenger facility charges faces obstacles. Specifically, use of passenger facility charge revenues is limited by law to airport-related projects. Such a change would require legislative action by the Congress, and changes to the passenger facility charges program have been opposed by the airline industry. For example, representatives from one airline we spoke with stated that the airline was fundamentally opposed to using funds collected through passenger facility charges to pay for airport and intercity passenger rail connections because, in their view, the federal government should not tax airline passengers to fund other transportation modes. Stakeholders at three of the eight airports we spoke with suggested that Congress could allow additional flexibility in the use of funds from transportation grant programs, including the AIP program, which is funded through a variety of aviation excise taxes. While AIP grants may currently be used to fund projects promoting air-rail connectivity on the airport property, like the passenger facility charges, program funds may only be used to fund airport-related projects. Again, however, airlines we spoke with opposed easing existing limitations on the use of AIP grants for airport projects that may benefit non-aviation passengers, and any change to the AIP program to broaden the use of these grants would require congressional action. Furthermore, as previously noted, the commitment of financial resources for air-rail projects may also impose opportunity costs as a result of canceling or delaying other projects or initiatives that could be funded by these federal programs.", "Experts in our survey suggested that increasing the size and operation of the existing intercity passenger rail network could help encourage the development and use of intercity passenger rail to access airports. Specifically, 23 of 39 experts cited the size and the extent of the intercity passenger rail network as a very important factor resulting in differences between air-rail connections in the United States and Europe. Accordingly, over two-thirds of the experts in our survey (27 of 40) suggested that developing rail connections to transit and other forms of public transportation could help encourage the use of rail to the airport, and over half of the experts (22 of 40) stated that additional connections to city centers and urban attractions are very important strategies to consider. DOT has taken some steps to increase the intercity passenger rail network, most notably through the HSIPR grant program, which, FRA officials noted, placed emphasis on using funds available for intercity passenger rail infrastructure to establish and enhance connections between major metropolitan areas. Additionally, stakeholders we interviewed at six of our eight sites noted that increasing the frequency of intercity passenger service in existing corridors could encourage greater use of rail to connect to the airport. For example, one stakeholder noted that passengers are much less likely to use rail if departure times are hours apart, as opposed to minutes. However, even in corridors that have existing intercity passenger rail service, increasing the frequency of service can be challenging due to both the cost and, as previously discussed, the shared usage of the infrastructure with the freight railroads. Furthermore, as discussed previously, stakeholders we spoke with stated that there is limited demand for public transportation options to connect to the airport, and thus it is unclear whether increasing the frequency of service will increase passenger use of intercity rail service to connect to airports.", "While building the infrastructure to support new air-rail connections can be expensive and time-intensive, our work identified a few low cost options that could help increase passenger awareness, and thus usage, of existing air-rail connections. For example, Amtrak station operators and airport officials could take steps to increase awareness of existing connections between the two modes, using additional or more prominently placed signage and information kiosks. For example, at the BWI Airport Amtrak Station, signs and information direct customers exiting the station platform to the bus shuttle service connecting the two modes. (See fig. 3.) Similarly, in Burbank, officials stated that the use of signage highlighting the walking path between the Burbank rail station and the airport has helped, in part, to make the connection between the two modes easier for passengers to use. These officials also noted that even with signage, an air-rail connection often required frequent and reliable service from an intercity passenger rail operator. As another option, Amtrak could highlight the connections to the airport from each station on its website, thus providing an additional source of information to travelers beyond what is available at the airport or rail station.", "We provided a draft of this product to DOT and Amtrak for comment. DOT and Amtrak provided technical comments on the draft, which we incorporated as appropriate. DOT and Amtrak did not have any comments on the e-supplement.\nWe are sending copies of this report to the Secretary of Transportation, the President of Amtrak, and the appropriate congressional committees. In addition, this report will be available at no charge on the GAO website at http://www.gao.gov.\nIf you have any questions about this report, please contact me at (202) 512-2834 or dillinghamg@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix V.", "This report addressed the following objectives: (1) the nature and scope of existing air-rail connectivity in the United States; (2) the benefits and costs of developing air-rail connectivity; (3) the factors that facilitate and hinder the development and use of air-rail connectivity; and (4) potential strategies, including lessons learned from other countries, that may help inform deliberations regarding air-rail connectivity policy. This report focused on air-rail connections between an airport terminal and an intercity passenger rail station. In other contexts, an air-rail connection may refer to a connection between an airport terminal and an intracity rail station that serves other forms of local rail, such as commuter rail or a subway system.\nTo address our objectives, we obtained and analyzed information from a variety of sources. We reviewed and synthesized information from our body of work and relevant academic literature on intermodal transportation, air-rail connectivity, and air-rail code share agreements in the United States and internationally. We reviewed citations identified through a search of databases containing peer-reviewed articles, government reports, and “gray literature,” including Transport Research International Documentation, Social SciSearch, and WorldCat. Publications were limited to the years 2004 through 2012. After an initial review of citations, 48 articles were selected for further review. To collect information on the articles, we developed a data collection instrument to gather information on the articles’ scope and purpose, methods, findings, and their limitations, and additional areas for follow-up, including a review of the bibliography to determine the completeness of our literature search. To apply this data collection instrument, one analyst reviewed each article and recorded information in the data collection instrument. A second analyst then reviewed each completed data collection instrument to verify the accuracy of the information recorded. We summarized the findings and limitations of the articles based on the completed data collection instruments, as well as areas for additional research identified in the articles. In addition, we also reviewed federal laws related to air and intercity passenger transportation and strategic plans from Amtrak and the Department of Transportation (DOT).\nWe interviewed officials from DOT and Amtrak, transportation experts, and representatives from U.S. airlines and industry associations to obtain their perspectives on air-rail connectivity issues. We reviewed completed, ongoing, and future air-rail connectivity efforts at eight airports in the United States, and interviewed a variety of stakeholders at each site, including airport authorities, state and local transportation agencies, local transportation planning organizations, and air and rail industry associations. (See table 5.) These airports were selected to include airports that have recently planned, constructed, or completed an air-rail project and are dispersed in various regions of the country. Our findings at these sites were selected as part of a judgmental, non-probability sample of air-rail connectivity efforts at airports, and cannot be generalized to all airports.\nWe also analyzed Amtrak’s distance and connectivity to the 28 large and 32 medium hub airports located in the contiguous United States based on the 2011 Federal Aviation Administration’s Air Carrier Activity Information System database. We limited our analysis to these 60 airports because they accounted for approximately 86 percent of U.S. passenger enplanements for calendar year 2011. We determined the linear distance for each of the 60 airports and the nearest Amtrak station based on information from the Bureau of Transportation Statistics and the National Transportation Atlas Database for 2012. Based on the use of both as widely accepted federal statistical data sources, we determined these data to be generally reliable for our purpose, which was to provide context on existing air-rail connectivity. Linear distance is the distance measured between two points using their latitude and longitude. This may understate the distance a passenger may have to travel because it does not account for actual travel routes (e.g., a route that crosses a bridge or avoids buildings or other obstacles along the passenger’s route). The actual distance that a passenger may travel also depends on the selected transportation mode, local roads, or route selected. We used the linear distance calculations to determine the number of airports with an Amtrak station within 5, 10, 20, and over 20 miles. (See app. IV.) To determine the modal connectivity between airport and Amtrak stations, we systematically reviewed the airport websites’ ground transportation page and Amtrak System Timetable for Winter/Spring 2013 for information on how passengers can access Amtrak to and from the airports.\nTo obtain additional insight on issues related to air-rail connectivity, we collaborated with the National Academy of Sciences to identify 25 experts from the aviation and rail industries, Amtrak, state and local governments, academia, and the private sector. These experts were selected based on their knowledge of one or more of the following topic areas: intermodalism, airlines and the air travel industry, airport operations, the rail industry, and passenger travel. We identified 17 additional experts in these fields through a review of academic literature, our previous work, and interviews with stakeholders. (See app. II for a list of these experts.) We conducted a web-based survey in which we asked these 42 experts for their views on the benefits of air-rail connectivity, factors that facilitate and hinder the development and use of air-rail connectivity, differences between air-rail connectivity in the United States and Europe, and strategies that could improve air-rail connectivity. We employed a modified version of the Delphi method to organize and gather these experts’ opinions. Experts were sent an email invitation to complete the survey on a GAO web server using a unique username and password. The survey was conducted in two stages. The first stage of the survey— which ran from January 16, 2013, to February 19, 2013—asked the experts to respond to five open-ended questions about various aspects of air-rail connectivity based on our study objectives. To encourage participation by our experts, we stated that responses would not be individually identifiable and that results would generally be provided in summary form. We received a 95 percent (40 of 42) response rate for the first stage of the survey. After the experts completed the open-ended questions, we performed a content analysis of the responses to identify the most important issues raised by our experts. Two members of our team independently categorized experts’ responses to each of the questions. Any disagreements were discussed until consensus was reached. We analyzed the responses provided by the experts and developed close-ended questions for the second stage of the survey where we asked each expert to evaluate the ideas and other information that came from the first part of the survey. Because this was not a sample survey, it had no sampling errors. However, the practical difficulties of conducting any survey can introduce non-sampling errors, such as difficulties interpreting a particular question, which can introduce unwanted variability into the survey results. We took steps to minimize non-sampling errors by pre-testing the questionnaire with 5 experts. We conducted pretests to help ensure that the questions were clear and unbiased, and that the questionnaire did not place an undue burden on respondents. An independent reviewer within GAO also reviewed a draft of the questionnaire prior to its administration. We made appropriate revisions to the content and format of the second survey questionnaire based on the pretests and independent review. The second stage of the survey was administered on the Internet from March 25, 2013, to May 15, 2013. To increase the response rate, we followed up with emails and personal phone calls to the experts to encourage participation in our survey. We received responses from 41 of 42 experts, resulting in a 98 percent response rate. The information and perspectives that we obtained from the expert survey may not be generalized to all experts that have an interest or knowledge of air-rail connectivity issues. The full survey and responses are available at GAO-13-692SP.\nWe provided a draft of this report to Matthew A. Coogan, director of the New England Transportation Institute for review and comment, based on his expertise on air-rail connectivity issues similar to those in our report. Mr. Coogan was selected based on his extensive past and on-going research on similar topics related to air-rail connectivity issues in the United States. He provided technical comments, which we incorporated as appropriate. We conducted this performance audit from August 2012 to August 2013 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.", "Affiliation Resource Systems Group, Inc.\nLeighFisher, Inc.", "Appendix III: Examples of Potential Federal Financing and Funding Sources for Air-Rail Projects Description Provides grants to airports for planning and developing projects through the Federal Aviation Administration (FAA). The program is funded, in part, by aviation user excise taxes, which are deposited into the Airport and Airway Trust Fund. In terms of promoting air-rail connections, these funds may be used for projects that are on airport property or right-of-way owned or controlled by the airport, airport owned, and exclusively serves airport traffic. In fiscal year 2013, this program was funded at $3.1 billion. For fiscal year 2011, $400 million in unobligated funds were rescinded. Authorizes commercial service airports to charge airline passengers a boarding charge of up to $4.50 to be collected by the airlines, after obtaining FAA approval. The fees are used by the airports to fund FAA approved projects that are on airport property, airport-owned, and exclusively serve airport traffic. These projects must enhance the safety, security, or capacity of air travel; reduce the impact of aviation noise; or increase air carrier competition. In calendar year 2012, $2.8 billion in fees were collected under this program.\nExample of use for air-rail projects GAO found no example of its use for air-rail projects.\nProvides direct loans and loan guarantees to railroads, state and local governments and Amtrak, among other entities, to finance the development of railroad infrastructure, including the development of new intermodal or railroad facilities. The program, administered by FRA, is authorized to provide up to $35 billion in loans or loan guarantees for eligible projects.\nGAO found no example of its use for air-rail projects.\nProvides discretionary grants through DOT, awarded on a competitive basis, to fund merit-based transportation projects expected to have a significant impact on the nation, a metropolitan area, or a region. Each project is multi-modal, multi-jurisdictional, or otherwise challenging to fund through existing programs. Eligible projects include capital investments in roads, highways, bridges, or transit; passenger and freight rail; and port infrastructure; as well as bicycle and pedestrian- related improvements. In fiscal year 2013, this program was funded at $474 million.\nGAO found no example of its use for air-rail projects.\nDescription Provides federal credit assistance for surface transportation projects jointly through the Federal Highway Administration, Federal Transit Administration, and FRA. Project sponsors may include public, private, state, or local entities. Projects eligible for credit assistance include intercity passenger rail facilities and vehicles, such as those owned by Amtrak, as well as projects otherwise eligible for federal assistance through existing surface transportation programs. In fiscal year 2013, this program was funded at $750 million.\nExample of use for air-rail projects Miami Intermodal Center at Miami International Airport In fiscal year 2013, approximately $3.4 billion was made available for obligation for the AIP program. On May 1, 2013, the Reducing Flight Delays Act of 2013 was enacted. It authorized the Secretary of Transportation to transfer an amount, not to exceed $253 million, from the AIP program to the FAA operations account that the Secretary of Transportation determines to be necessary to prevent reduced operations and staffing of the FAA during fiscal year 2013. Pub. L. No. 113-9, 127 Stat. 443. 23 U.S.C. §§ 601-609.", "", "More than 5 miles to 10 miles (21 airports)", "", "", "", "In addition to the contact listed above, Teresa Spisak (Assistant Director), Matt Voit, Rosa Leung, Paul Aussendorf, Leia Dickerson, Patrick Dudley, Lorraine Ettaro, Jessica Evans, Kathleen Gilhooly, Delwen Jones, Richard Jorgenson, Jill Lacey, John Mingus, and Josh Ormond made major contributions to this product." ], "depth": [ 1, 1, 2, 2, 2, 1, 2, 2, 1, 2, 2, 2, 2, 1, 2, 2, 2, 2, 1, 1, 1, 1, 1, 2, 2, 1, 2, 2 ], "alignment": [ "h2_full", "h0_title", "h0_full", "", "h0_full", "h1_title h3_title", "h1_full", "h3_full h1_full", "h2_full", "h2_full", "", "", "", "h3_full", "h3_full", "", "", "", "h4_full", "h4_full", "", "", "", "", "", "", "", "" ] }

{ "question": [ "To what extent are major U.S. airports close to intercity passenger rail stations?", "How are the airports collocated with intercity rail stations connected?", "How are the airports NOT collocated with intercity rail stations connected?", "How frequently is intercity rail used to travel to and from airports?", "What is the future of intercity rail connectivity?", "What are the benefits of air-rail connectivity?", "What consensus did GAO reach regarding the benefits of air-rail connectivity?", "What trade-offs exist in reaching these benefits?", "How do these trade-offs affect the net benefit of air-rail connectivity?", "What is the state of air-rail connectivity in the United States?", "How does the limited nature of the intercity rail network affect connectivity?", "To what extent is funding an issue?", "How are air-rail projects funded?", "How can air-rail connectivity be improved?", "What challenges face the implementation of these strategies?", "To what extent have DOT or Amtrak promoted air-rail connectivity?", "What documents did GAO review for this report?", "What did GAO do with the collected data?", "What stakeholders did GAO interview?", "How did GAO gather information from experts?" ], "summary": [ "Most major U.S. airports have some degree of physical proximity to intercity passenger rail stations, though only 2 airports are currently collocated with intercity rail stations. Specifically, 42 of the nation's 60 large and medium hub airports are located within 10 miles of Amtrak stations; 21 of the 42 airports are within 5 miles of Amtrak stations.", "At the 2 collocated airports, passengers can access Amtrak either via an automated people mover (Newark Liberty International Airport) or by walking (Bob Hope Burbank Airport). The only existing air-rail code-sharing agreement in the United States is at Newark Airport.", "At some airports, such as Baltimore/Washington International Thurgood Marshall Airport, passengers can take a direct shuttle between the airport and the nearby Amtrak station, while at other airports, connections to Amtrak can be made through other modes of transportation.", "Studies and data, while limited, suggest that relatively few passengers in the United States use intercity rail to travel to and from the airport or through more integrated travel such as code-sharing agreements, whereby airlines sell tickets for Amtrak's service.", "Amtrak and states are considering projects to expand intercity rail connectivity with airports, including as part of the construction of high-speed rail in California.", "Air-rail connectivity may provide a range of mobility, economic, and environmental benefits, though the financial costs of building these connections could be substantial.", "Specifically, based on discussions with industry stakeholders, input from surveyed experts, and a review of academic literature, GAO found a general consensus that air-rail connectivity can provide a range of mobility benefits for travelers, though less agreement existed on the importance and extent of economic and environmental benefits.", "However, achieving these benefits could require significant trade-offs, because the costs of expanding the existing intercity passenger rail network and constructing viable connections can be significant.", "Given these costs, based on GAO's work, there are currently limited locations where benefits are high enough to justify funding to improve air-rail connectivity.", "Air-rail connectivity remains limited in the United States, according to experts, as a result of institutional and financial factors, among other things.", "In particular, the limited nature of the existing intercity passenger rail network, including the frequency of service and connectivity to other transportation modes, remains an obstacle to developing and using air-rail connections.", "Securing funding for air-rail projects also remains a barrier.", "While funds from some federal grant programs can be used to help facilitate air-rail connections, there is no single funding source for air-rail projects.", "There are strategies to improve air-rail connectivity, but adopting them involves trade-offs. Experts generally focused on, among other things, leadership, funding, and infrastructure improvements, though the effectiveness of these strategies may depend on a project's local characteristics.", "Furthermore, experts noted that some of the strategies could be particularly challenging or costly to implement, such as in locations where the rail network was developed decades before airports. For example, increasing intercity passenger rail's frequency could improve air-rail connectivity but could also be expensive.", "There has been little emphasis on air-rail connectivity by either the Department of Transportation (DOT) or Amtrak.", "GAO reviewed laws, strategic plans, and academic studies.", "GAO analyzed data to determine distances between Amtrak stations and large and medium hub airports and interviewed officials from DOT, and representatives from Amtrak, the airlines, and aviation and rail industry associations.", "GAO interviewed stakeholders at eight large and medium hub airports, which were selected based on geographic location and extent of connectivity with Amtrak.", "In addition, GAO surveyed experts from the aviation industry, rail industry, state and local governments, academia and the private sector about air-rail connectivity issues." ], "parent_pair_index": [ -1, 0, 0, -1, -1, -1, 0, 0, 2, -1, 0, 0, 2, -1, 0, 0, -1, 0, 0, 0 ], "summary_paragraph_index": [ 3, 3, 3, 3, 3, 4, 4, 4, 4, 5, 5, 5, 5, 6, 6, 6, 1, 1, 1, 1 ] }

{ "title": [ "Background", "DOD Has Taken Actions to Address Legislative Requirements to Improve Service Acquisition", "DOD Has Strengthened Its Management Structure and Service Acquisition Review Process", "DOD Continues to Focus on Improving the Requirements Development Process and Training for Individual Service Acquisitions", "USD(AT&L) Did Not Develop a Plan to Meet the Requirement of Section 807 but Has Taken Actions to Address Each Element in the Law", "DOD Has Not Fully Addressed Key Factors to Determine Whether Actions Are Improving Service Acquisition", "DOD Does Not Have the Information Needed to Define a Desired End State for Its Improvement Efforts", "USD(AT&L) Has Not Established Metrics to Determine its Progress in Improving Service Acquisition", "Conclusions", "Recommendations for Executive Action", "Agency Comments and Our Evalutation", "Appendix I: Department of Defense Actions to Implement Requirements in 10 U.S.C. § 2330", "Appendix II: Under Secretary of Defense for Acquisition, Technology, and Logistics Actions to Address Elements in Section 807 of the National Defense Authorization Act for Fiscal Year 2012", "Appendix IV: GAO Contact and Staff Acknowledgements", "GAO Contact", "Staff Acknowledgments" ], "paragraphs": [ "Our prior work has found that DOD’s approach to managing service acquisition has tended to be reactive and has not fully addressed key factors for success at either the strategic or transactional level. The strategic level is where the enterprise sets the direction or vision for what it needs, captures knowledge to enable more informed management decisions, ensures enterprisewide goals and objectives are achieved, determines how to go about meeting those needs, and assesses the resources it has to achieve desired outcomes. The strategic level also sets the context for the transactional level, where the focus is on making sound decisions on individual acquisitions.\nCongress has required USD(AT&L) to take a number of steps to improve service acquisition. Specifically in 10 U.S.C. § 2330, enacted in 2001 and amended in 2006, Congress required USD(AT&L) and the military departments to establish a management structure for the acquisition of services. Since 2003, we have evaluated DOD’s implementation of 10 U.S.C. § 2330 and efforts to establish the management structure and service acquisition approval process twice. First, in September 2003, we concluded that DOD’s approach to managing service acquisition did not provide a departmentwide assessment of how spending for services could be more effective. We therefore recommended that DOD give greater attention to promoting a strategic orientation by setting performance goals for improvements and ensuring accountability for results. DOD concurred in principle with our recommendation and agreed that additional actions could strengthen the management structure and acquisition approval process but also identified challenges for doing so based on its organizational size, complexity, and the acquisition environment.\nSubsequently, in November 2006, we found continued weaknesses associated with DOD’s management of service acquisitions at the strategic and transactional level. Specifically, we found that DOD’s approach to managing service acquisition tended to be reactive and that the department had not developed a means for evaluating whether ongoing and planned efforts were achieving intended results. DOD had not developed a strategic vision and lacked sustained commitment to managing service acquisition risks and fostering more efficient outcomes. DOD also had not developed metrics to assess whether any changes to improve service acquisition actually achieved the expected outcomes. As a result, DOD was not in a position to determine whether investments in services were achieving their desired outcomes. Moreover, the results of individual acquisitions were generally not used to inform or adjust the strategic direction. We recommended that, among other actions, DOD take steps to understand how and where service acquisition dollars are currently and will be spent, in part, to assist in adopting a proactive approach to managing service acquisition. We also recommended that DOD take steps to provide a capability to determine whether service acquisitions are meeting cost, schedule, and performance objectives. At that time, DOD concurred with our recommendations. USD(AT&L), however, acknowledged in 2010 that DOD still needed a cohesive, integrated strategy for acquiring services. DOD contract management has remained on our High Risk List, in part, because DOD has not developed such a strategy and continues to lack reliable services spending data to inform decision making.\nWhile Congress has required USD(AT&L) to take steps to improve service acquisition, USD(AT&L) has taken actions on its own initiative as well. For example, USD(AT&L) established its Better Buying Power Initiative in a September 2010 memorandum to provide guidance for obtaining greater efficiency and productivity in defense spending. In its memorandum, USD(AT&L) emphasized that DOD must prepare to continue supporting the warfighter through the acquisition of products and services in potentially fiscally constrained times. In its own words, USD(AT&L) noted that DOD must “do more without more.” USD(AT&L) organized the Better Buying Power Initiative around five major areas, including an area focused on improving tradecraft in service acquisition. This area identified actions to improve service acquisition, such as categorizing acquisitions by portfolio groups and assigning new managers to coordinate these groups. USD(AT&L) issued another memorandum in April 2013 to update the Better Buying Power Initiative. This memorandum identifies seven areas USD(AT&L) is pursuing to increase efficiency and productivity in defense spending. One area is to improve service acquisition and the memorandum identifies a number of related actions, such as increasing small business participation in service acquisitions and improving how DOD conducts services-related market research.", "Over the last decade, DOD has taken actions to address legislative requirements to improve the acquisition and management of services. Senior officials we spoke with across the military departments credit USD(AT&L)’s leadership and commitment as the driving force behind many of the actions taken to improve service acquisition. A number of these actions were intended to strengthen DOD’s management structure and approach to reviewing service acquisitions, as required by 10 U.S.C. § 2330. For example, both USD(AT&L) and the military departments established new senior management positions to improve oversight and coordination of service acquisition. With this management structure and review process in place, USD(AT&L) is focusing on efforts to improve the process for how requirements for individual service acquisitions are developed and training to respond to legislative direction. USD(AT&L) also created a senior-level team to identify and determine the training needs for DOD personnel responsible for developing service acquisition requirements. USD(AT&L) did not develop a specific implementation plan as required by section 807, but officials identified a number of actions that they regard as addressing the eight elements specified.", "Since 2002, DOD has increased its management attention on high dollar value service acquisitions by instituting new policies and review processes. In response to the initial requirements to establish a management structure for the acquisition of services, USD(AT&L) issued a guidance memorandum in May 2002. This memorandum required that service acquisitions be reviewed and approved based on dollar thresholds and that the acquisition strategy—addressing things such as the requirements to be satisfied and any potential risks—be approved prior to initiating any action to commit the government to the strategy. Under this policy, USD(AT&L) was responsible for reviewing and approving all proposed service acquisitions with an estimated value of $2 billion or more. Following the 2006 amendment to 10 U.S.C. § 2330, USD(AT&L) issued a revised memorandum in October of that year. Under the revised policy, which remains in effect, USD(AT&L) lowered the threshold for its review to service acquisitions valued at over $1 billion. The military departments have developed internal policies for reviewing and approving service acquisitions below USD(AT&L)’s threshold. Further, USD(AT&L) required that acquisition strategies be reviewed before contract award and that these and other acquisition planning documents include a top-level discussion of the source selection process as well as noting any waivers and deviations. USD(AT&L) and military department officials informed us that while these reviews are conducted, they have not tracked the total number of service acquisitions reviewed to date.\nIn 2008, USD(AT&L) incorporated these requirements into DOD Instruction 5000.02, which is part of DOD’s overarching policy governing the operation of the defense acquisition system. This instruction currently requires that senior officials across DOD consider a number of factors when reviewing a service acquisition, including the source of the requirement, the previous approach to satisfying the requirement, the total cost of the acquisition, the competition strategy, and the source selection planning.\nUSD(AT&L) expects to issue a stand-alone instruction in 2014 for service acquisition policy to replace Enclosure 9 of DOD Instruction 5000.02. Additionally, in a February 2009 memorandum, USD(AT&L) refined its guidance on conducting service acquisition strategy reviews. Specifically, USD(AT&L)’s memorandum identified criteria that service acquisitions must adhere to and that reviewers are to assess, such as use of appropriate contract type, maximization of competition, and inclusion of objective criteria to measure contractor performance.\nDOD also established new senior-level management positions, in part, to address legislative requirements, although some roles and responsibilities are still being defined. For example, the 2006 amendment to 10 U.S.C. § 2330 required that USD(AT&L) and the military departments establish commodity managers to coordinate procurement of key categories of services. In 2010 and 2012, USD(AT&L) revised how it organized its contracted services under nine key categories. These categories of services, referred to as portfolio groups, are (1) research and development, (2) knowledge based, (3) logistics management, (4) electronic and communication, (5) equipment related, (6) medical, (7) facility related, (8) construction, and (9) transportation. In 2011, the military departments began establishing commodity manager positions to improve coordination and assist requiring activities with their procurement of services within these portfolio groups. By July 1, 2013, USD(AT&L) expects to establish similar positions responsible for supporting the DOD- wide procurement of services, but their authorities and responsibilities are not yet fully defined. Additionally, as part of its Better Buying Power Initiative, USD(AT&L) assigned the Principal Deputy Under Secretary of Defense for Acquisition, Technology, and Logistics as DOD’s senior manager for service acquisition, responsible for policy, training, and oversight across DOD. Table 1 summarizes the established positions and accompanying responsibilities in descending order of their hierarchy within DOD.\nWhile these positions have a role in reviewing, approving, or coordinating individual service acquisitions, senior USD(AT&L) and military department officials explained that they do not have responsibility or authority for making departmentwide decisions, such as determining current or future resources allocated to contracted services. These officials explained that the military departments’ commands and requiring activities are responsible for determining their requirements and how best to meet them, as well as requesting and allocating budgetary resources. For example, while USD(AT&L) officials and the military department senior services managers are responsible for reviewing service acquisitions to determine whether the planned acquisition strategy clearly defines the military department’s requirement, they do not determine what contracted services are needed or whether an alternative acquisition approach could better meet their need. USD(AT&L) officials and the military department senior services managers stated they do not have insight into each requiring activity’s specific needs and are not positioned to validate those needs.\nFor additional details on the actions that USD(AT&L) and the military departments have taken to address the specific requirements of 10 U.S.C. § 2330, see appendix I.", "USD(AT&L) has planned and implemented actions to improve DOD’s process for developing requirements for individual service acquisitions, as required by the 2006 amendment to 10 U.S.C. § 2330. USD(AT&L) officials noted that it has collaborated with DAU officials to develop new tools and training to help DOD personnel develop better acquisitions. For example,\nUSD(AT&L) collaborated with DAU to create the Acquisition Requirements Roadmap Tool (ARRT) in 2012. The ARRT is an online resource designed to help personnel write performance-based requirements and create several pre-award documents, including performance work statements and quality assurance surveillance plans. The ARRT guides users through a series of questions to develop the pre-award documents using a standardized template tailored to the specific requirement for services. Although using the ARRT is not required across DOD, DAU officials told us they have integrated its use into other DAU training, such as the Performance Requirements for Service Acquisitions course. DAU officials did not have data on the effectiveness of the ARRT but noted that feedback has been positive. For example, they have heard that performance work statements are better reflecting requirements as a result of personnel using the tool.\nIn 2009, DAU introduced its Services Acquisition Workshop (SAW) to provide training and guidance on developing service acquisition requirements. The SAW is a 4-day workshop tailored to proposed service acquisitions. Upon request from commands or requiring activities, DAU officials travel to the requestor and convene the multifunctional team responsible for an acquisition, including general counsel, individuals associated with the acquisition requirements, contracting personnel, and oversight personnel. This team is then to develop the language that will be used to articulate the service requirement using the ARRT. By the end of the 4 days, the command is to have drafts of its performance work statement, quality assurance surveillance plan, and performance requirement summary. A key aspect of the workshop DAU officials identified is that it brings together the key personnel responsible for the acquisition to discuss the service requirements and how they will know if a contractor has met those requirements. From fiscal years 2009 through 2012, DAU conducted 78 SAWs. In 2012, USD(AT&L) mandated use of the SAW for service acquisitions valued at $1 billion and above and is encouraging its use for acquisitions valued at $100 million or more. USD(AT&L) has directed the Director of Defense Procurement and Acquisition Policy (DPAP) and the senior services managers to assess the effectiveness of the SAW and develop lessons learned and best practices by October 1, 2013.\nIn addition to implementing the ARRT and the SAW, USD(AT&L) established the Acquisition of Services Functional Integrated Product Team (Services FIPT) in August 2012, in part, to address training requirements in 10 U.S.C. § 2330. According to its charter, the Services FIPT is comprised of the Director of DPAP, DAU officials, and other officials responsible for acquisition career management within the DOD. The Services FIPT is to provide input toward the development and dissemination of training products and practical tools to assist personnel responsible for acquiring services. In addition, the Services FIPT is to explore the feasibility of certification standards and career development for all personnel who acquire services, including personnel within and outside of the defense acquisition workforce. USD(AT&L) officials explained that non-acquisition personnel are most often involved in the requirements development portion of the acquisition process but may not be trained on how DOD buys services. In 2011, we found that non- acquisition personnel with acquisition-related responsibilities represented more than half of the 430 personnel involved in the 29 services contracts we reviewed. While we found that non-acquisition personnel received some acquisition training, this training was largely related to contract oversight as opposed to requirements development. According to its charter, one of the Services FIPT’s first tasks will be to identify DOD’s non-acquisition personnel involved in service acquisitions and determine how best to train them.\nThe Services FIPT, however, has made little progress to date, and has met once since it was established. USD(AT&L) officials could not provide a time line for when the Services FIPT may fully address the training requirements in 10 U.S.C. § 2330. The officials explained that they expect the team to make more progress in 2013 when the Principal Deputy Under Secretary for Acquisition, Technology, and Logistics assumes leadership of the Services FIPT.", "Section 807 of the NDAA for Fiscal Year 2012 required USD(AT&L) to develop a plan by June 28, 2012, for implementing the recommendations of the DSB to include, to the extent USD(AT&L) deemed appropriate, the following eight elements: 1. incentives to services contractors for high performance at low cost, 2. communication between the government and the services contracting industry while developing requirements for services contracts, 3. guidance for defense acquisition personnel on the use of appropriate 4. formal certification and training requirements for services acquisition 5. recruiting and training of services acquisition personnel, 6. policies and guidance on career development for services acquisition 7. ensuring the military departments dedicate portfolio-specific 8. ensuring DOD conducts realistic exercises and training that account for services contracting during contingency operations.\nUSD(AT&L) officials told us they did not develop a specific plan to address the section 807 requirement. They explained, however, that the April 2013 Better Buying Power Initiative memorandum addresses seven of the eight elements and that they have addressed the last element through a separate effort. In reviewing the April 2013 memorandum, we also found that it reflects actions to address all of the elements except the one pertaining to training and exercises during contingency operations. USD(AT&L) also identified 23 different actions it has taken or plans to take that officials regard as addressing all of the elements the plan was to include, some of which pre-date the April 2013 Better Buying Power Initiative memorandum. For example, In January 2012, USD(AT&L) issued guidance to improve how DOD communicates with the vendor community.\nIn April 2013, USD(AT&L) directed that new guidance be developed to help acquisition personnel select the appropriate contract type and contractor performance incentives in DOD’s service acquisitions.\nDOD plans to conduct a joint mission rehearsal exercise in 2014 that will include training for services contracting during contingency operations.\nSee appendix II for a more detailed description of the actions USD(AT&L) took to address the section 807 elements.", "While DOD has taken a number of actions to address legislative requirements, DOD is not yet positioned to determine what effects its actions have had on improving service acquisition. Specifically, USD(AT&L) has not yet fully addressed two key factors—a desired end state for the future with specific goals and associated metrics that would enable it to assess progress toward achieving those goals and determine whether service acquisition is improving. USD(AT&L) is challenged in addressing these key factors, in part, because it has limited insight into the current status of service acquisition in terms of the volume, type, location, and trends. While they have not established metrics to assess departmentwide progress, USD(AT&L) officials rely on reviews of individual service acquisitions, command level assessments, and feedback from the military departments as means to gauge whether DOD’s efforts are contributing to better service acquisitions. DOD has not established aggregated results or trends which could be used to provide a departmentwide perspective on the effects of its actions.", "USD(AT&L) and military department leadership have demonstrated a commitment to improving service acquisition, but USD(AT&L) officials stated that they have not defined the desired end state or specific goals its actions were intended to achieve. In our November 2006 report, we found, based on assessments of leading commercial firms, that identifying and communicating a defined end state or specific goals can significantly improve service acquisition. This work also found that being able to define a desired end state or what goals are to be achieved at a specified time necessitates knowledge of the current volume, type, location, and trends of service acquisitions.\nUSD(AT&L) and the military department senior services managers acknowledge that they are challenged in defining the desired end state, in part, because limitations within DOD’s contracting and financial data systems hinder their insight into where service acquisition is today. USD(AT&L) and military department officials explained that DOD’s primary source of information on contracts, the Federal Procurement Data System-Next Generation (FPDS-NG), has a number of data limitations, including that it only reflects the predominant service purchased on a service does not reveal any services embedded in a contract for goods, does not fully identify the location of the requiring activity contracting for the service.\nAdditionally, DOD’s financial systems do not provide detailed information on DOD’s budget and actual spending on specific types of contracted services and are not linked to the data maintained in FPDS-NG. According to USD(AT&L) officials and the senior services managers, collectively, the limitations of both FPDS-NG and DOD’s financial systems create challenges in identifying the current volume, type, location, and any potential trends in service acquisition. For example, USD(AT&L) stated that DOD wants to more strategically manage its nine portfolio groups of contracted services but does not have adequate insight into what services DOD currently buys within these portfolio groups.\nTo improve insight into DOD’s contracted services, USD(AT&L) is linking DOD’s contract and financial data systems and increasing the level of detail these systems provide. For example, DOD is updating its financial systems to provide data on each service purchased under a contract. USD(AT&L) officials stated that improving and linking data within its contract and financial systems will enable DOD to determine what it budgeted for a particular service, what it actually spent for that service, and which organizations bought the service. Officials, however, do not expect to have this capability until at least 2014. USD(AT&L) officials noted that this effort could help provide better insight into future budget requirements for services. USD(AT&L) officials also stated that they are exploring how to use Electronic Document Access—a DOD online document access system for acquisition related information—to provide them with better insight into the different types of services DOD buys under each of its contracts. USD(AT&L) identified that, collectively, these efforts will help them to improve the management of its nine portfolio groups of contracted services, thereby enabling the department to better leverage its buying power, provide insight into the marketplace and buying behaviors, and identify opportunities for cost savings.\nIn its April 2013 Better Buying Power Initiative memorandum, USD(AT&L) also identified that by managing service acquisition by portfolio group, the senior services managers should be able to work with requiring activities to forecast future services requirements. While the military departments have taken some steps to forecast or track future contracted services requirements, these efforts are too new to determine their utility in identifying what services DOD plans to buy. For example, in 2012, the Army senior services manager requested that Army commands provide an estimate for contracted services valued over $10 million to be purchased over the next five fiscal years in an effort to identify any potential cost savings. Air Force officials also track information on service acquisitions that they expect will be awarded over the next three years to aid in planning acquisition strategy reviews. The Navy is developing its own approach to forecast future contracted services requirements, which officials stated will be implemented in 2013. While it is too early to assess the effects of these forecast or tracking efforts, they have the potential to help the military departments better understand what services will be purchased and facilitate DOD in identifying its desired end state for service acquisition.", "USD(AT&L) has not established departmentwide metrics to assess the effects of its actions to improve service acquisition. Our prior work found that metrics linked to specified outcomes are another key factor to (1) evaluating and understanding performance levels, (2) identifying critical processes that require attention, (3) documenting results over time, and (4) reporting information to senior officials for decision making purposes. In lieu of such metrics, USD(AT&L) and military department officials stated that they rely on results from reviews of individual service acquisitions, command level assessments, and feedback from the military departments to gauge whether the department’s actions to improve services acquisitions, such as those required by Congress or established under DOD’s Better Buying Power Initiative, are having a positive effect.\nUSD(AT&L) officials have acknowledged the need to establish departmentwide metrics but explained that developing such metrics has proven challenging. They further indicated that metrics used by leading commercial companies, which often focus on reducing spending for services to improve a company’s financial position, may not be appropriate for DOD. USD(AT&L) officials noted that DOD’s budget is based on an assessment of its missions and the resources needed to achieve its objective. These officials noted that while DOD is continuously looking for ways to improve its efficiency, it is difficult to set goals and measure actual reductions in spending as any savings or cost avoidances will generally be invested in other unfunded or high priority activities. Further, USD(AT&L) officials noted that since DOD’s budget is appropriated by Congress rather than derived from the sale of goods and services, changes in its resources are often outside its direct control.\nWhile developing goals and metrics is challenging, it is not impossible. DOD has acknowledged the need to establish departmentwide metrics. For example, our recent work on strategic sourcing—a process that moves an organization away from numerous individual acquisitions to a broader, aggregate approach—found that federal agencies, including DOD, could expand the use of this approach. Strategic sourcing enables federal agencies to lower costs and maximize the value of services they buy, which is consistent with DOD’s Better Buying Power Initiative. We found that some agencies, including DOD, did not address the categories that represented their highest spending, the majority of which exceeded $1 billion and were for services. To improve its strategic sourcing efforts at DOD, we recommended, among other things, that DOD set goals for the amount of spending managed through strategically sourced acquisitions, link strategic sourcing to its Better Buying Power Initiative, and establish metrics, such as utilization rates, to track progress toward these goals. DOD concurred with the recommendations and stated it would establish goals and metrics by September 2013.\nIn the absence of departmentwide metrics, USD(AT&L) officials and senior services managers identified several ongoing efforts they rely on to gauge the effects of their actions to improve service acquisition. For example, USD(AT&L) and the military departments conduct pre- and post-award independent management reviews, or peer reviews, to ensure individual service acquisitions are conducted in accordance with applicable laws, regulations, and policies. USD(AT&L) and military department officials stated that through these peer reviews, they can determine if individual service acquisitions have resulted in the intended outcomes. For example, during the post-award phase, reviewers are to assess whether cost, schedule, and performance measures associated with individual service acquisitions are being achieved. We have previously found, however, that cost or schedule performance measures may not be as effective for service acquisitions as they are for product or weapon system acquisitions. Further, while peer reviews provide DOD with insight into the performance of a single service acquisition, DOD does not have information on how many post-award peer reviews have been completed by the military departments and has not aggregated the results or identified trends from all of DOD’s peer reviews.\nAdditionally, the Air Force and the Navy are conducting assessments at the command level to evaluate organizations that buy and manage service acquisitions. These assessments are intended to identify performance levels, needed improvements, and best practices. For example, the Air Force implemented health assessments to review a command’s timeliness of contract awards, creation and use of standardized templates, implementation of internal and external recommendations and new policy requirements, and quality of communication. According to officials, the Air Force first implemented its health assessments in approximately 2009 to rate or score each of its commands in a number of different performance areas, such as program management and fiscal responsibility. Air Force officials reported, however, that they have not established baselines or identified any quantifiable trends from these health assessments. That said, Air Force officials told us that these assessments have contributed to improvements in the service acquisition process. For example, in a 2011 health assessment, the Air Force found that one program office reduced the use of bridge contracts—a potentially undesirable contract that spans the time between an expiring contract and a new award—by 50 percent from fiscal year 2010 to 2011.2012. During this assessment, the Navy identified a requirements development tool created and used within a command that was potentially a best practice and is being considered for Navy-wide use. The Army’s senior services manager is in the process of determining how to assess the health of the Army’s service acquisition organizations and expects to implement an approach in 2013.\nThe Navy completed its first health assessment in USD(AT&L) officials also plan to assess the health of service acquisition across the military departments, potentially down to the program office level, using a number of indicators of risks, referred to as tripwires. Tripwires are established thresholds for measurable risk or performance indicators related to the acquisition of goods or services that, when triggered, could result in further review. USD(AT&L) officials stated that tripwires are still under development but could include thresholds for the number of days FPDS-NG data was input past deadlines or the number of contract modifications within 30 days of contract award. USD(AT&L) officials explained that tripwires alone are not sufficient to assess service acquisition performance, but tripwires could provide insight into what may or may not be going well and provide trend data over time.\nFurther, USD(AT&L) annually reviews the military departments and other DOD components to understand the effects of its actions and policies related to improving service acquisitions and solicit recommendations for changes. For example, in 2012, USD(AT&L) inquired about the actions that have been taken to comply with various defense acquisition regulations or policies, such as the Better Buying Power Initiative. The Army’s and Navy’s responses noted that actions to improve competition led to an 11 and 12 percent increase, respectively, in the rate of effective competition—situations where more than one offer is received in response to a competitive solicitation—for service contracts from fiscal year 2010 through 2012. In response to an open-ended question on recommendations for improvements, each military department suggested that USD(AT&L) take additional actions to increase departmentwide coordination on service acquisitions. Specifically, the Army and the Air Force recommended departmentwide service acquisition management meetings to coordinate on issues such as emerging regulations, directives, and policies to improve service acquisitions. In response, USD(AT&L) officials told us that the Director of DPAP meets with the military departments’ senior services managers regularly.\nDOD’s ongoing efforts to gauge the effects of their actions to improve service acquisition also offer opportunities for DOD to develop baseline data, establish goals, and identify departmentwide metrics to measure progress. For example, by analyzing and aggregating the results of its health assessments, each military department could establish baselines against which to assess individual commands and over time, identify trends to determine if its commands are improving how they acquire services. Similarly, in coordination with the military departments, USD(AT&L) could use its tripwire approach to determine what percent of DOD’s service acquisition strategies are not approved or require changes before approval. DOD could then use such information to help identify reasons for why certain service acquisitions are not approved and determine appropriate corrective actions. DOD could further develop metrics associated with actions outlined in the Better Buying Power Initiative. For example, using its established services portfolio groups, DOD could develop baseline data on the degree of effective competition for services within each group. Depending on the results of that analysis, DOD could determine whether it would be appropriate to establish effective competition goals and metrics for each portfolio group or specific types of services within each group.", "In light of the billions of dollars DOD spends each year on services and the constrained fiscal environment, it is critical for DOD to identify how it can best utilize its financial resources and acquire services more efficiently and effectively. DOD leadership has demonstrated a commitment to improving service acquisition and management and has taken a number of actions to address legislative requirements. For example, USD(AT&L) and the military departments have focused more management attention on improving service acquisitions through new policies and guidance, reviews of high-dollar service acquisitions, and new tools and training for personnel who acquire services. Further, DOD recently designated the Principal Deputy Under Secretary of Defense for Acquisition, Technology, and Logistics as the department’s senior manager for service acquisition and has established similar positions, including senior services managers, within each of the military departments. In some cases, however, DOD remains in the process of defining the duties and responsibilities of these positions. When taken collectively, DOD has taken action to address the requirements of 10 U.S.C. § 2330 and section 807 of the NDAA for Fiscal Year 2012.\nDOD, however, does not know whether or how these actions, individually or collectively, have resulted in improvements to service acquisition. This is due, in part, to the fact that DOD continues to have limited knowledge and baseline data on the current state of service acquisition. To address this shortfall, DOD expects to obtain better service acquisition data by improving and linking data within its contract and financial systems, but this effort will not be complete until at least 2014. Having baseline budget and spending data can provide a foundation for measuring progress, but other factors such as articulating its desired end state and developing specific and measurable goals are also important for assessing progress. While developing specific goals and departmentwide metrics is challenging, it is not impossible. For example, DOD concurred with the need to set goals for the amount of spending managed through strategically sourced acquisitions, link strategic sourcing to its Better Buying Power Initiative, and establish metrics, such as utilization rates, to track progress toward these goals. However, DOD is currently missing opportunities to fully leverage its command-level assessments, feedback from the military departments, and other ongoing efforts it relies on to gauge the effects of its actions to improve service acquisition. Each of these efforts has merit and value in their own regard. Nevertheless, until DOD utilizes them to develop baseline data, goals, and associated metrics, similar to what it has committed to do for its strategic sourcing efforts, DOD will continue to be in a position where it does not know whether its actions are sufficient to achieve desired outcomes.", "To better position DOD to determine whether its actions have improved service acquisition, we recommend that the Principal Deputy Under Secretary of Defense for Acquisition, Technology, and Logistics, in consultation with the military departments’ senior services managers, take the following three actions: identify baseline data on the status of service acquisition, in part, by using budget and spending data and leveraging its ongoing efforts to gauge the effects of its actions to improve service acquisition, develop specific goals associated with their actions to improve establish metrics to assess progress in meeting these goals.", "DOD provided us with written comments on a draft on this report, which are reprinted in appendix III. DOD concurred with the three recommendations, noting that they are consistent with DOD’s ongoing Better Buying Power Initiative. DOD also stated that as it improves its management of service acquisition, it should be able to measure performance, track productivity trends, and establish consistent best practices across the department. We agree that DOD has the opportunity to leverage its ongoing efforts as it works to implement our recommendations. By incorporating our recommendations into those efforts, DOD will be better positioned to determine whether its actions are improving service acquisition. DOD also provided technical comments, which were incorporated as appropriate.\nWe are sending copies of this report to the Secretary of Defense; the Secretaries of the Army, Air Force, and the Navy; the Principal Deputy Under Secretary of Defense for Acquisition, Technology, and Logistics; and interested congressional committees. This report will also be available at no charge on the GAO website at http://www.gao.gov.\nIf you or your staff have any questions concerning this report, please contact me at (202) 512-4841 or by e-mail at dinapolit@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Staff who made key contributions to this report are listed in appendix IV.", "In 2001, Congress required the Secretary of Defense to implement a management structure for the acquisition of services under section 2330, title 10, United States Code (U.S.C.). This provision requires, among other things, the Department of Defense (DOD) to develop a process for approving individual service acquisitions based on dollar thresholds and other criteria to ensure that DOD acquires services by means that are in the government’s best interest and managed in compliance with applicable statutory requirements. Under DOD’s initial May 2002 guidance for implementing the required management structure and service acquisition approval process, the Under Secretary of Defense for Acquisition, Technology, and Logistics (USD(AT&L)) was to review all proposed service acquisitions with an estimated value of $2 billion or more. The military departments and other defense components were to review service acquisitions below that threshold. The military departments each subsequently developed their own service acquisition approval processes that had several elements in common. Chief among these elements was the requirement that acquisition strategies be reviewed and approved by senior officials before contracts are awarded. Acquisition strategies to be reviewed were to include, among other things, information on contract requirements, anticipated risks, and business arrangements. Once acquisition strategies were approved, DOD contracting offices may continue the acquisition process, including soliciting bids for proposed work and awarding contracts.\nIn January 2006, Congress amended 10 U.S.C. § 2330 to include additional requirements for DOD’s management of the acquisition of services. The amendment requires, among other things, that the senior officials responsible for management of acquisition of contract services assign responsibility for the review and approval of procurements based on estimated value of the acquisition. Senior officials within DOD are identified as USD(AT&L) and the service acquisition executives of the military departments. In response to these requirements, USD(AT&L) issued an October 2006 memorandum to update its 2002 acquisition of services policy. The revised policy identifies categories of service acquisitions, based on dollar thresholds and related roles and responsibilities within USD(AT&L) and the military departments. The policy requires all proposed service acquisitions with a value estimated at more than $1 billion be referred to USD(AT&L) and formally reviewed at the discretion of USD(AT&L). Acquisitions with a value estimated under that threshold are subject to military department acquisition approval reviews. USD(AT&L)’s 2006 acquisition of services policy was incorporated into Enclosure 9 of DOD’s 5000.02 acquisition instruction. In 2010, USD(AT&L) required that each of the military departments establish senior managers to be responsible for the governance in planning, execution, strategic sourcing, and management of service contracts. Additionally, these senior managers are to review service acquisitions valued at $10 million but less than $250 million. USD(AT&L) expects to issue a stand-alone instruction in 2014 for service acquisition policy to replace Enclosure 9 of DOD Instruction 5000.02. See table 2 for a summary of service acquisition review thresholds and approval authorities.\nThe 2006 amendments to 10 U.S.C. § 2330 require DOD to take a number of other actions. For example, DOD is to develop service acquisition policies, guidance, and best practices; appoint full-time commodity managers for key categories of services; and ensure competitive procedures and performance-based contracting be used to the maximum extent practicable. In table 3, we summarize the actions that DOD took in response to the requirements in 10 U.S.C. § 2330. To do so, we collected USD(AT&L) and each military department’s self- reported information using a data collection template; corroborated reported actions with related documentation when available; and conducted interviews with knowledgeable agency officials to clarify responses. We did not evaluate the appropriateness or sufficiency of any actions taken or planned by DOD.", "Section 802 of the National Defense Authorization Act (NDAA) for Fiscal Year 2010 required the Under Secretary of Defense for Acquisition, Technology, and Logistics (USD(AT&L)) to direct the Defense Science Board (DSB) to independently assess improvements to the Department of Defense’s (DOD) acquisition and oversight of services. The resulting March 2011 DSB report, “Improvements to Services Contracting,” contained 20 recommendations aimed at improving DOD’s contracting for services. These recommendations focused on developing new policies and processes to strengthen management and oversight of services contracting, designating roles and leadership responsibilities, and strengthening the skills and capabilities of personnel involved in services contracting, including those in contingency environments. Subsequently, section 807 of the NDAA for Fiscal Year 2012 required USD(AT&L) to develop a plan, by June 28, 2012, to implement the DSB recommendations. The plan was to address, to the extent USD(AT&L) deemed appropriate, eight different elements most of which align with the DSB recommendations.\nUSD(AT&L) officials told us they did not develop a specific plan to address the section 807 requirement, but that the April 2013 Better Buying Power Initiative memorandum addresses seven of the eight elements. In reviewing the memorandum, we also found that it reflects actions to address all of the elements except the one pertaining to training and exercises during contingency operations. USD(AT&L) also identified 23 different actions it has taken or plans to take that officials regard as addressing all of the elements the plan was to include, a number which pre-date the April 2013 Better Buying Power Initiative memorandum.\nTable 4 provides a summary of the actions USD(AT&L) reported as addressing each of the eight section 807 elements. To determine if USD(AT&L) has taken or planned actions to address the elements in section 807, we collected USD(AT&L)’s self-reported information using a data collection template, corroborated reported actions with related documentation when available, and conducted interviews with knowledgeable USD(AT&L), military department, and Defense Acquisition University officials to clarify responses. We did not evaluate the appropriateness or sufficiency of any actions taken or planned by USD(AT&L).", "", "", "In addition to the contact name above, the following staff members made key contributions to this report: Johana R. Ayers; Helena Brink, Burns Chamberlain Eckert, Danielle Greene, Kristine Hassinger; Justin Jaynes; and Roxanna Sun." ], "depth": [ 1, 1, 2, 2, 2, 1, 2, 2, 1, 1, 1, 1, 1, 1, 2, 3 ], "alignment": [ "", "h0_full h2_full", "h0_full", "h0_full", "h0_full", "h2_title h1_full", "h1_full", "h2_full h1_full", "h1_full", "", "", "h0_full h2_full", "h2_full", "", "", "" ] }

{ "question": [ "What has been DOD's stance toward service acquisition and management in the last decade?", "What legislative requirements did DOD face?", "How did DOD respond to these requirements?", "How is USD(AT&L) addressing these requirements?", "To what extent did USD(AT&L) address the Defense Science Board recommendations?", "To what extent has DOD addressed legislative requirements regarding service acquisition?", "How successfully has USD(AT&L) improved service acquisition?", "What actions has DOD taken to improve its contract and financial systems?", "What is one example of progress that has been made?", "What are some areas of improvement that remain to be undertaken?", "What would be the benefit, for DOD, of greater measurement and assessment?", "Why did GAO report on DOD's efforts to improve service management and acquisition?", "What did GAO examine?", "What data did GAO collect for their report?", "How did GAO assess the DOD's use of best practices?" ], "summary": [ "Over the last decade, the Department of Defense (DOD) has taken several actions to address legislative requirements to improve the acquisition and management of services.", "In 2001, as amended in 2006, Congress required DOD to implement a management structure for the acquisition of services.", "In response, DOD implemented such a structure and service acquisition review and approval process. Recently, DOD also established new positions within its management structure, including senior managers within the office of the Under Secretary of Defense for Acquisition, Technology, and Logistics (USD(AT&L)) and the military departments, to oversee and coordinate service acquisition.", "With a management structure and review process in place, USD(AT&L) is focusing on efforts to improve the process for how requirements for individual service acquisitions are developed and enhancing training to respond to several legislative directives. USD(AT&L) also created its Acquisition of Services Functional Integrated Product Team, in part, to determine how to address legislative requirements to provide training for personnel acquiring services.", "USD(AT&L) did not develop a plan to implement the Defense Science Board recommendations to improve service acquisition but identified 23 different actions, including its Better Buying Power Initiative, it has planned or taken that officials regard as addressing what the plan was to include. For example, USD(AT&L) is updating its guidance on using incentives to improve contractor performance, which addresses one of the elements that was to be in the plan.", "While DOD has taken a number of actions that address legislative requirements, DOD is not yet positioned to determine what effects these actions have had on improving service acquisition. Specifically, USD(AT&L) has not identified specific goals and associated metrics that would enable it to assess progress toward achieving those goals.", "USD(AT&L) has identified improving service acquisition as a priority but has not defined a desired end state for its actions or the measurable characteristics that would embody achieving such a goal. It is challenged in defining a desired end state for its actions, in part, because it has not determined the current status of service acquisition in terms of the volume, type, location, and trends. It is challenged in defining a desired end state for its actions, in part, because it has not determined the current status of service acquisition in terms of the volume, type, location, and trends.", "DOD is taking steps to improve its contract and financial systems to obtain such data, but these efforts will not be complete until at least 2014. However, DOD is not fully leveraging the command-level assessments, feedback from the military departments, and other ongoing efforts it relies on to gauge the effects of its actions to improve service acquisition. Nevertheless, despite the challenges in doing so, it is not impossible.", "For example, DOD has agreed to set goals for the amount of spending managed through strategically sourced acquisitions, link strategic sourcing to its Better Buying Power Initiative, and establish metrics, such as utilization rates, to track progress toward these goals.", "However, DOD is not fully leveraging the command-level assessments, feedback from the military departments, and other ongoing efforts it relies on to gauge the effects of its actions to improve service acquisition.", "By using its budget and spending data and leveraging these efforts, DOD could develop baseline data and identify trends over time, enabling it to develop measurable goals and gain more insight into whether its actions are improving service acquisition. Until then, DOD will continue to be in a position where it does not know whether its actions are sufficient to achieve desired outcomes.", "The National Defense Authorization Act for Fiscal Year 2012 mandated that GAO report on DOD’s actions to improve service acquisition and management.", "GAO examined (1) the actions DOD has taken to respond to legislative requirements and (2) how DOD determines the effects of its actions to improve service acquisition.", "GAO reviewed documentation and interviewed DOD officials on the actions taken in response to the legislative requirements.", "GAO also assessed whether DOD addressed key factors, including establishing goals and metrics, to help it determine if it has improved service acquisition." ], "parent_pair_index": [ -1, 0, 1, 1, 3, -1, -1, -1, 2, 2, 2, -1, 0, 1, 1 ], "summary_paragraph_index": [ 3, 3, 3, 3, 3, 4, 4, 4, 4, 4, 4, 2, 2, 2, 2 ] }

{ "title": [ "Background", "Tribal Child Protection and Child Welfare Systems", "Federal Funding for Tribal Child Welfare Programs", "Direct Tribal Access to Title IV-E", "Title IV-E Assistance for Tribes", "Selected Tribes Reported Resource Constraints and Certain Program Requirements as Obstacles to Directly Operating a Title IV-E Program", "Insufficient Staff, Staff Turnover, and a Lack of Expertise Made Establishing Title IV-E Programs Challenging", "Selected Tribes Reported Challenges Adopting Some Title IV-E Requirements", "Termination of Parental Rights", "HHS Provided Technical Assistance and Guidance to Tribes Interested in Title IV-E but Did Not Always Meet Tribes’ Needs", "HHS Assisted Tribes, but Selected Tribes Reported Difficulty in Accessing Assistance or with HHS’s Cultural Understanding", "HHS Does Not Have Procedures in Place to Ensure Consistent Guidance or Timely Reviews of Draft Title IV-E Plans", "Conclusions", "Recommendations for Executive Action", "Agency Comments and Our Evaluation", "Appendix I: Objectives, Scope, and Methodology", "Appendix II: Comments from the Department of Health and Human Services", "Appendix III: GAO Contact and Staff Acknowledgments", "GAO Contact", "Staff Acknowledgments" ], "paragraphs": [ "", "Federally recognized tribes are distinct, independent political communities that possess certain powers of self-government. Federally recognized tribes and their members receive certain benefits because of their status as Indians. At the same time, as U.S. citizens, tribal members are afforded the same rights and protections as any non-Indian U.S. citizen, including any specific rights from the states in which they reside.\nIndian children enter foster care at twice the rate of all American children. In 2012, Indian children comprised 1 percent of the total U.S. child population, although they accounted for 2 percent of children in foster care, according to HHS data. Multiple agencies, both tribal and non- tribal, can provide child protection and child welfare services for Indian children at the same time. An Indian child could be the alleged victim of abuse or neglect reported under any state, tribal, or federal reporting procedures. Consequently, the agency that receives and potentially responds to a report of child maltreatment involving an Indian child depends on a range of factors, including where the child is living, the nature of the allegation, and the specific state, tribal, or federal agreements or resources in place to investigate and serve the child and family. For example, through a memorandum of understanding or other agreement, tribes may collaborate with state workers to respond to allegations of maltreatment and provide case management services. In some cases, BIA social workers may provide protective and other services.", "Tribes have direct access to some of the federal resources used by states to finance child welfare programs under programs administered by HHS. In addition, there are federal funding streams unique to tribes that are administered by BIA (see table 1). Tribes may participate in some or all of these programs, and therefore the total amount of federal resources received by each tribe varies. For example, in fiscal year 2013 there were approximately 68 tribal Temporary Assistance for Needy Families (TANF) programs, and in fiscal year 2014, 189 tribes participated in title IV-B subpart 1. Title IV-B subpart 1 provides funding for child welfare services—such as parent support and counseling for children and families—and tribes must be operating this program to participate in title IV-E.", "Prior to the Fostering Connections Act, tribes were not eligible to directly receive title IV-E funding but could enter into cooperative agreements with states to administer part of the program. The Act, for the first time, authorized tribes to directly operate a title IV-E program and obtain federal reimbursement for eligible program costs. States and tribes are entitled to federal reimbursement for a portion of eligible title IV-E program costs. The reimbursement rate varies by type of expense. The federal share of foster care maintenance payments is between 50 percent and 83 percent of costs, with higher federal support going to states and tribes with lower per capita incomes. The federal share of training and administrative costs is 75 percent and 50 percent, respectively.\nThe Act requires HHS to apply the provisions of the title IV-E program to tribes that operate their own programs in the same manner as states, with limited exceptions. Both states and tribes seeking to operate a title IV-E program must have an approved title IV-E plan. The title IV-E plan provides documentation that state or tribal law, regulations, and policies comply with program requirements. Some of these program requirements with respect to children in foster care require that states and tribes: make reasonable efforts, consistent with the health and safety of the child, to preserve and reunify families (1) prior to a child’s placement in foster care, to prevent the need for removing the child; and (2) to make it possible for the child to safely return home; prepare a written case plan for each child receiving foster care maintenance payments and ensure periodic court or administrative review of each such case; ensure that each child is placed in a safe setting that is the least restrictive (most family like) and most appropriate setting available, consistent with the child’s best interest and special needs; make reasonable efforts to place siblings together and ensure frequent visits between siblings not jointly placed, unless contrary to their safety or well-being; within a specified time period, hold a permanency hearing and make reasonable efforts to finalize the permanency plan for each child (reunification, adoption, legal guardianship, placement with a fit and willing relative, or another planned permanent living arrangement); and maintain a child’s education and health records in the case plan and include a plan to ensure the educational stability of the child while in foster care.\nThe title IV-E program also has a number of administrative and financial requirements. For example:\nStates and tribes operating a title IV-E program must collect and report semi-annually to HHS case-level data on all children in foster care and those who have been adopted with title IV-E agency involvement. These data are required to be electronically submitted as part of HHS’s Adoption and Foster Care Analysis and Reporting System (AFCARS).\nTitle IV-E funding is provided by HHS in advance through quarterly estimated grant awards. These estimates are reconciled to reported actual expenditures after the close of each quarterly reporting period. In general, states and tribes are only reimbursed for costs related to children who are eligible for title IV-E assistance.\nTribes must develop a cost allocation methodology (CAM) to determine what share of the training, data collection, and other program administration costs may be allocated to title IV-E.", "To help tribes develop title IV-E programs, the Fostering Connections Act appropriated $3 million annually for HHS to provide technical assistance, implementation services, and program development grants. The Children’s Bureau within the Administration for Children and Families (ACF) at HHS provides technical assistance to tribes on title IV-E program requirements via the nine regional offices that serve tribes, and its technical assistance providers. The Children’s Bureau is also primarily responsible for reviewing title IV-E plans and ensuring that child welfare agencies meet program requirements. From fiscal year 2009, when the grants were first awarded, through fiscal year 2014, ACF awarded development grants to 27 tribes (see fig. 1). Grants are not to exceed $300,000. The population of the grantee tribes and the number of children they could potentially serve varies. For example, according to BIA data, the 2010 estimated populations of Navajo Nation, Eastern Band of Cherokee Indians, and Winnebago Tribe of Nebraska were 195,995, 8,600, and 1,450, respectively.\nTribes can use development grants for any cost related to developing a title IV-E plan and meeting program requirements, such as hiring personnel or developing a CAM. The Act requires grantees to submit a title IV-E plan within 24 months of receiving the grant. ACF awarded tribes development grants for a 24-month period, and may grant tribes an extension of the initial grant period so that the tribes can continue working on the title IV-E plan and spend the remaining grant funds. As of November 2014, 15 of the 16 grantees that have reached the end of their initial 24-month period received a 1-year extension from ACF to continue working on the title IV-E plan (see table 2). There are currently five tribes with an approved title IV-E plan; four of these tribes received a title IV-E development grant and one did not. Tribes can continue to work on the title IV-E plan after the initial development grant and grant extension periods have ended, and several have done so. In its 2014 Strategic Plan, ACF identified approving additional tribal title IV-E plans as an agency goal.", "", "We found that challenges related to staffing were a resource constraint faced by tribal child welfare programs. Adequacy of staffing is a significant workforce challenge for tribal child welfare programs in general, according to a 2011 survey by the National Child Welfare Resource Center for Tribes and our interviews with tribal officials. Although staffing is also an issue for state child welfare agencies, it is especially challenging for tribes because they are commonly located in rural areas, may only have one or two paid staff for all child welfare efforts, and lack funding to hire additional staff. We interviewed officials with 11 tribes that were in various stages of developing a title IV-E plan and representatives from 7 of these tribes said they have a small number of staff working on the title IV-E program, and that the staff are often managing child welfare cases and implementing other tribal programs such as child support or TANF.\nStaff turnover has also been a challenge for tribes establishing title IV-E programs, according to HHS documents and officials. HHS documents show that at least 13 of 21 tribes that received title IV-E development grants from fiscal year 2009 through fiscal year 2013 lost at least one staff member who was working on the title IV-E plan. In one case, a tribe reported having four different child welfare directors within a 6-month period, making it difficult to identify project needs during that time.\nOfficials in seven of the nine HHS regional offices that work with tribes said staff turnover has occurred among the tribes in their region, hindering the tribes’ ability to develop a title IV-E program. HHS regional officials noted that when staff turnover occurs, a tribe’s child welfare department loses institutional knowledge and its priorities may change if there is new leadership.\nIn addition, insufficient expertise among the staff working on the title IV-E plan has been an obstacle. One HHS regional official told us it is difficult for tribes to hire highly skilled child welfare workers because tribes are unable to compete with salaries paid elsewhere. The 2011 study by the National Child Welfare Resource Center for Tribes found that some tribal child welfare workers need additional training on delivering child welfare services, such as an increased understanding of the child welfare legal processes and court systems. Officials from two tribes told us that it can take several months to learn and understand title IV-E program requirements prior to beginning work on the title IV-E plan.\nChild welfare experts and officials from tribes that initially expressed an interest in title IV-E also said resource constraints hindered tribes’ ability to implement title IV-E. All five experts we interviewed also said it is difficult for tribes to establish title IV-E programs because they often have fewer resources than states, their staffs are balancing multiple responsibilities, or there is limited funding to address these needs. These constraints prevented some tribes that initially expressed an interest in the program from moving forward to develop a title IV-E plan. We interviewed officials from six of these tribes and they all told us that due to limited resources, among other considerations, they decided not to pursue operating a title IV-E program.\nTribes used title IV-E development grants to address these staffing needs, according to our analysis of progress reports submitted by the 11 tribes that have completed their grant period (see fig. 2). All 11 tribes hired additional staff, such as program coordinators, to help develop the title IV-E plan. All 11 grantees reported participating in and developing staff training. For example, one tribe developed a survey that revealed a need for staff training on title IV-E eligibility and also identified the particular departments that needed training. The progress reports also show that 9 of the 11 grantees hired a consultant for assistance in completing specific sections of the title IV-E plan.", "Tribal officials reported challenges adopting some title IV-E program requirements, including requirements related to termination of parental rights, collecting case-level data for children in foster care, and developing a CAM. While the Fostering Connections Act allowed tribes to directly operate a title IV-E program, it generally did not modify the program’s requirements or provide flexibilities for tribes. In contrast, the laws authorizing other programs administered by HHS provide or allow for certain flexibilities to tribes. For example, the tribal TANF program provides more flexibility than the state TANF program, such as allowing tribes to set their own requirements for the minimum number of hours an individual must work and include additional activities that count as work, subject to HHS approval. In addition, HHS regulations implementing the child support enforcement program allow tribes some flexibility to develop child support programs that are consistent with tribal law and traditions, provided they meet the objectives of the program. ACF, tribal officials, and child welfare experts told us the title IV-E program is inflexible and does not acknowledge that tribes are culturally and organizationally different from states. In addition, one study found that more tribes might qualify for title IV-E if the program’s policies were modified to make them more applicable to the realities of tribal nation characteristics and differences in tribal nation structure and culture.Connections Act provided tribes with equitable access to title IV-E funds, but also required title IV-E program requirements to be applied to tribes in the same manner as states. As a result, HHS officials told us they have limited authority to modify title IV-E’s program requirements to address some of the challenges tribes may face.", "Some tribes we contacted told us that termination of parental rights was in conflict with their cultural values. The Social Security Act requires that once a child has been in foster care for 15 out of the most recent 22 months, the title IV-E agency file a petition to terminate the parental rights of the child’s parents and begin the adoption process, subject to certain exceptions. Officials from 7 of the 11 tribes we interviewed that were developing title IV-E plans said that incorporating required language on termination of parental rights into their tribal codes or policies made it difficult to obtain internal approval and successfully complete the title IV-E plan. Tribes have difficulty adopting this language because of the history of non-tribal families adopting tribal children and the resulting loss of connection from the tribe, according to tribal officials. For example, officials of one tribe we interviewed said some tribal council members preferred the tribe not participate in the title IV-E program rather than include provisions for termination of parental rights in its codes. Officials at one tribe that initially expressed interest in directly operating a title IV-E program said that a reason for not moving forward with the program was the termination of parental rights requirements. The tribe did not want to include a practice in its policies and procedures with which it fundamentally disagreed. HHS has acknowledged that termination of parental rights may not align with Indian tribes’ traditional beliefs, but stated that the agency lacks statutory authority to provide a general However, HHS exemption for tribal children from the requirement.officials also noted that title IV-E provides exceptions to the requirement, which tribes may use as appropriate on a case by case basis.\nGenerally, some tribal child welfare programs lack sufficiently documented child welfare policies.\nAlthough most tribes have an existing judicial infrastructure and policies for their child welfare agency, some modifications to existing tribal codes or administrative regulations and policies may be required to be compliant with title IV-E. Our review of the progress reports submitted to HHS by the 11 tribes that have completed their development grant period found that grants were used to update such policies. Each of the 11 grantees revised agency and tribal court procedures to meet title IV-E requirements (see fig. 3). Officials from one tribe told us that before developing their title IV-E plan, their tribe had not updated their child welfare codes in several decades. One HHS regional official described working with a tribe to develop its policies because the existing tribal code did not address foster care and the administrative regulations for foster care did not meet title IV-E requirements.\nMethods for collecting child welfare data and the type of data collected vary by tribe. Some tribes have electronic data systems, while others use paper files to track child welfare data. A study found that many tribes have technology infrastructure needs and there are limited tribal funds available to devote to developing child welfare data systems.welfare expert we interviewed said tribes may have outdated computers and information systems and the cost of software is often prohibitive given a tribe’s resources.\nOfficials from 6 of the 11 tribes we interviewed that were developing a title IV-E plan reported that title IV-E’s data collection requirements were an obstacle to establishing a program. Tribal title IV-E agencies are required to electronically submit demographic, placement, and other data on children in foster care to HHS’s AFCARS. Tribes may collect and store data using a paper-based process, spreadsheets, databases, or an automated system. ACF has not endorsed one method for tribes to use to collect and submit the required AFCARS data elements because the most appropriate method for each tribe will depend on the tribes’ current access to software and systems. ACF also stated that some Indian tribes have limited technical resources to develop or upgrade a data reporting system. If a tribe cannot electronically submit AFCARS data, HHS will consider allowing tribal title IV-E agencies to submit the data through an alternative method.\nTo manage child welfare data, tribes may elect to use a comprehensive data collection system that compiles AFCARS data and could also include information for other programs.was an initial misunderstanding among some tribes that in order to operate a title IV-E program they were required to create a comprehensive data system. ACF has worked with the development grantees to clarify what is required since the first annual grantee meeting in March 2010 and during monthly conference calls. While ACF According to ACF officials, there recommends that title IV-E agencies consider the benefits of using a comprehensive data system, such a system is not required.\nOur analysis of grantee progress reports submitted by 11 tribes found that many have updated their data collection procedures (see fig. 4). For example, 10 of the 11 developed data collection procedures to meet AFCARS requirements and 6 of the 11 reported developing a comprehensive data collection system. One tribe started developing a comprehensive data system but ultimately decided to use Microsoft Access due to a lack of funds to complete the system.\nGrant programs with which tribes have experience differ from title IV-E’s funding structure. Unlike TANF, for example, in which tribes receive federal funding through block grants, tribes receive federal funding for title IV-E based on a percentage of actual costs. A CAM outlines how the tribe will identify and measure eligible title IV-E administrative and training costs, such as time staff have spent on these types of activities on behalf of eligible children.\nNine of the 11 tribes used title IV-E development grants to develop the CAM, according to our analysis of grantee progress reports. In addition, at least three of these tribes hired consultants to develop their CAM.\nHowever, officials from 5 of the 11 tribes we interviewed that were developing a title IV-E plan said creating a CAM was challenging. Some tribal officials told us the CAM requirements are difficult to understand. Officials from one tribe that successfully developed its CAM said they were able to do so because its child welfare agency had its own fiscal specialist; other tribes used a centralized fiscal department to develop their methodology. One expert we interviewed said developing a CAM is particularly challenging for tribes because staff time spent on title IV-E must be segregated from time spent on other tasks and, as previously noted, tribal child welfare staffs are small and individuals often work on multiple programs. HHS officials told us that they recognize the need for flexibility in the design and operation of CAMs given the limited resources and staffing available to many tribes. In addition, HHS has provided several national training sessions and direct assistance to individual tribes to help them develop a CAM.", "", "HHS provided title IV-E technical assistance to tribes through a variety of methods (see fig. 5). This assistance was provided by ACF regional and headquarters staff and through technical assistance providers.\nHHS regional staff are the primary technical assistance providers for tribes developing a title IV-E plan. For example, tribal IV-E development grantees rely on guidance from their regional office to determine if their title IV-E plans meet federal requirements. Regional office staff provide title IV-E information to tribes through e-mail listservs, site visits, and presentations to tribal leadership. In addition, tribes can submit written requests for technical assistance from the Training and Technical Assistance Network to their regional office for review and approval. ACF headquarters staff also provide title IV-E assistance to tribes. For example, headquarters staff oversee certain tribal grant requirements, such as title IV-E financial reports and progress report submissions for development grants. ACF headquarters staff also host an annual meeting for tribes to describe title IV-E program requirements and answer tribes’ questions about the program.\nACF’s Training and Technical Assistance Network also provided support to tribes. From fiscal year 2009 through fiscal year 2014, the network included 11 National Resource Centers which provided assistance to states and tribes on areas such as legal and judicial issues, child welfare data and technology, and organizational improvement. One of these centers, the National Child Welfare Resource Center for Tribes, focused on activities such as engaging tribes to increase their access to and use of the network, coordinating tribal training and technical assistance with the other centers, and facilitating peer-to-peer child welfare consultation among tribes. Technical assistance providers from this center said recent requests from tribal grantees have focused on organizational assessments, policy and procedures development, and assistance with the title IV-E plan pre-print. The title IV-E plan pre-print is a document developed by HHS that outlines all of the title IV-E program requirements for use by title IV-E agencies and tribes developing a title IV-E plan.\nOfficials from 8 of 11 tribes developing IV-E plans we interviewed reported using the National Resource Centers for assistance with addressing title IV-E requirements. For example, officials from four of these tribes reported using the National Resource Center for Child Welfare Data and Technology, which works with states, courts, and tribes to improve the quality of child welfare and youth data reported to the federal government. Representatives from several of these tribes also reported receiving assistance from the National Child Welfare Resource Center for Tribes. For example, one tribe reported working with the National Child Welfare Resource Center for Tribes to develop a family team decision-making approach on how to care for their children and develop a plan for services. Another tribe reported using the information available on the center’s website, such as information sheets and webinars, to learn about specific title IV-E issues. Although several tribes used the National Resource Centers’ technical assistance services, officials from 6 of 11 tribes we spoke with reported difficulties accessing these services. An official from one tribe said it took 6 months to get a training request approved, and an official from another tribe said its request for training was denied. Additionally, officials from a third tribe said when the tribe submitted written requests for assistance, the regional office often made multiple revisions and comments regarding each request. As a result of issues with accessing ACF resource centers, some tribes have turned to organizations, such as Casey Family Programs and the National Indian Child Welfare Association, for assistance on title IV-E issues. HHS regional and headquarters officials explained that the National Resource Center request process involved the technical assistance providers, regional officials, and the tribe working together to complete a request tailored to the tribes’ needs.\nACF recently restructured its Training and Technical Assistance Network to better serve the needs of tribes. Specifically, in September 2014, the National Resource Center cooperative agreements ended and ACF transitioned to a new structure that includes three centers: a tribal- capacity building center, a center for states, and a center for court improvement. According to headquarters officials, ACF centralized its technical assistance for tribes to ensure that ACF is proactively identifying and providing assistance to tribes. To address tribes’ past access concerns, the tribal-capacity center provider has proposed a new technical assistance request process, which it will finalize with ACF before the center begins providing services in January 2015. The three new centers will also be expected to work together and in close coordination with the regional offices, according to ACF officials.\nIn addition to these access issues, some tribal officials we interviewed said the assistance received from HHS lacked cultural understanding. Representatives of 7 of the 11 tribes developing title IV-E plans we interviewed said that they experienced cultural insensitivity when receiving assistance from HHS staff. Tribal officials told us that HHS headquarters and regional staff did not appropriately acknowledge the government-to-government relationship the United States has with federally recognized tribes. For example, three tribal officials reported that HHS regional officials’ approach was inappropriately prescriptive when working with their tribe. These tribal officials preferred that HHS instead explain the title IV-E requirements and then allow the tribes to determine how to meet them. Officials from two tribes also reported that HHS was not aware that federal law authorizes a hiring preference for Indians in some circumstances, and initially did not permit inclusion of this preference in the tribes’ title IV-E plan based on discrimination concerns. All five of the tribal child welfare experts we interviewed were also concerned that HHS’s assistance does not always meet the needs of tribes. These experts cited HHS officials’ lack of experience working with tribes and understanding of the type of technical assistance needed, such as in-person or intensive capacity-building assistance. In a recent report, HHS also noted that in-person meetings with tribal communities can help build relationships and facilitate meaningful conversations.\nDevelopment grantees raised these cultural concerns to HHS in 2010 and the agency has taken some steps to address them. For example, as of August 2014, ACF staff had visited all but two of the tribal IV-E development grantees and had plans to visit the remaining grantees. ACF officials reported that the visits have been helpful in establishing relationships with tribal officials, learning about the tribes’ government structures, and providing a greater understanding of what it means to run a title IV-E program on tribal lands. ACF also has regular monthly phone calls with development grantees, among other activities, to build relationships. ACF headquarters officials also reported holding some staff training related to working with tribal nations. For example, ACF reported holding a cross training in July 2014 with the HHS Office of Family Assistance, and BIA’s Chief of Social Services on BIA child welfare services.", "Although HHS regional staff are the primary technical assistance providers for tribes, we found that some guidance and relevant HHS regulations were not in place at the time they began assisting tribes with their title IV-E plans. The Fostering Connections Act authorized HHS to begin providing title IV-E development grants to tribes in 2009; however, ACF issued tribal title IV-E guidance for HHS staff and tribes over several years. Federal standards for internal control state that relevant information should be identified and distributed in a form and time frame that allows staff to perform their duties. Regional officials had to begin assisting the first groups of tribal IV-E development grantees without some of this guidance in place. For example, specific guidance on how to develop a CAM was not finalized until the first group of grantees was 14 months into the 24-month award period. Similarly, HHS’s interim final rule implementing the tribal title IV-E program was issued after the first two grantee groups had completed the majority of their award periods.\nWhile ACF has developed, over time, additional title IV-E guidance for regional offices to use as they work with tribes, it has not developed procedures to ensure that the guidance is consistent across all HHS regional offices. ACF officials said the title IV-E pre-print document is the regional officials’ primary source for information on program requirements and how HHS ensures consistent interpretation of program requirements across offices. While the pre-print document lists all title IV-E requirements, it does not provide examples of tribal codes or administrative regulations that would meet those requirements. Regional staff may use their discretion to determine what is allowable in a tribe’s plan. A senior ACF official acknowledged that some regional officials may interpret title IV-E requirements differently than others. Regional officials have the option to send questions that emerge from tribal-regional office discussions to headquarters for resolution. ACF headquarters officials said they forward any resulting clarifications that are important for all tribes to all regional offices for their use in future discussions with tribes.\nDespite these efforts by ACF, officials from 6 of the 11 tribes developing title IV-E plans we spoke with told us that they received inconsistent guidance from HHS regional officials while developing their plans. For example, officials from one tribe said they received conflicting information from HHS regional staff regarding a word the tribe could use—other than “termination”—to address title IV-E’s termination of parental rights requirements in a way more aligned with their cultural values. These officials also said that participating in title IV-E peer-to-peer consultations with other tribes—an activity encouraged and sponsored by HHS—can be frustrating because regional offices have provided tribes with different information. Representatives from another tribe said they began tracking the information received from their HHS regional office because staff provided conflicting guidance on the same issues over time. These tribal officials recommended that HHS provide the same guidance to tribes regardless of their location and create a threshold for what is minimally acceptable for meeting title IV-E requirements, such as providing an example of documentation that would satisfy the termination of parental rights requirement. Two grantees from our conference discussion groups also reported receiving different responses to the same questions from officials within the same HHS regional office. ACF officials told us tribes can contact headquarters staff if they receive conflicting information from their regional office.\nChild welfare experts we spoke to and two studies we reviewed also identified inconsistent guidance from HHS staff as a challenge for tribes. The two experts we interviewed said such inconsistencies made it difficult for tribes to develop title IV-E programs. One expert said inconsistencies and delays in receiving information have frustrated and discouraged some tribes that are in the process of developing their title IV-E programs. In addition, a 2013 study that we reviewed concluded that consistent interpretation of federal law and guidance is critical for tribes to develop approvable title IV-E plans. Another study we reviewed recommended that in order to address ambiguities and inconsistent interpretation in tribal IV-E policies and regulations, there should be explicit models, guidelines, and tools for tribes and HHS to use while developing title IV-E plans. According to ACF officials, they have not provided tribes or regional office staff with examples because the language in the examples for one tribe may not be appropriate for all tribes.\nWe also found that ACF does not have procedures in place to ensure timely reviews of submitted draft title IV-E plans. The tribal title IV-E regulations established a process and timeline for the review of final title IV-E plans (see fig. 6 for process for review of final title IV-E plans).\nIn contrast, no similar process exists for the review of draft title IV-E plans. Before submitting a final IV-E plan to HHS for review, tribes submit draft plans to their regional HHS offices, whose staff then work with the tribe to finalize the plan. However, ACF has not set any expectations for regional office staff on the amount of time they should spend reviewing draft title IV-E plans. A senior ACF official explained that the agency does not provide expected timeframes for regional office reviews of draft plans and that there is not any limitation on the amount of time staff can spend reviewing the plans. Federal standards for internal control state that information should be recorded and communicated within a timeframe that enables relevant entities to carry out their responsibilities. Given HHS’s goal of approving more tribal title IV-E plans, a lack of draft IV-E plan review timeframes for its staff could continue to result in long tribal IV-E plan development and review periods.\nHHS’s process for reviewing and working with tribes to finalize title IV-E plans is iterative, meaning there are many discussions between tribes and their regional office to revise the draft IV-E plan and ensure it meets program requirements before it is finalized. We examined HHS documentation for the five tribes with approved title IV-E plans. We found it took from 5 to 33 months to finalize and approve the tribes’ title IV-E plans after they submitted their draft plans to HHS (at the end of the 24- month initial development grant period).\nWhile HHS’s iterative process for reviewing draft IV-E plans worked well for some tribes, others reported challenges with the timeliness of these reviews. A representative for one tribe that had submitted its title IV-E plan for review said the tribe’s HHS regional office returned draft plan sections in plenty of time for the tribe to make revisions. However, officials from four tribes we interviewed and two additional conference attendees, all of whom had submitted their title IV-E plans, reported untimely reviews by their HHS regional office. One tribal official said the tribe expected a response from its HHS regional office within 45 to 60 days, based on prior federal program experience, but no review timeframe was communicated by HHS regional officials and the tribe had to wait approximately three months for a response. This official estimated that the review process was extended by at least 6 months due to HHS regional office delays. Officials from two additional tribes also noted that HHS regional offices did not provide updates on their plans after submission and they had to follow-up with HHS in order to learn the status of their plan. Some tribal officials said delays in HHS regional office responses cost additional tribal staff time, which strained their limited staff and resources. ACF officials reported, however, that certain tribal actions taken to address HHS revisions can result in delays. These include responding to HHS’s suggested changes, scheduling meetings, and coordinating with states.", "While the Fostering Connections Act provided a new opportunity for tribes to access federal child welfare funding for the care of their children, the act also required tribes to meet title IV-E’s complex program requirements which were originally designed for states. Given existing tribal resource constraints, many tribes have faced challenges in developing approvable title IV-E plans. These challenges have been further complicated by inconsistent guidance from HHS. Ensuring consistent guidance on tribal title IV-E requirements across all HHS offices could help the agency more effectively communicate program requirements to tribes and support tribes in developing their title IV-E plans. While some tribes received timely title IV-E draft plan reviews, others did not, in part because HHS has not provided its regional office staff with expected timeframes for reviewing draft title IV-E plans. Establishing procedures to ensure timely reviews could improve relationships with tribes and promote a smoother process for tribes developing their plans. These changes would also support HHS’s strategic goals of approving more tribal title IV-E plans. Without improvements in the consistency of HHS guidance and timeliness of title IV-E plan reviews, tribes may continue to have limited direct access to child welfare program funding, hindering tribes’ ability to take advantage of this opportunity to exercise tribal sovereignty over their foster care programs. In addition, given tribes’ resource constraints, the complexities of title IV-E’s statutory requirements and HHS’s limited authority to modify them, the agency could benefit from considering, in consultation with tribes, if flexibilities in program requirements would help more tribes develop successful title IV-E plans without compromising requirements that children be placed in safe and stable environments. Both HHS and tribes are committed to ensuring that tribal children in foster care are well cared for, and a collaborative approach to considering flexibilities in program requirements would help maintain that goal.", "To help enhance tribes’ participation in the title IV-E program, the Secretary of Health and Human Services, in consultation with tribes, should take steps to consider whether additional flexibilities in program requirements would be helpful for tribes in developing title IV-E plans, while also maintaining safe and stable out-of-home care for children. If HHS determines, as part of this process, that statutory changes are necessary to implement these flexibilities, it should develop and submit an appropriate legislative proposal to Congress.\nTo improve the consistency of assistance provided to tribes, the Secretary of Health and Human Services should take steps to provide consistent title IV-E guidance to tribes across its regional offices.\nTo improve the timeliness of assistance provided to tribes, the Secretary of Health and Human Services should establish procedures to ensure reviews of draft title IV-E plans are conducted by regional office staff in a timely manner.", "We provided a draft of this report to HHS for review and comment. HHS provided written comments that are reproduced in appendix II. HHS also provided technical comments that we incorporated, as appropriate.\nHHS concurred with our recommendation that the agency, in consultation with tribes, consider whether additional flexibilities in title IV-E program requirements would enable more tribes to participate in the program. HHS noted the importance of continuing to engage in tribal consultation around programs and policies affecting tribal child welfare services. According to HHS, if it determines that legislative changes are necessary to facilitate greater tribal participation in title IV-E, the agency plans to consider developing legislative proposals, in the context of existing procedures for the development of the President’s budget.\nHHS also concurred with our recommendation that the agency take steps to provide consistent title IV-E guidance to tribes across its regional offices. The agency noted that it has taken an initial step to improve consistency. Specifically, HHS stated that it plans to hire a tribal coordinator to work in the office of the Associate Commissioner of the Children’s Bureau at ACF to help ensure greater consistency by facilitating additional communication across HHS regional office staff and among tribes. In addition, HHS commented that reported inconsistencies may be related to differing circumstances between grantees rather than differing interpretations of federal policy. HHS noted that this further reinforces the need to have clear and effective communications with HHS staff and with tribal officials.\nWith regard to our third recommended action, HHS agreed that it is important to provide timely feedback to development grantees and noted that the department currently provides feedback through a variety of communication methods. However, the department did not agree that procedures were needed to ensure the timely review of draft title IV-E plans at this time. The department acknowledged that the agency has not established firm timeframes for working with states or tribes during the development phase. HHS believes that it is not possible to respond to tribes’ draft IV-E plan submissions within a specific timeframe given the lack of consistency in materials received from tribal grantees, and HHS reported establishing a protocol for conducting monthly calls with development grantees to provide feedback and respond to questions.\nWe maintain that establishing procedures, including but not limited to timeframes for responses, would help ensure that tribes receive timely feedback from regional offices regarding their draft title IV-E plans. This is because we found that of the five tribes with approved title IV-E plans, it took a median of 28 months to finalize and approve their title IV-E plans after submitting a draft to HHS. We noted in the report that HHS has an iterative process for reviewing draft title IV-E plans and that certain tribal actions taken to address HHS revisions, such as scheduling meetings and coordinating with states, can result in delays. We also noted that while this iterative review process worked well for some tribes, others reported challenges with the timeliness of these reviews. For example, officials from two tribes told us that HHS regional offices did not provide updates on their plans after submission and that they had to follow-up with HHS to learn the status of their plan. HHS’s plan to hire a tribal coordinator along with continuing to conduct monthly conference calls with development grantees are positive steps towards improving communication across the regions and with tribes. However, twelve tribes currently have draft title IV-E plans under review and it will be increasingly important to have procedures in place to ensure timely reviews by regional office staff as additional tribes submit plans each year.\nWe are sending copies of this report to the Secretary of Health and Human Services and interested congressional committees. In addition, the report is available at no charge on the GAO website at http://www.gao.gov.\nIf you or your staff have any questions about this report, please contact me at (202) 512-7215 or brownke@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III.", "This report examines: (1) the obstacles facing tribes interested in directly operating a title IV-E program and (2) how HHS assisted interested tribes. To address our objectives we conducted interviews with officials of tribes and federal agencies, and child welfare experts. We interviewed representatives from 17 federally recognized tribes and tribal consortia in Alaska, Arizona, California, Michigan, Montana, Oklahoma, and Washington. Tribes in these states were selected to achieve variation in how far along the tribe was in developing a title IV-E program and size of the tribe. These 17 tribes are located in five different HHS regions. Our tribal interviewees included representatives of 10 tribes that received a title IV-E development grant and one tribe that is approved to operate the program, but did not receive a development grant. In the report, we referred to this group as the 11 tribes we interviewed that are developing title IV-E plans. The group of 11 tribes also included four of the five tribes with approved title IV-E plans. In addition, we interviewed six tribes that expressed interest initially but have not sought approval to operate a title IV-E program. We also convened two discussion groups with tribes. One discussion group was held at the National Indian Child Welfare Association annual conference in April 2014 and the other was held at the Casey Family Programs Tribal Title IV-E Development Plan Grantee Convening in May 2014. Our discussion groups were advertised in the agendas for these events and all tribes in attendance at these events were invited to participate. In total, representatives of 19 tribes participated in the two discussion groups. Of the 19 tribes represented in our two discussion groups, six tribes participated in both discussion groups. We interviewed eight of these 19 tribes individually based on our aforementioned selection criteria, and 12 of these tribes received title IV- E development grants. The information obtained in our interviews and discussion groups with tribes is not generalizable, but provides examples of tribes’ experiences with developing title IV-E programs and obtaining related HHS technical assistance.\nWe interviewed officials from HHS’s Administration for Children and Families (ACF), including the nine regional offices that provide technical assistance to federally recognized tribes and the fiscal year 2010-2014 HHS-funded tribal resource center. We also interviewed Social Services program staff at the Department of the Interior Bureau of Indian Affairs (BIA). In addition to conducting interviews, to help determine HHS’s role with regards to tribal title IV-E programs, we reviewed relevant federal laws, regulations, HHS guidance from January 2008 to November 2014, and federal standards for internal control. We also reviewed ACF’s strategic plan and the Interim Final Rule implementing the tribal title IV-E program.\nWe conducted key word searches of various databases, such as ProQuest and EconLit, to identify peer-reviewed journal articles, association publications, and government reports published from January 2008 to May 2014 on tribes’ experiences with the title IV-E program. We identified additional studies related to tribal title IV-E on the National Child Welfare Resource Center for Tribes’ website. Five studies we identified during this literature review are included in this report. In addition, we interviewed five child welfare experts. We interviewed these experts because they had researched and published studies on tribal child welfare issues related to the title IV-E program. Some of these experts were identified via the review of studies described above.\nWe analyzed all semi-annual progress reports submitted to HHS from March 2010 through March 2014 for the 21 tribes awarded grants from fiscal year 2009 through fiscal year 2013. We reported our analysis for the 11 tribes that were awarded grants from fiscal year 2009 through fiscal year 2011 because these tribes have completed their grant period. Development grantees self-report to HHS the progress made in developing their title IV-E programs in each semi-annual progress report, using the SF-PPR, Performance Progress Report. HHS has published overall guidance on the grants through its Grants Policy Statement. Each tribe submitted between one and seven progress reports depending on when it received the title IV-E development grant from HHS. For example, the 11 tribes that were awarded grants in fiscal year 2009 through fiscal year 2011 submitted between four and seven progress reports. We confirmed that each development grantee submitted a complete set of required progress reports.\nTo analyze the progress reports, we defined a list of activities tribes may engage in as they work on the title IV-E plan based on the program’s requirements as outlined in the title IV-E pre-print and our interviews with tribes and HHS. Two analysts independently reviewed a sample of the progress reports using those definitions. Based on that review we refined and finalized the list of potential title IV-E program development activities. One analyst then independently analyzed the entire set of progress reports using the final categories. Tribes were counted as having engaged in an activity if an example of the activity was in at least one progress report. A second analyst reviewed and verified each of the progress reports and associated counts. Since the progress reports included sections for the tribes to describe accomplishments and problems they encountered while developing a title IV-E plan, our analysis was also used to identify obstacles the tribes faced and examples of their experiences using HHS assistance. However, the tribes’ self-reported data has limitations, including being subject to inaccuracies, containing differing definitions of activities, recall errors, or choosing to selectively describe some activities over others which would affect the accuracy of our coding of activities. In addition, according to an HHS official, tribes were instructed to report on all progress made in developing title IV-E programs. As a result, it is possible that tribes used other funds in addition to those provided via the IV-E development grant to complete the activities described in their progress reports. While we did not attempt to verify the accuracy of the progress reports, we did check for internal inconsistencies or illogical content during the course of our review. In addition, while self-reporting errors may affect the accuracy of the content of individual reports, we focused on tribes that had submitted at least four progress reports and the coding we used to identify activities was based on whether there was at least one instance of an activity such as hiring personnel or developing specific procedures in any of the completed progress reports. Allowing for an activity to be reported across any of the reports may reduce some inaccuracies, such as errors associated with recall bias. We determined that the progress reports were sufficient enough to provide a general description of the activities undertaken by tribal development grantees to help establish their title IV- E programs.", "", "", "", "In addition to the contact named above, Elizabeth Morrison (Assistant Director), Andrea Dawson (Analyst-in-Charge), Maria Gaona, and Kwame Som-Pimpong made key contributions to this report. Also contributing to this report were Susan Aschoff, Susan Bernstein, Jennifer Cook, Sarah Cornetto, Pamela Davidson, Jeffery Malcolm, Jennifer McDonald, and Mimi Nguyen." ], "depth": [ 1, 2, 2, 2, 2, 1, 2, 2, 3, 1, 2, 2, 1, 1, 1, 1, 1, 1, 2, 2 ], "alignment": [ "h1_title", "", "", "h1_full", "", "h0_title", "h0_full", "h0_full", "h0_full", "h1_title", "h1_full", "", "", "", "h0_full h3_full", "h2_full h1_full", "", "", "", "" ] }

{ "question": [ "What resource constrains face Indian tribes developing title IV-E foster care programs?", "How did the Fostering Connections Act affect tribes?", "How does this compare to other programs administered by HHS?", "What title IV-E requirements have been challenging for tribes?", "How has HHS responded to these challenges?", "What is Title IV-E of the Social Security Act?", "How many tribes operate their own title IV-E foster care programs?", "How does HHS assist these tribes?", "What was GAO asked to examine?", "What does this report examine?", "What tribes did GAO interview?", "How were these tribes selected?", "Why is this information valuable?", "What did GAO recommend?", "To what extent did HHS agree with the recommendations?", "How important does GAO consider its third recommendation to be?" ], "summary": [ "Indian tribes developing title IV-E foster care programs faced resource constraints and reported challenges adopting some program requirements. According to GAO's interviews with tribal and Department of Health and Human Services (HHS) officials, the resource constraints faced by tribes include limited numbers of staff and staff turnover.", "While the Fostering Connections to Success and Increasing Adoptions Act of 2008 (Fostering Connections Act) allows tribes to administer a title IV-E foster care program, it generally did not modify title IV-E's requirements for tribes.", "By contrast, some other programs administered by HHS offer tribes additional flexibilities, provided they are consistent with the objectives of the program.", "Given tribes' resource constraints and cultural values, adopting some title IV-E requirements has been difficult. For example, officials from 6 of 11 tribes developing title IV-E programs that GAO interviewed said that the requirement to electronically submit case-level data on all children in foster care was challenging. In addition, 7 of these 11 tribal officials reported that incorporating termination of parental rights—which severs the legal parent-child relationship in certain circumstances—into their tribal codes was challenging because it conflicts with their cultural values.", "HHS recognizes that termination of parental rights may not be part of an Indian tribe's traditional beliefs; however according to the agency it lacks the statutory authority to provide a general exemption for tribal children from the requirement.", "Title IV-E of the Social Security Act provides federal support for foster care and adoption assistance programs.", "Since 2008, 5 tribes have been approved to operate their own title IV-E foster care programs, although more than 80 tribes initially expressed an interest in doing so.", "HHS provides development grants and technical assistance to tribes interested in establishing a title IV-E program.", "GAO was asked to review tribes' experiences with title IV-E.", "This report examines (1) obstacles facing tribes interested in directly operating a title IV-E program and (2) the assistance HHS has provided.", "GAO interviewed officials from 17 tribes, 11 of which were currently developing title IV-E programs.", "These tribes were selected to achieve variation in progress toward developing a title IV-E program, size of the tribe, and HHS region.", "While this information is non-generalizable, it provides examples of tribes' experiences with the program.", "GAO recommends that HHS (1) consider submitting a legislative proposal if it determines that flexibilities in program requirements would enable more tribes to participate in title IV-E, (2) take steps to provide consistent guidance to tribes on their IV-E plans, and (3) establish procedures to ensure timely reviews of draft plans.", "HHS agreed with our first two, but did not agree with the third recommendation.", "GAO maintains the need for procedures, such as clear timeframes, to ensure timely IV-E plan reviews." ], "parent_pair_index": [ -1, -1, 1, 1, 3, -1, 0, 1, 0, -1, 0, 1, 0, -1, 0, 0 ], "summary_paragraph_index": [ 2, 2, 2, 2, 2, 0, 0, 0, 0, 1, 1, 1, 1, 4, 4, 4 ] }

{ "title": [ "", "Legal Background", "Requirements for \"Financial Institutions\"", "Criminal AML Provisions", "FinCEN Guidance", "Prosecutions and Enforcement Actions", "Online Marketplaces for Illicit Goods", "Silk Road", "AlphaBay", "Virtual Currency Payment Systems Used for Illicit Purposes", "e-Gold", "Liberty Reserve", "FinCEN Enforcement Actions Against Virtual Currency Exchangers", "Ripple", "BTC-e", "Issues for Congress and Proposed Legislation", "Regulatory Challenges Posed by Virtual Currencies", "Bills in the 116th Congress", "Legislation Commissioning Agency Analyses", "H.R. 1414, FinCEN Improvement Act of 2019", "H.R. 528, Blockchain Regulatory Certainty Act" ], "paragraphs": [ "L aw enforcement officials have described money laundering—the process of making illegally obtained proceeds appear legitimate—as the \"lifeblood\" of organized crime. According to one estimate, criminals launder roughly $1 trillion to $2 trillion annually worldwide, a sum that represents between 2% and 5% of global gross domestic product. Without the ability to conceal and spend these large sums of \"dirty\" money, criminal organizations \"could operate only at a small fraction of current levels, and with far less flexibility.\"\nOver the past decade, money launderers have turned to a new technology to conceal the origins of illegally obtained proceeds: virtual currency. Virtual currencies like Bitcoin, Ether, and Ripple are digital representations of value that, like ordinary currency, function as media of exchange, units of account, and stores of value. However, unlike ordinary currency, virtual currencies are not legal tender, meaning they cannot be used to pay taxes and creditors need not accept them as payments for debt. According to their proponents, virtual currencies (1) have the potential to offer cheaper and faster transactions than traditional bank-centric payment networks, (2) provide inflation-resistant alternatives to traditional fiat currencies, and (3) often involve promising new technologies (such as blockchain technology) that will spur innovation across a variety of fields. However, other commentators have argued that the anonymity offered by certain decentralized virtual currencies—that is, virtual currencies that are not issued or maintained by a central organization—makes them an attractive vehicle for money laundering. These observers have contended that criminals often use such virtual currencies not only to buy and sell illicit goods and services, but also to launder illegally obtained fiat currencies.\nWhile it is difficult to definitively assess the volume of money laundered through virtual currencies, the virtual currency security firm CipherTrace has estimated that criminals laundered roughly $2.5 billion of Bitcoin on major exchanges between January 9, 2009, and September 20, 2018. An official from the Treasury Department's Financial Crimes Enforcement Network (FinCEN) has similarly indicated that virtual currencies have been \"exploited to support billions of dollars of . . . suspicious activity.\" While such figures represent only a fraction of both global money laundering and virtual currency transaction volume, government officials have identified virtual currencies as a growth industry for money launderers that presents regulators and law enforcement with unique challenges.\nThis report provides a general overview of the application of federal anti-money laundering (AML) law to virtual currencies. First, the report outlines the basic architecture of federal AML law. Second, the report discusses administrative guidance concerning the application of federal AML law to virtual currencies. Third, the report reviews a number of prominent criminal prosecutions and administrative enforcement actions involving federal AML law and virtual currencies. Finally, the report discusses a number of legislative proposals to reform certain elements of the federal AML regime surrounding virtual currencies and further investigate the use of virtual currencies in criminal activities.", "The federal AML regime consists of two general categories of laws and regulations. First, federal law requires a range of \"financial institutions\" to abide by a variety of AML compliance program, reporting, and recordkeeping requirements. Second, federal law criminalizes money laundering and various forms of related conduct.", "The Bank Secrecy Act (BSA) and its various amendments represent the centerpiece of the federal AML regime for \"financial institutions\"—a category that includes federally insured banks, securities brokers and dealers, currency exchanges, and money services businesses. Under the BSA and associated regulations, covered \"financial institutions\" must, among other things, establish AML programs that meet certain minimum standards, report certain types of transactions to the Treasury Department, and maintain certain financial records.\nSpecifically, the BSA requires \"financial institutions\" to establish AML programs that include, at a minimum, (1) the development of internal policies, procedures, and controls, (2) the designation of a compliance officer, (3) an ongoing employee training program, and (4) an independent audit function to test the program. \"Financial institutions\" must also report certain large currency transactions and suspicious activities to FinCEN—the bureau within the Treasury Department responsible for administering the BSA. Finally, the BSA and associated regulations require \"financial institutions\" to maintain certain types of records. FinCEN regulations require banks, for example, to retain records related to certain large transactions involving foreign banks and the taxpayer identification numbers associated with certain accounts.\nMoney services businesses (MSBs) represent one category of \"financial institution\" that must register with FinCEN and, like other \"financial institutions,\" abide by AML program, reporting, and recordkeeping requirements. Under FinCEN's regulations, MSBs include a variety of specific categories of businesses, including \"money transmitters\"—that is, (1) persons who accept \"currency, funds, or other value that substitutes for currency from one person\" and transmit those items \"to another location or person by any means,\" and (2) \"[a]ny other person engaged in the transfer or funds.\" In addition to imposing regulatory requirements on MSBs, federal law makes it a crime to knowingly operate an \"unlicensed money transmitting business.\" An entity qualifies as an \"unlicensed money transmitting business\" under this provision (Section 1960 of Title 18) if it\n1. is \"operated without an appropriate money transmitting license in a State where such operation is punishable as a misdemeanor or a felony\"; 2. fails to comply with the BSA's federal registration requirement for \"money transmitting businesses\"; or 3. \"otherwise involves the transportation or transmission of funds that are known to the defendant to have been derived from a criminal offense or are intended to be used to promote or support unlawful activity.\"", "In addition to imposing various AML requirements on \"financial institutions,\" federal law also criminalizes money laundering and certain related conduct. Specifically, 18 U.S.C. § 1956(a)(1) (Section 1956) makes it unlawful for a person who \"know[s] that the property involved in a financial transaction represents the proceeds of some form of unlawful activity\" to \"conduct[] or attempt[] to conduct such a financial transaction which in fact involves the proceeds of specified unlawful activity\" —\n(A) (i) with the intent to promote the carrying on of specified unlawful activity; or\n(ii) with intent to engage in conduct constituting [tax evasion or tax fraud]; or\n(B) knowing that the transaction is designed in whole or in part—\n(i) to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity; or\n(ii) to avoid a transaction reporting requirement under State or Federal law.\nFor purposes of this prohibition, the term \"financial transaction\" includes transactions \"involving the movement of funds\" and transactions \"involving one or more monetary instruments.\"\nSimilarly, 18 U.S.C. § 1957(a) (the so-called \"Spending Statute\") prohibits monetary transactions in criminally derived property. Specifically, Section 1957(a) makes it unlawful to \"knowingly engage[] or attempt[] to engage in a monetary transaction in criminally derived property of a value greater than $10,000 and is derived from specified unlawful activity.\" In other words, unlike Section 1956, Section 1957 makes it a crime to knowingly spend the proceeds of specified unlawful activity, even if such spending does not promote such activity and is not designed to conceal the origins of the proceeds.", "Because neither Congress nor FinCEN has formally amended the BSA regulatory regime in response to the advent of virtual currencies, prosecutors and regulators have been required to analyze whether virtual currency transactions and business models fall within some of the preexisting legal categories discussed above. In 2013, FinCEN attempted to clarify certain aspects of this analysis by issuing administrative guidance addressing the circumstances in which participants in virtual currency transactions qualify as MSBs.\nIn its 2013 guidance, FinCEN took the position that \"users\" of virtual currencies do not qualify as MSBs subject to federal registration requirements, while \"administrators\" and \"exchangers\" of virtual currencies may qualify as MSBs. Specifically, the guidance explained that users of virtual currencies—that is, persons who obtain virtual currencies to purchase goods or services—are not MSBs because they are not involved in money transmission. By contrast, FinCEN indicated that virtual currency administrators (persons \"engaged as a business\" in putting a virtual currency into circulation and who have the authority to withdraw such currency from circulation) and exchangers (persons \"engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency\") may be \"money transmitters\" and, by extension, MSBs. Specifically, FinCEN explained that virtual currency administrators and exchangers qualify as MSBs (unless they fall within a specific exemption) when they (1) \"accept[] or transmit[] a convertible virtual currency,\" or (2) \"buy[] or sell[] convertible virtual currency for any reason.\" Accordingly, under FinCEN's guidance, virtual currency issuers and exchangers will generally qualify as MSBs unless they fall within a specific statutory or regulatory exemption.", "Over the past decade, federal prosecutors and regulators have pursued a number of cases involving the application of federal AML law to virtual currencies. In a number of criminal cases, federal prosecutors have brought money-laundering and certain related charges against the operators of online marketplaces and virtual currency payment systems used to disguise the proceeds of illicit activities. FinCEN has also brought civil enforcement actions against virtual currency exchangers for failure to comply with the BSA's AML program, reporting, and recordkeeping requirements.", "Federal prosecutors have brought money-laundering charges against the creators of online marketplaces that allowed their users to exchange virtual currency for a range of illicit goods and services. In one of these prosecutions, a federal district court held that transactions involving Bitcoin can serve as the predicate for money-laundering charges.", "In 2013, federal authorities shut down Silk Road, which they alleged was \"the most sophisticated and extensive criminal marketplace on the Internet,\" enabling tens of thousands of users to anonymously buy and sell illegal drugs, malicious software, and other illicit goods and services. Federal prosecutors charged the site's creator with, among other things, conspiracy to commit money laundering under Section 1956. The prosecutors alleged that the site's creator conspired to conduct \"financial transactions\" involving the proceeds of unlawful activity—namely, narcotics trafficking and computer hacking—with the intent to promote the carrying on of such activity. In defending this charge, Silk Road's creator argued that his alleged conduct—facilitating the exchange of Bitcoin for illegal goods and services—did not involve \"financial transactions\" within the meaning of Section 1956, which defines that term to include (among other things) transactions \"involving one or more monetary instruments.\" Specifically, the site's creator contended that because Bitcoin does not qualify as a \"monetary instrument\"—which Section 1956 defines to mean the currency of a country, personal checks, bank checks, money orders, investment securities, or negotiable instruments—transactions involving Bitcoin do not represent \"financial transactions\" under Section 1956.\nThe U.S. District Court for the Southern District of New York rejected this argument, holding that transactions involving Bitcoin can qualify as \"financial transactions\" under Section 1956 because they fall under a separate category of transactions identified by the relevant statutory definition: transactions involving \"the movement of funds .\" Specifically, the court reasoned that Bitcoin transactions involve \"the movement of funds\" because the term \"funds\" includes \"money,\" which in turn refers to \"an object used to buy things.\" Because Bitcoin can be used to buy things, the court reasoned that Bitcoin transactions involve \"the movement of funds\" and therefore qualify as \"financial transactions\" under Section 1956. As a result, the court explained, \"[o]ne can money launder using Bitcoin.\"", "Similarly, in 2017, federal prosecutors brought money-laundering conspiracy charges against the creator of AlphaBay, another online marketplace that allowed its users to exchange virtual currency for illicit goods and services. The prosecutors alleged that by facilitating the exchange of virtual currencies (including Bitcoin, Monero, and Ether) for illegal narcotics and other illicit goods and services, the site's creator had conspired to conduct \"financial transactions\" involving the proceeds of unlawful activities. However, the federal government dismissed these charges after AlphaBay's creator died in July 2017.", "Federal prosecutors have also pursued charges against the developers of certain virtual currency payment systems allegedly designed to facilitate illicit transactions and launder the proceeds of criminal activity. Specifically, prosecutors have charged these developers with conspiring to commit money laundering and operating unlicensed money transmitting businesses under Sections 1956 and 1960, respectively. In adjudicating the second category of charges, courts have concluded that the relevant virtual currency payment systems were \"unlicensed money transmitting businesses\" under Section 1960, rejecting the argument that the provision applies only to money transmitters that facilitate cash transactions.", "In 2007, federal prosecutors charged e-Gold—an \"alternative payment system\" and virtual currency purportedly backed by stored physical gold—and its founders and director with money laundering and operating an unlicensed money transmitting business. The prosecutors alleged that e-Gold \"was widely accepted as a payment mechanism for transactions involving credit card and identification fraud, high yield investment programs and other investment scams, and child exploitation\" because of the anonymity it offered its users.\nIn charging the defendants for failing to register their business, prosecutors alleged that e-Gold operated as an \"unlicensed money transmitting business\" in each of the three ways identified by Section 1960—the provision criminalizing the operation of \"unlicensed money transmitting businesses.\" Specifically, the prosecutors alleged that e-Gold (1) lacked a required state money transmitter license, (2) failed to comply with the BSA's federal registration requirements for \"money transmitting businesses\" (requirements set forth in Section 5330 of Title 31), and (3) was involved in the transmission of funds that were \"known to have been derived from a criminal offense\" or that were \"intended to be used to promote and support unlawful activity.\"\nIn defending these charges, the defendants presented an intricate argument for the proposition that Section 1960 applies only to businesses that facilitate cash (as opposed to virtual currency) transactions. Specifically, the defendants argued that because Section 1960 does not define the term \"money transmitting business,\" it must \"borrow\" the definition of that term in Section 5330—the BSA provision establishing federal registration requirements for \"money transmitting businesses.\" The defendants further reasoned that (1) Section 5330 provides that an entity is a \"money transmitting business\" only if it must file currency transaction reports (CTRs), and (2) businesses that do not facilitate cash transactions need not file CTRs. Accordingly, under the defendants' theory, a business like e-Gold that does not facilitate cash transactions does not qualify as a \"money transmitting business\" under Section 5330 and (by extension) Section 1960.\nThe U.S. District Court for the District of Columbia rejected this argument, holding that e-Gold was indeed a \"money transmitting business\" under Section 1960 for two reasons. First, the court rejected the defendants' contention that Section 1960 must \"borrow\" Section 5330's definition of \"money transmitting business.\" The court rejected this argument on the grounds that Section 1960 contains its own definition of the term \"money transmitting\" and does not reflect an intent to \"borrow\" the definition of \"money transmitting business\" from Section 5330. The court further explained that because e-Gold was a business engaged in \"money transmitting\" as defined by Section 1960—that is, \"transferring funds on behalf of the public\"—it was a \"money transmitting business\" under Section 1960.\nSecond, the court evaluated whether e-Gold also qualified as a \"money transmitting business\" under Section 5330—an issue that remained relevant because of the federal government's charge that the defendants violated Section 1960 by violating Section 5330's registration requirements . The court concluded that e-Gold was indeed a \"money transmitting business\" under Section 5330, rejecting the defendants' argument that e-Gold did not fall within that category because it was not required to file CTRs. Specifically, the court rejected the argument that a business is required to file CTRs only if it facilitates cash transactions. Instead, the court explained that because the statute imposing CTR obligations imposes such obligations when money transmitting businesses facilitate cash transactions (as opposed to if they facilitate such transactions), all money transmitting businesses have a continuing obligation to file CTRs \"in the eventuality that they ever are involved\" in a reportable cash transaction. The court accordingly concluded that because e-Gold was required to file CTRs and satisfied the other elements of the relevant statutory definition, e-Gold was a \"money transmitting business\" under Section 5330 even though it did not process cash transactions. After the court denied the defendants' motion to dismiss the charges for operating an unlicensed money transmitting business, the defendants pleaded guilty to those charges and money laundering.", "Similarly, in May 2013, federal prosecutors charged the founder of Liberty Reserve—a Costa Rica-based virtual currency service—with conspiracy to commit money laundering, conspiracy to commit international money laundering, and operating an unlicensed money transmitting business. Liberty Reserve administered a virtual currency known as \"LR\" and described itself as a \"payment processor and money transfer system.\" According to prosecutors, Liberty Reserve's founder \"intentionally created, structured, and operated\" the service \"as a business venture designed to help criminals conduct illegal transactions and launder the proceeds of their crimes,\" facilitating a broad range of criminal activity that included identity theft, credit card fraud, computer hacking, child pornography, and narcotics trafficking. Specifically, Liberty Reserve allegedly facilitated such activity by allowing its users to set up accounts using fake names and, for an additional fee, hide their account numbers when sending funds within the system. Because of this anonymity, prosecutors alleged, Liberty Reserve became the \"bank of choice for the criminal underworld,\" laundering over $6 billion between 2006 and 2013.\nIn defending the charge for operating an unlicensed money transmitting business, Liberty Reserve's founder argued that Liberty Reserve was not an \"unlicensed money transmitting business\" under Section 1960 because it did not transfer \"funds\" within the meaning of that provision. However, the U.S. District Court for the Southern District of New York rejected this argument, relying on an earlier case from the same district to conclude that virtual currencies are \"funds\" under Section 1960 because they can be \"easily purchased in exchange for ordinary currency, act[] as a denominator of value, and [are] used to conduct financial transactions.\" Liberty Reserve's founder was ultimately convicted of operating an unlicensed money transmitting business and pleaded guilty to conspiring to commit money laundering.", "Consistent with its 2013 guidance, FinCEN has pursued a number of administrative enforcement actions against virtual currency exchangers, assessing civil penalties for failure to implement sufficient AML programs and report suspicious transactions.", "In 2015, FinCEN brought an enforcement action against California-based virtual currency developer and exchanger Ripple Labs, Inc. (Ripple), assessing a $700,000 civil penalty for failure to register as a MSB and failure to implement and maintain an effective AML program. At the time of the enforcement action, Ripple's virtual currency (XRP) was the second-largest virtual currency by market capitalization, trailing only Bitcoin. Ripple sold XRP in exchange for fiat currency without registering as a MSB until 2013, when it incorporated a subsidiary to engage in the relevant sales and transfers. While Ripple's subsidiary ultimately registered with FinCEN, it allegedly failed to fulfill its AML obligations under the BSA. Specifically, FinCEN alleged that Ripple's subsidiary failed to timely establish an AML program that met the BSA's requirements and lacked sufficient controls for implementing the program. Because of this absence of necessary controls, Ripple's subsidiary negotiated an approximately $250,000 transaction with a felon without adhering to its know-your-customer requirements and rejected a number of suspicious transactions without filing suspicious activity reports (SARs) with FinCEN. In response to FinCEN's allegations, Ripple and its subsidiary entered into a settlement agreement, committing to undertake a series of remedial measures and pay a $700,000 civil penalty.", "In 2017, FinCEN brought another major enforcement action against BTC-e, one of the largest virtual currency exchanges in the world. FinCEN alleged that BTC-e facilitated transactions involving ransomware, computer hacking, identity theft, tax refund fraud schemes, public corruption, and drug trafficking. FinCEN further contended that BTC-e willfully violated MSB registration requirements, failed to maintain an effective AML program, and failed to file required SARs. Specifically, FinCEN alleged that BTC-e did not verify basic information about its customers and failed to file SARs on thousands of suspicious transactions, including transactions involving Liberty Reserve and other entities that were widely known to be violating U.S. law. Because of this conduct, FinCEN assessed a $110 million civil money penalty against BTC-e and its founder.", "", "As these prosecutions and enforcement actions demonstrate, virtual currencies have a number of features that make them attractive to criminals. Specifically, commentators have noted that money launderers have been attracted by the anonymity, lack of clear regulations, and settlement finality that accompanies virtual currency transactions. The ease of transferring virtual currencies across international borders further complicates AML efforts, as AML regulations \"are not widely applied internationally to virtual currency despite increasing evidence of misuse.\" The Treasury Department's 2018 Money Laundering Risk Assessment accordingly identified virtual currencies as a vulnerability in U.S. AML efforts. Several bills introduced in the 116th Congress aim to address to these challenges. These bills would, among other things, commission agency analyses of the use of virtual currencies for illicit activities and clarify that FinCEN's statutory powers and duties include international coordination on issues related to virtual currencies.\nCommentators have also identified legal uncertainty as an additional challenge facing prosecutors, regulators, and participants in virtual currency transactions. Specifically, these observers have noted that applying the BSA's regulatory regime to virtual currencies requires analyzing novel business models using legal categories developed primarily for traditional financial institutions. While the weight of legal authority supports the application of some of these categories to certain virtual currency business models, at least one anomalous decision indicates that some judges demand more explicit indicia of congressional intent to apply existing law in this relatively new field. Moreover, a number of commentators have argued that providing greater legal certainty to legitimate virtual currency activities is necessary to preserve the United States' position as a \"global leader\" in encouraging technological innovation. This interest in legal clarity—in addition to a desire to shield certain virtual currency innovators from \"expensive and onerous\" AML requirements —has generated a legislative proposal to exempt certain blockchain developers from various money transmitter requirements.", "", "In January 2019, the House passed three bills that would commission studies concerning the use of virtual currencies for illicit purposes. H.R. 56 , the Financial Technology Protection Act, would establish an Independent Financial Technology Task Force to Combat Terrorism and Illicit Financing (Task Force) led by the Treasury Secretary. The bill would direct the Task Force to (1) \"conduct independent research on terrorist and illicit use of new financial technologies, including digital currencies,\" and (2) \"develop legislative and regulatory proposals to improve counter-terrorist and counter-illicit financing efforts.\" H.R. 56 would further require the Task Force to annually report its findings to Congress. The bill would also establish two programs to incentivize members of the public to assist the federal government's efforts to combat the illicit use of virtual currencies. First, the bill would direct the Treasury Secretary to establish a reward of up to $450,000 for persons who \"provide[] information leading to the conviction of an individual involved with terrorist use of digital currencies.\" Second, the bill would direct the Treasury Secretary to create a grant program \"for the development of tools and programs to detect terrorist and illicit use of digital currencies.\" After passing the House in January 2019, H.R. 56 was referred to the Senate Committee on Banking, Housing, and Urban Affairs.\nA second bill, H.R. 428 , the Homeland Security Assessment of Terrorists' Use of Virtual Currencies Act, would similarly commission an analysis of the use of virtual currencies by terrorists. Specifically, H.R. 428 would direct the Under Secretary of Homeland Security for Intelligence and Analysis to conduct a \"threat assessment\" analyzing \"the actual and potential threat posed by individuals using virtual currency to carry out activities in furtherance of an act of terrorism, including the provision of material support or resources to a foreign terrorist organization.\" After passing the House in January 2019, H.R. 428 was referred to the Senate Committee on Homeland Security and Governmental Affairs.\nFinally, H.R. 502 , the Fight Illicit Networks and Detect Trafficking Act (the FIND Trafficking Act), would direct the Government Accountability Office (GAO) to conduct a study \"on how virtual currencies and online marketplaces are used to facilitate sex and drug trafficking.\" The bill would require GAO to provide Congress with a report summarizing the results of the study, together with any recommendations for legislative or regulatory action that would assist the federal government in combatting the use of virtual currencies to facilitate sex and drug trafficking. After passing the House in January 2019, H.R. 56 was referred to the Senate Committee on Banking, Housing, and Urban Affairs.", "In March 2019, the House passed H.R. 1414 , the FinCEN Improvement Act of 2019. The bill would, among other things, clarify that FinCEN's statutory power to coordinate with foreign financial intelligence units on antiterrorism and AML initiatives \"includ[es] matters involving emerging technologies or value that substitutes for currency.\" After passing the House in March 2019, H.R. 1414 was referred to the Senate Committee on Banking, Housing, and Urban Affairs.", "In January 2019, H.R. 528 , the Blockchain Regulatory Certainty Act, was introduced in the House of Representatives. The bill would create a safe harbor from federal and state money transmitter licensing and registration requirements for certain blockchain developers. Specifically, the bill would provide that non controlling \"blockchain developers\" and providers of a \"blockchain service\" shall not be treated as \"money transmitters,\" MSBs, \"or any other State or Federal legal designation[s] requiring licensing or registration as a condition to acting as a blockchain developer or provider of a blockchain service.\" A blockchain developer or provider of a blockchain service would qualify as a noncontrolling developer or provider as long as it does not have control over users' digital currency in the regular course of business. Some commentators have argued that such a safe harbor is necessary to provide legal certainty to actors in the virtual currency space, including persons who contribute code to virtual currency platforms or develop blockchain-related software but do not take custody of others' virtual currency. However, another commentator has noted that it is \"debat[able]\" whether federal registration requirements apply to such persons. H.R. 528 was referred to the House Committee on Financial Services and the House Committee on the Judiciary in January 2019." ], "depth": [ 0, 1, 2, 2, 1, 1, 2, 3, 3, 2, 3, 3, 2, 3, 3, 1, 2, 2, 3, 3, 3 ], "alignment": [ "h0_title h2_title h1_title", "h0_title", "", "h0_full", "", "h0_full h1_full", "h1_full", "", "", "h1_full", "", "", "h1_full", "", "", "h0_title h2_title", "h0_full h2_full", "", "", "", "" ] }

{ "question": [ "What is the relationship between money laundering and organized crime?", "How has the process of money laundering changed recently?", "What are virtual currencies?", "Why are virtual currencies used for money laundering?", "What is the implication of this new development for law enforcement?", "What cases have been pursued regarding virtual currencies?", "How have prosecutors addressed the developers of certain virtual currencies?", "What did the courts conclude in this case?", "What role has the FinCEN played in enforcing virtual currency regulations?", "Why are virtual currencies attractive to criminals?", "How has Congress attempted to address these challenges?", "What legal issues add uncertainty to virtual currency regulation?", "How have proposed bills addressed these concerns?" ], "summary": [ "Law enforcement officials have described money laundering—the process of making illegally obtained proceeds appear legitimate—as the \"lifeblood\" of organized crime.", "Recently, money launderers have increasingly turned to a new technology to conceal the origins of illegally obtained proceeds: virtual currency.", "Virtual currencies like Bitcoin, Ether, and Ripple are digital representations of value that, like ordinary currency, function as media of exchange, units of account, and stores of value. However, unlike ordinary currencies, virtual currencies are not legal tender, meaning they cannot be used to pay taxes and creditors need not accept them as payments for debt.", "While virtual currency enthusiasts tout their technological promise, a number of commentators have contended that the anonymity offered by these new financial instruments makes them an attractive vehicle for money laundering.", "Law enforcement officials, regulators, and courts have accordingly grappled with how virtual currencies fit into a federal anti-money laundering (AML) regime designed principally for traditional financial institutions.", "Over the past decade, federal prosecutors and regulators have pursued a number of cases involving the application of these laws to virtual currencies. Specifically, federal prosecutors have brought money laundering charges against the creators of online marketplaces that allowed their users to exchange virtual currency for illicit goods and services. In one of these prosecutions, a federal district court held that transactions involving Bitcoin can serve as the predicate for money laundering charges.", "Federal prosecutors have also pursued charges against the developers of certain virtual currency payment systems allegedly designed to facilitate illicit transactions and launder the proceeds of criminal activity. Specifically, prosecutors charged these developers with conspiring to commit money laundering and operating unlicensed money transmitting businesses.", "In adjudicating the second category of charges, courts have concluded that the relevant virtual currency payment systems were \"unlicensed money transmitting businesses,\" rejecting the argument that the relevant criminal prohibition applies only to money transmitters that facilitate cash transactions.", "Finally, the Financial Crimes Enforcement Network (FinCEN)—the bureau within the Treasury Department responsible for administering the principal federal AML statute—has pursued a number of administrative enforcement actions against virtual currency exchangers, assessing civil penalties for failure to implement sufficient AML programs and report suspicious transactions.", "As these prosecutions and enforcement actions demonstrate, virtual currencies have a number of features that make them attractive to criminals. Specifically, commentators have noted that money launderers are attracted to the anonymity, ease of cross-border transfer, lack of clear regulations, and settlement finality that accompanies virtual currency transactions.", "Several bills introduced in the 116th Congress are aimed at addressing these challenges. These bills would, among other things, commission agency analyses of the use of virtual currencies for illicit activities and clarify FinCEN's statutory powers and duties.", "Commentators have also identified legal uncertainty as an additional challenge facing prosecutors, regulators, and participants in virtual currency transactions. Moreover, a number of observers have argued that existing AML regulations are likely to stifle innovation by virtual currency developers.", "In response to these concerns about legal clarity and burdensome regulation, at least one legislative proposal contemplates exempting certain blockchain developers from various AML requirements." ], "parent_pair_index": [ -1, 0, 1, 1, 1, -1, 0, 1, -1, -1, 0, 0, 2 ], "summary_paragraph_index": [ 0, 0, 0, 0, 0, 2, 2, 2, 2, 3, 3, 3, 3 ] }

{ "title": [ "", "Legislative Developments in the 110th Congress", "Fundamental Tax Reform and Legislative Developments in the 109th Congress", "An Overview of the Deduction for Mortgage Interest", "History of the Deduction", "Economic Analysis of the Deduction", "Efficiency: Treatment of Mortgage Interest Under an Ideal Income Tax", "Imputed Rental Income for Homeowners", "Investment Assets", "Debt and Equity Finance Neutrality", "Empirical Estimates of Efficiency Loss Compared to an Ideal Tax System", "Efficiency: Externalities Associated With Homeownership", "Positive Externalities", "Negative Externalities", "Efficiency: Empirical Estimates of the Deduction's Effect on Home Ownership", "Empirical Study", "Low Rate of Return", "Home Equity Indebtedness", "Equity", "Itemizers vs. Non-Itemizers", "Data on Deductions Claimed", "Simplicity", "Federal Tax Policy", "Possible Policy Changes", "Elimination of the Mortgage Interest Deduction", "Elimination as a Result of Tax Reform", "Flat Tax", "National Retail Sales Tax", "Elimination Not as a Result of Tax Reform", "Effects Outside the Housing Market", "Elimination by Phasing out the Provision", "Modification of the Mortgage Interest Deduction", "Reduce the Amount of Allowable Indebtedness", "Disallow Home Equity Indebtedness", "Allow the Deduction for Principal Residences Only", "Other Options", "Impose an Income Eligibility", "Above-the-Line Deduction", "Tax Credit", "Conclusion" ], "paragraphs": [ "In the 109 th Congress, tax reform was a major legislative issue. In January 2005, President Bush appointed a nine-member bipartisan panel to study the federal tax code and to propose options to reform the code. Proposals for fundamental tax reform would have changed the tax base from income to consumption or changed the way income is taxed. In a pure consumption tax system, income tax credits and deductions, like the mortgage interest deduction, would be eliminated. Other proposals for tax reform could have simplified the existing income tax system. In these cases, modifications to the mortgage interest deduction could have simplified the tax code.\nIt was unclear whether changes to the mortgage interest deduction would occur given the strength of support that exists for the provision. In 2005, President Bush indicated that homeownership tax incentives are important and should be preserved as tax reform is being considered. Specifically, in the executive order that established the President's Advisory Panel on Federal Tax Reform, one of the very few restrictions was a request that the panel \"recognize the importance of homeownership and charity in American society.\" Some analysts concluded that the Administration's statement indicated its support for preserving the mortgage interest deduction along with all of the other homeownership tax incentives. In one tax journal it was written \"in plain English, the mother of all tax subsidies, the mortgage interest deduction, shall remain untouched.\"\nThere are three principal tax provisions for owner-occupied housing and one implicit tax benefit. The deduction for mortgage interest is the most costly provision, with an estimate of $73.7 billion in revenue loss for FY2007. The exclusion of capital gains on the sales of homes is the second largest tax provision for homeowners, with an estimate of $28.5 billion in tax revenue loss for FY2007. The deduction of state and local real estate taxes is the third provision, with an estimate of $16.8 billion in tax revenue loss for FY2007. The exclusion of net imputed rental income from taxation, which is not a provision in the tax code but exists implicitly, is estimated to cost $33.2 billion in uncollected tax revenue for FY2007. This would bring the total projected revenue cost for owner-occupied housing in FY2007 to $152 billion.\nThe amount of revenue foregone by the federal government to promote homeownership greatly exceeds government spending on housing. Appropriations made in the Department of Housing and Urban Development (HUD) budget totaled $31.5 billion in FY2005. Most of the appropriations for HUD address rental housing problems, most of which are faced by households with very low incomes or other special housing needs.", "Although fundamental tax reform has not been on the legislative agenda in the 110 th Congress, changes to the mortgage interest deduction have been enacted. The Tax Relief and Health Care Act of 2006 ( P.L. 109-432 ) temporarily allowed, for tax year 2007, mortgage insurance premiums paid for a personal residence to be tax deductible as mortgage interest. The Mortgage Forgiveness Debt Relief Act of 2007 ( H.R. 3648 ; P.L. 110-142 ) extended that temporary provision through the end of 2010.\nMortgage insurance, which guarantees loan repayment in case of death or disability of the borrower, is often required by lenders for individuals who do not have sufficient funds for a full down payment on a residence. Premiums paid or accrued for qualified insurance on mortgage loans can be treated as qualified residence interest and deducted from income tax. \"Qualified mortgage insurance\" is mortgage insurance provided by the Veterans Administration (VA), the Federal Housing Administration (FHA), the Rural Housing Administration (RHA), and private mortgage insurers as defined under Section 2 of the Homeowners Protection Act of 1998 (12 U.S.C. Sec. 4901).\nThe deduction of qualified mortgage insurance premiums generally applies to amounts paid or accrued only during tax years 2007 through 2010, with respect to contracts issued during those years; the provision terminates for premiums paid or accrued after December 31, 2010. This deduction is also subject to a phaseout. For every $1,000, or fraction thereof, by which the taxpayer's adjusted gross income exceeds $100,000, the amount of deductible mortgage insurance premiums is reduced (but not below zero) by 10%. In the case of a married taxpayer filing separately, the amounts are lowered to $500 and $50,000. The purpose of this phaseout is to prevent taxpayers with adjusted gross incomes greater than $109,000 ($54,500 for a married taxpayer filing separately) from claiming this tax benefit.\nPrepaid mortgage insurance amounts that are allocable to periods beyond the year in which they are paid are attributed to a capital account and treated as paid in the allocable year (contracts issued by the VA or RHA are excluded from this provision). If the mortgage is paid off before the end of its term, a deduction is not allowed for the unamortized balance of the capital account.", "Several tax reform proposals were introduced, most of which proposed to enact fundamental tax reform by changing the tax base from income to consumption. H.R. 25 , the Fair Tax Act of 2005, and its companion bill, S. 25 , proposed a national sales tax that would have eliminated the current federal income tax system including the mortgage interest deduction. S. 812 , the Flat Tax Act of 2005, proposed to replace the current federal income tax system with a flat rate consumption tax (also known as a modified value-added tax). The flat tax rate would have been 20% of taxable earned income. The bill defined taxable earned income as the excess of earned income (wages, salaries, professional fees) over a standard deduction, a deduction for cash charitable contributions, and a deduction for home mortgage interest. The deductions the bill proposed to allow were consistent with the previously mentioned mandate given by President Bush to the tax reform panel. H.R. 1040 , the Freedom Flat Tax Act, proposed to allow taxpayers to choose an election to be subject to a flat tax, in lieu of the existing income tax. The rate would have been 19% of wages for the first two years after an election was made, and 17% thereafter. The bill proposed to allow a basic standard deduction and an additional standard deduction for each dependent in the household but made no mention of allowing the mortgage interest deduction. S. 1099 , the Tax Simplification Act of 2005, proposed a similar flat tax structure, with a 19% tax rate on wages for the first two years that would then have been reduced to 17% thereafter.\nThe nine-member panel appointed by President Bush produced a report in the fall of 2005 that included a proposal to change the mortgage interest deduction. Specifically, the panel recommended converting the deduction to a tax credit equal to 15% of interest paid on mortgages. The principal amount of debt associated with the interest that could be claimed would have been limited to regional house prices in the range of $227,000 to $412,000. This range would have been based on the house price ceilings that the Federal Housing Administration (FHA) sets for the amount of a home mortgage loan that it will insure. These amounts vary by county across the country. Thus, if the principal amount of a mortgage loan was $500,000, interest on the first $412,00 of loan principal would have qualified, depending on where the house was located.\nThe remainder of this report describes the deduction for home mortgage interest and explores rationales for subsidizing homeowners. The report then provides an economic analysis of the value and performance of the deduction and concludes with a discussion and analysis of the possible changes to the mortgage interest deduction that could occur under different tax reform scenarios.", "Taxpayers may claim an itemized deduction for payments of \"qualified\" interest related to a primary or secondary residence. The payments of interest that qualify include home mortgage interest, which is the interest paid on any loans secured by either the taxpayer's main home or a second home. The loans may be a mortgage (first or second), a line of credit, or a home equity product. Qualified residences can include cooperative apartments, condominiums, and mobile homes. Mortgage interest associated with recreational vehicles and boats can be included in the deduction as long as the vehicles have sleeping, cooking, and toilet amenities. The debt must also be collateralized by the vehicles to be eligible for the mortgage interest deduction.\nTwo types of indebtedness are associated with the interest that can be deducted: acquisition and home equity. Acquisition indebtedness is debt incurred in acquiring, constructing, or substantially improving a qualified residence and secured by such residence. Home equity indebtedness is all non-acquisition debt that is secured by a qualified residence. The interest on such debt can be deducted even if the proceeds are used for personal expenditures unrelated to the home. The underlying mortgage loans can represent acquisition indebtedness of up to $1 million, plus home equity indebtedness of up to $100,000.\nAny secured debt used to refinance home acquisition debt is treated as home acquisition debt, up to a certain point. The new debt qualifies as home acquisition debt only up to the amount of the balance of the old mortgage principal just before the refinancing. Any additional debt is not home acquisition debt, but may qualify as home equity debt. Thus, when refinancing, acquisition debt may not rise and home equity loans may not exceed $100,000. For example, if a homeowner with a $150,000 mortgage refinances the debt for $300,000, the original $150,000 would be considered as acquisition debt, an additional $100,000 would be considered as home equity debt, and the interest on these amounts would be deductible. The interest on the remaining $50,000 of debt would not be deductible.", "The mortgage interest deduction was not introduced as a provision to subsidize homeownership. It evolved over time as a result of the tax treatment of interest. Initially, the federal income tax, instituted in 1913, contained a deduction for all interest paid with no distinction between interest payments made for business, personal, living, or family expenses. At that time, most interest payments represented business expenses. For example, farmers borrowed money to buy land that would be used for both their residence and their business. Mortgages and other consumer borrowing were much less prevalent than in later years. Over time, and with the increasing sophistication of lending markets, mortgage interest became distinguishable from other kinds of interest.\nFor several decades, up until the Tax Reform Act of 1986 (TRA; P.L. 99-514 ), there were no restrictions on either the dollar amount of residence interest that could be deducted or the number of homes for which the interest deduction could be claimed. As part of an effort to limit deductions for personal interest, the TRA imposed limits on the amount of underlying mortgage loans for which interest could be deducted. These limits restricted loan amounts up to the purchase price of the home, plus any improvements, and debt secured by the home but used for qualified medical and educational expense. The interest deduction was also restricted to mortgage debt on a first and/or second home.\nIn addition to changes to the deduction of mortgage interest, the Tax Reform Act also eliminated the deduction of personal interest, creating tax treatment distortions between homeowners and renters. Homeowners with sufficient equity and credit worthiness could use home equity loans to replace personal credit card debt, thus preserving the income tax deduction for interest on their debt. Renters and homeowners without sufficient home equity or credit worthiness became unable to transfer personal debt in order to continue the tax savings, and thus were made worse off relative to some homeowners by the 1986 tax law.\nAs part of a group of revenue raising provisions, the deduction of home mortgage interest was further restricted by the Omnibus Budget Reconciliation Act of 1987 ( P.L. 100-203 ). That act created an upper limit of $1 million ($500,000 for married filing separately) on the combined acquisition indebtedness for a principal and second residence. Acquisition indebtedness included any debt incurred to buy, build, or substantially improve the residence(s). Additionally, the exception for qualified medical and educational expenses was eliminated and an explicit provision for home equity indebtedness was enacted. In addition to interest on acquisition indebtedness, interest can be deducted on loan amounts up to $100,000 ($50,000 for married filing separately) for other debt secured by a principal or second residence, such as a home equity loan, line of credit, or second mortgage.\nThe Omnibus Budget Reconciliation Act of 1990 ( P.L. 101-508 ) enacted another group of revenue raising provisions that further influenced the mortgage interest deduction. That act limited the amount of itemized deductions that upper-income households could claim. Some high-income taxpayers face reduced marginal benefits from the deduction of mortgage interest due to the limitation on itemized deductions. In particular, taxpayers with income above the threshold amount of $145,950 for 2005 are required to reduce the amount of itemized deductions, including the mortgage interest deduction, by 3% of the excess of their income above the threshold amount.", "The mortgage interest deduction is a federal subsidy that treats homeownership favorably compared to other economic activity. The major justification for the deduction for mortgage interest is that it encourages homeownership, which proponents deem desirable. Homeownership is believed to promote continued growth and stability of neighborhoods and communities. This effect results, in part, because homeowners are more likely to participate in community and political activities, to promote neighborhood cohesion, and to be more socially stable and less mobile.\nLike all tax benefits, economic theory suggests the deduction can be evaluated by applying the criteria of economic efficiency, equity, and simplicity. These criteria are discussed in the next sections.", "The tax treatment of owner-occupied housing is complex. In a pure income tax system, the income from financial assets is taxed and the expenses associated with financial assets are deducted from taxable income. While this tax treatment applies to financial assets and commercial real estate, it does not apply to owner-occupied housing, which, from an economic perspective, causes distortions among investment assets.", "It is important to understand why tax analysts believe that the mortgage interest deduction creates a subsidy for housing. The underlying issue regarding the taxation of owner-occupied housing is the exclusion of imputed rent. Net imputed rental income is the difference between the income homeowners could receive from renting their homes and the associated cost of the home, which includes mortgage interest, taxes, insurance, maintenance, and depreciation. This net imputed rental income is not taxed, unlike the rental housing market where owners of rental property receive income from their tenants and are taxed on that income, net of the same expenses as homeowners. Economists contend that if net imputed rental income were taxed similarly to income from rental housing, then the deduction of mortgage interest, real estate taxes, maintenance and depreciation costs, and other expenses would be considered appropriate for homeowners.\nCongress considered the taxation of net imputed rental income for homeowners during tax reform efforts in 1986. Congress believed that it would not be advisable to tax imputed net rental income, though it continued to allow the deduction of mortgage interest. According to the congressional Joint Committee on Taxation (JCT):\nWhile Congress recognized that the imputed rental value of owner-occupied housing may be a significant source of untaxed income, the Congress nevertheless determined that encouraging home ownership is an important policy goal, achieved in part by providing a deduction for residential mortgage interest.", "The non-taxation of imputed rental income contributes to asset choice distortions. Individuals who own a home have an imputed rental income from that home in much the same way as holders of financial assets receive dividends and interest from the assets they hold. Yet homeowners are not taxed on their (imputed) income stream while stockholders are taxed on their income stream. This tax treatment causes households to hold more of their assets in owner-occupied housing than they may have in the absence of the tax-preferred treatment. The deduction of mortgage interest further expands the preferential treatment of owner-occupied housing relative to other investment assets.\nHomeownership is usually an attractive investment, even before tax benefits are included. In recent years, from 1999 through 2004, real estate prices increased more than 56% as compared to the S&P 500 index that declined 6% over the same time period. When the mortgage interest deduction is combined with other housing tax provisions, like the deduction for state and local real estate taxes, the value of housing as an investment good rises even further. Some economists feel that this preferential tax treatment encourages households to overinvest in housing and less in business investments that might contribute more to increasing the nation's productivity and output.", "A justification for the deduction is that it allows neutrality with respect to debt versus equity financing. The cost of equity financing is the after-tax yield that would be earned if funds were invested elsewhere. The cost of debt financing is the after-tax debt interest rate. Because interest earned is taxable income and mortgage interest is deductible, the choice of financing the cost of buying a home is tax neutral. As an example, if a taxpayer chooses to withdraw $250,000 from an investment account to purchase a home, the cost of that equity financing option is the interest earnings forgone after taxes. Assuming an interest rate of 6% and a marginal tax rate of 28%, the annual earnings would have been $15,000 and the after-tax yield would have been $10,800. Alternatively, if the taxpayer borrows $250,000 to purchase a home, assuming the same interest rate of 6% and marginal tax rate of 28%, the after-tax cost would be $15,000 in interest paid, reduced by $4,200 in mortgage interest deducted, for a total cost of $10,800. Thus, the two financing options are neutral with respect to taxation.", "For most tax provisions, including the mortgage interest deduction, it is useful to examine efficiency loss. Efficiency loss, which is also referred to as deadweight loss, is the loss in economic welfare associated with distortions caused by taxes or tax preferences. These distortions arise when taxpayers are induced to make substitutions in response to the impacts of a tax or a tax preference. Tax preferences for housing encourage some households to substitute increased spending on housing for spending on other goods and services.\nMost estimates of inefficiency include a broad tax treatment of owner-occupied housing, incorporating the mortgage interest deduction, the deduction of real estate taxes, and the exclusion of imputed rental income. Poterba estimated that the deadweight loss for homeowners in 1990 was $53 for households with incomes of $30,000, $326 for households with incomes of $50,000, and $1,631 for households with incomes of $250,000. Deadweight loss was found to increase as the marginal income tax rate rises and the nominal interest rate declines. Poterba found that the deadweight loss resulting from housing tax preferences declined substantially between 1980 and 1990 because marginal tax rates and nominal interest rates declined.\nGravelle, in a discussion of inefficiency in the tax treatment of capital, found that while \"the estimated welfare cost of the favorable tax treatment of owner-occupied housing has varied in economic literature,\" a welfare loss of 0.1% of consumption has been associated with the favorable treatment of owner-occupied housing.", "According to economic theory, in most cases, an economy best satisfies the wants and needs of its participants if markets operate free from distortions by taxes and other factors. If there is a market failure and a subsidy remedies that failure, then there is economic justification for the subsidy based on efficiency. But if there is no market failure, a tax benefit lowers efficiency.\nMarket failures occur when a market, left on its own, fails to allocate resources efficiently. In particular, market transactions are inefficient when the marginal benefits are less than the marginal costs. Market failures may be due to a variety of factors, including the presence of externalities and common resources; public goods; imperfect competition; and/or asymmetric or incomplete information.\nThere are socially undesirable phenomena that many consider valid targets of public policy, like inequality, poverty, and inflation, but they are not problems that meet the definition of economic inefficiency. In this context, some of the issues related to homeownership, like affordable housing and low rates of homeownership among minority groups, are not considered as market failures. The deduction for mortgage interest is not economically justified on efficiency grounds in these cases.\nThe market failure often attributed to homeownership is that of positive externalities. An externality exists when the activity of an individual directly affects, positively or negatively, the welfare of another and that effect is not incorporated in market prices. Proponents claim that homeownership causes positive externalities since it generates not only private benefits for individuals but also social benefits for the public at large. The individual does not capture all of these social benefits and, thus, under invests in real estate. From this perspective, the private demand for homes is less than social demand and too little investment in homeownership occurs. Government subsidies to homeownership can stimulate private demand for real estate in order to attain more optimal levels of homeownership that achieve market equilibrium outcomes.", "The mortgage interest deduction, as a subsidy to owner-occupied housing, is often justified because it is claimed that homeownership fosters social stability, social involvement, and socially desirable behaviors among youths and adults. These social benefits from homeownership may take on the form of better citizenship, increased investment in beautifying property, and civic involvement that promotes the best interests of the homeowner and the neighborhood. There are some specific reasons cited as to why homeownership creates positive externalities. They include homeowners are civically involved because the asset value of the home is tied to the strength of the community; homeowners are less mobile, which adds stability to communities; and homeowners take better care of their homes.\nWhile subsidies for homeowners are justified by economists because of the presence of positive externalities from homeownership, there are some ambiguous aspects of these attributes of homeownership which cast doubt as to whether homeownership deserves extensive subsidies.\nA few studies have distinguished difficulties in the research on the positive externalities of homeownership. In these studies the authors have noted their inability to distinguish whether homeownership caused the desirable behaviors that led to positive externalities, or, rather, people who possessed the desirable behaviors tended to become homeowners. Thus, the individual, not homeownership, would be the source of the positive externality. For instance, Cox found that homeowners as compared to renters were more likely to be civically involved, as did Rohe and Stegman. Yet these studies showed that the type of involvement varied widely across levels of activity, and was not correlated with any of the expected homeownership and neighborhood attributes (like house price, level of crime, and voter participation). If the source of the positive externality lies with the individual and not with their ownership status, then the arguments in favor of subsidizing homeownership would be diminished.\nEven if the existence of positive externalities from homeownership goes unquestioned, the appropriate magnitude of subsidies for homeownership is difficult to quantify. As previously mentioned, the tax provisions and benefits for owner-occupied housing add up to $139 billion in tax revenue loss for FY2005. One could argue that the social benefits of homeownership may not be worth that amount of cost.", "There is a negative externality associated with homeownership: labor immobility. Homeownership, unlike renting, tends to hinder labor mobility and the ability of individuals to respond to changes in the demand for labor. Renter-occupied housing, because of its low transaction costs, is ideal for households that expect to move within a short period of time. Moving from owner-occupied housing involves higher transaction costs, such as real estate broker fees and time costs, if the household is selling the property from which it is moving.\nLabor immobility interferes with the ability of the economy to adjust to changing market conditions. This is more true during regional downturns in the economy. For example, a community experiences the loss of an industry and joblessness rises. Homeowners are reluctant to move because their house may not sell at a price that exceeds the existing mortgage debt on the house and the transaction costs of selling the home. Thus, labor becomes more immobile and the area may remain depressed longer than it might otherwise.", "All of the externalities discussed above depend on whether an individual rents or owns. The externalities do not depend on how much housing is consumed; yet the efficiency of the mortgage interest deduction depends upon how many marginal or additional households are induced to buy homes. The deduction is not considered effective if it either fails to increase home buying or subsidizes home buying that would have been undertaken in the absence of the tax incentive.\nThe presence of a subsidy for owner-occupied housing creates an increased demand for housing among renters, some of whom respond by becoming homeowners. Yet, that same subsidy also creates increased demand for housing among homeowners, some of whom consume more housing. Most notably, homeowners who increase their demand for housing increase the amount and quality of housing demanded. In this case, as the mortgage interest deduction subsidizes existing homeowners, it fails to increase homeownership rates.\nIt is, however, difficult to prove the mortgage interest deduction's efficiency, or lack thereof, because of its continued presence as a subsidy and availability to all home buyers for so many years. Some economists theorize the value of the mortgage interest deduction is capitalized into housing prices. Buyers of housing, it is thought, bid up the price of owner-occupied housing to the point where the price of owner-occupied housing, including tax benefits, is equal to the cost of renting. Thus, the subsidy is perceived to have given homeowners a capital gain in the past, but new buyers entering the market face higher prices that offset the subsidy. If the deduction is capitalized this way, it would not induce non-homeowners to become homeowners, though, a loss of the mortgage interest deduction might adversely affect housing prices.\nSome analysts have, in an effort to determine the effectiveness of the mortgage interest deduction, made comparisons to other countries. In particular, Israel and Australia have homeownership rates well above those of the United States and yet they do not allow for the deduction of mortgage interest. Canada and Japan have homeownership rates at about the same level as the United States and those countries do not allow mortgage interest deductibility. These rates suggest that homeownership may not be sensitive to the deductibility of mortgage interest. However, since none of these nations had a mortgage interest deduction and then repealed the provision, their ability to provide comparative value to the United States is limited.", "Few empirical studies have addressed this issue. One study found that the deduction for mortgage interest subsidizes housing consumption, but its impact on homeownership rates was minimal. Specifically, the authors found that there was \"essentially no relationship\" between the home mortgage interest deduction and the rate of homeownership. The authors examined more than 30 years of data on the mortgage subsidy rate, which is the marginal subsidy to mortgage interest from the deduction for the average taxpayer, and the level of homeownership and found that a 1% increase in the mortgage subsidy caused homeownership to rise by .0009%. In this context, housing consumption reflected the dollar amount spent on housing and homeownership rates reflected the number of new homeowners. The choice of homeownership, according to the authors, was influenced by variables other than the mortgage interest deduction, like house structure, house type, and family size.", "To the extent that the mortgage interest deduction promotes homeownership, it can be criticized on the grounds that the provision yields too little return relative to its cost. In other words, the amount of increase in homeownership generated by a $1 in tax revenue loss due to the mortgage interest deduction can be far outweighed by allocating that same $1 to other subsidy programs.\nResults of a recent study of mortgage rates and changes in homeownership provided evidence that direct spending programs and other policy options are more successful at increasing rates of homeownership. The study reviewed underwriting simulations and found that down payment reductions had larger effects than mortgage rate reductions on increasing rates of homeownership. In particular, a reduction in the required amount of down payment for a home from 5% to 0% of the purchase price caused an increase in the number of renters who became owners. This increase equaled a 2 to 2.5 percentage point increase, representing roughly 720,000 renters.\nA different simulation, which examined tenure choices, indicated that reducing the amount that was required for down payment on the purchase of a home increased the probability of ownership by 4.5 percentage points for all households and 5 percentage points for African-American households.\nFurther simulations reported in that study showed that cash payments starting at around $5,000 had larger effects than other policies on the ability of renters to purchase homes. A $5,000 down payment assistance grant was reported to increase the percentage of renters who could buy homes by 11 percentage points in general, and 13 percentage points for African-American households. A payment of $10,000 per household was reported to cause an effect almost twice as large.", "Home equity indebtedness supports homeownership by allowing homeowners to finance structural improvements, but home equity indebtedness is not limited to this kind of spending. For example, home equity indebtedness can be used to pay for vacations, reduce credit card debt, and other personal consumption expenses. Home equity financing used for purposes unrelated to homeownership does not serve the congressional intent of the provision to encourage homeownership.", "Tax benefits such as those available for homeowners can result in individuals with similar incomes paying different amounts of tax. In particular, homeowners and renters who are equal in all other respects, are treated differently as a result of the tax incentives for homeowners. This differential treatment is a deviation from the standard of horizontal equity, which requires that people in equal positions should be treated equally.\nAnother component of equity in taxation is vertical equity, which requires that tax burdens be distributed fairly among people with different abilities to pay. Housing tax deductions, like all deductions, benefit those who have sufficient income to owe federal taxes, and the higher the income, the greater the benefit. Those individuals without sufficient income do not have the opportunity to benefit from the provision. The disproportionate benefit to individuals with higher incomes reduces the progressivity of the tax system, which is often viewed as a reduction in equity.\nAn example of the effect an income tax deduction has on vertical equity can be seen by identifying two individual homeowners, both of whom incur $10,000 in mortgage interest. The tax benefit to the two differs if they are in different tax brackets. A homeowner with lower income, who may be in the 15% income tax bracket, receives an exclusion with a value of $1,500, while the other homeowner, with higher income in the 28% bracket, receives an exclusion worth $2,800. Thus, the higher income taxpayer, with presumably greater ability to pay taxes, receives a greater tax benefit than the lower income taxpayer.\nBesides renters, there are a few reasons why the mortgage interest deduction may not be available to certain homeowners.\nSome homeowners may not have mortgage debt on which they pay interest. According to the Census Bureau, 30% of all homeowners own their homes free and clear with no mortgage interest to deduct; in particular, seniors comprise a large portion of homeowners with no mortgage debt. Thus, these individuals do not benefit from the tax deduction for mortgage interest, though they still benefit from the non-taxation of imputed rental income. In the case of homeowners without mortgage debt, their net imputed rental income is relatively higher than those with mortgage debt. So as mortgage debt falls, along with mortgage deduction claims, the value of the exclusion of net imputed rental income rises.\nOther homeowners may not claim the mortgage interest deduction because claiming the standard deduction is more advantageous.", "The mortgage interest deduction can be claimed only by those taxpayers who itemize. Itemizers tend to be primarily middle-and upper-income households. Nationally, the percentage of taxpayers who itemized was 34% in 2003, 35% in 2002, 34% in 2001, and 33% in 2000. Lower income taxpayers generally do not itemize and claim the standard deduction amount instead. In 2005, the standard deduction amounts are $10,000 for a married couple filing jointly, $7,300 for heads of household, and $5,000 for single individuals. When the value of the standard deduction is increased, the difference between it and the value of the mortgage deduction diminishes for lower income households. This effect reduces the incentive to purchase owner-occupied housing, but does not make the taxpayer worse off.\nFor those households on the homeownership margin, the tax incentive's influence on their decision to own as opposed to rent depends on the amount by which the household's total itemized deductions exceeds the standard deduction. Taxpayers would need to have itemized deductions, including deductible taxes such as real estate taxes, state and local income or sales taxes, or other deductions, that exceed the standard deduction amount to make itemizing worthwhile.", "Income tax and tax expenditure data indicate that high income households claim the majority of the deductions for mortgage interest and receive the majority of tax savings from claiming those deductions. The most recent tax year data available from the Internal Revenue Service, 2001, shown in Table 1 , indicated that nearly 67% of taxpayers claiming a deduction for mortgage interest had incomes of $50,000 or more. These households represented only 29% of the total number of taxpayers filing returns. Additionally, households with income of $50,000 or more claimed a majority (76%) of the value of the deduction.\nWhile the IRS lists the amount of deductions claimed by households, the amount of tax savings received by households, or alternatively, the amount of federal tax revenue loss is calculated by the congressional Joint Committee on Taxation (JCT). The actual cost of the mortgage interest deduction is determined by the amount of federal tax revenue loss that results from taxpayers claiming the deduction. Tax revenue loss depends on many factors, which include the composition of the household (i.e., number of adults and dependents), the household's marginal income tax rate, and the household's income. As an example, two households could both claim $20,000 in mortgage interest deduction that results in different tax revenue loss. If one household is in the 33% income tax bracket, they would reduce their taxable income by $6,600. If the other household is in the 25% bracket, their taxable income is reduced by $5,000. The tax revenue savings to individuals, thus tax revenue loss to the government, differs across households.\nAs shown below in Table 2 , the JCT estimated that 94.2% of the 2001 tax savings associated with the mortgage deduction were from households with adjusted gross income of $50,000 or higher.", "The deduction of mortgage interest for homeowners contributes to the complexity of the tax code and raises the cost of administering the tax system. Those costs, which can be difficult to isolate and measure, are often excluded in the cost-benefit analysis of the provision. The complexity of the tax code adds to the time cost of taxpayers in either learning how to claim various incentives and doing so, or an increased direct cost of paying tax professionals to perform the service for the taxpayer. Also, the more complex the tax code is, the more opportunity for tax evasion and avoidance exists.", "Federal tax policy changes cause unintended consequences for housing subsidies enacted through the tax code. Several significant tax cuts have been enacted recently, all of which have affected the pool of potential beneficiaries of housing tax policy. Most notably, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA, P.L. 107-16 ) increased the value of standard deductions and reduced marginal income tax rates for individuals, causing lower tax burdens. In providing tax relief that was designed to stimulate the economy, a likely unintended consequence was to reduce the number of taxpayers claiming the housing tax deduction. As an example, the standard deduction for married taxpayers filing jointly rose from $7,600 in 2001 to $9,700 in 2004, an increase of 27.6%. For most households residing in the same home during that time period, mortgage interest was likely to be lower such that some households who may have been itemizing on their tax returns began to claim the standard deduction.\nAdditionally, the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA; P.L. 108-27 ), which was passed in May 2003, accelerated many of the tax provisions of EGTRRA, thus further expanding unintended consequences of reducing the number of taxpayers benefitting from the mortgage interest deduction.", "Tax reform in the 109 th Congress may have caused moderate or fundamental changes in the federal tax system. These changes could have been as far reaching as eliminating the current income tax system and replacing it with an alternative tax system, like a national sales tax. This change could have eliminated deductions and credits, including the mortgage interest deduction. Alternatively, Congress could have chosen to simplify the existing tax code by modifying or eliminating provisions, like the mortgage interest deduction. Finally, tax reform could have occurred and the mortgage interest deduction could have been unchanged.\nIn the absence of tax reform, Congress may or may not make changes to the mortgage interest deduction. Congress may choose to modify or eliminate the deduction for homeowners for a variety of reasons, including revenue raising strategies to reduce the deficit or addressing the equity issues surrounding the provision. Alternatively, Congress may choose not to alter the mortgage interest deduction.", "Two possibilities can be examined in analyzing the elimination of the mortgage interest deduction. The first case is that the provision is eliminated. The second case, which may be more likely to occur than the first case, is in the event of tax reform that fundamentally changes the federal tax system and eliminates the mortgage interest deduction.", "As mentioned previously, several tax reform proposals, if enacted, would have eliminated the mortgage interest deduction. There were, however, differences among proposals concerning the elimination of the mortgage interest deduction.", "In the 109 th Congress, several bills were proposed to enact a flat tax. A flat tax is levied on wages and earnings, but is not an income tax. The flat tax is considered a consumption tax because it does not tax savings and investment. The difference between a flat tax and a sales tax, both of which are types of consumption taxes, is where the tax is collected. The flat tax is levied on income as it is earned and the sales tax is levied on income as it is spent.\nTwo of the proposed flat tax bills ( H.R. 1040 and S. 1099 ) would have eliminated the mortgage interest deduction. S. 812 proposed to preserve the mortgage interest deduction. H.R. 1040 and S. 1099 would have defined taxable income for individual taxpayers as the total of wages, retirement distributions, and unemployment compensation after subtracting a basic standard deduction and an additional standard deduction for each dependent. S. 812 proposed a similar definition of taxable income but would also allow deductions for cash charitable contributions and home mortgage interest.\nIn general, flat taxes would eliminate the three primary tax provisions for owner-occupied housing: the mortgage interest deduction, the deduction of state and local property taxes, and the exclusion of capital gains on sales of primary residences. As mentioned previously, the cost of these tax provisions combined with the exclusion of net imputed rental income is estimated to be $139 billion in tax revenue loss for FY2005. While that amount is sizeable, it is unclear as to what the net change in federal revenue may be as a result of moving to a flat tax. It is notable that the fundamental tax advantage of owner-occupied housing, the non-taxation of imputed rental income, would remain unless specifically addressed by legislation. However, the flat tax would eliminate the favorable treatment of owner-occupied housing relative to other assets because the returns to all new investment would be untaxed, not just the returns to homeownership.\nEstimates of the effect of the eliminations of these tax provisions were made in the mid-to late 1990s, when fundamental tax reform was last being considered. A 1996 report estimated that the elimination of both the mortgage interest and property tax deductions would reduce house prices by an average of 17% but could range from as low as 11% to as high as 34% depending on the region of the country.\nIn 1996 CRS examined the effect of a flat tax on housing. The principal finding was that if a flat tax were instituted, eliminating the mortgage interest deduction, demand for owner-occupied housing and homeownership would likely contract. CRS found that the overall price of housing could fall by 22%, but that only one-third of that amount of price decline would be due to the loss of housing tax deductions. The remaining portion of the price contraction would occur as a result of other factors, one of which would be the elimination of the preferential tax treatment of housing relative to other investment assets. Assets would shift from housing to business investment, which would improve economic efficiency. The report stated,\nEconomists would typically view this shift as a benefit of tax reform, because the current tax system encourages an inefficient overinvestment of funds in housing and consequent underinvestment in business assets.\nCRS found much smaller effects than private sector reporting, which had suggested that the elimination of the mortgage interest deduction would cause larger, more adverse effects on housing prices and on the economy. For example, a private sector report concluded that enacting a flat-rate income tax would cause home prices to fall by 15% specifically because of the elimination of the deduction for mortgage interest. The price decline would in turn eliminate $1.7 trillion of homeowners' equity.\nCapozza, Green, and Hendershott examined the effects of a flat tax on housing and found house price declines ranging from 10 to 30%. The authors noted that house price changes that could occur under a flat tax would vary based on what changes occurred with interest rates and with property taxes. The higher these two variables were found to be, the greater the percentage decline in house prices. After performing regional analysis, the authors further concluded that the degree of house price decline would vary by region and would be dependent on the rate of property taxation and the existing price level of houses in the region. High-priced metropolitan areas in California, as an example, would be hardest hit, while low-priced metropolitan areas in the south would experience the smallest degree of house price decline.\nThe issue of fundamental tax reform and housing was further examined in a working paper from the National Bureau of Economic Research (NBER). The authors simulated tests of housing market response to fundamental tax reform and found that tax reform proposals would cause contraction in the quantity of housing stock, though the degree of contraction varied depending on the type of tax reform. The authors reported that the removal of the deductions for mortgage interest and property taxes would cause a 1.9% decline in the housing stock, while a flat tax enactment would cause an 8% decline. The authors note that their results are constructed under a partial equilibrium assumption that the long-run supply of housing is perfectly elastic and that if housing demand were to grow more elastic, the impact of eliminating tax benefits for owner-occupied housing causes a greater decline in the stock of housing.", "Movement to a sales tax system from the current income tax system would eliminate existing tax subsidies to owner-occupied housing, including the mortgage interest deduction and would also eliminate the significance of the net exclusion of imputed rental income. A national retail sales tax would repeal the personal and corporate income tax code and replace it with a tax on all final sales of goods and services to consumers.\nA national retail sales tax would impose a tax on newly built homes, which would cause existing homes to enjoy a tax advantage. Under most concepts of a national retail sales tax, the sale of an existing home would be categorized as the sale of used property and would not be taxed. In this context, the value of existing homes, relative to newly built homes, would rise. If rental payments for housing were taxed, owners of existing homes would also enjoy a tax advantage over renters.", "Generally, eliminating the mortgage interest deduction separate from tax reform would harm itemizing homeowners with the highest amounts of mortgage debt and, in particular, those homeowners who could not easily replace that debt with equity. Homeowners with mortgages would be expected to reduce their debt and new homebuyers would incur less debt than they would have previously. For some, homeownership would no longer be an optimal choice. If this were the case, a reduction in the demand for homes would occur and housing prices would decline, at least in the short run, and lead to a decrease in the quantity of owner-occupied housing in the long run.\nA 1996 study examined the possibility of eliminating the mortgage interest deduction, noting that the benefits of the mortgage interest deduction accrued overwhelmingly to young households and to high income households. The authors found that the younger households had limited wealth and were forced to borrow to finance homeownership, while higher income households' participation with the mortgage interest deduction was to engage in tax arbitrage. For the higher income households, the loss of the deduction would lead these households to use financial assets to reduce or eliminate their mortgage debt. This alternative, however, is not available to households without financial assets.\nSome economists theorize that the loss of the mortgage interest deduction separate from tax reform would adversely affect housing prices because the value of the subsidy is capitalized into housing prices. Buyers of housing, it is thought, bid up the price of owner-occupied housing to the point where the price of owner-occupied housing, including tax benefits, is equal to the cost of renting. Thus, the subsidy is perceived to have given homeowners a capital gain in the past, the loss of which could be factored in to housing prices.\nThe full economic implications of eliminating the mortgage interest deduction depend upon whether or not the subsidy is capitalized into real estate prices. If it is fully capitalized eliminating the subsidy would not affect the cost of owning but many owners would experience significant changes in wealth. Gyourko and Sinai found that in 2003, the value of the subsidy amounted to about a fifth of property value, on average, in the United States. In particular, they found there were more than 40 metropolitan areas, including many densely populated ones in and around Boston, New York City, Washington, D.C., Los Angeles, and San Francisco for which the present value of the subsidy flow is greater than 25% of house values. The increased revenue associated with eliminating the subsidy could be redistributed back to taxpayers in the form of lower taxes. According to the authors, the net wealth effect of lower taxes would likely be significant enough to offset, at least in part, the loss of the mortgage interest deduction. The report did not address how these decreased property values would effect state and local government revenue.\nIf the tax subsidy is not capitalized into real estate prices, the cost of ownership rises when the deduction is eliminated. In 2003, Gyourko and Sinai determined that the rise in cost of ownership could equal between 4% and 6% of annual household income in over half of the nation's metropolitan areas. However, in 20 metropolitan areas, including many in California, Hawaii, and Massachusetts, costs of homeownership amounted to 10% of income or more. Their analysis indicated that if the tax savings from eliminating the subsidy were rebated through the implementation of a tax credit, this rebate would more than offset the increase in the cost of ownership in most areas. However, the authors noted that returning the tax savings through the existing tax system would not provide a similar offset.", "Repealing the mortgage interest deduction would cause responses outside the housing market. Demand for mortgage debt financing would decline causing mortgage lending to decline. Capozza, Green, and Hendershott estimated that loan-to-value ratios, the amount of debt relative to equity value in the home, would fall by more than 30% and that house price declines of 10% could accompany mortgage lending declines of about 40%. Mortgage interest rates could fall in response to lower demand for mortgage debt. Lower mortgage rates could attract new homebuyers which could increase demand for homes and cause house price increases, thereby reversing declines in mortgage lending and house prices. The net results, however, would likely yield lower house prices, lower before-tax mortgage rates, higher after-tax mortgage rates, and lower mortgage lending.", "Bourassa and Grigsby examined the possibility of the elimination of the mortgage interest deduction and offered a plan for phasing out the provision that would minimally affect housing demand. Citing that proposals to limit the mortgage deduction are opposed on the \"grounds that existing homeowners would suffer huge capital losses,\" the authors proposed a 15-to 20-year period of phasing in the elimination of the tax provision. This type of elimination, the authors argued, would not adversely affect demand for housing or the capital values of the existing stock.\nFinally, the repeal of the deduction could be justified as a second-best policy to address the absence of taxation on net imputed rental income. Net imputed rental income from homeownership has never been included as taxable income in the federal income tax. This is due in part to limited acceptance by non-economists of the idea that owning a home (or other consumer durables) provides owners with implicit income that should be taxed, and in part because of the administrative difficulty of taxing such income. Further, many economists doubt that imputed rent could be accurately taxed in the United States as a practical matter. Little is known, for example, about the probable rental value of owner-occupied homes; only rough estimates could be made from available data on assessed house values. Available data on rental rates is not useful because of the differences in size and quality of rental units as compared to owner-occupied properties.", "Congress could choose to modify the provision to either simplify the tax code, increase tax revenue, or both. In the event of tax reform, these modifications could be considered and included in various reform proposals. For instance, Congress could choose to implement a flat tax and allow some modified version of the mortgage interest deduction. The possibilities in this regard could be endless. Thus, the modifications listed below describe possible policy options that could be taken without regard to a particular form of systematic tax change.", "One possible way of modifying the mortgage interest deduction would be to reduce the maximum allowable mortgage debt limit from $1 million to a lesser amount. This choice would reduce the tax benefit for those homeowners with debt in excess of the allowable amount, presumably high income households with very large houses. The reduction in tax savings could cause the prices of homes worth more than the allowable debt amount to decline, which would reduce demand for those homes.\nThere are a few possible consequences of reducing the debt limit. Some homeowners would use equity to pay down some or all of their mortgage debt. Other households may reduce their level of housing consumption by moving to less expensive homes. Marginal homeowners, who are typically not high income households or purchasers of expensive homes, are unlikely to be affected by a reduction in allowable debt.\nIn February 2005, the Congressional Budget Office (CBO) examined this policy option. It estimated that reducing the amount of mortgage principal that could be allowed from $1 million to $500,000 would affect 700,000 taxpayers with large mortgages and raise $2.7 billion in FY2006. The number of taxpayers affected by the year 2010 would rise to 1.3 million with an increase in revenue of $4.3 billion that year. Over the period of 2006 through 2010, the total revenue increase from limiting the principal debt that could be claimed for the mortgage interest deduction would be $47.9 billion. CBO estimated that less than 1% of all homeowners and about 3% of new homebuyers would be affected by the limit.\nThis policy option would not be any more complex than the existing tax code, though there would be increased administrative costs associated with the change. There would be increased costs to make taxpayers aware of the change and also increased costs to change tax forms. If the reduction in allowable mortgage debt caused increases in attempts to avoid or evade taxation, IRS costs could rise.", "Disallowing home equity indebtedness is another possible modification to the mortgage interest deduction.\nAs mentioned previously, home equity debt often finances personal consumption rather than financing homeownership, which causes disparate treatment among similarly situated taxpayers. As an example, two taxpayers can incur $20,000 in consumption debt. The taxpayer who finances this debt with a credit card, as opposed to a home equity loan, is unable to receive a tax benefit by deducting the interest charges. The taxpayer who uses a home equity loan to pay off the credit card debt can deduct the interest and thus is favorably treated by the tax code.\nThe interest deduction's disparate treatment of homeowners also reflects differences in housing appreciation and values. Homeowners with housing price appreciation can take advantage of home equity debt while other homeowners, with flat or declining home values, may not be able to benefit from home equity debt. Allowing home equity indebtedness deductibility also favors those homeowners who have sufficient credit worthiness to incur home equity debt. This effect further contributes to disparate treatment of taxpayers to the extent that some homeowners are unable to obtain home equity loans. On the other hand, eliminating home equity deductibility negatively affects households who have no significant pool of funds from which to finance needed repairs or improvements. These households, who are more likely to be lower-income and/or elderly households, would lose the benefit of the tax savings if home equity indebtedness were disallowed. Yet this loss only applies to those households who were benefitting from the tax savings, which may have been a small portion of the affected population.\nThis policy choice has been presented as an option to improve tax compliance and reform tax expenditures by the Joint Committee on Taxation (JCT). The option was estimated to raise $0.3 billion in tax revenue for FY2006 and $22.6 billion in tax revenue over the 10-year period beginning in FY2006.", "The mortgage interest deduction could be limited to acquisition indebtedness associated with principal residences only. Presumably it is higher income households that are able to afford more than one residence, so disallowing the mortgage interest from debt on a second residence (or mobile home, yacht, or other qualifying property) would contribute to making the provision more equitable by reducing the amount of benefit that higher income households can receive.\nThis modification may contribute to a decrease in demand for housing, vacation homes in particular, which could lead to a short-term decrease in the price of vacation homes. The supply response to that decrease in demand may cause a reduction in the quantity of vacation homes which would result in higher prices and a lower quantity of vacation homes.\nThis change would increase tax revenue by reducing the amount of mortgage interest taxpayers deduct and could be simpler to administer. It is, however, possible that this change could increase attempts at tax avoidance or evasion if individuals attempted to claim residences that are not their principal residence. In this case, IRS administration costs would rise.", "There are many possibilities that Congress could choose to modify the mortgage interest deduction. Some policy options would not necessarily simplify the tax code or increase tax revenue but might, instead, improve the equity of the provision. This section discusses those possibilities.", "The deduction as it currently exists does not limit participation by taxpayers to households with particular income levels. The imposition of an income threshold, as in the case of certain other tax provisions, would increase tax revenue by reducing the number of taxpayers eligible to claim the deduction. As an example, the tax credit for new homebuyers in Washington, D.C., is a nonrefundable credit against federal taxes of up to $5,000 for the first-time purchase of a principal residence in the District of Columbia. The credit is phased out for individuals with adjusted gross income (AGI) of $70,000 to $90,000 and for joint filers with AGI of $110,000 to $130,000. In particular, for every $1,000 of AGI above $110,000 for joint tax filers, the credit is reduced by $250. Once AGI exceeds $130,000, no credit may be taken.\nImposing an income cap could increase equity because the cap would disallow high-income households from claiming the deduction. In doing so, the provision would subsidize homeownership for households with less income which may add progressivity to the tax code. It would still be the case that low-income households with no tax liability, or those who claim the standard deduction, would not benefit from the provision.\nThis policy choice would add complexity to the tax code by further complicating the tax provision. This option would require taxpayers to do more work in determining their eligibility for the provision. The Internal Revenue Service would also have increased administrative effort to enforce income restrictions for those claiming the provision.", "An above-the-line deduction, which would be available to taxpayers regardless of whether they claim the standard deduction or itemize deductions, could increase equity. This possibility would allow the deduction of mortgage interest to be available to more modest income taxpayers than is currently allowed by tax law. This change would contribute to progressivity in the tax code, but would also increase tax revenue loss by allowing more individuals to claim the deduction.\nAt its initial introduction, an above-the-line deduction would add complexity to the tax code and tax filing forms. Because of its newness, the provision would increase the administrative work taxpayers experience in filing their income tax returns and the work the IRS performs in processing those returns. Yet, over time, an above-the-line provision would not be any more complex than the existing deduction. The enactment of an above-the-line deduction could, however, be perceived as undermining the concept of the standard deduction, which exists in part to simplify the tax code.", "Another possible change that would increase the equity of the deduction would be to transform the mortgage interest deduction into a partial tax credit. This change would benefit lower income individuals by allowing them to benefit from claiming mortgage interest. Those taxpayers who claim the standard deduction could also claim a tax credit for mortgage interest.\nThis policy option would provide taxpayers at different income levels with the same rate of subsidy for mortgage interest payments, unlike the current deduction which varies with the marginal tax rate. The tax credit would also allow lower income households that currently do not claim mortgage interest, perhaps because the interest they pay is less than the value of the standard deduction, to benefit by claiming a tax credit for mortgage interest.\nThis option could either increase or decrease federal revenues, depending on the amount of credit chosen. Estimates for this policy option were made by the Congressional Budget Office (CBO) 25 years ago. At that time, CBO determined that moving to a 25% tax credit would increase revenues by about $2.4 billion in the year the study was conducted, and by $4.3 billion in the next year. At that rate of 25%, only a small group of wealthy taxpayers would be worse off. A credit of 30% or more would have decreased revenues. CBO also found that a tax credit of this amount would raise house prices for less expensive homes and lower them for higher-priced units. This effect could lead to some upper-income homeowners experiencing a decrease in the value of their homes as well as an increase in their tax payments. Allowing current owners the choice of a deduction or credit could have limited those capital losses, but the revenue tax revenue losses from doing so would have been substantial.\nHigher income taxpayers may be less well off by the transformation of the current mortgage interest deduction to a tax credit if the tax credit were only a partial credit. For higher income taxpayers, the value of the current mortgage interest deduction is likely to be greater than the value of a proposed tax credit which could cause an after-tax reduction in price for high income households. Yet, higher income households are less sensitive than lower income households to changes in price, so the loss in value of the mortgage interest deduction if it were to become a tax credit may not be significant enough to cause high income households to abandon homeownership. If high income households responded at all, they may reduce their housing consumption, perhaps by purchasing less expensive housing.\nAs a result, this proposal could increase homeownership because it is most likely to alter decisions about homeownership at the margin. More families in the lower-and middle-income groups may choose to own, rather than rent. Others in those same groups may choose to buy more housing than they currently own.\nIt is notable, however, that in terms of the measurement of income for taxation purposes, tax analysts believe a tax credit is not appropriate under a pure income tax system. Tax credits are dollar-for-dollar reductions in a taxpayer's federal and/or state income tax liability, while tax deductions are offsets to a taxpayer's pretax income. Since income taxes are meant to raise revenue from taxpayers' according to their ability to pay, tax deductions alter income to best reflect taxpayers ability to pay. Deductions, unlike credits, reduce the base amount of income to be taxed and in doing so, affect the variable benefits correlated to a taxpayer's particular income tax rate or bracket.", "Tax reform proposals made in the 109 th Congress promoted consumption-based tax systems, most of which would have eliminated the mortgage interest deduction. In the case of either a flat tax or a sales tax, all credits and deductions as they exist in the current income tax system would have been eliminated. The deduction of mortgage interest would no longer be allowed, unless specifically addressed by legislation. As an example, S. 812 proposed a flat tax that included the preservation of the mortgage interest deduction along with the charitable contributions deduction.\nAlthough the mortgage interest deduction is generally defended on the basis of supporting access to homeownership, most studies conclude that its primary effect is on housing consumption, not homeownership. Most of the benefits of the deduction accrue to households with well-above-average incomes, while households on the cusp of homeownership tend to have lower income. Depending on how they are structured, most studies suggest that lower income households would be aided more by down-payment assistance than by the deduction for mortgage interest.\nEliminating the mortgage interest deduction separate from tax reform would have several effects. It would tend to reduce debt relative to equity by ending the neutrality between equity-and debt-financing. It would lead some households who may have been considering homeownership to choose to continue to rent. Some owner-households may choose to consume less housing, either by choosing smaller homes or fewer amenities. The elimination could lower home prices relative to rents in the market and could cause households to convert housing assets to business investment.\nIf the deduction were eliminated as a result of fundamental tax reform, the resulting effects would depend on a variety of variables. These variables include the nature of tax reform, the resulting changes in the tax base and tax rates, changes in interest rates, and other economic variables. If the deduction were eliminated without other tax policy changes, federal income tax revenues could increase, the tax base could be broadened, and the federal budget deficit could be reduced. This elimination could lead to greater economic efficiency, increased equity, and simplification of the current income tax system.\nModifications to the mortgage interest deduction could also have several effects. Congress could choose to allow the deduction for only one residence, rather than two, or reduce the allowable principal debt from $1 million to some lower amount, perhaps $500,000. These changes would reduce the amount of tax revenue loss associated with the provision without adding complexity to the tax code. Congress could also choose to improve the equitable nature of the provision by allowing more low income households to claim mortgage interest, either as an above-the-line deduction or as a tax credit.\nFinally, the mortgage interest deduction could remain unaltered. It would continue to be a benefit to more than 37 million taxpayers and provide more than $70 billion in annual tax savings to homeowners." ], "depth": [ 0, 1, 1, 1, 2, 1, 2, 3, 3, 3, 3, 2, 3, 3, 2, 3, 3, 4, 2, 3, 3, 2, 3, 1, 2, 3, 4, 4, 3, 4, 4, 2, 3, 3, 3, 3, 4, 4, 4, 1 ], "alignment": [ "h0_title h2_title h1_title", "", "h1_full", "", "", "h0_title", "", "", "", "", "", "", "", "", "h0_title", "h0_full", "h0_full", "", "", "", "", "", "", "h1_full", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "h0_full h2_full h1_full" ] }

{ "question": [ "What is the goal of the mortgage interest deduction?", "What have studies shown about the efficacy of this incentive?", "How do mortgage interest deductions compare to alternative homeownership subsidies?", "How important was tax reform in the 109th Congress?", "How did President Bush take action regarding tax reform?", "What did the panel conclude?", "What legislation emerged as a result of the panel's findings?", "How could Congress modify the mortgage interest deduction?", "How could Congress limit the deduction?", "How could this change affect tax revenue?", "How could Congress improve equity?", "What other approaches could Congress take?" ], "summary": [ "The mortgage interest deduction, which is one of the largest sources of federal tax revenue loss with an estimated annual cost of $72 billion, is intended to encourage homeownership.", "Empirical studies suggest that the mortgage interest deduction subsidizes mortgage lending, which has more impact on housing consumption than homeownership rates.", "Other homeownership subsidies, like down-payment assistance programs, are proven to be more effective at increasing homeownership among lower-income families and are less expensive than the mortgage interest deduction.", "Early in the 109th Congress, tax reform was a major legislative issue.", "President Bush appointed a bipartisan panel to study the federal tax code and to propose options to reform the code.", "The panel produced a report in the fall of 2005 that included a proposal to change the mortgage interest deduction.", "Legislation for fundamental tax reform was introduced, and some bills proposed to change the tax base such that income tax credits and deductions, like the mortgage interest deduction, would have been eliminated. Late in the first session of the 110th Congress, House Ways and Means Committee Chairman Rangel indicated that fundamental tax reform might still be considered in the 110th Congress.", "Modifications to the mortgage interest deduction could take any one of several approaches.", "Congress could choose to allow the deduction for only one residence and/or to reduce the allowable principal debt, which is currently $1 million.", "These changes would reduce the amount of tax revenue loss associated with the provision.", "Congress could choose to improve equity by allowing more low-income households to claim mortgage interest, either as an above-the-line deduction or as a tax credit.", "Finally, the mortgage interest deduction could remain unaltered." ], "parent_pair_index": [ -1, 0, 0, -1, 0, 1, 1, -1, 0, 1, 0, 0 ], "summary_paragraph_index": [ 0, 0, 0, 2, 2, 2, 2, 4, 4, 4, 4, 4 ] }

{ "title": [ "", "Introduction", "History", "Designation and Control of SAAs", "Coordination and Cooperation between the VA and SAAs", "Initial Approval of Programs of Education", "Programs Deemed Approved with Abbreviated SAA Approval", "Intensive SAA Approval", "Programs Approved by the VA", "Approval Updates and Revisions", "Supervisory Visits", "Compliance Surveys", "Inspection Visits and Other Visits", "Program Suspension and Disapproval", "Principles of Excellence", "Professional Development of SAA Employees", "School Certifying Officials' (SCOs') Training", "Outreach", "SAA Accountability to the VA", "Reimbursement of SAA Expenses", "Appendix. Program of Education Approval and Compliance Standards" ], "paragraphs": [ "", "The Department of Veterans' Affairs (VA), previously named the Veterans Administration, has been providing veterans' educational assistance (GI Bill®) benefits since 1944. In general, the benefits provide payments to eligible veterans and servicemembers and their families enrolled in approved programs of education to help them afford postsecondary education. In FY2017, the VA is estimated to distribute over $14 billion in GI Bill benefits to over 1 million eligible participants.\nSince 1947, State Approving Agencies (SAAs) have been an important component in the administration of GI Bill benefits, along with the VA, educational institutions, and training establishments. SAAs are responsible for approving programs of education, conducting VA-assigned compliance visits, providing technical assistance, providing liaison assistance with related organizations and stakeholders and conducting outreach. The SAA role was originally intended to ascertain the quality of on-the-job training establishments and has now expanded to ensuring that veterans and other GI Bill participants have access to a range of high-quality education and training programs at which to use their GI Bill benefits.\nThis report provides an overview of state approving agencies (SAAs). It highlights their roles and responsibilities in the administration of GI Bill benefits and the processes through which they fulfill those roles. Because work processes and responsibilities are variable and subject to regular adjustment, the descriptions herein are accurate as of the date of publication. Additionally, in a limited number of instances the report identifies some divergent depictions of work processes from difference sources, but it does not attempt to evaluate or reconcile differences in the accounts.", "The original GI Bill, as enacted in 1944, relied on state agencies to establish standards for and to approve programs of education at which eligible individuals could use GI Bill benefits. The Department of Veterans' Affairs (VA) had authority to approve programs that were outside the scope of state agency approval. In part, as a consequence of the large numbers of veterans using the GI Bill, newly created educational institutions, and possible abuses among on-the-job training providers, the state agencies were unable to establish adequate standards for the approval of programs of education. In addition, because the state agencies were unable to provide the resources necessary for approval and oversight activities, several well-publicized abuses occurred. Additionally, there was considerable variation in standards between states. As such, the state approving agencies (SAAs), as currently structured, were authorized as a means to provide consistency, guidance, and financial resources in the approval process from the federal government.\nMore recently, in response to publicized abuses of established educational institutions, the VA and Congress sought ways to improve the oversight of programs of education previously approved for GI Bill purposes. In addition, a 2007 report by the Government Accountability Office (GAO) recommended that the VA coordinate with the Departments of Education and Labor to reduce duplicative approval activities and measure the spending, effectiveness, and performance of SAAs. Congress enacted the Post-9/11 Veterans Educational Assistance Improvements Act of 2010 ( P.L. 111-377 ) to, among other purposes, modify specific SAA responsibilities related to approval and oversight. Specifically, P.L. 111-377 was intended to provide additional resources and focus on program oversight (compliance surveys) in order to reduce \"the possible misuse of benefits and instances of fraud, misrepresentation, and abuse.\" The bill expected to accomplish this by reducing SAA approval activities (i.e., deeming some programs approved) and utilizing SAAs for program oversight.", "Statutory provisions \"request\" that each state create or designate a state department or agency as its SAA. The VA contracts (or enters into agreement) with each SAA annually to provide approval, oversight, training, and outreach activities by qualified personnel as specified in the contract to ensure the quality of programs of education and proper administration of GI Bill benefits. In exchange, the VA pays the reasonable and necessary expenses of salary and travel incurred by SAA employees and an allowance for administrative expenses. In the event that a state fails to create or designate an SAA or fails to enter into a contract/agreement with the VA, the VA fulfills the duties that would have been the responsibility of the SAA in that state.\nForty-eight states and Puerto Rico have SAAs; while Alaska, Washington D.C., Hawaii, and the U.S. Virgin Islands do not have SAAs. At least five of the states with SAAs have two SAAs—each specializing in different types of education. Almost half of SAAs are organized within the state department of veterans' affairs. The other SAAs are within one of the state's higher education authorities, the state department of labor or workforce development, or the state elementary and secondary education authority.\nA VA Education Liaison Representative (ELR) is the VA regional office representative responsible for education liaison, education program approval functions, and informing educational institutions, training establishments, and testing organizations (hereafter, collectively referred to as facilities) of pertinent VA policies and procedures. ELRs work directly with the facilities and SAAs in their region. In addition to these responsibilities, an ELR acts as the SAA for Alaska, Washington D.C., Hawaii, and the U.S. Virgin Islands.\nStatutory provisions prevent the VA and any other federal entity or individual from exercising any supervision or control over SAAs except in specified incidences. The VA provides direction to each SAA through the contract.\nThe Secretary of Veterans' Affairs (the Secretary) is authorized to enter into contracts or agreements with SAAs to approve programs of education, supervise such programs of education, and furnish related services as requested by the Secretary in exchange for the payment of expenses and travel. Each such contract or agreement must be conditioned upon compliance with the standards and provisions of the GI Bill statutes. The relevant statutes establish the approval and compliance standards for programs of education (see Appendix ), SAA personnel standards, SAA evaluation standards (see subsequent section entitled SAA Accountability to the VA ), SAA reimbursement amounts (see subsequent section entitled Reimbursement of SAA Expenses ), and other administrative requirements. The VA primarily establishes the terms of the contracts.\nStatutory provisions require that prototype SAA personnel qualifications and performance standards be developed by the VA, in conjunction with the SAAs. The SAA may, with VA assistance if requested, develop and apply the personnel qualifications and performance standards in consideration of the state's merit system requirements and other state and local requirements and conditions.", "Although statutory provisions make the VA accountable for the overall administration of GI Bill benefits, statutory provisions also, in some instances, differentiate the responsibilities between the VA and SAAs, while simultaneously requiring coordination and cooperation between the entities. Statutory language also includes provisions that make the distinctions in responsibilities between SAAs and the VA less clear.\nThe VA oversees the processes for approving and reviewing approved programs of education, educating the entities and individuals involved in GI Bill claims processing, and increasing awareness among potential GI Bill participants. The VA is responsible for coordinating approval activities to avoid duplicative efforts by the VA, SAAs, Department of Labor (DOL), Department of Education (ED), and other entities. The VA may request that an SAA provide services to aid the VA in its approval of programs of education and to aid the VA in administering GI Bill benefits. The VA is required to provide SAAs with informational and instructional materials to aid them in carrying out their duties.\nIn practice, while the VA provides the federal structure and interprets federal statutory provisions, the SAAs apply and interpret the standards and processes at the local level. The VA, through the ELR, provides regulations, policy advisories, and other information to help clarify the standards, processes, and activities. The SAAs communicate with their ELR in a close working relationship to interpret the federal and state requirements and apply them to actual practice. The SAA brings knowledge of the state and local environment and needs of the state. For example, reviewing programs of education that are not easily categorized within the current structure and typography requires considerable communication between the SAA and ELR.", "For eligible individuals to receive GI Bill benefits, they must be enrolled in approved programs of education. Approval is intended to ensure that each program can meet the needs of GI Bill participants pursuing the program, including by being a quality program, and properly administer GI Bill benefits. Educational institutions (including locations of educational institutions with separate administrative capability, e.g., applicable branch campuses), training establishments (e.g., an entity providing on-the-job training such as a police department), and testing organizations (e.g., an entity offering an approved test such as a state bar organization) must submit a state application to their SAA to have new programs of education approved for GI Bill purposes. The application contents differ depending on the type of program of education (e.g., licensing test, on-the-job training (OJT), etc.) (see Appendix for required content).\nThere are a few practices that may direct a new program toward the initial approval process. First, a facility, such as one with approved programs of education, may initiate the approval process on its own by contacting its SAA. Alternatively, an individual who wants to use GI Bill benefits for a program of education offered by a facility that has never had a GI Bill approved program of education may alert the facility to the existence of GI Bill benefits so that the facility can contact its SAA and submit an application to have the program of education approved. If an individual applies to use GI Bill benefits for an unapproved program, the VA would send a \"Denial of Benefits\" letter, and the SAA would contact the facility in an attempt to encourage the submission of an application for approval, if appropriate. SAAs may receive new program applications daily.\nOnce the SAA or the VA completes the initial approval review in accordance with the program of education approval standards (see Appendix ), the SAA or VA issues an approval or disapproval letter to the facility naming the approved or disapproved programs of education and any specific requirements or limitations. Finally, the SAA sends a copy of the approval or disapproval letter and substantiating documents (approval package) to the ELR for review and approval for GI Bill funding, if appropriate. If the ELR determines that more information or review is required before accepting the approval or disapproval or disagrees with the SAA's determination, the ELR and SAA will resolve the differences. The VA maintains the compiled list of approved programs of education. Once the program is on the VA list of approved programs for GI Bill purposes, individuals may begin receiving GI Bill benefits while pursuing the program.\nThere are three main processes used for initially approving programs of education for GI Bill purposes. One is for programs \"deemed approved,\" usually applicable to certain education and training programs already approved for participation in other government programs. The others are more comprehensive SAA and VA approval processes. The following sections describe the responsibility and general procedures for the three processes. More specific approval requirements for each type of program of education are outlined in the Appendix .", "Prior to 2011, SAAs and the VA conducted the initial approval of programs of education through in-depth reviews. P.L. 111-377 established \"deemed approved\" programs that do not require an in-depth review because another agency with an established process and related mission has approved them. The following programs are deemed approved:\nCollege degree programs offered directly by a public or private nonprofit educational institution that is accredited by an agency recognized by the U.S. Department of Education (ED); Flight training courses approved by the Federal Aviation Administration (FAA) and offered by a certified pilot school that possesses a valid FAA pilot school certificate; Department of Labor (DOL) Registered Apprenticeship programs; Apprenticeship programs approved by a state apprenticeship agency recognized by the DOL Office of Apprenticeship; Programs leading to a secondary school diploma offered by a secondary school approved by the state in which it is operating; and Licensure or certification tests offered by a federal, state, or local government.\nFollowing enactment of P.L. 111-377 , the VA reinterpreted which programs are deemed approved and the process for their approval. In 2015, the VA required that deemed approved programs undergo an abbreviated approval process. Such deemed approved programs undergo an abbreviated approval process that reduces duplicative approval efforts by multiple federal agencies. The abbreviated approval process requires the SAA to determine that the program meets criteria concerning the program objectives, mode of delivery, the 85-15 rule, and contractual arrangements, and that the institutions/establishments offering the program meet criteria concerning adequate and appropriate recordkeeping; enrollment reporting; duration of operation; and advertising, sales, and enrollment practices (see Appendix for more information). The Jeff Miller and Richard Blumenthal Veterans Health Care and Benefits Improvement Act of 2016 ( P.L. 114-315 ) codifies the VA process by requiring that SAAs, or the VA when acting as an SAA, determine which programs meet the statutory definition of deemed approved and approve them.", "SAAs are responsible for conducting a full approval process on most programs of education that are not deemed approved and that are located in their respective state. These include but are not limited to non-college degree (NCD) programs; programs at private, for-profit educational institutions; programs at educational institutions that are not accredited by an agency recognized by ED; and on-the-job training programs. NCD programs are programs of education that do not lead to a degree and are not on-the-job training, apprenticeship, correspondence, or vocational flight programs. The VA may also request that SAAs approve licensing and certification tests (e.g., the Professional Paralegal exam provided by the NALS-The Association for Legal Professionals in Oklahoma) that are not deemed approved.\nAs part of the application review, SAAs coordinate and share information related to the applicant and its programs of education with several state partners and relevant accrediting agencies, as appropriate. The partners may include, as appropriate, state departments of labor or workforce development, licensing boards, vocational rehabilitation offices, departments of higher education, and departments of economic development. The information may alert the SAA, state partner, and accrediting agency to potential issues. It also helps the SAA avoid duplicative efforts. SAA personnel may use professional judgement and the expertise of state partners to guide their review of new programs beyond what is established in law and regulations.\nThe application review is generally completed within 30 days but may require as long as 90 days, depending on the thoroughness and level of detail in the application; the level of cooperation, expertise, and resources of the applying facility, and the nature of the program of education. New programs of education at established and well-resourced educational institutions with several approved programs of education often require the least effort. Programs of education that use innovative mediums of delivery or are offered by facilities that do not have approved programs of education often require more time, research, interpretation, coordination, and review. The SAA will often conduct a site visit to verify the application and that the approval requirements may be met. The SAA works with the facility to complete the application review with sufficient evidence proving that the facility and program meet the approval requirements (see Appendix ).", "The VA approves programs of education that are outside the purview of SAAs. For example, the VA approves programs offered in foreign countries, by the federal government, and in states that do not have an SAA, and approves programs that help dependents participating in the Survivor's and Dependent's Educational Assistance program (38 U.S.C., Chapter 35; DEA) overcome a physical or mental disability. The VA also approves apprenticeship programs operated by interstate training establishments that are not registered with DOL.", "Following initial approval, specific changes to the program of education or facility require review and approval. The facility may contact the SAA in anticipation of a change in order to avoid a potential approval issue after the change. A revision to the initial approval is required when\nthe facility revises its catalogs, handbooks, schedules, or policies; the name, curriculum, or delivery of a program of education changes; the tuition and fee charges change; a new school certifying official (SCO) is named; the location of the program of education changes; the facility changes ownership; or the facility or program of education changes accreditation or state licensure status.\nThe level of review is in proportion to the change and may require a site visit. Failure to obtain approval in a timely manner may result in suspension or disapproval of a program of education. Following an approval review, the SAA reports the review and notifies the VA of any change to the approval and the reasons.", "Supervisory visits allow the SAA to ensure facilities and their programs of education are in compliance with law, regulations, guidance, and policy advisories through a review of the approval requirements and student records. The visits may include interviews with faculty and students; a review of GI Bill participant files for attendance, transfer credit, student transcripts, and enrollment status; a review of correspondence with the VA and SAA to ensure currency; a review of state licensure or accreditation for currency; a review of advertising materials; a review of distance learning policies and programs; a review of instructor qualifications and evaluations; and a review of the adequacy of facility resources. These visits allow SAAs to uncover issues, including overpayments, and provide additional training to the facility and SCOs, as necessary.\nPrior to October 1, 2011, SAAs were contractually required to conduct annual supervisory visits, examining at least 80% of active facilities (facilities with GI Bill participants) and their programs of education. They are no longer required to conduct annual supervisory visits; however, some SAAs continue to conduct supervisory visits. Some SAAs have indicated that supervisory visits serve the valuable purpose of \"fulfill[ing] the SAA's historic role of providing training and supervision to facilities on broader education issues.\" According to testimony by the Student Veterans of America and SAA interviews, the professional qualifications, traditional training, and local focus of SAAs are well suited to the expectations of supervisory visits. In addition, supervisory visits can be conducted annually to ensure all facilities are reviewed often and regularly.", "Compliance surveys are designed to ensure that each facility and its approved programs are in compliance with all applicable statutory, regulatory, and policy provisions and that the facility understands the provisions. In practice, these reviews focus on reviewing student records to ensure proper payments through a financial accountability perspective.\nPrior to 2011 and enactment of P.L. 111-377 , in accordance with statute, compliance surveys were conducted by VA Education Compliance Survey Specialists. P.L. 111-377 granted the VA authority to utilize SAAs for compliance surveys and other oversight activities. SAAs assumed responsibility for VA-assigned compliance surveys in FY2012. The number of projected compliance surveys is established in each annual contract. To support the new responsibility, the VA and National Association of State Approving Agencies (NASAA) formed a joint Compliance Survey Redesign Work Group to improve the compliance survey process. NASAA is the voluntary organization of SAAs founded to coordinate their efforts.\nStatutory provisions establish the nature and targeting of compliance surveys. Prior to passage of the Jeff Miller and Richard Blumenthal Veterans Health Care and Benefits Improvement Act of 2016 ( P.L. 114-315 ), the VA, with the assistance of SAAs as appropriate, was required to conduct annual compliance surveys of educational institutions enrolling at least 300 GI Bill or Vocational Rehabilitation & Employment program (VR&E) participants and institutions offering NCDs. The requirement was not contingent on whether programs of education are deemed approved or are approved by an SAA or the VA. The Secretary may waive the requirement based on an institution's demonstrated record of compliance. Statutory provisions also require one SAA or VA employee for each 40 compliance surveys. Some evidence suggests that the VA, with the assistance of SAAs, has insufficient resources to complete the requisite surveys. P.L. 114-315 changed the criteria for determining at which institutions to conduct annual compliance surveys and modified the nature of the survey. P.L. 114-315 requires annual compliance surveys at educational institutions and training establishments enrolling at least 20 GI Bill or VR&E participants. P.L. 114-315 further authorizes the Secretary, in consultation with SAAs, to revise the compliance survey parameters annually.\nThe VA determines the list of facilities to be reviewed for the year and assigns the reviews to either the VA or appropriate SAAs. On-site compliance surveys are preferable; however, some may be conducted remotely. Per statute, the compliance survey is intended to assure that each facility and each program of education meets all statutory requirements. VA policy indicates that the two primary purposes of compliance survey visits are\nto assist school or training establishment officials and veterans or potential GI Bill recipients in understanding the provisions and requirements of the law; and to verify and assure the propriety of VA educational benefit payments to veterans and other eligible persons.\nThe policy of the VA is to establish annual priorities in order to conduct compliance surveys of higher risk programs, institutions, and establishments. For example, the FY2017 strategy will ensure compliance surveys of all IHLs with flight programs, and further prioritize private for-profit and nonaccredited institutions and federal on-the-job and federal non-registered apprenticeship establishments. The compliance survey follows procedures prescribed by the VA. The aspects reviewed and required standards are the same regardless of whether the program was deemed approved or approved by the VA or an SAA and regardless of whether the VA or SAA conducts the survey.\nBesides selecting the facilities, the VA also determines the number of student files that will be reviewed at each facility during the compliance survey based on the GI Bill participant population. The scope of the review of student files and the number of files reviewed are the major differences between supervisory visits and compliance surveys. The SAAs review the VA database to select the requisite number of students and may select a representative sample that is not duplicative of prior year surveys. The recent certification history of each selected student's enrollment, entrance, reentrance, change in hours of credit or attendance, pursuit, and interruption and termination of attendance as recorded in the database are noted. The selected student names are provided to the facility's SCO when the compliance survey visit is scheduled by the VA or SAA and SCO. During the on-site visit, the SAA will compare the facility's student files to the students' VA enrollment and certification history to verify that GI Bill payments have been made properly and that the institution is following the approval standards and published policies. The facility's student files include, as appropriate, transcripts, prior credit evaluations, financial accounts of charges and refunds, courses taken, attendance records, circumstances for withdrawal, relevant VA forms, student aid received, academic progress, and other pertinent records.\nIn addition to reviewing student records, compliance surveys also include student interviews (as applicable), various verifications, and a review of additional documents and areas outlined on the compliance survey checklist. The review may also include a classroom visit, if appropriate. As of FY2015, SAAs must also assess the number of complaints in the VA GI Bill Feedback System. The compliance survey will verify the SCO as named to the VA, the SCO's understanding of the job requirements, fund transfers, the school catalog, tuition and fees charges, relevant school policies, procedures for ensuring timely and accurate certifications, and other administrative actions. The areas of review on the checklist include, but are not limited to, establishing compliance with the 85-15 rule, independent study requirements, private pilot's license requirements, and nonaccredited school enrollment limitations. Some statutory standards such as those related to curriculum quality and faculty qualifications are not reflected on the compliance checklist.\nFinally, SCOs are given an opportunity to ask questions and address their problems/issues, and the SAA has the opportunity to provide training and technical assistance. Initial survey results, including discrepancies, are shared with the facility prior to the end of the visit, and any discrepancies that may be addressed easily are resolved immediately.\nFollowing the compliance survey, the compliance survey report and any referrals are shared with the facility, SAA, and ELR. Referrals are discrepancies discovered during the review of student files that may create a student or school GI Bill debt or payment. Follow-up and corrective action will be initiated by the SAA if required.\nAlthough compliance surveys are more focused on proper administration and controls of federal funds than supervisory visits, there are concerns with their implementation. One concern suggested by the VA is that its capabilities in uncovering educational and financial noncompliance may not be strong. Another concern raised by the National Association of Veterans' Program Administrators (NAVPA), a professional organization of SCOs and their facilities, is that \"diverting [SAA] resources to [compliance surveys] has proven problematic, however, and leaves no one to fulfill the SAA's historic role of providing training and supervision to facilities on broader education issues.\" Compliance surveys have different foci compared to training and supervisory visits, but each serves an important purpose. The two approaches may also require different skill sets and training that are not currently optimized. In addition, NASAA has expressed concerns that many facilities are not reviewed regularly as it estimates that as of 2016 SAAs conduct compliance visits of approximately 15% of active institutions/establishments annually. In 2016, the VA reported that the VA and SAAs complete approximately 5,000 compliance surveys annually.", "In addition to visits to complete compliance surveys, the SAA may conduct\ntechnical assistance visits to provide information on the facility's responsibilities, help the facility provide services to veterans and GI Bill participants, and provide information on non-GI Bill veterans' benefits; inspection visits within approximately 30 days of the initial approval of a program at a new facility to train the SCO and ensure the facility and program may remain approved; visits, at the request of the VA, to investigate third party information (e.g, media, GI Bill participant complaint, ED, or other state agency) that suggests noncompliance with the approval standards; and visits motivated by SAA professional judgment.\nFor example as of December 30, 2015, seventy-nine risk-based program reviews had been conducted based on complaints submitted through its GI Bill Feedback System. Also for example, after Corinthian Colleges, Inc. (CCI) filed with the U.S. Securities and Exchange Commission (SEC) indicating fiscal instability and an intention to sell or close some of its institutions and to \"teach out\" students currently enrolled in their programs, the VA requested that all SAAs review CCI facilities in their state. At the conclusion of a visit, the SAA submits a visit report and any referrals to the VA.", "Statutory provisions authorize the VA or SAAs to immediately disapprove any program of education that does not meet the approval criteria. Statutory provisions also provide specific circumstances in which the VA may suspend GI Bill payments to those enrolled or pursuing an approved program of education, disapprove new enrollments in a program of education, or disapprove one or more programs of education:\nThe VA may disapprove new GI Bill enrollments at a facility if the facility charges a GI Bill participant more than another similarly circumstanced individual. The VA may discontinue GI Bill benefits to an individual who receives benefits for which the individual is not eligible when the program of education or providing facility fails to meet any statutory requirements. The VA may suspend GI Bill benefits to individuals and disapprove new enrollments using GI Bill benefits in a program of education that demonstrates a substantial pattern of individuals receiving GI Bill benefits for which they are not eligible because the program does not meet the statutory approval requirements or the facility is not fulfilling its recordkeeping and reporting requirements. Prior to suspension, the VA must notify the facility and SAA, the facility must fail to take corrective action within 60 days, and the VA must notify the GI Bill participants 30 days prior to the suspension. The VA must disapprove a program of education and discontinue any Post-9/11 GI Bill or Montgomery GI Bill-Active Duty (38 U.S.C., Chapter 30; MGIB-AD) payments thereafter in the event that a public institution of higher learning (IHL) charges tuition and fees above the in-state rate for that course to a qualified Post-9/11 GI Bill or MGIB-AD participant who is living in the state in which the IHL is located. The VA or SAA must disapprove an unaccredited course designed to lead to state licensure or certification or to prepare an individual for an occupation that requires such approval or licensure if the educational institution does not publicly disclose any additional conditions required to obtain licensure, certification, or approval.\nIn practice, the SAAs fulfill the initial responsibility of suspending or disapproving a program of education. SAAs, or the VA acting in capacity of an SAA, may determine that the facility or program is not in compliance with the law or regulations during a compliance survey, supervisory visit, or other interaction. SAAs indicate that interactions other than compliance surveys are more likely to uncover compliance issues. The SAA may provide training and technical assistance to resolve the issue and then follow up to ensure compliance. Additionally, the SAA may suspend a program of education from new enrollments of GI Bill recipients for up to 60 days if it fails to meet any of the approval requirements. During the up to 60-day period, the SAA will provide assistance to help the facility resolve the issue and may provide outreach and technical assistance to GI Bill participants to mitigate any potential educational disruptions. If the institution/establishment fails to resolve the issue during the suspension, the SAA will disapprove the program(s) of education. Program disapproval affects GI Bill participants currently pursuing the program as well as prospective participants. Any suspension or disapproval by the SAA will be communicated through a registered or certified letter with return receipt to the facility and through written notice to the ELR. The ELR will review the action and supporting documentation to ensure the action is in accordance with statutory provisions. The VA has indicated, however, that it does not have the legal authority to override an SAA decision on approval, suspension, or withdrawal.\nFacilities that disagree with an SAA suspension or disapproval decision have some recourse. Although statutory provisions do not require that the SAA permit an appeal, some SAAs allow facilities to appeal to their parent agency (e.g., a state department of education). Otherwise, the institution/establishment may write an informal letter to the SAA or its parent agency if it disagrees with the actions being taken by the SAA, and the SAA or parent agency may consider the letter. A testing organization may appeal a decision to the VA Education Service Director (or the VA Under Secretary of Benefits, if the VA disapproved the test). On occasion, the VA may reverse the SAA decision based on additional information. In addition, the facility may litigate against the SAA. For example, the California SAA was forced by court order to reverse its suspension of courses at ITT Educational Services, Inc. (ITT) in 2015. Also for example in 2015, ECPI University's Medical Careers Institute (MCI) filed a lawsuit against the Virginia SAA following the disapproval of all programs at one of its campuses and the suspension of all programs at three campuses.\nAfter disapproval, the facility may apply for initial program approval after a reasonable time period.\nIf the VA finds that a facility has willfully submitted a false or misleading claim, or that an individual, with the complicity of a facility, has submitted such a claim, the Secretary shall notify the appropriate SAA and, as appropriate, the Attorney General of the United States. The SAA would then conduct an investigative visit and determine the next steps accordingly.", "Executive Order 13607, Establishing Principles of Excellence for Educational Institutions Serving Service Members, Veterans, Spouses, and Other Family Members, signed April 27, 2012, was intended to help veterans and servicemembers and their families pursue a high-quality education and make more informed decisions about their VA and Department of Defense (DOD) educational assistance benefits. The Executive Order provides a designation for educational institutions to distinguish themselves as an informative, supportive, and protective environment for veterans and servicemembers and their families and requires the VA to strengthen enforcement and compliance. The Executive Order also describes roles for the SAAs. These roles are described below.\nThe Executive Order encourages educational institutions receiving veterans and military educational benefits, to the extent permitted by law, to abide by the Principles of Excellence. Schools that agree to abide by the principles may be perceived by veterans and servicemembers and their families as providing a more supportive environment compared to other institutions and thus may experience higher enrollments. The principles encourage educational institutions to\n\"provide meaningful information to service members, veterans, spouses, and other family members about [the institution's] financial cost and quality\"; end fraudulent, abusive, deceptive, and aggressive recruiting practices of potential GI Bill participants and DOD Tuition Assistance recipients; gain accreditation for new programs of education before enrolling students; provide high-quality academic and student support services to veterans and servicemembers and their families; readmit and accommodate servicemembers forced to suspend their studies or be absent while fulfilling service obligations; establish an institutional refund policy for course withdrawals aligned with that required for Department of Education student financial aid programs; provide a timeline and education plan for graduation; and designate a point-of-contact for academic and financial advising and career services.\nAs of FY2015 for those institutions that voluntarily agree to abide by the principles, the SAA will review their voluntary compliance during any initial approval, compliance visit, or other visit. If the institution is not in compliance, the SAA will notify the VA to remove the institution from the list of schools adhering to the Principles of Excellence. The VA also reviews institutions' voluntary compliance during compliance surveys that it conducts and takes action, as required.\nAmong the efforts to strengthen compliance mechanisms, the Executive Order required the VA to use the SAAs to improve information sharing among educational stakeholders that oversee institutional and program quality. Specifically the VA was required to institute uniform procedures for receiving and processing complaints across SAAs; provide a coordinated mechanism across SAAs to alert the VA to any complaints that have been registered at the state level; and create procedures for sharing information about complaints with the appropriate state officials, accrediting agency representatives, and the Secretary of Education. The VA was also tasked with establishing procedures for targeted risk-based program reviews of institutions to ensure compliance with the Principles.", "SAA personnel must meet the qualification standards established in the contract with the VA. As an example, the standard language in the FY2016 contracts describes the minimum qualification standards for personnel approving and supervising courses offered by job training establishments as a bachelor's degree with two years of related experience (or the equivalent) in education and/or related work experience totaling six years. However, there are several opportunities for new and continuing SAA employees to receive training on their responsibilities. The SAAs indicate that new employees benefit from mentoring and job shadowing. Contractually, the only training required of SAA employees is the annual privacy and information security awareness training required of federal employees.\nThe VA, in coordination with the SAAs, develops a training curriculum to train new and continuing SAA employees on the performance of their functions. In accordance with the VA's responsibility to ensure SAAs have the informational materials necessary to fulfill their obligations, the VA makes available to SAAs a variety of other professional development materials. VA employees attend and provide training at National Association of State Approving Agencies (NASAA) conferences.\nNASAA conducts the national training institute (NTI), which offers several opportunities for SAA training, and provides a manual, the National Training Curriculum (NTC). The NTI provides an overview of SAA responsibilities and activities. The October 2015 three-day NTI agenda included information on public laws, accreditation, GI Bill approval criteria, satisfactory academic progress, inspection visits, technical assistance, outreach, compliance surveys, self-evaluation, and key partners such as the ELR. Most new SAA employees attend the NTI within the first year of employment. The NTC is provided to all SAA employees.\nThe VA also makes its Education Compliance Survey Specialist (ECSS)/ELR training module available to train new SAA employees in performance of their compliance survey work. The course requires approximately 64 hours to complete.\nOngoing professional development is offered to SAA employees through several options. Refresher training and timely topics are incorporated into NASAA mid-winter and summer conferences and VA and National Association of Veterans' Program Administrators (NAVPA) conferences. In FY2014, VA in conjunction with the SAAs, developed an SAA Training Performance Support System module that updated and encompassed the information from the NTC. In 2014, the VA and NASAA held a joint training conference focused on critical issues related to program approvals, compliance surveys, VA training and liaison activities with SCOs and ELRs, and the achievement of contractual requirements. The VA also holds regional conferences throughout the year. Finally in September 2014, the VA and NASAA formed a Joint Advisory Committee to resolve issues in VA/SAA responsibilities.", "In order to ensure proper administration of GI Bill benefits, SAA employees provide training to SCOs on their responsibilities. The VA, SAAs, NASAA, National Association of Veterans' Program Administrators (NAVPA), and other organizations offer various formal and informal training opportunities. SAAs offer formal training programs, on-site training, and as-needed technical assistance to SCOs. The SAA training may be offered jointly with the ELR, or the ELR may be asked to participate and present. SAAs make an effort to provide formal training opportunities to new institutions/establishments. They provide refresher and update training to experienced and new SCOs.\nSCOs at smaller schools and schools with few GI Bill participants are less likely to attend formal training and thus often require additional in-person training. In addition, SCO staff at smaller schools often perform several administrative roles that may be unrelated to the GI Bill. SAAs and ELRs conduct informal, in-person training of SCOs during most site visits. The 2007 GAO report indicated that facilities value the training provided by SAAs because it ensures proper administration of GI Bill benefits and, by extension, timely payments.", "Outreach is an \"activity designed to promote increased participation and utilization by eligible [individuals] of VA or [DOD] educational assistance programs\" and includes any activity, which encourages facilities to obtain approval of programs for GI Bill purposes. In addition to outreach, SAAs liaise \"with other education and training professionals [to] promote and encourage [an] exchange of information and support, and integrate the SAA into associations that will serve the interest of the GI Bill programs.\" SAAs cooperate with the VA to promote, conduct, and support several outreach efforts. SAAs are generally tasked, in conjunction with the VA and also independently, to conduct outreach programs and provide outreach services to eligible persons and veterans about federal and state veterans' education and training benefits. SAAs help veterans and their families navigate VA benefits generally through information and referrals. For example, the SAA may brief transitioning servicemembers about GI Bill benefits during DOD sponsored events, attend events sponsored by educational institutions, and participate in community or employment fairs. SAAs are in a unique position to counsel veterans and their families on the use of GI Bill benefits in area facilities.\nThe VA and SAAs are required, in accordance with statutory provisions, to actively promote the development and use of apprenticeship and on-the-job training programs. Such efforts utilize the services of disabled veterans' outreach program (DVOP) personnel. DVOP is part of the Department of Labor's (DOL's) Jobs for Veterans State Grants (JVSG) program, which provides formula grants to states to hire staff to provide a range of intensive services to veterans with service-connected disabilities as well as other veterans with multiple barriers to employment. It is NASAA's assertion that prior to 2012, when the VA began utilizing SAAs for compliance surveys, SAA outreach efforts contributed to increasing the number of active training establishments; whereas since 2012, outreach activities have been curtailed in order to fulfill SAA compliance survey obligations. The VA contends that time spent on compliance surveys replaced time spent on supervisory visits and not outreach activities.\nSAAs are required to meet biennially with the Local Veterans Employment Representatives (LVERs) or the equivalent to ensure that students who have graduated are aware of employment resources and opportunities. LVERs are state employees located in state employment offices who conduct outreach to employers on behalf of veterans and facilitate employment, training, and placement services through the state workforce system. The SAA ensures that appropriate referrals are made to relevant employment resources and opportunities.", "The VA holds SAAs accountable for fulfilling their contractual obligations through regular reporting, annual evaluation, contract monitoring, and the reimbursement of expenses. The contract specifies that SAAs must\nperform duties necessary for the inspection, approval, compliance, and supervision of programs of education; process initial program approval applications in a timely and thorough manner; conduct and follow up on a specified number of compliance visits; conduct and report on inspection and other visits as requested by the VA; comply with and enforce requirements of the Principles of Excellence, as appropriate; provide technical assistance to SCOs; provide specified trainings to SCOs; conduct and report informational outreach sessions to key stakeholders and through various mechanisms; liaise with veterans, the ELR, NASAA, and VA; submit quarterly reimbursement and activity reports; submit an annual self-evaluation and receive a satisfactory rating; use fully qualified personnel; complete required SAA employee training; and comply with other contractual responsibilities and obligations.\nThe contract terms are the same for each SAA except that the types of programs for which an SAA is responsible, the funding allocation, business plan, and the number of required compliance surveys may differ. The number of required compliance visits is proportional to the number of full-time equivalent professional SAA staff. The state determines the number of personnel required to fulfill the contract obligations. The contract includes a business plan and performance measures with targets for each activity and subactivity. The business plan comprises the SAA's goals, which are based on the performance standards. The performance measures and targets focus on the percentage of required activities completed within specified time periods and are consistent across SAAs. For example in FY2016, SAAs were expected to visit facilities for initial program approval within 30 days of request in 90% of cases.\nPeriodic SAA/ELR meetings are required under the contract. SAAs are required to submit monthly or quarterly reports to the VA on their activities, including services performed and decisions made regarding programs of education. This includes a quarterly report of the number of approval actions, technical assistance interactions, compliance survey visits, facility visits, staff development activities, and outreach activities, and detailed monthly or quarterly reports for reimbursement claims for operational costs.\nThe VA, in conjunction with SAAs, evaluates each SAA annually to inform subsequent contract negotiations. The evaluation is based on the contract terms. The evaluation begins with a self-evaluation allowing the SAA to describe actual personnel utilization, activities completed, outstanding activities, effective practices, resources used, and the degree to which it achieved its performance standards and business plan. In addition to the self-evaluation, the VA ELR who is also the Contracting Officer Representative (COR) completes an evaluation and submits an assessment report. The self-evaluation and assessment are then reviewed and rated by a Joint Peer Review Group (JPRG) for contract compliance. The JPRG comprises four NASAA members and four VA representatives. SAAs may be given a rating of satisfactory, minimally satisfactory, or unsatisfactory. The SAA may appeal the rating to both the VA Education Service Director and the President of NASAA for a joint decision. If the VA and the President of NASAA do not reach a joint decision, the VA makes the final determination on the appeal.\nThe VA must take into consideration the annual evaluation of each SAA when negotiating a new contract, but not necessarily the JPRG rating.", "Although SAAs are state agencies or organizations and the employees are state employees, the VA pays the \"reasonable and necessary expenses\" required for the SAA to fulfill its contractual obligations and as specified in the contractual agreement. Current law has provided $19 million in mandatory funds annually for SAAs since FY2006. Actual expenditures have increased from approximately $17 million in FY2006 to approximately $19 million since FY2013. The SAAs have indicated that the VA reimbursement may not cover actual agency costs. NASAA has requested additional funds to offset increased SAA responsibilities of approval, outreach and marketing, and technical assistance.\nThe reimbursable expenses include salaries and benefits, necessary travel, and administrative expenses but exclude administrative overhead expenses. SAA salaries and benefits must be commensurate with the salaries of other state employees with comparable qualifications and responsibilities. Allowable travel expenses are those for inspection, approval or oversight of programs of education, compliance surveys, outreach activities, and professional development. Travel expense amounts are limited by state laws and regulations. \"Administrative expenses may include, but are not limited to, outreach events and supplies, rental, repair, fees, maintenance, utility, and insurance expenses for agency facilities; postage; costs of office equipment and supplies, educational supplies, freight and delivery services; in-state and out-of-state non-reimbursed travel expenses; and other miscellaneous operating expenses.\" The administrative expense allowance is specified in current law and is calculated based on the reimbursable salary costs. The contract determines each SAA allocation by estimating travel costs, calculating reimbursable salary and fringe benefits, and calculating administrative expenses.\nFunds are allocated to the individual SAAs in accordance with the weighted number of active facilities (facilities with GI Bill participants) for which each is responsible, and then smoothed using a three-year rolling average. The weighting is based on the type of institution. The state determines the number of personnel required to fulfill the contractual obligations.\nAt the end of the fiscal year, the VA may redistribute funds that were not used by SAAs as supplementary awards to support contracted salary or travel that was not able to be reimbursed within the SAA's fiscal year allocated contract amount.\nIf the VA determines that the SAA is not complying with statutory provisions or the contract, it may require the SAA to conform to the contractual requirements and/or withhold reimbursement. In the event that reimbursement is withheld, the SAA may ask the VA to reconsider its decision or may initiate action under the Disputes clause of the contract and the Contract Disputes Act of 1978 (41 U.S.C. §601-613).", "The standards that facilities and programs of education must meet to receive and maintain GI Bill approval are specified in 38 U.S.C., Chapter 36, regulations, and Department of Veterans' Affairs (VA) policies. Generally, the standards and requirements provide limited opportunity for the Secretary of Veterans' Affairs (the Secretary) alone, or in collaboration with the State Approving Agencies (SAAs), or through negotiated rulemaking, to develop additional criteria or modify the existing criteria to ensure the integrity and quality of approved programs of education. SAAs are authorized to adopt state regulations and policies in addition to the federal statutory standards and requirements. Some of the federal statutory language and standards do not reflect current educational practice. For example, statutory provisions relating to distance education requirements have not been updated since 2001 despite changes in the nature and extent of distance education. The regulations have not been updated since 2009 to include substantial amendments to the approval process in 2011 by P.L. 111-377 .\nThe following describes the general approval and compliance requirements for programs of education. First, it describes the initial approval standards for deemed approved programs. It then describes additional approval and compliance requirements applicable to specific types of programs. Programs that are deemed approved have an abbreviated set of approval standards, but the compliance standards are the same as for programs that are not deemed approved.\nInitial Approval Standards for Programs Deemed Approved\nThe abbreviated initial approval process requires the SAA to determine the following:\nThe educational institution keeps adequate records to show GI Bill participant progress and grades and to show that satisfactory standards relating to progress and conduct are enforced. The educational institution maintains a written record of each GI Bill participant's previous education and training that clearly indicates that appropriate credit has been given and the training period shortened proportionately. The facility reports GI Bill participant enrollment or change in enrollment in a timely manner to the VA in accordance with regulations. The facility does not utilize advertising, sales, or enrollment practices of any type that is erroneous, deceptive, or misleading, either by actual statement, omission, or intimation. The facility does not provide a commission, bonus, or other incentive payment for securing enrollments or financial aid to any persons or entities engaged in student recruiting or admission activities or in making decisions regarding the award of student financial assistance. The programs are not avocational and recreational. If offered in part or exclusively through independent study, the program leads to either a college degree or a certificate that reflects educational attainment offered by an IHL. If the program includes flight training, the program is offered by an IHL for credit toward a standard college degree sought by the GI Bill participant; or by a non-IHL flight school that has an FAA pilot school certificate, has an FAA provisional pilot school certificate, is exempt from FAA certification but permitted to offer flight simulator training, or has an FAA training center certificate. Courses are not offered via radio. Unless waived or exempt, the program meets the 85-15 rule, which requires that the Secretary disapprove new enrollments in all courses if more than 85% of the enrolled students have all or part of their educational charges paid to or for them by the educational institution or by VR&E or a GI Bill. For NCD programs, the private not-for-profit or for-profit educational institution or its branch campus has been in operation for at least two years. For NCD programs, the private not-for-profit or for-profit educational institution either retains substantially the same faculty, student body, and courses following a change in ownership or a complete move outside its original general locality or has been in operation for at least two years following the change or move. For programs offered in part or exclusively through contractual agreements, the contracted courses are approved for GI Bill purposes. The program is not offered under a contract by another entity. If the program is designed to lead to state licensure or certification, the courses must meet state instructional curriculum licensure or certification requirements, unless waived. If the program is designed to prepare an individual to practice law, the courses must be accredited by an ED-recognized accrediting agency, unless waived. If the program is designed to prepare an individual for employment in an occupation that requires such state approval, licensure, or certification, the courses must meet the standards developed by the relevant state board or agency if, unless waived.\nFollowing initial approval during compliance surveys, deemed approved programs must be able to demonstrate that they meet the same standards as programs that are not deemed approved.\nInitial Approval Standards for Programs Not Deemed Approved and Compliance Standards for All Programs\nFederal law and regulations establish the standards that must be met by programs of education to remain approved for GI Bill purposes. These same standards must be met by programs that are not deemed approved during the initial approval process. In addition to program-specific approval standards, there are criteria that all programs and program providers must meet. These are as follows:\nAvocational and recreational programs are not approved. Courses offered via radio are not approved. Unless waived or exempt, the program must meet the 85-15 rule, which requires that the Secretary disapprove new enrollments in all courses if more than 85% of the enrolled students have all or part of their educational charges paid to or for them by the educational institution or by VR&E or a GI Bill. The program provider does not enroll GI Bill participants in courses for which the individual is already qualified, unless the course is required for an individual to pursue an approved program of education, is needed to update knowledge and skills, or is needed for instruction in the technological advances that have occurred in the veteran's field of employment. The facility does not utilize advertising, sales, or enrollment practices of any type that is erroneous, deceptive, or misleading, either by actual statement, omission, or intimation. The facility does not provide a commission, bonus, or other incentive payment for securing enrollments or financial aid to any persons or entities engaged in student recruiting or admission activities or in making decisions regarding the award of student financial assistance. The facility designates an SCO. The facility reports GI Bill participant enrollment or change in enrollment in a timely manner to the VA in accordance with regulations. For NCD programs, the private not-for-profit or for-profit educational institution or its branch campus have been in operation for at least two years. For NCD programs, the private not-for-profit or for-profit educational institution either retains substantially the same faculty, student body, and courses following a change in ownership or a complete move outside its original general locality or has been in operation for at least two years following the change or move. For programs offered in part or exclusively through contractual agreements, the contracted courses are approved for GI Bill purposes. For programs offered by public IHLs, the public IHL does not charge tuition and fees above the in-state rate for that course to a qualified Post-9/11 GI Bill or MGIB-AD participant who is living in the state in which the IHL is located. Unless waived, SAA and VA employees do not receive any remuneration from or have an interest in a private for-profit educational institution at which a GI Bill participant is pursuing a program of education. For purposes of the Montgomery GI Bill—Selected Reserve (MGIB-SR) and Reserve Educational Assistance Program (REAP), programs of education are further limited to those at institutions of higher education that participate in Title IV programs, as defined in the Higher Education Act; licensure or certification programs that meet state requirements; and state approved or licensed programs leading to state licensure or certification. For programs designed to lead to state licensure or certification, the courses must meet state instructional curriculum licensure or certification requirements, unless waived. For programs designed to prepare an individual to practice law, the courses must be accredited by an ED-recognized accrediting agency, unless waived. For programs designed to prepare an individual for employment in an occupation that requires such state approval, licensure, or certification, the courses must meet the standards developed by the relevant state board or agency if, unless waived. Such additional criteria as may be deemed necessary by the SAA as long as such criteria are in accordance with VA regulations; are deemed necessary by the VA; and treat public, private not-for-profit, and private for-profit educational institutions equitably.\nApprenticeships\nApprenticeships offer individuals the opportunity to earn a salary while learning the skills necessary for full employment in a career. Apprenticeships are DOL Registered Apprenticeship programs and apprenticeship programs approved by a state apprenticeship agency recognized by the DOL Office of Apprenticeship. Apprenticeships are deemed approved if the job does not require a wage subsidy.\nIn the application, apprenticeship programs must provide information on the job objective, length of the training period, approximate schedule for achievement of learning objectives, number of hours of supplemental instruction, and other information requested by the SAA. The training establishment must certify that the program will be pursued full-time. To maintain approval, the training establishment must provide a training agreement, including the training program and wage scale, to each GI Bill participant and the VA.\nOn-the-Job Training (OJT)\nOJT provides progression and appointment to the next higher classification based upon skills learned through organized and supervised training on the job. OJT excludes apprenticeships and may not be deemed approved.\nAlong with meeting the same requirements as apprenticeship programs, OJT must meet several additional requirements. The training content must qualify the trainee for the specified job objective, and the job must not require a wage subsidy. The job must customarily require full-time training for a period of not less than six months and not more than two years, and the length of the training period must not be longer than that customarily required by training establishments in the community. The training establishment must provide for related instruction when needed and have adequate space, equipment, instructional material, and instructor personnel to provide satisfactory training on the job. The training establishment must keep adequate records showing trainee progress, and the training must not be offered to GI Bill participants who are already qualified by training and experience for the job. To maintain approval, the training establishment must provide a training agreement to each GI Bill participant and the VA. Finally, the SAA may establish additional criteria.\nOJT establishments must certify that the wages meet approval criteria and that there is a high likelihood that the job will be available. Starting OJT wages must be at least 50% of journeyman wages and not less than wages paid nonveterans, and wages must increase in regular periodic increments until, not later than the last full month of the training period, they must be at least 85% of journeyman wages. Federal, state, and local governments are not required to provide the final 85% wage.\nPrograms of Education that Are Offered by Accredited Educational Institutions and that Are Not Deemed Approved\nPrograms of education that are offered by accredited educational institutions and that are not deemed approved include courses offered by a private for-profit educational institution that is accredited by an ED-recognized accrediting agency, non-college degree programs (NCDs) at accredited public and private not-for-profit educational institutions, courses accepted by the state department of education for credit for a teacher's certificate or a teacher's degree, and courses approved by the state as meeting the requirement of regulations prescribed by the Secretary of Health and Human Services for skilled nursing facilities.\nEach institution must submit its catalog or bulletin describing graduation requirements, policies regarding standards of academic progress, policies regarding student conduct and dismissal for unsatisfactory progress, and attendance standards. The institution must be able to demonstrate that it\nkeeps adequate records to show the progress and grades of GI Bill participants; keeps adequate records to show enforcement of its policies on student conduct and academic progress standards; maintains a written record of GI Bill participants' previous education and training, credit awarded, and the effect on the training period; has courses, curriculum, and instruction consistent in quality, content, and length with similar courses in public schools and other private schools in the state with recognized accepted standards; has adequate space, equipment, instructional material, and instructor personnel to provide training of good quality; and has directors, administrators, and instructors with adequate qualifications.\nIf offered in part or exclusively through independent study, the program must lead to either a college degree or a certificate that reflects educational attainment offered by an IHL.\nCorrespondence Courses\nCorrespondence courses usually provide lessons through the mail and have a limited time period for their completion. A program of education offered exclusively or partially by correspondence must be offered by an educational institution accredited by an ED-recognized accrediting agency. In addition, at least 50% of those pursuing the correspondence program or course for six months or more must complete the program or course. The program or course must meet the aforementioned requirements for accredited programs and additional requirements:\nA program of education offered exclusively by correspondence must provide an enrollment agreement to each GI Bill participant. The enrollment agreement describes the obligations of each party, the processes for affirming and terminating the agreement, the refund policy, and requirements to receive GI Bill benefit payments. The GI Bill participant must sign the agreement and affirm such agreement to the VA. A program pursued in part by correspondence must offer the residence and correspondence portions sequentially (not concurrently), must not award more credit for the correspondence portion than required to complete the program, and must grant credit toward program completion for the correspondence portion.\nEntrepreneurship Programs\nAn entrepreneurship course is a non-credit NCD course of business education that enables or assists a person to start or enhance a small business concern (as defined pursuant to section 3(a) of the Small Business Act (15 U.S.C. 632(a))). Entrepreneurship courses must be offered by a qualified provider of entrepreneurship courses. A qualified provider of entrepreneurship courses is any small business development center described in section 21 of the Small Business Act (15 U.S.C. 648), insofar as such center offers, sponsors, or cosponsors an entrepreneurship course. The provider must be able to demonstrate that it can maintain adequate records to comply with VA reporting requirements; has adequate space, equipment, instructional material, and instructor personnel to provide training of good quality; and has directors, administrators, and instructors with adequate qualifications.\nNonaccredited Programs\nNonaccredited programs are programs offered by educational institutions that are not accredited by ED-recognized entities but exclude entrepreneurship programs. Each institution must submit a catalog or bulletin, which must include\nidentifying data, such as volume number and date of publication; names of the institution and its governing body, officials, and faculty; a calendar of the institution showing legal holidays, beginning and ending date of each quarter, term, or semester, and other important dates; institution policy and regulations on enrollment related to enrollment dates and specific entrance requirements for each course; institution policy and regulations related to leave, absences, class withdrawals, makeup work, tardiness, and interruptions for unsatisfactory attendance; institution policy and regulations related to academic standards of progress; institution policy and regulations relating to student conduct and conditions for dismissal for unsatisfactory conduct; detailed schedules of fees and charges; institution policy and regulations relative to the refund of the unused portion of charges in the event the student does not enter the course or withdraws or is discontinued therefrom; a description of the available space, facilities, and equipment; a course outline for each course for which approval is requested, showing subjects or units in the course, type of work or skill to be learned, and approximate time and clock hours to be spent on each subject or unit; and institutional policy and regulations related to granting credit for previous educational training.\nIn addition, the institution must demonstrate the following:\nThe courses, curriculum, and instruction are consistent in quality, content, and length with similar courses in public schools and other private schools in the state, with recognized accepted standards; There is adequate space, equipment, instructional material, and instructor personnel to provide training of good quality; Educational and experience qualifications of directors, administrators, and instructors are adequate; The institution maintains a written record of the previous education and training of the eligible person and clearly indicates that appropriate credit has been given by the institution for previous education and training, including a record of a proportional reduction in required training for such credit received and notification of such reduction to the eligible person; The GI Bill participant will receive a copy of the course outline, schedule of tuition, fees, and other charges, regulations pertaining to absence, grading policy, and rules of operation and conduct; Upon completion of training, the GI Bill participant is given a certificate by the institution indicating the approved course and indicating that training was satisfactorily completed; Adequate records as prescribed by the SAA are kept to show attendance and progress or grades, and satisfactory standards relating to attendance, progress, and conduct are enforced; The institution complies with all local, city, county, municipal, state, and federal regulations, such as fire, building, and sanitation codes. The SAA may require such evidence of compliance as is deemed necessary; The institution is financially sound and capable of fulfilling its commitments for training; The institution does not exceed its enrollment limitations as established by the SAA; The institution's administrators, directors, owners, and instructors are of good reputation and character; Unless waived, the institution has and maintains a policy for the refund of the unused portion of tuition, fees, and other charges in the event the eligible person fails to enter the course or withdraws or is discontinued therefrom at any time before completion and 1. in the case of a private institution, such policy provides that the amount charged to the eligible person for a portion of the course shall not exceed the approximate pro rata portion of the total charges for tuition, fees, and other charges that the length of the completed portion of the course bears to its total length; or 2. in the case of a nonaccredited public educational institution, the institution has and maintains a refund policy regarding the unused portion of charges that is substantially the same as the refund policy followed by accredited public educational institutions located within the same state as such institution; and The institution publicly discloses any additional conditions required to obtain licensure, certification, or approval for unaccredited courses designed to lead to state licensure or certification or to prepare an individual for an occupation that requires such approval or licensure.\nFinally, the program of education offered by the institution must meet the following criteria:\nThe courses, curriculum, and instruction are consistent in quality, content, and length with similar courses with recognized accepted standards in public schools and other private schools in the state; and The programs are not offered in whole or in part by independent study.\nFlight Training Programs\nFlight training programs lead to Federal Aviation Administration (FAA) certifications or ratings to operate aircraft. Three types of flight training programs may be approved for GI Bill purposes:\n1. Flight training offered in-house by an IHL for credit toward a standard college degree sought by the GI Bill participant; 2. Flight training that is offered by an IHL through a contract and that provides credit toward a standard college degree sought by the GI Bill participant; and 3. Flight training offered by a non-IHL flight school that has an FAA pilot school certificate, has an FAA provisional pilot school certificate, is exempt from FAA certification but permitted to offer flight simulator training, or has an FAA training center certificate.\nFor flight training that is offered by an IHL through a contract, the contracted entity must be approved to offer the program and the individual must be eligible to enroll as a GI Bill participant in the contracted program. The IHL must document any mandatory fees and the number of required flight training hours for each course.\nThe program of education that includes flight training must otherwise meet the general approval requirements and the standards for accredited or nonaccredited programs, as applicable. In addition, GI Bill benefits are only available for approved aircraft and a maximum number of hours that are established relative to FAA regulations. For flight training that is not part of a degree program at an IHL, the flight courses must be FAA approved. Nonaccredited flight courses must meet additional criteria:\nAll ground school training is in residence; and The flight school maintains records of the students' private pilot certificate, prior training, medical certificate, flight log, ground school record, progress log, and other flight-related information.\nUnless the GI Bill participant is enrolled in a ground instructor certification course or flight training offered in-house by an IHL leading to a degree, the participant must have a valid private pilot certificate (or higher pilot certificate) and the requisite medical certificate.\nLicensing and Certification Tests That are Not Deemed Approved\nThe SAAs and VA approve licensing and certification tests. Tests are either\nrequired under federal, state, or local law or regulation for an individual to enter into, maintain, or advance in employment in a predetermined and identified vocation or profession; or generally accepted, in accordance with relevant government, business, or industry standards, employment policies, or hiring practices, as attesting to a level of knowledge or skill required to qualify to enter into, maintain, or advance in employment in a predetermined and identified vocation or profession.\nThere are several requirements of all organizations offering such tests:\nIt maintains appropriate records with respect to all candidates who take the test. It promptly issues test results. It has in place a process to review complaints with respect to the test or the process for obtaining a license or certificate required for vocations or professions. It furnishes to the Secretary information as necessary to ensure proper payments. It furnishes a description of the licensing or certification test offered, the purpose of the test, required prerequisites for taking the test, the entities that recognize the test, the license or certificate issued upon successful completion of the test, the period for which the license or certificate awarded is valid, and the requirements for maintaining or renewing the license or certificate.\nThere are several additional requirements of nongovernmental organizations offering such tests:\nIt certifies that the test meets generally accepted employment requirements. It is licensed, chartered, or incorporated in a state and has offered such test, or a test to certify or license in a similar or related occupation, for a minimum of two years before applying for approval. It employs, or consults with, individuals with expertise or substantial experience with respect to all areas of knowledge or skill that are measured by the test and that are required for the license or certificate issued. It has no direct financial interest in the outcome of the test or organizations that provide the education or training of candidates for licenses or certificates required for vocations or professions. It provides sufficient information to compare the test with the level of knowledge or skills that a license or certificate attests and the applicability of the test, as requested by the Secretary." ], "depth": [ 0, 1, 1, 1, 1, 1, 2, 2, 2, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 2 ], "alignment": [ "h0_title h2_title h1_title", "h0_full", "", "", "", "h1_full", "h1_full", "h1_full", "", "h1_full", "", "h2_full", "h2_full", "h2_full", "", "", "", "", "", "h1_title", "h1_full" ] }

{ "question": [ "What is the purpose of GI Bill benefits?", "How much of an effect has the GI Bill had on eligible participants?", "How are SAAs involved in the administration of GI Bill benefits?", "What is a key role of SAAs in the GI Bill?", "Why is approval important for each program of education?", "How does the approval process vary for different programs?", "What are the steps involved in the approval process?", "What agency keeps track of the approved programs?", "What is another important role that SAAs play?", "What are compliance surveys?", "What do statutory provisions establish?", "What does the SAA do during the compliance survey visit?", "What could happen if discrepancies are uncovered by the onsite survey?", "What actions might the SAA take to resolve the discrepancies?" ], "summary": [ "GI Bill benefits provide educational assistance payments to eligible veterans and servicemembers and their families enrolled in approved programs of education.", "In FY2017, the Department of Veterans' Affairs (VA) is estimated to distribute over $14 billion in GI Bill benefits to over 1 million eligible participants.", "State Approving Agencies (SAAs) play an important role in the administration of GI Bill® benefits. The SAA role is intended to ensure that veterans and other GI Bill participants have access to a range of high-quality education and training programs at which to use their GI Bill benefits.", "One of the key SAA roles is to initially approve programs of education for GI Bill purposes. Each sponsoring facility (e.g., educational institutions and training establishments) must submit an application to its SAA.", "Approval is intended to ensure that each program of education and sponsoring facility meets all applicable statutory and regulatory requirements, including proper benefit administration and program of education quality.", "The approval process and requirements vary depending on the program's educational objective (e.g., non-college degree or flight training) and existing government oversight. For example, some programs that are approved by other government programs or processes are \"deemed approved\" and require a less in-depth review. The remaining programs undergo more comprehensive approval processes that may include the SAA reviewing institutional policies, staff qualifications, and academic curriculum.", "The SAA may conduct a site visit. Once the SAA completes the initial approval review in accordance with the approval standards, the SAA issues an approval or disapproval letter to the facility.", "The VA maintains the compiled list of all approved programs of education.", "Another key SAA role is to conduct compliance surveys. The VA conducts compliance surveys but also assigns some of the required compliance surveys to SAAs.", "Another key SAA role is to conduct compliance surveys. Compliance surveys are designed to ensure that the facility and approved programs are in compliance with all applicable statutory, regulatory, and policy provisions and the facility understands the provisions.", "Statutory provisions establish the number of institutions requiring annual compliance surveys.", "During the onsite compliance survey visit, the SAA reviews student files to verify that GI Bill payments have been made properly, conducts student interviews, verifies institutional operations, and reviews additional documents and areas as outlined on the compliance survey checklist.", "Discrepancies uncovered during the compliance survey may be resolved immediately, may result in the creation of a GI Bill debt or payment, or may result in the suspension or disapproval of a program of education.", "The SAA may suspend a program of education from new enrollments for up to 60 days while the SAA provides assistance to help the facility resolve the issue. The SAA may disapprove the program of education such that no GI Bill payments may be made based on an individual's pursuit of the program of education." ], "parent_pair_index": [ -1, 0, 0, -1, 0, 0, 0, 0, -1, 0, 1, 2, 3, 4 ], "summary_paragraph_index": [ 0, 0, 0, 2, 2, 2, 2, 2, 3, 3, 3, 3, 3, 3 ] }

{ "title": [ "", "Introduction", "Evolution of Authorizations during the Twentieth Century", "Emergence of Explicit Authorizations of Appropriations", "Periodic Reauthorization", "Annual Authorizations", "Multiyear Authorizations", "Summary of Most Recent Developments", "Changes to Authorizations of Appropriations in Practice: Selected Examples", "National Science Foundation", "Establishment and Transition to a Permanent Authorization of Appropriations", "Transition to Annual Reauthorization", "Transition to Multiyear Reauthorization", "National Aeronautics and Space Administration", "Establishment and Transition to Annual Reauthorization", "Transition to Periodic Reauthorization", "Peace Corps", "Establishment and Early Annual Reauthorizations", "Transition to Intermittent Reauthorization", "Conclusion" ], "paragraphs": [ "", "A basic principle underlying the congressional budget process is the separation between money and policy decisions. One means through which this division of labor has been observed is through congressional rules and practices that distinguish between provisions that establish the activities of government, and those that fund those activities—\"authorizations\" and \"appropriations,\" respectively. An authorization generally provides legal authority for the government to act, usually by establishing, continuing, or restricting a federal agency, program, policy, project, or activity. It may also, explicitly or implicitly, authorize subsequent congressional action to provide appropriations for those purposes. By itself, however, an authorization does not provide funding for government activities. An appropriation generally provides both the legal authority to obligate future payments from the Treasury, and the ability to make subsequent payments to satisfy those obligations. Since the adoption of a formal rule in the House in 1835, the distinction between authorizations and appropriations has been based on limiting the provisions of appropriations measures to funding those programs or activities previously established by law. The form in which those programs or activities are established, however, is not prescribed by House or Senate rules or practices so that the language and specificity of such provisions as varied greatly over time.\nDuring the nineteenth century, authorizations generally were used for the initial establishment of programs, while control over the details of particular activities and amounts was achieved through the annual appropriations process. Authorization laws were enacted on a permanent basis to provide broad grants of authority to government departments and agencies. In these laws, the authorization of subsequent congressional action to provide appropriations was implied and did not include specific amounts to be appropriated. That is, the general authorization in these laws included both the legal authority to act, as well as the authority under congressional rules to appropriate funds for such activities. Temporary authorizations were rare and were generally reserved for programs that were intended to be of a limited duration. In contrast, annually enacted appropriations laws contained the details as to what agencies were able to do and how much they would have to spend.\nDevelopments in the House and Senate committee systems that occurred during this same period also served to strengthen this authorization-appropriations distinction. From the earliest Congresses the \"legislative committees\" had jurisdiction over authorization measures while the House Ways and Means Committee and Senate Finance Committee were responsible for most appropriations bills. During the Civil War, however, when the workload of these committees and size of federal expenditures increased considerably, both chambers chose to create separate Appropriations Committees that would be responsible for the annual appropriations measures.\nAs the size and scope of federal government activities increased during the nineteenth and early twentieth centuries, the congressional practices related to authorizations and appropriations began to change. Authorization laws began to specify the details of broad classes of federal government programs and activities in consolidated legislation, instead of in multiple pieces of stand-alone legislation that addressed only some aspects of such programs and activities. At about the same time, appropriations, which used to be almost entirely comprised of specific line-items, shifted to more general lump-sums for purposes that were usually identified simply by referencing the statutory authorization. In other words, appropriations began to rely on the authorization statutes to specify and limit how the funds would be used. Although jurisdiction over some appropriations was dispersed during the late nineteenth century, Congress continued to keep appropriations separate and distinct from authorizations. The reconsolidation of appropriations jurisdiction, and the reorganization of regular annual appropriations bills in the House in 1920 (and in the Senate in 1922), also reinforced this distinction.\nThe choice to separate money and policy decisions and vest control over them in different congressional committees has meant long-standing tensions between the authorization and appropriations processes. In term of both what the Federal government should do and at what level its activities should be funded, these tensions have significantly influenced how the processes have evolved, as each attempts to exercise a greater role in congressional and agency funding decisions. In the early twentieth century, as a consequence of the changes that were discussed in the previous paragraph, the legislative committees began to assert their role in fiscal decision-making through two particular mechanisms. First, these committees began to include provisions that explicitly authorized appropriations in authorization acts, such as language that \"hereby authorized to be appropriated\" for certain purposes. Second, associated with these provisions, these committees began to conduct reviews and enact revisions to authorization laws for certain agencies and departments on periodic schedules, instead of on an as-needed basis.\nThis report discusses general principles in how the language concerning the purposes and frequency of authorizations of appropriations has changed over the past century. These general principles are illustrated through case studies on the authorizations of appropriations that were enacted during this period for three agencies: the National Science Foundation, the National Aeronautics and Space Administration, and the Peace Corps.", "Coincident with the enactment of the Budget and Accounting Act of 1921, jurisdiction over general appropriations increased the role of the Appropriations Committees in congressional decisions about spending. In response, the legislative committees began to explore new legislative language that would influence budgetary outcomes, both with respect to the action of the appropriators, and also in their oversight of the agencies under their jurisdiction. This resulted in significant changes in the content and timing of authorization laws over the next several decades.", "The first significant change in the form of authorization laws occurred after the 1920s, when authorization laws began to include provisions that explicitly \"authorized to be appropriated\" future budgetary resources tied to certain purposes. By one estimate, this practice grew so rapidly that in 1937, there were more than 100 measures enacted into law with explicit authorizations of appropriations for definite amounts. At a minimum, such provisions were a recommendation of the legislative committees as to the level of future appropriations. This practice, however, had broader implications for the role of the legislative committees in budgetary decision-making because existing House and Senate rules that prohibited appropriations not authorized by law had to be applied in new ways. Although these prohibitions were longstanding, having been first adopted during the previous century, authorization provisions that established an entity, project, or activity were considered to be sufficient to implicitly authorize subsequent appropriations under the terms of these rules. However, when the legislative committees started to include explicit provisions authorizing appropriations, this effectively enabled them to create procedural ceilings on subsequent appropriations, and thus exert greater influence over subsequent funding decisions.\nAs language specifically authorizing appropriations was increasingly used, various practices started to emerge. First, the legislative committees began to authorize definite amounts to be appropriated for specific fiscal years. In their early use, such provisions were typically tied to minor or temporary programs. Second, because provisions that limited the amount or duration of future appropriations were considered to be inappropriate for permanent or large-scale government programs, provisions authorizing appropriations for \"such sums as are necessary\" were typically used for such programs. These provisions were also used to address multiple programs under the auspices of a single agency.", "At the end of WWII, an estimated 5% of programs, excluding one-time projects, had explicit authorizations of appropriations that applied to specific fiscal years. Over the postwar period, however, as the legislative committees continued to increase their use of such provisions, they began to apply such provisions to programs of a more large-scale or permanent nature.\nThe types of provisions periodically authorizing appropriations that were developed during this period have continued to be used through the present day. These provisions generally indicate two schedules of legislative review: \"annual\" and \"multiyear.\" Annual authorizations of appropriations explicitly authorize appropriations for a single fiscal year. Multiyear authorizations of appropriations explicitly authorize appropriations for more than one fiscal year at a time (typically between two and five).", "As the legislative committees began to experiment with provisions authorizing appropriations for a single fiscal year, one motivation was to better oversee and influence agency spending decisions. Annual authorizations of appropriations were first applied to newly created agencies or programs, in part, because these annual provisions were believed to encourage close review and oversight early in an agency or program's development. Later, in response to perceived issues with existing agencies or the congressional oversight of them, legislative committees sometimes added annual authorization provisions to the underlying statute governing these agencies, thereby converting them to an annual reauthorization schedule. For example, annual authorizations were used in some instances for programs or agencies that were undergoing \"rapidly changing conditions,\" giving the legislative committees the opportunity to weigh in on a frequent basis. Programs that had a direct effect on states or districts, such as those that govern military construction or grants, also were candidates for annual authorizations. Legislative committees often sought close oversight of such programs because of the constituency issues involved and a desire to address any problems as they arose. As a consequence of this frequent legislative attention, agencies subject to annual reauthorization tended to experience more incremental program changes in their authorizing laws when compared to those agencies on a longer reauthorization schedule.\nAnother motivation for the legislative committees to choose annual authorization schedules during the post-World War II period was dissatisfaction with the funding levels or program structure as provided through the congressional appropriations process. At this time, the authorization laws that were enacted on an as-needed basis tended to be primarily focused on policy issues, and not budgetary decision-making. In addition, any authorized levels for future fiscal years might have been considered to be less relevant when it came time to appropriate due to changing congressional priorities. Under an annual authorization approach, however, the congressional debate over the funding levels in the context of the authorization for that fiscal year would occur more immediately ahead of the consideration of appropriations for those programs. This sequence and timing of events—authorizations are to precede appropriations—was believed to provide the legislative committees with greater leverage to prevent their framework and authorized funding levels from being disregarded during subsequent appropriations decision-making.\nThe proportion of agencies that were subject to annual reauthorizations expanded significantly during the mid-twentieth century. Prior to 1950, military construction and mutual security were the only annual authorizations, both constituting the conversion of a permanent authorization to a temporary one. A few programs were added to that list in the 1950s, but it was not until two decades later that a number of both small and large-scale government programs, such as the remaining activities of the Department of Defense authorization, the Department of Justice, and the Department of State, were added to the group of government programs that received an annual authorization in response to developments such as the Vietnam War. Also during this period, the number of annual authorizations that applied to only some programs within an agency were expanded to include additional programs or activities of a like character.", "During the same period that annual authorizations of appropriations were increasingly used, provisions authorizing appropriations on a multiyear basis to facilitate a longer-term reauthorization schedule were also enacted. The length of these schedules varied, from as little as two years, to five or more fiscal years. The agency oversight motivations for the legislative committees to adopt such a schedule were similar to those for an annual reauthorization, with some exceptions. For example, a legislative committee might choose a multiyear reauthorization schedule over an annual one if it believed that a program or agency required a comprehensive reevaluation of its activities and objectives on longer time intervals. Also, as a consequence of the greater time allotted by this schedule, multiyear reauthorizations tended to involve more widespread policy changes per reauthorization law when compared to annual reauthorizations.\nAs was the case for annual authorizations, multiyear authorizations may have been motivated, in some instances, by dissatisfaction on the part of the legislative committees with the funding that was being provided in appropriations. In many cases, multiyear authorizations assumed some degree of a funding increase over the period covered by the authorization, and so their enactment had the potential to build congressional support for such an increase. In many such cases, however, the difference between the amounts authorized and that ultimately appropriated increased in the latter years, perhaps because the congressional vote on authorization levels was neither recent, nor in the context of current funding constraints.", "Starting in the 1980s, some of the programs that had been subject to an annual or short-term authorization schedule were changed to longer-term multiyear schedules. Others had authorizations that expired for a number of fiscal years between reauthorizations, or were not renewed at all. With the formation of new agencies, it has been most typical that only specific activities within them, as opposed to the entire agency, have been given explicit authorizations of appropriations. For example, while some of the agencies and activities created or consolidated by the Homeland Security Act of 2002 were already subject to temporary authorizations of appropriations, there were few provisions explicitly authorizing appropriations for the new agencies and activities included in the act, and none that were effective on an annual basis ( P.L. 107-296 ). In general, the reauthorization process for many agencies and programs has become more focused on addressing policy concerns, with less of an emphasis on funding level or the legislative committee's role in budgetary decision-making.\nVarious reasons have been suggested for the shift to longer term reauthorization schedules and the gaps between reauthorization intervals. For example, some have argued that reauthorization legislation was effectively \"crowded out\" by new mechanisms for budgetary decision-making (such as the budget resolution and reconciliation) and were given less of a priority in the congressional calendar. Others began to express concern that annual authorizations led to a perception that they were merely duplicate votes for Members on funding levels for federal government activities. In addition, continued delays in the enactment of reauthorization legislation, which affected Congress' ability to consider and enact appropriations measures in a timely manner, was also a likely factor.", "The historical development of the form and timing of authorizations over the past century has been characterized by a number of themes:\nThe legislative committee's adoption of an annual reauthorization schedule was due to a desire for increased involvement in both agency and congressional budgetary decisions. The motivation for increased agency involvement was typically because the agency was new or because annual authorizations were believed to strengthen Congress's oversight functions. Annual authorizations tended to be characterized by incremental program changes, whereas multiyear authorizations tended to involve widespread policy changes. The amounts authorized in annual measures tended to be more similar to the amount eventually appropriated when compared to multiyear authorizations. The out-years of multiyear authorizations tended to be characterized by a growing gap between the amount authorized and amount appropriated.\nTo illustrate one or more of these general themes, the following subsections summarize aspects of the authorization histories of the National Science Foundation, the National Aeronautics and Space Administration, and the Peace Corps. These three agencies were selected because they have experienced variation in the purposes and frequency of their explicit authorizations of appropriations since their establishment. These case studies also discuss the reasons for the shifts to the new authorization schemes, such as the legislative committee's decision to review and make policy changes to the program on a less frequent schedule, or difficulties in enacting annual authorizations prior to appropriations. During this period, the form of the authorization laws governing these agencies changed in a number of other significant ways that affected the ability of the legislative committees to influence budgetary outcomes, which are not discussed in this report. This report only summarizes the general trends associated with the timing and purposes of these reauthorizations to provide a basis for further research and understanding.", "The National Science Foundation was established in 1950, but was not reauthorized on a periodic basis until 1968, when a requirement for specific authorization of appropriations each future fiscal year became law. Authorizations of appropriations were enacted annually covering a single fiscal year from FY1969 through FY1982, and intermittently through FY1988. Starting in FY1989, the agency has been reauthorized for periods of between three and five fiscal years, with some lapses in authorization between those multiyear laws. The most recent reauthorization was from FY2011 through FY2013.", "The National Science Foundation (NSF) was established by the National Science Foundation Act on May 10, 1950 (S. 247; P.L. 81-507). During congressional consideration in the 81 st Congress, both the Senate and House proposals (S. 287, H.R. 12, and H.R. 359, 81 st Congress) contained provisions providing a permanent indefinite authorization of appropriations for the agency. During debate on the House floor, however, the bill was amended to provide a definite authorization of appropriations for FY1951, and a $15 million authorization for each fiscal year thereafter. The rationale for this approach was that it would promote increased agency fiscal accountability to Congress, because the agency would be required to justify to Congress a higher authorization level once its annual budgetary needs exceeded $15,000,000. The House version of that provision was subsequently enacted into law.\nThe first reauthorization was enacted three years later, on August 8, 1953 (S. 32; P.L. 83-223). This law replaced the $15 million authorization limit with an indefinite authorization of appropriations. The Senate Labor and Public Welfare Committee report accompanying S. 32 (83 rd Congress) explained that this indefinite authorization was to provide the NSF greater flexibility in both their annual budget request and fiscal planning for its operations. Because the committee believed that removing this limitation would not lead to an overall increase in government research expenditures, this change to the law was recommended.\nThere were no further laws authorizing NSF appropriations for the next fifteen years. During that period, the few laws that made any changes to the statutory programs and policies governing the NSF typically included only minor modifications to existing programs and policies. The more significant changes to the Foundation came through Administration action, such as executive orders and the Government Reorganization Plan No. 2 of 1962. Legislative committee oversight of the agency occurred on a more informal basis.", "Starting in 1965, the House Committee on Science and Astronautics began a three-year review of the NSF to write a new charter for the agency. This review involved hearings, studies, and a subcommittee report that was to be the basis of the committee's eventual legislative proposal. In 1967, the committee report accompanying, H.R. 5404 (90 th Congress), explained a variety of motivations for this review and the recommended changes to the agency:\nA significant change began to take place in the post- Sputnik era. From a technological point of view, public opinion crystallized around the concept that basic science was no longer an ancillary, but a primary, instrument needed to guard the public safety, health and economy.... It becomes apparent, upon review of the hearings en bloc, that the most crucial point—in fact, what some would call the essence of the bill—was the issue of policy control [of the National Science Board].... (H.Rept. 90-34, pp. 2 and 13)\nWhile the changes to the NSF proposed by the House did not involve any alterations to the current authorization of appropriations, the Senate Labor and Public Welfare Committee amended H.R. 5404 to include both a definite authorization of appropriations for FY1969, and a permanent requirement for a specific authorization of appropriations for every fiscal year thereafter:\nThe committee is concerned that there has been no thorough review of the authorization for NSF since the passage in 1950 of the National Science Foundation Act. During this period, the appropriations have grown from $225,000 in 1951 to $495 million in 1968—a more than 2,000-fold increase. The committee believes that a change to annual authorization is desirable, and provides for this in section 13 of the bill. An authorization of $523 million is provided for fiscal year 1969. This committee will set authorizations for future years after appropriate hearings. (S. Rept. 90-1137, p. 19)\nThe ability for annual authorizations to influence subsequent funding decisions is affected by the extent to which they are enacted ahead of appropriations. After the NSF's requirement for an annual authorization was enacted (P.L. 90-407), the 15 subsequent annual reauthorizations became law an average of almost one month after the beginning of the fiscal year, and only three times were they enacted before the beginning of the fiscal year (FY1978, FY1980, and FY1986). The enactment of appropriations, however, usually waited until the annual authorization was completed with only three of the 15 being enacted ahead of it (FY1972, FY1977, and FY1979).\nIn general, these annual authorizations were followed by appropriations that were at somewhat lower levels than the amount authorized. Of the 12 annual authorizations that were enacted prior to appropriations, all but one (FY1986; P.L. 99-383 ) subsequently received lower level of appropriations. In those 11 instances, the amount appropriated was an average of almost 7% lower than the amount authorized, ranging from about 1% lower in FY1980, to almost 24% lower in FY1969.", "Starting in 1977, Congress began to actively debate transitioning the NSF to a multiyear authorization of appropriations. This change was advocated by the Carter Administration and some Senators on the Committee on Human Resources because it was believed that a multiyear authorization would promote continuity for planning basic research and more time to assess the effectiveness of programs. Many members of the House Science Committee argued, however, that an annual authorization would promote better congressional control and oversight of the Foundation. Although the conference report for the FY1978 reauthorization addressed the possibility of a two-year authorization of appropriation, it concluded that it was not suitable at that time. The following fiscal year, while the Senate committee proposed authorizations of appropriations for both FY1979 and FY1980 ( S. 2549 ), authorization levels for only a single fiscal year were ultimately enacted into law ( P.L. 96-44 ). Over the next ten years, most legislative proposals covered only a single fiscal year, and all that were enacted were annual in nature.\nIn FY1989, both the House and Senate proposed multiyear authorizations, and the enacted law authorized appropriations through FY1993 ( P.L. 100-570 ). One of the primary purposes of this reauthorization was to promote the \"doubling\" of the NSF budget over the next five fiscal years and to establish a program directed at academic facility modernization. The next reauthorization, for FY1998-FY2000, authorized modest increases for the agency—about 10% in FY1999 and growth slightly above projected inflation in FY2000 ( P.L. 105-207 ). The next reauthorization advocated more substantial increases in the agency budget—from about $5 billion in FY2003, to almost $10 billion in FY2007 ( P.L. 107-368 ). The most recent two laws, for FY2008-FY2010 and FY2011-FY2013, were enacted as part of the America COMPETES Act and its reauthorization, which broadly sought to invest in innovation and improve United States' competitiveness. It authorized funds for research and development in the physical sciences and engineering, as well as certain science, technology, engineering, and mathematics (STEM) education programs. Both reauthorizations recommended appropriations at a rate to double agency funding over a seven- year period starting in FY2008, and an 11-year period starting in FY2011.\nWhen compared to the period for which the NSF was authorized on an annual basis, NSF appropriations after FY1989 tended to be much lower than the amount authorized. Gaps between the authorization and subsequent appropriations also widened in the latter years of the authorization period, particularly when the authorization assumed significant budgetary increases over that multiyear period. For example, FY1989-FY1993, the first attempt at doubling, the difference between the authorization and subsequent appropriations began as about 6% for FY1989 and increased to 22% by FY1993. The more modest increases proposed by the FY1998 reauthorization resulted in a much smaller appropriations gap—almost 3% less than the authorized level for FY1999, and almost 1% more than authorized for FY2000. Even though the projected increases in the two most recent doubling proposals (FY2008-FY2010 and FY2011-FY2013) were over a longer time horizon, these also experienced increasing gaps in the outyears.", "The National Aeronautics and Space Administration (NASA) transitioned to an annual authorization schedule three years after it was established in 1958, and was reauthorized each fiscal year from FY1961 through FY1986. Starting in FY1982, however, the agency's annual authorization schedule began to experience increasing delays, culminating in a six-year gap in reauthorization from FY1994 through FY1999. In recent years, the agency has been periodically reauthorized for between one and three fiscal years, with the most recent reauthorization covering FY2011-FY2013.", "When the National Aeronautics and Space Act (\"the Space Act,\" P.L. 85-568) established NASA in 1958, it explicitly authorized permanent, indefinite appropriations for agency operations. It also required specific authorization for capital expenditures. At the beginning of the 85 th Congress, a few months prior to the enactment of the Space Act, the House had established the Committee on Science and Astronautics (now Science, Space, and Technology) to oversee this new agency. The Senate also created the Committee on Aeronautical and Space Sciences for a similar purpose. As these new committees were developing an understanding of NASA's programmatic capabilities and fiscal requirements, it was thought that frequent reauthorization was a process through which this understanding could be achieved more expeditiously.\nNASA's transition to an annual authorization of appropriations occurred in stages over the next few years. First, the FY1958 supplemental appropriations bill for NASA (P.L. 85-766) included a provision that required the enactment of a specific authorization of appropriations for each fiscal year through the end of FY1960. As initially drafted, this provision provided a permanent requirement for a specific authorization, under the rationale that such a requirement, which would presumably have been carried out through an annual reauthorization schedule, would provide accountability and oversight to the legislative committees of jurisdiction. The provision was revised prior to enactment to allow a one-year trial run of the concept after criticism that it would place an unnecessary burden on NASA and lead to duplication in congressional efforts. The first reauthorization of NASA, for FY1959 supplemental appropriations, did not address the general requirement for specific authorization, set to expire the following fiscal year (P.L. 86-12). In the process of considering reauthorization legislation for FY1960, however, both the House and Senate proposed extensions of the specific requirement for the purpose of imposing an annual authorization process. The House Science Committee, in H.R. 70007 (86 th Congress), included an extension of the requirement through FY1965. Subsequently, the Senate Science Committee removed the House's termination date for the provision:\nBecause of the nature of the space program, rapid and substantial changes as to magnitude, direction, and detail can be expected to continue indefinitely. For this reason the committee deleted the terminal date of July 30, 1965, on the authorization requirement, thereby making the requirement of indefinite duration. (S.Rept. 86-332, p. 47)\nThe same arguments that had been made against the temporary requirement were made against making it permanent, in particular, that an annual reauthorization process for the agency would lead to delays in the completion of annual appropriations. Nevertheless, the enacted law included the Senate's version, and this requirement has continued to apply to NASA appropriations to the present day.\nFor FY1961 through FY1981, NASA was reauthorized on an annual basis, and the appropriations authorized by these annual laws almost always covered only a single fiscal year. The annual reauthorizations were enacted after the beginning of the fiscal year just over half of the time during this period. However, they were enacted ahead of appropriations each fiscal year except for FY1979 ( P.L. 95-401 ), which was signed into law on the same day as the appropriations measure. On average, these reauthorizations were enacted about two months in advance of appropriations (67 days).\nThe consistent enactment of annual authorizations in advance of appropriations may have been a factor in minimizing the difference between the total amount authorized and the funding subsequently provided. The amount of appropriations was on average less than 1% below the authorized level for the agency. The most that appropriations ever exceeded the authorized level was almost 6% in FY1980; the most they fell short of the authorization was also almost 6% in FY1968. In total, for 13 out of the 20 fiscal years during this period, the amount authorized was higher than the amount appropriated. In the remaining seven fiscal years, the appropriations equaled or exceeded the authorized level.\nIn general, NASA tended to receive program direction from Congress through authorization report language, as well as the appropriations process during this period. Substantive, non-administrative policy changes to the agency or associated programs were only occasionally enacted through the annual reauthorizations. For example, the FY1976 law ( P.L. 94-39 ) enacted a new program authorization for upper atmospheric research. Occasionally, changes to the agency or its associated programs would also occur as part of broader laws that covered multiple agencies, such as the Government Employees Salary Reform Act of 1964 (P.L. 88-426) and the Electric Vehicle Research, Development, and Demonstration Act ( P.L. 94-413 ).", "During the 1980s, space-related public policy concerns rapidly expanded into new areas. Some significant events for NASA included the completion of the first Space Shuttle Columbia flight on April 12, 1984, and President Reagan's announcement of plans to build a space station within the next decade. Stand-alone authorization laws initiating new programs that involved NASA were also enacted. For example, the Commercial Space Launch Act, which created a government entity to regulate private launch companies, was enacted in 1984 ( P.L. 98-575 ). Other issues related to international cooperation became both more important and controversial. NASA reauthorizations were increasingly used as a means to enact significant space policy changes or expansions of NASA. For example, the FY1985 reauthorization established the National Commission on Space ( P.L. 98-361 ), an advisory body to develop a long-term national space strategy.\nThe increasing focus on space policy, as well as the fiscal constraints affecting federal budgeting during this era, may have both been factors in the delays in completing NASA reauthorization laws after FY1981. In general, reauthorizations after this time were enacted much closer to appropriations than in the first two decades of the agency—two days ahead of the appropriation in FY1982, 15 days behind the appropriation in FY1983, 27 days ahead in FY1985, two days ahead in FY1985, and 10 days behind in FY1986. In FY1987, no reauthorization was enacted, because H.R. 5495 (99 th Congress) was pocket vetoed by the President over the inclusion of provisions that would reestablish the National Aeronautics and Space Council. The broader policy context for this dispute related to the Space Shuttle Challenger explosion, which had occurred nine months before the start of the fiscal year, and congressional dissatisfaction with the Administration's response to it.\nIn the latter part of the 1980s, reauthorization laws continued to address broad space policy issues. They also experienced further delays in enactment. While the FY1988 reauthorization was enacted 54 days ahead of appropriations, for all other fiscal years through FY1993, the reauthorization was enacted an average of about 42 days after appropriations. No reauthorization was enacted at all for FY1990, as the House and Senate failed to resolve their differences over their respective versions of the legislation ( H.R. 1759 and S. 916 , 101 st Congress).\nPerhaps related to these difficulties in enacting reauthorizations in a timely manner, the House Science Committee started in FY1989 to propose authorizations of appropriations for three fiscal year periods for many major activities, such as line items under the Research and Development and Space Flight accounts. These multiyear reauthorizations also typically included proposals for long-term program or policy initiatives. In contrast, the Senate Commerce Committee versions continued to recommend authorizations of appropriations for a single fiscal year only, and tended to include fewer long-term policy proposals.\nWhile the authorizations continued to provide funding amounts for a single fiscal year, the groundwork was laid for a longer-term authorization schedule through other means. For example, the FY1989 reauthorization required NASA to compile a five-year capital development plan and a 10-year strategic plan. The act also directed that, starting in FY1990, NASA submit a three-year budget request. In FY1992, this directive appears to have been superseded by a new requirement for a five-year budget submission for all programs that exceed $200 million ( P.L. 102-195 ).\nDuring the past fifteen years, NASA reauthorizations have been enacted on a periodic basis, typically covering more than a single fiscal year, but not on any set schedule. These laws were often in response to policy developments instigated by the Administration, such as the Vision for Space Exploration program in 2004. For the FY2000-FY2002 reauthorization ( P.L. 106-391 ), the multiyear interval for reauthorization appears to have been uncontroversial, as both the House ( H.R. 1654 ) and Senate ( S. 342 ) versions authorized appropriations for that three-year period. The second reauthorization to be enacted during this period was for FY2007-FY2008 ( P.L. 109-155 ). While the House version (H.R. 3070) provided a two-year authorization of appropriations, the Senate version (S. 1281) had authorizations on a longer time horizon, through FY2010. For the FY2009 reauthorization, both the House and Senate versions proposed funding amounts for only a single fiscal year ( P.L. 110-422 ; H.R. 6063 , 110 th Congress). The most recent reauthorization law covered three fiscal years, FY2011-FY2013 ( P.L. 111-267 ).\nAlong with the trend toward the periodic enactment of multiyear reauthorizations, there has been an increase in the difference between the amounts that were authorized and those that were subsequently appropriated. Appropriations for FY2001 and FY2002, enacted after the FY2000-FY2002 reauthorization, were slightly higher than the authorization. However, the gap between authorizations and appropriations became more pronounced during the FY2007-FY2008 period. The FY2009 reauthorization, enacted 15 days after the appropriations bill, was almost 14% higher than the actual funding level. And even though the FY2011-FY2013 reauthorization was enacted about five months ahead of appropriations for FY2011, appropriations subsequently enacted were about 3% lower than the authorization in FY2011, 9% lower than the authorization in FY2012, and about 12% lower than the authorization in FY2013.", "Appropriations for the Peace Corps were annually authorized each fiscal year—from its establishment in 1961 through FY1981. Starting with the FY1982 reauthorization, which was for a two-fiscal year period, the agency began to experience gaps in its enactment of reauthorization and it transitioned to a multiyear schedule. Since that time, reauthorizations of appropriations have been enacted intermittently, most recently for the FY2000-FY2003 time period, but not thereafter.", "The Peace Corps was permanently established through the Peace Corps Act, which was enacted on September 22, 1961 (P.L. 87-293). That act carried a provision that authorized a specific sum for FY1962 Peace Corps appropriations. While this provision arguably indicated congressional intent to reauthorize the agency the following fiscal year, there appears to have been little discussion in the legislative history of the act of any potential annual schedule for reauthorization. In the broader context of foreign affairs authorization laws that were enacted during this period, congressional review of those programs and any associated legislative action had tended to occur on an as-needed basis. In addition, until the enactment of P.L. 91-671, which imposed a general requirement for explicit authorizations of appropriations on foreign affairs spending, few explicit authorizations of appropriations had ever been enacted for ongoing programs. Consequently, the motivation for an annual schedule, at least initially, appears to have been driven by the newness of the agency.\nThe following year, the first reauthorization law for the Peace Corps was enacted, consisting of a single sentence that provided a definite authorization of appropriations for FY1963 (P.L. 87-442). In the lengthy report accompanying H.R. 10700, the committee explained the purpose of this legislation:\nThe situation confronting the committee and the Congress is that there appear to be no developments during the first year of operation which give rise to any question as to the soundness of the Peace Corps concept, or which indicate that its program is too ambitious. The record of the managers of the Peace Corps merits continued confidence.\nThe basic problem is, therefore, whether or not the requested authorization of $63,750,000 is justified. The committee has considered the method by which the financial requirements for fiscal 1963 were calculated, the nature of the programs to be financed and the foreign policy problems which confront the United States in the various countries involved. On the basis of this analysis, the planned rate of expansion appears to be realistic, the cost estimates reasonable, and the authorization requested to be justified. (H.Rept. 87-1470, p. 4)\nThe committee's report language also discussed the work of the Peace Corps the previous fiscal year, and potential developments for the upcoming fiscal year.\nOver the next 15 years, FY1964-FY1979, the agency was reauthorized on an annual basis, almost always through a stand-alone authorization law. About half the reauthorization laws during this period only updated the prior authorization of appropriations with regard to the fiscal year and amount, leaving the other parts of the law largely unchanged. In these instances, however, the House Foreign Affairs and Senate Foreign Relations Committees often used reauthorization as an opportunity to communicate to both Congress and the agency their assessment of a wide variety of other agency issues. For example, the Senate report language associated with the reauthorization for FY1969 addressed issues such as the current status of Peace Corps agency and volunteer operations, as well as ongoing committee concern related to the administrative costs associated with various programs.\nThe annual reauthorization process was also used to implement changes in the underlying law, often in response to new developments within the agency. For example, in 1971, the Peace Corps was merged into a new volunteer service agency called ACTION. Although the Peace Corps' underlying mission remained the same, the annual authorization process, both before and after 1971, was used to oversee and structure its merger with ACTION and to review other agency concerns. In the FY1970 reauthorization ( P.L. 99-199 ), provisions were included to restrict the use of Peace Corps funds for other volunteer and training programs. And the FY1975 and FY1976 reauthorizations ( P.L. 93-302 and P.L. 94-76 ) mandated statutory transfers of Peace Corps appropriations to finance increases in certain volunteer benefits.\nBoth the frequency of the reauthorization, as well as its funding specificity, was viewed by Congress as an important tool of agency oversight. Late in this period, there was some dispute between Congress and the President with regard to both issues. In FY1977, the President's budget submission requested a two-year authorization for the Peace Corps, with a definite amount for FY1977, and such sums as may be necessary for FY1978. The House Foreign Affairs Committee responded to the Administration's request in the committee report accompanying H.R. 12226 :\nThe Executive Branch requested a two-year authorization for the Peace Corps—$67,155,000 for fiscal 1977 and such sums as may be necessary for fiscal 1978. Because the Committee has believed that such open-ended authorizations are unwise and because it was not possible for the Peace Corps to come forward with firm fiscal 1978 figure, the authorization was limited to a single year. (H.Rept. 94-874, p. 3)\nThe Senate version provided a definite one-year authorization of appropriations and did not comment on the Administration's proposal. The Administration requested a \"such sums\" two-year authorization of appropriations the following year, which was also rejected by the House and Senate. The next year, when this two-year proposal was suggested and rejected yet another time, the Senate noted, \"Each year the Peace Corps has submitted a request for an open-ended authorization, and each year the Congress has rejected these requests on the basis that congressional oversight responsibilities are best exercised through the annual authorization and appropriations processes.\"", "Starting in FY1980, a number of significant changes for the Peace Corps occurred, both in terms of its status as an agency as well as congressional practices associated with its reauthorization. After the Peace Corps was reestablished as an independent agency, provisions in the FY1981 reauthorization further facilitated this transition ( P.L. 96-533 ), and subsequent reauthorizations became focused on new policy developments within that agency. During this period, Congress also experimented with changes in the vehicle and timing of the reauthorization. The first such change occurred with the FY1980 and FY1981 reauthorizations ( P.L. 96-53 and P.L. 96-533 ), where the Peace Corps was reauthorized as part of a larger omnibus foreign aid vehicle. The FY1981 reauthorization was notable for at least two other reasons. First, it was enacted after the start of the fiscal year, on December 16, 1980, which was much later than typical. Second, it was enacted on the same day as FY1981 Peace Corps appropriations. The next reauthorization, also enacted on the same day as FY1982 appropriations, included further changes in practice, in authorizing appropriations for both FY1982 and FY1983 ( P.L. 97-133 ). While there was no indication given at that time of a broader change in the authorization interval, the next authorization of appropriations was also for two fiscal years (FY1986 and FY1987), and was enacted after almost a four-year lapse. These authorized levels were updated a year later through a provision in the foreign relations reauthorization.\nThere appear to be a number of factors that could account for these significant changes in practice. First, with the Peace Corps reorganization at the beginning of the decade, the focus of each reauthorization increasingly addressed agency policy concerns, and the practice of enacting laws that only authorized appropriations was generally discontinued. Second, the change in the vehicle to a multi-agency foreign aid authorization may have also affected the frequency of the authorization, both because the foreign aid authorizations tended to authorize multiyear appropriations for other programs, and the potential for delays due to policy disputes unrelated to the Peace Corps. Finally, both the late enactment of the authorizations compared to appropriations, and the gaps in the authorization of appropriations, may have also further undermined the role of provisions explicitly authorizing appropriations in influencing budgetary decision-making.\nOver the past 25 years, efforts to reauthorize the Peace Corps have occurred on an irregular basis. Moreover, these authorization measures have often been primarily directed at policy concerns with the agency, as opposed to reauthorizing appropriations. For FY1993, a stand-alone law was enacted that both reauthorized appropriations and established the Peace Corps foreign exchange fluctuations account ( P.L. 102-565 ). This law had been enacted about one month after the Peace Corps appropriations for that fiscal year; the amount authorized and appropriated were identical. About eighteen months later, provisions were carried in the FY1995/FY1996 Foreign Relations Authorization Act that provided a two-year authorization of appropriations for the Peace Corps, along with minor technical changes to the program ( P.L. 103-236 ). The most recent authorization of appropriations enacted for the Peace Corps covered four fiscal years, FY2000-FY2003 ( P.L. 106-30 ), but the primary purpose of this law was to authorize the expansion of the Peace Corps beyond the goal of 10,000 volunteers and make technical updates. Since that time, legislation that would reauthorize appropriations for the Peace Corps has received little congressional action. The most recent law to make major program changes to the Peace Corps, involving volunteer safety, included no provisions authorizing appropriations ( P.L. 112-57 ).", "The evolution in the form of authorizations during the twentieth century allowed the legislative committees to not only address policy questions but also to exercise a greater role in congressional and agency funding decisions. While these committees have a number of tools at their disposal with which to exercise this influence, one such tool that was chosen and developed during this period was the use of explicit authorizations of appropriations. As the needs of these committees and Congress have changed over time, the extent to which this tool has been used has also shifted.\nThe legislative committees' desire for increased involvement in both agency and congressional budgetary decisions was a significant factor in the adoption of periodic reauthorization schedules, and played a role in the authorizations for all three agencies in this study. The Peace Corps and NASA received annual authorization schedules soon after being created as a means to facilitate congressional oversight during this critical time in the agency's development. While the transition to an annual reauthorization for NSF occurred many years after the agency's establishment, it too was motivated by oversight concerns that had developed in the interim. For all three agencies, annual authorizations also had the advantage allowing the legislative committees to formally weigh in on the agency's budgetary needs each fiscal year through the legislative process.\nDuring the period prior to the 1980s, the annual authorizations for the NSF, NASA, and the Peace Corps were all characterized by relatively incremental program changes, with the more significant alternations generally being made outside the annual reauthorization process. As the NSF and NASA transitioned to a more long-term reauthorization schedule over the past thirty years, their reauthorization laws have become more policy-focused and contained more instances of significant program changes. This transition in the focus of reauthorizations was even more pronounced for the Peace Corps, with reauthorizations during the past few decades being enacted intermittently, and recent legislative proposals to make significant program changes containing no explicit authorizations of appropriations.\nIn general, the evolution of authorizations in recent years has moved away from annual reauthorizations to longer periods. This has allowed Congress to address some criticisms about the impact of lapsed authorizations and focus instead on policy issues. This evolution parallels larger institutional patterns of change and innovation and the development of institutional capacity. In general, the choice of certain institutional tools over others may be driven both by the requirements of a particular context, as well as to serve broader purposes. The extent to which the separation between the authorization and appropriations processes continues to be a feature of congressional rules and practices, the balance that results from the tension this separation creates will likely shift again and lead to further procedural adaptations." ], "depth": [ 0, 1, 1, 2, 2, 3, 3, 2, 1, 2, 3, 3, 3, 2, 3, 3, 2, 3, 3, 2 ], "alignment": [ "h0_title h1_title", "h0_full", "", "", "", "", "", "", "h1_full", "", "", "", "", "", "", "", "", "", "", "h1_full" ] }

{ "question": [ "How did the congressional approach to authorizations and appropriations change over the nineteenth century?", "How has that approach changed during the twentieth century?", "What new methods have committees begun to implement to influence budgetary outcomes?", "What has characterized authorizations since the 1920s?", "Why were annual reauthorization schemes adopted?", "What were the differences between annual authorizations and multiyear authorizations?", "Why have many agencies on annual schedules transitioned to multiyear schedules in the past thirty years?", "To what extent has this transition been successful?" ], "summary": [ "As the congressional approach to authorizations and appropriations developed over the nineteenth century, distinct roles for these types of laws were established.", "However, that approach began to shift in the early twentieth century as the size and scope of federal government activities increased, and the legislative committees began to explore new methods of influencing budgetary outcomes, both with respect to the action of the appropriators and for the agencies under their jurisdiction.", "Toward that end, those committees began to include provisions that explicitly authorized appropriations in authorization acts. In addition, these committees began to use these provisions to establish periodic schedules of review for revisions to authorization laws for certain agencies and departments, instead of enacting such laws on an as-needed basis.", "The evolution of the form and frequency of authorizations since the 1920s have been characterized by a number of general themes.", "Annual reauthorization schedules were often adopted due to the legislative committee's desire for increased involvement in agency and congressional budgetary decisions.", "Annual authorizations tended to be characterized by more incremental program changes, whereas multiyear authorizations tended to involve more widespread policy changes.", "Over the past thirty years many agencies on annual schedules have been transitioned to multiyear or long-term schedules. These transitions have often been motivated by delays in the enactment of annual authorizations each year, or the legislative committee's decision to conduct more extensive reviews of agency programs and policies on a less frequent schedule.", "The amounts annually authorized have tended to be more similar to the amount eventually appropriated when compared to multiyear authorizations. In particular, the outyears of multiyear authorizations have tended to be characterized by a growing gap between the amount authorized and amount appropriated." ], "parent_pair_index": [ -1, 0, 1, -1, 0, 1, 1, 3 ], "summary_paragraph_index": [ 1, 1, 1, 3, 3, 3, 3, 3 ] }

{ "title": [ "", "Introduction", "Establishment of the SPR", "SPR Drawdown Authorities", "Acquisition of Crude Oil for the SPR", "Royalty-in-Kind Acquisition", "Royalty-in-Kind Termination", "The Northeast Home Heating Oil Reserve", "SPR Expansion", "Bayou Choctaw", "Richton Dome", "The Debate Over When the SPR Should Be Used", "Use of the SPR in the Persian Gulf War (1990)", "Hurricanes and Changes in the Market Dynamics (2005-2008)", "Summer 2008 Call for an SPR Drawdown", "Political Unrest in the Middle East and North Africa (MENA) 2011", "Other Policy Considerations", "Legislation in the 111th Congress", "Proposals in the 112th Congress" ], "paragraphs": [ "", "The recent unrest in the Middle East and North Africa (MENA), disruption in Libyan crude oil production, and rising crude oil prices have led to calls for releasing oil from the Strategic Petroleum Reserve (SPR). In late February, some House members advocated a release as a move to prevent price speculation. More recently, some Senate members formally wrote to the President to urge his exercise of emergency powers to release SPR oil. The Obama Administration is currently considering releasing SPR oil to help ease soaring oil prices and consumer fears over rising gasoline prices. Despite the rising prices, considerable spare capacity and substantial reserves exist worldwide. Up until the last quarter of 2010, the United States had experienced both a drop in crude oil demand and reduced refining output. Auctioning SPR oil may have a limited influence on crude oil prices and find less-than-enthusiastic bidders.", "From the mid-1970s through the present day, the United States has had to absorb a number of significant spikes in the price of crude oil and petroleum products. Whether driven by disruptions in the physical supply of crude or refined fuels, or by uncertainties owing to international conflicts and instabilities, these price increases have consequences for the United States. Elevated petroleum prices affect the balance of trade and siphon away disposable income that might be spent to support spending, investment, or savings.\nThe U.S. Strategic Petroleum Reserve (SPR) originated in the disruption of the 1973 Arab-Israeli War. In response to the United States' support for Israel, the Organization of Arab Exporting Countries (OAPEC) imposed an oil embargo on the United States, the Netherlands, and Canada, and reduced production. While some Arab crude did reach the United States, the price of imported crude oil rose from roughly $4/barrel (bbl) during the last quarter of 1973 to an average price of $12.50/bbl in 1974. While no amount of strategic stocks can insulate any oil-consuming nation from paying the market price for oil in a supply emergency, the availability of strategic stocks can help blunt the magnitude of the market's reaction to a crisis. One of the original perceptions of the value of a strategic stockpile was also that its very existence would discourage the use of oil as a political weapon. The embargo imposed by the Arab producers was intended to create a very discernible physical disruption. This explains, in part, why the genesis of the SPR focused especially on deliberate and dramatic physical disruptions of oil flow, and on blunting the significant economic impacts of a shortage stemming from international events.\nIn response to the experience of the embargo, Congress authorized the Strategic Petroleum Reserve in the Energy Policy and Conservation Act (EPCA, P.L. 94-163 ) to help prevent a repetition of the economic dislocation caused by the Arab oil embargo. In the event of an interruption, introduction into the market of oil from the Reserve was expected to help calm markets, mitigate sharp price spikes, and reduce the economic dislocation that had accompanied the 1973 disruption. In so doing, the Reserve would also buy time for the crisis to sort itself out or for diplomacy to seek some resolution before a potentially severe oil shortage escalated the crisis beyond diplomacy. The SPR was to contain enough crude oil to replace imports for 90 days, with a goal initially of 500 million barrels in storage. In May 1978, plans for a 750-million-barrel Reserve were implemented. Later authorization expanded it to 1 billion barrels, and the George W. Bush Administration would have expanded it to 1.5 billion barrels had it been successful in persuading Congress of the need.\nThe Department of Energy (DOE) currently manages the program. Physically, the SPR comprises five underground storage facilities, hollowed out from naturally occurring salt domes, located in Texas and Louisiana. The caverns were finished by injecting water and removing the brine. Similarly, oil is removed by displacing it with water injection. For this reason, crude stored in the SPR remains undisturbed, except in the event of a sale or exchange. Multiple injections of water, over time, will compromise the structural integrity of the caverns. By 2005, the storage capacity of the SPR expanded to 727 million barrels, and its inventory had reached nearly 700 million barrels before Hurricanes Katrina and Rita in 2005. Following the storms, some crude was loaned to refiners and some was sold. Loans of SPR oil are \"paid\" by the return of larger amounts of oil than were borrowed. The SPR has since been filled to its 727 million barrel capacity through royalty-in-kind acquisition, which this report discusses further below.\nSPR oil is sold competitively. A \"notice of sale\" is issued, including the volume, characteristics, and location of the petroleum for sale; delivery dates and procedures for submitting offers; as well as measures for assuring performance and financial responsibility. Bids are reviewed by DOE and awards offered. The Department of Energy estimates that oil could enter the market roughly two weeks after the appearance of a notice of sale.\nThe SPR could be drawn down initially at a rate of roughly 4.4 million barrels per day for up to 90 days; thereafter, the rate would begin to decline. Although fears were expressed periodically during the 1980s about whether the facilities for withdrawing oil from the Reserve were in proper readiness, the absence of problems during the first real drawdown in early 1991 (the Persian Gulf War) appeared to allay much of that concern. However, some SPR facilities and infrastructure were beginning to reach the end of their operational life. A life extension program, initiated in 1993, upgraded or replaced all major systems to ensure the SPR's readiness to 2025.\nThe Arab oil embargo also fostered the establishment of the International Energy Agency (IEA) to develop plans and measures for emergency responses to energy crises. Strategic stocks are one of the policies included in the agency's International Energy Program (IEP). Signatories to the IEA are committed to maintaining emergency reserves representing 90 days of net imports, developing programs for demand restraint in the event of emergencies, and agreeing to participate in allocation of oil deliveries among the signatory nations to balance a shortage among IEA members. The calculation of net imports for measuring compliance with the IEA requirement includes private stocks. By that measure, the United States has more than 100 days' cushion. However, it is likely that less than 20% of the privately held stocks would technically be available in an emergency, because most of that inventory supports movement of product through the delivery infrastructure. At full capacity, the SPR might afford the United States roughly 70 days or more of net import protection, depending upon the pace of recovery of the domestic economy. These measures of days of protection assume a total cessation of oil supply to importing nations, a scenario that is highly unlikely. This would be especially true for the United States, given that Canada is currently the nation's principal source for crude oil.\nSome IEA member nations require a level of stocks to be held by the private sector or by both the public and private sectors. Including the U.S. SPR, roughly two-thirds of IEA stocks are held by the oil industry, whereas one-third is held by governments and supervisory agencies.", "The Energy Policy and Conservation Act (EPCA, P.L. 94-163 ) authorized drawdown of the Reserve upon a finding by the President that there is a \"severe energy supply interruption.\" This was deemed by the statute to exist if three conditions were joined: If \"(a) an emergency situation exists and there is a significant reduction in supply which is of significant scope and duration; (b) a severe increase in the price of petroleum products has resulted from such emergency situation; and (c) such price increase is likely to cause a major adverse impact on the national economy.\"\nCongress enacted additional drawdown authority in 1990 (Energy Policy and Conservation Act Amendments of 1990, P.L. 101-383 ) after the Exxon Valdez oil spill, which interrupted the shipment of Alaskan oil, triggering spot shortages and price increases. The intention was to provide for an SPR drawdown under a less rigorous finding than that mandated by EPCA. This section, 42 U.S.C. § 6241(h), has allowed the President to use the SPR for a short period without having to declare the existence of a \"severe energy supply interruption\" or the need to meet obligations of the United States under the international energy program. The Energy Policy Act of 2005 made the SPR authorities permanent. These authorities also provided for U.S. participation in emergency-sharing activities of the International Energy Agency without risking violation of antitrust law and regulation.\nUnder the additional authorities authorized in P.L. 101-383 , a drawdown may be initiated in the event of a circumstance that \"constitutes, or is likely to become, a domestic or international energy supply shortage of significant scope or duration\" and where \"action taken ... would assist directly and significantly in preventing or reducing the adverse impact of such shortage.\" This authority allows for a limited use of the SPR. No more than 30 million barrels may be sold over a maximum period of 60 days, and this limited authority may not be exercised at all if the level of the SPR is below 500 million barrels. This was the authority behind the Bush Administration's offer of 30 million barrels of SPR oil on September 2, 2005, which was part of the coordinated drawdown called for by the International Energy Agency. The same authority may have been the model for a swap ordered by President Clinton on September 22, 2000.", "From 1995 until the latter part of 1998, sales of SPR oil, not acquisition, were at the center of debate. However, the subsequent reduction and brief elimination of the annual federal budget deficit—as well as a precipitous drop in crude oil prices into early 1999—generated new interest in replenishing the SPR, either to further energy security objectives or as a means of providing price support to domestic producers who were struggling to keep higher-cost, marginal production in service.", "As an alternative to appropriations for the purchase of SPR oil, DOE proposed that a portion of the royalties paid to the government from oil leases in the Gulf of Mexico be accepted \"in kind\" (in the form of oil) rather than as revenues. The Department of the Interior (DOI) was reported to be unfavorably disposed to the royalty-in-kind (RIK) proposal, but a plan to proceed with such an arrangement was announced on February 11, 1999. (Legislation had also been introduced [ H.R. 498 ] in the 106 th Congress to direct the Minerals Management Service to accept royalty-in-kind oil.) Producers were supportive, maintaining that the system for valuation of oil at the wellhead is complex and flawed. While acquiring oil for the SPR by RIK avoids the necessity for Congress to make outlays to finance direct purchase of oil, it also means a loss of revenues in so far as the royalties are settled in wet barrels rather than paid to the U.S. Treasury in cash. Final details were worked out during the late winter of 1999.\nIn mid-November of 2001, President Bush ordered fill of the SPR to 700 million barrels, principally through oil acquired as royalty-in-kind (RIK). At its inception, the RIK plan was generally greeted as a well-intended first step toward filling the SPR to its capacity of 727 million barrels. However, it became controversial when crude prices began to rise sharply in 2002. Some policymakers and studies asserted that diverting RIK oil to the SPR instead of selling it in the open market was putting additional pressure on crude prices. A number of industry analysts argued that the quantity of SPR fill was not enough to have driven the market. The Administration strongly disagreed with claims that RIK fill bore responsibility for the continuing spike in prices.\nLegislative attempts to suspend RIK fill began in 2004, during the 108 th Congress. The Energy Policy Act of 2005 ( P.L. 109-58 ), enacted in the summer of 2005, required the Secretary of Energy to develop and publish for comment procedures for filling the SPR that take into consideration a number of factors. Among these are the loss of revenue to the Treasury from accepting royalties in the form of crude oil, how the resumed fill might affect prices of both crude and products, and whether additional fill would be justified by national security. On November 8, 2006, DOE issued its final rule, \"Procedures for the Acquisition of Petroleum for the Strategic Petroleum Reserve.\" The rule essentially indicated that DOE would take into account all the parameters required by P.L. 109-58 to be taken into consideration before moving ahead with any acquisition strategy. DOE rejected tying decisions to acquire oil to any specific, measurable differentials in current and historic oil prices.\nIn the summer of 2007, DOE resumed RIK fill of the SPR. On May 19, 2008, with gasoline prices exceeding, on average, $3.60 gallon, and approaching $4.00/gallon in some regions, Congress passed P.L. 110-232 . However, a few days earlier, on May 16, DOE announced it would not accept bids for an additional 13 million barrels of RIK oil that had been intended for delivery during the second half of 2008.\nThrough FY2007, royalty-in-kind deliveries to the SPR totaled roughly 140 million barrels and forgone receipts to the Department of the Interior an estimated $4.6 billion. DOE had estimated deliveries of 19.1 million barrels of RIK oil during FY2008 and $1.170 billion in forgone revenues.\nOpponents of RIK fill in the 110 th Congress were not necessarily opposed to the concept of an SPR. When the price of crude was much less of an issue, objections to RIK fill were also ideological. Opponents of RIK fill in principle contended that a government-owned strategic stock of petroleum was inappropriate under any circumstance—that it essentially saddled the public sector with the expense of acquiring and holding stocks, the cost for which might have otherwise been borne by the private sector. The existence of the SPR, this argument goes, has blunted the level of stocks held in the private sector. As already noted, RIK fill resumed in 2009 and ended in early 2010, pending establishment of additional storage. A site in Richton, MS, has been evaluated as a possible site for expansion of the SPR. However, while $25 million for expansion activities was included in the FY2010 budget, it is not apparent that expansion is a high priority.", "As already noted, legislation ( P.L. 110-232 ) enacted in May 2008 forbade DOE from initiating any new activities to acquire royalty-in-kind (RIK) oil for the SPR during the balance of 2008. The sharp decline in crude oil prices since spiking to $147/barrel in the summer of 2008 had spurred interest in resuming fill of the SPR. On January 2, 2009, the Bush Administration announced plans to purchase oil for the SPR, and to reschedule deferred deliveries. There were four components in the resumption of fill: (1) a purchase announced on January 16, 2009, of nearly 10.7 million barrels to replace oil that was sold after Hurricanes Katrina and Rita in 2005; (2) the return of roughly 5.4 million barrels of oil borrowed by refiners after Hurricane Gustav in 2008; (3) delivery of roughly 2.2 million barrels of RIK oil that had been deferred; and (4) resumption of RIK fill in May 2009 at a volume of 26,000 barrels per day, totaling over 6.1 million barrels to be delivered over a period from May 2009 to January 2010. These activities were intended to fill the SPR to its current capacity of 727 million barrels by early 2010. The government has not acquired oil for the SPR by outright purchase since 1994, when oil purchases ended. The SPR then held 592 million barrels.\nOn September 16, 2009, Secretary of the Interior Ken Salazar announced a transitional phasing out of the RIK Program. As RIK oil and natural gas sales contracts expire, the oil and natural gas properties will revert to in-value status. As a result of the decision, an expansion of the SPR would require purchasing oil through the market at prevailing prices.", "The Northeast Home Heating Oil Reserve (NHOR) was established after a number of factors contributed to the virtual doubling in some Northeastern locales of home heating oil prices during the winter of 1999-2000. Drawing particular attention of lawmakers was the sharply lower level of middle distillate stocks—from which both home heating oil and diesel fuels are produced—immediately beforehand. EPCA includes authority for the Secretary of Energy to establish regional reserves as part of the broader Strategic Petroleum Reserve. With support from the Clinton Administration, Congress moved to specifically authorize and fund a regional heating oil reserve in the Northeast. The FY2001 Interior Appropriations Act ( P.L. 106-291 ) provided $8 million for the Northeast Home Heating Oil Reserve (NHOR). The regional reserve was filled by the middle of October 2000 at two sites in New Haven, CT, and terminals in Woodbridge, NJ, and Providence, RI. The NHOR is intended to provide roughly 10 days of Northeast home heating oil demand.\nThere was controversy over the language that would govern its use. Opponents of establishing a regional reserve suspected that it might be tapped at times that some consider inappropriate, and that the potential availability of the reserve could be a disincentive for the private sector to maintain inventories as aggressively as it would if there were no reserve. The approach enacted predicated drawdown on a regional supply shortage of \"significant scope and duration,\" or if—for seven consecutive days—the price differential between crude oil and home heating oil increased by more than 60% over its five-year rolling average. The intention was to make the threshold for use of the regional reserve high enough so that it would not discourage oil marketers and distributors from stockbuilding. The President could also authorize a release of the NHOR in the event that a \"circumstance exists (other than the defined dislocation) that is a regional supply shortage of significant scope and duration,\" the adverse impacts of which would be \"significantly\" reduced by use of the NHOR.\nDuring mid- and late December 2000, the 60% differential was breached. However, this was due to a sharp decline in crude prices rather than to a rise in home heating oil prices. In fact, home heating oil prices were drifting slightly lower during the same reporting period. As a consequence, while the 60% differential was satisfied, other conditions prerequisite to authorizing a drawdown of the NHOR were not.\nA general strike in Venezuela that began in late 2002 resulted, for a time, in a loss of as much as 1.5 million barrels of daily crude supply to the United States. With refinery use lower than usual owing to less crude reaching the United States, domestic markets for home heating oil had to rely on refined product inventories to meet demand during a particularly cold winter. Prices rose, and there were calls for use of the NHOR; still, the price of heating oil fell significantly short of meeting the guidelines for a drawdown.\nIn the 111 th Congress, S. 283 , introduced on January 21, 2009, would have permitted drawdown on the basis of price as well as supply. The bill would have mandated a release of 20% of the heating oil held in the Reserve if the average retail price for home heating oil in the Northeast exceeded $4.00 per gallon on November 1 of the fiscal year. An additional 20% would be released in four additional installments if the average retail price exceeded $4.00/gallon on the first of each month, December through March. S. 283 was the subject of a May 12, 2009, hearing before the Senate Committee on Energy and Natural Resources (S. Hrg. 111-67).", "The Energy Policy Act of 2005 (EPAct) requires, \"as expeditiously as practicable,\" expansion of the SPR to its authorized maximum physical capacity of 1 billion barrels. Advocates for expansion argued that the SPR would need to be larger for the United States to be able to maintain stocks equivalent to 90 days of net imports. The FY2010 SPR budget, at $229 million, included $43.5 million for purchase of a cavern at Bayou Choctaw to replace a cavern posing environmental risks, as well as $25 million for expansion activities. However, it is not apparent that expansion remains a high priority.", "Bayou Choctaw has six storage caverns with a total capacity of 76 million barrels. One cavern, Bayou Choctaw Cavern 20, is within 60 ft of the edge of the salt dome and must be replaced for fear of breaching the salt dome with further use. The SPR oil stored at the Bayou Choctaw site is not in any immediate danger of leaking, however. Cavern 20 has passed all integrity tests. To limit any risk, DOE has reduced the oil stored in Cavern 20 from 7.5 million barrels to 3.2 million barrels by using only the upper portion of the cavern.\nDOE has temporarily stored the remaining oil in Big Hill and West Hackberry caverns in the brine cushion at the bottom of the cavern, which will eventually be needed to accommodate cavern creep (geological shrinkage). DOE is currently acquiring a 10-million-barrel replacement cavern in the Bayou Choctaw salt dome. The replacement cavern would be available for oil storage in December 2012 and would provide capacity for the 3.2 million barrels in Cavern 20 and the 4.3 million barrels temporarily stored at Big Hill and West Hackberry, plus provide an additional 2.5 million barrels of spare capacity. Cavern 20 is to be emptied and abandoned.", "The Energy Policy Act of 2005 (EPAct) required SPR expansion to its maximum authorized capacity of 1 billion barrels. DOE has evaluated a site in Richton, MS, as a possible location for an additional 160 million barrels of capacity. However, in its FY2011 request, the Obama Administration proposed to suspend spending in support of SPR expansion. The budget request proposed to redirect $71 million previously appropriated for expansion to \"partially fund SPR non-expansion operations and maintenance activities.\" The Administration cited an Energy Information Administration projection that \"U.S. petroleum consumption and dependence on imports will decline in the future and the current Reserve's projection will gradually increase to 90 days by 2025.\" The Administration reduced the FY2011 request for the SPR to $138.9 million, a sharp reduction from the $243.8 million appropriated for FY2010. The FY2012 SPR funding request is reduced further, to $121.7 million.", "Historically, the use of the SPR has been tied to a physical shortage of supply—which normally will manifest itself, in part, in an increase in price. However, price was deliberately kept out of the President's SPR drawdown authority because of concerns about what price level would trigger a drawdown, and that any hint of a price threshold could influence private sector and industry inventory practices.\nAs has been noted, the original intention of the SPR was to create a reserve of crude oil stocks that could be tapped in the event of an interruption in crude supply. Debate over releasing SPR oil traces differences in opinion over just what constitutes a \"severe energy supply interruption.\" The debate during the 1980s over when, and for what purpose, to initiate an SPR drawdown reflected the significant shifts that were taking place in the operation of oil markets after the experiences of the 1970s, and deregulation of oil price and supply. Sales of SPR oil authorized by the 104 th Congress—and in committee in the 105 th —renewed the debate for a time.\nThe SPR Drawdown Plan, submitted by the Reagan Administration in 1982, provided for price-competitive sale of SPR oil. The plan rejected the idea of conditioning a decision to distribute SPR oil on any \"trigger\" or formula. To do so, the Administration argued, would discourage private sector initiatives for preparedness or investment in contingency inventories. Many analysts, in and out of Congress, agreed with the Administration that reliance upon the marketplace during the shortages of 1973 and 1979 would probably have been less disruptive than the price and allocation regulations that were imposed. But many argued that the SPR should be used to moderate the price effects that can be triggered by shortages like those of the 1970s or the tight inventories experienced during the spring of 1996, and lack of confidence in supply availability. Early drawdown of the SPR, some argued, was essential to achieve these objectives.\nThe Reagan Administration revised its position in January 1984, announcing that the SPR would be drawn upon early in a disruption. This new policy was hailed as a significant departure, considerably easing congressional discontent over the Administration's preparedness policy, but it also had international implications. Some analysts began to stress the importance of coordinating stock drawdowns worldwide during an emergency lest stocks drawn down by one nation merely transfer into the stocks of another and defeat the price-stabilizing objectives of a stock drawdown. In July 1984, responding to pressure from the United States, the International Energy Agency agreed \"in principle\" to an early drawdown, reserving decisions on \"timing, magnitude, rate and duration of an appropriate stockdraw\" until a specific situation needed to be addressed.", "This debate was revisited in the aftermath of the Iraqi invasion of Kuwait on August 2, 1990. The escalation of gasoline prices and the prospect that there might be a worldwide crude shortfall approaching 4.5 million-5.0 million barrels daily prompted some to call for drawdown of the SPR. The debate focused on whether SPR oil should be used to moderate anticipated price increases, before oil supply problems had become physically evident.\nIn the days immediately following the Iraqi invasion of Kuwait, the George H. W. Bush Administration indicated that it would not draw down the SPR in the absence of a physical shortage simply to lower prices. On the other hand, some argued that a perceived shortage does as much and more immediate damage than a real one, and that flooding the market with stockpiled oil to calm markets is a desirable end in itself. From this perspective, the best opportunity to use the SPR during the first months of the crisis was squandered. It became clear during the fall of 1990 that in a decontrolled market, physical shortages are less likely to occur. Instead, shortages are likely to be expressed in the form of higher prices, as purchasers are free to bid as high as they wish to secure scarce supply.\nWithin hours of the first air strike against Iraq in January 1991, the White House announced that President Bush was authorizing a drawdown of the SPR, and the IEA activated the plan on January 17. Crude prices plummeted by nearly $10/barrel in the next day's trading, falling below $20/bbl for the first time since the original invasion. The price drop was attributed to optimistic reports about the allied forces' crippling of Iraqi air power and the diminished likelihood, despite the outbreak of war, of further jeopardy to world oil supply. The IEA plan and the SPR drawdown did not appear to be needed to help settle markets, and there was some criticism of it. Nonetheless, more than 30 million barrels of SPR oil was put out to bid, but DOE accepted bids deemed reasonable for 17.3 million barrels. The oil was sold and delivered in early 1991.\nThe Persian Gulf War was an important learning experience about ways in which the SPR might be deployed to maximize its usefulness in decontrolled markets. As previously noted, legislation enacted by the 101 st Congress, P.L. 101-383 , liberalized drawdown authority for the SPR to allow for its use to prevent minor or regional shortages from escalating into larger ones; an example was the shortages on the West Coast and price jump that followed the Alaskan oil spill of March 1989. In the 102 nd Congress, omnibus energy legislation ( H.R. 776 , P.L. 102-486 ) broadened the drawdown authority further to include instances where a reduction in supply appeared sufficiently severe to bring about an increase in the price of petroleum likely to \"cause a major adverse impact on the national economy.\" The original EPCA authorities permit \"exchanges\" of oil for the purpose of acquiring additional oil for the SPR. Under an exchange, a company borrows SPR crude and later replaces it, including an additional quantity of oil as a premium for the loan. There were seven exchanges between 1996 and 2005. The most recent one (with the exception of a test exchange in the spring of 2008) was in June 2006. ConocoPhillips and Citgo borrowed 750,000 barrels of sour crude for two refineries affected by temporary closure of a ship channel.\nA new dimension of SPR drawdown and sale was introduced by the Clinton Administration's proposal in its FY1996 budget to sell 7 million barrels to help finance the SPR program. While agreeing that a sale of slightly more than 1% of SPR oil was not about to cripple U.S. emergency preparedness, some in Congress vigorously opposed the idea, in part because it might establish a precedent that would bring about additional sales of SPR oil for purely budgetary reasons, as did indeed occur. There were three sales of SPR oil during FY1996. The first was to pay for the decommissioning of the Weeks Island site. The second was for the purpose of reducing the federal budget deficit, and the third was to offset FY1997 appropriations. The total quantity of SPR sold was 28.1 million barrels, and the revenues raised were $544.7 million. Fill of the SPR with RIK oil was initiated in some measure to replace the volume of oil that had been sold during this period.", "Prior to Hurricanes Ivan, Katrina, and Rita in 2005, growth in oil demand had begun to strap U.S. refinery capacity. A result has been an altering in a once-observed historic correlation between crude oil and refined oil product prices. In the past, changes in the price of crude had driven changes in the cost of refined products. The assumption that product prices are driven by, and follow the path of, crude prices, was at the center of debates from the 1980s until early in the decade of 2000 whether an SPR drawdown was warranted when prices spiked.\nHowever, beginning in the middle of the first decade of the new century, pressure on product supplies and the accompanying anxiety stoked by international tensions caused a divorce in that traditional correlation between crude and product prices. The increases in prices of gasoline and other petroleum products following Hurricanes Katrina and Rita, for example, were not a response to any shortage of crude oil, but to shortages of refined products owing to the shutdown of major refining capacity in the United States, and to an interruption of product transportation systems.\nThe rise in crude prices to over $140/barrel by the summer of 2008 was attributable to many contributing factors, including increasing international demand, and concern that demand for crude might outstrip world production. Markets were described as \"tight,\" meaning that there might be little cushion in terms of spare production capacity to replace any crude lost to the market, or to provide adequate supply of petroleum products. In such a market, where demand seems to be brushing against the limits to meet that demand, refinery outages, whether routine or unexpected, can spur a spike in crude and product prices, as can weekly reports of U.S. crude and petroleum stocks, if the numbers reported are not consistent with expectations. As prices continued to increase during 2007-2008, some argued that market conditions did not support the high prices. One market analyst remarked at the end of October 2007, \"The market at this stage totally ignores any bearish news [that would soften the price of oil], but it tends to exaggerate bullish news.\" Significant and sustained increases in oil prices were observed in the absence of the sort of \"severe energy supply interruption\" that remains the basis for use of the SPR. Legislation in the 111 th Congress ( S. 1462 ) would have established a price basis for authorizing a drawdown of the SPR. However, a release from the SPR might not lower prices under every scenario.", "Some policymakers had urged the George W. Bush Administration to release oil from the SPR during the crude oil price run-up of spring and summer 2008. A review of the dynamics in the oil market during this period provides a demonstration of why an SPR release in the face of high prices will not necessarily foster a decline in petroleum prices.\nBy mid-July 2008, U.S. gasoline prices were exceeding $4.00/gallon and diesel fuel was averaging $4.75/gallon. Crude oil prices had briefly exceeded more than $145/barrel, but declined late in the month to less than $128/barrel. Oil prices had risen in recent years in the absence of the normal association with the concept of \"disruption\" or \"shortage.\" The escalation in prices to their observed peak in July 2008 was driven by several factors that are difficult to weigh. Chief among them was the existence of little or no spare oil production capacity worldwide, and a general inelasticity in demand for oil products despite high prices. Prices also generally prove sensitive to the ebb and flow of international tensions, the value of the U.S. dollar, and even the appearance of storms that could develop into hurricanes that might make landfall in the Gulf of Mexico.", "The political unrest that began in Tunisia and spread to Egypt and Libya in early 2011 has been tied to the surge in oil prices observed during the 1 st quarter of the year. To calm markets and to moderate prices, some have called for releasing oil from the SPR.\nBy early March 2011, the price of West Texas Intermediate (WTI), trading on the New York Mercantile Exchange (NYMEX) for April delivery, was in excess of $100 per barrel. In Europe, the price of Brent crude oil exceeded $115 per barrel. These prices, approximately 20% higher than before the outbreak of political unrest, reflect at least two important factors: first, expectations that the unrest could spread to other countries, some of which could be major oil producers, and second, that actual Libyan exports have been curtailed, to an uncertain extent, but likely by at least one half. As an offset to the lost Libyan crude exports, Saudi Arabia has indicated that it will expand its exports to keep the world market supplied.\nIf oil were released from the SPR, the key questions would be whether such a release could dampen expectations that are driving the market, and whether it would reduce prices in the short run, and where.\nThe world is not currently experiencing a shortage of crude oil. Demand remains moderated by the recession, although it is recovering. On the supply side, Saudi Arabia, it is believed, has expanded production to replace the Libyan shortfall. However, a shortage does exist in the sense that Libyan exports of light, sweet crude oil, favored by European refiners to produce clean diesel fuel, have fallen. It is not likely that heavier, sour crude oil produced by Saudi Arabia is a perfect substitute for lost Libyan supplies. As a result, European prices of crude oil have risen more than U.S. prices. If the United States drew light, sweet crude oil from the SPR in sufficient volume, it is possible that competition between U.S. and European refiners for available oil supplies could moderate competing demands and have some effect on price. Since prices in Europe rose the most due to unrest in the MENA, it is likely that any moderating in price due to a release of light, sweet crude from the SPR would occur in the European market with only a smaller effect in the United States. It is not known what volume of SPR draw would be required for any specified price reduction, and it is worth noting that of the 727 million barrels in the SPR, less than half, about 293 million barrels, is light, sweet crude.\nIf political unrest does spread to additional major oil exporting countries, for example Kuwait or Saudi Arabia, it is likely that a major increase in the world price of oil, based on deteriorating expectations, would occur. In that case, additional available oil on the market from reserve stocks would likely have little effect on futures markets, as price movements in those markets reflect availability of supply into the future, not current market conditions. Rather than more currently available oil, the futures markets would require a belief that more future oil production capacity was likely to become available.", "Over the last 25 years, the \"API gravity of imported crude oils has been decreasing, while average sulfur content has been increasing. \"API gravity, a measure developed by the American Petroleum Institute, expresses the \"lightness\" or \"heaviness\" of crude oils on an inverted scale. With a diminishing supply of light, sweet (low sulfur) crude oil, U.S. refineries have had to invest in multi-billion dollar processing-upgrades to convert lower-priced heavier, sour crude oils to high-value products such as gasoline, diesel, and jet fuel.\nCurrently, 124 U.S. refineries process crude oil into fuel (this includes three refinery complexes that are each made up of two formerly independent refineries). The number is down from the 158 reportedly operating a decade ago. Although the number of refineries has decreased, operable refining capacity has increased over the past decade from 16.5 million barrels/day (bpd) to over 18 million barrels per day. Most of the country's gasoline is refined in the Gulf Coast region (Petroleum Administration for Defense District 3), which makes up nearly 45% of the U.S. refining capacity through 45 refineries processing more than 8 million barrels per day. These refineries also represent some of the largest and most complex refineries in the United States, if not the world.\nIn the months prior to Hurricanes Gustav and Ike, there were some calls for an SPR drawdown despite the absence of any discernible shortage. On July 24, 2008, legislation ( H.R. 6578 ; 110 th Congress) to require a 10% drawdown of SPR oil failed to achieve a two-thirds majority in the House under suspension of the rules (226-190). The language was included in H.R. 6899 (110 th Congress), the Comprehensive American Energy Security and Consumer Protection Act, which passed the House on September 16 th (236-189). The bill would have required a sale of 70 million barrels of light grade petroleum from the SPR within six months following enactment. The bill stipulated that 20 million barrels must be offered for sale during the first 60 days. All oil from the sale would be replaced with \"sour\" crude to be acquired after the six-month sale period, with the replacement acquisition completed not later than five years after enactment.\nThe genesis of the H.R. 6899 proposal lay partly in an analysis by the Government Accountability Office (GAO), which observed that the proportion of grades of oil in the SPR was not as compatible as it could be with the trend of refineries toward being able to handle heavier grades of crudes. GAO observed that 40% of the crude oil refined by U.S. refineries was heavier than that stored in the SPR. Refiners reported to GAO that running lighter crude in units designed to handle heavy crudes could impose as much as an 11% penalty in gasoline production and 35% in diesel production. The agency reported that other refiners indicated that they might have to shut down some of their units. Refineries that process heavy oil cannot operate at normal capacity if they run lighter oils. The types of oil currently stored in the SPR would not be fully compatible with 36 of the 74 refineries considered vulnerable to supply disruptions. (A majority of the refineries that have pipeline access to the SPR are located in the Gulf Coast region and the Midwest region.) GAO cited a DOE estimate that U.S. refining throughput would decrease by 735,000 barrels per day (or 5%) if the 36 refineries had to use SPR oil—a substantial reduction in the SPR's effectiveness during an oil disruption, especially if the disruption involved heavy oil.\nIt was unclear what sort of effect a roughly 70 million barrel draw on the SPR would have on prices. In a market where there is no physical shortage, oil companies may have limited interest in SPR oil unless they have spare refining capacity to turn the crude into useful products, or want to build crude oil stocks. SPR oil is not sold at below-market prices. Bids on SPR oil are accepted only if the bids are deemed fair to the U.S. government. If the announcement itself that the SPR is going to be tapped does not prompt or contribute to a softening of prices, there may be limited interest on the part of the oil industry in bidding on SPR supply. Although the possibility exists that prices might decline if additional refined product is released into the market, it was impossible to predict what effect an SPR drawdown would have had on oil prices at any time in 2008, given the many other factors that bear on daily oil prices.\nThere are additional considerations. A unilateral draw on U.S. stocks would probably have less impact on the world oil market than a coordinated international drawdown of the sort that occurred after Hurricanes Katrina and Rita in 2005. Some might argue that it would be unwise under any scenario for the United States to draw down its strategic stocks while other nations continue to hold theirs at current levels. Additionally, it is always possible that producing nations might reduce production to offset any SPR oil delivered into the market. In the setting of 2008, producing, exporting nations could have argued that the market was already well-supplied and that short-term supply concerns were not what was keeping prices relatively high.\nThe SPR has been perceived as a defensive policy tool against high oil prices, but if it is used without a discernible impact on oil prices, it is possible that the SPR will lose some of whatever psychological leverage it exercises on prices when left as an untapped option.", "The Omnibus Appropriations Acts of 2009 ( P.L. 111-8 ) provided $205 million for necessary expenses for Strategic Petroleum Reserve facility development and operations and program management activities, of which $31.5 million was provided to initiate new site expansion activities, beyond land acquisition. The Northeast Home Heating Oil Reserve received $9.8 million for necessary operation and management expenses.\nThe Supplemental Appropriations Act for 2009 ( P.L. 111-32 ) authorized a transfer of $21.6 million from the SPR petroleum account for site maintenance activities.\nThe Energy and Water Appropriations Act for 2010 ( P.L. 111-85 ) provided $243.8 million for development and operations and program management activities at the Strategic Petroleum Reserve facility, and $11.3 million for the Northeast Home Heating Oil Reserve. Section 313 of the Appropriations Act prohibited expending SPR appropriations to anyone engaged in selling refined products valued at more than $1 million to Iran or contributing in any way to expansion of refining capacity in Iran. Firms providing, or insuring tankers carrying, refined product to Iran were also included in the prohibition.", "A bill to establish a National Strategic Gasoline Reserve ( H.R. 142 ) would authorize the Secretary of Energy to set aside 10 million barrels of refined gasoline products similar to the Northeast Home Heating Oil Reserve.\nArguments in favor of establishing a refined product reserve are that U.S. oil imports include refined products and that it could be more efficient and calming to markets if it were not necessary to first draw down SPR crude and then refine it into needed products. The effect that SPR crude might have on moderating price increases could also be offset if refineries themselves or oil pipelines carrying crude to refineries were compromised. The availability of refined product reserves would address that scenario. Having a regional product reserve would also lessen the likelihood that delivery of crude or product from the stocks of IEA signatories might overwhelm U.S. port facilities; this happened in the wake of the European response that followed Hurricanes Rita and Katrina.\nArguments against a product reserve include the prospect that the availability of supplemental supplies of gasoline from abroad may increase as European demand for diesel vehicles displaces gasoline consumption there. Additionally, storage of refined product is more expensive than for crude. Storage of crude in salt caverns is estimated to cost roughly $3.50/barrel while above-ground storage of product in tanks might cost $15-$18/barrel. Refined product will also deteriorate and would need to be periodically sold and replaced to assure the quality of the product held in the product reserve. Many states also use different gasoline blends, adding to the complexity of identifying which blends should be stored where, and in what volume. It would be simpler to hold conventional gasoline in a product reserve with the expectation that the Environmental Protection Agency (EPA) would waive Clean Air Act (CAA) requirements during an emergency.\nH.R. 1017 , introduced March 10, 2011, would provide for the sale of light grade petroleum from the Strategic Petroleum Reserve and replace the crude with refined petroleum product." ], "depth": [ 0, 1, 1, 1, 1, 2, 2, 1, 1, 2, 2, 1, 2, 2, 2, 2, 1, 1, 1 ], "alignment": [ "h0_title h2_title h1_title h3_title", "", "h0_full h2_full", "h1_full", "h2_title", "h2_full", "h2_full", "h0_full", "h0_full h3_full", "", "h3_full", "h1_full", "", "", "", "", "", "h3_full", "" ] }

{ "question": [ "Why did Congress authorize the Strategic Petroleum Reserve?", "What is the SPR?", "How has the SPR's capacity changed?", "What augments SPR's oil capacity?", "What caused EPCA to authorize drawdown of the Reserve?", "How did EPCA intend to use the SPR?", "Why did Congress enact additional authority in 1990?", "How has the government changed their method of acquiring oil to fill the SPR?", "How has policy on RIK fill changed?", "What allowed for the resumption of RIK fill?", "How did the RIK filling activities affect the SPR inventory?", "What is the future of the RIK program?", "How did Congress handle the SPR in 2009?", "What is the current status of SPR expansion plans?", "How did the Energy and Water Appropriations Act implicate SPR?" ], "summary": [ "Congress authorized the Strategic Petroleum Reserve (SPR) in the Energy Policy and Conservation Act (EPCA, P.L. 94-163) to help prevent a repetition of the economic dislocation caused by the 1973-1974 Arab oil embargo.", "The Department of Energy (DOE) manages the SPR, which comprises five underground storage facilities, solution-mined from naturally occurring salt domes in Texas and Louisiana.", "The Energy Policy Act of 2005 (EPAct) authorized SPR expansion to a capacity of 1 billion barrels, but physical expansion of the SPR has not proceeded beyond 727 million barrels—its inventory at the end of 2010.", "In addition, a Northeast Home Heating Oil Reserve (NHOR) holds 2 million barrels of heating oil in above-ground storage.", "EPCA authorized drawdown of the Reserve upon a finding by the President that there is a \"severe energy supply interruption.\" The meaning of a \"severe energy supply interruption\" has been controversial.", "EPCA intended use of the SPR only to ameliorate discernible physical shortages of crude oil.", "Congress enacted additional authority in 1990 (Energy Policy and Conservation Act Amendments of 1990, P.L. 101-383) to permit use of the SPR for short periods to resolve supply interruptions stemming from situations internal to the United States.", "The government had ended the practice of purchasing crude oil to fill the SPR in 1994. In 2000, the Department of Energy began acquiring SPR oil through royalty-in-kind (RIK) in lieu of cash royalties paid on production from federal offshore leases.", "In May 2008, Congress passed legislation (P.L. 110-232) ordering DOE to suspend RIK fill for the balance of the calendar year unless the price of crude oil dropped below $75/barrel.", "Crude oil prices spiked to $147/barrel in the summer of 2008 and then sharply declined, allowing a resumption of fill.", "These activities have brought the SPR essentially to its current 727 million barrel inventory.", "The current Secretary of the Interior recently announced his intention to terminate the RIK program.", "Congress approved $205 million for the SPR in FY2009, including $31.5 million to continue SPR physical expansion activities.", "DOE has evaluated a site in Richton, MS, as a possible location for an additional 160 million barrels of capacity, but set aside any further expansion plans.", "The FY2010 Energy and Water Appropriations Act (P.L. 111-85), which provides $243.8 million for the entire SPR program, included $25 million for expansion activities and $43.5 million for purchase of a cavern at Bayou Choctaw to replace a cavern posing environmental risks. The act also prohibits SPR appropriations from being expended to anyone engaged in providing refined product to Iran, or assisting Iran in developing additional internal capacity to refine oil." ], "parent_pair_index": [ -1, 0, 0, 2, -1, 0, -1, -1, 0, 1, 1, 0, -1, 0, 0 ], "summary_paragraph_index": [ 0, 0, 0, 0, 1, 1, 1, 2, 2, 2, 2, 2, 3, 3, 3 ] }

{ "title": [ "", "Introduction", "Summary of H.R. 1837", "Title I—Central Valley Project Water Reliability", "Title II—San Joaquin River Restoration", "Background17", "Title II Proposals", "Title III—Repayment Contracts and Acceleration of Repayment of Construction Costs", "Title IV—Bay-Delta Watershed Water Rights Preservation and Protection", "Title V", "Concluding Remarks" ], "paragraphs": [ "", "On February 16, 2012, the House Natural Resources Committee ordered reported H.R. 1837 , the Sacramento-San Joaquin Valley Water Reliability Act. The bill aims to address water shortages experienced by some California state and federal water contractors, shortages that sponsors attribute to implementation of the Central Valley Project Improvement Act of 1992 (CVPIA, Title 34 of P.L. 102-575 ), as well as state and federal environmental laws (e.g., the federal Endangered Species Act, its state equivalent, and possibly state rules implemented to comply with the federal Clean Water Act). The bill also addresses many other issues associated with California water management, including making substantial changes to the San Joaquin River Restoration Settlement Act (Title X of P.L. 111-11 ) and allowing early or accelerated repayment by private parties of outstanding construction cost obligations. The bill would make numerous changes to federal and state law regarding the management of water, fish, and wildlife resources in California. It also preempts \"any\" law (subject to certain state water rights priorities identified in Title IV of the bill) pertaining to operation of the federal Central Valley Project (CVP) and the California State Water Project (SWP) and substitutes for those laws operational principles elaborated in a 1994 interim agreement among CVP and SWP parties and others, known as the Bay-Delta Accord. Because the CVP and SWP are operated in a coordinated manner, actions taken by either the state or federal government can and do affect the other's operations.\nThe tensions among the different stakeholders in California water policy are particularly high given current low snowpack conditions and recent state and federal water allocations, which project that some water users will get 30% of their contracted water supplies and that many others, including many municipalities and senior water rights holders, are projected to receive 75% of their contracted supplies. In other drought years, some south-of-Delta contractors have received as little as 10% to 35% of their contracted amounts. Overall, some south-of-Delta contractors have received 90%-100% of their contracts in just five of the last 20 years. At the same time, fish populations throughout the Central Valley of California have dramatically declined due to water diversions and other factors. Fishing communities have also experienced significant losses as a result of salmon population declines. For example, a fishery disaster declaration was in effect for the California and Oregon coast in 2008 and through 2010. Per the disaster declaration, Congress appropriated $170 million to be used to compensate some communities for losses due to the closed fisheries.\nAt issue for Congress is how to address chronic shortages for some in the CVP system without disrupting decades-long federal and state law addressing senior water rights and other priorities. Also at issue is to what degree Congress is willing to change or allow preemption of long-standing federal and state environmental laws, including state water quality and endangered species laws, and at what benefit and cost. For example, what are the tradeoffs embedded in the bill's preemption of state law and fish and wildlife protections as a means to increase the water deliveries to some irrigation contractors and municipalities? What will be the impact on the state's recreation and sport and commercial fishing industries and its long-term flexibility to manage water for new uses? Will potential benefits to some irrigators outweigh such costs? Will water remain in agricultural use or will new and less costly transfer provisions result in more water flowing to more affluent urban areas and water brokers? Will such an outcome create efficiency gains? These are some of the questions that arise in changes proposed by H.R. 1837 . Many of these questions remain unanswered.\nThe remainder of this report provides a brief title-by-title summary of the key provisions and water policy changes proposed in H.R. 1837 . A legal analysis of the proposed legislation is beyond the scope of this report.", "Each title of H.R. 1837 addresses a different aspect of California water policy.\nTitle I makes numerous changes to the CVPIA: broadening purposes for which water previously dedicated to fish and wildlife can be used; changing the definitions of fish covered by the act; broadening purposes for which the Central Valley Project Restoration Fund (CVPRF) monies can be used; reducing revenues into the CVPRF, mandating operation per a 1994 interim agreement; and mandating development and implementation of a plan to increase the water yield of the CVP by October 1, 2013. Title II directs the Secretary to cease implementation of the San Joaquin River Restoration Settlement Agreement, which is the foundation of the San Joaquin River Restoration Settlement Act (SJRRS). The title also removes the salmon restoration requirement and makes other changes to the SJRRS. Title III directs the Secretary of the Interior, upon request from water contractors, to convert utility-type water service contracts to repayment contracts, and then allows accelerated repayment of those outstanding repayment obligations. (Irrigation and municipal & industrial [M&I] repayment obligations for the CVP for 2010, the last year for which such data are readily available, total approximately $1.2 billion.) Title IV outlines water rights protections for those with water rights senior to the CVP, including Sacramento River Valley contractors and addresses shortage policy for certain north-of-Delta CVP water service contracts. Title V declares that the unique circumstances of coordinated operations of the CVP and SWP \"require assertion of Federal supremacy to protect existing water rights throughout the system\" and that as such shall not set precedent in any other state. (There has been concern from some western states that the state and federal preemptions contained in H.R. 1837 might be used as precedent in other western states and threaten their allocation of state water rights.)", "Title I of H.R. 1837 makes numerous changes to the CVPIA. When enacted, the CVPIA made broad changes to operations of the Bureau of Reclamation's Central Valley Project. The act set protection, restoration, and enhancement of fish and wildlife on par with other project purposes (such as delivering water to irrigation and M&I contractors), dedicated a certain amount of water for fish and wildlife purposes, established fish restoration goals, and established a restoration fund (Central Valley Project Restoration Fund) to pay for fish and wildlife restoration, enhancement, and mitigation projects and programs. It also made contracting changes and operational changes. The CVPIA was quite controversial when enacted and has remained so, particularly for junior water users whose water allocations were ultimately limited due to implementation of the act. Compounding the controversy over water allocation are other factors that limit water deliveries—namely state water quality control requirements, variable hydrological limitations, the state system of water rights priorities, and implementation of state and federal endangered species and other environmental laws.\nTitle I of H.R. 1837 addresses many provisions of the CVPIA opposed by irrigators, namely dedication of project water to address fish and wildlife purposes, enhancement and mitigation activities, water transfer limitations, tiered pricing formulas, and other restoration and mitigation charges.\nTitle I of H.R. 1837 would amend the CVPIA in numerous ways, including the following:\nNarrows the scope and definition of fish stocks provided protection by the act (limiting coverage to those found in 1992, and eliminating coverage for non-native species such as bass and shad). Some stocks were already in severe decline by 1992, including winter run Chinook salmon, which were listed as endangered under the ESA in 1990, and some (San Joaquin River runs) had become extinct by the 1950s. Adds a new definition for \"reasonable flows,\" which is arguably more broadly defined than in the CVPIA. Removes a qualified prohibition on new contracts, thus presumably allowing new contracts. Increases the maximum contract term from 25 years to 40 years. Directs the Secretary of the Interior (Secretary) to perpetually renew contracts. It is not clear if such renewals would be subject to negotiation or review (as they are now), or whether such direction would preclude further National Environmental Policy Act (NEPA) review and Endangered Species Act consultation on contract renewals. (This provision is proposed to be stricken in a manager's amendment, and replaced with language referring to renewals under the Act of July 2, 1956). Directs the Secretary to facilitate and expedite water transfers and prohibits environmental or mitigation requirements as a condition to transfers. Eliminates the tiered pricing requirement and other revenue streams that fund fish and wildlife enhancement, restoration, and mitigation under the CVPRF. Removes the mandate that the Secretary modify CVP operations to provide flows to protect fish, and adds the term \"reasonable\" to the authority to provide such flows. Also directs that any such flows shall be provided from the 800,000 acre feet of water in Section 3406(b)(2), which H.R. 1837 would allow to be used for purposes other than fish protection (also, fish and wildlife purposes would no longer be the \"primary\" purpose of such flows). Adjusts accounting for Section 3406(b)(2) water. It appears that state water quality requirements, ESA, and all other contractual requirements would need to be met via use of the (b)(2) water; however this is not entirely clear in the language. Also would direct that (b)(2) water be reused. (It currently is reused, but reuse is not currently mandated.) Mandates an automatic 25% reduction of (b)(2) water when Delta Division water supplies are also reduced by 25%. (The Delta Division is a unit of the CVP that serves water districts that often receive less water than under their full contract amount.) Deems pursuit (as opposed to accomplishment) of fish and wildlife programs and activities authorized by the amended Section 3406 as meeting the mitigation, protection, restoration, and enhancement purposes of the CVPIA, as amended. Prohibits donations or other payments or any other environmental restoration or mitigation fees to the CVPRF as a condition to providing for the storage or conveyance of non-CVP water, delivery of surplus water, or for any water that is delivered with the sole intent of groundwater recharge. Requires completion of fish, wildlife and habitat mitigation and restoration actions by 2020, thus reducing water and power contractor payments into the CVPRF. Currently, the CVPRF payments will continue until such actions are complete; then payments are cut substantially. (Note, however, that H.R. 1837 would also deem pursuit of such actions as meeting the obligations to do so, which would also presumably trigger the reduced payments.) Establishes an advisory board responsible for reviewing and recommending CVPRF expenditures. The board is to be primarily made up of water and power contractors (10 of 12). Facilitates transfer and wheeling of non-project water from any source using CVP facilities. Requires a least-cost plan by the end of FY2013 to increase CVP water supplies by the amount of water dedicated and managed for fish and wildlife purposes under CVPIA and otherwise required to meet all purposes of the CVP, including contractual obligations (which are currently approximately 9.3 million acre feet (maf)). Deliveries ranged from 4.9 maf in 2009 (a drought year) to 6.2 maf over the last five years, and are closer to 7 maf in normal hydrologic years. Thus, a gap exists between CVP contractual obligations and average or normal deliveries. Requires implementation of the increased water plan (including any construction of new water storage facilities that might be included in the plan), beginning on October 1, 2013, in coordination with the state of California. If the plan fails to increase the water supply by 800,000 acre feet, implementation of any non-mandatory action under Section 3406(b)(2) shall be suspended until the 800,000 acre feet is replaced. Authorizes the Secretary to partner with local joint power authorities and others in pursuing storage projects (e.g., Sites Reservoir, Upper San Joaquin Storage, Shasta Dam and Los Vaqueros Dam raises) authorized for study under CALFED ( P.L. 108-361 ), but would prohibit federal funds to be used for this purpose or for financing and constructing the projects. (Also would authorize construction as long as no federal funds are used.) Directs that the CVP and the SWP be operated per principles outlined in the Bay-Delta Accord, without regard to the ESA \"or any other law\" pertaining to operation of the two projects. (§108) Prohibits federal or state imposition of any condition restricting the exercise of valid water rights in order to conserve, enhance, recover, or otherwise protect any species that is affected by operations of the CVP or SWP, or protect any \"public trust value\" pursuant to the \"Public Trust Doctrine.\" Preempts state law regarding catch limits for nonnative fish that prey on native fish species (e.g., striped bass) in the Bay-Delta. Mandates that hatchery fish be included in making determinations regarding anadromous fish covered by H.R. 1837 under the ESA. Expands the CVP service area to cover a portion of Kettleman City. Allows compliance under the California Environmental Quality Act to suffice for compliance with NEPA.\nMany of these changes have tradeoffs embedded in them. For example, provisions limiting the scope and definition of fish stocks receiving protection by the act benefit some stakeholders, but are opposed by others. Similarly, expanding the use of dedicated fish flows and funding for fish and wildlife restoration may provide more water to irrigators or other water users, but may contribute to the decline of salmon and other fish populations. This is also true of some of the most controversial sections of the bill, such as directing perpetual contract renewals, which may be viewed on one hand as an attempt to circumvent future NEPA review, but on the other hand as a way to guarantee supplies of water and streamline the regulatory process. Section of 108 of H.R. 1837 , which directs the Secretary to operate the CVP and SWP according to principles outlined in the Bay-Delta Accord also would benefit some water users, but may harm other stakeholders.", "", "Historically, Central California's San Joaquin River supported large Chinook salmon populations. Since the Bureau of Reclamation's Friant Dam on the San Joaquin River became fully operational in the late 1940s, much of the river's water has been diverted for agricultural uses. As a result, approximately 60 miles of the river became dry in most years, making it impossible to support Chinook salmon populations upstream of the Merced River confluence.\nIn 1988, a coalition of environmental, conservation, and fishing groups advocating for river restoration to support Chinook salmon recovery sued the Bureau of Reclamation. A U.S. District Court judge subsequently ruled that operation of Friant Dam was violating state law because of its destruction of downstream fisheries. Faced with mounting legal fees, considerable uncertainty, and the possibility of dramatic cuts to water diversions, parties agreed to negotiate a settlement instead of proceeding to trial on a remedy regarding the court's ruling.\nA settlement agreement was reached in the fall of 2006. Implementing legislation was debated in the 110 th and 111 th Congresses ( H.R. 4074 , H.R. 24 and S. 27 ) and became law in the spring of 2010 (Title X of P.L. 111-11 ). The Settlement Agreement and its implementing legislation call for new releases of water from Friant Dam to restore fisheries (including salmon) in the San Joaquin River and for efforts to mitigate water supply losses due to the new releases, among other things.\nBecause increased water flows for restoring fisheries (known as restoration flows) would reduce diversions of water for off-stream purposes, such as irrigation, hydropower, and municipal and industrial uses, the settlement and its implementation have been controversial. The quantity of water used for restoration flows and the quantity by which water deliveries would be reduced are related, but the relationship would not necessarily be one-for-one, due to flood flows in some years and other factors. Under the Settlement Agreement, no water would be released for restoration purposes in the driest of years; thus, the Settlement Agreement would not reduce deliveries to Friant contractors in those years. Additionally, in some years, the restoration flows released in late winter and early spring may free up space for additional runoff in Millerton Lake, potentially minimizing reductions in deliveries later in the year—assuming Millerton Lake storage is replenished. Consequently, how deliveries to Friant water contractors might be reduced in any given year depends on many factors.\nRegardless of the specifics of how much water might be released for fisheries restoration versus water diverted for off-stream purposes (such as irrigation), there will be impacts to existing surface and groundwater supplies in and around the Friant Division Service Area. Although some opposition to the Settlement Agreement and its implementing legislation remains, the largest and most directly affected stakeholders (i.e., the majority of Friant water contractors, their organizations, and environmental, fisheries, and community groups) supported the Settlement Agreement and publicly supported the implementing legislation. On the other hand, others opposed the Settlement Agreement and have continued to oppose its implementation.", "Title II of H.R. 1837 would address the ongoing controversy associated with the SJRRS by declaring that the Title \"satisfies and discharges\" all obligations of the Secretary and others to keep in good condition any fish below Friant Dam, including obligations under Section 5937 of the California Fish and Game Code, the state public trust doctrine, and the federal ESA. It is not clear how such action would affect the stipulated Settlement Agreement or how parties to the Settlement Agreement might react to changes in the implementing legislation ( P.L. 111-11 , which would no longer be implementing terms of the Settlement Agreement if H.R. 1837 became law). For example, Section 201 of H.R. 1837 directs the Secretary of the Interior to \"cease any action\" to implement the stipulated Settlement Agreement on San Joaquin River Restoration. The bill would also amend the San Joaquin River Restoration Settlement Act's (SJRRS) purpose to be restoration of the San Joaquin River, instead of implementation of the Settlement Agreement. Unlike the original Settlement Agreement and the implementing legislation (Title X of P.L. 111-11 ), however, restoration authorized in this bill is not for salmon, but would be presumably for a warm water fishery upstream of Mendota Pool.\nKey provisions of Title II would:\nProvide protections to third parties and allow CVP contactors to bring action against the Secretary for injunctive relief or damages, or both (§208 of H.R. 1837 ). Replace references to the settlement throughout the SJRRS with \"this part\" (i.e., Title II of H.R. 1837 ). Direct the Secretary to develop and implement within one year a \"reasonable plan\" to fully recirculate, recapture, reuse, exchange, or transfer all restoration flows (defined as a target of 50 cubic feet per second entering Mendota Pool, 62 miles below Friant Dam) and provide such flows to contractors within the units of the CVP that relinquished such restoration flows. Direct the Secretary to identify, before October 1, 2013, impacts associated with implementation of modified restoration flows and mitigation actions to address those impacts, and to implement such mitigation actions before restoration flows begin. Include a qualified preemption of Section 8 of the Reclamation Act of 1902 (deference to state law). Also \"preempts and supersedes any State law, regulation, or requirement that imposes more restrictive requirements or regulations on the activities authorized under this part\", while making an exception for certain state water quality rules. Amend the environmental compliance provisions of the San Joaquin SJRRS by adding, \"unless otherwise provided by this part\" (i.e., unless otherwise provided by title II of H.R. 1837 ). Alter funding for the activities covered by the act. Declare that H.R. 1837 satisfies and discharges certain provisions of CVPIA and state fish and game code Section 5937, the latter of which was the basis of the Settlement Agreement. Repeal Section 10011 of the SJRRS, which addresses implementation issues associated with the re-introduction of Central Valley spring run Chinook salmon.", "Since the passage of the Reclamation Act of 1902, reclamation law has been based on the concept of project repayment—reimbursement of construction costs—by project water and power users (also known as project beneficiaries). Typical \"repayment contracts\" were made for terms of 40 or 50 years, with capital costs amortized over the long-term period and repaid in annual installments (without interest for irrigation investments and with interest for M&I investments). According to one account, because the CVP is a \"financially integrated\" system, a different type of contract was used, known as a \"water service contract.\" Under water service contracts, contractors pay a combined capital repayment and operations and maintenance (O&M) charge for each acre-foot of water actually delivered. This water service payment is different from repayment contracts, in that under repayment contracts the annual repayment bill is due regardless of how much water is used in a given year. Repayment contracts tend to be the norm outside of California; however, some other projects do have some water service contracts. Water service contracts in the CVP were also typically written for 40-year terms. However, in 1992 with the passage of the Central Valley Project Improvement Act (CVPIA, Title 34 of P.L. 102-575 ), contract terms were reduced to a maximum of 25 years.\nAnother early tenet of reclamation law still in existence is a limit on how much land one can irrigate with water provided from federal reclamation projects. The idea behind the limitation was to prevent speculation and monopolies in western land holdings and to promote development and expansion of the American West through establishment of family farms. Over the ensuing decades, several attempts were made to increase the acreage limitation, and in 1982, pursuant to the Reclamation Reform Act (RRA, P.L. 97-293 ), the original acreage limitation of 160 acres was raised to 960 acres. Scholars and others have written extensively on enforcement issues resulting from the 960-acre limit. It has remained on one hand, a thorn in the side of irrigators, particularly in the Central Valley where large industrial farms are more common than other areas of the West, and on the other hand, a key rallying point for taxpayer groups, environmentalists, and others who have opposed using federally subsidized water to irrigate large swaths of land. Under current law, once a repayment contract is paid out, the contractor no longer is subject to the 960-acre limit or other provisions of RRA (e.g., full-cost pricing for water).\nKey provisions of Title III would:\nAuthorize and direct the Secretary, upon request, to convert agricultural water service contracts (known as 9(e) contracts) to repayment contracts (known as 9(d) contracts), as well as M&I water service contracts to repayment contracts. (It is possible that such direction might also preclude NEPA review.) Direct that under such conversions, the Secretary shall require repayment either in lump sum or accelerated prepayment of a contractor's remaining construction costs. Reiterate current law regarding the elimination of an obligation to pay full-cost pricing rates or abide by the acreage (ownership) limitations of Reclamation law once the repayment obligation is met.\nIt is not clear how many contractors within the CVP might take advantage of these provisions and opt to prepay or accelerate their payments. Current CVP contract rates are based on a target repayment date of 2030; however, because the project is technically not complete, adjustments are made annually to capital cost obligations. Current CVP ratebooks (2012) show outstanding repayment obligations of approximately $1.15 billion for irrigation contracts and $147 million for M&I contracts. Presumably, districts interested in prepaying or accelerating repayment would have to get a loan or issue a bond to raise the capital to make the payment, unless they have cash or other relatively liquid assets on hand. Because the federal repayment amount is akin to a no-interest loan for irrigation contracts, a district would have to weigh the financial costs of new financing with the operating and opportunity costs of continuing to remain under reclamation ownership and full-cost pricing rules. The added permanency of the water contract under Title I (i.e., successive renewals, upon request, and potentially without NEPA review), might make such prepayment more attractive. On the other hand, if under Title I a water service contractor could also enjoy such benefits anyway (due to the successive renewal language), it is not clear that the added benefits of being able to use Bureau of Reclamation water on more land and elimination of other requirements would outweigh the financial and administrative costs of new financing.", "Title IV of H.R. 1837 aims to protect senior water rights and what are known as \"area-of-origin\" priorities that are currently embedded in state law. The Title also includes specific language protecting Sacramento River Settlement contracts (both base supply and project supply) from potential reductions due to ESA implementation, thereby aiming to protect such contractors from adverse consequences of H.R. 1837 's Section 108 preemption of state and federal law on CVP and SWP Delta operations. While Title IV would protect northern and other senior water rights holders (senior to those rights or permits belonging to the CVP), it does not appear to protect water users in the Delta or others whose water rights may be more junior to the CVP, but perhaps senior to others. Additionally, to the extent the bill would not provide new water to junior contractors beyond what might be garnered from prohibition on environmental restrictions beyond those contained in the Bay-Delta Accord, it is not clear the bill would end water supply shortages until new water supplies or other increases in yield anticipated by the bill were developed or accomplished.\nFollowing is a summary of a few key provisions of Title IV.\nSection 401 would direct the Secretary to strictly adhere to state water rights by honoring senior water rights, \"regardless of the source of priority.\" Section 402 would place new limits on water supply reductions for Sacramento Valley agricultural water service contractors in times of water shortages, similar to those enjoyed by senior water contractors and wildlife refuges (e.g., the Secretary of the Interior in operation of the CVP would have to deliver not less than 75% of water service contractors' contracted water supply in a \"dry\" year). Currently, water service contractors have no minimum guarantee of water deliveries in dry years. (For example, north-of-Delta agricultural water service contractors are projected to receive just 30% of their contracted supplies in 2012.) The section also provides protections for M&I water contractors. Section 404 would direct the Secretary to ensure \"that there are no redirected adverse water supply or fiscal impacts to those within the Sacramento River watershed or to the State Water Project arising from the Secretary's operation of the [CVP]\" to meet legal obligations imposed by or through a state or federal agency, including but not limited to the ESA or H.R. 1837 , or actions or activities implemented to meet \"the twin goals of improving water supply or addressing environmental needs of the Bay Delta.\" (The latter clause appears to be a reference to ongoing state and federal efforts to develop a Bay-Delta Conservation Plan [BDCP] and the state's implementation of a Delta action plan.)\nIt is not clear how some sections of Title IV square with the broad preemption language of Section 108 and Title V, or how such legislation would be implemented in practice. Some of the sections in Title IV appear to conflict with the goals of Title I and make unclear how much new water would be available to junior contractors, beyond water used for environmental purposes that would no longer be allowed under H.R. 1837 .", "Title V of H.R. 1837 states that \"Congress finds and declares\" that\nCoordinated operations of the CVP and SWP (previously requested and consented to by the state of California and the federal government) require assertion of federal supremacy (presumably in water allocation) to protect existing water rights throughout the [CVP and SWP] system. Such circumstances are unique to California. \"Therefore, nothing in this Act [ H.R. 1837 ] shall serve as precedent in any other State.\"", "H.R. 1837 is primarily aimed at addressing decreased water deliveries to California's CVP contractors, particularly those south of the Delta, since passage of the CVPIA in 1992. The means would be delivering water to contractors that would become available due to the bill's prohibition on restrictions in environmental and other laws. The bill would primarily accomplish greater water deliveries by preempting federal and state law, including fish-and-wildlife protections and other CVP operational mandates, which are all tied to the coordinated operations of the CVP and SWP. It is unclear what impacts such changes would have on other water users in the state. Title IV of the bill attempts to provide protections for California's senior water right holders, particularly those in the Sacramento Valley watershed and in \"area-of-origin\" areas. A key remaining unknown is the significance of the bill's use of the fixed 1994 Bay Delta Accord as a basis rather than current (and evolving) in-Delta water quality standards; the current standards impose water flow restrictions and appear to be a contributing factor to annual pumping restrictions in the Delta.\nH.R. 1837 would make extensive changes to implementation of federal reclamation law under the Central Valley Project Improvement Act, the contracting provisions under the 1939 Reclamation Project Act, restoration efforts under the San Joaquin River Restoration Settlement Act, and state and federal relationships under Section 8 of the Reclamation Act of 1902. The bill would also potentially significantly alter the way the state of California implements its own state laws with regard to operation of the CVP and SWP.\nWhile much attention has been paid to the effects of federal and state environmental laws on reductions in water supplies south of the Delta, the extent to which the bill would relieve water supply shortages, particularly in drought years, is uncertain. Without new water to contractors beyond what might be garnered from prohibition on state and federal environmental restrictions (and none from changes in water rights priorities or certain Delta water quality requirements), it is unclear the extent to which the bill would relieve shortages in water deliveries. An analysis of drought years and other years reveals that another significant factor in pumping restrictions is a state water quality control plan, which includes salinity and flow requirements in the Delta, as well as the fundamental tenet of state water rights allocations during times of hydrological and regulatory shortages. For example, in 2009 (a drought year) the Department of the Interior estimated that approximately 25% of the water supply reductions south of the Delta (which were approximately 40% of average annual exports) were due to federal endangered species protections. The rest of the restrictions were due to lack of water and other factors (including CVPIA). For 2011 (a wet year), the Department estimates that pumping restrictions for endangered species and CVPIA purposes totaled 90,000 acre feet (62,000 and 28,000 respectively) – approximately 1.4% of the total 6.9 million acre feet exported from the Delta that year. It is not clear how much of any given year's pumping restrictions are due to state water quality control requirements and to what degree the Bay-Delta Accord matches those requirements, and thus to what degree a similar level of restrictions would remain under H.R. 1837 for water quality purposes. Further, any reduction can be important in the long run, due to the state and federal system's reliance on storage carryover capacity and its ability to store water in wet years for use in dry years.\nH.R. 1837 goes to the heart of the water supply issue by proposing to prohibit \"any\" state or federal law (including the public trust doctrine and possibly California water rights laws) from reducing water supplies beyond those allowed in the Bay-Delta Accord and declaring a federal supremacy over water management to \"protect existing water rights throughout the system.\" However, some argue that the bill would undermine efforts to achieve the \"co-equal\" goals of \"providing for a more reliable water supply for California and protecting, restoring, and enhancing the Bay-Delta ecosystem,\" which is the foundation of state and federal efforts in development of the BDCP. While Section 401 of Title IV would direct the Secretary to strictly adhere to state water rights and honor senior water rights, it is unclear how other sections of Title IV square with the broad preemption language of Section 108 and the federal supremacy language in Title V, and how such legislation would be implemented." ], "depth": [ 0, 1, 1, 2, 2, 3, 3, 2, 2, 2, 1 ], "alignment": [ "h0_title h2_title h1_title h3_title", "h0_full h2_full h1_full", "h3_full h2_title h0_title", "h2_full", "", "", "", "", "h0_full", "", "h3_full h1_full" ] }

{ "question": [ "How has the drought affected water contractors in California?", "Why are the water reductions significant?", "How has the drought affected fish populations?", "How have the state and federal governments worked to resolve the ecosystem issues?", "What do proponents of H.R. 1837 argue?", "What do opponents of H.R. 1837 argue?", "How was H.R. 1837 ordered reported?", "What issue is Congress debating regarding H.R. 1837?", "What effect would the proposed changes have?", "How would H.R. 1837 interact with existing laws?", "What other water management issues does the bill address?", "How certain is it that the bill would relieve water supply shortages?", "What factors affect water allocation?", "To what extent is it known how H.R. 1837 would affect these factors?" ], "summary": [ "For most of the last 20 years, some water contractors in California have received less than their full contract water supplies from federal and state facilities. Although such allocations are in part the result of the prior appropriation doctrine in western water law and are consistent with the expectation of a \"junior\" water user in times of drought, tensions over water delivery reliability have been exacerbated by reductions in deliveries even in non-drought years.", "Such reductions are significant because much of the California urban and agricultural economy operates under junior water rights, and reductions in water allocations can cause significant disruption and economic loss for individual farmers and communities, particularly in drought years.", "At the same time, fish populations throughout the Central Valley of California have dramatically declined due to water diversions and other factors, and have been accompanied by significant losses for fishing communities and others dependent on fish and wildlife resources.", "The state and federal governments have been working to address water supply reliability and ecosystem issues through pursuit of a Bay-Delta Conservation Plan (BDCP); however, the plan is not complete and remains controversial.", "Proponents of H.R. 1837 argue that implementation of the Central Valley Project Improvement Act of 1992 (CVPIA) and state and federal environmental laws (e.g., the federal Endangered Species Act and its state equivalent) have compounded the impact of drought on water deliveries; the bill is designed to remedy these effects.", "Others argue that the bill would harm the environment and resource-dependent local economies, particularly coastal communities. Some also argue that it would undermine efforts to resolve environmental and water supply reliability issues through development of the BDCP.", "On February 16, 2012, the House Natural Resources Committee ordered reported H.R. 1837, the Sacramento-San Joaquin Valley Water Reliability Act.", "At issue for Congress is the extent to which the bill changes decades of federal and state law, including state and federal environmental laws, and at what benefit and cost. For example, there are tradeoffs embedded in the bill's preemption of state water law, including fish and wildlife protections, as a means to increase the water deliveries to some irrigation contractors and municipalities.", "It appears these changes likely would most benefit water contractors in the southern portion of the CVP service area, but might harm others and potentially reduce environmental protections and improvements and the services and industries they support (e.g., recreational and fishing industries). What impact such tradeoffs might have on other stakeholders is unclear.", "H.R. 1837 would preempt \"any\" (including state and federal) law pertaining to operation of the federal Central Valley Project (CVP) and California's State Water Project (SWP) and substitute for those laws operational principles from a 1994 interim agreement, originally supported by many diverse parties, known as the Bay-Delta Accord.", "The bill also addresses other California water management issues, making significant changes to the San Joaquin River Restoration Settlement Act and allowing early repayment of CVP construction cost obligations.", "While much attention has been paid to the effects of federal and state environmental laws on reductions in water supplies south of the Sacramento and San Joaquin Rivers delta confluence with San Francisco Bay (Bay-Delta, or Delta), the extent to which the bill would relieve water supply shortages, particularly in drought years, is uncertain.", "For example, many factors affect pumping restrictions and the overall water allocation regime for CVP contractors. The federal ESA and CVPIA are only two factors in the regime. Other key factors include state water quality regulations (particularly flow and salinity requirements in the Delta), SWP pumping, and state water rights.", "How H.R. 1837 would in practice affect these factors remains uncertain." ], "parent_pair_index": [ -1, 0, 0, 0, -1, 0, 0, -1, 0, 0, 0, -1, 0, 1 ], "summary_paragraph_index": [ 0, 0, 0, 0, 1, 1, 1, 2, 2, 2, 2, 3, 3, 3 ] }

{ "title": [ "", "Introduction", "Base Budget Highlights", "Reductions in Overhead and Support Costs", "A Smaller but Ready Force", "'Pivot' Toward the Pacific", "Modernization", "Aircraft Programs", "Shipbuilding", "Ground Combat Vehicles", "Personnel Costs", "Overseas Contingency Operations (OCO)", "Longer-Term Budget Issues", "Going Beyond BCA", "Sequestration in the FY2013 Budget", "A View from DOD", "Other Sequestration Challenges", "Getting Ready for Mandatory Cuts" ], "paragraphs": [ "", "The Obama Administration's FY2013 budget request, submitted to Congress on February 13, 2012, includes $647.4 billion for national defense programs, including global operations of the Department of Defense (DOD), defense-related nuclear programs conducted by the Department of Energy, and other activities. For discretionary DOD budget authority, the request includes a total of $613.9 billion, of which $525.4 billion is for \"base\" defense budget costs that cover day-to-day operations other than war costs, and $88.5 billion is for \"Overseas Contingency Operations\" (OCO), which include military operations abroad—largely, now, in Afghanistan.\nIn addition to DOD funding, the Administration's overall national defense request for FY2013—which comprises the National Defense Budget Function (Function 050)—also includes $18.0 billion for Department of Energy defense-related programs (dealing with nuclear weapons and warship powerplants), $4.7 billion for FBI national security programs, and $2.4 billion for a number of smaller accounts, including the selective service and civil defense.\nIf approved by Congress, the proposed DOD budget would result in the third consecutive year of decline in total defense spending (including war costs). The downward trend is due, in part, to the drawdown of U.S. troops in Iraq and Afghanistan. Compared with the amounts appropriated for DOD in FY2012, the FY2013 budget request is highlighted by a drop of 23% in funding for war costs—a change reflecting the planned reduction in deployments to Afghanistan by the end of FY2012 ( Table 1 ).\nThe proposed FY2013 DOD reduction also reflects the broad-gauged effort to reduce federal budget deficits that was embodied in the Budget Control Act (BCA) of 2011, enacted on August 2, 2011 ( P.L. 112-25 ). The base budget request, which is $5.2 billion lower than the corresponding enacted FY2012 appropriation, would mark the first decrease in Pentagon spending (excluding war costs) since 1998. The FY2013 base budget request also is $45.3 billion lower than the amount the Administration had projected a year earlier it would request for the FY2013 base budget, reflecting mandatory caps on discretionary spending in FY2013 that were established by the BCA (see Figure 1 ).\nIn all, the FY2013 request for the National Defense Budget Function (Function 050) amounts to $639.1 billion in discretionary funding including war costs, and $550.6 billion excluding war costs. The latter amount is particularly significant because it is subject to limits on discretionary spending established by the BCA, if automatic cuts in spending are implemented beginning in January 2013 ( Table 2 ).\nThe FY2013 DOD budget request reflects a dramatic turnaround in spending compared to trends in defense since the beginning of the last decade. For DOD's base budget, the request is $5.2 billion less than was appropriated for FY2012 and $45.3 billion less than the Administration had planned a year earlier to request for FY2013. That reduction—and planned reductions of more than $50 billion per year compared to DOD's February 2011 budget projections through FY2021—reflects the Administration's plan to reduce federal spending as required by the BCA. Compared with the long-range spending plan published by DOD in February 2011, the February 2012 plan would reduce DOD base budgets by $259.4 billion from FY2012 through FY2017 and by a total of $486.9 billion for the period covered by the BCA (FY2012-21) (see Table 3 ).\nAs a result of the BCA, further reductions in DOD base budgets over the next 10 years may be in store. In addition to the $900 billion worth of deficit savings resulting from BCA's spending caps for FY2012 and 2013, the act also requires additional deficit reduction measures totaling at least $1.2 trillion through 2021 (resulting in a total spending reduction through FY2021 of $2.1 trillion). Unless Congress and the President either repeal BCA or enact legislation that would reduce deficits over that period by at least an additional $1.2 trillion, the BCA will trigger automatic reductions that would cut the Administration's current DOD base budget plan by whatever amount is needed to cover the defense share of the shortfall between whatever cuts Congress does agree to and the required total reduction of $2.1 trillion (i.e., the $900 billion reduction resulting from the FY2012 and 2013 spending caps plus an additional $1.2 trillion as a result of legislation yet to be enacted). If the automatic cuts are required to achieve the entire $1.2 trillion worth of additional reductions, they would cut upwards of $54 billion per year from the current DOD base budget plan.", "The Obama Administration presented its FY2013 DOD base budget plan both as an effort to address both the spending limits set by the BCA and as an opportunity to refocus U.S. defense planning afforded by the winding down of large-scale deployments of U.S. troops in Iraq and Afghanistan. Accordingly, the administration preceded the announcement of its budget request with the publication on January 5, 2012 of new \"strategic guidance,\" which, it said, took account of both the new budgetary and strategic environments.\nOne component of the new guidance with conspicuous budgetary impact is the decision not to maintain an active-duty Army and Marine Corps large enough to sustain over an extended period the sort of large, manpower-intensive counter-insurgency campaign that has been waged in Iraq and Afghanistan. On those grounds, the administration is proposing to reduce the active-duty force by a total of 102,400 personnel by the end of 2017, with most of the reduction coming from the Army and Marine Corps.\nAs a hedge against the possibility that some of the assumptions behind the new strategic guidance may be overtaken by events, the Administration says it is trying to preserve options to reverse some of its decisions. For example, if—contrary to the assumption underpinning the new strategic guidance—U.S. forces do get involved in a future large-scale counter-insurgency campaign, the Administration plans to mobilize reserve component units to take some of the burden of immediate deployments off active component forces while beginning to expand the size of the active component forces for the long haul. To facilitate such an expansion of the active-duty force, the Administration plans to retain through the coming draw-down—as a cadre for new units, should they be needed—a larger proportion of mid-rank officers and noncommissioned officers than the currently planned force would require. Similarly, the Administration says it is planning to retain key industrial capabilities in case of a future decision to expand the force.\nAmong the important elements of the Administration's new budget plan are the following: (All estimates of \"reductio ns\" are in comparison with the A dministration's long-range DOD bu dget plan published in February 2011.)", "Compared with its February 2011 plan, DOD's FY2013 request would save $9.6 billion in FY2013 and a total of $60.2 billion in FY2013-2017 by what it refers to as \"efficiency initiatives,\" including reductions in printing, travel, and conference costs, deferral of some planned military construction projects, and an effort to \"streamline management overhead and operations.\" These reductions are in addition to $134 billion that DOD cut from its earlier budget plans for FY2012-2016 that were included in the FY2012 DOD budget request.\nAlthough the term \"efficiencies\" might be interpreted to mean that DOD plans to do the same work while spending less money, many of these initiatives reflect, instead, a decisions to forego—or defer temporarily—lower priority expenditures (i.e., doing less with less).", "The Administration's plan would reduce the size of the active-duty force—slated to be 1.42 million at the end of FY2012—by 21,600 personnel in FY2013 and by a total of 102,400 by the end of FY2017. Most of the multi-year reduction—92,000 personnel out of the 102,400 total—would come from the Army and Marine Corps. This reduction in ground forces reflects the Administration's new strategic guidance which assumes that active-duty forces no longer will be sized to conduct large-scale, prolonged stability operations. Such operations in Iraq and Afghanistan required a large active-duty force so that upwards of 100,000 troops at a time could be periodically deployed and then rotated back home for rest and retraining.\nIn effect, the Administration's plan would remove the 92,000 personnel that were added to the Army and Marine Corps beginning in 2007. Even after that reduction is completed in 2017 however, each of the two services would be larger than it had been before the terrorist attacks of September 11, 2001. (see Table 4 )\nThe Administration's plan also would reduce the number of members in National Guard and reserve component units from their authorized FY2012 end-strength of 847,100 by 9,700 in FY2013 and by a total of 21,500 through FY2017.\nAmong the units and major weapons systems the plan would eliminate or retire earlier than planned by FY2017 are\nAt least eight of the Army's 43 active-duty brigade combat teams; Six of the Marine Corps' 41 battalion landing teams; Seven cruisers from among the Navy's current fleet of 101 surface warships; Two of the Navy's 30 amphibious landing ships; Six of the 61 fighter and ground-attack squadrons in the Air Force, Air Force Reserve, and Air National Guard; 27 early-model C-5A cargo planes, out of a total fleet of 302 long-range, wide-body C-5 and C-17 cargo jets.\nOn the other hand, the Administration says its plan would maintain the remaining force at a high level of readiness. Compared with the February 2011 plan, the Operation and Maintenance request for FY2013 was reduced by 3%, one-fifth the proportion of the 15% reduction imposed on the Procurement accounts. (see Table 5 )", "The new strategic guidance calls for DOD to put a higher priority on deploying U.S. forces in the Pacific and around Asia while scaling back deployments in Europe. For example, the Administration plans to withdraw and disband two of the four Army brigade combat teams currently stationed in Germany while stationing up to 2,500 Marines in northern Australia. It also plans to station littoral combat ships in Singapore and smaller patrol craft in Bahrain. Because of the distances from land bases on which U.S. forces could rely, operations in the Asia-Pacific region would rely heavily on air and naval forces. Accordingly, many observers expect a shift of DOD resources toward the Navy and Air Force at the Army's expense.\nSome question the Administration's claim of a \"pivot\" toward Asia, citing its plan to retire some older, long-range cargo planes and to cut a total of $13.1 billion from projected shipbuilding budgets for FY2013-2017. But the Administration cites several Navy procurement programs as proof of its refocused commitment on the Pacific region where long operational distances are the rule:\nAlthough there had been speculation that the Navy would reduce its carrier fleet—currently 11 ships—the budget request for FY2013 includes $608 million of the $11.4 billion estimated cost of a carrier that has been incrementally funded since FY2007. Although the Administration plans to stretch construction of this ship over two years longer than had been planned, this would not result in the number of carriers in service dropping below 11 ships. According to Navy briefers, Navy and Marine Corps leaders trying to accommodate a reduction in future shipbuilding budgets decided to delay an amphibious landing transport ship (designated LSDX) so they could meet the budget limits by delaying construction of a planned helicopter carrier (designated an LHA) by only one year. The Navy has added to its long-range shipbuilding plan a so-called Afloat Forward Staging Base (AFSB) to be funded in FY2014 (for $600 million) that would serve as a floating base for personnel and helicopters deployed for minesweeping, counter-piracy patrols and other missions. The Navy also plans to modify for the same mission a similar ship that was funded in the FY2012 budget and an amphibious landing transport that was slated for retirement in FY2012.", "Compared with the FY2013 budget that DOD projected in February of 2011, the actual FY2013 request for procurement and R&D accounts is 12.5% lower. Proportionally, that reduction is more than twice as large as the reduction in the combined accounts for military personnel and operation and maintenance (down 4.7%).\nMeasured in constant dollars, DOD's combined procurement and R&D budget in FY2010 was 60% higher than it had been in FY2001. Accordingly, some argue that DOD can afford to rein in its spending on acquisition while it lives off the capital stocks built up and modernized during the decade of budget increases that followed the terrorist attacks of 2001.\nBut others contend that much of the procurement spending during that decade was for (1) items peculiarly relevant to the wars in Iraq and Afghanistan, (2) items needed to replace equipment destroyed in combat or worn out by the high tempo of operations in a region that is particularly stressful on machinery and electronics, or (3) modifications to existing planes, tanks and ships. While modifications can improve the effectiveness of existing platforms, they cannot nullify in the long-run the impact of age and design obsolescence.\nThe Administration emphasizes that it is setting priorities among weapons programs in deciding where to make cuts in previously planned spending. It also is sustaining funding for high-priority programs, such as the development of a new, long-range bomber for which its plan budgets $292 million in FY2013 and more than $5 billion in additional funds in FY2014-2017.\nCompared with DOD's February 2011 plan for procurement and R&D funding, the program it announced in February 2012 would save $24 billion in FY2013 and a total of $94 billion over the five year period FY2013-17. Procurement of some items would be terminated outright, before the originally planned total number was acquired (e.g., the Army's new 5-ton trucks—designated FMTV-- terminated for a total savings of $2.2 billion over five years; and a new Air Force weather satellite, terminated for a total savings of $2.3 billion).\nDOD plans to achieve most of the savings in procurement, however, from \"restructuring\" programs, that is, from slowing the timetable for moving from development into production or slowing the rate of production. The department justifies some of its proposed reductions on grounds that particular programs have been delayed for technical or other reasons. In other cases, it contends that it is an \"acceptable risk\" to forego (or delay) acquisition of a particular capability.\nFollowing are selected highlights of DOD's proposed acquisition plan (including some previously cited in this report):", "The largest reduction to the planned budget for a single program would take $15.1 billion from the previously projected FY2013-17 budgets for the F-35 Joint Strike Fighter, designed in three versions to be used by the Navy, Air Force and Marine Corps. DOD says slowing the planned production rate (by 13 planes in FY2013 and by 179 planes over the five-year period) would be a \"manageable risk.\"\nThe FY2013 request also proposes:\nCancelling a program to update the electronics on C-130 cargo planes and replacing it with a less extensive and cheaper modification program; Cancelling procurement of the Block 30 version of the RQ-4 Global Hawk long-range unmanned surveillance aircraft for the Air Force (while continuing development of another RQ-4 version for the Navy); Buying the MQ-9 Reaper unmanned aircraft, equipped to attack ground targets, in smaller numbers than had been planned because the Air Force has changed its plan for using the aircraft, and plans to keep in service older Predator drones that some of the planned Reapers had been intended to replace; Restructuring the Air Force's effort to develop a new, long-range bomber to place more emphasis than there had been on using proven technologies. Continuing development of a new mid-air refueling tanker at a lower funding level than had been planned to reflect the Air Force's contract with Boeing. Slowing the planned production rate of V-22 Osprey tilt-rotor troop carriers, due to the planned reduction in the size of the Marine Corps.", "The Navy's shipbuilding budget includes $99.9 million to develop a new hull module, to be inserted in Virginia -class attack submarines beginning in FY2019, that would increase the number of long-range, land-attack cruise missiles the ship could carry.\nThe FY2013 plan also proposes:\nContinuing construction of an $11.4 billion aircraft carrier (for which $608 million is requested in FY2013) but slowing the pace of construction of the ship; Delaying the purchase of one Virginia -class attack submarine that had been planned for FY2016 while adding funds to develop a cruise-missile module that would be inserted in subs funded from FY2019 onward; Delaying by two years the design of a new ballistic missile-launching submarine (designated SSBN(X)) to replace the Ohio -class subs slated to retire beginning in 2027.", "For FY2013, the Army is requesting $640 million—$1.3 billion less than was projected in February 2011—to continue developing a new Ground Combat Vehicle to replace the Bradley troop carrier. DOD links the reduction to fact-of-life changes in the program schedule, including a contract award protest during 2011.\nThe FY2013 plan also proposes:\nContinuing development of the Joint Light Tactical Vehicle (JLTV) to provide the Army and Marine Corps with a replacement for the venerable HMMWV (\"Hum-vee\"); Ending earlier than planned a program to refurbish the services' large fleets of HMMWVs.", "The Administration maintains that budgetary limits require some reduction in military compensation in order to avoid excessive cuts in either the size of the force or the pace of modernization. However, it promises that no service member would be subjected to either a pay freeze or a pay cut. Moreover, proposed reductions in the size of the annual military pay raise would not begin until FY2015, thus allowing service members and their families to plan for the change.\nAccording to DOD officials, although military compensation accounts for about one-third of DOD's budget, the savings that would result from the proposed changes in compensation would account for less than 10% of the total that the Administration's budget would slice from the February 2011 DOD budget projection for FY2012-2021.\nThe FY2013 budget request includes a 1.7% increase in service members' \"basic pay,\" an amount based on the Labor Department's Employment Cost Index (ECI) which is a survey-based estimate of the rate at which private-sector pay has increased. After providing an equal increase in basic pay for FY2014, the Administration plan would provide basic pay raises less than the anticipated ECI increase in the following three years: 0.5% for FY2015, 1.0% for FY2016, and 1.5% for FY2017. Over the five year period (FY2013-17), the Administration projects a saving of $16.5 billion from this plan.\nThe Administration also proposed the creation of a commission to propose changes in the military retirement system. However, no changes were assumed in the FY2013 budget request.\nThe Administration also proposes a variety of fee increases for the 9.65 million beneficiaries of TRICARE, DOD's medical insurance program for active-duty, reserve-component, and retired service members and their dependents and survivors (see Figure 2 ).\nAccording to DOD, the FY2013 budget request assumes that the overall cost of the Military Health Program, which totaled $19 billion in FY2001, has more than doubled to $48.7 billion. That FY2013 request assumes $1.8 billion in savings as a result of the Administration's proposed fee increases, which are controversial and which Congress would have to approve in law.\nMany of the proposed fees and fee increases would apply only to working-age retirees and would be \"tiered\" according to the retiree's current income. The package also includes pharmacy co-pays intended to provide an incentive for TRICARE beneficiaries to use generic drugs and mail-order pharmacy service. Future changes in some of the proposed fees and in the \"catastrophic cap\" per family would be indexed to the National Health Expenditures (NHE) index, a measure of escalation in medical costs calculated by the federal agency that manages Medicare.", "The Administration's $88.5 billion request for war costs (OCO) amounts to $26.6 billion less than Congress appropriated for war costs in FY2012. This reduction reflects:\nthe cessation of U.S. combat operations in Iraq by the end of the first quarter of FY2012; and the reduction of the number of U.S. troops in Afghanistan, by the end of FY2012, to 68,000 personnel, thus ending the \"surge\" into that country of 33,000 additional U.S. troops announced by President Obama on December 1, 2009 (see Figure 3 , Figure 4 )\nThe OCO budget request assumes that 68,000 U.S. troops will remain in Afghanistan through the end of FY2013, although President Obama has said that, after the number had been drawn down to 68,000 by the summer of 2012, it would continue to decline \"at a steady pace.\"", "Longer-term budget issues may be the focus of greater attention in Congress than the FY2013 DOD request itself, with debate being driven by efforts to reduce federal budget deficits. The BCA, enacted in August 2011, required at least $2.1 trillion of deficit savings over the 10 years from FY2012-FY2021. About half those savings are essentially on track, through enforceable caps on discretionary spending that the Congressional Budget Office (CBO) projects will save more than $900 billion if fully implemented. An additional $1.2 trillion of savings also required by the BCA has not been agreed to, however. The BCA requires that those savings be enforced through automatic cuts in spending beginning in January 2013, unless Congress can agree on an alternative in the meantime.\nThe cuts in defense spending required by the BCA have set the stage for a debate in Congress about budget trends and also about changes in defense policy and plans over the next decade. Matters of debate—much of which is already underway—include\n$487 billion of cuts in projected defense spending over the 10 years from FY2012-FY2021 that the Administration has proposed, including a cut of $45 billion in FY2013; a potential sequester of defense funds in FY2013 followed by reduced defense spending caps in FY2014-21 required by the BCA either to enforce the additional $1.2 trillion of savings over the 9 years from FY2013-FY2021 (unless cuts totaling that amount are agreed on), or to make up the shortfall between whatever amount of savings Congress can agree on and the required $1.2 trillion total; the possibility of setting limits on funding for overseas operations, first, as a way of avoiding the erosion of deficit savings required by the BCA and, second, as a source of deficit savings to be claimed as part of a deficit agreement; and, cuts to the end-strength of the Army and Marine Corps as well as other changes in defense strategy that the Administration has articulated as a means of adjusting to proposed budget cuts.", "There may be a discussion in Congress, as well, of more far-reaching overall deficit reduction measures—and the issue could come up unexpectedly if efforts to achieve the additional $1.2 trillion of BCA-required savings falters. The President and Speaker of the House John A. Boehner discussed such a \"Go Big\" approach in the final days leading up to agreement on the BCA, but could not in the end agree on the parameters. Moreover, virtually all independent, long-term deficit reduction proposals—including the plan approved by a majority of the Simpson-Bowles Commission and a somewhat different proposal by the Domenici-Rivlin deficit reduction task force —have recommended savings of $4 trillion or more over 10 years as necessary to bring long-term deficit trends to heel.\nIf $4 trillion of savings is to be achieved, further defense cuts may be on the agenda. For its part, the Simpson-Bowles Commission recommended a cut of about $1 trillion in defense over 10 years, compared to the Administration plan, even though it also proposed that about 1/3 of the targeted $4 trillion of deficit savings be achieved through revenue increases. In general, in discussions of ways to achieve deficit savings beyond the BCA target, pressures for further cuts in discretionary spending, including both defense and nondefense budgets, will be affected by the extent of any agreement to limit mandatory spending and raise revenues.\nIn the absence of a \"Go Big\" budget agreement, Congress may follow the pattern of deficit reduction efforts in the late-1980s through the mid-1990s. During that period, Congress approved several measures, beginning with the Gramm-Rudman-Hollings Balanced Budget and Emergency Deficit Control Act (BBEDCA) in November 1985, intended to lead to a balanced budget (each within the next five years). The initial BBEDCA was followed by amendments in 1987, 1990 (which made wholesale changes in the process), 1993, and 1997. But none of those efforts proved wholly successful until the economy expanded dramatically at the end of the 1990s.\nWith no effective overarching deficit agreement in place, Congress addressed the deficit issue mainly in annual budget debates that led to perennial limits on spending and occasional increases in taxes. Between FY1986 and FY1998, (leaving aside funding for the 1991 Persian Gulf war, which was mainly financed by allies), defense spending declined, after adjusting for inflation, for 13 years in a row, ultimately falling by 35% compared to the peak in FY1985. A more comprehensive, long-term budget agreement in the early years of that period might have led to a smaller decline in defense.", "In the absence of an agreement by January 2013 to cut deficits by an additional $1.2 trillion through FY2021 (in addition to the $900 billion already cut by the BCA spending caps for FY2012 and FY2013), the BCA requires that the additional deficit savings be achieved through automatic cuts in spending modeled on the Gramm-Rudman-Hollings Deficit Control Act of 1985. In the event Congress agrees to additional deficit reductions totaling less than $1.2 trillion, the automatic cuts would be calibrated to make up the shortfall between what Congress had enacted and the BCA-mandated $2.1 trillion total.\nThe procedures for automatic cuts require that all of the required deficit savings—whether the entire $1.2 trillion or some lesser amount needed to bridge the gap between what Congress approved and the $1.2 billion target—be achieved through spending reductions and that one-half of the spending cuts be imposed on national defense.\nIn all, if no further agreement on deficit savings is reached by the beginning of next year, $600 billion of net savings would be required from cuts in defense over the next 9 years from FY2013-FY2021. The BCA assumes that outlay reductions will lead to a reduction in borrowing costs, and it directs that 18% of savings be assumed as a result of reduced interest costs. So the additional automatic cuts in spending required in defense programs would amount to as much as $492 billion over 9 years or $54.7 billion each year.\nThe total reduction to planned DOD spending could be somewhat greater if this automatic process goes into effect. The starting point for the $600 billion in additional defense cuts would be a series of revised annual caps on defense spending designed to ensure that the $1.2 trillion of additional deficit reduction is added to the $900 billion of savings that would result from the FY2013 spending caps imposed by the BCA. If the automatic cuts take effect, the revised FY2013 defense cap—established in law by Section 302 of the BCA—would be $546 billion, about $5 billion below the FY2013 request.\nIn sum, if Congress approves the Administration's FY2013 defense budget request but does not agree on any additional reductions through FY2021, the amount automatically cut from the planned DOD budget for FY2013 would include $5 billion to meet the revised discretionary cap plus $55 billion for the FY2013 defense share of $1.2 trillion of additional deficit savings, for a total of $60 billion. Since these automatic reductions would be in addition to the cut of $45 billion that the Administration undertook to meet the initial discretionary targets in the BCA, the total reduction, compared with the FY2013 budget DOD had planned on early in 2011, would amount to $105 billion. This would amount to a cut of about 18% from the base budget and 16% from the total budget, including war funding.\nIf Congress approved some, but not all, of the required $1.2 trillion in reductions, the automatic cuts—by sequester for FY2013 and by reduced spending caps for FY2014-21—would occur as described, but at a reduced level calculated to achieve whatever additional reduction was needed to meet the BCA-required target of $1.2 trillion. In that case, however, the total impact on DOD would vary, depending on amounts enacted in partial fulfillment of the total $1.2 trillion cut.", "For their part, senior defense officials have warned that a sequestration of funds large enough to achieve the entire $1.2 trillion reduction, implemented through an across-the-board percentage cut on all parts of the DOD budget, would have effects on critical defense capabilities ranging from disruptive, to destructive, to devastating. A letter from Secretary of Defense Panetta to Senators Graham and McCain on November 14, 2011, laid out the Defense Department's concerns most fully.\nSecretary Panetta's letter assumed that Congress would agree to no additional deficit reduction measures before January 2013 and that, accordingly, sequestration would have to realize the entire $1.2 trillion in reductions. Further analysis of the letter suggests that:\nIt overstated the maximum percentage cut required by a sequester, saying that cuts in each program could amount to 23% if, as is generally expected, the President exercised his authority under sequestration laws to exempt military personnel accounts from cuts. But that figure includes a share of the $45 billion in cuts (compared with earlier DOD plans) that had been incorporated into the Administration's FY2013 request and which, therefore, would not be included in the additional cuts imposed by a sequester. It appears to assume that all of the cuts would be applied to the base defense budget only. But the BCA and earlier laws governing sequestration make it clear that the baseline for cuts would include not only the base appropriation (for which $551 billion is requested), but also funding for overseas contingency operations (for which $88.5 billion is requested), plus any other defense emergency appropriations (for which no funds have been requested to date), plus unobligated balances of funds provided in prior years (which DOD currently projects to total $81.6 billion at the beginning of FY2013 ). Any sequester would be applied to the sum of those amounts ($721 billion) plus any defense emergency funds that may be provided later in the year. If, as CRS estimates, a sequester of $60 billion is required, the percentage cuts required would total 8.3% if military personnel accounts are not exempted. If the President exempts the $149 billion requested for personnel accounts, the percentage reduction applied to the rest of the budget would total 10.5%. DOD maintains that the automatic cuts would be irrational because equal percentage reductions would be required in each individual line item in defense appropriations bills—technically referred to as programs, projects, or activities (PPAs). That may or may not be the case, however, as a DOD fact sheet attached to the November 14 letter acknowledged. Under the sequestration provisions of the Balanced Budget and Emergency Deficit Control Act (BBEDCA) of 1985, as amended in 1990 , the President has authority to propose to Congress a Joint Resolution that would reallocate cuts among PPAs, provided additions are offset by reductions that are equal both in budget authority and in outlays. Whether that provision applies to targets set by the Budget Control Act, however, is uncertain because of some ambiguities in the language of the statute, and the Office of Management and Budget—which would make the final legal determination –has not yet done so. Any Joint Resolution to reallocate across-the-board reductions would have to be approved by Congress and signed into law. Such a measure might, however, also be subject to objections on parliamentary grounds.", "Assuming that mandatory cuts could be reallocated, a sequester of up to $60 billion in FY2013 could have the following consequences:\nA reallocation of funds may not be sufficient to protect readiness, for example, because the law requires that, if funding for one activity is increased above the sequester level, there must be cuts in other activities that offset the increase in both budget authority and outlays. Budget authority in readiness-related Operation and Maintenance (O&M) accounts typically lead to relatively large outlays in the first year whereas procurement accounts have small, first-year outlay rates. Accordingly, to offset a relatively small increase in O&M funding, it would be necessary to make disproportionately large cuts in procurement budget authority to yield the necessary reduction in outlays. It could be difficult, therefore, to avoid significant cuts in readiness-related operating accounts. Because a sequester would take effect at the start of the second quarter of the fiscal year, the required reductions would have to be made in those funds that had not been obligated in the first quarter. For activities in which funds are spent at a relatively constant rate over the course of the year, the reductions in the last three quarters would have to be about 25% larger than if the reduction had been applied to the entire year's worth of funding. It could be difficult to find substantial savings in some parts of the defense budget, of which medical care is one example. In case of a sequester, DOD might have to use its legal authority to transfer funds among appropriations accounts (subject to various limitations) in order to restore funds sequestered from medical programs if Congress did not approve a reallocation of the required cuts among appropriations line items. It is unclear how DOD would manage a reduction in funding for procurement programs if the services had obligated all of the annual funding for a program during the first quarter of the year, before a sequester would take effect. In general, such an obligation would appear to have been legally made, and it would appear to be legally binding. If funding is subsequently reduced, it is not apparent how the services would be expected to implement the reduction. Certain procurement line-items—in the Navy's shipbuilding account, for example—typically fund the purchase of only one or two items in a given year. In those cases, funds remaining after a sequester might not allow any procurement (if only one item was planned) or might allow the purchase of only one item (if two were planned). Unless additional funds were transferred into the account, the procurement might have to be delayed until the following year, with potentially adverse effects on the contractor and/or with a resulting increase in the price of the items. If the President exempted military personnel funding from a sequester, it could be difficult to transfer significant amounts out of those accounts to offset the impact of sequestration on other parts of the budget. Enlistment contracts are binding for the duration of an enlistment unless personnel are dismissed from the service; and personnel who were dismissed could not necessarily be recalled to duty, later on. If civilian DOD employees are furloughed, either as the result of a sequester or for the purpose of transferring funds to offset a sequester in some other activity, force readiness could be adversely affected. Many civilians are employed in readiness-related activities, such as equipment maintenance and other key support activities. Deep cuts in readiness-related activities and in other support capabilities provided by civilians might be necessary. As a result, DOD might be compelled to pursue a policy of radically tiered readiness, in which designated early-deploying units are maintained at a high level of readiness, but levels of training and equipment maintenance in later-deploying units is allowed to erode considerably, with a resulting increase in strategic risk.", "Congress and DOD could take some measures to ameliorate the impact of a sequestration:\nThe services could begin reducing military end-strength by limiting recruitment beginning as soon as possible—even in FY2012. Appropriations bills might provide a substantial increase in the total amount of money DOD may transfer among appropriations accounts—an amount regulated by general transfer authority provided in the annual defense appropriations bill. This would provide DOD with more flexibility to manage reductions, particularly if a reallocation of cuts as proposed by the President is not legally permitted. Congress might also agree to increase funding for readiness in the FY2013 appropriations bill in anticipation of reductions when a sequester takes effect, although the BCA cap on FY2013 discretionary funding would require offsetting cuts elsewhere. Appropriators might also consider unprecedented approaches, such as providing contingent, higher levels of funding for some activities (for readiness or medical care, for example), in the event sequestration is triggered.\nIn principal, many believe that the sooner Congress and DOD act to buffer the impact of a sequester and subsequent automatic reductions, the better. In Congress, however, opposition to sequestration has been the main focus of attention, and legislators may not feel it useful to pursue measures that could marginally reduce the impact of a sequester." ], "depth": [ 0, 1, 1, 2, 2, 2, 2, 3, 3, 3, 2, 1, 1, 2, 2, 3, 3, 3 ], "alignment": [ "h0_title h2_title h1_title h3_title", "h0_full h2_full h1_full", "h3_full h1_full", "", "", "", "", "", "", "", "", "", "h0_full h2_full h3_title", "h2_full", "h3_full", "", "", "h3_full" ] }

{ "question": [ "How has the base budget request decreased in recent years?", "Why has the budget request decreased?", "Why has the BCA established funding caps?", "What does the FY2013 DOD base budget request incorporate?", "How are the proposed departures congruent with the new strategic concept?", "What issues are being discussed in Congress?", "What additional deficit reduction measures does the BCA require?", "How will the BCA be implemented if Congress does not revise it?", "How would the automatic cuts be imposed?", "What did senior DOD leaders warn about sequestration?", "How did President Obama respond to such an argument?", "Why is it important that Congress reach a balanced deficit reduction agreement?" ], "summary": [ "Apart from declining war costs, the base budget request is $5.2 billion below the corresponding FY2012 appropriation, and it would mark the first decrease in Pentagon spending (excluding war costs) since FY1998. Moreover, the request is $45.3 billion lower than the amount the Administration had projected a year earlier that it would request for the FY2013 base budget (see Figure 1).", "That reduction reflects caps on discretionary spending that were established by the Budget Control Act (BCA) of 2011, enacted in August 2011.", "All told, funding caps established by the BCA are intended to reduce projected federal spending by more than $900 billion over the 10 years from FY2012-FY2021.", "The FY2013 DOD base budget request incorporates some policy initiatives intended, at least in part, to anticipate future budgets which will be lower (because of deficit reduction efforts) than DOD had planned.", "The proposed departures from previous plans are congruent with a new strategic concept, unveiled in January 2012, which the Administration says is intended to reflect both lower budgets and a global security environment that is different from the past decade's focus on Iraq and Afghanistan.", "Other long-term issues also may be matters of discussion in Congress. A key issue is whether additional cuts in defense spending, beyond those required by the initial limits on discretionary spending in the BCA, should be considered as a part of further deficit reduction measures.", "In addition to the $900 billion worth of deficit savings resulting from the BCA's spending caps, the act also requires additional deficit reduction measures totaling at least $1.2 trillion through 2021, (resulting in a total spending reduction through FY2012 of $2.1 trillion).", "Unless Congress either revises the BCA or agrees to an additional $1.2 trillion worth of reductions by January 2013, the BCA mandates automatic cuts in spending, equally divided between defense and nondefense expenditures (see \"Longer-Term Budget Issues\").", "In FY2013, the automatic cuts may be imposed through a process of sequestration in which an across-the-board percentage cut is imposed on each program in the budget, either (1) to yield the required $1.2 trillion worth of additional cuts or (2) to make up the difference between whatever lesser reduction Congress agrees to and the $1.2 trillion target.", "Senior DOD leaders have warned that sequestration would have a devastating impact on defense capabilities, and some members of Congress have argued for legislation that would exempt DOD from a sequester.", "President Obama has said he would veto any legislation that exempted defense, however.", "While few deny that sequestration would be disruptive, the prospect of automatic cuts in spending is seen by most as a vital incentive for Congress to reach a balanced deficit reduction agreement." ], "parent_pair_index": [ -1, 0, 0, -1, 0, -1, 0, 0, -1, 0, 1, 0 ], "summary_paragraph_index": [ 2, 2, 2, 3, 3, 5, 5, 5, 6, 6, 6, 6 ] }

{ "title": [ "", "Overview of Project BioShield", "Project BioShield Procurement Process", "DHS Roles", "HHS Roles", "Presidential Roles", "Interagency Roles", "Weapons of Mass Destruction Medical Countermeasures Subcommittee", "Public Health and Emergency Medical Countermeasures Enterprise", "HSPD-18", "The Pandemic and All-Hazards Preparedness Act", "Appropriations, Rescissions, and Future Funding Options", "Appropriations", "Rescissions", "Future Funding Options", "Acquisitions", "Anthrax", "rPA Vaccine", "AVA Vaccine", "ABthrax", "Anthrax Immune Globulin", "Smallpox", "Botulinum Toxin", "Radiological and Nuclear Agents", "Potassium Iodide", "Chelators", "Differences in HHS Contract Awards and Annual Budget Document Accounting", "Remaining Available Funds", "Concluding Observations" ], "paragraphs": [ "Following the terrorist attacks of 2001, the federal government determined that it would need additional medical countermeasures (e.g., diagnostic tests, drugs, vaccines, and other treatments) to respond to an attack using chemical, biological, radiological, or nuclear (CBRN) agents. The enactment of the Project BioShield Act of 2004 ( P.L. 108-276 ) was designed to be an important part of federal efforts to obtain new civilian medical countermeasures. It provides countermeasure developers with a guaranteed government market for their products. As Congress continues oversight of federal efforts to protect the United States, the effectiveness and efficiency of the Project BioShield implementation may draw legislative attention.\nThis report discusses actions taken by Congress and the Administration that have affected this program, describes the decision-making process for choosing countermeasures, describes the countermeasures for which the Department of Health and Human Services (HHS) has contracted, and discusses accounting discrepancies between the President's Budget and HHS reporting of Project BioShield awards.", "The Project BioShield Act of 2004 ( P.L. 108-276 ) contains three major provisions. One relaxes some procedures for bioterrorism-related procurement, hiring, and research grant awarding. Another permits the emergency use of countermeasures not approved by the Food and Drug Administration (FDA). The third authorizes a 10-year program to encourage the development and production of new countermeasures for chemical, biological, radiological, and nuclear (CBRN) agents. This last provision is usually referred to as Project BioShield and is the focus of this report.\nIn contrast to federal programs that directly fund research and development of biomedical countermeasures, Project BioShield is a procurement program. It acts as a guarantee that the federal government will buy successfully developed countermeasures for the Strategic National Stockpile (SNS). It allows the government to enter into contracts to procure countermeasures while they still are in development, up to eight years before product delivery is expected. The government guarantees that it will buy a certain quantity at a specified price, once the countermeasure meets specific requirements. The government pays the agreed-upon amount only after these requirements are met and the product is delivered to the Strategic National Stockpile. If the product does not meet the requirements within the specified time frame, the contract can be cancelled without any payment to the contractor. Thus, Project BioShield is intended to reduce the developer's market risk; that is, the possibility that no customer will buy the successfully developed product. However, it does not reduce the development risk; that is, the possibility that the countermeasure will fail during development. The Pandemic and All-Hazards Preparedness Act ( P.L. 109-417 ) modified the Project BioShield Act to allow for milestone-based payments for up to half of the total award before countermeasure delivery.", "The Project BioShield procurement process requires actions by the Department of Homeland Security (DHS), HHS, and the President, and relies on interagency working groups. Figure 1 illustrates the Project BioShield decision-making and acquisition process.", "The first step in the BioShield acquisition process is to determine whether a particular CBRN agent poses a material threat to national security. This analysis, generally referred to as a Material Threat Assessment (MTA), is performed by DHS. Between 30 and 40 subject matter experts are consulted during an MTA. On the basis of this assessment, the DHS Secretary determines whether that agent poses a material threat to national security. The Project BioShield Act of 2004 requires such a written Material Threat Determination (MTD) for procurement using BioShield funds and authorities. This declaration neither addresses the relative risk posed by an agent nor determines the priority of its acquisition. Furthermore, the issuance of an MTD does not guarantee that the government will pursue countermeasures against that agent.\nDHS has issued MTDs for 13 agents. These included the biological agents that cause anthrax, multi-drug resistant anthrax, botulism, glanders, meliodosis, tularemia, typhus, smallpox, plague, and the hemorrhagic fevers Ebola, Marburg, and Junin. Additionally, DHS issued a single MTD covering radiological and nuclear agents. According to HHS, the first four MTDs (anthrax, radiological/ nuclear agents, botulinum toxin, and smallpox) were completed before or shortly after the enactment of the Project BioShield Act. No other MTDs were issued until September 2006, when nine were issued. HHS predicted no additional MTDs would be issued unless \"technology advances or if our understanding of the potential threats changes.\"\nHomeland Security Presidential Directive (HSPD)-10 and HSPD-18 direct DHS to perform additional risk assessments. HSPD-10 directs DHS to develop, and periodically update, risk assessments that include a ranking of relative risks for biological agents. HSPD-10 states that this overall biological agent risk assessment is to be used to prioritize federal government-wide planning and response to the threat of biological agent attacks. The first iteration of this assessment was delivered in 2006. Following its completion, this overall biological agent risk ranking helped determine which agents should have MTAs and MTDs. HSPD-18 requires DHS to develop a comprehensive risk assessment that integrates all CBRN agents into a single ranking of relative risk. This risk assessment is required to be completed by June 1, 2008. HSPD-18 directs that this assessment be used to prioritize CBRN countermeasure research, development, and acquisition.\nIn addition to making MTDs and performing risk assessments, DHS contributes to the interagency process by developing credible attack scenarios to help establish countermeasure requirements and response planning.", "For agents that have received an MTD, HHS assesses the public health consequences of an attack using that agent. This analysis relies on interagency working groups (see below) and is now coordinated by the HHS Office of Public Health Emergency Medical Countermeasures (OPHEMC). OPHEMC is within the Office of the Assistant Secretary for Preparedness and Response (ASPR). Following this assessment, HHS determines whether this material threat lacks an existing, effective countermeasure and whether a countermeasure should be procured using Project BioShield authorities and funds. If so, the HHS and DHS Secretaries may jointly submit a recommendation for presidential approval to use BioShield funds to acquire such a countermeasure.\nThe HHS Secretary is also responsible for establishing countermeasure requirements, such as dosage, patient administration method (e.g., injection or pill), minimum effectiveness, and quantity. This process is coordinated by OPHEMC and relies on input from interagency working groups. HHS is responsible for the entire Project BioShield contracting process, including issuing Requests for Information, Requests for Proposals, awarding contracts, managing awarded contracts, and determining whether contractors have met the minimum requirements for payment. OPHEMC maintains a website detailing all Project BioShield solicitations and awards.\nHHS implementation of Project BioShield and its management of the procurement process have been widely criticized. These issues provided some of the impetus for creating the Biodefense Advanced Research and Development Authority (BARDA) through the Pandemic and All-Hazards Preparedness Act ( P.L. 109-417 ). Despite concerns that OPHEMC was not optimally executing its BioShield responsibilities, HHS has chosen to implement P.L. 109-417 by adding the new BARDA responsibilities and authorities to this office. To reflect this increase in responsibilities, HHS also plans to rename OPHEMC as the Biodefense Advanced Research and Development Authority. These new duties include directly funding the advanced development of countermeasures which are not yet deemed eligible for Project BioShield contract awards.", "Presidential approval is required before HHS enters into any Project BioShield countermeasure procurement contract or issues a call for countermeasure development. The President may only make such approval subsequent to a joint recommendation from the Secretaries of HHS and DHS. The President delegated this approval responsibility to the Director of the Office of Management and Budget.\nThe Executive Office of the President also had coordinated the interagency process, largely through the Homeland Security Council (HSC), the National Security Council (NSC), and the National Science and Technology Council (NSTC). This was changed by HSPD-18, which directed the HHS Secretary to lead the interagency process (see below).", "Much of the priority-setting and requirement-determining activities have input from multiple agencies, such as HHS, DHS, Department of Defense, and some of the intelligence agencies. The interagency process has been changed multiple times in the past, most recently by the issuance of HSPD-18 and the enactment of the Pandemic and All-Hazards Preparedness Act ( P.L. 109-417 ).", "In the past, the interagency process relied on expertise resident in the Weapons of Mass Destruction Medical Countermeasures (WMD MCM) Subcommittee. As part of the National Science and Technology Council (NSTC), this interagency group predated Project BioShield. The NSTC, a cabinet-level council, acts to coordinate science and technology policy across the federal research and development enterprise. The WMD MCM Subcommittee is a part of the NSTC Committee on Homeland and National Security. According to HHS, the charter of the WMD MCM Subcommittee was changed in 2005, and it began reporting to the joint HSC/NSC Biodefense Policy Coordinating Committee. According to NSTC, the Subcommittee also continues to remain within NSTC. The WMD MCM Subcommittee contains representatives from Centers for Disease Control and Prevention, Food and Drug Administration, National Institutes of Health, DHS, Department of Defense, Department of Agriculture, Nuclear Regulatory Commission, Department of Energy, Department of Veterans Affairs, Environmental Protection Agency, Homeland Security Council, National Security Council, Office of the Vice President, Office of Science and Technology Policy, Office of Management and Budget, and various intelligence agencies.\nThe WMD MCM Subcommittee's role in the Project BioShield process appears to have been assumed by the Public Health and Emergency Countermeasure Enterprise Governance Board (see below).", "The Public Health and Emergency Medical Countermeasures Enterprise (PHEMCE) is an interagency working group that was established in July 2006 during a HHS Office of Public Health Emergency Preparedness reorganization. It is to:\n(1) define and prioritize requirements for public health medical emergency countermeasures, (2) coordinate research, early and late stage product development and procurement activities addressing the requirements [including BioShield procurement], and (3) set deployment and use strategies for medical countermeasures held in the Strategic National Stockpile.\nPHEMCE is distinct from the HHS Office of Public Health Emergency Medical Countermeasures (OPHEMC). PHEMCE is an interagency working group while OPHEMC resides solely within HHS. However, the Director of OPHEMC is also responsible for coordinating PHEMCE. Neither its establishing regulation nor the PHEMCE strategy states to whom this interagency group reports nor details its membership.\nAccording to HHS, the WMD MCM Subcommittee's duties were transferred to the PHEMCE Governance Board. However, the apparent continuance of the WMD MCM Subcommittee in the NSTC suggests that not all of its duties have transferred to PHEMCE. It is unclear what effect this transfer of duties from a subcommittee of a Cabinet-level Council to an interagency working group associated with an office under the Assistant Secretary for Preparedness and Response will have on the interagency process and the efficiency of the Project BioShield acquisition process.", "Homeland Security Presidential Directive 18 (HSPD-18) was issued on January 31, 2007. When fully implemented, HSPD-18 may change the interagency process described above. HSPD-18 establishes a government-wide strategy for developing and acquiring civilian WMD countermeasures. One of its provisions requires the HHS Secretary to\nestablish an interagency committee to provide advice in setting medical countermeasure requirements and coordinate HHS research, development, and procurement activities.\nHSPD-18 also requires the HHS Secretary to establish a\ndedicated strategic planning activity to integrate risk-based requirements across the threat spectrum and of the full range of research, early-, mid- and late-stage development acquisition and life-cycle management of medical countermeasures.\nThe Secretary is to align all relevant HHS programs to support this plan.\nThese roles are similar to those of PHEMCE whose draft strategy was published prior to the issuance of HSPD-18. The final PHEMCE strategy appears to support the interpretation that HHS intends PHEMCE to fulfill the interagency committee and dedicated strategic planning activity requirements of HSPD-18. HSPD-18 requires the interagency committee to \"apprise\" the joint HSC/NSC Biodefense Policy Coordination Committee of countermeasure development and acquisition progress.", "The Pandemic and All-Hazards Preparedness Act ( P.L. 109-417 ), enacted December 19, 2006, may also affect the Project BioShield interagency decision-making process. It gives the HHS Secretary until June 19, 2007 to\ndevelop and make public a strategic plan to integrate biodefense and emerging infectious disease requirements with the advanced research and development, strategic initiatives for innovation, and the procurement of... countermeasures\nThis role is similar to that directed by HSPD-18. The finalized PHEMCE Strategy and PHEMCE Implementation Plan appear to only partially fulfill this requirement in that they address the biodefense plan but do not address emerging infectious diseases. HHS is preparing a separate strategic plan to fulfill the requirements of P.L. 109-417 .", "", "The Department of Homeland Security Appropriations Act, 2004 ( P.L. 108-90 ) provided an advance appropriation of $5.593 billion to procure civilian medical countermeasures for a 10-year period (FY2004-FY2013). This appropriation was enacted October 1, 2003, almost a year before the July 21, 2004 enactment of the Project BioShield Act of 2004 ( P.L. 108-276 ). The appropriations act established the \"Biodefense Countermeasures\" account for \"necessary expenses for securing medical countermeasures against biological terror attacks.\"\nAlthough all the funds for this account were provided in the 2004 appropriations act, only a portion became available for obligation upon enactment. The Department of Homeland Security Appropriations Act, 2004 specified that no more than $890 million could be obligated in FY2004, and no more than $3.418 billion could be obligated from FY2004 through FY2008 ( Table 1 ). Any money not obligated within these defined periods would remain available through FY2013. Thus, before rescissions were enacted, DHS had $890 million available as budget authority for this account in FY2004. In FY2005, an additional $2.528 billion would have become available. The remaining $2.175 billion would become available in FY2009 ( Table 2 ).\nThe Project BioShield Act of 2004 ( P.L. 108-276 ) designated the \"Biodefense Countermeasures\" account established by the Department of Homeland Security Appropriations Act, 2004 ( P.L. 108-90 ) as the special reserve fund for Project BioShield acquisitions. P.L. 108-276 placed additional restrictions on the use of these funds, including requiring a determination that an agent constitutes a material threat to national security, requiring Presidential approval before a countermeasure can be purchased, and restricting these funds to procurements only (i.e., not for administrative costs). It also broadened the types of countermeasures that may be acquired from this account to include those against biological, chemical, radiological, and nuclear agents.", "Although Congress provided the entire appropriation for the 10-year program, Congress retains the power to increase or decrease the amount available for Project BioShield. Two separate rescissions have removed a total of $25 million from the Project BioShield special reserve fund.\nThe Consolidated Appropriations Act, 2004 ( P.L. 108-199 ) contained an across-the-board rescission of 0.59%. This rescission applied to the amount of the Project BioShield advance appropriation that became available for obligation in FY2004 ( Table 2 ). This rescission removed $5 million from the amounts available for obligation in FY2004, as well as reducing the total special reserve fund by an equal amount. Thus, the amount available for obligation in FY2004 was reduced from $890 million to $885 million, and the total amount available for FY2004-FY2013 was reduced from $5.593 billion to $5.588 billion ( Table 1 and Table 2 ).\nThe Consolidated Appropriations Act, 2005 ( P.L. 108-447 ) contained an across-the-board rescission of 0.8%. This rescission applied to the $2.528 billion that became available for obligation in FY2005 ( Table 2 ). This removed $20 million from the amount available for obligation for FY2005-FY2008 as well as reducing the total special reserve fund by an equal amount. Thus, the amount that became available for obligation in FY2005 was reduced from $2.528 billion to $2.508 billion, and the total amount available until FY2013 was reduced from $5.588 billion to $5.568 billion ( Table 1 and Table 2 ).", "Across-the-board rescissions generally only affect those amounts that become available in that fiscal year. Therefore, the special reserve fund is unlikely to be affected by future across-the-board rescissions, except in FY2009, when the remaining $2.175 billion becomes available ( Table 2 ). However, Congress retains the power to make both specific appropriations and rescissions to this account and could thus directly increase or decrease the amount available for Project BioShield obligations.", "The HHS has reported awarding $2.331 billion worth of Project BioShield contracts ( Table 3 ). These contracts address four material threats: Bacillus anthracis (the bacteria which cause anthrax), smallpox, botulinum toxin, and radiological and nuclear agents. The distribution of contract awards has been uneven between these threats, with $1,429 million against Bacillus anthracis (61%), $500 million against smallpox (21%), $364 million against botulinum toxin (16%) and $38 million against radiological and nuclear weapons (2%). While HHS has made additional requests for information from companies developing CBRN countermeasures, none have resulted in contract offers.\nOn December 17, 2006, HHS terminated an anthrax countermeasure contract for failure to meet a contract milestone. This contract was the first, and largest to date, awarded using Project BioShield funds. This cancellation took place after the preparation of both the HHS' Project BioShield Annual Report to Congress and the President's FY2008 Budget. Thus, neither of these documents reflect the recovery of these funds. Taking this cancellation into account, the HHS has obligated $1.454 billion to date ( Table 3 ).\nGovernment acquisitions often follow a pattern of gathering information about available products, contract solicitation, award of the contract, and finally product delivery. Figure 2 displays a time line of Project BioShield acquisition activity.\nA Request for Information (RFI) is a mechanism for the government to determine what products are available or that are under development that might fulfill a specified government need. It can cover a broad area or be narrowly focused. For example, in September 2006, HHS issued an relatively broad RFI to help in \"identifying and characterizing the current and projected status of the research and development programs related to CBRN medical countermeasures\" (CBRN General in Figure 2 ). In contrast, an RFI issued in December 2003 focused on a specific type of treatment for a specific disease, anthrax therapeutics, based on antibodies ( Figure 2 ).\nAgencies can use the information in RFI responses to help shape policy and to help develop requirements for a contract solicitation. However, RFIs do not necessarily lead to contract solicitations. Four of the eight Project BioShield RFIs have not lead to contract solicitations. These RFIs were seeking countermeasures against CBRN in general, nerve agents, one of the two anthrax therapeutic RFIs, and one of the two acute radiation syndrome RFIs ( Figure 2 ). RFIs are also not required before issuing a contract solicitation. Four of the eight contract solicitations did not have an RFI. These contracts were for AVA based anthrax vaccine, botulinum antitoxin, and the radiation treatments Zn- and Ca-DTPA and potassium iodide (KI) ( Figure 2 ). These contract solicitations were for specific products from specific companies and not subject to open competition.\nContract solicitations are invitations for companies to submit proposals to provide goods or services to fulfill government needs. Project BioShield solicitations fall into two basic categories, sole source and Requests for Proposals (RFP). The sole source solicitations were for specific products from specific companies and not subject to open competition. Four of the eight contract solicitations were sole source. These are the same four contracts which did not go through the RFI process discussed above, AVA-based anthrax vaccine, botulinum antitoxin, and the radiation treatments Zn- and Ca-DTPA, and KI ( Figure 2 ). Four of the eight contract solicitations were RFPs. Each RFP specified certain characteristics required by the government and multiple companies could submit proposals. The government could then choose the proposal or proposals that best fit its requirements needs or decide that none of the proposals met the minimum requirements. The contract solicitations which went through the RFP process were those seeking an rPA-based anthrax vaccine, an MVA-based smallpox vaccine, and treatments for acute radiation syndrome ( Figure 2 ). Three of the four RFPs have resulted in contract awards to date, rPA-based anthrax vaccine, anthrax therapeutics, and MVA-based smallpox vaccine. The anthrax therapeutics RFP resulted in contracts with two companies for two different products. The government may decide that none of the companies responding to an RFP have products that meet the government's minimum requirements. This appears to be the case with the acute radiation syndrome RFP, which was terminated without an award on March 7, 2007.\nHHS has awarded ten Project BioShield contracts to six different companies. Of these contracts, four have been completed (two for AVA-based anthrax vaccine, one for the radiation treatments Zn-DTPA and Ca-DTPA, and one of the two for the radiation treatment KI), four remain open (one of the two for the radiation treatment KI, two for anthrax therapeutics, and one for smallpox vaccine), and one was terminated (rPA-based anthrax vaccine). All of the completed contracts resulted from sole source contracting rather than an open bidding RFP process. These completed contracts were for products which required no further development time. It is not clear why HHS chose to acquire these products through the Project BioShield process rather than using the standard process for acquiring similar off-the-shelf products for the Strategic National Stockpile.\nOf the ten contracts awarded by HHS, five were for products that required further development: rPA-based anthrax vaccine, smallpox vaccine, botulinum antitoxin, and the two anthrax therapeutics. None of these contracts have yet resulted in deliveries to the Strategic National Stockpile. The rPA anthrax vaccine contract was cancelled and development continues on the remaining four products with open contracts.", "The Project BioShield countermeasures against anthrax fall into two categories, vaccines and treatments. The vaccines would likely be used after an attack to prevent those people who were exposed to Bacillus anthracis from developing the disease anthrax, a procedure called postexposure prophylaxis. This contrasts with the manner in which most vaccines (e.g., childhood vaccines) are administered before exposure.", "The vaccine based on recombinant Protective Antigen (rPA) is often referred to as the \"second generation anthrax vaccine,\" to differentiate it from the anthrax vaccine adsorbed (AVA) vaccine, which is currently used by the Department of Defense (DOD). In 2002, the Institute of Medicine (IOM) stated, \"Although AVA appears to be sufficiently safe and effective for use, it is far from optimal.\" The IOM supported the development of a new anthrax vaccine. Officials at HHS believe that, when fully developed, the rPA vaccine will address many of the shortcomings of the AVA vaccine as identified in the IOM report.\nIn November 2004, HHS awarded VaxGen, Inc. an $877.5 million contract for the delivery of 75 million doses of rPA vaccine to the Strategic National Stockpile ($11.70 per dose). On December 17, 2006, HHS terminated this contract for VaxGen's failure to meet a contract milestone.\nHHS had planned that each person would require a three dose regimen of this vaccine for protection. Thus, 75 million doses would be sufficient for 25 million people. The Food and Drug Administration (FDA) has not licensed this vaccine. Although FDA licensing is not required for delivery to the stockpile, this vaccine required additional clinical testing before it could be accepted by the government. Under the contract with VaxGen, delivery was to begin by the end of 2006 and be completed by the end of 2007. Technical difficulties repeatedly delayed delivery.\nThis first, largest Project BioShield contract has drawn intense scrutiny. Critics of this contract award point to VaxGen's previous unsuccessful attempts to develop products, financial difficulties, and problems meeting the contract deadlines as indicative of problems in HHS' implementation of Project BioShield authorities. HHS responded to such criticisms by stating VaxGen won the contract through open competition after all the proposals were subjected to \"a robust technical and business evaluation process.\" HHS portrayed the delays as part of the normal drug development process. VaxGen reportedly denied responsibility for the delays, stating that they arose from the government changing its requirements.\nFollowing the cancellation of the contract, HHS restated its commitment to obtain an rPA-based anthrax vaccine for the Strategic National Stockpile.", "The AVA anthrax vaccine was originally licensed in 1970. It is currently approved by the FDA for use in 18- to 65-year olds prior to exposure to Bacillus anthracis (pre-exposure prophylaxis). Neither this vaccine nor the rPA vaccine is approved by the FDA for post-exposure prophylaxis. The FDA-approved regimen for pre-exposure prophylaxis requires a series of six doses administered over the course of 18 months.\nThe DOD currently uses this vaccine for troops and other personnel deployed in certain areas, including South Korea, Afghanistan, and Iraq. Complaints of adverse reactions and questions about the vaccine's efficacy prompted judicial review of its use. In October 2004, a federal judge ordered the DOD to stop mandatory vaccinations pending FDA review. After this order, DOD continued to use this vaccine on a voluntary, rather than mandatory, basis. The FDA completed its review in December 2005. In October 2006, DOD announced plans to resume mandatory vaccinations. Reportedly, several DOD employees plan to sue to block implementation of mandatory vaccinations.\nIn May 2005 and May 2006, HHS awarded contracts to Emergent BioSolutions (formerly BioPort Corp.) for the delivery of AVA vaccine to the Strategic National Stockpile. Combined, the contracts are for 10 million doses of AVA vaccine for $242.7 million ($24.27 per dose). According to the company, 9 million doses have been delivered to the government, and the remainder is to be delivered in 2007.\nThis contract award has also drawn criticism on the basis of cost and questions of policy. Despite the manufacturer carrying no developmental risk, the AVA vaccine cost per dose is twice the cost per dose of rPA. Additionally, critics observe that DOD studies indicate that up to 35% of people have adverse reactions to this vaccine and that 6% of vaccine recipients have reported serious complications to the FDA's Vaccine Adverse Event Reporting System. Critics point to this and observations in the IOM report to support their conclusion that AVA is an inferior product. Lastly, since AVA is the only currently licensed vaccine, critics question whether its acquisition has resulted from its unique status rather than filling a Project BioShield need. Emergent BioSolutions defended its product stating that both the IOM report and the FDA found its product safe and that, as the only FDA-approved anthrax vaccine available, it is filling an urgent need.", "ABthrax is an antibody-based treatment that works in a manner similar to anti-venom treatments for snake bites. It is currently under development and it is not yet licensed by the FDA. In June 2006, HHS awarded a $165.2 million contract to Human Genome Sciences for the delivery of 20 thousand doses of ABthrax ($8,260 per dose). Human Genome Sciences expects to complete the delivery of ABthrax to the government in 2008. This high cost per dose, the mechanisms of action, and method of patient administration suggest that ABthrax would be used as a treatment for people who have already developed the symptoms of anthrax, rather than as a post-exposure prophylactic.", "Anthrax Immune Globulin is also an antibody-based therapeutic. It is derived from the blood of people who have received the anthrax vaccine. It is currently under development and is not yet licensed by the FDA. In July 2006, HHS awarded a $143.8 million contract to Cangene Corp. for the delivery of 10 thousand doses of Anthrax Immune Globulin ($14,380 per dose). This high cost per dose, the mechanism of action, and likely method of patient administration suggest that Anthrax Immune Globulin would be used as a treatment for people who have already developed the symptoms of anthrax, rather than as a post-exposure prophylactic.", "Although the World Health Organization eradicated naturally occurring smallpox, it remains a terrorist threat. Following the terrorist attacks of 2001, the Untied States acquired for the Strategic National Stockpile enough of the currently FDA-licensed vaccine (Dryvax ® made by Wyeth Laboratories) to vaccinate 300 million people. However, this vaccine has a high rate of complications, which could be especially serious in people with certain conditions including pregnancy, compromised immune systems, and eczema. The HHS determined that a different smallpox vaccine is required to protect such vulnerable populations.\nIn June 2007, HHS awarded a $500 million contract to Bavarian Nordic A/S for 20 million doses of smallpox vaccine ($25 per dose), enough for 10 million people. This vaccine is based on the Modified Vaccinia Ankara (MVA) viral strain, which is a different viral strain than the currently licensed vaccine. Experts at HHS believe that this will make it safer for use in vulnerable populations. HHS plans to use this vaccine as a pre-exposure prophylactic in those populations following a known or suspected smallpox release. Additional research is required before this vaccine can be accepted into the stockpile and licensed by the FDA. According to the company, this contract contains options worth up to $1.1 billion for 60 million additional doses and clinical research to extend the license to include children, the elderly, and people infected with HIV.", "Botulinum antitoxin is an antibody-based treatment for botulism, a life threatening illness caused by a toxin produced by Clostridium botulinum bacteria. In June 2006, HHS awarded a $362.6 million contract to Cangene Corp. for 200 thousand doses of a botulinum antitoxin ($1,813 per dose). The company expects to begin delivery by the end of 2007. Botulinum toxin has several different types; an antitoxin against one type will not be effective against other types. This contract calls for a combination of antitoxins that will work against seven types of botulinum toxins. This combination is known as heptavalent antitoxin. Following an intentional release of botulinum toxin, this antitoxin would probably be administered to people who have developed symptoms of toxin exposure, consistent with the way that similar trivalent products are currently used to treat naturally occurring exposures.\nBotulinum antitoxin is produced in a manner similar to anthrax immune globulin, except in this case, it is extracted from horse blood instead of human blood. In 2004, after the Department of Homeland Security Appropriations Act, 2004 provided the advance appropriation, but before the Project BioShield Act was enacted, HHS obligated $50 million from this account to support the botulinum antitoxin program. These funds were used to process existing horse blood that had been collected by the DOD and to establish horse farms needed to provide new horse blood. This expenditure would probably not have been eligible for funding from this account after enactment of the Project BioShield Act, as it limited the use of these funds to procuring products. Because these funds were not obligated as part of Project BioShield, they are not included in Table 3 , but they are included in Table 4 (see below).", "In addition to direct blast effects, attacks using radiological or nuclear agents can produce injuries resulting from ionizing radiation, which can damage or kill living cells. HHS determined that the threat posed by both acute radiation sickness and internal contamination with radioactive particles require countermeasures. HHS has contracted for two types of countermeasures designed to reduce internal contamination. An RFP for countermeasures to address acute radiation sickness did not lead to a contract award. The RFP was cancelled, apparently because none of the proposals met the minimum requirements determined by HHS.", "The HHS awarded contracts in March 2005 and February 2006 to Fleming & Company Pharmaceuticals for the delivery of a total of 4.8 million doses of liquid potassium iodide (KI) for a total cost of $15.9 million ($3.31 per dose). This product is FDA-approved and available without a prescription to treat people exposed to radioactive iodine.\nPotassium iodide might be distributed following a release of radioactive iodine into the air, possibly following an attack on a nuclear power plant. Because the thyroid gland extracts and stores iodine present in the blood, it is vulnerable to injury from radioactive iodine. If administered in time, potassium iodide would block extraction and storage of radioactive iodine by the thyroid. Potassium iodide does not protect against the effects of any other type of radioactive material. Even before these acquisitions, potassium iodide tablets were included in the Strategic National Stockpile, but the tablet formulation was considered poorly suited for children. This liquid preparation, in contrast, is designed for pediatric use.", "In February and April 2006, HHS awarded a $21.9 million contract to Akorn, Inc. for 395 thousand doses of calcium diethylenetriaminepentaacetate (Ca-DTPA) and 80 thousand doses of zinc diethylenetriaminepentaacetate (Zn-DTPA). (a nominal average of $46 per dose). These chelators might be used to treat those exposed to radioactive material through the detonation of a radiological dispersal device (\"dirty bomb\"), improvised nuclear device, or terrorist attack against stored radioactive material. These products are FDA-approved for this type of internal decontamination.\nRadioactive materials that may be inhaled or ingested following a dirty bomb or nuclear attack are treated as minerals in the body. Thus, they enter into biological processes like other minerals and become incorporated into internal organs. Once incorporated, they are very difficult to remove and continue to emit radiation, potentially sickening those exposed. Chelators help remove these radioactive particles from the body by binding to them and facilitating their excretion through normal physiological processes.", "The Project BioShield special reserve fund, established by the Department of Homeland Security Appropriations Act, 2004, is managed by DHS. In FY2006, the DHS management of this appropriations account passed internally from the Federal Emergency Management Agency to the Preparedness Directorate. However, the contracts obligating the appropriated funds are executed through the HHS OPHEMC.\nTable 4 shows the accounting from the President's annual budget documents. In FY2004, $885 million from the advance appropriation became available for obligation. According to the DHS section of the budget, all available budget authority was obligated in FY2004; no budget authority was carried into the following fiscal year. In FY2005, another $2.508 billion became available for obligation. The budget documents state that $189 million of this was obligated in FY2005, leaving $2.324 billion to be carried over into FY2006. For FY2006, the budget states that $856 million was obligated, leaving $1.468 billion to be carried over into FY2007. DHS anticipates obligations of $1.045 billion in FY2007, leaving only $423 million available for obligation in FY2008. The next part of the advance appropriation does not become available for obligation until FY2009 (see Table 2 ).\nThese figures conflict with totals calculated from the countermeasure awards reported by HHS ( Table 3 ). Table 5 lists all of the contracts that HHS has announced for this account along with their dates of award and fiscal year subtotals.\nAccording to HHS, the only obligation from this account in FY2004 was $50 million to support the botulinum antitoxin program. In contrast, the President's FY2006 Budget documents state that $885 million was obligated in FY2004. Additionally, it describes this obligation as falling under two object classifications; with $190 million for \"other services\" (object classification 25.2) and $695 million for \"other purchases of goods and services from Government accounts\" (object classification 25.3). It is not clear what these amounts represent. The $50 million HHS obligated for the botulinum antitoxin program support could fall under the \"other services\" category, since it was not an acquisition per se , but the amount of this contract does not correlate to the amount categorized as \"other services.\"\nAnother possibility is that President's Budget accounted for the rPA vaccine contract (awarded in November 2004) in FY2004 rather than FY2005. This interpretation is supported by the FY2007 Budget reporting that only $189 million was obligated in FY2005. However, the total of the $878 million rPA obligation and the $50 million botulinum antitoxin program obligation is greater than the budget authority made available in FY2004 ($885 million). This interpretation also would not account for the division of the funds into the two object classifications. Furthermore, the FY2007 DHS Preparedness Directorate BioDefense Countermeasures Congressional Justification materials list acquiring the rPA vaccine as one of its FY2005 accomplishments. The source of the FY2004 account discrepancy of $835 million is not apparent.\nIn FY2005, HHS reported awarding three contracts for a total of $1.008 billion. The FY2007 Budget states that the actual amount obligated in FY2005 was $189 million. The DHS FY2007 Congressional Justification documents state that its FY2005 accomplishments include the rPA, KI, and AVA contracts. These would equal the $1.008 billion calculated from the HHS figures. It is not apparent to what the $189 million stated in the Budget correlates.\nLike the preceding two years, the stated obligations for FY2006 are different according to HHS and the President's Budget. For FY2006, HHS reported awarding six contracts, with obligations totaling $824 million. This is $32 million less than the $856 million stated as \"actual obligations\" in FY2006 in the President's FY2008 Budget.\nCombining all of the differences in reporting through FY2006, the President's Budgets state that $48 million more have been obligated than the HHS documents report.", "Effective management and Congressional oversight of Project BioShield require specific and clear knowledge of the funds remaining available. For the Administration to most effectively plan and prioritize future acquisitions, it must know the amount of funds remaining available. For Congress, knowing the amount of funds remaining can be important in assessing program management, the implementation pace, and general program effectiveness. Due to conflicting statements from executive branch agencies, the amount of funds remaining available for obligation for this program is not clear.\nAccording to HHS, as of June 2007, it has obligated $2.331 billion from this account. This figure does not include the $878 million that should be recovered in FY2007 from the cancellation of the rPA anthrax vaccine contract. Taking this recovery into account, $1.889 billion would be available for obligation in FY2007-FY2008 and $4.064 billion would be available until the end of the program in FY2013. As stated above, using the President's Budget figures to calculate obligations would reduce these numbers by $48 million.", "Project BioShield plays a key role in the federal government's response to the threat of chemical, biological, radiological, and nuclear terrorism. It created a process for the government to agree to purchase countermeasures while they still are in development. In addition to increasing the holdings of the Strategic National Stockpile, it was hoped that this government market guarantee would encourage companies to continue to develop promising countermeasures that they might have otherwise abandoned, and induce other companies to begin countermeasure development. It remains unclear how well Project BioShield is meeting these goals.\nMany stakeholders, industry leaders, and policymakers have criticized the rate at which DHS completes Material Threat Determinations. To address these concerns, legislation has been introduced in the previous and current Congresses. In the 110 th Congress, the Project BioShield Material Threats Act of 2007 ( H.R. 1089 , Langevin) and the Department of Homeland Security Authorization Act for Fiscal Year 2008 ( H.R. 1684 , Thompson) would require an assessment, and an MTD if appropriate, for all currently known CBRN agents likely to pose a significant national security threat. These assessments would be required to be completed by December 31, 2007. By assessing all known threats and issuing those MTDs necessary, the full spectrum of material threats may be considered when developing a countermeasure acquisition strategy. Such a comprehensive acquisition strategy may allow for more efficient prioritization and balance of countermeasures, providing optimized protection from CBRN attacks using finite funds in the shortest time. Since HHS has not issued contracts for the all of the agents that already have MTDs, an increase in this number may not increase the rate of countermeasure awards. However, HHS has predicted that no additional MTDs would be issued unless \"technology advances or if our understanding of the potential threats changes.\"\nAppropriators set limits on how much could be obligated during specified periods of time. The pace by which HHS awards countermeasure contracts roughly corresponds to these limits. By this criterion, this program is on track to fulfill its goals; HHS cannot obligate the money faster than it becomes available.\nStakeholders, industry leaders and policymakers have criticized HHS for some of the countermeasures it has chosen. In decisions as complicated and weighty as these, any choice is likely to be criticized. Given the failure of the largest contract to date, some critics may conclude that Project BioShield has fallen short of its goals, since the majority of the money that has been obligated, though not the majority of contracts, has not yet resulted in products in the stockpile. However, one of the unique features of Project BioShield contracts is that the government may contract for products that require up to eight years more of development. It was designed to allow the government to promise to buy something, but only pay for it on delivery. Thus the company, rather than the government, bears the majority of the development risk, i.e. that the product will never be deliverable. One industry group estimates that more than half of all pharmaceuticals will fail during the last eight years of development. Thus, it may be expected that at least some Project BioShield contracts will be cancelled. The government bears some development risk in the form of opportunity costs since the money available for obligation is finite, i.e., money obligated to a countermeasure that will ultimately fail in development cannot be simultaneously obligated to another needed countermeasure.\nIt is possible that the establishment of the Biodefense Advance Research and Development Authority (BARDA) in HHS will reduce the likelihood that future Project BioShield contracts will fail during the advanced development phase. Established by the Pandemic and All-Hazards Preparedness Act ( P.L. 109-417 ), one of BARDA's roles is to support the advanced research and development of promising countermeasures. In theory, funding this part of the development process through such a dedicated mechanism could allow countermeasures to further mature through the development process longer before competing for a Project BioShield contract. This could reduce the risk that a countermeasure will fail while under a Project BioShield contract. P.L. 109-417 included authorization for approximately $1 billion to support this type of activity for FY2007 through FY2008. Although, Congress did not appropriate money for BARDA in FY2007, the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007 ( P.L. 110-28 ) transferred $99 million from National Institutes of Health accounts to fund BARDA. Even if BARDA becomes operational in FY2007, it will take some time to determine what projects to fund, provide funding, and receive returns on this investment. It remains to be seen how HHS' decision to combine BARDA with the HHS office responsible for executing Project BioShield (Office of Public Health Emergency Medical Countermeasures) will affect the execution of both programs.\nAdditional criticism of the Project BioShield procurement process may stem from the perceived opacity of its decision-making process. HHS is moving to address some of these issues by publishing its PHEMCE Strategy for Chemical, Biological, Radiological and Nuclear Threats , inviting public comment, and reaching out to the public and companies that might develop needed countermeasures through stakeholder meetings.\nSome critics also suggest that the Project BioShield process has been poorly managed overall. Such suggestions are reinforced by the annual accounting discrepancies between HHS and DHS. It remains to be seen whether these concerns will be allayed through the management changes being implemented subsequent to: the establishment of the Public Health and Emergency Medical Countermeasures Enterprise (PHEMCE) and publication of its strategy; the enactment of the Pandemic and All-Hazards Preparedness Act ( P.L. 109-417 ); and the issuance of HSPD-18." ], "depth": [ 0, 1, 2, 3, 3, 3, 3, 4, 4, 4, 4, 1, 2, 2, 2, 1, 2, 3, 3, 3, 3, 2, 2, 2, 3, 3, 1, 1, 1 ], "alignment": [ "h0_title h2_title h1_title", "h0_title", "h0_title", "", "h0_full", "", "h0_full", "", "", "", "", "h1_title", "h1_full", "h1_full", "h1_full", "h2_full", "", "", "", "", "", "", "", "", "", "", "h0_full", "h2_full", "h0_full h1_full" ] }

{ "question": [ "What has Congress done to oversee the implementation of Project BioShield?", "What about Project BioShield have stakeholders and policymakers criticized?", "What other problems have been identified?", "What appropriation did the Homeland Security Appropriations Act provide?", "What did the Project BioShield Act of 2004 do?", "How did rescissions affect the amount available for Project BioShield?", "What legislative body can make further changes to it?", "What contracts has HHS awarded through Project BioShield?", "What is the scale of the awards?", "What was the fate of. the largest contract?", "What money remains available through Project BioShield?" ], "summary": [ "Congress has expressed concern about the implementation of Project BioShield. It has held multiple oversight hearings and considered several pieces of legislation to improve the execution of this program, including the Pandemic and All-Hazards Preparedness Act (P.L. 109-417), H.R. 1089, and H.R. 1684.", "Stakeholders and policymakers have criticized specific contract award decisions and the rate at which they are made.", "Additionally, contract awards reported by the Department of Health and Human Services (HHS) do not directly correspond with figures provided in the President's annual budget documents, which may suggest problems with interagency coordination and communication.", "The Homeland Security Appropriations Act, 2004 (P.L. 108-90) provided an advance appropriation of $5.6 billion to acquire CBRN countermeasures over a 10-year period (FY2004-FY2013). This act also limited the amount that could be obligated during specified time periods.", "The Project BioShield Act of 2004 (P.L. 108-276) assigned the $5.6 billion advance appropriation to Project BioShield countermeasure acquisitions.", "Two separate rescissions reduced the total amount available for Project BioShield by a total of $25 million.", "Congress retains the power to make additional appropriations and rescissions to this account.", "HHS has awarded Project BioShield contracts for a countermeasures against anthrax, smallpox, botulinum toxin, and radiological or nuclear agents.", "These awards total approximately $2.331 billion.", "However, the largest contract, $878 million for an anthrax vaccine, was cancelled in December 2006 for failure to meet a contract milestone.", "Taking this into account, approximately $1.889 billion remains available for obligation through FY2008 and $4.064 billion available for obligation through the end of the program in FY2013." ], "parent_pair_index": [ -1, 0, 0, -1, -1, 1, 1, -1, 0, 0, 0 ], "summary_paragraph_index": [ 1, 1, 1, 3, 3, 3, 3, 4, 4, 4, 4 ] }

{ "title": [ "Background", "Multiemployer Plan Administration, Funding, and Benefits", "Administration", "Benefits", "The Central States, Southeast and Southwest Areas Pension Fund (CSPF)", "The Consent Decree", "Legal Framework", "Employee Retirement Income Security Act of 1974", "Key Amendments to ERISA Affecting Multiemployer Plans", "CSPF’s Critical Financial Condition Is a Result of Factors That Reflect Challenges Experienced by the Multiemployer System", "CSPF Has Been Underfunded Since the Consent Decree Was Established", "Stakeholders Described Multiple Factors That Contributed to CSPF’s Critical Financial Condition, Many of Which Have Been Experienced by Other Multiemployer Plans", "Key Industry Specific Workforce Trends", "Funding Challenges and Investment Practices", "Investment Performance and Market Downturns", "Effect of UPS Withdrawal", "CSPF’s Investment Policy Since 1982 Generally Increased Allocation to Equities, but Shifted Toward Fixed Income in 2017, Ahead of Projected Insolvency", "Early Period: September 1982–October 1993", "Middle Period: November 1993–January 2017", "CSPF’s Investment Policy", "Process for Setting and Executing CSPF’s Investment Policy", "Asset Allocation under CSPF’s Investment Policy", "Current Period: January 2017 – Present", "Available Data Show That CSPF Investment Returns and Fees Were Generally Comparable to Similar Plans", "CSPF’s Investment Return History is in Line with Other Funds and Plans", "CSPF Investment Returns Compared to Other Large Institutional Funds", "CSPF Investment Returns Compared to Other Similar Multiemployer Plans", "Fees and Expenses Paid by CSPF Were Similar to Other Large Multiemployer Plans", "Agency Comments and Our Evaluation", "Appendix I: Objectives, Scope, and Methodology", "CSPF and DOL Document Reviews", "Semi-structured Interviews", "Investment Policy Statement Review", "Asset Summary", "Form 5500 Data Analysis", "Funded Status", "Comparator Group Construction", "Calculations of Annual Investment Returns", "Calculation of Average Investment Return over Multiple Years", "Calculation of Fees and Expenses", "Administrative Expense Calculations", "Analysis of Wilshire TUCS Data", "Appendix II: Selected Events Affecting the Central States, Southeast and Southwest Areas Pension Fund", "Appendix III: Key Provisions of the Central States, Southeast and Southwest Areas Pension Fund’s Consent Decree", "Brief History and Current Status of Consent Decree", "Key Parties and Their Primary Roles under Consent Decree", "Court", "Independent Special Counsel", "Department of Labor", "CSPF (including Board of Trustees and Internal Audit Staff)", "Named Fiduciaries", "Appendix IV: GAO Contacts and Staff Acknowledgments", "GAO Contact", "Staff Acknowledgments", "Related GAO Products" ], "paragraphs": [ "CSPF is a defined benefit multiemployer pension plan. Multiemployer plans are often created and maintained through collective bargaining agreements between labor unions and two or more employers, so that workers who move from job to job and employer to employer within an industry can continue to accrue pension benefits within the same plan over the course of their careers. Multiemployer plans are typically found in industries with many small employers such as trucking, building and construction, and retail food sales. In 2017, there were about 1,400 defined benefit multiemployer plans nationwide covering more than 10 million participants.", "", "Most multiemployer plans are jointly administered and governed by a board of trustees selected by labor and management. The labor union typically determines how the trustees representing labor are chosen and the contributing employers or an employer association typically determines how the trustees representing management are chosen. The trustees set the overall plan policy, direct plan activities, and set benefit levels (see fig. 1).\nMultiemployer plans are “prefunded,” or funded in advance, primarily by employer contributions. The employer contribution is generally negotiated through a collective bargaining agreement, and is often based on a dollar amount per hour worked by each employee covered by the agreement. Employer contributions are pooled in a trust fund for investment purposes, to pay benefits to retirees and their beneficiaries, and for administrative expenses. Multiemployer plan trustees typically decide how the trust fund should be invested to meet the plan’s objectives, but the trustees can use investment managers to determine how the trust fund should be invested. Multiemployer plan trust funds can be allocated among many different types of assets, any of which can generally be passively- or actively-managed, domestically or internationally based, or publicly or nonpublicly traded (see table 1).\nA plan’s funded percentage is its ratio of plan assets to plan liabilities. Because the amount needed to pay pension benefits for many years into the future cannot be known with certainty due to a variety of economic and demographic factors, including the potential volatility of asset values, estimates of a plan’s funded percentage may vary from year to year. Defined benefit pension plans use a “discount rate” to convert projected future benefits into their “present value.” The discount rate is the interest rate used to determine the current value of estimated future benefit payments and is an integral part of estimating a plan’s liabilities. The higher the discount rate, the lower the plan’s estimate of its liability. Multiemployer plans use an “assumed-return approach” that bases the discount rate on a long-term assumed average rate of return on the pension plan’s assets. Under this approach, the discount rate depends on the allocation of plan assets. For example, a reallocation of plan assets into more stocks and fewer bonds typically increases the discount rate, which reduces the estimated value of plan liabilities, and therefore, reduces the minimum amount of funding required.\nLooking at the entire “multiemployer system”—the aggregation of multiemployer plans governed by ERISA and insured by PBGC—shows that while the system was significantly underfunded around 2001 and 2009, its funded position has improved since 2009. Specifically, analyses published by the Center for Retirement Research at Boston College and the Society of Actuaries used plan regulatory filings to calculate the funded status for the system and determined that it was approaching 80 percent funded by 2014 after falling during the 2008 market downturn. However, some observers have noted that while many plans are making progress toward their minimum targets, a subset of plans face serious financial difficulties.", "Multiemployer retirement benefits are generally determined by the board of trustees. The bargaining parties negotiate a contribution rate and the trustees adopt or amend the plan’s benefit formulas and provisions. Decisions to increase benefits or change the plan are also typically made by the board of trustees. Benefit amounts are generally based on a worker’s years of service and either a flat dollar amount or the worker’s wage or salary history, subject to further adjustment based on the age of retirement.", "CSPF was established in 1955 to provide pension benefits to International Brotherhood of Teamsters union members (Teamsters) in the trucking industry, and it is one of the largest multiemployer plans. In the late 1970s, CSPF was the subject of investigations by the IRS within the U.S. Department of the Treasury (Treasury), and by DOL and the U.S. Department of Justice (DOJ). The DOL investigation ultimately resulted in the establishment of a federal court-enforceable consent decree in 1982 that remains in force today. CSPF held more than $4.3 billion in Net Assets at the end of 1982 after the consent decree was established. The plan’s Net Assets peaked at nearly $26.8 billion at the end of 2007 and declined to about $15.3 billion at the end of 2016 (see fig. 2). As of 2016, CSPF reported that it had about 1,400 contributing employers and almost 385,000 participants.\nThe number of active CSPF participants has declined over time. In 2016, 16 percent of about 385,000 participants were active, i.e., still working in covered employment that resulted in employer contributions to the plan. In comparison, CSPF reported in 1982 that 69 percent of more than 466,000 participants were active participants. Since the 1980s, CSPF’s ratio of active to nonworking participants has declined more dramatically than the average for multiemployer plans. By 2015, only three of the plan’s 50 largest employers from 1980 still paid into the plan, and for each full-time active employee there were over five nonworking participants, mainly retirees. As a result, benefit payments to CSPF retirees have exceeded employer contributions in every year since 1984. Thus, CSPF has generally drawn down its investment assets. In 2016, CSPF withdrew over $2 billion from investment assets (see fig. 3.).\nCSPF has historically had fewer plan assets than were needed to fully fund the accrued liability—the difference referred to as unfunded liability. In 1982, we reported that CSPF was “thinly funded”—as the January 1, 1980, actuarial valuation report showed the plan’s unfunded liability was about $6 billion—and suggested that IRS should closely monitor CSPF’s financial status. In 2015, the plan’s actuary certified that the plan was in “critical and declining” status. The plan has been operating under an ERISA-required rehabilitation plan since March 25, 2008, which is expected to last indefinitely. As of January 1, 2017, the plan was funded to about 38 percent of its accrued liability. In September 2015, CSPF filed an application with Treasury seeking approval to reduce benefits pursuant to provisions in the Multiemployer Pension Reform Act of 2014 (MPRA), which is fully discussed later in this section. The application was denied in May 2016 based, in part, on Treasury’s determination that the plan’s proposed benefit suspensions were not reasonably estimated to allow the plan to remain solvent. In 2017, CSPF announced it would no longer be able to avoid the projected insolvency. (See app. II for a timeline of key events affecting CSPF.)", "As previously mentioned, CSPF was the subject of investigations in the 1970s by IRS, DOL, and DOJ. DOL’s investigation focused on numerous loan and investment practices alleged to constitute fiduciary breaches under ERISA, such as loans made to companies on the verge of bankruptcy, additional loans made to borrowers who had histories of delinquency, loans to borrowers to pay interest on outstanding loans that the fund recorded as interest income, and lack of controls over rental income. As a result of its investigation, DOL filed suit against the former trustees of CSPF and, in September 1982, the parties entered into a consent decree, which remains in force today. The consent decree provides measures intended to ensure that the plan complies with the requirements of ERISA, including providing for oversight by the court and DOL, and prescribes roles for multiple parties in its administration. For example, certain plan activities must be submitted to DOL for comment and to the court for approval, including new trustee approvals and some investment manager appointments. According to DOL, to prevent criminal influence from regaining a foothold of control over plan assets, the consent decree generally requires court-approved independent asset managers—called “named fiduciaries”—to manage CSPF’s investments. CSPF’s trustees are generally prohibited from managing assets; however, they remain responsible for selecting, subject to court approval, and overseeing named fiduciaries and monitoring plan performance. To focus attention on compliance with ERISA fiduciary responsibility provisions, the consent decree provides for a court-appointed independent special counsel with authority to observe plan activities and oversee and report on the plan. (See app. III for additional detail on the key provisions of the consent decree.)", "", "In 1974, Congress passed ERISA to protect the interests of participants and beneficiaries of private sector employee benefit plans. Among other things, ERISA requires plans to meet certain requirements and minimum standards. DOL, IRS, and PBGC are generally responsible for administering ERISA and related regulations.\nDOL has primary responsibility for administering and enforcing the fiduciary responsibility provisions under Part 4 of Title I of ERISA, which include the requirement that plan fiduciaries act prudently and in the sole interest of participants and beneficiaries.\nTreasury, specifically the IRS, is charged with determining whether a private sector pension plan qualifies for preferential tax treatment under the Internal Revenue Code. Additionally, the IRS is generally responsible for enforcing ERISA’s minimum funding requirements, among other things. ERISA generally requires that multiemployer plans meet minimum funding standards, which specify a funding target that must be met over a specified period of time. The funding target for such plans is measured based on assumptions as to future investment returns, rates of mortality, retirement ages, and other economic and demographic assumptions. Under the standards, a plan must collect a minimum level of contributions each year to show progress toward meeting its target, or the plan employers may be assessed excise taxes and owe the plan for missed contributions plus interest. Minimum contribution levels may vary from year to year due to a variety of economic and demographic factors, such as addressing differences between assumed investment returns and the plan’s actual investment returns.\nTo protect retirees’ pension benefits in the event that plan sponsors are unable to pay plan benefits, PBGC was created by ERISA. PBGC is financed through mandatory insurance premiums paid by plans and plan sponsors, with premium rates set by law. PBGC operates two distinct insurance programs: one for multiemployer plans and another for single- employer plans. Each program has separate insurance funds and different benefit guarantee rules.\nThe events that trigger PBGC intervention differ between multiemployer and single-employer plans. For multiemployer plans, the triggering event is plan insolvency, the point at which a plan begins to run out of money while not having sufficient assets to pay the full benefits that were originally promised when due. PBGC does not take over operations of an insolvent multiemployer plan; rather, it provides loan assistance to pay administrative expenses and benefits up to the PBGC-guaranteed level. According to PBGC, only once in its history has a financial assistance loan from the multiemployer pension insurance program been repaid. In 2017, PBGC provided financial assistance to 72 insolvent multiemployer plans for an aggregate amount of $141 million. For single-employer plans the triggering event is termination of an underfunded plan—generally, when the employer goes out of business or enters bankruptcy. When this happens, PBGC takes over the plan’s assets, administration, and payment of plan benefits (up to the statutory limit).\nThe PBGC-guaranteed benefit amounts for multiemployer plans and the premiums assessed by PBGC to cover those benefit guarantees are significantly lower than those for single-employer plans. Each insured multiemployer plan pays flat-rate insurance premiums to PBGC based on the number of participants covered. The annual premium rate for plan years beginning in January 2017 was $28 per participant and it is adjusted annually based on the national average wage index. (See app. II for the PBGC premium rates that have been in effect since the consent decree was established in 1982.) When plans receive financial assistance, participants face a reduction in benefits. For example, using 2013 data, PBGC estimated 21 percent of more than 59,000 selected participants in insolvent multiemployer plans then receiving financial assistance from PBGC faced a benefit reduction. The proportion of participants facing reductions due to the statutory guarantee limits is expected to increase. About 51 percent of almost 20,000 selected participants in plans that PBGC believed would require future assistance were projected to face a benefit reduction.\nSince 2013, the deficit in PBGC’s multiemployer program has increased by nearly 700 percent, from a deficit of $8.3 billion at the end of fiscal year 2013 to $65.1 billion at the end of fiscal year 2017. PBGC estimated that at of the end of 2016, the present value of net new claims by multiemployer plans over the next 10 years would be about $24 billion, or approximately 20 percent higher than its 2015 projections. The program is projected to become insolvent within approximately 8 years. If that happens, participants who rely on PBGC guarantees will receive only a very small fraction of current statutory guarantees. According to PBGC, most participants would receive less than $2,000 a year and in many cases, much less.\nWe have identified PBGC’s insurance programs as high-risk. This designation was made in part because multiemployer plans that are currently insolvent, or likely to become insolvent in the near future, represent a significant financial threat to the agency’s insurance program. We designated the single-employer program as high-risk in July 2003, and added the multiemployer program in January 2009. Both insurance programs remain on our high-risk list.", "Multiemployer Pension Plan Amendments Act of 1980 Among other things, the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA) made employers liable for a share of unfunded plan benefits when they withdraw from a plan, unless otherwise relieved of their liability, and strengthened certain funding requirements. An employer that chooses to withdraw from a multiemployer plan may be required to continue to contribute if the plan does not have sufficient assets to cover the plan’s current and known future liabilities at the time the employer withdraws; however, these payments may not fully cover the withdrawing employer’s portion of the plan’s liabilities. In such cases, the employers remaining in the plan may effectively assume the remaining liability.\nThe Pension Protection Act of 2006 The Pension Protection Act of 2006 (PPA) was intended to improve the funding of seriously underfunded multiemployer plans, among other things. It included provisions that require plans in poor financial health to take action to improve their financial condition over the long term and established two categories of troubled plans: (1) “endangered status” or “yellow zone” plans (this category also includes a sub-category of “seriously endangered”), and (2) more seriously troubled “critical status” or “red zone” plans. PPA further required plans in the endangered and critical zones to develop written plans to improve their financial condition, such as by revising benefit structures, increasing contributions, or both, within a prescribed time frame. Multiemployer plans in yellow or red zone status must document their remediation strategies in a written plan, notify plan participants, and report annually on whether scheduled progress has been made. Since the 2008 market decline, the number of participants in endangered and critical plans has generally been decreasing (see fig. 4).\nThe Multiemployer Pension Reform Act of 2014 In response to the funding crisis facing PBGC and multiemployer pension plans, the Multiemployer Pension Reform Act of 2014 (MPRA) made changes to the multiemployer system that were intended to improve its financial condition. Key changes included:\nCreation of critical and declining status. MPRA created a new category, “critical and declining,” for plans in critical status projected to become insolvent during the current plan year or within any of the 14 succeeding plan years, or in certain circumstances, within any of the 19 succeeding plan years. In 2017, PBGC reported that more than 100 multiemployer plans (more than 7 percent of plans) representing approximately 1 million participants (about 10 percent of participants) have been determined to be “critical and declining.”\nPermitted reduction of accrued benefits. MPRA permits plans to reduce participants’ and beneficiaries’ accrued retirement benefits if the plan can demonstrate such action is necessary to remain solvent. Plans apply to Treasury for the authority to reduce benefits. Treasury, in consultation with PBGC and DOL, reviews the applications and determines whether the proposed changes would enable the plan to remain solvent.\nIncreased PBGC premiums. MPRA also increased the PBGC premiums for multiemployer plans from $12 to $26 (per participant per plan year) in 2015 and from $26 to $28 in plan year 2017. The annual premium in subsequent years is indexed to changes in the national average wage index.\nCreation of new framework of rules for partition. Partition allows a multiemployer plan to split into two plans—the original and a successor. Partitions are intended to relieve stress on the original plan by transferring the benefits of some participants to a successor plan funded by PBGC and to help retain participant benefits in the plans at levels higher than the PBGC-guaranteed levels.", "", "At the time the consent decree was established in 1982, CSPF had less than half the estimated funds needed to cover plan liabilities (and to pay associated benefits over the lifetime of participants) and it has not attained 100 percent of its estimated funding need since then, according to regulatory filings. CSPF’s 1982 Form 5500 we reviewed shows that the plan was less than 40 percent funded prior to the consent decree becoming effective. Over the next two decades, the plan generally made progress toward achieving its targeted level of funding but was never more than 75 percent funded, and funding has generally deteriorated since its 2002 filing (see fig. 5). Overall, the plan’s unfunded liability increased by approximately $11.2 billion (in inflation-adjusted dollars) between January 1983 and January 2016. As a consequence, participant benefits were never fully secured by plan assets over this period, as measured by ERISA’s minimum funding standards, and the plan consistently needed to collect contributions in excess of those needed to fund new benefit accruals to try to make up for its underfunded status.", "CSPF officials and other stakeholders identified several factors that contributed to CSPF’s critical financial condition and reflect the challenges faced by many multiemployer plans. For example, like CSPF, many multiemployer plans have experienced financial difficulties due to a combination of investment losses and insufficient employer contributions. In addition to being underfunded prior to the consent decree going into effect, stakeholders identified other specific factors that contributed to CSPF’s critical financial condition, such as trends within the national trucking industry and its workforce, funding challenges and common investment practices of multiemployer plans, and the impact of market downturns on long-term investment performance. Stakeholders also described the effects of the 2007 withdrawal of a key employer, United Parcel Service (UPS), on CSPF’s critical financial condition.", "Stakeholders we interviewed said changes to the workforce, such as declining union membership rates and changes resulting from industry deregulation, affected CSPF and some other multiemployer plans by reducing the number of workers able to participate in their plans. While the multiemployer structure distributes bankruptcy risk across many employers, for any particular multiemployer plan employers are often concentrated in the same industry, making the plans vulnerable to industry- specific trends and risks. For example, stakeholders noted the impact that the Motor Carrier Act of 1980 had on the trucking industry. Specifically, deregulation of the trucking industry reduced government oversight and regulation over interstate trucking shipping rates. The trucking industry became increasingly dominated by nonunion trucking companies resulting in the bankruptcy of many unionized trucking companies, according to stakeholders. New trucking companies typically did not join multiemployer plans because their labor force was not unionized and this, coupled with the bankruptcy of many contributing employers, contributed to a decrease in active participant populations for many plans serving the industry. As the total number of active participants in a plan declines, the resources from which to collect employer contributions declines proportionally. Stakeholders also said these changes were unforeseeable. Limitations on a plan’s ability to increase contributions mean that a plan has less capacity to recover from an underfunded position or to make up for investment returns that fall short of expectations.\nA decline in the number of active workers can also accelerate plan “maturity,” as measured by the ratio of nonworking to working participants. Plan maturity has implications for a plan’s investment practices and the time frame over which the plan must be funded. According to PBGC’s data for the multiemployer plans it insures, there were approximately three active participants for every nonworking participant in 1980 (3:1); by 2014, the ratio was approximately one active worker for every two nonworking participants (1:2). Figure 6 shows the change in the percentages of active and nonworking participants for the multiemployer plans that PBGC insures.\nCSPF saw an even more dramatic change in its active to nonworking participant ratio from 1982 through 2015. In 1982, there were more than two active workers for every nonworking participant (2:1) and by 2016 that ratio had fallen to approximately one active worker for every five nonworking participants (1:5) (see fig. 7). Because CSPF’s contributing employers were largely trucking companies, stakeholders said this made the fund especially vulnerable to industry-wide shocks. Like the industry as a whole, CSPF was unable to attract new employers to replace exiting employers, in part because of the lack of new unionized employers.\nCSPF officials said that changes to the trucking industry and its workforce also led to other challenges for the plan. For example, contributions to the plan declined with the shrinking number of active workers. CSPF officials told us they could not significantly increase the contribution rate paid by remaining employers because of the financial hardship it would cause, and as a result, the plan’s ability to recover from its underfunded position was limited. CSPF officials said that this increased the plan’s reliance on investment returns to try to close the gap between its assets and liabilities.", "Stakeholders we interviewed cited challenges inherent in multiemployer plans’ funding and investment practices, and described how the challenges may have contributed to the critical financial condition of some plans, including CSPF.\nStakeholders said that CSPF and many other multiemployer plans have been challenged by employer withdrawals. An employer withdrawal reduces the plan’s number of active worker participants, thereby reducing its contribution base and accelerating plan maturity. A withdrawing employer generally must pay a share of any unfunded benefits. Stakeholders identified several ways in which the withdrawal liability framework could result in a withdrawing employer underpaying its share of an unfunded liability. We have previously reported on the challenges associated with withdrawal liability, including: withdrawal liability assessments are often paid over time, and payment amounts are based on prior contribution rates rather than the employer’s actual withdrawal liability assessment. withdrawal liability payments are subject to a 20-year cap, regardless of whether an employer’s share of unfunded benefits has been fully paid within this 20-year timeframe; plans often did not collect some or all of the scheduled withdrawal liability payments because employers went bankrupt before completing their scheduled payments; and fears of withdrawal liability exposure increasing over time could be an incentive for participating employers to leave a plan and a disincentive for new employers to join a plan; Stakeholders we interviewed also added that the calculation used to determine withdrawal liability may use an investment return assumption that inherently transfers risk to the plan.\nWhen exiting employers do not pay their share of unfunded benefits, any remaining and future employers participating in the plan may effectively assume the unpaid share as a part of their own potential withdrawal liability as well as responsibility for the exiting employer’s “orphaned” participants. Participating employers may negotiate a withdrawal if they perceive a risk that the value of their potential withdrawal liability might grow significantly over time.\nIn its MPRA application, CSPF cited employer withdrawals and bankruptcies as a significant challenge for the plan. CSPF reported that after deregulation, the number of contributing employers dropped by over 70 percent. While some of the drop could be due to the consolidation of trucking companies after deregulation, CSPF officials cited several cases in which employers went bankrupt or withdrew from the plan, which reduced the plan’s contribution base and accelerated its maturity. Additionally, when employers went bankrupt, they often did not pay their full withdrawal liability. For example, CSPF said two of its major contributing employers left the plan between 2001 and 2003, and left $290 million of more than $403 million in withdrawal liability unpaid after they went bankrupt.\nStakeholders identified funding timeframes as a factor that contributed to the challenges facing many multiemployer plans, including CSPF. ERISA’s minimum funding standards have historically allowed multiemployer plans to amortize, or spread out the period of time for funding certain events, such as investment shortfalls and benefit improvements. For example, CSPF began a 40-year amortization of approximately $6.1 billion in underfunding on January 1, 1981, giving the plan until the end of 2021 to fully fund that amount. Longer amortization periods increase the risk of plan underfunding due to the number and magnitude of changes in the plan’s environment that may occur, such as a general decline in participants or deregulation of an industry. The Pension Protection Act of 2006 shortened amortization periods for single- employer plans to 7 years and the amortization periods for multiemployer plans to 15 years. Shorter amortization periods provide greater benefit security to plan participants by reducing an unfunded liability more rapidly. In addition, shorter amortization periods can be better aligned with the projected timing of benefit payments for a mature plan. However, shorter periods can be a source of hardship for plans with financially troubled contributing employers because they may require higher contributions. According to CSPF officials, CSPF requested and received an additional 10-year amortization extension from the IRS in 2005 after relating that contribution requirements could force participating employers into bankruptcy. One CSPF representative said an amortization extension can also help avoid subjecting the plan’s employers to IRS excise taxes for failing to make required minimum contributions.\nStakeholders we interviewed said that certain common investment practices may have played a role in the critical financial condition of CSPF and other mature and declining plans. In general, multiemployer plans invest in portfolios that are expected, on average, to produce higher returns than a low-risk portfolio, such as one composed entirely of U.S. Treasury securities. Stakeholders also stated that these investment practices may have been too risky because returns can be more volatile, and the higher expected returns might not be achieved. In addition, the Congressional Budget Office has reported that if “plans had been required to fund their benefit liabilities—at the time those liabilities were accrued—with safer investments, such as bonds, the underfunding of multiemployer plans would have been far less significant and would pose less risk to PBGC and beneficiaries.”\nStakeholders also told us that for mature plans like CSPF, these investment practices can pose further challenges. Mature plans, with fewer active employees, have less ability to recoup losses through increased contributions and have less time to recoup losses through investment returns before benefits must be paid. Market corrections, such as those that occurred in 2001 through 2002 and in 2008, can be particularly challenging to mature plans and their participants, especially if a mature plan is also significantly underfunded. Mature plans could mitigate these risks by investing more conservatively, however, the resulting lower expected returns from more conservative investing necessitates higher funding targets and contribution rates, which could be a hardship for employers in an industry with struggling employers. Alternatively, a plan that invests more conservatively may provide lower promised benefits to accommodate the level of contributions it can collect. Lower investment returns from a more conservative investment policy would cost employers more in contributions and could potentially result in employers leaving the plan. Further, investing in a conservative portfolio would be relatively unique among multiemployer plans, and stakeholders said plan managers may feel they are acting in a prudent fashion by investing similarly to their peers. Underfunded plans like CSPF may not see conservative investment as an option if they cannot raise the contributions necessary to fully fund their vested benefits. Officials from CSPF told us that, because they lacked the ability to significantly increase revenue or decrease accrued benefits, the named fiduciaries sought incrementally higher investment returns to meet funding thresholds required by the amortization extension they received in 2005.\nOn the other hand, there are challenges associated with risk bearing investments. In our prior work, we reported that multiemployer plans generally develop an assumed average rate of investment return and use that assumption to determine funding targets, required contributions, and the potential cost of benefit improvements. Experts we interviewed for that report told us that using a portfolio’s expected return to value the cost of benefits increases the risk that insufficient assets could be on hand when needed. They also told us that using the portfolio’s expected return to calculate liabilities could incentivize plans to invest in riskier assets and to negotiate higher benefit levels because the higher returns expected from riskier portfolios can result in lower reported liabilities.\nPlan Terms Set through Collective Bargaining Stakeholders we interviewed said that plan terms, such as contribution rates, which are set through the collective bargaining process, can create an additional challenge for multiemployer plans. Employers in multiemployer plans generally are not required to contribute beyond what they have agreed to in collective bargaining, and these required employer contributions generally do not change during the term of a collective bargaining agreement. CSPF officials said that up until the early 2000s, plan officials did not request modifications to collective bargaining agreements, such as reallocating contribution dollars, to respond to adverse investment returns.", "Stakeholders highlighted the effects of market downturns on multiemployer plan assets as another contributing factor to CSPF’s critical financial condition and that of other multiemployer plans. Failure to achieve assumed returns has the effect of increasing unfunded liabilities. For the multiemployer system in aggregate, the average annual return on plan assets over the 2002 to 2014 period was about 6.1 percent, well short of typical assumed returns of 7.0 or 7.5 percent in 2002.\nMany multiemployer plans were especially impacted by the 2008 market downturn. PBGC estimated that from 2007 to 2009, the value of all multiemployer plan assets fell by approximately 24 percent, or $103 billion, after accounting for contributions to and payments from the plans. Although asset values recovered to some extent after 2009, some plans continued to be significantly underfunded, and stakeholders said this could be due to the contribution base not being sufficient to help recover from investment shortfalls.\nCSPF’s investment performance since 2000 has reflected performance similar to other multiemployer plans and the plan went from 73 percent funded in 2000 to about 38 percent funded in 2017. While the plan used an assumed rate of return of 7.5 to 8.0 percent per year between 2000 and 2014, our analysis of the plan’s regulatory filings shows that the plan’s weighted-average investment return over this period was about 4.9 percent per year. CSPF officials said the 2008 downturn significantly reduced CSPF’s assets and it was unable to sufficiently recoup those losses when the market rebounded in 2009. Plan assets declined from $26.8 billion at the beginning of 2008 to $17.4 billion at the beginning of 2009, with $7.5 billion of the decline attributable to investment losses. Despite reporting a 26 percent return on assets during 2009, CSPF had only $19.5 billion in assets at the end of 2009 because benefits and expenses exceeded the contributions it collected and because it had fewer assets generating returns for the plan. By the end of 2009, CSPF’s funding target was $35.9 billion but the fund had less than $20 billion that could be used to generate investment returns. If CSPF’s portfolio had returned 7.5 percent per year over the 2000-2014 period, instead of the approximately 4.9 percent we calculated, we estimate that the portfolio value would have exceeded $32.0 billion at the end of 2014, or 91 percent of its Actuarial Accrued Liability.", "In addition to the factors mentioned that affected many multiemployer plans, stakeholders we interviewed also noted the unique effect of the UPS withdrawal on CSPF. In 2007, UPS negotiated with the International Brotherhood of Teamsters for a withdrawal from CSPF and paid a withdrawal liability payment of $6.1 billion. This payment was invested just prior to the 2008 market downturn. Moreover, the loss of UPS, CSPF’s largest contributing employer, reduced the plan’s ability to collect needed contributions if the plan became more underfunded. A UPS official said that, following the market decline of 2001-2002, the company considered whether it should withdraw from all multiemployer plans because it did not want to be the sole contributing employer in any plan. According to this official, UPS considered the large number of UPS employees in CSPF and the plan’s demographics—such as an older population and fewer employers—in its decision to withdraw. CSPF officials said they did not want UPS to withdraw because its annual contributions accounted for about one-third of all contributions to the plan. CSPF officials also told us that, prior to the UPS withdrawal, they had expected the population of active UPS workers in the plan to grow over time.\nUPS’ withdrawal of 30 percent of CSPF’s active workers, in combination with the significant market downturn just after UPS withdrew, reflected the loss of working members and investment challenges on a large scale. Additionally, stakeholders noted that although each of the factors that contributed to CSPF’s critical financial condition individually is important, their interrelated nature also had a cumulative effect on the plan. Industry deregulation, declines in collective bargaining, and the plan’s significantly underfunded financial condition all impaired CSPF’s ability to maintain a population of active workers sufficient to supply its need for contributions when investment shortfalls developed. Given historical rules for plan funding and industry stresses, CSPF was unable to capture adequate funding from participating employers either before or after they withdrew from the plan. The plan’s financial condition was further impaired when long-term investment performance fell short of expectations. For an underfunded, mature plan such as CSPF, the cumulative effect of these factors was described by some stakeholders as too much for CSPF to overcome.", "There have been three distinct periods related to CSPF’s investment policy after the original consent decree took effect: the early period, from the consent decree’s effective date in September 1982 through October 1993, during which named fiduciaries set different investment policies and sold many of CSPF’s troubled assets—mostly real estate; a middle period from November 1993 through early 2017, during which CSPF’s investment policies were consistently weighted towards equities and its asset allocation varied, with notable equity allocation increases occurring from year-ends 1993-1995 and 2000-2002; and the current period, starting in January 2017, during which named fiduciaries and CSPF trustees are moving assets into fixed income ahead of insolvency.\nAppendix I has a detailed timeline that includes changes to CSPF’s investment policies since the consent decree was established in 1982.", "The original consent decree placed exclusive responsibility for controlling and managing the plan’s assets with an independent asset manager, called a named fiduciary. Additionally, the original consent decree prohibited CSPF trustees from managing assets or making investment decisions and gave a single named fiduciary the authority to set and change the plan’s investment objectives and policies, subject to court approval (see fig. 8).\nDuring this period, two successive named fiduciaries—first Equitable Life Assurance Society of the United States (Equitable) and then Morgan Stanley—set and executed the plan’s investment objectives using similar investment philosophies, but differing investment return goals and target asset allocations (see fig. 9). Both named fiduciaries planned to sell the plan’s troubled real estate assets from the pre-consent decree era. They also limited nonpublicly traded investments to 35 percent of the plan’s assets and set broad allocation targets for new real estate, fixed income, and equity assets. In 1984, Morgan Stanley considered a dedicated bond portfolio in its capacity as the plan’s named fiduciary, but after review, Morgan Stanley decided similar results could be obtained through other investment strategies.\nIn executing these policies, the plan’s asset allocation varied from year to year. Starting in 1987 and in subsequent years during the early period, Morgan Stanley invested a majority of the plan’s assets in fixed income assets—more than half of which were passively managed—and all equity assets were allocated to domestic equity through 1992. By 1989, CSPF officials reported that nearly all troubled real estate assets had been sold and Morgan Stanley’s responsibilities and risk of potential fiduciary liability were reduced, permitting a concomitant reduction in fees paid to the named fiduciary (see fig. 10).", "", "During the middle period, CSPF’s investment policy was broad and consistently directed that asset allocations be weighted toward equities. In 1993, Morgan Stanley revised its investment policy statement for CSPF to eliminate asset allocation targets for each asset class and instead specified that the plan invest a majority of assets in equity or equity-type securities and no more than 25 percent in nonpublicly traded assets. After 1999, CSPF’s investment policy under other, successive named fiduciaries continued to be broad and generally specified that the plan should invest a majority of assets in equity or equity-type securities. Specifically J.P. Morgan’s and Northern Trust’s consecutive investment policies for part of the plan’s assets continued to specify that a majority of the plan’s assets be invested in equity or equity-type securities and no more than 15 percent be invested in nonpublicly traded assets. Goldman Sachs’ investment policy for another part of the plan’s assets did not specify asset allocation details but indicated slightly higher tolerance for risk in conjunction with its equity portfolio. CSPF trustees said that named fiduciaries considered investing in alternative assets, but instead chose to increase the plan’s allocation to equity assets.\nThe named fiduciaries’ investment policies did not vary significantly over this period because CSPF officials said that the plan’s overarching investment objective of achieving full funding did not change, even though there were key changes to the plan’s investment management structure during this time period. Specifically, starting in 1999, the plan temporarily shifted to a dual named fiduciary structure and increased its use of passively-managed accounts—both described in detail below— changing the named fiduciary structure that had been in place since the original consent decree (see fig. 11).\nMore specifically, the two key changes to the plan’s investment management structure were:\nA temporary shift to a dual named fiduciary structure. Effective in 1999, CSPF proposed and the court approved allocating plan assets between two named fiduciaries instead of one in order to diversify CSPF’s investment approach, among other things. Both named fiduciaries were in charge of setting and executing separate policies for plan assets they managed—called “Group A” and “Group B” assets—irrespective of the other named fiduciary’s allocations. During this time, the two named fiduciaries were J.P. Morgan/Northern Trust and Goldman Sachs. Specifically, J.P. Morgan was named fiduciary between 2000 and 2005 and Northern Trust between 2005 and 2007 for “Group A” assets. Goldman Sachs was named fiduciary for “Group B” assets between 2000 and 2010. In 2010, an investment consultant found the performance of two named fiduciaries under the dual named fiduciary structure had been similar and more expensive than it would be under a proposed move back to a single named fiduciary. Accordingly, CSPF officials proposed, and the court approved, consolidation of all assets allocated to named fiduciaries in August 2010, with Northern Trust as the plan’s single named fiduciary.\nAn increased use of passively-managed accounts. Between 2003 and 2010, the portion of assets that named fiduciaries managed declined as the plan moved 50 percent of its assets into three passively-managed accounts. Specifically, in 2003, 20 percent of CSPF’s assets were transitioned into a passively-managed domestic fixed income account to lower the plan’s investment management fees. In addition, both of the named fiduciaries reported that they had not outperformed the industry index for the domestic fixed income assets they managed after they were approved as named fiduciaries in 1999 and 2000 through February 2003. Similarly, in 2007 and 2010, CSPF officials said that two more passively-managed accounts were created to further reduce plan fees. Specifically, in 2007, 20 percent of plan assets were moved into a passively-managed domestic equity account. Then, in 2010, an additional 10 percent of the plan’s assets were allocated to passively-managed accounts—5 percent were allocated to a new passively-managed international equity account and 5 percent were added to the passively-managed domestic equity account.\nCSPF officials and named fiduciary representatives also said that the plan’s investment policies did not change in response to a couple of the events that contributed to CSPF’s critical financial condition. For example, when UPS withdrew from the plan in December 2007, it paid $6.1 billion in a lump sum to fulfill its withdrawal liability. Consistent with the named fiduciaries’ investment policies during this time period, the majority of this withdrawal payment was invested in equity assets. Specifically, the court approved the UPS withdrawal liability payment to be allocated: $1 billion to Northern Trust to be invested primarily in short-term fixed income assets, $0.9 billion to the passively-managed domestic fixed income account, and $4.2 billion to partially fund the newly created passively- managed domestic equity account. As a result of the 2008 market downturn, the balance of each of CSPF’s accounts—Northern Trust’s named fiduciary account, the passively-managed domestic fixed income and domestic equity accounts, and Goldman Sachs’ named fiduciary account—declined because of investment losses or withdrawals from investment assets to pay benefits and expenses. Some of the declines in each account were reversed by investment gains in 2009.", "Although the changes made to CSPF’s investment management structure did not lead to investment policy changes during the middle period, they altered the process by which the policy was set and executed. In particular, trustee responsibilities in the policy process grew after CSPF trustees became responsible for developing investment policy statements and selecting and overseeing managers of the passively-managed accounts, subject to court approval. In addition, CSPF officials said the addition of passively-managed accounts between 2003 and 2010 had the effect of creating broad bounds within which the named fiduciary could set the plan’s asset allocation. For example, when the plan moved 20 percent of total plan assets into the passively-managed domestic fixed income account in 2003, this placed an upper bound on the plan’s total equity allocation at 80 percent. Similarly, since 2010 the 30 percent of total plan assets in passively-managed equity accounts has placed a lower bound on the plan’s total equity allocation at 30 percent (see fig. 12).\nNevertheless, named fiduciaries maintained the largest role in setting and executing CSPF’s investment policy throughout the middle period. From 1993 to 2003, named fiduciaries managed all of the plan’s investment assets, and from 2003 to 2009, when the plan added two of the current passively-managed accounts, named fiduciaries still held the majority of the plan’s assets. It has only been since 2010 that the assets in passively-managed accounts equaled those managed by the named fiduciary. Furthermore, Northern Trust representatives said they considered the plan’s allocations to passively-managed accounts when developing the objectives and target asset allocations for the assets they managed. Northern Trust representatives also said they discussed the plan’s overall asset allocation with trustees, but the trustees, and ultimately the court, were responsible for the decision to move 50 percent of the plan’s assets into passively-managed accounts.", "After the 1993 policy change that specified the plan would invest a majority of assets in equity or equity-type securities, CSPF’s asset allocation changed significantly. For example, during the middle period the plan’s allocation to equities increased from 37 percent at the end of 1993 to 69 percent at the end of 2002, and its allocation to cash plus fixed income decreased from 63 percent at the end of 1993 to 27 percent at the end of 2002. In particular, Morgan Stanley increased the plan’s allocation to equity assets from 37 percent at the end of 1993 to 63 percent at the end of 1995, with the percentage in equities almost or above 50 percent through the end of 1999. From 1993 through 1999, Morgan Stanley generally decreased the plan’s allocation to fixed income assets and increased its allocation to international equity (reaching a high of about 28 percent of the plan’s assets in 1995), an asset class in which the plan had not previously invested (see fig. 13).\nAfter 1999, the plan’s asset allocation continued to be weighted towards equities. After the market downturn in 2001, CSPF trustees told us that J.P. Morgan and Goldman Sachs explicitly increased the equity allocation in an attempt to generate higher investment returns and increase the plan’s funded ratio—the plan’s overarching investment objective. Between 2000 and mid-2010, when the plan had two named fiduciaries, equity assets increased from about 58 percent at the end of 2000 to between 66 and 70 percent at the end of 2001 and each year thereafter until the end of 2009, mostly based on the named fiduciaries’ decisions to increase the plan’s allocation to domestic equity assets. When Northern Trust became the sole named fiduciary in 2010, the proportion of equity assets declined from almost 72 percent at the end of 2010 to almost 63 percent at the end of 2016. During this time, Northern Trust generally decreased the plan’s allocation to domestic equity assets, increased the allocation to actively-managed fixed income, and started investing in global infrastructure assets. Northern Trust representatives said CSPF’s recent portfolio had been kept relatively aggressive in an attempt to achieve the returns the plan would need to become fully funded while balancing risk (see fig. 14).", "CSPF’s deteriorating financial condition precipitated a recent investment policy change that will move plan assets into fixed income and cash equivalent investments ahead of projected insolvency. In early 2017, Northern Trust representatives revised the plan’s investment policy because they, in consultation with the trustees, believed the plan had no additional options to avoid insolvency (see textbox). This change to the plan’s outlook led to a significant change in the plan’s investment objective, from a goal of fully funding the plan to instead forestalling insolvency as long as possible while reducing the volatility of the plan’s funding. Northern Trust representatives and CSPF officials revised applicable plan investment policy statements and started to gradually transition the plan’s “return seeking assets”—such as equities and high yield and emerging markets debt—to high quality investment grade debt and U.S. Treasury securities with intermediate and short-term maturities. Northern Trust’s new investment policy specified the assets under its control would not be invested in nonpublicly traded securities, in order to manage risk and provide liquidity.\nCSPF Has Limited Options to Achieve Solvency As of March 2018, the Central States, Southeast and Southwest Areas Pension Fund (CSPF) was projected to be insolvent on January 1, 2025. As of July 2017, CSPF officials said that the following measures (in isolation) could help the plan avoid insolvency:\n18 percent year-over-year investment returns (infinite horizon), or\n250 percent contribution increases (with no employer attrition), or\n46 percent across-the-board benefit cut.\nHowever, CSPF officials said that investment returns and contribution increases of these magnitudes were untenable, and CSPF’s application to reduce accrued benefits under the Multiemployer Pension Reform Act of 2014 (MPRA) was denied in 2016.\nCSPF officials and Northern Trust representatives said these asset allocation changes are intended to provide participants greater certainty regarding their benefits and reduce the plan’s exposure to market risk and volatility until it is projected to become insolvent on January 1, 2025 (see fig. 15).\nNorthern Trust is expected to continue to manage 50 percent of the plan’s investment assets until the plan becomes insolvent. While the total amount of assets in the passively-managed accounts will continue to constitute 50 percent of the plan’s assets, the trustees plan to transfer assets from the passively-managed domestic and international equity accounts into the passively-managed domestic fixed income account, which will be gradually transitioned to shorter-term or cash-equivalent fixed-income securities sometime before the end of March 2020 (see fig. 16).\nCSPF officials said the changes will reduce the amount of fees and transaction costs paid by the plan. Specifically, investment management fees are expected to generally decrease as the plan moves into shorter duration fixed income assets. In addition, Northern Trust’s plan is designed to reduce transaction costs in two ways: (1) in the near term, Northern Trust plans to liquidate “return-seeking assets” so the cash it receives can be used directly to pay benefits, and (2) it plans to synchronize the fund’s benefit payments with the maturity dates of fixed income assets it purchases so cash received can be used directly to pay benefits. Both of these design features are intended to eliminate the need to reinvest assets, which might entail additional transaction costs.", "Our analysis of available data from several different sources shows the returns on CSPF’s investments and the fees related to investment management and other plan administration activities appear generally in line with similar pension plans or other large institutional investors of similar size.", "", "The annual returns on CSPF’s investments in recent decades have generally been in line with the annual returns of a customized peer group provided by the investment consultant Wilshire. The comparison group data is from Wilshire’s Trust Universe Comparison Service (TUCS)—a tool used by CSPF to compare its investment returns to a group of peers. Over the 22 years covered by our analysis, CSPF’s returns were above the median in 12 years and below the median the other 10. Figure 17 illustrates how CSPF’s annual investment returns compare to CSPF’s customized peer group of master trusts with over $3 billion in assets.\nCSPF’s annual investment returns tended to fluctuate relative to the annual median of the TUCS peer group over the 1995 through 2016 period. For example, in 14 of the 22 years analyzed, its annual return was in the highest or lowest 25 percent of returns (7 years each). Further, in 3 years, its investment returns fell either within the top 5 percent of returns (1996, 2009) or bottom 5 percent (1998). In 8 of the 22 years, CSPF’s annual return was within the middle 50 percent of its TUCS peer group.\nThe TUCS data we analyzed also included median portfolio allocations for the group of CSPF’s peers. Table 2 compares CSPF’s asset allocations for selected asset categories to the median allocations of its TUCS comparator group.\nIn 1996, compared to the TUCS medians, CSPF had relatively lower proportions of its assets in both equities and fixed income and a relatively higher proportion in real estate. Twenty years later (2016), CSPF had relatively higher proportions of its assets in both equities and fixed income (about 15 and 7 percentage points, respectively) than the respective medians for its peer group. However, the relatively large difference between CSPF’s 2016 equity allocation and the median allocation of its peer group may be a result of the peers moving into different asset classes. For example, there is a relatively large difference, in the other direction, in the allocation to alternative investments (see table 2). We did not identify an alternative asset category in CSPF’s asset reports for 2016, but the TUCS comparator group median asset allocation in that year is 11.8 percent of assets.", "Similar to our findings when comparing the returns on CSPF’s investments to a customized peer group of other large institutional funds, the annual returns on CSPF’s investments in recent decades have also generally been in line with the annual returns for a group of similar multiemployer pension plans. To create a group of comparable plans, we selected plans that had a similar degree of “maturity” to CSPF in 2000, as such plans may face similar cash flow challenges to those facing CSPF. This comparator group ultimately consisted of 15 plans in addition to CSPF. Relative to less mature plans, mature plans generally have a greater proportion of liabilities attributable to retired participants receiving benefit payments and a lower proportion attributable to active participants (i.e., workers) earning benefits. Mature plans may have limited capacity to make up for insufficient investment returns through employer contributions.\nSimilar to the comparison against other large institutional fund returns based on TUCS data, our comparison against other mature multiemployer plan returns based on Form 5500 data shows that CSPF’s annual returns fluctuate relative to the median annual return for the mature plan comparator group (see fig. 18). For example, in 12 of the 15 years, CSPF’s annual return was in the highest or lowest 25 percent of returns (7 times high and 5 times low). In 3 of the 15 years analyzed, CSPF’s annual return fell within the middle 50 percent of the peer group. Overall, from 2000 to 2014, CSPF’s annual return was above the group median return in 9 of the 15 years—and lower than the median return in the other 6 years. Relative to its peers, CSPF’s annual returns performed worst during economic downturns and best in years coming out of such downturns. CSPF’s annual investment return was in the bottom 10 percent of returns in 2001, 2002, and 2008. Alternatively, its annual return was in the top 10 percent of returns from 2003 to 2006, in 2009, and in 2012.\nAdditionally, the dollar-weighted average annual return for CSPF over the 2000 through 2014 period was roughly the same as the median for the mature plan comparison group. Specifically, the dollar-weighted average annual return over this period for CSPF was roughly 4.9 percent, while the median dollar-weighted average annual return over this period among the comparison plans with continuous data was 4.8 percent.\nOur analysis of investment returns for mature plans compares investment returns for a set of peers that includes only multiemployer defined benefit plans. However, as with the comparison against other large institutional funds, the comparisons against other mature plans are not measures of over- or under-performance relative to an index or benchmark. Similarly, as with the earlier comparison, the analysis does not account for variations in the levels of investment risk taken by the plans.", "Our analysis of Form 5500 data shows CSPF’s investment fees and administrative expenses were in line with other large multiemployer plans. Plan investment fees and administrative expenses are often paid from plan assets so many plans seek to keep these fees and expenses low. Additionally, investment fees are likely to be related to the value of assets under management, and plans with greater asset values tend to be able to negotiate more advantageous fee rates. According to a pension consultant and a DOL publication, investment management fees are typically a large defined benefit plan’s largest category of expense, but a pension plan also incurs a number of lesser expenses related to administering the plan. Administrative expenses (other than investment fees) may include those for: audit and bookkeeping/accounting services; legal services to the plan (opinions, litigation and advice); administrative services provided by contractors; plan staff salaries and expenses; plan overhead and supplies; and other miscellaneous expenses.\nThese administrative expenses relate to plan operations beyond the management of the assets, including the day-to-day expenses for basic administrative services such as participant services and record keeping. Furthermore, some of these expenses can vary based on the number of participants in the plan. To compare CSPF’s fees and expenses against similarly sized plans, we tallied various investment fee-related and other administrative expenses and compared CSPF to a group of multiemployer defined benefit plans that were among the 19 largest plans in terms of assets as of January 1, 2014.\nAccording to CSPF’s 2014 Form 5500, CSPF spent about $46.5 million on investment fees (or $47.6 million in 2016 dollars) and had about $17.4 billion in assets (or $17.8 billion in 2016 dollars) as of the end of the year—resulting in an investment fee expense ratio of about 27 basis points, or 0.27 percent. Over the 2000 to 2014 period, CSPF’s average annual investment fee expense ratio was 34 basis points (0.34 percent) while the median of the averages for our large plan comparison group was 37 basis points (0.37 percent). While CSPF’s average investment fee expense ratio was below the median for its comparison group over the period we examined, the relationship of CSPF’s annual ratio to the annual median changed over time. CSPF’s annual investment-fee expense ratio was consistently at or above the median from 2000 through 2006, but was below the median thereafter. In addition, CSPF’s average investment fee expenses over the period that followed 2006 were 26 percent less than the average over the period before 2007. (They averaged 39 basis points, or 0.39 percent, from 2000 through 2006 and 29 basis points, or 0.29 percent, from 2007 through 2014.) Two events may have contributed to this change. First, CSPF introduced the passively-managed accounts beginning in 2003—as noted earlier, and CSPF moved certain assets to those accounts in an effort to reduce fees. Second, the change back to a single named fiduciary, which was suggested as an expense saving move, occurred in the middle of the 2007 to 2014 period analyzed. Figure 19 illustrates how CSPF’s investment fee expense ratio compares to other large plans.\nOur analysis uses investment fee data reported in the Form 5500 that does not include details about the sources of the fees. Investment fees may be sensitive to a plan’s particular investment strategy and the way assets are allocated. For example, with CSPF, a named fiduciary has responsibility for executing the investment strategy and allocations. According to a representative from Northern Trust—the current named fiduciary—CSPF pays a fee of about 5 basis points for named fiduciary services, and this, combined with investment management fees, is in line with investment fees for other clients (though the overall fees depend on the types of asset allocations and investment strategies).\nFigure 20 shows how CSPF’s administrative (or non-investment) expenses compare to those of other large plans on a per participant basis. According to CSPF’s 2014 Form 5500, CSPF spent about $38 million on administrative expenses ($39 million in 2016 dollars)—the third most among the 20 peer plans. However, when these expenses are expressed relative to the number of plan participants, CSPF had per participant expenses of $98 in 2014, which is about 16 percent less than the median of the large comparator group, $117. Over the period studied, CSPF’s administrative expenses per participant were at or above the large comparator median in 3 years (2001, 2004, and 2005), but lower than the median in all other years of the 2000 to 2014 period.\nCSPF’s administrative expenses were also in line with a broader group of comparators. For example, PBGC reported on 2014 administrative expenses of a population of large multiemployer plans (plans with more than 5,000 participants). By closely replicating the methodology of that study, we found CSPF’s expenses of $98 per participant in 2014 fell below the median expense rate of $124 dollars per participant but above the lowest quartile of this group of large multiemployer plans. In comparing administrative expenses as a percentage of benefits paid, we found CSPF’s administrative expenses were among the lowest 5 percent of this group of large multiemployer plans. We performed a similar comparison against the peer group of large plans. CSPF had the lowest administrative expense rate among the large plan peer group in 2014, paying administrative expenses at a rate of 1.4 percent of benefits paid. In addition, CSPF’s annual administrative expenses as a percentage of benefits were below the median of our peer group of large plans in all years we reviewed.\nOur analysis of administrative expenses is highly summarized and does not account for possibly unique sources of administrative expenses. Plans may have unique organizational structures and attribute expenses differently. For example, one plan may contract a significant portion of administrative duties with a third-party, while another plan may administer the plan in-house. According to an actuary we interviewed, most multiemployer plans are administered by a third-party, but the plan’s in- house staff will still retain a number of duties. Additionally, the amount of individual administrative expenses could vary significantly by plan depending on the importance of the related administrative function in the plan’s organization.", "We provided a draft of the report to the U.S. Department of Labor, U.S. Department of the Treasury, and the Pension Benefit Guaranty Corporation for review and comment. We received technical comments from the U.S. Department of Labor and the Pension Benefit Guaranty Corporation, which we incorporated as appropriate. The U.S. Department of the Treasury provided no comments.\nWe will send copies to the appropriate congressional committees, the Secretary of Labor, the Secretary of the Treasury, Director of the Pension Benefit Guaranty Corporation, and other interested parties. This report will be available at no charge on the GAO website at http://www.gao.gov.\nIf you or your staff have any questions about this report, please contact Charles Jeszeck at (202) 512-7215 or jeszeckc@gao.gov or Frank Todisco at (202) 512-2700 or todiscof@gao.gov. Mr. Todisco meets the qualification standards of the American Academy of Actuaries to address the actuarial issues contained in this report. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV.", "Our objectives were to review: (1) what is known about the factors that contributed to the Central States, Southeast and Southwest Areas Pension Fund’s (CSPF) critical financial condition; (2) what has been CSPF’s investment policy, and the process for setting and executing it, since the consent decree was established; and (3) how has CSPF performed over time, particularly compared to similar pension plans.\nFor all objectives, we reviewed relevant federal laws and regulations, literature, and documentation the U.S. Department of Labor (DOL) and CSPF officials provided, including reports prepared by the court- appointed independent special counsel. We interviewed knowledgeable industry stakeholders, participant advocates, CSPF officials, International Brotherhood of Teamsters officials and members, and federal officials— including officials from the Pension Benefit Guaranty Corporation (PBGC), DOL, and the U.S. Department of the Treasury (Treasury).\nTo describe the major factors that led to CSPF’s critical financial condition, we conducted semi-structured interviews and reviewed CSPF documentation, relevant scholarly materials, trade and industry articles, government reports, conference papers, research publications, and working papers. We also collected actuarial, financial, and other data on current and historical measures of plan assets, liabilities, investment performance, and other factors, and performed our own analyses of these data. The data and documentation collected were generally from the plan or agencies that oversee pensions. We determined the information to be generally reliable for the purposes of our objectives.\nTo describe CSPF’s investment policy and the process by which it was set and executed we (1) reviewed CSPF’s investment policy statements, court orders and consent decree amendments, and other documentation provided by CSPF officials; (2) interviewed CSPF officials, including pension plan staff, the board of trustees, and the investment advisor, and representatives of the named fiduciary serving the plan at the time of our review; and (3) summarized certain aspects of CSPF’s assets using year- end performance reports prepared by the named fiduciaries.\nTo describe how CSPF has performed over time compared to similar pension plans, we analyzed investment and fee data from DOL’s Form 5500, the government’s primary source of pension information. We also examined CSPF’s investment returns in comparison to a customized Wilshire Associates’ (Wilshire) Trust Universe Comparison Service (TUCS) benchmark of trusts with $3 billion or more in assets. CSPF provided these data and the data are included in the independent special counsel reports. Wilshire provided supplemental data using the same benchmark specifications.", "We reviewed three types of documentation provided by CSPF for changes in named fiduciaries; changes in investment policy, strategy, and asset allocation; major issues that affected funding; and how these issues affected CSPF’s investment strategy and policy.\nSelect independent special counsel reports. CSPF officials provided 4th quarter reports for each year from 1982 through 2002 and available quarterly reports from 2003 through 2007. We downloaded all available quarterly reports from 2008 through 2017 from CSPF’s website.\nSelect board of trustee meeting minutes. We requested board of trustee meeting minutes from 1983, 1994-95, 1998-2005, 2007-2010, and 2016 so we could review trustee discussions from the first full year the plan was covered by the 1982 consent decree, the most recent full year; periods that included a recession and/or when the plan’s assets performed poorly; and periods that preceded a change or reappointment of the named fiduciary. CSPF officials selected portions of the trustee meeting minutes from those years that pertained to the following topics: named fiduciary reports concerning investment performance; discussions relating to the amortization extension the Internal Revenue Service (IRS) granted to the plan and the contribution rate increases the plan required of participating employers in an effort to comply with funding targets required as condition of the IRS-approved amortization extension; major amendments to the plan; significant reports concerning the plan’s financial condition; amendments to the consent decree; discussions relating to any inquiries or issues DOL raised; discussions of named fiduciary appointments or resignations; discussions of particularly significant contributing employer delinquencies, bankruptcies, and settlements; and discussions relating to the independent special counsel. In addition to the board of trustee meeting minutes, CSPF officials provided select documentation on similar topics a former secretary of the board of trustees retained (1995 through 2008).\nSelect correspondence between CSPF and DOL. CSPF officials provided select correspondence with DOL from 1987 through 2017 relating to DOL’s oversight of the plan. CSPF officials said they provided all records of those communications that related to significant, substantive, and nonroutine issues. The correspondence excluded other documents, such as periodic reports concerning asset rebalancing and correspondence related to fairly noncontroversial motions to the consent decree.\nIn addition, DOL provided documentation throughout the course of our engagement, including documentation it provided between September and October 2017 that it had not previously identified as being relevant to our review. We completed an on-site file review at DOL in September 2017, and DOL sent us additional electronic documentation in September and October 2017. Overall, we reviewed extensive documentation from DOL—spanning over 10,000 pages of paper-based and electronic files— and spent substantial time cataloging and categorizing it. However, DOL officials reported that certain documentation related to CSPF was no longer available because it had only been retained for the time specified in the records retention policy of the relevant office.", "We conducted 23 semi-structured interviews with federal agency officials and other stakeholders, including affected parties, and persons knowledgeable about unions, participants and retirees, the trucking industry, collective bargaining agreements, and multiemployer pension plans. We also interviewed three stakeholders with actuarial expertise to specifically understand actuarial standards and procedures. We selected knowledgeable stakeholders based on review of literature and prior GAO work, and recommendations from other stakeholders. We judgmentally selected stakeholders whose expertise coincided with the scope of our objectives and who would be able to provide a broad range of perspectives. In our semi-structured interviews we asked about key factors affecting the plan, the broader regulatory and financial environment in which multiemployer plans operate, and solvency options for plans like CSPF.", "We reviewed CSPF’s investment policy statements after CSPF entered into a consent decree in 1982, most of which are documented in the consent decree or other court orders. Seven of the investment policy statements were developed by named fiduciaries in consultation with the plan’s board of trustees and four were developed by the trustees. (See fig. 21.)\nFrom each investment policy statement, we compiled relevant information on: (1) investment philosophy and plan characteristics considered in developing it, (2) investment return benchmarks, (3) asset allocation, and (4) strategies and assets. See table 3 for select asset allocation information.", "To describe how CSPF’s investment policy was executed, we compiled information from performance reports prepared by named fiduciaries. We reported CSPF’s asset allocation generally based on the aggregate asset allocation categories CSPF’s named fiduciaries assigned in those reports. CSPF provided these reports for the end of each year 1984 through 2016—except 1992 and 1995, for which it provided reports as of the end of November. Information we compiled included the plan’s: account breakdown (i.e., assets in named fiduciary and passively- asset allocation; and investment assets withdrawn to pay benefits and administrative expenses.\nWhen possible, we checked the information from year-end performance reports against that in other sources. Specifically, to ensure we captured the vast majority of the plan’s assets in our asset summary we compared the total amount of plan assets named fiduciaries reported with Net Assets reported in CSPF’s Form 5500 filings, available from 1982 through 2016. We generally found these totals to be similar for each year—in most years the difference was about or under 1 percent. Also, named fiduciary performance reports included information on withdrawals from investment assets to meet pension and administrative expense obligations as of the end of each year, except for 1995 and 1999-present. For 1995 through 2016, we compiled this information from independent special counsel reports. For years in which we had overlapping information, 1996 through 1998, we found the reported totals were similar—no more than about 0.6 percent difference in each of those years. Based on our review we believe that the differences were insignificant to our overall analysis and did not impact our findings.", "To determine investment returns, investment fees, and administrative expenses for CSPF and related comparator group multiemployer defined benefit plans, we analyzed electronic Form 5500 information, the primary, federal source of private pension data. We analyzed information from 2000 through 2014, the most current and complete year at the time we performed our analysis. We began our analysis with 2000 data as data on investment returns and plan fees is primarily found in the Schedule H. Schedule H information was first collected in 1999. But we begin our analysis with 2000 data as electronic data became more reliable the year after the schedule was introduced.\nWe have previously reported on the problems associated with the electronic data of the Form 5500. To mitigate problems associated with the data, we used Form 5500 research data from PBGC. PBGC analysts routinely and systematically correct the raw 5500 data submitted by plans, and PBGC’s Form 5500 research data are thought to be the most accurate electronic versions. Although we did not independently audit the veracity of the PBGC data, we took steps to assess the reliability of the data and determined the data to be sufficiently reliable for our purposes. For example, we performed computer analyses of the data and identified inconsistencies and other indications of error and took steps to correct inconsistencies or errors. A second analyst checked all computer analyses.", "Funded status is a comparison of plan assets to plan liabilities. One measure of funded status is the funded percentage, which is calculated by dividing plan assets by plan liabilities. Another measure of funded status is the dollar amount of difference between plan assets and plan liabilities; the excess of plan liabilities over plan assets is the unfunded liability (or surplus if assets exceed liabilities). In this report, we measured funded status using the Actuarial Value of Assets and the Actuarial Accrued Liability, which are the basic measures used to determine the annual required minimum contribution for multiemployer plans under ERISA. We chose these measures because of the consistent availability of data for these measures. There are other ways to measure plan assets and plan liabilities. The Actuarial Value of Assets can be a “smoothed” value that differs from the market value of plan assets. The Actuarial Accrued Liability depends on the choice of actuarial cost method and discount rate, and on whether it is determined on an ongoing plan basis or a plan close-out basis. While different measures of plan assets and liabilities will produce different measures of funded status at any particular point in time, we found that our use of the Actuarial Value of Assets and the Actuarial Accrued Liability was sufficient for our purposes, which included examining the plan’s progress relative to statutory funding standards as well as its trend over time.", "We developed multiple comparison groups for our analysis. The general rationale behind these comparator groups is to identify plans with similar fundamental characteristics, such as plan size or plan maturity, for purposes of investment return and fee and expense comparisons. We created the following two comparator groups: 1. Large plans (in terms of assets). We ordered multiemployer defined benefit plans by descending 2014 plan assets (line 2a of the 2014 of the Schedule MB). Because one of our key analyses of the data involves comparing investment returns across plans, we also limited the comparable plans to those that share a common plan year to CSPF (specifically if they have the same plan year-end of December 31). We selected the 20 plans that had the largest plan asset values. This includes CSPF, which was the second largest multiemployer plan as of the beginning of 2014. Because these comparator plans are among the largest, they should have similar cost advantages. For example, for investment management services, they should have similar advantages in obtaining lower fees and thus garner greater net returns due to the more favorable fee structures. 2. Mature plans (in terms of retiree liability proportions). We ordered multiemployer defined benefit plans by their similarity to CSPF’s ratio of retiree to total liabilities as of the beginning of calendar year 2000. The ratio of retiree to total liabilities is defined as line 2(b)1(3) of the 2000 Schedule B divided by total liabilities of line 2(b)4(3) of the 2000 Schedule B. To compare retiree to total liability ratios, we created a variable for the absolute value of the difference between CSPF’s ratio and that of a given plan. We ordered the plans by ascending differences in the ratios (excluding any with missing differences). CSPF was the top plan because its difference is zero by definition. Because one of our key analyses of the data involved comparing investment returns across plans, we also limited the comparable plans to those that shared a common plan year with CSPF (specifically if they have the same plan year-end of December 31). Of the plans that had the same plan year as CSPF and assets over $300 million, we selected the 20 plans (including CSPF) that had the smallest absolute difference from CSPF in the retiree-to-total liability ratio. Plans with a high ratio of liabilities attributable to retirees will have a relatively large portion of future benefit payments attributable to those that are older and retired. By selecting plans that were similarly mature to CSPF (and had $300 million in assets as of the beginning of 2000), we identified plans that may have had a similar basis for their plan investments, similar cash flow characteristics, or similar potential deviations between time-weighted and dollar-weighted average investment returns over time (see section below entitled “Calculation of Average Investment Return over Multiple Years”). That is, these plans should have roughly similar cost advantages and similar considerations in their investment objectives such as the balance of cash flows into and out of the fund and the plans’ investment horizons. Similarity in the balance of cash flows is important because it helps to mitigate the influence of plan maturity on the weighted average investment return over multiple years. The year 2000 was used to select the group because the primary purpose of this group is comparison of investment returns for plans that are similarly situated at the beginning of the period being analyzed.", "Our calculation of investment returns is based on the investment return calculation expressed in the Form 5500 instructions for the Schedule MB. Specifically the instructions of the 2014 Schedule MB state: Enter the estimated rate of return on the current value of plan assets for the 1-year period ending on the valuation date. (The current value is the same as the fair market value—see line 1b(1) instructions.) For this purpose, the rate of return is determined by using the formula 2I/(A + B – I), where I is the dollar amount of the investment return, A is the current value of the assets 1 year ago, and B is the current value of the assets on the current valuation date. Enter rates to the nearest .1 percent. If entering a negative number, enter a minus sign (“ - “) to the left of the number.\nAfter preliminary analysis of the variable and consultation with a GAO senior actuary, we determined that Form 5500, Schedule H contains all the information necessary to derive the calculation for years prior to 2008—as far back as 1999 when the Schedule H first came into existence. Additionally, we made adjustments for the timing of cash flows, to the extent indicated by the data. For example, employer and employee contributions that were considered receivable at the end of the prior year and thus included in the Schedule MB calculation were instead included in the year when the plan received the cash for the contribution. Thus, our calculation of annual rate of return is expressed as line items of the 2014 Schedule H to be: 2 * / [[{item1(f)a} – {item 1(b)1(a)} - {item 1(b)2(a)} - {item 1j(a)}] + [{item1(f)b} – {item 1(b)1(b)} - {item 1(b)2(b)} - {item 1j(b)}] – [{item 2d} - {item 2a(3)} – {item 2c}]] Or expressed with expository names as: (2 * (TLINCOME - TOTLCON - OTHERINCOMEW)) / ((TASSTSBY - (ERCONBOY + EECONBOY + OTHER_LIAB_BOY_AMT)) + (TASSTSEY - (ERCONEOY + EECONEOY + OTHER_LIAB_EOY_AMT)) - (TLINCOME - TOTLCON - OTHERINCOMEW))\nFor purposes of data reliability and validation of our results, we ran permutations of the calculation to see how, if at all, certain items could influence the calculation. In two permutations, we changed the timing of net asset transfers to or from other plans. (This occurs when, for example, there is a plan merger.) A senior actuary determined whether the calculations with/without net asset transfers affected our calculation. If the timing of the net transfer caused the investment return calculation to vary by more than 0.1 percent, we excluded the data for that particular plan in that particular year. We also ran another calculation that did not include “other” income so we could estimate the impact of not adjusting for such information.", "Historical average investment returns over multiple years can be calculated in at least two different ways. One measure is the “time- weighted” average return, calculated as a geometric average of the annual returns during the period. A time-weighted average measures average investment performance without regard to the order of the annual returns or the impact of different plan circumstances over time. Another measure is the “dollar-weighted” average return–also known as the “internal rate of return” (and also referred to as the “cash flow weighted” return in this report)—which reflects the impact of the plan’s cash flow pattern. The dollar-weighted average return is the rate that, when applied over time to the asset value at the beginning of the period and to each year’s net cash flow into or out of the plan over the period, reproduces the asset value at the end of the period.\nWe calculated dollar-weighted average returns (along with some time- weighted returns for comparison), for both CSPF and for the multiemployer system as a whole, as discussed in the report. We used a market value of plan assets for this purpose. The dollar-weighted average captures the impact of negative cash flow on average investment return. For example, with negative cash flow, investment results in an earlier year can have a bigger impact than investment results in a later year because more money is at stake in the earlier year.\nUsing the same beginning-of-period asset value, and subsequent annual net cash flows into or out of the plan, used in calculating the dollar- weighted average return, we also performed a hypothetical calculation of what CSPF’s end-of-period asset value would have been if the plan had earned 7.5 percent per year instead of its actual return.", "Conceptually, there are multiple ways to express investment fees, but our analysis used the following two methods for calculating them: Investment fee ratio. Investment fees [line 2i(3) of the 2014 Schedule H] divided by end-of-year net assets [line 1l(b) of the 2014 Schedule H] less receivables [line 1b(1)(b); line 1b(2)(b); and line 1b(3)(b) of the 2014 Schedule H].\nInvestment fees per participant. Investment fees [line 2i(3) of the 2014 Schedule H] divided by total (end-of-year) participants [line 6f of the 2014 main form].", "We define administrative expenses as all other expenses besides investment fees. In part, we used this definition of administrative expenses as it represents the expenses that remain after excluding investment fees. In addition, according to a PBGC analyst, this is the unit of analysis that they also used in their study of administrative expenses.\nAdministrative expense to benefits paid. This is administrative expenses (professional, contract and other) divided by benefits paid. For administrative expenses we derived the value by taking total expenses less investment fees . For benefits paid, we used the 2014 Schedule H, line 2e(1), “Benefit payment and payments to provide benefits directly to participants or beneficiaries, including direct rollovers.” However, if the benefit payment value for such payments is missing or zero, we used the 2014 Schedule H, line 2e(4) “Total Benefit Payments” since the plan may be expressing their benefit payments on another line.\nAdministrative expense per participant. Administrative expenses (professional, contract and other) divided by total (end-of-year) participants . For administrative expenses we derived the value by taking total expenses [line 2i(5) of the 2014 Schedule H] less investment fees [line 2i(3) of the 2014 Schedule H].\nPBGC Study on Administrative Expenses PBGC has reported on administrative expenses and included various breakouts of these data in past data book supplements. The calculations of administrative expenses in this report are similar to those used by PBGC. Certain differences may exist because our calculation did not include certain multiemployer plans that reported missing data. Additionally, our population of multiemployer plans included only those plans exclusively associated with defined benefit features. The table below compares our results for plans with 5,000 or more participants, which is a subset of plans analyzed in the PBGC study.\nOur results used a sample that includes three fewer plans than the PBGC study, but our distributional results were within one-tenth percent for the administrative expense ratio and within $5 of the administrative expenses per participant (see table 4).\nComparing the administrative expenses across reports using other statistics such as the minimum, maximum and standard deviation shows similar results for the PBGC and our analysis (see table 5). The mean administrative expenses per participant differ by $2.47. This difference is 1.5 percent lower than the PBGC estimate and could be a result of the difference in sample size.\nWe also performed additional analyses as summarized below.\nWe compared CSPF’s annual returns against plans that have the largest assets among multiemployer defined benefit plans (with the same plan year as CSPF) and CSPF’s results against these plans were broadly similar to results for the mature plans (see fig. 22).\nWe compared CSPF’s administrative expenses as a percentage of benefit paid against other large plans. As noted in this report, CSPF has the lowest relative administrative expenses among the comparators in 2014 with administrative expenses at 1.4 percent of benefits (see fig. 23).\nIn addition, CSPF’s administrative expenses as a percentage of benefits were consistently below the median.", "For our analysis of Wilshire TUCS data, we used two sources of data. Data from 1999 through 2016 was provided by CSPF. CSPF provided reports of their TUCS custom comparison group, master trusts with greater than $3 billion in assets. These data also included the year-end return results for the total fund (also known as the combined fund) as well as returns by subcategory such as a specific named fiduciary or fund. For example, subcategories listed for year-end 2006 included the results for both named fiduciaries (Goldman Sachs and Northern Trust) as well as the passively-managed accounts (then known as the CSSS fund).\nThe custom comparison groups for the 1999 through 2016 data were determined each year in early-February of the year following the December 31 return results for the prior year. Thus, over time more master trusts were added (or subtracted) depending on the level of assets for the master trusts in that year. For example, the return results for year- end 1999 are determined as of February 10, 2000 and the group of master trusts with more than $3 billion contains 62 observations. The number of trusts in the custom group of master trusts with more than $3 billion generally grew over time with the number peaking with the return results for year-end 2014 (determined as of February 9, 2015), which contains 124 observations.\nThe TUCS data from 1995 through 1998 was provided by Wilshire. The comparison group for these data were not selected each year, but, instead, selected retrospectively. For example, the comparison group of master trusts with more than $3 billion from 1995 through 1998 was selected as of January 9, 2017. There were 99 reported observations in 1995 and 132 observations in 1998. In addition, the 1995 through 1998 TUCS data did not include specific returns for CSPF. We were able to find the annual year-end return in the December (i.e. year-end) management report, which for these years was provided by the named fiduciary, Morgan Stanley.", "Below is a list of selected events that have affected the Central States, Southeast and Southwest Areas Pension Fund (CSPF) as identified through a review of relevant documentation and interviews with stakeholders and agency officials. It is not intended to be an exhaustive list of the events that have impacted CSPF, nor is it intended to include comprehensive descriptions of each event.", "", "On September 22, 1982, the Department of Labor (DOL) entered into a court-enforceable consent decree with the Central States Southeast and Southwest Areas Pension Fund (CSPF) to help ensure the plan’s assets were managed for the sole benefit of the plan’s participants and beneficiaries as required by the Employee Retirement Income Security Act of 1974 (ERISA). The consent decree has been amended several times and currently remains in effect, as amended, under the jurisdiction of the Federal Court for the Northern District of Illinois, Eastern Division. Below is a description of the key parties to and their primary responsibilities under the consent decree.", "The consent decree defines roles and responsibilities for its parties, including the court, the court-appointed independent special counsel, DOL, the plan and its Board of Trustees, and the independent asset manager, which is called the named fiduciary.", "The primary role of the court is to oversee and enforce the consent decree. Specifically, the court: appointed an independent special counsel to assist it in administering has approval over the appointment of named fiduciaries and trustees; has approval over the appointment of investment managers of the may, for good cause shown, remove a named fiduciary after 60 days’ notice provided to the named fiduciary and DOL; and may, upon request by the plan, dissolve the consent decree absent good cause shown by DOL why the consent decree should continue in effect.", "The court-appointed independent special counsel is intended to serve the court by assisting in identifying and resolving issues that arise in connection with the plan’s compliance with the consent decree and Part 4 of Title I of ERISA, and to report on the plan to the court. Specifically, the independent special counsel: has full authority to examine the plan’s activities and oversee and report on the plan’s performance of the undertakings of the consent decree; may, with court approval, employ attorneys, accountants, investigators, and others reasonably necessary and appropriate to aid him in the exercise of his responsibilities; has full access to all documents, books, records, personnel, files, and information of whatever type or description in the possession, custody, or control of the plan; may attend meetings of the plan, including meetings of the board of trustees and any meetings at which plan-related matters are discussed or considered; can petition the court to compel the plan to cooperate with the independent special counsel in the performance of his duties and responsibilities; may consult with DOL, the Internal Revenue Service, and other agencies, as appropriate, but must provide access to DOL upon its request to any documents prepared by the independent special counsel within the exercise of his power; is required to file quarterly reports, as well as any other reports the independent special counsel deems necessary or appropriate, with the court, and provide copies to DOL and the plan; may have other powers, duties, and responsibilities that the court may later determine are appropriate; and cannot be discharged or terminated during the duration of the consent decree except for leave of court, and upon the termination, discharge, death, incapacity, or resignation of an independent special counsel, the court will appoint a successor.", "Under the consent decree, DOL has an oversight role and may object to certain proposed plan changes. Specifically, DOL: may request and review certain reports provided by the plan and any documents prepared by the independent special counsel in the exercise of his authority; may object to the appointment of proposed trustees, named fiduciaries, investment managers of the passively-managed accounts, and asset custodians; receives notice of proposed changes to the plan’s investment policy statements from the plan; and may object to the dissolution of the consent decree.", "The plan must operate in full compliance with the consent decree, with ERISA, and with any conditions contained in determination letters it receives from the Internal Revenue Service. Specifically, CSPF, its board of trustees, and its internal audit staff must meet certain requirements. is required to use an independent asset manager known as the named fiduciary; must rebid the named fiduciary role at least once within every 6 years, with the option to extend the appointment for 1 calendar year; may remove a named fiduciary without cause shown on 6 months’ written notice to the named fiduciary and DOL; must cooperate with the independent special counsel in the performance of his duties and responsibilities and with DOL in its continuing investigation and enforcement responsibilities under ERISA; is required to recommend to the court three replacement candidates, agreeable to DOL, to replace an outgoing independent special counsel; and is required to maintain a qualified internal audit staff to monitor its affairs. is required to appoint, subject to court approval, the investment managers of the passively-managed accounts; is prohibited from authorizing any future acquisitions, investments, or dispositions of plan assets on a direct or indirect basis unless specifically allowed by the consent decree; and is required to comply with ERISA fiduciary duties, such as monitoring the performance of the assets of the plan, under Part 4 of Title I of ERISA. is required to review benefit administration, administrative expenditures, and the allocation of plan receipts to investments and administration; and is required to prepare monthly reports setting forth any findings and recommendations, in cooperation with the executive director of the plan, and make copies available to the independent special counsel and, upon request, to DOL and the court.", "The independent asset managers, known as named fiduciaries, are appointed by the plan’s trustees, subject to court approval, and have exclusive responsibility and authority to manage and control all assets of the plan allocated to them. Specifically, the named fiduciaries: may allocate plan assets among different types of investments and have exclusive authority to appoint, replace, and remove those have responsibility and authority to monitor the performance of their are required to develop, in consultation with the Board of Trustees, and implement investment policy statements for the assets they manage, giving appropriate regards to CSPF’s actuarial requirements.", "", "", "In addition to the individual named above David Lehrer (Assistant Director), Charles J. Ford, (Analyst-in-Charge), Laurel Beedon, Jessica Moscovitch, Layla Moughari, Joseph Silvestri, Anjali Tekchandani, Margaret J. Weber, Adam Wendel, and Miranda J. Wickham made key contributions to this report. Also contributing to this report were Susan Aschoff, Deborah K. Bland, Helen Desaulniers, Laura Hoffrey, Jennifer Gregory, Sheila McCoy, Mimi Nguyen, Jessica Orr, Monica P. Savoy, and Seyda Wentworth.", "Central States Pension Fund: Department of Labor Activities under the Consent Decree and Federal Law. GAO-18-105. Washington, D.C.: June 4, 2018.\nHigh-Risk Series: Progress on Many High-Risk Areas, While Substantial Efforts Needed on Others. GAO-17-317. Washington, D.C.: February 15, 2017.\nPension Plan Valuation: Views on Using Multiple Measures to Offer a More Complete Financial Picture. GAO-14-264. Washington, D.C.: September 30, 2014.\nPrivate Pensions: Clarity of Required Reports and Disclosures Could Be Improved. GAO-14-92. Washington, D.C.: November 21, 2013.\nPrivate Pensions: Timely Action Needed to Address Impending Multiemployer Plan Insolvencies. GAO-13-240. Washington, D.C.: March 28, 2013.\nPrivate Pensions: Multiemployer Plans and PBGC Face Urgent Challenges. GAO-13-428T. Washington, D.C.: March 5, 2013.\nPension Benefit Guaranty Corporation: Redesigned Premium Structure Could Better Align Rates with Risk from Plan Sponsors. GAO-13-58. Washington, D.C.: November 7, 2012.\nPrivate Pensions: Changes Needed to Better Protect Multiemployer Pension Benefits. GAO-11-79. Washington, D.C.: October 18, 2010.\nPrivate Pensions: Long-standing Challenges Remain for Multiemployer Pension Plans. GAO-10-708T. Washington, D.C.: May 27, 2010.\nThe Department of Labor’s Oversight of the Management of the Teamsters’ Central States Pension and Health and Welfare Funds. GAO/HRD-85-73. Washington, D.C.: July 18, 1985.\nInvestigation to Reform Teamsters’ Central States Pension Fund Found Inadequate. HRD-82-13. Washington, D.C.: April 28, 1982." ], "depth": [ 1, 2, 3, 3, 2, 2, 2, 3, 3, 1, 2, 2, 3, 3, 3, 3, 1, 2, 2, 3, 3, 3, 2, 1, 2, 3, 3, 2, 1, 1, 2, 2, 2, 2, 2, 3, 3, 3, 3, 3, 2, 2, 1, 1, 2, 2, 3, 3, 3, 3, 3, 1, 2, 2, 1 ], "alignment": [ "h1_title h0_title h6_full", "", "", "", "h0_full h1_full", "", "", "", "", "h0_title h1_title h6_title", "h0_full", "h6_title h1_full", "", "h6_full h1_full", "", "h1_full", "h2_full h1_title h3_title", "h2_full", "h2_title h1_title", "h2_full h1_full", "", "", "h3_full", "h5_title h4_title", "h4_title", "h4_full", "h4_full", "h5_full", "", "h4_title", "", "", "", "", "", "", "", "", "", "", "h4_full", "", "", "h6_title", "h6_full", "", "", "", "", "", "", "", "", "", "h6_full" ] }

{ "question": [ "What is the CSPF?", "What was the CSPF's financial situation in 1982?", "How has the CSPF's financial situation changed over time?", "What did GAO's interviews help to determine?", "Why was CSPF unable to maintain a healthy contribution base?", "How have CSPF's levels of active participants changed from 1982?", "How did UPS's departure affect CSPF?", "How have market changes affected the plan?", "What cumulative effect did these factors have on the plan's financial condition?", "To what extent have CSPF's investment policies remained static?", "How was the power to set and change policies delegated in the original consent decree?", "What were among the first actions taken by the fiduciaries?", "How will the 2017 investment policy affect plan assets?", "To what type of assets will CSPF transition?", "What are the goals of these changes?", "How do CSPF investment returns compare with other similar institutional investors?", "How do CSPF's returns compare to those of TUCS?", "How do CSPF's returns compare to similar multiemployer benefit plans?", "How do CSPF's administrative expenses compare to other multiemployer plans?", "How does CSPF's administrative expense per participant compare to the median for large defined benefit multiemployer plans?", "What are multiemployer plans?", "What is CSPF?", "How has CSPF been managed since 1982?", "What is CSPF's current financial situation?", "What was GAO asked to review?" ], "summary": [ "The Central States, Southeast and Southwest Areas Pension Fund (CSPF) was established in 1955 to provide pension benefits to trucking industry workers, and is one of the largest multiemployer plans.", "According to its regulatory filings, CSPF had less than half the estimated funds needed to cover plan liabilities in 1982 at the time it entered into a court-enforceable consent decree that provides for oversight of certain plan activities.", "Since then, CSPF has made some progress toward achieving its targeted level of funding; however, CSPF has never been more than 75 percent funded and its funding level has weakened since 2002, as shown in the figure below.", "Stakeholders GAO interviewed identified numerous factors that contributed to CSPF's financial condition.", "For example, stakeholders stated that changes within the trucking industry as well as a decline in union membership contributed to CSPF's inability to maintain a healthy contribution base.", "CSPF's active participants made up about 69 percent of all participants in 1982, but accounted for only 16 percent in 2016.", "The most dramatic change in active participants occurred in 2007 when the United Parcel Service, Inc. (UPS) withdrew from the plan. At that time, UPS accounted for about 30 percent of the plan's active participants (i.e. workers).", "In addition, the market declines of 2001 to 2002 and 2008 had a significant negative impact on the plan's long-term investment performance.", "Stakeholders noted that while each individual factor contributed to CSPF's critical financial condition, the interrelated nature of the factors also had a cumulative effect on the plan's financial condition.", "Both CSPF's investment policy and the process for setting and executing it have changed several times since the consent decree was established in 1982.", "The original consent decree gave an independent asset manager—called a named fiduciary—exclusive authority to set and change the plan's investment policies and manage plan assets, and prohibited CSPF trustees from managing assets or making investment decisions.", "Initially, the named fiduciaries sold the troubled real estate assets acquired during the pre-consent decree era.", "An early-2017 investment policy change precipitated by CSPF's deteriorating financial condition will continue to move plan assets into fixed income investments ahead of projected insolvency, or the date when CSPF is expected to have insufficient assets to pay promised benefits when due.", "As a result, assets will be gradually transitioned from “return-seeking assets”—such as equities and emerging markets debt—to high-quality investment grade debt and U.S. Treasury securities with intermediate and short-term maturities.", "CSPF officials and named fiduciary representatives said these changes are intended to reduce the plan's exposure to market risk and volatility, and provide participants greater certainty prior to projected insolvency.", "GAO found that CSPF's investment returns and expenses were generally in line with similarly sized institutional investors and with demographically similar multiemployer pension plans.", "For example, GAO's analysis of returns using the peer group measure used by CSPF known as the Wilshire Associates' Trust Universe Comparison Service (TUCS), showed that CSPF's annual investment returns since 1995 were above the median about as many times as they were below.", "Similarly, comparing CSPF's returns to a peer group of similar multiemployer defined benefit plans using federally required annual reports found that CSPF's annual investment returns were in line with those of its peers. Specifically, CSPF's annual returns were above the median nine times and below it six times—and CSPF's overall (dollar-weighted) average annual return from 2000 through 2014 was close to that of the peer median average return of 4.8 percent.", "CSPF's administrative expenses related to the day-to-day operations of the plan have also been in line with other large multiemployer plans. CSPF's administrative expenses per participant were below the median for large defined benefit multiemployer plans for 12 of the 15 years over the 2000 through 2014 period.", "As of 2014, CSPF's administrative expense was $98 per participant, which is about 16 percent less than the median for large defined benefit multiemployer plans.", "Multiemployer plans are collectively bargained pension agreements often between labor unions and two or more employers.", "CSPF is one of the nation's largest multiemployer defined benefit pension plans, covering about 385,000 participants.", "Since 1982, the plan has operated under a court-enforceable consent decree which, among other things, requires that the plan's assets be managed by independent parties.", "Within 7 years, CSPF estimates that the plan's financial condition will require severe benefit cuts.", "GAO was asked to review the events and factors that led to the plan's critical financial status and how its investment outcomes compare to similar plans." ], "parent_pair_index": [ -1, -1, 1, -1, 0, 1, 1, 0, 0, -1, 0, 1, -1, 0, 0, -1, 0, 0, -1, 0, -1, -1, 1, 1, -1 ], "summary_paragraph_index": [ 3, 3, 3, 4, 4, 4, 4, 4, 4, 5, 5, 5, 8, 8, 8, 9, 9, 9, 12, 12, 0, 0, 0, 0, 0 ] }

{ "title": [ "", "Introduction", "Is a Progressive Federal Tax Structure Justified?", "How Should Taxes be Levied to Pay for Government Spending?", "Two Alternative Principles of Burden Distribution", "Benefit Principle", "Ability to Pay", "Distribution as a Public Good", "How Should Income in the Economy be Distributed?", "Endowment, Utilitarian, and Egalitarian Approaches", "What are the Implications for Tax Burden Distribution?", "The Estimated Distribution of the Tax Burden", "The Concept of Income", "Unit of Analysis", "Incidence Assumptions", "Measures of Tax Burden Distribution", "Current Federal Effective Tax Rates", "Burden Distribution of Different Kinds of Federal Taxes", "Distribution over Time", "State and Local Tax Burden", "Lifetime Tax Burden", "How to Measure Changes in Tax Distribution", "An Illustrative Example", "Illustrations from Recent Tax Legislation", "2001 Tax Cut", "2003 Tax Cut" ], "paragraphs": [ "", "Distributional effects are often central policy issues in debates over tax legislation. Although economic analysis can be used to estimate the distribution of the tax system, or a tax change (a positive or descriptive analysis), it cannot be used to provide a normative or prescriptive analysis. Descriptive analyses indicate the expected effects of policies, but normative analyses indicate the optimal policy. Most normative analysis in economics is focused on efficiency. Even in the case of distribution issues, however, economic analysis can be used to facilitate the understanding of desirable distributions, measure them correctly, and determine the implications of different assumptions about social welfare for the optimal distribution of the tax burden.\nThe first section of this report, which is normative in nature, therefore discusses different philosophies about how the tax burden should be distributed, and what those philosophies imply for the shape of the tax system. In particular, it addresses the question of the justifications for a progressive tax system (one where the share of income collected as a tax rises as income rises). This section is presented for the interested reader, but is not a necessary preliminary to examining the analysis in the second section, which presents estimates of the distribution of the federal and total U.S. tax burden. The third section of the report discusses the measures that can be used to characterize the distributional effects of tax changes.", "There are two separate, albeit related, questions about tax burden distribution. One of them is how to pay for the goods that the government provides (such as national defense, or highways). The second issue is whether the tax system should be used for direct income redistribution; in that case the optimal tax burden depends on the degree to which redistribution is deemed desirable.", "Even if an economy had no redistribution, it would be necessary to provide \"public goods\" (such as defense or roads) and to determine how taxes should be collected to pay for these goods. A public good, in its purest form, is one that each person can enjoy without detracting from anyone else's consumption and where there is no way to exclude a person from enjoying it. As a result of the last effect, in most cases, such goods would not be provided by the private market or would not be provided efficiently.\nMany goods are not pure public goods, but have aspects of public goods in that person A benefits from person B's expenditure—such quasi-public goods (or goods with positive external effects) would be provided in the private economy but not in sufficient amounts. To supply these and pure public goods, it is necessary to raise revenues through taxes and distribute the resultant taxes' burden somehow among the society's members.\nThe distribution of the tax burden with respect to taxpayers' incomes may be characterized as progressive, proportional, or regressive. The behavior of the effective tax rate—the share of income paid in taxes—determines this classification. If the share rises with income, the distribution is called progressive; if it stays constant, it is proportional; and if the share falls, the distribution is called regressive.\nFederal taxes, taken one by one, fall into all of the three categories. For the working population, the payroll tax is first proportional, then regressive, because its rate falls once the ceiling of taxable wages is reached. For the population as a whole, the payroll tax rate rises initially, and would therefore be first progressive, then essentially proportional, and for higher-income ranges, regressive. Excise and sales taxes are generally regressive, especially those imposed on products primarily consumed by lower-income individuals, such as cigarettes. The income tax is progressive, and even provides subsidies (negative taxes) for lower-income working individuals, often through the earned income credit. The corporate income tax is imposed on corporate profits as a proportional tax, but its burden on individuals depends on behavioral responses, as discussed subsequently in the \" Incidence Assumptions \" subsection of this report.\nMost people would judge that a tax-collection system is fair if it satisfies two limited criteria: horizontal and vertical equity. The criteria state respectively that it is desirable (1) for taxpayers with the same \"capacity to pay\" to face the same tax liability in dollar terms and (2) for liability to increase with ability to pay. The application of both depends critically on definitions of the same \"capacity to pay,\" which is difficult to determine for the families of different size and other characteristics.\nEven under a regressive tax system, a higher-income taxpayer may pay higher taxes in dollar terms than a lower-income taxpayer. What decreases is the share of the tax paid to the income. Therefore a regressive system could still satisfy the principles of vertical and horizontal equity.", "Traditionally, there are two theoretical notions of how tax payments should be assigned. One is the benefit principle and another is the \"ability-to-pay\" principle.", "The benefit principle simply states that taxpayers who benefit from government services should bear the burden of the tax used to finance the services. The benefit principle seemingly has its roots in market-inspired solutions to paying for public goods. It is commonly associated with such taxes as the gasoline tax, used to finance highways. Although such taxes are not voluntary, as free-market purchases are, they are directly related to the value individuals receive from public goods.\nThe benefit principle has a much broader reach, if one allows individuals to pay variable prices reflecting their willingness to pay, rather than each individual paying the same amount. Higher-income individuals have a greater willingness to pay for social goods because they have more income. They also might find some goods, such as defense and police protection, more valuable because they have more property to protect.\nUnder this principle, the distribution may be regressive, proportional, or progressive, depending on whether the taxpayers' income elasticity is greater than, equal to, or less than the price elasticity. Unfortunately, it is difficult to estimate these elasticities, particularly for national level expenditures where there is no cross-sectional variation. Some studies of municipal spending or spending on local education generally indicate that income elasticity exceeds the price elasticity, providing some support for progressive taxes using the benefit principle. There is also some international evidence that tax shares rise as income rises: according to the World Bank , high-income countries have taxes as a share of output that are over twice as high as low-income countries, and expenditure shares that are almost twice as large.", "The \"ability-to-pay\" principle suggests that people with higher incomes should pay more than those with lower incomes. Yet the standard does not answer the question of how much more. Its policy implications are based on a diminishing marginal benefit of a dollar assumption—the widely accepted belief that the value of an additional dollar of income falls, as income rises (i.e., a rich man values an additional dollar less than a poor).\nNotions of ability to pay have generally appealed to some measure of equal sacrifice. Potential measures of \"equal sacrifice\" include equal absolute sacrifice (each person's welfare declines by the same amount), equal proportional sacrifice (each person's welfare declines by the same proportion), and equal marginal sacrifice (each person's \"displeasure\" from taking away an additional dollar is the same).\nEqual absolute sacrifice would suggest proportional taxation if the marginal benefits of a dollar of income fell proportionally with income. That is, following this principle, if person A with five times as much income as person B values a dollar approximately a fifth as much as B, then for every dollar one collects from B, one collects $5 from A. In this example, the principle implied a proportional tax system. If the marginal benefit of a dollar diminishes, but at a fairly slow rate, a regressive tax system could also be consistent with the principle, whereas if it diminishes at a faster rate, a progressive tax would be appropriate.\nAn alternative measure of sacrifice is equal proportional sacrifice. This method is much more likely to justify a progressive tax system, but it too depends on how fast the value of an additional dollar declines with income. There are many reasonable functional forms that do not support progressivity.\nThe equal marginal sacrifice principle suggests steeply progressive taxes that will collect the least valued dollars in the economy. The result also uses the assumption that the value of a dollar falls as income rises. Under this principle, in contrast with the previous two cases, the progressivity does not depend on the rate with which the value declines.\nThus, without further information on the nature of welfare and the exact standard to be used, the ability to pay criterion does not necessarily justify regressive, proportional, or progressive taxes. The equal marginal sacrifice principle suggests an extreme degree of progression.", "Before discussing general principles of a \"just\" income distribution, direct redistribution itself as a public good is discussed.\nThere is normally a natural conflict between equity and efficiency objectives when the equity criterion suggests redistribution or progressive tax rates. That conflict occurs because taxes distort behavior and reduce economic efficiency. It means that the \"size of the pie\" becomes smaller. There are, however, circumstances in which redistribution can enhance rather than reduce efficiency—when redistribution itself is a public good. Recall that a pure public good can be characterized as a good where one person can benefit from the good without detracting from another's benefit.\nRedistribution can, in fact, be characterized as a public good. Suppose that higher and middle income individuals care about the poor and their welfare—that is, they benefit from knowing that the poor have more income. In this case, redistribution is a public good because A's contribution to the poor benefits B. Such redistribution is under-supplied in an open economy, and so there is justification for redistributing to the poor—based not on a concern about the welfare of the poor, but rather about the welfare of the rich.\nThe non-poor may also benefit in other ways from providing income to the poor, such as a reduction in crime.\nSecondly, some redistribution that occurs in the economy may be justified as insurance in circumstances where private insurance markets do not work well. A social safety net may be regarded as insurance against falling, for whatever reason, on hard times. Certain features of our social safety net, such as unemployment compensation, need-based transfers (such as food stamps and Medicaid), and retirement benefits (Social Security and Medicare) may be justified in part as an attempt to deal with failure of private insurance markets.", "It is possible to go beyond the issue of the provision of public goods (including redistribution) and ask a more general question: should income in society be redistributed to achieve a more equitable society—that is, a \"just income distribution.\"\nThere are three basic philosophical approaches to the question of a just income distribution: the endowment approach, the utilitarian approach, and the egalitarian approach. There are also permutations of each approach.", "The endowment approach says that people should get what they earn. In its simplest form, it would imply no redistribution at all. Variations include allowing people to get what they earn in a competitive economy, so that excess profits arising from market power should be redistributed; to keep their labor earnings, so that assets and earnings from assets should be redistributed; or to keep what they would earn if they started equally in terms of wealth and family status. The last would, in theory, permit differences in income based on effort and willingness to take risk and innate earning ability, in contrast to the first approach that would also permit differences in income based on inherited wealth. Although the endowment philosophy does not support direct redistribution to yield a just society, the benefit principle is philosophically consistent with endowment notions of income redistribution and may support progressive taxation.\nThe endowment approach suggests there should be little or perhaps no redistribution, which is difficult to argue as a case of distributive justice. For example, it suggests that people with mental and physical disabilities that prevent them from working at a normal wage and who have no family to rely upon, should have little or no income. Given that people do have different innate physical endowments, many would argue that there is nothing especially fair about a system that allows individuals to have varied earnings based on inherited characteristics. At the same time, it seems unfair to penalize higher-income people who have those incomes because they worked harder or undertook more risk. On the whole, there may be a lot of support in our culture for allowing people to keep most of the fruits of their labor, but also a distaste for allowing individuals limited by circumstances of birth to suffer poverty.\nThe absolute lack of redistribution may also be inefficient, because of the presence of public goods in externalities in the real world, as discussed above. It means that everyone can be made better off, or not worse off, by allowing some redistribution.\nThe utilitarian approach says that society chooses to maximize welfare in the economy—a \"greatest good for the greatest number\" philosophy. The simplest utilitarian welfare measure is simply one that adds up all the welfare of the individuals in the economy and tries to make shifts that will make that welfare sum the greatest. Such an approach suggests that income should be shifted to those who are able to benefit the most from it at the margin.\nThis sort of assumption also implies an extremely progressive tax system in some circumstances: if we assume that all individuals are otherwise identical and that the value of each dollar of income declines as income rises (i.e., a dollar is more valuable to a poor man than to rich one), and ignore behavioral responses, then total welfare is greatest when all individuals incomes are equal. This redistribution would require a 100% tax on incomes above a certain level to be redistributed until everyone has the same income—a super-progressive tax system, with positive taxes at the top and negative taxes at the bottom.\nAlthough the idea of the \"greatest good for the greatest number\" sounds attractive, its practical implementation is ambiguous, because there is no objective measure of \"welfare\" and no objective method of describing a maximum social welfare. The assumption of identical individuals may be a reasonable approximation for policymaking, but in reality individuals are not identical.\nThe third type of approach is the egalitarian approach , which says that everyone should be equally happy. In this case, the government would make transfers to the poor and also transfer more money to those who enjoy it less so as to raise their level of happiness. As with the case of the utilitarian measure, if one assumes all people are identical and that the value of an additional dollar of income falls as income rises, an aggressive redistribution scheme should be called for to equalize everyone's income. Both utilitarian and egalitarian welfare functions are consistent with the ability-to-pay principle.\nA variation of the egalitarian approach that takes into account behavioral responses is called the \"maximin\" or \"Rawlsian\" criteria. With this approach, society redistributes so as to maximize the welfare of the poorest individual. With no behavioral responses, and identical enjoyments of income, society would again equate income by taxing away all income above the average and giving it to those below the average, but with behavioral response, a 100% marginal tax on the rich would not work because it would cause individuals to reduce their work effort. In the Rawlesian system one would raise the tax just high enough so that the revenue to be distributed was greatest. It has been argued that this approach would reflect the choices risk-averse individuals would make as a social contract if they had to decide on the distribution of income before they knew which position they would fill in society.\nOne of the problems with using a welfare function, such as the utilitarian function, which might be persuasive to people as a practical guide to dealing with income distribution, is that it does not take account of the possibility that income varies because people differ in their work effort and risk taking. Although many people might feel it is appropriate to redistribute income to lower-income individuals because they do not have the capabilities to earn a higher income, they are less likely to favor redistribution to people who earn less because they work less or because they do not work as hard as the average person.\nSimilarly, even if everyone were identical in wealth, and innate ability and work effort, incomes would vary if some people took more risks than others. Taxing away the returns to risky projects and providing a guaranteed cushion against any risk would make risk-taking irrelevant to economic decisions. As a result, individuals might be willing to take more or less risk than appropriate, and an optimal level of risk-taking is important to the efficient operation of an economy. Because differences in income that arise from innate capabilities or inherited wealth (whether financial and physical wealth, or human wealth provided by one's family) cannot easily be separated from those that arise from work effort and risk-taking, it is more difficult to assess the appropriate level of redistribution. Nevertheless, it is clear that appeals to a social welfare function do suggest that income redistribution may be appropriate. The U.S. tax system including all government layers actually engages in very little means-based redistribution, however.", "Unfortunately, these guidelines about redistribution and about rules for paying for government expenditures do not provide a concrete answer as to how the tax burden should be distributed. What is perhaps most interesting about the analysis is that certain social welfare philosophies that might seem compelling do potentially support progressive taxation, as does the benefit principle of charging for public goods. The ability to pay criteria for charging for public goods, while often invoked to support progressive taxes, however, provides little guidance without more information on individuals' preferences, unless the marginal equal sacrifice form is assumed.\nIt is also important to keep in mind that even if the federal tax is progressive, such progressivity may be needed to offset state and local taxes that tend to be regressive, in order to avoid an overall regressive U.S. tax system.", "Several public and private organizations have produced distributional tables. The governmental entities include the Treasury Department, the Congressional Budget Office (CBO), and Joint Committee on Taxation (JCT). Some of the private researchers involved in this work include the Urban Institute and Brookings Institution Tax Policy Center (TPC) and the Institute on Taxation and Economic Policy (ITEP) of Citizens for Tax Justice (CTJ).\nTheir analyses vary in several ways, including how they define income, the definition and ordering of tax units, and the taxes included. The following several sections discuss the rationale behind certain methodological choices and report the results of distributional analyses for different organizations, for different time periods, and for different kinds of taxes.\nThese measures are presented as effective tax rates, which makes comparison meaningful despite the methodological differences. The effective rates are simply the ratio of taxes paid to the income measure. They are different from the statutory marginal rates that apply to an extra dollar of taxable income only. When effective tax rates rise with income a tax system is progressive, it is proportional when effective tax rates are relatively constant, or regressive, if effective tax rates fall as income increases.", "The theoretical discussion of the previous sections operated with a concept of \"income,\" but what is the practical meaning of this word? There are several \"incomes\" mentioned in instructions to a single tax form—gross, adjusted gross, and taxable—to mention just three of them. Most states have state-specific income measures, such as \"Wisconsin Income,\" usually different from the federal analogs. Other, non-tax, entities may use their own definitions of income better suited to their objectives.\nEconomic income encompassing all sources regardless of their taxability would be the best descriptor of the taxpayer's access to economic resources, but, unfortunately, none of the accounting or tax concepts of income exactly matches it. The discrepancy may happen for many reasons; one of them is statutory exclusions of certain items from income. For example, employees may have an option of purchasing their medical insurance through their employers with \"pre-tax\" dollars. \"Pre-tax dollars\" clearly represent income in the economic sense of this word, because employees can use them to consume, in this case—medical coverage. Yet they do not enter the calculation of \"gross income\" for individual income tax purposes, because of the special treatment of these transactions by law.\nOrganizations providing distributional analyses use measures of income that are expanded from tax measures, such as adjusted gross income (AGI). They estimate a more comprehensive income using various techniques. One of them, Treasury's Office of Tax Analysis (OTA), used Family Economic Income (FEI) as taxpayers' income measure in a 1999 paper. The starting point of the intended income measure was the definition of income as the sum of consumption and the change in net-worth in a given period—commonly referred to as Haig-Simons income. This measure would include both cash and non-cash income, such as imputed rent on owner-occupied homes—the payments homeowners would have to make if they rented their dwellings instead of owning them.\nOTA modified this definition in several ways. First, under the definition some retirees drawing largely on their savings would appear to have no or little income, because their consumption would be offset by a change in their net worth. At the same time, this money may be taxable, depending on the savings vehicle used. Their tax burden relative to their comprehensive income would appear extremely high because for several types of retirement accounts income is taxed on withdrawal. To correct for this mismatch, Treasury includes pension benefits in FEI. Another departure from the definition of income is exclusion of non-cash transfers, such as Medicare benefits, caused primarily by data limitations.\nOther analyses use measures of income that may not be as broad as economic income, but broader than AGI. In its distributional table in 2003, Treasury used a slightly narrower measure than in its 1999 study, cash income. CBO measures income as pretax cash income plus in-kind transfers. JCT expanded AGI by adding tax-exempt interest, employer contributions for health plans and life insurance, employer share of FICA tax, worker's compensation, nontaxable social security benefits, insurance value of Medicare benefits, alternative minimum tax preference items, and excluded income of U.S. citizens living abroad. The Brookings Urban Tax Policy Center initially used a narrower measure, but their current measures use both economic income and cash income. The choice of the income measure is influenced by data availability and other technical considerations as well as the types of taxes being distributed.\nUsing an expanded AGI or cash income measure is simpler and requires fewer assumptions, but it can mislead. For example, individuals may be accruing huge gains in assets, such as their houses, relative to their cash income. These problems with measuring income are reduced, however, when distributions are reported based on population shares (such as quintiles) rather than dollar amounts. On the other hand, dollar amounts lend a concreteness to a distribution table.\nThe overall tax burden measured as a share of AGI, or expanded AGI, would always appear higher than when measured as a share of comprehensive income. Also, any change in the distribution would appear to be more pronounced when measured as a percentage of AGI, because AGI would normally be lower than comprehensive income. For example, the comparison between AGI and FEI measures for 2000 shows that the former is smaller than the latter: $5,649 billion versus $8,419 billion. This relationship between the two measures is likely to persist across time.\nSome distributions may be reported based solely on AGI, which may be a good choice for a quick \"back-of-an-envelope\" analysis, but it is preferable to use more comprehensive income measures whenever technically feasible. None of the organizations engaged in regular distributional analysis rely solely on AGI, however.\nThe measure of income can also affect impressions of tax burden unless distributional tables are presented based on population shares rather than measures of income.", "Another question facing the researchers is how to measure the unit of analysis, and also whether and how to account for differences in tax unit composition, especially when ordering data by population share (such as lowest quintile, second quintile, etc.). The unit may be the family, the household, or the taxpayer unit. In many cases, these units would be the same, but in others they would not. For example, an adult working child living in the parent's home may be part of the household, but would be a separate tax-filing unit.\nIn addressing unit composition, regardless of method of classification, issues arise with respect to ordering taxpayers. It is obvious that a large family may have more income than a single person, but still have the same ability to pay. Where is that family to be placed in ordering units for distributional analysis—with the same families by ability to pay or with the same by income but of different size? Researchers differ in their answers.\nThe first approach, used by most organizations, is not adjusting for the size of the unit at all. This approach can be argued to implicitly assume that income necessary to maintain a given standard of living for one person is the same as the one for four persons, which is certainly not realistic. Nevertheless, this approach is common. It is straightforward, eliminates some sources of ambiguity, and is the easiest to implement from a technical standpoint.\nIf households' positions in the income distribution are to be adjusted by family or household size, researchers must determine how to make adjustments. One possibility is dividing the burden by the number of persons, in other words conducting the analysis on a per capita basis. This approach fails to recognize the economies of scale larger tax units enjoy: buying a four-bedroom residence is usually less than twice as expensive as buying a two-bedroom unit. A price of a bedroom in the first case would be lower than in the second. In a way, the purchasing power of a dollar would be higher for a large household compared with a small one.\nSeveral adjustment methods lie between these extremes. CBO orders households by ability to pay using this method: it divides income by the square root of the household's size. In this case a four-person family would need to have twice as much income as a single taxpayer to be as well off.\nAnother methodology is to normalize income by expressing it in terms of the applicable poverty level. For example, if the poverty level for a single person is $9,000, and for a four-person family—$19,000, then a single taxpayer with $27,000 of income would be equated to the four-person family earning $57,000, because both of them would be making three times the poverty level for a household of the respective size.\nThese ordering procedures and unit measures probably do not make a great deal of difference in the overall qualitative pattern of the effective tax rates.", "Another important factor in distributional analysis is the economic incidence of taxes. It reflects the notion that a tax burden is not necessarily borne by the taxpayers legally responsible for paying the tax. For example, imposing an excise tax may lead to a price increase. Thus, even though the seller would be legally responsible for paying the tax, the economic cost would be split between the sellers and the buyers in some way, possibly with the buyers bearing all of it.\nResearchers have to make reasonable assumptions about incidence, because calculating the precise shares in every case is impossible. They depend on factors specific to every market segment and may fluctuate across segments and in time within every market. Table 1 lists the assumptions about tax incidence incorporated in the models of OTA, CBO, JCT, and TPC.\nEven though the variations in income, unit definition and incidence assumptions would cause the quantitative results to be different in every case, the implications about the tax system are actually quite similar.\nThe incidence of the corporate tax, in particular, has been the subject of a considerable economic literature, with the distributional effects depending on the responses of investors and workers and the technology of the firm. The incidence of all taxes, even individual income and payroll taxes, depends, however, on behavioral responses. If savings and labor supply are relatively insensitive to taxes, as much evidence suggests, these taxes will fall on the individual who pays them.\nNote that the same assumptions about incidence are used (given the tax is distributed at all) for the different taxes except in the case of excise taxes. CBO and JCT allocate the tax based on the consumption of the taxed items. The Treasury allocates the tax to income, and also adjusts at the consumption level by imposing a burden for taxed items and a benefit for non-taxed items that nets to zero.", "", "Table 2 , Table 3 , and Table 4 reproduce the burden distribution estimates from different sources for 2000, 2005 and 2006 ordered by population shares. Because of the methodological differences described above, the data are not precisely comparable. In addition, there is also timing discrepancy. TPC does not have a 2000 law distribution table using 2000 incomes, so the appropriate column uses 2004 incomes but 2000 law. OTA does not have the table for 2005. Note that the absolute measures of effective tax rates can be affected by the income measure and the composition of included taxes. Table 4 differs from Table 3 in that the tax rates are based on cash income for the TPC rather than economic income, and this difference results in much more similar tax rates.\nAt the same time, all sources depict a similar qualitative picture about the progressivity of the federal tax burden distribution. For example, in every case the effective tax rates for the lowest quintile are estimated in the low to middle single digits. The highest quintile in 2000 faced an effective rate of close to or above 25%. The numbers for other quintiles and the general pattern seem consistent, too. Tax rates rise more slowly, however, at the top of the distribution.\nTable 5 and Table 6 present data from the Joint Committee on Taxation, reflecting the tax burden at 2003 levels of income, based on tax law prior to the 2003 tax cut and the tax burden in 2008 without incorporating the 2008 rebates. The tables are arrayed by income level rather than population proportion, but again present a very similar picture of the federal total effective tax rates.", "The federal tax system contains two major types of taxes, payroll and income taxes, and two minor ones, excise and estate taxes. Income taxes can be divided into individual taxes that are applied to wage income, passive capital income (interest, dividends and capital gains), and profits of unincorporated businesses, along with a separate flat rate tax on corporate profits. Each kind of tax has a different degree of progressivity (or regressivity) and therefore, the distribution of the burden depends on the mix of taxes within the system. Table 7 and Table 8 show the distribution of the tax burden by type, before the 2001-2003 changes. Table 7 reports the Treasury (1999) estimates and Table 8 reports the CBO estimates, for all but the estate tax. Table 9 reports the distribution for 2006.\nThe slight differences in the two 2000 distributions reflect differences in the income measures, in the taxes covered, and in the way in which families are ordered. For example, CBO places more larger families in the lowest quintile because they order by ability to pay, while Treasury orders by income. Since large families are likely to have larger benefits from the earned income credit, the tax rates of the individual tax are larger negatives in the CBO analysis than in the Treasury analysis. This effect also causes the lowest quintile to have higher payroll taxes because larger families are more likely and elderly individuals less likely to be represented in the CBO ordering.\nThe updated numbers in Table 9 show similar patterns by tax types from CBO (data are not available from Treasury), but with some changes. Most significant is the income tax, whose burden is smaller at every level, but particularly at higher incomes, due to the 2001 tax cuts. Some effects are due to the shifting of income across the brackets as well, which reduces income (and effective tax rates) in the lower incomes and raises them in the higher ones. Without these incomes shifts, the tax cuts would be smaller in the higher brackets and larger in the lower ones. This effect due to income redistribution can be seen with the corporate tax, whose overall level rose due in part to cyclical factors, but whose burden at lower incomes fell.\nTable 7 , Table 8 , and Table 9 show that the degree of progressivity is very different among the types of federal taxes. The effective rate of the individual income tax rises from a negative tax in the lowest quintile to 20% or so for the top 1%. As noted earlier, the earned income credit can lead to subsidies at low levels. Payroll, or social insurance, taxes rise slightly and then fall. This pattern occurs because the tax rate is flat with a dollar ceiling, but only applies to workers. Tax rates are lower at the bottom of the distribution because of the greater share of retired people, and are lower at the top because of the dollar ceiling. So the tax is regressive at the higher end of the distribution. Another important observation is that for the four bottom quintiles the effective rates of payroll taxes are higher than for the income tax.\nConversely, the effective rates of the corporate income tax increase with income from 0.9% to 2.8% in the Treasury analysis, from 0.5% to 3.7% in the CBO 2000 analysis, and from 0.4% to 4.9% in the CBO 2005 analysis. The rates are even higher for the top10%, top 5%, and top 1%. These rates are well below the statutory rates, because a relatively small share of taxpayers receive income from the source, and their tax payments are dispersed among all taxpayers in the class. The progressivity of the corporate tax is due not to the progressive tax structure, but to the allocation of capital income to higher-income individuals.\nExcise taxes' effective rates vary markedly between the two research organizations, reflecting the allocation of the tax to factor incomes for the Treasury and to consumption for CBO. The Treasury analysis depicts this tax as largely proportional, while the CBO analysis shows it to be regressive. (The CBO approach, which is also used by JCT, is probably the more widely used in distributional analysis). The regressivity of consumption taxes under this incidence assumption occurs because consumption tends to decline with income.\nThe estate tax is the most progressive of all, although it is small. Since most estates are exempt or largely exempt from the estate tax, only relatively high-income people pay this tax. (The estate tax does not appear in Table 8 and Table 9 because CBO does not include the estate and gift tax in its analysis.)", "Another important issue is the change in the distribution in time. This issue is particularly relevant after the recent tax law changes of 2001-2003, but even in a more stable statutory environment the distribution evolves continually in response to economic and demographic developments. Table 10 shows the historic effective rates for selected years made in December 2007.\nThe years shown include the first year that CBO provided such analysis, and years after major tax changes and economic changes (the 1981 tax cut phased in over three years, the 1986 tax reform phased in 1987-88, the 1993 tax increase, the year prior to the 2001 tax cuts, and the most recent year). Over this period, the tax system continued to be progressive, although overall taxes today are slightly lower than was typical earlier.\nTable 11 examines the current and projected burden around the period of the recent tax changes and into the future. Tax rate cuts are still being phased in as one moves from 2004 to 2008, with 2008 the last year for the lower capital gains taxes and dividend taxes. The year that the original 2001 tax cut is fully phased in is 2010. As currently scheduled, none of the tax cuts would be effective in 2014. Note that effective tax rates are higher in 2014 than in 2000 because of real bracket creep—the failure to adjust the tax system parameters to the real income growth. It affects the lower quintiles most, while the legislative changes have benefitted the higher-income groups the most, and that effect would be more pronounced if the CBO burden tables included the estate tax, which, according to Table 7 , accounted for 1.3% of income of the top 1% prior to recent tax changes.\nThe estimates in Table 11 reflect current federal law; the actual pattern of tax changes will depend on whether and to what extent the 2001 and 2003 tax cuts are made permanent and what changes might be made to the alternative minimum tax, which, if it is not addressed, will eventually apply to a very large fraction of taxpayers, especially those with large families.", "Consideration of the tax burden would be incomplete without taking into account the burden from state and local taxes. It is difficult to draw consistent comparisons among all states, because their public finance systems are different. ITEP calculated U.S. average effective combined state and local rates for non-elderly taxpayers. Table 12 presents these results.\nTable 12 demonstrates that the overall state and local taxation system is regressive, at least as far as non-elderly taxpayers are concerned. It is difficult to make broad generalizations, but the main reasons for the result may be a relative \"flatness\" of state and local income tax schedules, high reliance on sales and use taxes, and the relative importance of excise taxes. Both sales and excise taxes are regressive when allocated to consumption.\nStates and localities are not as flexible as the federal government in their ability to choose their tax structure, because they face competition from other states and localities. It is relatively easy to move from one state to another, and even easier to move across local jurisdictions. Large differences in tax rates would induce taxpayers, especially higher-income taxpayers, to move to states with lower taxes. Thus, one can argue that it is primarily the federal government's role to ensure that the overall burden distribution is progressive, if progressivity is desired.\nThe combined total U.S. tax system appears to be progressive but not steeply so, as regressive state and local taxes are combined with the progressive federal tax.", "So far, discussion in this report has centered around the analysis of the tax burden at a single point in time, but there is an alternative view that cumulative lifetime tax burden is a better representation of the concept. Lifetime tax burden is simply the sum of all taxes paid each year during the lifetime. In most cases, individual income grows with time and then drops after retirement. That pattern means that the lowest percentile may include a very heterogeneous taxpayer mix: younger people still in school, retirees, and mid-career low-income earners.\nFrom the policy perspective, each of these groups is different and bundling them together makes little practical sense. For example, a policy redistributing the tax burden from the higher to the lower quintiles may have different effect on a younger taxpayer and a retiree. It is conceivable that a younger taxpayer may welcome the policy, because of the lower tax on an anticipated higher future income. In the meantime, a retiree would be unambiguously worse off, because he or she has a small chance of benefitting from the lower future burden.\nThe issue of lifetime burden distribution is especially important in the analysis of intergenerational fairness, and in conjunction with national debt issues. The debt incurred today would have to be paid off in the future, meaning that the taxes of the future generations could be lower in its absence.\nAt the same time, the approach does not take into account the fact that a marginal unit of money is likely to have a higher value to the lower-income individuals than to the higher-income ones. Even though a younger taxpayer in the previous example may pay a lower aggregate lifetime tax bill, he or she might still prefer to pay less taxes when income is low rather than when it is high. So, in order to compensate the taxpayer for the reduction in his or her disposable income today, the increase in the disposable income in the future should be more than today's loss. Each taxpayer's rate of intertemporal substitution is different, and incorporating it into the analysis would add another hard-to-verify assumption.\nAnother reason that simple addition of tax liabilities throughout lifetime is not an ideal indicator is the time value of money principle. Under this principle, a dollar today is worth more than a dollar tomorrow. Although the complication can be circumvented in theoretical analysis, it may be another source of contention in the analysis of real-life events.\nNevertheless, examining tax burdens from a lifetime perspective is likely to reduce the progressivity of the tax system, as some of the progressivity observed in a single cross section reflects the tendency of individuals to have lower incomes in the early and later years of life.", "Although it is straightforward to describe what makes a tax system regressive, proportional, or progressive, it is more difficult to characterize changes to an existing tax system. Indeed, it is difficult even to determine the degree of progressivity or regressivity of a system so that the old and new tax systems can be compared based on their degree of progressivity. Although a variety of progressivity indices and measures have been proposed, none has been entirely satisfactory and they can lead to different conclusions about relative progressivity. This report will instead examine the measures that are often used to characterize tax changes.\nReports of the distributional effects of tax cuts sometimes appear to depict the same tax change very differently. This difference in how the cut is perceived for distributional purposes arises from the choice of distributional measure. Some of the measures that have been presented include (1) the share of taxpayers benefitted that fall below an income level; (2) the percentage reduction in taxes paid; (3) the tax cut as a percentage of income (both pre-tax and disposable); (4) the distribution of the tax cut by income class; and (5) the average tax cut. The first of these measures is most likely to tend to depict a tax change as favoring lower-income individuals relative to higher-income ones; the second measure is next most likely, and so forth.", "To illustrate this point, consider a 10% across-the-board income tax cut (all positive net tax liabilities reduced by 10%). Assuming that the bottom quintile of the distribution does not have tax liability, this tax cut could be described as one in which three quarters of the beneficiaries have cash income below $80,000, which might make the cut appear not to be particularly targeted to high-income individuals. Almost any tax cut that is a general one will benefit, in numbers, those outside the high-income taxpayers, because high-income taxpayers are, by definition, not very numerous. But this description of the tax cut does not reveal anything about how much of a tax cut different groups receive. Table 13 illustrates how such quantitative measures of the types described above would look assuming everyone in each quintile and group has the same average income (an assumption that allows the calculation of measures in the lower brackets where some individuals have negative tax liability because of the earned income tax credit).\nBased on percentage changes reported in the second column, the tax cut as a percentage of income tax liabilities, the tax cut may appear to be fairly equal across income classes (except for the lowest group). But that measure does not reveal very much about distribution, because people in the lower-income categories may have extremely small tax liabilities and a tiny change in tax could result in a very big percentage change. Expanding the measure to a percentage reduction in all taxes shows that a proportional cut in income taxes reduces total taxes proportionally more for high-income individuals. Even in this case, however, measuring the percentage reduction in tax liability has not demonstrated anything about the effect on income equality; it merely reveals that individual income taxes are more progressive than total taxes.\nIn discussing these measures that do relate to effects on income inequality, it is important to distinguish between absolute measures and relative measures. For example, average tax reductions per unit provide information on the absolute size of a tax benefit across the income classes, which is a straightforward measure, and is shown in the last column of Table 13 . In this example, the second quintile has a tax cut of $21 per person and the highest quintile a cut of $2,841.\nAnother way of examining this same effect is to compare the distribution of the tax benefit with the distribution of the population in the first column of Table 13 . If each taxpayer class is getting 20% (one-fifth) of the benefit, then the benefits are evenly distributed. But the 10% tax cut distributes benefits disproportionally to higher-income individuals, indicating that incomes are becoming more unequal on an absolute basis. Both of these measures can inform us about how a tax cut is changing income without being misleading, although it is important to remember that existing income and tax payments are more concentrated among high-income individuals. Thus, there is a tendency for absolute measures to show most across-the-board tax cuts as favoring higher-income individuals—because these individuals have a larger proportion of the income and pay an even larger fraction of the income tax. Moreover, unless a tax provision is refundable, it will have little benefit for the bottom fifth of the population.\nA different type of measure is a relative one that tries to examine how the tax benefit is changing the overall relative distribution of income in the country—that is, is it making income shares more equal or less equal? In this case, a tax change that does not alter distribution provides tax benefits to different income classes in proportion to some measure of income. (Higher-income individuals would still receive high absolute tax cuts, but not higher tax cuts as a percentage of income.) In general, the best method for measuring this type of effect on inequality is to examine the percentage change in disposable (after-tax) income. If the percentage change is equal, then the tax change is not making incomes shares more equal or less equal. If the percentages are higher among higher-income individuals the change is making income shares less equal. Clearly, the across-the-board proportional tax cut is increasing inequality measured by the relative concept: incomes in the lower brackets are increased by considerably less than 1%, whereas incomes in the higher brackets are increased by 2% or more.", "These different measures have been used to report different tax cuts, sometimes with very different depictions, which are illustrated from distributional data provided for two recent individual tax cuts: the 2001 tax cut (originally H.R. 1836 ) and the 2003 tax cut (originally H.R. 2).", "The 2001 tax cut was a multi-year phased in tax cut, which sunsets after 2010. Table 14 , Table 15 , and Table 16 provide data from the three sources we are aware of that provided distributional data for the 2001 tax cut. The first table presents data from the Joint Tax Committee for the latest year provided, 2006, when most provisions would be fully phased in. The percentage change in federal tax liability was reported directly. The percentage change in after-tax, or disposable, income, the measure suggested above as conceptually the best measure of changes in distribution, was derived from data in the JCT table.\nAs suggested in the previous section, the percentage change in federal tax liability shows the largest percentage changes at the lower income and the smaller ones at higher levels, except for the very top level. These numbers give the appearance of a tax cut favoring lower-income individuals. The numbers showing the percentage change in after-tax income suggest, however, that the largest benefit was in the highest income class. Both patterns show that benefits fell, and then rose at very high-income levels, but the percentage change in tax liability suggests the biggest benefits for the lower-income class, while the percentage change in after-tax income measure shows the biggest benefits for the top measure.\nTable 15 shows the percentage increase in after-tax income, based on data from CBO. CBO provided effective tax rates and distributional shares, but did not present any direct comparisons of the effects of tax changes; our distributional measures could be derived from their data, however. The effect of the 2001 tax cut is approximated by comparing 2010 and 2011, because the provisions of the 2002 and 2003 tax cuts that add to the 2001 cuts would be phased out before 2010. The analysis indicates that the largest percentage changes in after-tax income were received by the highest income classes.\nTable 16 shows a distribution of the tax cut measure provided directly and a percentage of income that was derived from the Citizens for Tax Justice (CTJ) data. The CTJ measures are a percentage of pre-tax income rather than disposable income, which tends to make all percentages slightly smaller. In contrast with the JCT table, the CTJ data show fully phased-in taxes. Unlike both the JCT and the CBO data, it also included the effect of the cut in estate taxes, which was a significant part of the 2001 tax cut. The distribution of the tax cut shows, as expected, a very large share of the cut going to high-income individuals—almost 40% went to the top 1% of individuals. The tax cut as a percentage of income, a measure similar to the last column of Table 14 , shows the lowest decile with the smallest amount, the broad middle receiving slightly less than average, and higher benefits in the top decline, particularly the top 1%—clearly showing a cut skewed to the rich. The larger effect for the top 1% as compared with Table 15 probably reflects the estate tax.", "For the 2003 tax cut, the JCT did not produce a distributional table, but the Treasury Department did. CBO's effective tax rate tables cannot be used because they mix phase-ins from 2001 in the data. For the Treasury data, the only measure of distributional change presented (and no other could be derived from their data) was the percentage change in individual income taxes. Like the JCT, they present a percentage change in taxes, but unlike the JCT the change is confined to income taxes. Note that, unlike the analysis presented in their 1999 study, the income measure is cash income, rather than economic income.\nThe Treasury analysis, shown in Table 17 , confronted a problem that illustrates the difficulty of reporting distributional effects through percentage change when the base can approach zero or become negative, as in the case with percentage change in income tax liability. The lower part of the income distribution actually had negative taxes, when refundable items such as the child credit and earned income credit were taken into account. Therefore, what Treasury actually reports for that class is a percentage increase in negative taxes; technically speaking (as a mathematical issue) the percentage increase should have been positive change, because negative taxes became larger. There is really no way to compare this number with the other changes; moreover, the class of under $30,000 probably accounts for almost half (about 40%) of the population. So it is difficult to know what to make of this analysis. For the remaining classes, however, the measure appears to favor the lower-income individuals.\nA very different picture is presented with the distributional effect measured as a change in after tax income based on analysis by the Brookings-Urban Tax Policy Center (TPC), using the measure they favor, percentage change in after tax income. Table 18 and Table 19 present this data for income classes and population shares. At that point, the TPC was using adjusted gross income as their income measure, although they later developed expanded income measures.\nAmong a variety of statistics released by the Urban-Brookings Tax Policy Center, one statistic presented is the average tax change among income quintiles. Their discussion cautions the reader in using this measure (as would the authors of this report), but it is included here for comparison purposes and to lend some concreteness to understanding the problem with percentage change in tax liability. As Table 20 demonstrates, the average tax change in the lowest quintile, a group accounting for about half of the under $30,000 cash income group in the Treasury table, is only a dollar. Clearly, this group gained essentially nothing from the tax change. The entire under $30,000 group probably gained an average of about $20—again, a very negligible amount. Thus, while the Treasury table seems to suggest that this group benefitted more than average (\"15%\" as compared with an overall benefit of 11%), many people would not characterize the relative benefits in this way. The percentage change in after tax income, by contrast, suggests that these lower-income groups gained very little. It is particularly in these lower-income classes where average tax liabilities are small or negative, that percentage changes in tax liability can be highly misleading." ], "depth": [ 0, 1, 1, 2, 2, 3, 3, 2, 2, 3, 2, 1, 2, 2, 2, 2, 3, 3, 3, 3, 2, 1, 2, 2, 3, 3 ], "alignment": [ "h0_title h2_title h1_title h3_title", "h0_full", "h0_title h2_title h1_title", "h1_full", "h0_title", "h0_full", "h0_full", "", "", "", "h2_full", "h3_full h2_title h1_full", "h1_full", "", "", "h2_title h1_title", "", "h1_full", "h1_full", "h2_full h1_full", "h2_full", "h3_full", "h3_full", "h3_title", "", "h3_full" ] }

{ "question": [ "To what extent can economic analysis be used to answer how tax burdens should be distributed?", "What does the answer to this question rely upon?", "What role can economic analysis play in redistributing the tax burden?", "What factors affect the estimates of the current tax burden?", "What overall finding do all estimates have share?", "What causes this pattern?", "What other major tax contributes to the burden?", "How are these major taxes categorized?", "How do state and local taxes compare to federal taxes?", "How does this affect the overall tax system?", "How can the combined taxes be classified?", "How could analysis from a lifetime perspective change the system?", "How are the effects of tax changes characterized?", "To what extent do the measures used change the overall impression of tax changes?", "Why can the percentage change in tax be misleading?", "What measure can provide a better measure of how resources are distributed?" ], "summary": [ "Unlike many analyses that study optimal behavior related to allocative issues and economic efficiency, economic analysis cannot be used to answer the questions of how the tax burden should be distributed.", "Such an answer would depend on social preferences.", "Economic analysis can, however, identify trade-offs and frame the issue analytically. For example, a number of plausible answers to this question could justify progressive tax structures.", "Methodological issues, such as the income classifier, the unit of analysis, and assumptions regarding incidence all affect the estimates of the distribution of the current tax burden.", "Yet all show a similar qualitative result: the federal tax system is progressive throughout its range, although it tends to get much flatter at the top.", "This pattern is primarily due to the individual income tax, which is quite progressive, and actually provides subsidies at lower-income levels.", "The other major tax is the payroll tax, which is a larger burden than the individual income tax for more than 80% of the population.", "This tax is first progressive and then regressive (effective tax rates fall with income). The corporate income and the estate taxes, while much smaller, are also progressive, whereas excise taxes are regressive. This overall progressive pattern has been in place historically, and is expected to continue in the future, although effective tax rates are currently low compared with other periods.", "Unlike the federal tax system, state and local taxes tend to be regressive.", "Thus, a progressive federal tax system would be necessary to prevent overall U.S. taxes from being regressive.", "The combined taxes appear slightly progressive.", "Looking at taxes from a lifetime perspective would move the system more toward a proportional tax because average lifetime incomes reduces the variability of income. Studies have suggested that overall lifetime taxes are roughly proportional to income.", "Many different measures have been used to characterize the effects of a particular tax change on the distribution of income.", "A very different impression of tax changes may be obtained depending on the measure used.", "One popular measure, the percentage change in tax, can be misleading, because as taxes become very small even a negligible absolute change in taxes leads to a very large percentage change.", "For measuring the relative distribution of income, percentage change in disposable income provides a better measure of how resources are distributed." ], "parent_pair_index": [ -1, 0, 0, -1, 0, 1, 1, 1, -1, 0, 0, -1, -1, 0, 0, 2 ], "summary_paragraph_index": [ 1, 1, 1, 2, 2, 2, 2, 2, 3, 3, 3, 3, 4, 4, 4, 4 ] }

{ "title": [ "DHS Faces Long- Standing Challenges in Planning for and Developing a Biometric Exit System and Reporting Overstay Estimates", "Planning for and Developing a Biometric Exit System", "Reporting Reliable Overstay Data", "GAO Contact and Staff Acknowledgments" ], "paragraphs": [ "As we reported in July 2013, DHS had not yet fulfilled the 2004 statutory requirement to implement a biometric exit capability or the statutory requirement to report overstay estimates, and as of January 2016, DHS has planning efforts underway but has not yet met these requirements. Various planning, evaluation, and data reliability challenges have affected DHS’s efforts to meet these requirements.", "Development and implementation of a biometric exit capability has been a long-standing challenge for DHS. Since 2004, we have issued a number of reports on DHS’s efforts to implement a biometric entry and exit system. For example, with regard to an exit capability at land ports of entry, in 2006, we reported that according to DHS officials, for various reasons, a biometric exit capability could not be implemented without incurring a major impact on land facilities. For example, at the time of our 2006 report, DHS officials stated that implementing a biometric exit system at land ports of entry would require new infrastructure and would produce major traffic congestion because travelers would have to stop their vehicles upon exit to be processed. With regard to an air exit capability, in February and August 2007, we found that DHS had not adequately defined and justified its proposed expenditures for exit pilots and demonstration projects and that it had not developed a complete schedule for biometric exit implementation. Further, in September 2008, we reported that DHS was unlikely to meet its timeline for implementing an air exit system with biometric indicators, such as fingerprints, by July 1, 2009, because of several unresolved issues, such as opposition to the department’s published plan by the airline industry. In 2009, DHS conducted pilot programs for biometric air exit capabilities in airport scenarios, and in August 2010 we found that there were limitations with the pilot programs. For example, the pilot programs did not operationally test about 30 percent of the air exit requirements identified in the evaluation plan for the pilot programs, which hindered DHS’s ability to inform decision making for a long-term air exit solution and pointed to the need for additional sources of information on air exit’s operational impacts.\nIn October 2010, DHS issued a memo, in which it identified three primary reasons why it has been unable to determine how and when to implement a biometric exit capability at airports: (1) the methods of collecting biometric data could disrupt the flow of travelers through airport terminals; (2) air carriers and airport authorities had not allowed DHS to examine mechanisms through which DHS could incorporate biometric data collection into passenger processing at the departure gate; and (3) challenges existed in capturing biometric data at the point of departure, including determining what personnel should be responsible for the capture of biometric information at airports. According to DHS officials, the challenges DHS identified in October 2010 continue to affect the department’s ability to implement a biometric air exit system as of January 2016.\nAs discussed in our July 2013 report, following this memo, DHS took additional steps to plan and test options for a biometric exit capability at airports. Specifically, in 2011, DHS directed S&T, in coordination with other DHS component agencies, to research long-term options for biometric air exit. S&T conducted analysis of previous air exit pilot programs and assessment of available technologies, and in May 2012, the department reported internally on the results of S&T’s analysis. In that report, DHS concluded that the building blocks to implement an effective biometric air exit system were available. In addition, DHS's report stated that new traveler facilitation tools and technologies—for example, online check-in, self-service, and paperless technology—could support more cost-effective ways to screen travelers, and that these improvements should be leveraged when developing plans for biometric air exit. However, DHS officials stated that there may be challenges to leveraging new technologies to the extent that U.S. airports and airlines rely on older, proprietary systems that may be difficult to update to incorporate new technologies. Furthermore, DHS reported in May 2012 that significant questions remained regarding (1) the effectiveness of current biographic air exit processes and the error rates in collecting or matching data, (2) methods of cost-effectively integrating biometrics into the air departure processes (e.g., collecting biometric scans as passengers enter the jetway to board a plane), (3) the additional value biometric air exit would provide compared with the current biographic air exit process, and (4) the overall value and cost of a biometric air exit capability. The report also included nine recommendations to help inform DHS's planning for biometric air exit, such as directing DHS to develop explicit goals and objectives for biometric air exit and an evaluation framework that would, among other things, assess the value of collecting biometric data in addition to biographic data and determine whether biometric air exit is economically justified.\nDHS reported in May 2012 that it planned to take steps to address these recommendations by May 2014, and DHS has begun some implementation steps. For example, in March 2014, DHS took initial steps by finalizing goals and objectives for a biometric system, which CBP plans to use to evaluate system performance. However, as of January 2016, the department has not yet fully addressed the May 2012 report recommendations. For example, as discussed in more detail below, DHS has not completed an evaluation framework to guide its assessment efforts. In fall 2012, DHS developed a high-level plan for its biometric air exit efforts, which it updated in May 2013, but we reported in July 2013 that this plan did not clearly identify the tasks needed to develop and implement an evaluation framework. For example, the plan did not include a step for developing the methodology for comparing the costs and benefits of biometric data against those for collecting biographic data, as recommended in DHS's May 2012 report. Furthermore, the time frames in this plan were not accurate as of June 2013 because DHS was behind schedule on some of the tasks and had not updated the time frames in the plan accordingly. For example, DHS had planned to begin scenario-based testing for biometric air exit options in August 2013; however, DHS did not open the facility used to conduct this testing until June 2014. A senior official from DHS's Office of Policy told us that DHS had not kept the plan up-to-date because of the transition of responsibilities within DHS; specifically, in March 2013, pursuant to the explanatory statement for DHS's fiscal year 2013 appropriation, CBP was named the lead agency for coordinating DHS's entry and exit policies and operations, with responsibility for implementing a biometric exit program.\nVarious challenges have affected DHS’s efforts to develop and implement a biometric exit system. For example, in July 2013, we reported DHS officials stated it had been difficult coordinating with airlines and airports, which have expressed reluctance about biometric air exit because of concerns over its effect on operations and potential costs. To address these concerns, DHS was conducting outreach and soliciting information from airlines and airports regarding their operations. In addition, in July 2013 we reported that DHS officials stated that the department's efforts to date had been hindered by insufficient funding. The Consolidated Appropriations Act, 2016 (Public Law 114-113), provides a mechanism for additional funding to implement a biometric entry and exit system of up to $1 billion through temporary fee increases for certain visa applicants. Moreover, in July 2013, we reported that DHS officials told us the department's goal was to develop information about options for biometric air exit and to report to Congress in time for the fiscal year 2016 budget cycle regarding (1) the additional benefits that a biometric air exit system provides beyond an enhanced biographic exit system and (2) costs associated with biometric air exit. However, as of January 2016, DHS is working to develop such a report, and CBP officials told us they were unable to estimate when the report would be completed. According to DHS officials, implementation of a biometric air exit system will depend on the results of discussions between the department and Congress after the department provides its assessment of options for biometric air exit.\nWe concluded in our July 2013 report that, without robust planning that includes time frames and milestones to develop and implement an evaluation framework, DHS lacked reasonable assurance that it would be able to provide an assessment to Congress for the fiscal year 2016 budget cycle as planned. Furthermore, because any delays in providing this information to Congress could further affect possible implementation of a biometric exit system to address statutory requirements, we recommended that the Secretary of Homeland Security establish time frames and milestones for developing and implementing an evaluation framework to be used in conducting the department’s assessment of biometric exit options. DHS concurred with this recommendation and indicated that its component agencies planned to finalize the goals and objectives for biometric air exit and use those goals and objectives in the development of an evaluation framework. CBP has finalized goals and objectives for a biometric system and, in November 2014, provided us with a copy of its draft evaluation framework. The draft evaluation framework included preliminary information about how DHS will evaluate different biometric air exit options, but had limited information regarding time frames and milestones for assessing the options. In January 2016, CBP officials stated that they were continuing to refine metrics for measuring performance and effectiveness, which they planned to incorporate into the evaluation framework. In addition, officials stated that CBP was conducting additional planning and analysis to ensure that proposed biometric solutions could integrate with existing CBP data systems. CBP officials stated that they plan to address our recommendation by June 30, 2016. To fully address our recommendation, DHS should finalize its evaluation framework, including time frames and milestones for assessing biometric air exit options.\nDHS has implemented several projects to test and evaluate biometric air exit technologies since our July 2013 report. For example, in June 2014, S&T and CBP opened a test facility to evaluate biometric technologies and operational processes under simulated airport entry and exit conditions. In July 2015, CBP began testing a handheld mobile device to collect biographic and biometric exit data from randomly-selected, foreign national travelers at 10 selected airports. According to CBP, during testing, CBP officers stationed at the passenger loading bridge of selected flights are to use the device to scan travelers’ fingerprints and passports. CBP then plans to match the travelers’ data to the data collected when they entered the United States. CBP plans to conduct this test for approximately 1 year. Finalizing the evaluation framework consistent with our recommendation would help guide DHS’s efforts to assess the benefits and costs of various air exit options.", "As we have previously reported, challenges in developing and implementing a biometric exit system, as well as weaknesses in departure data, have affected the reliability of DHS’s data on overstays. Specifically, in April 2011, we found that DHS’s efforts to identify and report on overstays were hindered by unreliable data, and we identified various challenges to DHS’s efforts to identify potential overstays, including the incomplete collection of departure data from nonimmigrants at ports of entry, particularly land ports of entry, and the lack of mechanisms for assessing the quality of leads sent to ICE field offices for investigation.\nBecause of concerns about the reliability of the department’s overstay data, neither DHS nor its predecessor has regularly reported annual overstay rates to Congress since 1994. According to statute, DHS is to implement a program to collect data, for each fiscal year, regarding the total number of nonimmigrant foreign nationals who overstayed their authorized periods of admission in the United States; and submit an annual report to Congress providing numerical estimates of the number of aliens from each country in each nonimmigrant classification who overstayed an authorized period of admission that expired during the fiscal year prior to the year for which the report is made. In April 2011, we reported that DHS officials stated that the department had not reported overstay estimates because it had not had sufficient confidence in the quality of its overstay data. DHS officials stated at the time that, as a result, the department could not reliably report overstay estimates in accordance with the statute. In February 2013, the Secretary of Homeland Security testified that DHS planned to report overstay estimates by December 2013. We reported in July 2013 that, according to DHS Office of Policy officials, the department was better positioned than in the past to describe the limitations in the overstay data. As of January 2016, DHS has not reported overstay estimates. The Consolidated Appropriations Act, 2016, directed DHS to provide to Congress within 30 days of enactment a report on nonimmigrant overstay data by country, and a comprehensive plan for implementation of the biometric entry and exit data system, both of which are required by law. In addition, the Act withheld $13 million from the Office of the Secretary and Executive Management until DHS provides the overstay report and comprehensive plan.\nOur July 2013 report found that, although DHS had taken action to strengthen its overstay data, DHS had not yet validated or tested the reliability of those actions and challenges to reporting reliable overstay data remained. We reported that DHS had taken action to strengthen its processes for reviewing records to identify potential overstays, including (1) streamlining connections among DHS databases used to identify potential overstays and (2) implementing the Beyond the Border initiative, which collects information from the Canadian government about those exiting the United States and entering Canada through northern land ports of entry. However, our July 2013 report also found that DHS had not assessed or documented how its changes to database connections had improved the reliability of its data for the purposes of reporting overstay rate calculations and had not analyzed the incremental improvements that database changes made in data quality. Furthermore, although DHS had improved connections among its various databases used to help identify potential overstays, the improvements did not address some of the underlying data quality and reliability issues we previously identified, such as incomplete information on nonimmigrants departing the United States through land ports of entry. The Beyond the Border initiative is intended to help address this issue by collecting proxy data on individuals exiting from the United States at northern border ports of entry, but as of January 2016, DHS has not yet identified mechanisms for collecting data on individuals exiting through southern border ports of entry.\nIn our July 2013 report, we concluded that without an assessment and documentation of improvements in the reliability of the data used to develop overstay estimates and any remaining limitations in how the data can be used, decision makers would not have the information needed to use these data for policy-making purposes. Therefore, we recommended that DHS assess and document the reliability of its overstay data. DHS concurred with the recommendation and stated that it was establishing a working group that would include representation from DHS component agencies with responsibility for collecting, recording, and analyzing entry and exit data. In November 2015, CBP officials told us that CBP submitted a draft overstays report for fiscal year 2014 to DHS for review in December 2014. However, as of January 2016, DHS could not provide a timeframe for when they would report overstay data or address our recommendation. To address our recommendation, DHS should assess and document the extent to which the reliability of the data used to develop any overstay estimates has improved and any remaining limitations in how the data can be used.\nChairman Sessions, Ranking Member Schumer, and members of the subcommittee, this completes my prepared statement. I would be happy to respond to any questions you may have at this time.", "For information about this statement, please contact Rebecca Gambler, Director, Homeland Security and Justice, at (202) 512-8777 or gamblerr@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Other individuals making key contributions include Adam Hoffman, Assistant Director; Ashley Vaughan Davis; Jon Najmi; and Robin Nye.\nThis is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately." ], "depth": [ 1, 2, 2, 1 ], "alignment": [ "h0_full h2_title h1_title h3_title", "h0_full h3_full h1_full", "h3_full h2_full", "" ] }

{ "question": [ "To what extent has DHS implemented a biometric exit capability and report data on overstays?", "What internal recommendations has the DHS not yet addressed?", "To what extent has DHS completed an evaluation framework?", "What did GAO recommend regarding the evaluation framework?", "What was DHS's response to this recommendation?", "What actions has DHS planned to meet GAO's recommendations?", "What was the department's goal regarding the biometric air exit systems?", "How likely was DHS to reach their goal by the FY2016 budget cycle?", "What progress has been made on this report?", "How does DHS plan to evaluate potential biometric air exit systems?", "How could following GAO's recommendation help DHS reach its goal?", "How have the challenges in developing a biometric exit system affected overstay data?", "Why hasn't Congress received regular overstay data since 1994?", "To what extent has DHS taken action to improve its overstay data?", "What did GAO recommend to DHS?", "What actions has DHS taken following GAO's recommendation?", "What are overstays?", "What did the Intelligence Reform and Terrorism Prevention Act of 2004 require of the Secretary of Homeland Security?", "How does DHS track the entry and exit of foreign nationals in the United States?", "What agency is responsible for implementing the exit system?" ], "summary": [ "In July 2013, GAO reported that DHS had not fulfilled statutory requirements to implement a biometric exit capability and report data on overstays. As of January 2016, DHS has planning efforts underway but has not yet met these statutory requirements.", "Specifically, in May 2012, DHS internally reported recommendations to support planning for a biometric exit capability at airports. However, as of January 2016, the department has not yet fully addressed those recommendations.", "For example, DHS has not completed an evaluation framework that, among other things, assesses the value of collecting biometric data in addition to biographic data, as it recommended in May 2012.", "In July 2013, GAO recommended that DHS establish time frames and milestones for a biometric air exit evaluation framework to help guide its assessment efforts.", "DHS concurred with the recommendation, and has actions planned or underway to address it.", "Specifically, in January 2016, U.S. Customs and Border Protection (CBP) officials stated that they were continuing to develop an evaluation framework by developing metrics for measuring the performance and effectiveness of biometric air exit technologies.", "Moreover, in July 2013, GAO reported that, according to DHS officials, the department's goal was to develop information about options for biometric air exit and report to Congress in time for the fiscal year 2016 budget cycle regarding the benefits and costs associated with a biometric air exit system.", "GAO found that, without robust planning that includes time frames and milestones to develop and implement an evaluation framework, DHS lacked reasonable assurance that it would be able to provide an assessment to Congress as planned.", "As of January 2016, DHS is working to develop this report for Congress, and CBP officials told GAO they were unable to estimate when it would be completed.", "Since GAO's 2013 report, DHS has also implemented several projects to test and evaluate biometric air exit technologies. For example, in July 2015, CBP began testing a handheld mobile device to collect biographic and biometric exit data from randomly-selected, foreign national travelers at 10 selected airports.", "Finalizing the evaluation framework consistent with GAO's recommendation would help guide DHS's efforts to assess the benefits and costs of various air exit options.", "GAO also reported in July 2013 that challenges in developing a biometric exit system, as well as weaknesses in departure data, have affected the reliability of DHS's data on overstays.", "Because of concerns about the reliability of the department's overstay data, neither DHS nor its predecessor has regularly reported annual overstay data to Congress since 1994.", "In July 2013, GAO found that, although DHS had taken action to strengthen its overstay data, DHS had not validated or tested the reliability of those actions and challenges to reporting reliable overstay data remained.", "GAO recommended that DHS assess and document the reliability of its overstay data, and DHS concurred with the recommendation.", "However, as of January 2016, DHS has not yet reported overstay data or documented its reliability, and DHS officials could not provide a time frame for when they would address GAO's recommendation.", "Overstays are individuals who were admitted legally on a temporary basis but then overstayed their authorized periods of admission.", "The Intelligence Reform and Terrorism Prevention Act of 2004 required the Secretary of Homeland Security to develop a plan to accelerate implementation of a biometric entry and exit data system that matches information provided by foreign nationals upon their arrival and departure.", "Since 2004, DHS has tracked foreign nationals' entries into the United States, and since December 2006, a biometric entry capability has been fully operational at all ports of entry. However, GAO has identified a range of challenges that DHS has faced in its efforts to deploy a corresponding biometric exit capability.", "DHS's CBP is primarily responsible for implementing a biometric exit program." ], "parent_pair_index": [ -1, 0, 1, -1, 3, 4, -1, 0, 1, -1, -1, -1, 0, 0, -1, 3, -1, -1, 1, 2 ], "summary_paragraph_index": [ 2, 2, 2, 2, 2, 2, 3, 3, 3, 3, 3, 4, 4, 4, 4, 4, 0, 0, 0, 0 ] }

{ "title": [ "Background", "I-129F Petition and K Visa Adjudication Processes", "IMBRA Disclosure and Reporting Requirements", "DHS, State, and DOJ Have Processes to Ensure IMBRA Compliance, but DHS and State Could Better Implement Disclosure Requirements", "USCIS Has Processes to Collect Petitioner Information, but the I-129F Petition Has Errors", "State Has Processes to Disclose IMBRA Information to Beneficiaries, but Could Better Document that These Disclosures Occurred", "DHS and State Have Not Referred Any Potential IMBRA Violations to DOJ", "USCIS Does Not Collect and Maintain All Data in a Manner Consistent with IMBRA, and Additional Training Could Help to Ensure IMBRA Data Are Accurate and Reliable", "USCIS Does Not Collect and Maintain All Data Consistent with IMBRA", "Additional Training on IMBRA Requirements Could Help Ensure Consistent Adjudication and Reliable Data", "Conclusions", "Recommendations for Executive Action", "Agency Comments and Our Evaluation", "Appendix I: I-129F Petition for Alien Fiancé(e), as of December 10, 2014", "Appendix II: International Marriage Broker Regulation Act Information Pamphlet for K-Visa Applicants", "Appendix III: Comments from the Department of Homeland Security", "Appendix IV: Comments from the Department of State", "Appendix V: GAO Contact and Staff Acknowledgments", "GAO Contact", "Staff Acknowledgments" ], "paragraphs": [ "", "Within DHS, USCIS is responsible for adjudicating immigration benefit applications, including I-129Fs filed by U.S. citizens to bring a foreign national fiancé(e) to the United States through a K-1 visa. If the K-1 visa is issued, the INA provides that the petitioner and fiancé(e) must marry within 90 days of the fiancé(e)’s admission into the country, after which the K-1 visa expires. The I-129F petition can also be used to bring a noncitizen spouse to the United States under a K-3 visa while awaiting the approval of an immigrant petition and availability of an immigrant visa.\nNoncitizen fiancé(e)s, upon marriage to the petitioner, and noncitizen spouses who are admitted to the United States must then apply to adjust their status to lawful permanent resident by filing with USCIS a Form I-485, called an Application to Register Permanent Residence or Adjust Status.\nIn fiscal year 2013, USCIS approved 30,400 I-129F petitions and State issued 30,290 K visas. general, has declined since fiscal year 2008, with the exception of fiscal year 2011, during which there was a slight increase over the previous fiscal year. USCIS approved the majority of I-129F petitions submitted from fiscal year 2008 through fiscal year 2013 (see fig. 1).\nThe number of I-129F petitions approved in a fiscal year will not equal numbers of K visas issued in the same fiscal year because, for example, State may adjudicate the visa applications in a subsequent fiscal year.", "Both USCIS and State’s Bureau of Consular Affairs play key roles in providing information about petitioners to beneficiaries. In accordance with IMBRA, once a USCIS officer approves an I-129F petition, USCIS must forward the approved I-129F petition and relevant information to State, which mails to the beneficiary these materials and the IMBRA pamphlet—an informational document that outlines the legal rights and resources for immigrant victims of domestic violence. According to State’s FAM, consular officers must also discuss the pamphlet and petitioners’ criminal history information during the K visa applicant interview to ensure that the beneficiary understands his or her legal rights and access to victim services in the United States and has available information about the petitioner.\nIMBRA also establishes disclosure and other requirements for IMBs to help inform and provide greater assurance for the safety of beneficiaries who meet their potential U.S. citizen petitioners through an IMB. For example, IMBRA requires that IMBs collect specified information, such as criminal arrest and conviction information, from petitioners for disclosure, and obtain written approval from beneficiaries before releasing beneficiaries’ contact information to potential petitioners. DOJ is responsible for pursuing civil and criminal penalties under IMBRA and, pursuant to the Violence Against Women Reauthorization Act of 2013, was required to report to Congress on, among other things, the policies and procedures for consulting with DHS and State in investigating and prosecuting IMBRA violations by petitioners and IMBs.", "", "USCIS has implemented processes to collect information from petitioners; however, USCIS is in the process of revising the current version of the I- 129F petition to address errors or limitations that may limit or otherwise affect the accuracy of petitioners’ disclosure to USCIS of all information required by IMBRA. The I-129F petition, along with any supporting documentation submitted by the petitioner, is USCIS’s primary source for information on petitioners’ prior I-129F petition filings and criminal convictions—key information that the U.S. government is required under IMBRA to obtain and disclose to beneficiaries. In particular, USCIS uses the information disclosed through the I-129F petition to (1) inform its criminal background checks of petitioners, and (2) determine if petitioners have filed prior I-129F petitions and are requesting one of the three IMBRA waivers, as appropriate.\nConducting background checks on petitioners. Pursuant to IMBRA, USCIS conducts criminal background checks on each petitioner using the information provided on the I-129F petition. Specifically, according to USCIS’s standard operating procedures, USCIS officers are to conduct background checks using petitioners’ names and dates of birth against the TECS database within 15 days of receiving I-129F petitions. During a background check, if a TECS query returns a “hit,” USCIS officers are to forward this information to the background check unit located within each service center for further review. According to USCIS service center officials, the completeness of the criminal background information contained within TECS is dependent on the extent to which state and local law enforcement agencies enter complete information into the Federal Bureau of Investigation’s (FBI) National Crime Information Center database (NCIC). USCIS is to subsequently provide this information to State, whose consular officers are to share this information with beneficiaries during the K visa interview. When sharing this information with the beneficiaries, consular officers must also inform them that the criminal background information is based on available records and may not be complete, something the IMBRA pamphlet also notes.\nConsistent with IMBRA, the waivers for filing limits apply only to K-1 petitioners. See § 1184(d). officers are to request that the petitioner provide the aforementioned waiver request letter and supporting evidence before deciding whether to approve or deny the petition. USCIS may deny a waiver request if the petitioner fails to provide sufficient documentation in support of the waiver within 12 weeks, or if the documentation provided does not justify granting a waiver. USCIS officers may also deny an I-129F petition if they discover that a petitioner does not, for example, fully disclose an IMBRA-specified offense conviction or protective order information.\nAccording to USCIS’s standard operating procedures, USCIS officers are to use the information obtained from the background check, CLAIMS 3 data on prior filings, and the I-129F petition and supporting evidence to determine if petitioners have disclosed all of the information required by IMBRA. However, the I-129F petition contains errors and omissions that we, USCIS, and DOJ have identified and that may limit or affect the accuracy of information disclosed by a petitioner. Specifically, the I-129F petition inaccurately describes IMBRA’s filing limits and does not fully address IMBRA’s disclosure requirements. In particular, the language on the I-129F petition states that the filing limits apply to petitioners who have filed three or more I-129F petitions, or who have filed three or more I-129F petitions and the first I-129F petition was approved within the last 2 years, whereas the instruction accompanying the I-129F petition aligns more closely with IMBRA and provides that a waiver is required if a prior I-129F petition had been approved in the past 2 years. USCIS Service Center Operations officials stated the I-129F petition does not accurately describe the filing limits and therefore there is a risk that petitioners are disclosing inaccurate information regarding their filing history on the I- 129F petition, which may affect how USCIS evaluates whether a petitioner requires a waiver. In October 2014, in response to our audit work, USCIS modified its website to inform petitioners that the petition is inaccurate and provide them with instructions that clarify the requirements. In addition, DOJ officials responsible for enforcing IMBRA stated that they have been working with USCIS on revisions to the I-129F petition to better ensure that IMBRA’s disclosure requirements are met. For example, USCIS Service Center Operations officials noted that, in consultation with DOJ, they plan to include questions on the I-129F petition regarding whether petitioners have civil protective or restraining orders, and prior arrests or convictions related to prostitution.\nAccording to USCIS Service Center Operations officials, as of August 2014, USCIS has been in the process of revising the current version of the I-129F petition. According to A Guide to the Project Management Body of Knowledge, which provides standards for project managers, specific goals and objectives should be conceptualized, defined, and documented in the planning process, along with the appropriate steps, time frames, and milestones needed to achieve those results. USCIS Service Center Operations officials stated that there is no target time frame for completing revisions to the I-129F petition within USCIS before DHS and the Office of Management and Budget (OMB) undertake their respective reviews, in part because of the interagency review process among DHS, State, and DOJ, which was ongoing for approximately 10 months as of August 2014. USCIS officials noted that until revisions to the I-129F petition are complete, petitioners can refer to the Form I-129F Instructions, which USCIS makes available as a separate document, or to the clarifying instructions added to its website in October 2014, and USCIS officers should follow the I-129F SOP, each of which more accurately describe IMBRA’s filing limits and circumstances under which a waiver must be requested. However, USCIS officials acknowledged that petitioners may not use the instructions in completing the I-129F petition since they are contained in a separate document and are not referred to on the I-129F petition. Further, as we discuss later in this report, our review of CLAIMS 3 data indicates that USCIS officers have not consistently followed the I-129F SOP, which USCIS has modified multiple times since the summer of 2013 to address, among other things, inaccuracies in the language associated with the application of IMBRA waivers.\nUSCIS has previously revised the I-129F petition. For example, in July 2007, USCIS revised the I-129F petition to require that petitioners disclose criminal convictions, prior I-129F filings, and the use of IMBs.June 2013, USCIS further revised the I-129F petition by adding, among other things, a section for USCIS officers to denote for State officials whether the I-129F petition contains prior filing or criminal history information that must be disclosed to the beneficiary. According to USCIS Service Center Operations officials, including the time for public comment and OMB’s review of the proposed revisions, it took nearly 2 years to issue the revised I-129F petition (issued in June 2013). USCIS officials noted that until the revisions to the I-129F petition are completed, the agency is at risk of not collecting complete information from petitioners. Establishing time frames for when USCIS will complete its review of the I- 129F petition would help the agency better monitor progress toward finalizing revisions to the petition, which are intended to ensure that IMBRA’s disclosure requirements are met.", "State has established processes to disclose and provide IMBRA information to beneficiaries, such as petitioners’ criminal history information, prior I-129F filings, and the IMBRA pamphlet, in accordance with IMBRA and agency guidance to consular officers. However, State’s consular officers have not consistently documented that beneficiaries, at the time of their in-person interviews, received all of the required information. Relevant guidance to consular officers, found in State’s FAM, outlines procedures consular officers are to follow, including requirements for documenting that beneficiaries have received the required information. State officials indicated that, in accordance with IMBRA, beneficiaries are provided with IMBRA information and disclosures at two points in the K visa application process—(1) in the mailing of the K visa application package and (2) at the in-person visa interview, where disclosure is to be documented.\nApplication package. State’s FAM requires that upon receipt of the approved I-129F petition and other information from USCIS, consular officers provide IMBRA-related disclosures and the IMBRA pamphlet to beneficiaries by mail as part of an application package. In August 2008, we recommended that DHS and State develop a mechanism to ensure beneficiaries are notified of the number of previously filed I-129F petitions by the petitioner. In response, in October 2008, State revised its guidance to consular officers to require that the application package include the approved petition.posts we interviewed, their respective posts mailed the IMBRA disclosures, pamphlet, and approved petitions to beneficiaries in advance of the in-person visa interview. Consular officials at one post we interviewed in June 2014 stated that they did not mail IMBRA-related disclosures, such as the I-129F petition containing criminal history information, to beneficiaries in advance of their interviews because of limitations in the post’s support contract for mail services. Rather, this post provided the IMBRA-related disclosure information to beneficiaries only during the K visa interview. As a result of our audit work, State’s Consular Affairs Bureau officials in Washington, D.C., provided guidance to this post to ensure that consular officers mail IMBRA-related disclosure information and the IMBRA pamphlet to all beneficiaries prior to visa interviews, in accordance with IMBRA and FAM requirements. Not all beneficiaries who are sent an application package schedule a K visa interview, according to Consular Affairs officials. Ultimately, consular officers said there are various reasons an applicant might not apply for a visa, and could not say to what degree the information provided in the mailings in advance of the interviews was a factor in this decision.\nAccording to consular officers at four of five consular Applicant interview. Consular officers are to provide the beneficiary with information about the petitioner’s criminal history and prior I-129F petition filings and the IMBRA pamphlet in the beneficiary’s primary language during the K visa interview, in accordance with IMBRA, and allow time for beneficiaries to consider the information. State requires consular officers to document within its IVO database whether they made all of these disclosures to the beneficiary during the visa interview. For example, State’s FAM requires consular officers to denote within IVO that the “IMBRA pamphlet was received, read, and understood” for each K visa beneficiary. According to Consular Affairs officials, other than this FAM requirement for documentation in the consular notes in IVO, State does not have other mechanisms by which it ensures that consular officers are providing required information to K visa applicants during the in-person interviews.\nRegarding the remaining 80 of the 227 cases, State consular officials in Washington, D.C., said that possible reasons the interview may not have taken place are that the interview has yet to be conducted with the K visa applicant, or the case may not have been sent from USCIS to State for adjudication. notations in accordance with FAM guidance. Specifically, we found that consular officers fully documented that the IMBRA pamphlet was received, read, and understood in 21 of the 84 cases (or about 25 percent); however, we found that in 15 of the 84 cases (or about 18 percent),consular officers partially documented that the IMBRA pamphlet was provided to the beneficiaries. In the cases for which consular officers provided partial notations, we found that the notes varied from “IMBRA given” to “domestic violence brochure given.”\nMoreover, in 63 of the 147 cases where State’s data indicated that consular officers had interviewed beneficiaries (but for which there was no corresponding USCIS record of the beneficiary requesting a change to Lawful Permanent Resident status) we found in 28 (or about 44 percent) of these 63 cases that consular officers did not document that the IMBRA pamphlet was received, read, and understood by beneficiaries. Full documentation regarding the IMBRA pamphlet was noted in 26 (or about 41 percent) of these 63 cases, and was partially noted in 9 (or about 14 percent) cases.\nIn our guide for assessing strategic training and development efforts, we have reported that training is essential to developing the knowledge and skills needed to administer agency programs properly.Consular Affairs officials, both the FAM and a relevant guidance cable on IMBRA implementation clearly describe the documentation requirements for the disclosure of information to beneficiaries during interviews, and accordingly, these officials attributed the lack of documentation in IVO to consular officer error. State last issued a cable on IMBRA implementation, which covers the FAM’s IMBRA-related documentation requirements, to consular posts in 2012. According to Consular Affairs officials, State generally does not send frequent cables to overseas posts to reiterate FAM requirements unless there are significant changes to sections of the FAM that warrant additional guidance or explanation to consular officers. However, these officials stated that they planned to According to send another cable to all overseas posts in the fall of 2014, given recent revisions to the FAM on IMBRA implementation. In response to our work, they said that they could include a reminder in that cable for consular officers to follow the FAM’s IMBRA-related documentation requirements. We reviewed a draft of that cable in October 2014, and it includes, among other things, a reminder for officers to document in IVO that the IMBRA pamphlet was received, read, and understood for all K visa applicants.\nWhile the cable may be a helpful reminder for incumbent consular officers, State’s consular officer training courses do not specifically address the FAM’s IMBRA-related documentation requirements. Standards for Internal Control in the Federal Government maintains that federal agencies are to provide staff with the training necessary to carry out assigned responsibilities and meet the organizations’ objectives. According to Consular Affairs officials, State offers two key courses to consular officers through its Foreign Service Institute on the adjudication of immigrant visas, including K visas—mandatory basic training for entry- level officers and a voluntary course for midlevel consular officers offered four times a year. However, these officials stated that the training courses are generally broad and comprise many different types of nonimmigrant visas and so do not cover as part of their curricula detailed procedures for all visa types such as the FAM’s IMBRA-related documentation requirements. For instance, State’s Foreign Service Institute officials stated that the basic training course briefly covers State’s IMBRA-related disclosure requirements in the instructor’s notes, but does not address the FAM’s requirement for consular officers to document these disclosures in IVO. Similarly, the voluntary course for midlevel consular officers does not address the FAM’s documentation requirements.\nA Consular Affairs official stated that there may be some variation in the content of this course offered to midlevel consular officers, but when he teaches the course, he chooses to cover the FAM’s IMBRA-related documentation requirements in his oral remarks. Moreover, Consular Affairs officials stated that midlevel consular officers are to provide training to entry-level officers on a routine basis on the FAM’s IMBRA- related disclosure and documentation requirements. These officials added that State has an internal website for consular training, which includes a reminder for supervisory consular officers that orientation upon arrival and continuing on-the-job training at post is vital to develop fully proficient consular officers. Incorporating the FAM’s IMBRA-related documentation requirements into State’s training courses for consular officers could help State better ensure that consular officers are aware of the requirements so that they can be better positioned to more consistently document the disclosure of IMBRA information during interviews with K visa applicants.", "Under IMBRA, DOJ is responsible for pursuing federal civil and criminal penalties outlined in the law for IMBs and petitioners who violate IMBRA provisions and for consulting with DHS and State in investigating and prosecuting such violations. However, DHS and State have not identified any potential IMBRA violations for referral to DOJ. As it has not received any referrals of IMBRA violations, DOJ has not brought civil or criminal cases against an IMB or petitioner under IMBRA.\nUSCIS requests information on the I-129F petition regarding whether petitioners used an IMB and, if so, requests a copy of the signed consent form the IMB obtained from the beneficiary authorizing the release of contact information. However, USCIS officials at each of the four service centers we interviewed stated that, in their experience, few petitioners indicate the use of IMBs to facilitate relationships with their foreign fiancé(e)s, and accordingly, the agency has not referred cases to DOJ for further investigation and prosecution. In addition, DHS has a process for referring and investigating potential violations within the department; however, USCIS has not identified any potential violation for referral and investigation.\nIn accordance with the FAM and consistent with IMBRA, if an IMB does not provide the required IMBRA disclosures to the beneficiary, consular officers are to note the lack of disclosure in IVO and refer the case to State’s Consular Affairs Bureau at headquarters for further review. Consular Affairs officials in headquarters are responsible for forwarding cases involving potential IMBRA violations to DOJ. Consular officers at all five consular posts we interviewed stated that they have not referred cases involving violations by IMBs for review because beneficiaries generally do not disclose the use of IMBs during the visa applicant interviews.\nIn July 2013, DOJ reported to Congress on the status of DOJ, DHS, and State’s efforts to develop processes to effectively identify, investigate, and prosecute potential IMBRA violations. DOJ reported that it does not have sufficient information about the nature and potential volume of IMBRA violations necessary to develop a framework for prosecution. DOJ’s report outlined a number of actions each agency could address to more fully develop policies and procedures for identifying, investigating, and prosecuting IMBRA violations, such as developing mechanisms to better facilitate the sharing of IMBRA-related case notes among the agencies. DHS and State officials told us that they are coordinating with DOJ on ways to facilitate data collection and information sharing and that it is too early to determine when these actions may be completed. DOJ officials stated that the agency-specific actions will better position DHS and State to identify cases warranting investigation and prosecution by DOJ. For instance, as previously mentioned, DOJ proposed that USCIS consider revising the I-129F petition to include a question for petitioners about civil protective or restraining orders consistent with IMB disclosure requirements under IMBRA. In addition, DOJ proposed that State establish a mechanism for sharing IMBRA-related case notes from beneficiary interviews with USCIS and DOJ. Moreover, DOJ is working with State on the development of a checklist of questions for consular officers to ask beneficiaries to assist in the identification of potential cases involving IMBRA violations by IMBs. In October 2014, DOJ issued an IMBRA bulletin to assist stakeholders, such as state and local law enforcement entities and women’s and immigrants’ rights organizations, in identifying and reporting IMBRA violations to DOJ for prosecution.", "", "IMBRA mandates that DHS collect and maintain data necessary for us to review IMBRA’s impact on the process for granting K nonimmigrant visas. In 2008, we reported that while USCIS had collected some data necessary for our study, most of the eight data elements identified by IMBRA and on which we reported were not maintained in a summary or reportable (i.e., electronic) format. For this report, we reexamined these eight data elements, which include information on the number of waiver applications submitted and I-129F petitions denied, and the reasons for the decisions. We found that data for two of the eight required elements are available, at least partially, in an electronic format in CLAIMS 3 and reliable for our purposes. The remaining six elements were either not collected and maintained electronically or the electronic data collected are not reliable. For example, consistent with IMBRA, USCIS is to collect and maintain information annually on the number of IMBRA waivers (general, criminal, or mandatory) submitted, the number granted or denied, and reasons for such decisions, but this information is not collected and maintained electronically. Rather, USCIS collects and maintains information on whether a waiver is required (rather than submitted), and the reasons for their decisions are handwritten by the officer on the hard copy of the petition and thus were not readily available for purposes of our review. Table 1 identifies the eight data elements specified by IMBRA and the extent to which USCIS collects and maintains reliable electronic data.\nUSCIS has taken or is planning to take steps to better collect and maintain data from petitioners in an electronic format. For example, in 2008, we reported that USCIS was considering modifying its system to electronically collect and maintain the required data, and in 2012, USCIS updated CLAIMS 3 to address selected IMBRA requirements. Specifically, USCIS updated CLAIMS 3 to include a field for officers to note the number of I-129F petitions previously filed by the current petitioner, as well as a field to denote whether petitioners require any of the three IMBRA waivers, although these updates do not specifically address the IMBRA requirement that annual data on the number of waiver applications submitted, the number approved and denied, and reasons why the waivers were approved or denied be collected and maintained. These updates have helped USCIS collect and maintain additional data on I-129F petitions in an electronic format. However, USCIS did not update CLAIMS 3 to capture all of the data required by IMBRA, including the number of concurrent I-129F petitions filed by petitioners for other fiancé(e)s or spouses, or the extent to which petitioners have criminal convictions. USCIS officials stated that they did not include all elements in the 2012 system update because of resource constraints and to avoid rework in anticipation of the larger transition planned for all of USCIS’s immigration benefit processes. In 2006, USCIS embarked on its multiyear Transformation Program to transform its paper- based immigration benefits process to a system with electronic application filing, adjudication, and case management. As we reported in November 2011, USCIS envisions that once the Transformation Program is completed, new electronic adjudication capabilities will help improve agency operations and enable greater data sharing and management of information. USCIS expects the new system, the Electronic Immigration System (ELIS), to have features, for example, that will allow applicants to electronically view their benefit requests, or provide additional documentation. Once ELIS is implemented, officers are expected to have electronic access to applications, as well as relevant USCIS policies and procedures to aid in decision making, and to have electronic linkages with other agencies, such as State and DOJ, for data-sharing and security purposes.\nAccording to USCIS Service Center Operations officials, the agency will be able to collect and maintain more complete data, in a manner consistent with IMBRA, through the deployment of the electronic I-129F petition in ELIS. However, USCIS has faced long-standing challenges in implementing ELIS, which raise questions about the extent to which its eventual deployment will position USCIS to collect and maintain more complete data. In particular, in November 2011, we reported on USCIS’s progress in implementing its Transformation Program and found that USCIS had not developed reliable or integrated schedules for the program, and as a result, USCIS could not reliably estimate when all phases of the Transformation Program would be complete. We recommended, among other things, that USCIS ensure its program schedules are developed in accordance with GAO’s best practices guidance. DHS concurred with our recommendations and outlined actions USCIS would take to implement them, including developing an integrated master schedule to depict the multiple tasks, implementation activities, and interrelationships needed to successfully develop and deploy the Transformation Program. Since our November 2011 report, the Transformation Program schedule has encountered further delays. The 2008 Acquisition Program Baseline for the program showed that ELIS would be fully deployed by 2013; however, in July 2014, the Director of USCIS testified that full deployment was expected to be completed by 2018 or 2019.the I-129F petition would be deployed in ELIS.\nGAO/AIMD-00-21-3.1. purposes, or DOJ for investigating potential IMBRA violations once the Transformation Program is complete.", "USCIS officers have not consistently adjudicated I-129F petitions or entered complete and accurate data into CLAIMS 3. On the basis of our review of CLAIMS 3 data, and interviews with USCIS Service Center Operations officials and USCIS officers at all four service centers, we identified errors related to the IMBRA data that USCIS has maintained since 2012 (see table 1). Specifically, our analysis indicates that USCIS’s data are not reliable for determining (1) the number of I-129F petitions filed by persons who have previously filed I-129F petitions (or multiple filers), or (2) the number of IMBRA waivers required.\nThe May 2014 revisions also highlighted that the multiple filer field in CLAIMS 3 should include the total number of K-1 and K-3 I-129Fs filed by the petitioner. The August 2013 SOP did not specify the type of I-129F (K-1 versus K-3) to include in determining the number of prior petitions. officers were counting both K-1 and K-3 I-129F petitions in total for the multiple filer field, or only the number of K-1 I-129F petitions. The May 2014 revision to the SOP emphasized that I-129F petitions for K-3 visas are not to be included in determining whether a waiver is required. However, at one service center we visited, officers we spoke to stated that they had been uncertain about whether both types of I-129F petitions should be considered for the waiver requirements. Accurate and complete data in the multiple filer field are important for identifying potential abuse by petitioners who file multiple I-129F petitions, and for officers to indicate when a beneficiary should be notified of multiple filings, according to USCIS officials.\nData on IMBRA waivers. We found instances of errors and inconsistencies related to USCIS data on whether petitioners were subject to IMBRA’s filing limits and required one of the three waivers. Specifically:\nAccording to IMBRA and the June 2014 SOP, petitioners may be required to request one of three waivers, and the waiver requirements are based, in part, on the number of I-129F petitions filed for K-1 visas only (petitions for K-3 visas are not to be included). We reviewed USCIS data on 227 I-129Fs filed from October 1, 2012, through March 31, 2014, for which the record in CLAIMS 3 indicated that a criminal waiver was required. We found that 18 of those 227 I-129F petitions were for K-3 visas. USCIS Service Center Operations acknowledged that these entries in CLAIMS 3 were incorrect and that these errors raise questions about the reliability of the CLAIMS 3 data and officers’ understanding of standard operating procedures and IMBRA requirements.\nAccording to the June 2014 I-129F SOP, USCIS officers are to indicate in CLAIMS 3 whether a petitioner is required to have one of the three filing limits waivers. Officers are required to note a “Y” in one of three data fields if a waiver is required, or “N” if the waiver is not required. Consistent with IMBRA, only one waiver could apply per petition. However, on the basis of our analysis of CLAIMS 3 data, we found I-129F petitions for which officers incorrectly determined that more than one waiver was required. Specifically, of the 227 I-129F petitions we reviewed, 11 indicated that both a general and a criminal waiver were required, 14 indicated that both a criminal wavier and a mandatory waiver were required, and 15 indicated that petitioners required all three waivers. USCIS Service Center Operations officials attributed the multiple waiver determinations to officers’ errors. USCIS officers we interviewed at one service center stated that they were uncertain about the requirements for the waivers in part because the majority of petitions they adjudicate each year do not require any waivers. The August 2013 SOP did not specifically contain guidance to officers that a petitioner could receive only one waiver, if appropriate. In June 2014, during the course of our audit work, USCIS updated the I-129F SOP to clarify the filing limits and waiver requirements and now explicitly states that only one waiver selection per I-129F petition should be marked in CLAIMS 3, as applicable. While this revision to the SOP is a positive step, additional training could better position USCIS officers to be aware of petitioners’ potential filing limits and IMBRA waiver requirements, and USCIS officials stated that such training could be provided to help ensure officers understand the IMBRA requirements.\nConsistent with IMBRA and the June 2014 I-129F SOP, a criminal waiver is required for multiple filers who have been convicted of an IMBRA-specified offense. However, our analysis of USCIS’s data indicates that officers have required criminal waivers for petitioners with no prior I-129F petition filings. Specifically, of the 227 I-129F petitions filed between March 2012 and March 2014 for which officers had indicated that a criminal waiver was required, 207 did not meet the criteria requiring a criminal waiver because the petitioner had not filed any previous petitions. USCIS officials said that officers were likely confused regarding when a criminal waiver was required and speculated that officers may be erring on the side of caution and requiring a criminal waiver and additional documentation from the petitioner in any instance of prior criminal convictions. For example, an officer at one service center we visited stated that he sends the petitioner a request for evidence for a criminal waiver if there is a criminal history, regardless of how many I-129F petitions have been filed. Ensuring that officers have a clear understanding of waiver requirements in the SOP could help better position USCIS officers to make USCIS adjudications more consistent with IMBRA requirements.\nConsistent with IMBRA and the June 2014 I-129F SOP, I-129F petitions for K-3 visas are not subject to IMBRA waiver requirements. However, USCIS officers have historically (prior to December 8, 2013) not been required to indicate in CLAIMS 3 whether the I-129F petition is in support of a K visa for a fiancé(e), or spouse. We found that about 72 percent of the I-129F petitions submitted from fiscal years 2008 through March 2014 (238,288 of the 329,307) did not indicate whether the I-129F petition was for a K-1 or K-3 visa. USCIS officials stated that this was a technical issue that was likely overlooked during the system change in 2008. USCIS officials indicated that beginning in December 2013, officers could not approve an I-129F in CLAIMS 3 without noting which of the K visas the I-129F supports. Knowledge of whether the I-129F petition is for a K-1 or K-3 beneficiary is important because it is a key factor in determining whether a waiver is required, according to USCIS officials. While USCIS officers can review the hard copy I-129F petition to determine if it is an I-129F petition for a K- 1 or K-3 beneficiary, this information would not be readily available for internal control purposes of ensuring I-129F petitions are adjudicated according to the SOP and consistent with IMBRA.\nAccording to USCIS Service Center Operations officials, USCIS performs annual quality assurance reviews of I-129F petitions. USCIS’s Quality Management Branch establishes the direction for the development and administration of the quality assurance program, training, communication, and coaching, and each service center has a quality manager and personnel who ensure administration of the quality assurance program within each center. Annual reviews include 3 months of submissions, reviewed for adherence to USCIS procedures for petition approval, denial, and requests for evidence. In 2014, USCIS’s quality assurance reviews of selected I-129F petitions identified inconsistencies in their adjudication. For example, USCIS conducted a review on a random sample of I-129F petitions approved at the Texas Service Center in April 2014 (63 out of 796 total approved I-129F petitions). This quality assurance reviewer found that 9 out of the 63 approved I-129F petitions did not indicate for State’s consular officers, as required by USCIS’s procedures, whether IMBRA disclosures applied. Consular officers we spoke to at one post stated that they were providing information to beneficiaries only if USCIS officers clearly indicated on the approved I- 129F petition that IMBRA requirements applied. The consular officers stated that if USCIS officers did not clearly notate the approved I-129F petitions, they returned the approved I-129F petition to USCIS. USCIS officials attribute the errors in CLAIMS 3 data to officer error and misunderstanding of the SOPs regarding IMBRA implementation. In response to these reviews and our audit work, Service Center Operations officials stated that, among other things, they revised the I-129F SOP in May 2014 and again in June 2014. In particular, the May 2014 revision to the I-129F SOP was intended to clarify, among other things, the IMBRA filing limits, waiver requirements, and notations indicating whether IMBRA disclosures apply. In June 2014, USCIS again revised the procedures to further clarify the waiver requirements. To disseminate SOP revisions, a Service Center Operations official stated that the revised SOP is e-mailed to a point of contact in each service, with the revisions highlighted in the SOP and e-mail. The official said that the point of contact generally distributes the revised SOP to officers via e-mail, and will meet with staff to discuss changes, if necessary.\nWhile these are positive steps, additional training could help provide USCIS with more reasonable assurance that its officers are aware of IMBRA requirements to assist them in reviewing and maintaining data on petitions consistent with USCIS’s procedures. As previously discussed, our analysis of CLAIMS 3 data showed that USCIS officers have not entered information into CLAIMS 3 consistent with USCIS’s SOPs. USCIS Service Center Operations officials attributed the errors we identified in the CLAIMS 3 data to officers’ misunderstandings of the required procedures. Service Center Operations officials said in August 2014 that they had no plans to require the service centers to provide additional training to officers on revisions made to the SOP, as USCIS officials stated that officers receive initial training when they are hired and on an ad hoc basis at the service centers, as necessary. USCIS Service Center Operations does not require service centers to conduct additional training for incumbent officers based on revisions to its SOPs to ensure that changes are understood. Rather, these officials stated that service centers determine when officers need additional training, which they may provide to officers in the form of e-mails, briefings, or formal classroom lessons. Standards for Internal Control in the Federal Government maintains that federal agencies are to provide staff with the training necessary to carry out assigned responsibilities and meet the organizations’ objectives. Moreover, in our guide for assessing strategic training and development efforts, we have reported that training is essential to developing the knowledge and skills needed to administer agency programs properly. Given that the SOP has been revised three times in less than 1 year and officers have not maintained data in CLAIMS 3 consistent with the SOP, additional training for officers could help USCIS better ensure its officers understand changes made to the SOPs and collect and maintain reliable data on I-129F petitions as required by USCIS’s SOP and consistent with IMBRA.", "In accordance with IMBRA, USCIS has been charged with mitigating the risk posed to beneficiaries by violent or abusive petitioners by ensuring, to the extent practicable, that petitioners disclose complete information, including their filing history and criminal conviction information, on the I- 129F petition. USCIS has been revising the I-129F petition to address inaccuracies and deficiencies for more than 10 months and has not set a time frame for the planned completion of these changes. A time frame for completion would help the agency better monitor progress toward finalizing revisions to the petition. In addition, State could take additional actions to ensure that its consular officers document that the IMBRA pamphlet is provided and understood by the beneficiary, as internal State guidance requires, by revising its curriculum to include training on the FAM’s IMBRA-related documentation requirements. By incorporating IMBRA-related documentation requirements in its training curricula, State could also better provide reasonable assurance that its officers are aware of the required procedures and are better positioned to inform beneficiaries so they know their legal rights.\nAlthough IMBRA was enacted in January 2006, USCIS does not yet collect and maintain all data in a manner consistent with IMBRA. Ensuring the data are available electronically would allow for more complete reporting on IMBRA implementation, and also help USCIS management to better ensure that I-129F petitions are being adjudicated in accordance with IMBRA. USCIS has begun the process of transforming the I-129F petition to an electronic format; however, it is uncertain what data will be maintained in ELIS, based on the agency’s draft user stories to identify data requirements, and based on prior USCIS efforts that did not fully capture data in an electronic format consistent with IMBRA. Taking steps to ensure that all data to be collected in accordance with IMBRA are included with the release of the electronic I-129F petition, and providing additional training, could help USCIS better ensure that IMBRA requirements are properly implemented and that data on petitions are collected and maintained consistent with USCIS procedures.", "We are making four recommendations to improve the implementation of IMBRA.\nTo better ensure the consistent application of IMBRA waiver requirements and adjudication of I-129F petitions, we recommend that the Director of USCIS set a target time frame for completing the agency’s review of revisions to the I-129F petition.\nTo ensure that fiancé(e)s and spouses applying for K visas receive and understand the information to be provided to them under IMBRA and that consular officers adhere to documentation guidance in the FAM, we recommend that the Secretary of State incorporate the FAM’s IMBRA- related documentation requirements into the Foreign Service Institute’s training curriculum for entry-level and midlevel consular officers.\nTo ensure data required by IMBRA are collected, maintained, and reliable, we recommend that the Director of USCIS take the following two actions: ensure that IMBRA-required data elements will be collected in an automated manner with the release of the electronic I-129F petition, and provide additional training to officers who adjudicate I-129F petitions on the IMBRA-related requirements in the adjudication process.", "We provided a draft of this report to the Secretaries of Homeland Security and State, and the Attorney General. DHS and State provided written responses, which are reproduced in full in appendixes III and IV, respectively. DHS concurred with our three recommendations to that agency and described actions under way or planned to address them. With regard to our first recommendation to DHS that USCIS set a target time frame for completing the agency’s review and revisions to the I-129F petition, DHS concurred and stated that USCIS has drafted the revised Form 129F and instructions and plans to distribute them for internal review in December 2014. DHS stated that once the internal review is completed, the revised form and instructions will undergo a public comment period and the I-129F standard operating procedures will be updated. DHS estimated a completion date of September 30, 2015. With regard to our second recommendation to DHS that USCIS ensure that IMBRA-required data elements will be collected in an automated manner with the release of the electronic I-129F petition, DHS concurred and stated that USCIS will identify all data that will be collected and estimated a completion date of December 31, 2016. With regard to our third recommendation to DHS that USCIS provide additional training to officers who adjudicate I-129F petitions on the IMBRA-related requirements in the adjudication process, DHS concurred and stated that USCIS has developed a training presentation for officers on IMBRA-related requirements and that all officers adjudicating the I-129F will be required to complete the course by the end of January 2015. These actions should address the intent of our recommendations. In addition, State concurred with our recommendation that State incorporate the FAM’s IMBRA-related documentation requirements in the Foreign Service Institute’s training curriculum for entry-level and midlevel consular officers. State noted that additional IMBRA-related training would be provided to entry-level and midlevel consular officers. Specifically, State indicated that the Foreign Service Institute’s 6-week mandatory training for entry-level consular adjudicators, and two courses for midlevel consular officers would be expanded to explicitly emphasize IMBRA-related requirements. When implemented, these steps should help ensure that K visa beneficiaries receive and understand information available to them under IMBRA. Technical comments provided by DHS, State, and DOJ were incorporated, as appropriate.\nWe are sending copies of this report to the Secretaries of Homeland Security and State, the Attorney General, and appropriate congressional committees. In addition, the report is available at no charge on the GAO website at http://www.gao.gov.\nIf you or your staff have any questions concerning this report, please contact me at (202) 512-8777 or gamblerr@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made significant contributions to this report are listed in appendix IV.", "", "", "", "", "", "", "In addition to the contact named above, Kathryn Bernet (Assistant Director), Frances Cook, Monica Kelly, Connor Kincaid, Stanley Kostlya, Thomas Lombardi, Linda S. Miller, Jessica Orr, Michelle Woods, and Jim Ungavarsky made significant contributions to this work." ], "depth": [ 1, 2, 2, 1, 2, 2, 2, 1, 2, 2, 1, 1, 1, 1, 1, 1, 1, 1, 2, 2 ], "alignment": [ "h0_title h2_title", "h0_full", "h0_full h2_full", "h0_title h1_title h3_title", "h1_full", "h0_full", "h0_full h3_full", "h1_title h3_title", "h3_full h1_full", "h1_full", "", "h1_full", "h3_full h1_full", "", "", "", "", "", "", "" ] }

{ "question": [ "How is compliance with IMBRA ensured?", "How does USCIS collect information from petitioners?", "What IMBRA-related guidance does State provide?", "To what extent is State's guidance followed?", "How could State ensure that its IMBRA guidance is followed?", "How well does USCIS collect the required data from the K visa process?", "How does data format affect the reportability of documents?", "What characterizes USCIS's use of electronic data?", "How could electronic data help USCIS collect better data about petitioners?", "How could USCIS ensure its officers are aware of IMBRA requirements?", "Why was IMBRA passed?", "How does IMBRA affect federal data collection?", "What agencies are responsible for enacting parts of IMBRA?", "Why did GAO report on IMBRA implementation?", "What does this report examine?", "What agency documents did GAO review?", "What officials did GAO interview for the report?" ], "summary": [ "The Departments of Homeland Security (DHS), Justice (DOJ), and State (State) have processes to help ensure compliance with the International Marriage Broker Regulation Act of 2005 (IMBRA), as amended, but State could better document information on IMBRA disclosures.", "Specifically, consistent with IMBRA, DHS's U.S. Citizenship and Immigration Services (USCIS) collects information from petitioners—U.S. citizens who apply to bring noncitizen fiancé(e)s, spouses, and their children (beneficiaries) into the country—through I-129F petitions for K visas.", "State has guidance on processes for providing IMBRA information to beneficiaries (referred to as disclosures), such as a pamphlet outlining for beneficiaries the K visa process and legal rights and resources available to immigrant crime victims. Specifically, State's guidance requires consular officers to document within case notes in State's database whether they made all of the IMBRA-required disclosures to the beneficiary during the visa interview.", "However, GAO's review of a sample of K visa applications showed that in about 52 percent of interview case notes (76 of 147), consular officers did not document that they had provided beneficiaries the IMBRA pamphlet as required by State's guidance.", "Incorporating IMBRA-related documentation requirements into training courses could help State better ensure that consular officers are aware of the requirements for documenting IMBRA disclosures.", "Consistent with IMBRA, USCIS is to collect and maintain data on, among other things, eight elements in the K visa process for GAO reporting purposes; however, six of the eight elements are either not reliable or are not collected or maintained in a reportable (i.e., electronic) format. Thus, these elements were not readily available for GAO's review.", "For example, USCIS is to collect and maintain data on I-129F petitions where the petitioner had one or more criminal convictions. This information is maintained in hard copy in the petition file and thus was not readily available for GAO's review.", "USCIS has begun planning to electronically capture I-129F petition data under the agency's overarching transformation to an electronic immigration benefits system. However, this transformation has faced significant delays, and as of September 2014, the electronic I-129F petition design requirements have not been finalized.", "Consistent with federal internal control standards, ensuring that all of the IMBRA-related requirements will be captured with the release of the I-129F electronic petition would better position USCIS to collect and maintain complete data on petitioners for reporting purposes and management oversight.", "Additional training for officers could help USCIS better ensure its officers are aware of IMBRA requirements to assist them in maintaining petitions data consistent with IMBRA.", "Enacted in January 2006, IMBRA was passed by Congress to address reports of domestic violence and abuse of foreign beneficiaries married or engaged to U.S. citizens who have petitioned for them to enter the United States on a K visa.", "As amended, IMBRA requires that the federal government collect and provide to beneficiaries information about petitioners' prior K visa petitions and criminal histories.", "USCIS is responsible for collecting this information and adjudicating petitions, State is responsible for disclosing information to beneficiaries, and DOJ is authorized to enforce IMBRA.", "The Violence Against Women Reauthorization Act of 2013 mandates that GAO report on IMBRA implementation.", "This report examines the extent to which (1) DHS, State, and DOJ have implemented processes to ensure compliance with IMBRA, and (2) DHS collects and maintains reliable data to manage the K visa process.", "GAO analyzed IMBRA, USCIS, and State policies, procedures, and guidance, and K visa petition data from March 2012 through March 2014.", "GAO also interviewed USCIS, State, and DOJ officials regarding their agencies' implementation of IMBRA." ], "parent_pair_index": [ -1, 0, 0, 2, 2, -1, 0, 0, 2, 0, -1, 0, 0, -1, -1, 0, 0 ], "summary_paragraph_index": [ 2, 2, 2, 2, 2, 3, 3, 3, 3, 3, 0, 0, 0, 0, 1, 1, 1 ] }

{ "title": [ "", "Introduction", "Compounding Quality Act", "FFDCA Section 503A, Pharmacy Compounding", "Outsourcing Facilities", "Fees", "Communication with State Boards of Pharmacy", "GAO Study", "Drug Supply Chain Security Act", "Supply Chain Entity Requirements", "Drug Distribution Security", "Interoperable, Electronic Package-Level Tracing", "Guidance Documents", "Public Meetings and Pilot Projects", "Sunset", "National Standards for Prescription Drug Wholesale Distributors", "National Standards for Third-Party Logistics Providers", "Uniform National Policy", "Penalties" ], "paragraphs": [ "", "Over several congresses, policymakers have been interested in drug compounding and pharmaceutical supply chain security and have worked to craft legislation to enhance the Food and Drug Administration (FDA) ability to protect the public. On September 25, 2013, the leadership of the Senate Committee on Health, Education, Labor, and Pensions and the House Committee on Energy and Commerce announced an agreement on a bill to cover both topics. The House passed H.R. 3204 , the Drug Quality and Security Act, which now awaits Senate action. Title I is the proposed Compounding Quality Act. Title II is the proposed Drug Supply Chain Security Act.\nThis report provides an overview of the provisions in H.R. 3204 , as passed by the House. This report does not discuss policy implications of the potential passage and implementation of provisions in the bill.", "Under current law, the Federal Food, Drug, and Cosmetic Act (FFDCA, 21 USC 301 et seq.), the federal government regulates drug manufacturing and sales within the United States. However, the FFDCA provides specific conditions in which a drug may be compounded—primarily that the compounding is done by a pharmacist or physician based on a prescription for an individual patient—for which several FFDCA requirements of manufacturers do not apply. Such compounding is regulated by the states within their authority over the practice of pharmacy. There are, however, entities that perform activities that do not fit within this limited sphere of compounding. Federal regulators, the pharmacy and manufacturing industries, state authorities, and various courts have had differing opinions on who has jurisdiction—FDA or the states—over those activities. Title I of H.R. 3204 , the proposed Compounding Quality Act, attempts to address some of these issues. The act would, among other things:\nmaintain FDA authority to regulate drug compounding that goes beyond the scope of state-regulated practice of pharmacy; establish a new category of compounding entity, termed \"outsourcing facility,\" which would apply to entities that compound sterile drugs, volunteer to register with FDA, and follow practice and reporting requirements; require that the label of a drug from an outsourcing facility state \"This is a compounded drug\"; dictate user fees to fund outsourcing facility registration and reporting; advisory committee activities; annual reports; the issuing of regulations; and a study by the Government Accountability Office (GAO); and direct enhanced communication among state boards of pharmacy and between those boards and the FDA.\nTo do so, Title I would amend FFDCA Section 503A [21 USC 353a] on pharmacy compounding and add a proposed Section 503B on outsourcing facilities as well as proposed Sections 744J and 744K to give FDA the authority to assess and use outsourcing facility fees.", "Several provisions in Title I reflect challenges FDA has encountered in implementing FFDCA Section 503A [21 USC 353a], Pharmacy Compounding, in current law. H.R. 3204 would amend that section by removing the provision in current law that restricts a compounder from advertising or promoting a compounded drug. Relatedly, it would also remove the modifier \"unsolicited\" from the phrase \"valid prescription\" in referring to what the pharmacy must receive before compounding a drug. H.R. 3204 includes a severability provision indicating that, in the event a provision of the act is declared unconstitutional, the remaining provisions would be unaffected.\nThe remaining provisions in FFDCA Section 503A lay out the circumstances in which a state-regulated pharmacy may compound a drug. Although current law does not use the term, Members of Congress, FDA officials, and others often refer to this as traditional compounding . It involves compounding by a licensed pharmacist or physician in response to a prescription for an individual patient. The section describes what ingredients may be used, what kinds of drugs may not be compounded, required consultation between the HHS Secretary and the National Association of Boards of Pharmacy, and required implementing regulations.", "For facilities that compound drugs in ways that go beyond the circumstances described by FFDCA Section 503A [21 USC 353a], a proposed Section 503B would allow an entity to voluntarily register as an outsourcing facility . For an outsourcing facility that follows the requirements described in the proposed Section 503B, certain existing requirements that apply to drug manufacturers would be waived. These are:\na drug's labeling must provide adequate directions for use or be deemed misbranded (Sec. 502(f)(1)) [21 USC 352]; a manufacturer may sell a drug in the United States only after FDA has approved its new drug application based on evidence of safety and effectiveness and other requirements regarding manufacturing processes, labeling, and reporting (Sec. 505 [21 USC 355]); and supply chain entities (manufacturers, wholesale distributors, dispensers, and repackagers) must comply with activities that would be required by Title II of this Act (proposed Sec. 582).\nThe proposed Section 503B would include requirements that focus on the drug, the outsourcing facility, and the Secretary. A drug that is compounded in a registered outsourcing facility would have to meet the following conditions:\nmay not be made from bulk drug substances unless they comply with limitations specified in this bill on use of bulk drug substances and other ingredients; may not be a drug that has been withdrawn or removed from the market because it was found to be unsafe or not effective; may not be \"essentially a copy of one or more approved drugs\"; may not be on the Secretary's list of \"drugs that present demonstrable difficulties for compounding that are reasonably likely to lead to an adverse effect on the safety or effectiveness of the drug or category of drugs, taking into account the risks and benefits to patients\" unless compounding is done \"in accordance with all applicable conditions identified on the list ... as conditions that are necessary to prevent\" such difficulties; if it is subject to a risk evaluation and mitigation strategy (REMS), the outsourcing facility must demonstrate a plan to use \"controls comparable to the controls applicable under the relevant\" REMS; may be sold or transferred only by the outsourcing facility that compounded it; must be compounded in an outsourcing facility that has paid fees (as would be established in this Act); must have a label that includes the statement \"This is a compounded drug.\" (or comparable statement); must also contain specified identifying information of the outsourcing facility and the drug to include lot or batch number, established drug name, dosage form and strength, quantity or value, date compounded, expiration date, storage and handling instructions, National Drug Code (if available), \"Not for resale\" statement, \"Office Use Only\" statement (if applicable), and a list of active and inactive ingredients; and must have a container \"from which individual units of the drug are removed for dispensing or administration\" that includes a list of active and inactive ingredients, FDA adverse event reporting information, and directions for use.\nA registered outsourcing facility must\nregister with the Secretary of Health and Human Services (the Secretary) annually (electronically, unless waived by the Secretary) and indicate whether it intends to compound a drug on the Secretary's list of drug shortages; submit a report to the Secretary twice a year identifying the drugs compounded, including the active ingredient and its source, National Drug Code numbers, and other specified information; be subject to inspection (pursuant to Section 704 [21 USC 374], which applies to manufacturing facilities) according to a risk-based schedule based on factors such as the compliance history of the outsourcing facility, inherent risk of the drugs being compounded, among others; and submit adverse event reports.\nThe Secretary must\nmake outsourcing facility registration information publicly available; and issue regulations regarding the list of drugs presenting demonstrable difficulties for compounding after convening and consulting with an advisory committee (to include specified membership) on compounding; regularly review the lists and update as necessary.\nThe proposed Section 503B would include definitions of compounding, essentially a copy of an approved drug, approved drug, outsourcing facility, and sterile drug.\nTitle I would amend the FFDCA sections involving prohibited acts (Sec. 301 [21 USC 331]) and misbranded drugs (Sec. 502 [21 USC 352]) to include specified actions regarding compounded drugs. It also would direct the Secretary to promulgate implementing regulations.", "H.R. 3204 would amend the FFDCA to add sections (744J and 744K) addressing user fees. The bill would require the Secretary to collect an annual establishment fee from each outsourcing facility that chooses to register as well as reinspection fees when applicable. The bill specifies the process the Secretary would follow to establish fee amounts, an inflation adjustment factor, an adjustment factor and exceptions for certain small businesses, the crediting and availability of fees, fee collection and the effect of failure to pay fees (which would include deeming a product misbranded and therefore prohibiting its sale). The bill would also require the Secretary to report annually to Congress describing fees collected, entities paying fees, hiring of new staff, use of fees to support outsourcing facility inspections, and the number of inspections and reinspections performed.\nThe Secretary could use those fees \"solely to pay for the costs of oversight of outsourcing facilities,\" and the user fee funds would have to be used \"to supplement and not supplant\" other available federal funds.", "A section of H.R. 3204 titled \"Enhanced Communication\" would direct the Secretary to receive information from state boards of pharmacy regarding (1) actions taken regarding compounding pharmacies (warning letters, sanctions or penalties, suspension or revocation of state license or registration, or recall of a compounded drug) or (2) \"concerns that a compounding pharmacy may be acting contrary to [FFDCA] section 503A [21 USC 353a].\" The Secretary would be required to consult with the National Association of Boards of Pharmacy in implementing the submission requirement and to immediately notify state boards of pharmacy when receiving submissions or when the Secretary determines that a pharmacy is acting contrary to FFDCA Section 503A.", "H.R. 3204 would require that the Comptroller General review pharmacy compounding in each state, review state laws and policies, assess available tools with which purchasers could determine the safety and quality of compounded drugs, evaluate the effectiveness of communication about compounding among states and between the states and FDA, and evaluate FDA's implementation of FFDCA Sections 503A [21 USC 353a] and 503B. The report would be due three years after the bill's enactment.", "A drug may change hands many times from the point at which it leaves the manufacturer until it reaches the dispenser who provides the drug to a patient. Each step along the way—involving the manufacturer, wholesale distributors, repackagers, third-party logistics providers, and dispensers—presents an opportunity for \"contamination, diversion, counterfeiting, and other adulteration.\" Members of Congress, FDA, and industry groups within the supply chain, among others, have looked for a mutually agreeable system to trace and verify the identity of a drug as it travels through the chain. One goal was the development of a national policy that would be more feasible and effective than a patchwork of varying state requirements. Title II, the proposed Drug Supply Chain Security Act, would, among other things, require\nthe creation and continuation of transaction information , transaction history , and transaction statements (beginning no later than January 2, 2015 for manufacturers, wholesale distributors, and repackagers; beginning July 1, 2015 for dispensers); a product identifier on each package and homogeneous case of a product, to include a standardized numerical identifier (SNI), lot number, and product expiration date (beginning no later than four years after enactment of this bill); required verification of the product identifier at the package level (with staggered starting dates: manufacturers four years after enactment of this bill, repackagers five years after enactment, wholesale distributors six years after enactment, and dispensers seven years after enactment); registration of wholesale distributors and third-party logistics providers in the states from which they distribute or by the Secretary if the state does not offer such licensure; that the Secretary develop standards for that registration; specific activities, following a specified timeline, to implement an interoperative unit-level traceability system ten years after enactment; and the development and maintenance of a uniform national policy for the tracing of drug products through the supply chain.\nTo do so, Title II would amend the FFDCA by adding a subchapter titled Pharmaceutical Distribution Supply Chain that would contain proposed Sections 581 through 585, and by amending Sections 301 [21 USC 331] (prohibited acts), 303 [21 USC 333] (penalties), 502 [21 USC 352] (misbranding), and 503 [21 USC 353] (transaction statements upon wholesale distribution).", "Proposed FFDCA Section 582 would set out what would be requirements for specific types of entities/activities in the supply chain: manufacturers, wholesale distributors, dispensers, repackagers, and drop shipments. (Proposed Section 581 would provide definitions of the terms used. ) The next several paragraphs give an overview of those requirements.\nThe Secretary would have to\nin consultation with federal officials and specified stakeholders and not later than one year after enactment, issue draft guidance to establish \"standards for the interoperable exchange\" of transaction information, transaction history, and transaction statements; establish processes by which supply chain entities could request waivers or exemptions to any requirements in the proposed Section 582 and by which the Secretary could determine specified exceptions; and finalize guidance not later than two years after enactment to specify whether and how to exempt products in the supply chain (before the effective date) from product identifier requirements.\nOther general provisions would\nprovide several exemptions or alternative start dates for requirements relating to providing certain transaction information, transaction history, or transaction statements, or wholesale distributor and third-party logistics provider licensing, for products that were in the supply chain before January 1, 2015 or over the period until the effective dates of required regulations; allow an entity that changed a package label solely to add the product identifier (as would be required by this Act) to submit that change to the Secretary in its annual report; require, unless the Secretary allows otherwise through guidance, that product identifiers include applicable data in \"a 2-dimensional data matrix barcode when affixed to, or imprinted upon, a package\" and in \"a linear or 2-dimensional data matrix barcode when affixed to, or imprinted upon, a homogeneous case\"; and allow that verification of the product identifier occur using human- or machine-readable methods.\nThe first five subsections of the proposed FFDCA Section 582 would set requirements for manufacturers, wholesale distributors, and repackagers. These requirements would generally concern\nproduct tracing, including responsibility when accepting or transferring a drug, transaction information for returns, and requests for information regarding suspect products; product identifiers, beginning with the requirement that manufacturers and repackagers affix a standardized graphic to each package and homogenous case; and verification of suspect product, including quarantine, validating the transaction history and transaction information, verifying product identifier, notification of trading partners and the Secretary, maintenance of an electronic database.\nAlthough the approach (regarding, for example, tracing, identifiers, and verification) is consistent across the various entities in the supply chain, the timing and some elements of those requirements vary.", "A second set of subsections in a proposed FFDCA Section 582 describes enhanced drug distribution security provisions, including the development and implementation of an interoperable system of electronic package-level tracing, establishment of national standards for wholesale distributors and third-party logistics providers, a uniform national policy rather than state-specific requirements for drug tracing, and requirements that the Secretary develop guidance documents, hold public meetings, and establish pilot projects.", "The bill would require that interoperable, electronic tracing of products at the package level go into effect 10 years after enactment (proposed FFDCA Sec. 582(g)). The process would involve transaction information and transaction statements being \"exchanged in a secure, interoperable, electronic manner in accordance with the standards established under the guidance\" document (described below). Transaction information would include the package-level product identifiers. The bill would require systems and processes, including the standardized numerical identifier, to verify package-level products (according to the proposed required guidance); to respond to requests by the Secretary for transaction information and transaction statements; to gather necessary information; to protect confidential commercial information and trade secrets; and to associate transaction information and transaction statements with a product to allow a saleable return.\nThe proposed section would allow a dispenser to \"enter a written agreement with a third party\" to maintain required information and statements. The Secretary would be allowed to \"provide alternative methods of requirements,\" such as compliance timelines or waivers, for small businesses or in the case of a dispenser's undue economic hardship.\nThis section would require that the Secretary enter into a contract for a \"technology and software assessment that looks at the feasibility of dispensers with 25 or fewer full-time employees conducting interoperable, electronic tracing of products at the package level.\" The contract, which would include consultation with small dispensers, would be required to begin no later than 18 months after final guidance (see below), with the assessment to be completed no later than 8½ years after enactment. The bill specifies the content of the assessment and requirements for public comment both on the statement of work and on the final assessment as well as a public meeting.\nThe section would direct the Secretary to follow specific procedures when promulgating regulations. These would provide \"appropriate flexibility\" relating to small businesses and undue economic hardship on dispensers; consider results of pilot projects, public meetings, public health benefits and costs of additional regulations, the required assessment (see above) of small business dispensers. This requirement would not, however, delay the effective date of interoperable unit-level tracking.", "The Secretary would be required to issue several guidance documents through procedures outlined in the bill. The topics of the guidance documents, along with the timetable the Secretary would be required to meet, are:\nIdentification of a suspect and illegitimate product ; due not later than 180 days after enactment; Recommendations for unit level tracing ; due not later than 18 months after a required public meeting; and Updated guidance on standards for interoperable data exchange ; to be finalized not later than 18 months after required public meeting.", "The Secretary would be required to hold at least five public meetings \"to enhance the safety and security of the pharmaceutical distribution supply chain.\" The first meeting would not be able to be held until one year after enactment; the bill specifies the topics to be addressed in the meetings.\nThe Secretary would be required to establish at least one pilot project, in coordination with manufacturers, repackagers, wholesale distributors, and dispensers \"to explore and evaluate methods to enhance the safety and security of the pharmaceutical distribution supply chain.\" The bill directs the design of such pilots.\nThe bill directs that neither the public meeting nor the pilot project requirements delay the effective date of interoperable unit-level tracking.", "Beginning 10 years after enactment—at which time the national, interoperable, unit-level tracing system would go into effect, as would be required by this act—several requirements of the act would have \"no force or effect.\" These include the exchange of transaction histories among supply chain entities that would be required by proposed FFDCA Section 582.", "The bill would amend FFDCA Section 503(e) [21 USC 353], which currently requires, among other things, that a wholesale distributor (who is not the manufacturer or an authorized distributor of record) be licensed by the state from which it distributes the drug, and that each manufacturer maintain a current list of authorized distributors of record for each drug.\nA proposed amendment to Section 503(e) would add that if that state does not require licensure, the Secretary may provide the licensure (and may collect a fee to reimburse the costs of the licensure program and related periodic inspections). The wholesale distributor would also have to be licensed by the receiving state if that state requires licensure. The licenses would be required to meet the conditions that would be established by a separate section of the act.\nOther proposed requirements include that the owner or operator of a wholesale distributor be required to report to the Secretary annually on each license held and contact information of all its facilities. The wholesale distributor must also report on significant federal or state disciplinary actions.\nThe Secretary would be required to establish by January 1, 2015, and regularly update, a publicly available database of authorized wholesale distributors. The Secretary would provide for state officials to have prompt and secure access to the licensing information. This act would not authorize the Secretary to disclose protected trade secrets or confidential information.\nThe bill would amend the definition of wholesale distribution to include additional exclusions; would specify that a third-party logistics provider (as would be defined in the act) would not have to be licensed as a wholesale distributor if the third-party logistics provider never assumed ownership of the product; and would define a business entity affiliate.\nH.R. 3204 would add a proposed FFDCA Section 583, National Standards for Prescription Drug Wholesale Distributors, which would include standards for storage and handling, records, bonds or other means of security, mandatory background checks and fingerprinting, qualifications for key personnel, prohibited persons, and mandatory physical facility inspection. If the Secretary promulgates regulations pursuant to this section, the Secretary must issue a notice of proposed rulemaking, allow for a comment period, and have the final regulation take effect two years after its publication.", "This act would add a proposed FFDCA Section 584, National Standards for Third-Party Logistics Providers, which would require that a third-party logistics provider be licensed by the state from which it distributes the drug, or if that state does not require licensure, by the Secretary (who may collect a fee to reimburse the Secretary for the costs of the licensure program and related periodic inspections). The third-party logistics provider would also have to be licensed by the receiving state if that state requires licensure and the third-party logistics provider is not licensed by the Secretary.\nThe bill would require annual reports by each facility of a third-party logistics provider to include its licensure and contact information.\nThe Secretary would be required to issue regulations, not later than two years after enactment, regarding standards for the licensing of third-party logistics providers, to cover third-party accreditation, storage practices (including space, security, written policies and procedures), periodic inspection, prohibited personnel, mandatory background checks, provision of lists (upon request by licensing authority) of all manufacturers, wholesale distributors, and dispensers for which the third-party logistics providers provides services, and license renewal. For regulations promulgated regarding third-party logistics provider licensing, the Secretary would be required to provide a notice of proposed rulemaking, allow for a comment period, and set an effective date one year after the final regulation is issued.", "H.R. 3204 would establish a proposed FFDCA Section 585 that would address the relationship of the proposed supply chain requirements to state authorities. Specifically, it would prohibit, from the date of enactment, a state or political subdivision of a state to establish or continue\n\"any requirements for tracing products through the distribution system (including any requirements with respect to statements of distribution history, transaction history, transaction information, or transaction statement of a product as such product changes ownership in the supply chain, or verification, investigation, disposition, notification, or recordkeeping relating to such systems, including paper or electronic pedigree systems or for tracking and tracing drugs throughout the distribution system) which are inconsistent with, more stringent than, or in addition to, any requirements applicable under section 503(e) (as amended by such Act) or this subchapter (or regulations issued thereunder), or which are inconsistent with—`(1) any waiver, exception, or exemption pursuant to section 581 or 582; or `(2) any restrictions specified in section 582.\"\nSimilarly, this section would prohibit, from the date of enactment, a state or political subdivision of state to establish or continue\n\"any standards, requirements, or regulations with respect to wholesale prescription drug distributor or third-party logistics provider licensure that are inconsistent with, less stringent than, directly related to, or covered by the standards and requirements applicable under section 503(e) (as amended by such Act), in the case of a wholesale distributor, or section 584, in the case of a third-party logistics provider.\"\nIt would also prohibit a state from regulating third-party logistics providers as wholesale distributors. It would allow a state to collect fees for carrying out wholesale distributor and third-party logistics provider licensure. The proposed section would allow states to take specified enforcement, license suspension and revocation, and regulation of licensed entities \"in a manner that is consistent with product tracing requirements\" under the proposed FFDCA Section 582.\nThe proposed section would also note an exception:\n\"Nothing in this section shall be construed to preempt State requirements related to the distribution of prescription drugs if such requirements are not related to product tracing as described in subsection (a) or wholesale distributor and third-party logistics provider licensure as described in subsection (b) applicable under section 503(e) (as amended by the Drug Supply Chain Security Act) or this subchapter (or regulations issued thereunder).\"", "The bill would amend FFDCA Section 301(t) [21 USC 331] making it a prohibited act to fail to comply with requirements in proposed FFDCA Sections 582 and 584 (referring to transaction requirements of entities in the supply chain and national standards for third-party logistics providers). It would also amend FFDCA Section 502 [21 USC 352] to deem a drug as misbranded if it fails to have the product identifier that would be required by proposed FFDCA Section 582." ], "depth": [ 0, 1, 1, 2, 2, 2, 2, 2, 1, 2, 2, 3, 3, 3, 3, 2, 2, 2, 2 ], "alignment": [ "h0_title h2_title h1_title", "", "h0_full h1_full", "h0_full", "h1_full", "", "h0_full", "", "h2_full", "", "h2_title", "", "h2_full", "", "", "h2_full", "h2_full", "", "" ] }

{ "question": [ "What would the Compounding Quality Act do?", "How would this entity compare to existing categories?", "What would the HHS's role be under the bill?", "How would the bill affect the FFDCA's rules on traditional compounding?", "What entities could voluntarily register as outsourcing facilities?", "How could such an entity become exempt from certain requirements?", "What does this set of requirements consist of?", "What would Title II add?", "How would this bill affect product packaging?", "How would this bill affect data exchanges?", "How would the bill handle suspected illegitimate products?", "What requirements would it impose on the Secretary?" ], "summary": [ "Title I, the Compounding Quality Act, would create the term outsourcing facility to apply to an entity that compounds sterile drugs in circumstances that go beyond activities that the FFDCA allows pharmacies to do under state regulation.", "As such, the proposed category could be conceptualized somewhere between a state-regulated pharmacy and a federally regulated drug manufacturer.", "The bill would direct the Secretary of Health and Human Services (HHS) to consult with the National Association of Boards of Pharmacy regarding submissions from states that concern a compounding pharmacy that may be acting outside what the FFDCA allows.", "The bill would also maintain the FFDCA section that addresses what is referred to as traditional compounding—wherein a pharmacist or physician compounds a drug to fill a prescription written for an individual patient.", "An entity that compounds sterile drugs and that may not obtain prescriptions for identified individual patients would be able to voluntarily register as an outsourcing facility.", "If it also complies with a set of listed requirements, an outsourcing facility would be exempt from certain FFDCA requirements on drug manufacturers: adequate directions for use labeling, sale only after FDA approval of a new drug application, and compliance with supply chain activities (that would be added by Title II of H.R. 3204).", "An outsourcing facility would have to label the product to include the statement \"This is a compounded drug,\" list active and inactive ingredients, report annually to the HHS Secretary on drugs compounded, be subject to inspection, submit adverse event reports, and pay annual fees (that would be established by this bill) to cover the cost of overseeing outsourcing facilities.", "Title II, the Drug Supply Chain Security Act, would add FFDCA requirements to be implemented over the next few years.", "These include that manufacturers and repackagers put a product identifier, including a standardized numerical identifier, on each package or homogenous case.", "With certain exceptions, exchange of transaction information, histories, and statements would be required when a manufacturer, wholesale distributor, dispenser, or repackager transfers or accepts a drug.", "Also required would be a system of verification and notification when the Secretary or a trading partner within the supply chain suspects that a product may be illegitimate.", "Requirements for the Secretary would include guidance documents, regulations, public meetings, and pilot projects." ], "parent_pair_index": [ -1, 0, 0, 0, -1, 0, 1, -1, 0, 0, 0, 0 ], "summary_paragraph_index": [ 1, 1, 1, 1, 2, 2, 2, 3, 3, 3, 3, 3 ] }

{ "title": [ "Background", "Key GPS Modernization Points", "GPS Satellite Constellation", "Ground Control Segment", "Receiver Cards", "Acquisition Risks Persist on GPS III Satellites but Do Not Threaten Sustainment of the Constellation in the Short Term", "Progress: Programs Advancing to Support Constellation Sustainment Requirements", "Short-Term Challenges: Compressed and Concurrent Schedules, Component Issues with the First GPS III Satellite", "Short-Term Risk Mitigation: Nearly 2 Years of Schedule Buffer to When First GPS III Satellite Needed", "Long-Term Challenge: Most GPS III Satellites Under Contract Will Have Launched before Operational Testing Confirms Satellite Performance", "Modernizing GPS Military Broadcast Challenged by High- Risk Development Schedules", "High-Risk Programs Underlie Strategy to Deliver M-code Broadcast Capability", "Greater Coordination Needed to Prevent Duplication of Effort Developing and Fielding M-code Receivers", "DOD Has Made Some Progress in Developing Technology for New M- code Receiver Cards", "Significant Development Work Remains to Eventually Field M-code Receiver Cards", "DOD Has Begun Cost and Schedule Planning; Full Cost Is Unknown but Likely to be Many Billions of Dollars", "DOD Risks Duplication of Effort Integrating and Testing M-code Receiver Cards", "Conclusions", "Recommendations for Executive Action", "Agency Comments and Our Evaluation", "Appendix I: Objectives, Scope, and Methodology", "Appendix II: Comments from the Department of Defense", "Appendix III: GPS Modernization Cost Increases, Original Baseline vs. Current Estimate", "Appendix IV: GAO Contact and Staff Acknowledgments", "GAO Contact", "Staff Acknowledgments" ], "paragraphs": [ "Collectively, the ongoing GPS acquisition effort aims to (1) modernize and sustain the existing GPS capability and (2) enhance the current GPS system by adding an anti-jam, anti-spoof cybersecure M-code capability. Figure 1 below shows how GPS satellites, ground control, and user equipment—in the form of receiver cards embedded in systems—function together as an operational system.\nModernizing and sustaining the current GPS broadcast capability requires launching new satellites to replace the existing satellites that are near the end of their intended operational life as well as developing a ground control system that can launch and control both existing and new satellites. Sustaining the current GPS broadcast capability is necessary to ensure the quality and availability of the existing broadcast signals for civilian and military GPS receivers. The ongoing modernization of GPS began with three programs: (1) GPS III satellites; (2) OCX to control the satellites; and (3) MGUE increment 1 (which develops initial receiver test cards for military ships, ground vehicles, or aircraft). Table 1 describes these programs.\nDelays to OCX of more than 5 years led the Air Force to create two additional programs in 2016 and 2017 to modify the current GPS ground system to control GPS III satellites and provide a limited M-code broadcast. As a result, there are currently five total GPS modernization programs. Table 2 provides a description of the two new programs.\nAll of the original GPS modernization programs—GPS III, OCX, and MGUE—have experienced significant schedule growth during development. Table 3 outlines several schedule challenges in the modernized GPS programs.\nWe found in 2015 that unrealistic cost and schedule estimates of the new ground control system and receiver card development delays could pose significant risks to sustaining the GPS constellation and delivering M- code. At that time, we also made five recommendations so that DOD would have the information necessary to make decisions on how best to improve GPS modernization and to mitigate risks to sustaining the GPS constellation. We made four OCX-specific recommendations targeted to identify underlying problems, establish a high confidence schedule and cost estimate, and improve management and oversight. For MGUE, we recommended the Air Force add a critical design review before committing resources to allow the military services to fully assess the maturity of the MGUE design before committing test and procurement resources. DOD concurred with the four recommendations on OCX and partially concurred on the MGUE recommendation. Since 2015, our annual assessment of DOD weapon systems has shown that some of the original GPS programs have continued to face cost or schedule challenges, increasing the collective cost to modernize GPS by billions of dollars. Appendix III outlines the cost increases that have resulted.", "According to our analysis, over the next decade or more, DOD plans to achieve three key GPS modernization points: (1) constellation sustainment, (2) M-code broadcast, and (3) M-code receivers fielded.\nFigure 2 shows the current sequencing of the three points and the intervals when they are planned to be achieved, if known.\nThroughout this report, we will use figures based on this one to highlight the separately-managed programs DOD plans to synchronize to achieve each of the three identified modernization points. Some GPS capabilities require the delivery of more than one program, which must compete for limited resources, such as testing simulators. The Air Force coordinates the interdependent activities of the different programs and contractors in order to achieve each modernization point.", "The satellites in the GPS constellation broadcast encrypted military signals and unencrypted civilian signals and move in six orbital planes approximately 12,500 miles above the earth.\nWhat is a Global Positioning System (GPS) satellite orbital plane and how many are there?\nThe GPS constellation availability performance standards commit the U.S. government to at least a 95 percent probability of maintaining a constellation of 24 operational GPS satellites to sustain the positioning services provided to both civilian and military GPS users. Therefore, while the minimum constellation consists of satellites occupying 24 orbital slots—4 slots in each of the six orbital planes—the constellation actually has 31 total satellites, generally with more than four in each plane to meet the 95 percent probability standard. These additional satellites are needed to provide uninterrupted availability in case a satellite fails. The constellation includes three generations of satellites with varying capabilities and design lives.\nAn orbital plane is an imaginary flat disc containing an Earth satellite’s orbit. One orbital plane, as is shown above, represents the trajectory a GPS satellite follows as it circles the Earth in space. The GPS constellation has six orbital planes. Each contains at least 4 satellites that allow the constellation to meet the minimum requirement of 24 satellites.\nWe found in 2010 and 2015 that GPS satellites have proven more reliable than expected, greatly exceeding their initially predicted life expectancies. Nevertheless, the Air Force must regularly replace satellites to meet the availability standard, since operational satellites have a finite lifespan. Excluding random failures, the operational life of a GPS satellite tends to be limited by the amount of power that its solar arrays can produce. This power level declines over time as the solar arrays degrade in the space environment until eventually they cannot produce enough power to maintain all of the satellite’s subsystems. Consequently, the Air Force monitors the performance of operational satellites in order to calculate when new satellites need to be ready to join the constellation.\nThe 10 GPS III satellites currently under contract and in production with Lockheed Martin will provide a range of performance enhancements over prior GPS satellite generations. The GPS III satellites were designed to provide a longer life than previous generations, greater signal accuracy, and improved signal integrity—meaning that the user has greater assurance that the broadcast signal is correct. When they are eventually controlled through the OCX ground control system, the satellites will also offer a stronger M-code signal strength than prior GPS satellite generations. They will also include an additional civilian signal known as L1C, which will permit interoperability with European, Japanese, and other global navigation satellite systems for civilian users. Figure 3 describes the evolution of GPS satellite generations, including capabilities and life-span estimates.", "The current GPS ground control segment, OCS, primarily consists of software deployed at a master control station at Schriever Air Force Base, Colorado, and at an alternate master control station at Vandenberg Air Force Base, California. The ground control software is supported by 6 Air Force and 11 National Geospatial-Intelligence Agency monitoring stations located around the globe along with four ground antennas that communicate with the moving satellites. Information from the monitoring stations is processed at the master control station to determine satellite clock and orbit status. As each of the three ground control segment programs—COps, MCEU, and OCX—is completed or partially completed, they will each introduce new capabilities, eventually culminating in the delivery of the full M-code broadcast planned for January 2022.", "GPS receiver cards determine a user’s position and time by calculating the distance from four or more satellites using the navigation signals on the satellites to determine the card’s location. All warfighters currently acquire, train with, and use GPS receivers. Until MGUE receiver cards are developed and available for production, all DOD weapon systems that use GPS will continue to use the current GPS Selective Availability/Anti- Spoofing Module (SAASM) receiver card or an older version. The Ike Skelton National Defense Authorization Act for Fiscal Year 2011 generally prohibits DOD from obligating or expending funds to procure GPS user equipment after fiscal year 2017 unless that equipment is capable of receiving M-code. Under certain circumstances this requirement may be waived or certain exceptions may apply. The increment 1 receiver cards range in size from approximately 2 inches by 3 inches for the ground card up to 6 inches by 6 inches for the aviation/maritime card. Figure 4 below shows an illustration of a MGUE receiver card.\nDOD has previously transitioned its weapon systems gradually from one generation of GPS receivers to the next. For example, some weapon systems have either upgraded or are still in the process of upgrading to the current SAASM receivers that were introduced in 2003, while others are still equipped with older cards. DOD anticipates that the length of time necessary to transition to MGUE will require users to operate with a mix of receiver cards. Hundreds of different types of weapon systems require GPS receiver cards, including ships, aircraft, ground vehicles, missiles, munitions, and hand-held devices, among others, across all military services. The Air Force funds the MGUE program, providing funding to the military services so they can acquire, integrate, and operationally test the receiver cards on four service-specific lead platforms. These platforms are intended to test the card in the military services’ ground, aviation, and maritime environments: (1) Army—Stryker ground combat vehicle; (2) Air Force—B-2 Spirit bomber; (3) Marine Corps—Joint Light Tactical Vehicle (JLTV); and (4) Navy—DDG-51 Arleigh Burke destroyer. Figure 5 depicts selected weapon systems that will need to install M-code capable receiver cards.", "The Air Force has made some progress toward ensuring continued constellation sustainment since our September 2015 report and should be able to sustain the current service because of the length of life of the current satellites. The current GPS constellation is now projected to meet its availability performance standard (in the absence of operational GPS III satellites) into June 2021—an increase of nearly 2 years over previous projections. This increase will give the Air Force more schedule buffer in the event of any additional delays to the GPS III satellite program. However, the Air Force still faces technical risks and schedule pressures in both the short and long term. In the short term, schedule compression with the first GPS III satellite is placing the satellite’s launch and operation at risk of further delays. In the long term, most of the satellites under contract will have been launched before operational testing is completed, limiting Air Force corrective options if issues are discovered. Figure 6 shows the schedule for programs that need to be delivered to modernize and sustain the GPS satellite constellation.", "The Air Force has made progress since our last report in September 2015 on the three programs (GPS III, OCX, and COps) needed to support GPS constellation sustainment, readying both ground control and the satellite for the first GPS III satellite’s launch, testing, and eventual operation. Raytheon delivered OCX block 0, the launch and checkout system for GPS III satellites, in September 2017. The Air Force took possession of OCX block 0 in October 2017 and will finally accept it at a later date after OCX block 1 is delivered. Lockheed Martin completed the assembly, integration, and testing for the first GPS III satellite and in February 2017 the Air Force accepted delivery in advance of its currently scheduled May 2018 launch. As noted earlier, because of delays to OCX block 1, the Air Force initiated the COps program to ensure an interim means to control GPS III satellites. Without COps, no GPS III satellites can join the constellation to sustain it until OCX block 1 is operational in fiscal year 2022. In September 2016, COps formally started development, establishing a cost baseline of approximately $162 million to meet an April 2019 delivery. The COps program began software coding in November 2016, after a design review established that the product design would meet the Air Force’s intended needs.", "The Air Force continues to struggle with keeping multiple, highly compressed, interdependent, and concurrent program schedules synchronized in order to sustain and modernize the GPS constellation. Figure 7 shows some of the schedule challenges of the three programs needed for constellation sustainment and modernization.\nLaunching and operating the new GPS III satellite is a highly complex effort, since it requires synchronizing the development and testing schedules of OCX block 0, the first GPS III satellite, and the COps programs. For the Air Force to achieve its objective of making the first GPS III satellite operational by September 2019, numerous challenges (discussed below) must be addressed in the next 18 months on all three programs. If any of the three programs cannot resolve their challenges, the operation of the first GPS III satellite—and constellation sustainment—may be delayed.\nOCX Block 0 and Pre-Launch Testing Schedules With the goal of launching the first GPS III satellite in March 2018, the Air Force restructured its pre-launch integrated satellite and ground system testing in the summer of 2016, compressing the overall testing timeframe from 52 weeks to 42 weeks. More OCX block 0 delays in early fiscal year 2017 complicated Air Force test plans, resulting in changes to the sequence and timing of events, the introduction of concurrency at various points throughout the testing, the use of incomplete software in early testing, and an increase in the likelihood of discovering issues later in pre- launch integrated testing. Air Force officials stated that some pre-launch testing revisions streamlined the overall test plan since the merging of certain test events allowed multiple objectives to be met by the same event. Raytheon delivered OCX block 0, the launch and checkout system for GPS III satellites, in September 2017. The Air Force took possession of OCX block 0 in October 2017 and will finally accept it at a later date after OCX block 1 is delivered. However, if issues requiring corrective work are discovered during subsequent integrated testing, the GPS III launch schedule may be delayed further since there is minimal schedule margin on OCX block 0 for correcting any additional problems that may be found.\nFirst GPS III Satellite Capacitors There are hundreds of capacitors—devices used to store energy and release it as electrical power—installed in each GPS III satellite. In 2016, while investigating capacitor failures, the Air Force discovered that the subcontractor, then known as Exelis (now Harris Corporation), had not conducted required qualification testing for the capacitor’s operational use in GPS III satellites. The Air Force conducted a review of the components over many months, delaying program progress while a subcontractor qualified the capacitor design as suitable for use on the GPS III satellite. However, the Air Force concluded that Harris Corporation failed to properly conduct a separate reliability test of the particular production lot from which the questionable capacitors originated. The Air Force directed the contractor to remove and replace the capacitors from that production lot from the second and third GPS III satellites. After weighing the technical data and cost and schedule considerations, the Air Force decided to accept the first satellite and launch it “as is” with the questionable capacitors installed.\nThe COps program is also pursuing a compressed and concurrent development and testing schedule to be operational as planned in September 2019. The COps acquisition strategy document acknowledges that the program’s timeline is aggressive. DOT&E has highlighted the compressed COps schedule as a risk, since the limited time between the developmental and operational testing permits little time for the evaluation of test results and resolution of any deficiencies found. The COps program has already begun drawing from its 60-day schedule margin, with a quarter of this margin used within the first 5 months after development started. According to Air Force officials, this margin use was the result of unplanned delays certifying a software coding lab. Additionally, the program schedule has concurrent development and testing, which in our previous work we have noted is often a high risk approach but is sometimes appropriate for software development.\nCOps faces further schedule risk from its need for shared test assets, particularly the GPS III satellite simulator, a hardware- and software- based ground system that simulates GPS III function, which is also required by the GPS III and OCX programs. According to a DOT&E official, the OCX program receives priority over COps for the use of the GPS III satellite simulator, since the testing asset is heavily needed in the development of the ground control system. Because of the competing demands for this resource, which Air Force and DOT&E officials maintain requires lengthy and complex software reconfigurations to repurpose the simulator from one test event to the next, the Air Force is using a less realistic and purely software-based simulator for the testing of COps, where possible.", "Recent data show that the current satellites in the GPS constellation are expected to remain operational longer than previously projected, creating an additional, nearly 2-year schedule buffer before the first GPS III satellite needs to be operational to sustain the current GPS constellation capability. The Air Force projected that the first GPS III satellite needed to be operational by September 2019 based on 2014 satellite performance data. However, our analysis of the Air Force’s more recent May 2016 GPS constellation performance data indicates that, in order to continue meeting the constellation availability performance standard without interruption, the operational need for the first GPS satellite is now June 2021. This projection incorporates updated Air Force data from the current satellites that take into account an increase in solar array longevity expected for IIR and IIR-M satellites, according to Air Force officials. The Air Force is likely to meet the constellation’s June 2021 operational requirement because there are seven GPS III satellites planned to be launched by June 2021. Figure 8 shows the events leading to the launch and operation of the first GPS III satellite, achieving constellation sustainment once the first GPS III is operational, and subsequent GPS III launches that continue to support sustainment.\nThe nearly 2-year buffer between planned operation and actual need for the first GPS III satellite permits the Air Force additional time to resolve any development issues. Because of this additional 2-year schedule buffer, we are not making a recommendation at this time to address the short term challenges we have identified but will continue to assess the progress of each of the programs and risks to constellation sustainment in our future work.", "The Air Force risks additional cost increases, schedule delays, and performance shortfalls because operational testing to confirm that GPS III satellites work as intended with OCX blocks 1 and 2 will not be completed until after the planned launch of 8 of the 10 GPS III satellites currently under contract. Due to delays to the OCX final delivery, the new ground control system will not be completed in time to control the GPS III satellites for the first few years they are in orbit (approximately 3.5 years). Consequently, GPS III operational testing will now occur in three phases— 1. in late fiscal year 2019 to confirm the satellites can perform similarly to the existing GPS satellites with COps; 2. in fiscal year 2020 to confirm the GPS III satellites can perform some of the new M-code capabilities with MCEU; and 3. in fiscal year 2022 to confirm the GPS III satellites can perform all of the new M-code capabilities with OCX blocks 1 and 2.\nThe first GPS III satellite is projected to complete operational testing of legacy signal capabilities in September 2019. By that point, the Air Force plans to have launched 3 of the 10 GPS III satellites, the fourth satellite is expected to be delivered, and major integration work will be underway on satellites 5 through 8. Therefore, if satellite shortcomings are discovered during any phase of the operational testing, the Air Force will be limited to addressing such issues through software corrections to satellites already on orbit. If any of the three phases of operational testing reveals issues, the Air Force may face the need for potentially costly contract modifications and delivery delays for satellites not yet launched. To offset this risk, the Air Force has obtained performance knowledge of GPS III satellites through ground testing of the first satellite, and findings from this testing have driven modifications to all ten satellites. Because of the rigor of the ground testing of the first satellite, Air Force officials maintain that the knowledge that might be obtained through on-orbit operational testing of the first GPS satellite would be minimal. However, a DOT&E official said that ground testing is limited to assessing system responses that are induced through the testing process and therefore may omit phenomena that might be experienced in actual system operation on orbit. We will continue to track the progress of operational testing in our future work.", "DOD has established high-risk schedules for modernizing the GPS broadcast, or M-code signal, produced by GPS satellites. These risks are manifest in different ways. In the near term, the Air Force plans to provide a limited M-code broadcast—one that does not have all of the capabilities of OCX—in the MCEU program in fiscal year 2020. However, the MCEU schedule is high risk for its dependency on the timely completion of the COps program, for its aggressive schedule, and because of competition for limited test resources. Further, the full M-code broadcast capability, planned for fiscal year 2022, is at high risk of additional delays because (1) it is dependent on unproven efficiencies in software coding, (2) the program has not yet completed a baseline review, which may identify additional time needed to complete currently contracted work, and (3) there are known changes to the program that must be done that are not included in the proposed schedule.", "As noted above, the Air Force’s plans for delivering the M-code broadcast involve two separate high-risk programs—MCEU and OCX blocks 1 and 2—delivered at separate times to make an operational M-code signal available to the warfighter. Figure 9 highlights the current forecasted operational schedules to deliver limited M-code broadcast capabilities with MCEU and full M-code broadcast with OCX.\nThe MCEU program, created because of multiple delays to OCX and to partially address that program’s remaining schedule risk, is itself a high- risk program that is dependent on the timely development of COps. Estimated to cost approximately $120 million, MCEU formally entered the acquisition process in January 2017 as a software-specific program to modify OCS. To develop MCEU, Lockheed Martin officials stated they will leverage personnel with expertise maintaining and upgrading OCS as well as utilize the staff working on COps. With a planned December 2019 delivery for testing and a September 2020 target to begin operations, the MCEU program faces several schedule risks. The Air Force’s proposed plan anticipates a compressed software development effort, which the Air Force describes as aggressive. The Air Force has also identified potential risks to the MCEU schedule from competing demands by GPS III, OCX, COps, and MCEU for shared test resources. Air Force officials specifically noted competing demands for the GPS III simulator test resource. If development or testing issues arise in these other programs, those issues could delay the availability of the satellite simulator and thereby disrupt the planned MCEU development effort. According to program officials, the Air Force is working to mitigate this threat to the MCEU program through the use of a software-based simulator, when possible. Additionally, MCEU software development work is dependent on the timely conclusion of the COps effort—which, as previously mentioned, itself has an aggressive schedule and faces competition for a limited test resource. Air Force program officials have said that some Lockheed Martin staff planned to support MCEU will need to transfer from the COps effort. However, after reviewing the staffing plans at the MCEU contractor kickoff, Air Force officials said this is no longer viewed as a significant risk.\nOCX blocks 1 and 2 Raytheon has made some progress starting coding for OCX block 1 and taken the first steps toward implementing and demonstrating initial software development efficiencies that may benefit development for OCX blocks 1 and 2. The software efficiencies are built up in seven phases and need to be completed before the development process reaches each of the phases to take full advantage of the efficiencies they will create. Once ready, the efficiencies are inserted at different points in the software development schedule. For example, as of August 2017, the first of seven phases implementing the software development improvements was nearly complete, while the second phase was approximately two-thirds complete. Both are needed in place for insertion when the next phase of coding begins.\nFurther, the Air Force proposed a new rebaselined schedule in June 2017 as the final step to getting the program back on track after declaring a critical Nunn-McCurdy unit cost breach in 2016 when the program exceeded the original baseline by more than 50 percent. A Nunn- McCurdy unit cost breach classified as critical is the most serious type of breach and requires a program to be terminated unless the Secretary of Defense submits a written certification to Congress that, among other things, the new estimate of the program’s cost is reasonable and takes other actions, including restructuring the program. In October 2016, DOD recertified the program, with a 24-month schedule extension. Under this newer proposed schedule Raytheon forecasts delivering blocks 1 and 2 in December 2020 with 6 months of extra schedule—a 30-month schedule extension—to account for unknown technical issues before OCX blocks 1 and 2 are due to the Air Force in June 2021. The Air Force projects operating OCX in fiscal year 2022 after completing 7 months of operational testing post-delivery.\nThree factors place delivery of OCX blocks 1 and 2 in June 2021 at high risk for additional schedule delays and cost increases:\nFirst, the newly proposed June 2017 rebaselined schedule assumes significant improvements in the speed of software coding and testing that have not yet been proven, but will be introduced at various periods as software development proceeds. Whether Raytheon can achieve the majority of these efficiencies will not be known until the end of fiscal year 2018. However, the Defense Contract Management Agency, which independently oversees Raytheon’s work developing OCX, noted in July 2017 a number of risks to the schedule, including that some initial assumed efficiencies had not been demonstrated. Specifically, they noted for initial coding on block 1 that Raytheon had achieved only 60 percent of the software integration maturity planned to that point in time in conjunction with greater numbers of software deficiencies that will require more time than planned to resolve.\nSecond, the proposed rebaseline schedule has not yet undergone an integrated baseline review (IBR) to verify all of the work that needs to be done is incorporated into that schedule. The IBR is a best practice required by the Office of Management and Budget on programs with earned value management. An IBR ensures a mutual understanding between the government and the contractor of the technical scope, schedule, and resources needed to complete the work. We have found that too often, programs overrun costs and schedule because estimates fail to account for the full technical definition, unexpected changes, and risks. According to prior plans, the IBR would have taken place in early 2017, but it has been delayed multiple times for a number of reasons. A significant and recurring root cause of delays on the OCX program has been a lack of mutual understanding of the work between the Air Force and Raytheon.\nThe IBR start was scheduled for November 2017 with completion in February 2018. Once conducted, the review may identify additional work not in the proposed schedule that needs to be completed before delivery. For example, Raytheon is conducting a review of hardware and software obsolescence. If significant additional obsolescence issues are found that need to be resolved before OCX blocks 1 and 2 are delivered, the projected delivery date may need to be delayed further at additional cost.\nThird, the OCX contract will likely be modified because the Air Force needs to incorporate into its contract with Raytheon a number of changes that are not currently a part of the proposed schedule. According to Air Force and contractor officials, negotiations are under way to determine which of these changes will be incorporated before OCX blocks 1 and 2 are delivered and which may be added after delivery. Air Force officials said that the incorporation of changes should be completed by February 2018.\nSchedule risk assessments for OCX blocks 1 and 2 delivery vary, making it unclear when the full M-code broadcast will finally be operational. Government assessments of Raytheon’s performance continue to indicate more schedule delays are likely. Table 4 shows the varying assessments of potential schedule delays by the Defense Contract Management Agency and the Air Force to the proposed June 2021 delivery date and the subsequent operational date that occurs 7 months later.\nIn 2015, we made four recommendations to the Secretary of Defense, one of which was to use outside experts to help identify all underlying problems on OCX and develop high confidence cost and schedule estimates, among others, in order to provide information necessary to make decisions and improve the likelihood of success. To date, none of these recommendations have been fully implemented but DOD has taken steps to address some of them. Further, because the Air Force has undertaken the COps and MCEU programs to provide interim capabilities to mitigate OCX delays for the full broadcast capability, we are not making additional recommendations at this time but will continue to monitor progress and risks to the acquisition of OCX.", "While technology development for the M-code receiver cards is underway, DOD has developed preliminary—but incomplete—plans to fully develop and field M-code receiver cards across the more than 700 weapon systems that will need to make the transition from the current technology. DOD has prepared initial cost and schedule estimates for department-wide fielding for a fraction of these weapon systems. While the full cost remains unknown, it is likely to be many billions of dollars greater than the $2.5 billion identified through fiscal year 2021 because there is significant work remaining to verify the initial cards work as planned and to develop them further after the MGUE increment 1 program ends. Without greater coordination of integration test results, lessons learned, and design solutions DOD is at risk of duplicated development work as multiple weapon system programs separately mature and field similar technologies on their own. Further, with the full M-code broadcast available in fiscal year 2022, a gap—the extent of which is unknown—between operationally broadcasting and receiving M- code exists. Figure 10 highlights the gap between the time the M-code signal will be operational and the undefined time M-code can be used by the military services.", "The Air Force program to develop initial M-code receiver test cards has made progress by establishing an acquisition strategy for this effort and maturing receiver test cards. In January 2017, DOD approved the MGUE increment 1 program to formally begin development, and it defined the criteria to end the program as (1) verifying technical requirements on all types of final receiver test cards; (2) certifying readiness for operational testing by the Air Force Program Executive Officer; (3) completing operational testing for the four lead platforms for, at a minimum, at least the first card available; and (4) completing manufacturing readiness assessments for all three contractors.\nWithin the MGUE increment 1 program, contractors are making progress toward delivering final hardware test cards and incremental software capabilities. For example, one contractor has achieved its initial security certification from the Air Force, which is a key step toward making the MGUE increment 1 receiver test card available for continued development and eventual procurement. Further, the MGUE increment 1 program is also conducting risk reduction testing in preparation for formal developmental verification testing, an important step that ensures the receiver cards meet technical requirements. Programs throughout DOD can make risk-based decisions to develop and test the receiver test cards after technical verification of the card’s hardware and software. According to MGUE program officials, this is significant because it allows non-lead platforms to obtain and work with the cards sooner than the end date of operational testing on lead platforms.", "Although the Air Force has made progress in maturing receiver test cards, significant development work remains to reach the point where the cards can ultimately be fielded on over 700 different weapon systems. For example, for MGUE increment 1, the Air Force must define additional technical requirements in order for the M-code receiver cards to be compatible and communicate with existing weapon systems. The Air Force will also need to conduct operational tests for each of the lead platforms—the Stryker ground combat vehicle; B-2 Spirit bomber; JLTV; and DDG-51 Arleigh Burke destroyer—before the full M-code signal is available with OCX. Because these tests will instead be conducted with the limited signal provided by MCEU, DOD risks discovering issues several years later once full operational testing is conducted. Further, according to military service officials and assessments by DOT&E, this operational testing will only be minimally applicable to other weapon systems because those other weapon systems have different operational requirements and integration challenges than the four lead platforms. As a result, additional development and testing will be necessary on an undetermined number of the remaining weapon systems to ensure the receiver cards address each system’s unique interfaces and requirements. In 2018, DOD will also formally begin development for MGUE increment 2. Increment 2 will provide more compact receiver cards to be used when size, weight, and power must be minimized, such as on handheld receivers, space receivers, and munitions where increment 1 receiver cards are too large to work.\nThe military services are working to mitigate some of these development challenges. For example, Army officials told us they do not plan to field MGUE receiver cards on its lead platform, the Stryker, due to ongoing gaps in technical requirements. In addition, there is not a lead platform to demonstrate increment 1 on munitions since munition requirements were planned to be addressed in increment 2. However, to address its needs, the Army has initiated efforts to modify the MGUE increment 1 receiver card for some munitions that would otherwise need to wait for MGUE increment 2 technologies. Individual munition program offices within other military services have begun to do so as well. According to military service officials from the Army, Navy, and Marine Corps, it is essential that user needs are met by increment 2, or they will have to conduct additional development and testing. The Army previously identified gaps in increment 1 that the Air Force has either addressed in increment 1, has deferred to increment 2, or will need to be addressed outside of the MGUE increment 1 and 2 programs. Army and Navy officials also stated that they were concerned that any disagreements in requirements for increment 2 could lead to further fielding delays.\nFinally, the transition from existing GPS receiver cards to M-code receiver cards is likely to take many years. We recently reported that transitioning all DOD platforms to the next generation of receiver cards will likely take more than a decade. A lengthy transition has happened before, as previous efforts to modernize GPS to the current receiver cards, begun in 2003, are still underway and the older receiver cards are still being used. As a result, DOD anticipates that warfighters will have to operate with a mix of older and newer receiver cards.", "DOD has begun collecting preliminary information on M-code requirements for individual weapon systems. In December 2016, the USD AT&L directed the military services, the Missile Defense Agency (MDA), and Special Operations Command (SOCOM) to submit implementation plans with M-code investment priorities across weapon systems and munitions, including projected costs and schedules. According to DOD, these M-code implementation plans are intended to provide DOD with a management and oversight tool for the fielding effort. In February 2017, each organization submitted its own implementation plan to USD AT&L.\nThese plans were then briefed to the PNT Executive Management Board and PNT Oversight Council in February and March, respectively.\nHowever, these implementation plans are preliminary and based on assumptions about the Air Force’s ability to achieve MGUE increment 1 and 2 technical requirements, the timeline required to do so, and the amount of development and test work that will remain for the receiver cards to be ready for production and fielding after the programs end. Since the MGUE increment 2 program has not started development, it has not yet finalized requirements. Once approved, the increment 2 program office will produce an acquisition strategy, schedule, and cost estimate. However, after the MGUE increment 2 program ends there is no detailed plan for completing development, testing, and fielding of M-code receiver cards for weapon systems across the department.\nDOD has preliminary cost and schedule estimates for some weapon programs, but lacks a total cost at this point because the department does not include all efforts initiated by programs to meet specific needs, including those outside the MGUE increment 1 and 2 programs. The initial M-code implementation plans responded to what was requested but do not individually identify what the total cost will be for each organization to develop and field M-code receiver cards, so a total cost can be determined across DOD. Because USD AT&L required that the implementation plans include funding and schedule estimates for 2 to 3 years while directing that plans be resubmitted, at a minimum, every 2 years, weapon systems that will need M-code but were not considered an immediate priority were not included in the initial submissions. In addition, the military services, MDA, and SOCOM provided only initial cost estimates. According to military service officials, these estimates were based on the current MGUE increment 1 program schedule and technical development and include risk-based decisions to partially fund specific programs until the MGUE increment 1 program matures. According to a USD AT&L official, the plans would both facilitate M-code implementation planning for the department and inform the issuance of waivers. The official stated that as the acquisition programs critical to providing M-code capability mature, future implementations plans should provide more comprehensive estimates of cost and schedule to achieve M-code implementation for the department.\nOur analysis of the M-code receiver card implementation plans found that initial funding estimates indicate a cost of over $2.5 billion to integrate and procure M-code receiver cards on only a small number of weapon systems out of the hundreds of types that need M-code receiver cards. The full cost will be much larger—likely many billions of dollars because the majority of the weapon systems that need M-code receiver cards are not funded yet or are only partially funded, according to the M-code implementation plans. Specifically, the military services, MDA, and SOCOM identified 716 types of weapon systems in their February 2017 implementation plans that require almost a million M-code receiver cards. For example, the JLTV fleet—which provides protection for passengers against current and future battlefield threats for multiple military services—is one type of weapon system that will eventually need almost 25,000 receiver cards. Of the 716 types of weapon systems that will need M-code receiver cards, only 28—or less than 4 percent—are fully funded through fiscal year 2021. The remainder have either partially funded M- code development and integration efforts (72 weapon systems), or do not yet have funding planned (616 weapon systems). Additionally, the preliminary estimates to develop and procure M-code receivers on selected weapon systems do not all include funding beyond fiscal year 2021 that will be needed for further development, integration, and procurement. This means that DOD and Congress do not have visibility into how much additional funding could be needed to fully fund the remaining 96 percent of all weapon systems that need M-code receivers. Figure 11 shows the M-code development and integration efforts that are funded, partially funded, or unfunded through fiscal year 2021 across DOD weapon systems that will need M-code receiver cards.\nBecause the implementation plans are a first step toward providing DOD leadership insight on this large set of acquisitions and they will be updated at least every 2 years by the different organizations within DOD, we are not making a recommendation at this time. However, we will continue to monitor DOD’s cost and schedule planning.", "The level of development and procurement effort beyond MGUE increments 1 and 2 is significant and will require close coordination among the military services, MDA, and SOCOM. While Joint Staff officials stated that the DOD Chief Information Officer is working with the military services and Joint Staff to produce a user equipment roadmap to help guide that coordination, they said that these efforts are not yet complete. DOD has designated the Air Force to lead initial development of both larger and smaller test cards that other organizations will need to develop further to meet their individual needs. After the Air Force develops initial cards for both sizes, the breadth and complexity of this acquisition will multiply, as the offices responsible for upgrading hundreds of weapon systems begin their own individual efforts to further develop and test the cards so they work for the unique needs of their specific system. While some common solutions are being developed, Air Force officials said the military services and individual weapon systems will have the freedom to go to the contractors and begin their own development efforts.\nDOD does not have a developed plan in place to help ensure that common design solutions are employed and that DOD avoids duplication of effort as multiple entities separately mature receiver cards. We previously found that duplication occurs when two or more agencies or programs are engaged in the same activities. In this case, because the individual organizations and program offices are likely to be pursuing individual and uncoordinated receiver card programs at different times with different contractors, DOD is at risk for significant duplication of effort. We previously found that establishing formal mechanisms for coordination and information sharing across DOD programs reduces the risk of gaps and results in more efficient and more effective use of resources. Internal control standards also state that establishing clear responsibilities and roles in achieving objectives is key for effective management. Further, DOD previously reported clear leadership ensures that programs and stakeholders are aligned with common goals.\nAccording to MGUE program officials, the MGUE increment 1 program is already capturing all issues observed in receiver test card risk reduction testing and sharing this information through a joint reporting system. However, while non-lead platforms may also report deficiencies in this system, there is no requirement that they do so, nor is there an entity responsible for ensuring data from testing, design, and development is shared between programs. We previously found that the absence of a formal process for coordination results in the potential for duplication, overlap, and fragmentation. DOD therefore risks paying to repeatedly find design solutions to solve common problems because each program office is likely to undertake its own uncoordinated development effort. Some duplicated effort may already be occurring. Air Force officials have expressed concern that work is already being duplicated across the military services in developing embedded GPS systems to be integrated into aircraft. According to multiple DOT&E assessments, the absence of a plan across the wide variety of intended interfaces leaves significant risk in integrating the receiver cards, and therefore fielding cost and schedule risk for DOD.", "GPS is a national asset for civilians and the military service members who depend upon it each day. Any disruption to the system would have severe economic and military consequences. In keeping the system sustained and modernizing it with additional capabilities, DOD has spent billions of dollars more than planned developing five interdependent GPS programs. Developing these technologies is complex work with the collective effort already years behind initial estimates to provide the warfighter with a means to counter known threats, such as jamming, to the current system. It will be many years before M-code receiver cards are fielded at a cost that remains unknown but that will be substantially higher than the estimated $2.5 billion already identified through fiscal year 2021. In the short term, it is unclear when there will be a receiver card ready for production after the end of operational testing, and in the long term DOD risks wasting resources duplicating development efforts on weapon systems with similar requirements. Without better coordination of this effort, DOD risks unnecessary cost increases and schedule delays because there is no established process or place for collecting and sharing development and integration practices and solutions between programs.", "We are making the following recommendation to DOD: The Secretary of Defense should ensure that the Under Secretary of Defense for Acquisition, Technology, and Logistics, as part of M-code receiver card acquisition planning, assign an organization with responsibility for systematically collecting integration test data, lessons learned, and design solutions and making them available to all programs expected to integrate M-code receiver cards. (Recommendation 1)", "We provided a draft of this report to the Department of Defense for review and comment. In its written comments, reproduced in appendix II, DOD concurred with the recommendation. DOD also provided technical comments, which we incorporated as appropriate.\nWe are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, the Secretary of the Air Force, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov.\nIf you or your staff have any questions concerning this report, please contact me at (202) 512-4841 or by email at chaplainc@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix IV.", "To determine the extent to which there are acquisition risks to sustaining the Global Positioning System (GPS) satellite constellation, we reviewed the Air Force GPS quarterly reports, program acquisition baselines, integrated master schedules, acquisition strategies, software development plans, test plans, and other documents to the extent they existed for GPS III, Next Generation Operational Control System (OCX), and Contingency Operations (COps) programs. We also interviewed officials from the GPS III, OCX, and COps programs; the Air Force Space and Missile Systems Center’s (SMC) GPS Enterprise Integrator office; the prime contractors from all three programs; the Defense Contract Management Agency; the Office of Cost Assessment and Program Evaluation; and the Office of the Director, Operational Test and Evaluation (DOT&E). We also reviewed briefings and other documents from each to evaluate program progress in development. We assessed the status of the currently operational GPS satellite constellation, interviewing officials from the Air Force SMC GPS program office and Air Force Space Command.\nTo assess the risks that a delay in the acquisition and fielding of GPS III satellites could result in the GPS constellation falling below the 24 satellites required by the standard positioning service and precise positioning service performance standards, we employed a methodology very similar to the one we had used to assess constellation performance in 2009, 2010, and 2015. We obtained information dated May 2016 from the Air Force predicting the reliability for 63 GPS satellites—each of the 31 current (on-orbit as of July 2017) and 32 future GPS satellites—as a function of time. Each satellite’s total reliability curve defines the probability that the satellite will still be operational at a given time in the future. It is generated from the product of two reliability curves—a wear- out reliability curve defined by the cumulative normal distribution, and a random reliability curve defined by the cumulative Weibull distribution. For each of the 63 satellites, we obtained the two parameters defining the cumulative normal distribution, and the two parameters defining the cumulative Weibull distribution. For each of the 32 unlaunched satellites we included in our model, we also obtained a parameter defining its probability of successful launch, and its current scheduled launch date. The 32 unlaunched satellites include 10 GPS III satellites currently under contract and 22 GPS III satellites planned for contract award in late 2018; launch of the final GPS III satellite we included in our model is scheduled for October 2031. Using this information, we generated overall reliability curves for each of the 63 GPS satellites. We discussed with Air Force and Aerospace Corporation representatives, in general terms, how each satellite’s normal and Weibull parameters were calculated. However, we did not analyze any of the data used to calculate these Air Force provided parameters.\nUsing the reliability curves for each of the 63 GPS satellites, we developed a Monte Carlo simulation to predict the probability that at least a given number of satellites would be operational as a function of time, based on the GPS launch schedule as of May 2016. We conducted several runs of our simulation—each run consisting of 10,000 trials—and generated “sawtoothed” curves depicting the probability that at least 24 satellites would still be operational as a function of time. We then used our Monte Carlo simulation model to examine the effect of delays to the operational induction of the GPS III satellites into the constellation. We reran the model based on month/year delay scenarios, calculating new probabilities that at least 24 satellites would still be operational as a function of time, determining in terms of month/year the point at which a satellite would be required to enter operations to maintain an uninterrupted maintenance of the 95 percent probability of 24 satellites in operation. The Air Force satellite parameters we used for the Monte Carlo simulation pre-dated the Air Force investigation into navigation payload capacitors and the subsequent decision to launch the first satellite “as is” with questionable parts. Therefore, the reliability parameters for this satellite were not informed by any possible subsequent Air Force consideration of the decision to launch the first GPS III satellite “as is” with these parts.\nTo determine the extent to which the Department of Defense (DOD) faces acquisition challenges developing a new ground system to control the broadcast of a modernized GPS signal, we reviewed Air Force program plans and documentation related to cost, schedule, acquisition strategies, technology development, and major challenges to delivering M-code Early Use (MCEU) and OCX blocks 1 and 2. We interviewed officials from the MCEU and OCX program offices, SMC GPS Enterprise Integrator office, DOT&E, and the prime contractors for the two programs. For OCX, we also reviewed quarterly reviews, monthly program assessments, and slides provided by Raytheon on topics of our request. We also interviewed Office of Performance Assessments and Root Cause Analyses officials regarding root causes of the OCX program’s cost and schedule baseline breach and Defense Contract Management Agency officials charged with oversight of the OCX contractor regarding cost and schedule issues facing the program’s development efforts, major program risks, and technical challenges.\nTo determine the extent to which DOD faces acquisition challenges developing and fielding modernized receiver cards across the department, we reviewed Air Force program plans and documentation related to M-code GPS User Equipment (MGUE) increment 1 cost, schedule, acquisition strategy, and technology development. We interviewed officials at the Air Force SMC GPS program office, MGUE program office, DOT&E, and the three MGUE increment 1 contractors— L3 Technologies, Raytheon, and Rockwell Collins. To identify the military services’ respective development efforts and challenges in integrating MGUE with their lead platforms, we interviewed officials from the lead program offices for the Army’s Defense Advanced GPS Receiver Distributed Device/Stryker, Air Force’s B-2 aircraft, Navy’s DDG-51 Arleigh Burke class destroyer, and Marine Corps Joint Light Tactical Vehicle. Additionally, to understand the extent to which DOD has a plan for implementing M-code for the warfighter, we analyzed DOD Positioning, Navigation, and Timing (PNT) plans and other DOD memorandum on GPS receiver cards. We also held discussions with and received information from officials at Office of the Undersecretary of Defense for Acquisition, Technology, and Logistics; Joint Staff / J-6 Space Branch; and military service officials from the offices responsible for developing M-code receiver card implementation plans.\nWe conducted this performance audit from February 2016 to December 2017 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.", "", "", "", "", "In addition to the contact named above, David Best, Assistant Director; Jay Tallon, Assistant Director; Karen Richey, Assistant Director; Pete Anderson; Andrew Berglund; Brandon Booth; Brian Bothwell; Patrick Breiding; Erin Carson; Connor Kincaid; Jonathan Mulcare; Sean Sannwaldt; Alyssa Weir; Robin Wilson and Marie P. Ahearn made key contributions to this report." ], "depth": [ 1, 2, 2, 2, 2, 1, 2, 2, 2, 2, 1, 2, 1, 2, 2, 2, 2, 1, 1, 1, 1, 1, 1, 1, 2, 2 ], "alignment": [ "h1_title", "", "h1_full", "", "", "h0_full", "", "", "h0_full", "", "h1_title", "h1_full", "h2_title h3_title", "", "h2_full", "h2_full", "h3_full", "", "", "h1_full", "h0_full h1_full", "", "", "", "", "" ] }

{ "question": [ "To what extent will the DOD's acquisition of GPS III affect the current constellation?", "What is the projected operating life of the current constellation?", "What progress has been made in starting up the GPS III constellation?", "How is DOD developing OCX?", "What future challenges could OCX face?", "How does the Air Force plan to mitigate the delays of OCX?", "What is the relationship between GAO and OCX?", "What is DOD's progress in finalizing the receiver cards for the M-code signal?", "What is the status of the projected costs and schedule of the M-code receiver transition?", "What is the preliminary cost estimate?", "How will this estimate change when unfunded weapons systems are included?", "How complex will the development of the M-code system be?", "How will development change after the initial cards are produced?", "What development redundancies exist in the DOD?", "How will this affect the DOD?" ], "summary": [ "The Department of Defense's (DOD) acquisition of the next generation Global Positioning System (GPS) satellites, known as GPS III, faces a number of acquisition challenges, but these challenges do not threaten DOD's ability to continue operating the current GPS system, which DOD refers to as the constellation, in the near term.", "Projections for how long the current constellation will be fully capable have increased by nearly 2 years to June 2021, affording some buffer to offset any additional satellite delays.", "While the first GPS III satellite has a known parts problem, six follow-on satellites—which do not—are currently scheduled to be launched by June 2021.", "DOD is relying on a high-risk acquisition schedule to develop a new ground system, known as OCX, to control the broadcast of a modernized military GPS signal.", "OCX remains at risk for further delays and cost growth.", "To mitigate continuing delays to the new ground control system, the Air Force has begun a second new program—Military-code (M-code) Early Use—to deliver an interim, limited broadcast encrypted GPS signal for military use by modifying the current ground system.", "GAO will continue to monitor OCX progress.", "DOD has made some progress on initial testing of the receiver cards needed to utilize the M-code signal. However, additional development is necessary to make M-code work with over 700 weapon systems that require it.", "DOD has begun initial planning for some weapon systems, but more remains to be done to understand the cost and schedule needed to transition to M-code receivers.", "The preliminary estimate for integrating and testing a fraction of the weapon systems that need the receiver cards is over $2.5 billion through fiscal year 2021 with only 28 fully and 72 partially funded (see figure).", "The cost will increase by billions when as yet unfunded weapon systems are included.", "The level of development and procurement effort beyond the initial receiver cards is significant and will require close coordination across DOD.", "After the Air Force develops initial cards, the breadth and complexity of this acquisition will multiply, as the offices responsible for upgrading hundreds of weapon systems begin their own individual efforts to further develop and test the cards.", "However, DOD does not have an organization assigned to collect test data, lessons learned, and design solutions so that common design solutions are employed to avoid duplication of effort as multiple entities separately mature receiver cards.", "DOD therefore risks paying to repeatedly find design solutions to solve common problems because each program office is likely to undertake its own uncoordinated development effort." ], "parent_pair_index": [ -1, 0, 0, -1, 0, 1, -1, -1, 0, 1, 1, -1, 0, -1, 2 ], "summary_paragraph_index": [ 3, 3, 3, 4, 4, 4, 4, 5, 5, 5, 5, 6, 6, 6, 6 ] }

{ "title": [ "Background", "Continuing Problems with Flight Testing of Software Capabilities Will Delay the Completion of Development and Increase Development Costs", "Problems with Mission Systems Software Continue to Cause Delays in Flight Testing", "Delays in Developmental Testing Will Likely Affect Plans for Initial Operational Testing, Navy Operational Capability Dates, and Full-Rate Production", "Delays in Development Will Increase Program Costs and Add to Concurrency", "DOD’s Planned Investments in Modernization and Economic Order Purchase May Be Premature", "Follow-on Modernization May Be Too Early", "Costs and Benefits of Economic Order Quantity Purchases Are Not Clear", "Aircraft Manufacturing and Reliability Are Improving in Some Areas", "Airframe and Engine Manufacturing Efficiency Is Improving, but Supply Chain Challenges Remain", "Aircraft Reliability and Maintainability Metrics Have Improved in Some Areas", "Conclusions", "Recommendations for Executive Action", "Agency Comments and Our Evaluation", "Appendix I: Prior GAO Report and DOD Actions", "Appendix II: Scope and Methodology", "Appendix III: Status of F-35 Technical Risks", "Appendix IV: Comments from the Department of Defense", "Appendix V: GAO Contact and Staff Acknowledgments", "GAO Contact", "Staff Acknowledgments", "Related GAO Products" ], "paragraphs": [ "As we have previously reported, DOD began the F-35 acquisition program in October 2001 without adequate knowledge about the aircraft’s critical technologies or design. In addition, DOD’s acquisition strategy called for high levels of concurrency or overlap among development, testing, and production. In our prior work, we have identified the lack of adequate knowledge and high levels of concurrency as major drivers of the significant cost and schedule growth as well as performance shortfalls that the program has experienced since 2001. The program has been restructured three times since it began: first in December 2003, again in March 2007, and most recently in March 2012. The most recent restructuring was initiated in early 2010 when the program’s unit cost estimates exceeded critical thresholds established by statute—a condition known as a Nunn-McCurdy breach. DOD subsequently certified to Congress in June 2010 that the program was essential to national security and needed to continue. DOD then began efforts to significantly restructure the program and establish a new acquisition program baseline. These restructuring efforts continued through 2011 and into 2012, during which time the department increased the program’s cost estimates and extended its testing and delivery schedules. Since then costs have remained relatively stable. Table 1 shows the cost, quantity, and schedule changes from the initial program baseline and the relative stability since the new baseline was established.\nAs the program has been restructured, DOD has also reduced near-term aircraft procurement quantities. From 2001 and through 2007, DOD deferred the procurement of 931 aircraft into the future, and then again from 2007 and through 2012, DOD deferred another 450 aircraft. Figure 1 shows how planned quantities in the near term steadily declined over time.\nThe F-35 is DOD’s most costly acquisition program, and over the last several years we have reported on the affordability challenges facing the program. As we reported in April 2016, the estimated total acquisition cost for the F-35 program was $379 billion, and the program would require an average of $12 billion per year from 2016 through 2038. The program expects to reach peak production rates for U.S. aircraft in 2022, at which point DOD expects to spend more than $14 billion a year on average for a decade (see fig. 2). Given these significant acquisition costs, we found that DOD would likely face affordability challenges as the F-35 program competes with other large acquisition programs, including the B-21 bomber, KC-46A tanker, and Ohio Class submarine replacement. In addition, in September 2014, we reported that DOD’s F-35 sustainment strategy may not be affordable.\nThrough 2016, DOD had awarded contracts for production of 9 lots of F- 35 aircraft, totaling 285 aircraft (217 aircraft for the U.S. and 68 aircraft for international partners or foreign military sales). At the time of this report, the contract for lot 10 had not been signed.\nIn 2013, the Departments of the Navy and the Air Force issued a joint report to the congressional defense committees providing that the Marine Corps and Air Force would field initial operating capabilities in 2015 and 2016, respectively, with aircraft that had limited warfighting capabilities. The Navy did not plan to field its initial operating capability until 2018, after the F-35’s full warfighting capabilities had been developed and tested. These dates represented a delay of 5 to 6 years from the program’s initial baseline. As planned, the Marine Corps and Air Force declared initial operational capability (IOC) in July 2015 and August 2016, respectively.", "DOD will need more time and money than expected to complete the remaining 10 percent of the F-35 development program. DOD has experienced delays in testing the software and systems that provide warfighting capabilities, known as mission systems, largely because the software has been delivered late to be tested and once delivered has not worked as expected. Program officials have had to regularly divert resources from developing and testing of more advanced software capabilities to address unanticipated problems with prior software versions. These problems have compounded over time, and this past year was no exception. DOD began testing the final block of software— known as block 3F—later than expected, experienced unanticipated problems with the software’s performance, and thus did not complete all mission systems testing it had planned for 2016. As a result, the F-35 program office has noted that more time and money will be needed to complete development. The amount of time and money could vary significantly depending on the program’s ability to complete developmental and operational testing. We estimate that developmental testing could be delayed as much as 12 months, thus delaying the start of initial operational testing, and total development costs could increase by nearly $1.7 billion. In addition, the Navy’s IOC and the program’s full-rate production decision could also be delayed.", "DOD continues to experience delays in F-35 mission systems testing. Although mission systems testing is about 80 percent complete, the complexity of developing and testing mission systems has been troublesome. For the F-35 program, DOD is developing and fielding mission systems capabilities in software blocks: (1) Block 1, (2) Block 2A, (3) Block 2B, (4) Block 3i, and (5) Block 3F. Each subsequent block builds on the capabilities of the preceding block. Over the last few years, program officials have had to divert resources—personnel and infrastructure—from developing and testing of more advanced software blocks to address unanticipated problems with prior software blocks. Over time, this practice has resulted in compounding delays in mission systems testing. Blocks 1 through 3i are now complete, and the program is currently focused on developing and testing Block 3F, the final software block in the current development program. Figure 3 illustrates the mission systems software blocks being developed for the program, the percentage of test points completed by block, and the build-up to full warfighting capability with Block 3F.\nProgram officials spent some of 2016 addressing problems with Block 3i mission systems unexpectedly shutting down and restarting—an issue known as instability—which delayed Block 3F testing. In early 2016, officials were developing and testing Block 3i concurrently with Block 3F. In order to ensure that the Block 3i instability was addressed in time for the Air Force’s planned IOC in August 2016, officials diverted resources from Block 3F.That decision delayed subsequent testing that had been planned for Block 3F. Further delays resulted from the discovery of instability and functionality problems with Block 3F. To mitigate some schedule delays, program officials implemented a new process to introduce software updates quicker than normal. Although the quick software releases helped to ensure that testing continued, the final planned version of Block 3F, which was originally planned to be released to testing in February 2016, was not released until late November 2016, nearly a 10-month delay. As a result, program officials have identified the need for additional time to complete development. Program officials now project that developmental testing, which was expected to be completed in May, will conclude in October 2017, 5 months later than planned.\nHowever, based on our analysis, the program’s projection is optimistic as it does not reflect historical F-35 test data. Program officials believe that going forward they may be able to devote more resources to mission systems testing, which could lead to higher test point completion rates than they have achieved in the past. According to GAO best practices, credible schedule estimates are rooted in historical data. As of November 2016, program officials estimated that the program will need to complete as much as an average of 384 mission systems test points per month in order to finish flight testing by October 2017—a rate that the program has rarely achieved before. Our analysis of historical test point data as of December 2016 indicates that the average test point execution rates are much lower, at 220 mission systems test points per month. In addition, historical averages suggest that test point growth—additions to the overall test points from discovery in flight testing—is much higher than program officials assume, while estimated deletions—test points that are considered no longer required—are lower than assumed. Using the historical F-35 averages, we project that developmental testing may not be completed until May 2018, a 12-month delay from the program’s current plan. Table 2 provides a comparison of the assumptions used to determine delays in developmental testing.\nOur estimation of delays in completing developmental testing does not include the time it may take to address the significant number of existing deficiencies. The Marine Corps and Air Force declared IOC with limited capability and with several deficiencies. As of October 2016, the program had more than 1,200 open deficiencies, and senior program and test officials deemed 276 of those critical or of significant concern to the military services. Several of the critical deficiencies are related to the aircraft’s communications, data sharing, and target tracking capabilities. Although the final planned version of Block 3F software was released to flight testing in November 2016 and contained all 332 planned warfighting capabilities, not all of those capabilities worked as intended. In accordance with program plans, it was the first time some of the Block 3F capabilities had been tested. According to a recent report by the Director, Operational Test and Evaluation (DOT&E), fixes for less than half of the 276 deficiencies were included in the final planned version of Block 3F software. Prime contractor officials stated that additional software releases will likely be required to address deficiencies identified during the testing of the final planned version of Block 3F software, but they do not yet know how many releases will ultimately be needed.", "Delays in developmental testing will likely drive delays in current plans to start F-35 initial operational test and evaluation. Program officials have noted that according to their calculations developmental testing will end in October 2017 and initial operational testing will begin in February 2018. However, DOT&E officials, who approve operational test plans, anticipate that the program will more likely start operational testing in late 2018 or early 2019, at the earliest. Figure 4 provides an illustration of the current program schedule and DOT&E’s projected delays.\nDOT&E’s estimate for the start of initial operational testing is based on the office’s projection that developmental testing will end in July 2018 and that retrofits needed to prepare the aircraft for operational testing will not be completed until late 2018 at the earliest. There are 23 aircraft—many of which are early production aircraft—that require a total of 155 retrofits before they will be ready to begin operational testing. As of January 2017, 20 of those retrofits were not yet under contract, and program officials anticipated some retrofits would be completed in late 2018.\nTo mitigate possible schedule delays, program officials are considering a phased start to operational testing. However, current program test plans require training and preparation activities before initial operational test and evaluation begins. Those activities, as outlined in the test plan, are expected to take approximately 6 months. Changes to this approach would require approval from DOT&E. According to DOT&E officials, however, the program has not yet provided any detailed strategy for implementing a new approach or identified a time frame for revising the test plan.\nSignificant delays in initial operational testing will likely affect two other upcoming program decisions: (1) the Navy’s decision to declare IOC and (2) DOD’s decision to begin full-rate production. In a 2015 report to the congressional defense committees, the Under Secretary of Defense for Acquisition, Technology and Logistics stated that the Navy’s IOC declaration is on track for February 2019 pending completion of initial operational test and evaluation. If initial operational testing does not begin until February 2019 as the DOT&E predicts, the Navy may need to consider postponing its IOC date. Likewise, DOD’s full-rate production decision, currently planned for April 2019, may have to be delayed. According to statute, a program may not proceed beyond low-rate initial production into full-rate production until initial operational test and evaluation is completed and DOT&E has submitted to the Secretary of Defense and the congressional defense committees a report that analyzes the results of operational testing. If testing does not begin until February 2019 and takes 1 year, as expected, DOD will not have the report in time to support a full-rate production decision by April 2019.", "The current delays in F-35 developmental testing will also result in increased development costs. Based on the program office’s estimate of a 5-month delay in developmental testing, the F-35 program will need an additional $532 million to complete the development contract. According to GAO best practices, credible cost estimates are also rooted in historical data. Using historical contractor cost data from April 2016 to September 2016, we calculated the average monthly cost associated with the development contract. If developmental testing is delayed 12 months, as we estimate, and operational testing is not completed until 2020, as projected by DOT&E, then we estimate that the program could need more than an additional $1.7 billion to complete the F-35 development contract. Similarly, the Cost Assessment and Program Evaluation office within the Office of the Secretary of Defense has estimated that the program will likely need more than $1.1 billion to complete the development contract. In these estimates, the majority of the additional funding would be needed in fiscal year 2018. Specifically, program officials believe that an additional $353.8 million may be needed in fiscal year 2018, while we estimate that they could need more than three times that amount— approximately $1.3 billion—as illustrated in figure 5.\nThe program plans to fund their estimated development program deficit through several means. For example, although the program office 2018 preliminary budget projection reflected a reduction of $81 million in development funding over the next few years, as compared to DOD’s fiscal year 2017 budget request, program officials expect DOD to restore this reduction in its official fiscal year 2018 budget request. In addition, program officials plans to increase the budget request, as compared to their fiscal year 2017 budget request, for development funding in fiscal years 2018, 2019, and 2020 by $451 million and likewise reduce their budget request for procurement funding over those years. To make up for the reduction in requested procurement funding, the program plans to reprogram available procurement funds appropriated in prior fiscal years. Any additional funding beyond $451 million would likely have to come from some other source. Figure 5 compares DOD’s and our estimates for development funding needs from fiscal years 2018 through 2021.\nAs developmental testing is delayed and DOD procures more aircraft every year, concurrency costs—the costs of retrofitting delivered aircraft—increase. For example, from 2015 to 2016, the program experienced a $70 million increase in concurrency costs. This increase was partially driven by the identification of new technical issues found during flight testing that were not previously forecasted, including problems with the F-35C outer-wing structure and F-35B landing gear. Problems such as these have to be fixed on aircraft that have already been procured. Thus far, DOD has procured 285 aircraft and has experienced a total of $1.77 billion in concurrency costs. Although testing is mostly complete, any additional delays will likely result in delays in the incorporation of known fixes, which would increase the number of aircraft that will require retrofits and rework and further increase concurrency costs as more aircraft are procured. According to program officials, most of the retrofits going forward are likely to be software related and thus less costly. However, according to DOD’s current plan, 498 aircraft will be procured by the time initial operational testing is complete. If the completion of operational testing is delayed to 2020, as DOT&E predicts, the number of procured aircraft will increase to 584 as currently planned, making 86 additional aircraft subject to any required retrofits or rework.", "In fiscal year 2018, F-35 program officials expect to invest more than $1.2 billion to start two efforts while simultaneously facing significant shortfalls in completing the F-35 baseline development program, as discussed above. Specifically, DOD and program officials project that in fiscal year 2018 the program will need over $600 million to begin development of follow-on modernization of the F-35 and more than $650 million to procure economic order quantities (EOQ) of parts to achieve cost savings during procurement. Contracting for EOQ generally refers to the purchase of parts in larger more economically efficient quantities to minimize the cost of these items. DOD officials emphasized that the specific amount of funding needed for these investments could change as the department finalizes its fiscal year 2018 budget request. Regardless, these investments may be premature. Early Block 4 requirements, which represent new capabilities beyond the original requirements, may not be fully informed before DOD plans to solicit proposals from contractors for how they might meet the government’s requirements—a process known as request for proposal (RFP). According to DOD policy, the Development RFP Release Decision Point is the point at which a solid business case is formed for a new development program. Until Block 3F testing is complete, DOD will not have the knowledge it needs to develop and present an executable business case for Block 4, with reliable cost and funding estimates.", "Due to evolving threats and changing warfighting environments, program officials project that the program will need over $600 million in fiscal year 2018 to award a contract to begin developing new F-35 capabilities, an effort referred to as follow-on modernization. However, the requirements for the first increment of that effort, known as Block 4, have not been finalized. Block 4 is expected to be developed and delivered in four phases—currently referred to as 4.1, 4.2, 4.3, and 4.4. Program officials expect phases 4.1 and 4.3 to be primarily software updates, while 4.2 and 4.4 consist of more significant hardware changes. The program has drafted a set of preliminary requirements for Block 4 that focused on the top-level capabilities needed in phases 4.1 and 4.2, but the requirements for the final two phases have not been fully defined. In addition, as of January 2017, these requirements had not been approved by the Joint Requirements Oversight Council.\nDelays in developmental testing of Block 3F are also likely to affect Block 4 requirements. DOD policy states that requirements are to be approved before a program reaches the Development RFP Decision Point in the acquisition process. GAO best practices emphasize the importance of matching requirements and resources in a business case before a development program begins. For DOD, the Development RFP Release Decision Point is the point at which plans for the program must be most carefully reviewed to ensure that all requirements have been approved, risks are understood and under control, the program plan is sound, and the program will be affordable and executable. Currently, F-35 program officials plan to release the RFP for Block 4.1 development in the third quarter of fiscal year 2017, nearly 1 year before we estimate Block 3F developmental testing will be completed. Program officials have stated that Block 3F is the foundation for Block 4, but continuing delays in Block 3F testing make it difficult to fully understand Block 3F functionality and its effect on early Block 4 capabilities. If new deficiencies are identified during the remainder of Block 3F testing, the need for new technologies may arise, and DOD may need to review Block 4 requirements again before approving them.", "In April 2016, we reported that the F-35 program office was considering what it referred to as a block buy contracting approach that we noted had some potential economic benefits but could limit congressional funding flexibility. The program office has since changed its strategy to consist of contracts for EOQ of 2 years’ worth of aircraft parts followed by a separate annual contract for procurement of lot 12 aircraft with annual options for lots 13 and 14 aircraft. Each of these options would be negotiated separately, similar to how DOD currently negotiates contracts.\nAs of January 2017, details of the program office’s EOQ approach were still in flux. In 2015, the program office contracted with RAND Corporation to conduct a study of the potential cost savings associated with several EOQ approaches. According to the results of that study, in order for the government to get the greatest benefit, the aircraft and engine contractors would need to take on risk by investing in EOQ on behalf of the department in fiscal year 2017. Program officials envision that under this arrangement the contractors would be repaid by DOD at a later date. However, as of January 2017, contractors stated they were still negotiating the terms of this arrangement; therefore, the specific costs and benefits remained uncertain. Despite this uncertainty, the program office plans to seek congressional approval to make EOQ purchases and expects to need more than $650 million for that purpose in fiscal year 2018. Program officials believe that this upfront investment would result in a significant savings over the next few years for the U.S. services. However, given the uncertainties around the level of contractor investment, it is not clear whether an investment of more than $650 million, if that is the final amount DOD requests in fiscal year 2018, will be enough to yield significant savings. Regardless, with cost growth and schedule delays facing the F-35 baseline development program, it is unclear whether DOD can afford to fund this effort at this time. According to internal control standards, agencies should communicate with external stakeholders, such as Congress. With a potential investment of this size, particularly in an uncertain budget environment, it is important that program officials finalize the details of this approach before asking for congressional approval and provide Congress with a clear understanding of the associated costs to ensure that funding decisions are fully informed.", "The F-35 airframe and engine contractors continue to report improved manufacturing efficiency, and program data indicate that reliability and maintainability are improving in some areas. Over the last 5 years, the number of U.S. aircraft produced and delivered by Lockheed Martin has increased, and manufacturing efficiency and quality have improved over time. Similarly, manufacturing efficiency and quality metrics are improving for Pratt & Whitney. Although some engine aircraft reliability and maintainability metrics are not meeting program expectations, there has been progress in some areas, and there is still time for further improvements.", "Overall the airframe manufacturer, Lockheed Martin, is improving efficiency and product quality. Over the last 5 years, the number of aircraft produced and delivered by Lockheed Martin has increased from 29 aircraft in 2012 to 46 aircraft in 2016. Since 2011, a total of 200 production aircraft have been delivered to DOD and international partners, 46 of which were delivered in 2016. As of January 2017, 142 aircraft were in production, worldwide. As more aircraft are delivered, the number of labor hours needed to manufacture each aircraft declines. Labor hours decreased from 2015 to 2016, indicating production maturity. In addition, instances of production line work done out of sequence remains relatively low, with the exception of an increase at the end of 2016 due to technical issues, such as repairing coolant tube insulation (see app. III). Further, the number of quality defects and total hours spent on scrap, rework, and repair declined in 2016.\nAlthough data indicate that airframe manufacturing efficiency and quality continue to improve, supply chain challenges remain. Some suppliers are delivering late and non-conforming parts, resulting in production line inefficiencies and workarounds. For example, in 2016, Lockheed Martin originally planned to deliver 53 aircraft, but quality issues with insulation on the coolant tubes in the fuel tanks resulted in the contractor delivering 46 aircraft. According to Lockheed Martin officials, late deliveries of parts are largely due to late contract awards and supply base capacity. While supplier performance is generally improving, it is important for suppliers to be prepared for both production and sustainment support going forward. Inefficiencies, such as conducting production line work out of sequence, could be exacerbated if late delivery of parts continues as production more than doubles over the next 5 years.\nThe engine manufacturer, Pratt & Whitney, is also improving efficiency. As of October 2016, Pratt & Whitney had delivered 279 engines. The labor hours required to assemble an F-35 engine decreased quickly and has remained relatively steady since around the 70th engine produced, and little additional efficiency is expected to be gained. Other Pratt & Whitney manufacturing metrics indicate that production efficiency and quality are improving. Scrap, rework, and repair costs were reduced from 2.22 percent in 2015 to 1.8 percent in 2016. We previously reported that according to Pratt & Whitney officials, moving from a hollow blade design to a solid blade would reduce scrap and rework costs because it is easier to produce. However, Pratt & Whitney experienced unanticipated problems with cracking in the solid blade design. As a result, Pratt & Whitney is continuing to produce a hollow blade while it further investigates the difficulty and costs associated with a solid blade design. Pratt & Whitney’s supply chain continues to make some improvements. For example, critical parts are being delivered ahead of schedule, and some are already achieving 2017 rate requirements. To further ensure that suppliers are capable of handling full-rate production, Pratt & Whitney is pursuing the potential to have multiple suppliers for some engine parts, which officials believe will help increase manufacturing capacity within the supply chain.", "Although the program has made progress in improving system-level reliability and maintainability, some metrics continue to fall short of program expectations in several key areas. For example, as shown in figure 6, while metrics in most areas were overall trending in the right direction, the F-35 program office’s internal assessment indicated that as of August 2016 the F-35 fleet was falling short of reliability and maintainability expectations in 11 of 21 areas.\nAlthough many of the metrics remain below program expectations, some of the metrics have shown improvement over the last year, and time remains for continued improvements. For example, our analysis indicates that since 2015, the F-35A reliability has improved from 4.3 mean flight hours between failure attributable to design issues to 5.7 hours, nearly achieving the goal at system maturity of 6 hours. The F-35A mean flight hours between maintenance event metric has also improved and is now meeting program expectations. As of August 2016, the F-35 fleet had only flown a cumulative total of 63,187 flight hours. The program has time for further improvement as the ultimate goals for these reliability and maintainability metrics are to be achieved by full system maturity, or 200,000 cumulative flight hours across the fleet. The program also plans to improve these metrics through additional design changes.\nEngine reliability varied in 2016. In April 2016, we reported that Pratt & Whitney had implemented a number of design changes that resulted in significant improvements to one reliability metric: mean flight hours between failure attributable to design issues. At the time of our report, contractor data indicated the F-35A and F-35B engines were at about 55 percent and 63 percent, respectively, of where the program expected them to be. According to contractor data as of September 2016, the program was unable to achieve a significant increase in reliability over the last year, which left the F-35A and F-35B engines further below expectations—at about 43 percent and 41 percent, respectively. Other reliability metrics such as engine’s impact on aircraft availability, engine maintenance man-hours, and the time between engine removals are meeting expectations. On average, from June 2016 through November 2016, the engine affected only about 1.47 percent of the overall aircraft availability rates, and none of the top 30 drivers affecting aircraft availability were related to the engine. According to Pratt & Whitney officials, the F-35 engine requires fewer maintenance man-hours per flight hour than legacy aircraft, and engines for the F-35A and F-35B are currently performing better than required for the average number of flight hours between engine removals. Program and contractor officials continue to identify ways to further improve reliability through a number of design changes and expect reliability to continue to improve lot over lot.", "As the F-35 program approaches the end of development, its schedule and cost estimates are optimistic. The program’s cost and schedule estimates to complete development are hundreds of millions of dollars below and several months under other independent estimates, including our own. If the program experiences schedule delays as we predict, it could require a total of nearly $1.5 billion in fiscal year 2018 alone. However, program officials project that the program will only need $576.2 million in fiscal year 2018 to complete baseline development. At the same time, program officials expect that more than $1.2 billion could be needed to commit to Block 4 and EOQ in fiscal year 2018. DOD must prioritize funding for the baseline development program over the program office’s desire for EOQ and Block 4. If baseline development is not prioritized and adequately funded, and costs increase as predicted by GAO and others, then the program will have less recourse for action and development could be further delayed. In addition, with baseline development still ongoing the program will not likely have the knowledge it needs to present a sound business case for soliciting contractor proposals for Block 4 development in fiscal year 2017. Although Block 4 and EOQ may be desirable, prioritizing funding for these efforts may not be essential at this time. Prioritizing funding for baseline development over these two efforts would ensure that the program has the time and money needed to properly finish development and thus lay a solid knowledge-based foundation for future efforts.", "To ensure that DOD adequately prioritizes its resources to finish F-35 baseline development and delivers all of the promised warfighting capabilities and that Congress is fully informed when making fiscal year 2018 budget decisions, we are making the following three recommendations to the F-35 program office through the Secretary of Defense. 1. Reassess the additional cost and time needed to complete developmental testing using historical program data. 2. Delay the issuance of the Block 4 development request for proposals at least until developmental testing is complete and all associated capabilities have been verified to work as intended. 3. Finalize the details of DOD and contractor investments associated with an EOQ purchase in fiscal year 2018, and submit a report to Congress with the fiscal year 2018 budget request that clearly identifies the details, including costs and benefits of the finalized EOQ approach.", "DOD provided us with written comments on a draft of this report. DOD’s comments are reprinted in appendix IV and summarized below. DOD also provided technical comments, which were incorporated as appropriate.\nDOD did not concur with our recommendation to reassess the additional cost and time needed to complete developmental testing using historical program data. DOD stated that it will continue to assess the assumptions and decisions made, and communicate any necessary adjustments relative to both cost and time needed to complete developmental testing.\nDOD also stated that it had considered historical data in its assessment and concluded that developmental testing could extend into February 2018. While this possible slip is noted in our report, it is unclear to us the extent to which the data underpinning DOD’s assessment reflected the program’s historical averages. While the program’s analysis that we examined did reflect test point accomplishment rates that were more aligned with what the program achieved in 2016 (i.e. around 290 points per month) those rates were still higher than the historical average. Other key inputs to that analysis also differed significantly from the program’s historical averages. For example, program officials assumed only a 42 percent test point growth rate when the program’s historical average test point growth was 63 percent, and in 2016 alone the test point growth rate was 115 percent. Several other DOD officials have identified possible delays beyond February 2018. In a memo sent to Congress in December 2016, the Under Secretary of Defense for Acquisition, Technology and Logistics stated that developmental testing could go as long as May 2018, and DOT&E analysis also indicates that developmental testing may not conclude until mid-2018. We continue to believe that our recommendation is valid.\nDOD also did not concur with our recommendation to delay the issuance of the Block 4 development request for proposals until developmental testing is complete. According to DOD, delaying the request for proposals could unnecessarily delay delivery of needed capabilities to the warfighters. However, as program officials stated, Block 3F software establishes the foundation for Block 4. Therefore, continuing delays in Block 3F testing will likely make it difficult to fully understand Block 3F functionality and its effect on early Block 4 requirements. If new deficiencies are identified during the remainder of Block 3F testing, the need for new technologies may arise, and DOD may need to review Block 4 requirements again before approving them which could lead to additional delays. Therefore, we continue to believe that our recommendation is valid.\nDOD stated that it partially concurred with our third recommendation to finalize the details of investments associated with an EOQ purchase in fiscal year 2018, and submit a report to Congress with the fiscal year 2018 budget request that clearly identifies those details. However, in its response, the department outlined steps that address it. For example, DOD stated that it had finalized the details of DOD and contractor investments associated with an EOQ purchase and will brief Congress on the details, including costs and benefits of the finalized EOQ approach.\nWe are sending copies of this report to the appropriate congressional committees; the Secretary of Defense; and the Under Secretary of Defense for Acquisition, Technology and Logistics. In addition, the report is available at no charge on the GAO website at http://www.gao.gov.\nIf you or your staff have any questions about this report, please contact me at (202) 512-4841 or sullivanm@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix V.", "", "To assess the F-35 program’s remaining development and testing we interviewed officials from the program office and contractors—Lockheed Martin and Pratt & Whitney. We obtained and analyzed data on mission systems test point execution, both planned and accomplished from 2011 through 2016 to calculate historical test point averages per month. We compared test progress against the total program requirements to determine the number of test points that were completed and remaining as of December 2016. We used the average test point rate based on the historical data to determine the number of months needed to complete the remaining test points. To identify the program’s average monthly costs, we analyzed contractor cost performance data from April 2016 through September 2016 to identify average contract costs per month. Using a 12-month delay and the average contract costs per month, we calculated the costs to complete developmental testing. In order to determine costs to complete development, we first determined the percent change, year to year, in the program office’s development funding requirement estimate from 2018 to 2021. We then reduced our estimate using those percentages from 2018 to 2021. We discussed key aspects of F-35 development progress, including flight testing progress, with program management and contractor officials as well as DOD test officials and program test pilots. To assess the reliability of the test and cost data, we reviewed the supporting documentation and discussed the development of the data with DOD officials instrumental in producing them. In addition, we interviewed officials from the F-35 program office, Lockheed Martin, Pratt & Whitney, and the Director, Operational Test and Evaluation office to discuss development test plans, achievements, and test discoveries.\nTo assess DOD’s proposed plans for future F-35 investments, we discussed cost and manufacturing efficiency initiatives, such as the economic order quantities approach, with contractor and program office officials to understand potential cost savings and plans. To assess the program’s follow-on modernization plans, we discussed the program’s plans with program office officials. We reviewed the fiscal year 2017 budget request to identify costs associated with the effort. We also reviewed and analyzed best practices identified by GAO and reviewed relevant DOD policies and statutes. We compared the acquisition plans to these policies and practices.\nTo assess ongoing manufacturing and supply chain performance, we obtained and analyzed data related to aircraft delivery rates and work performance data from January 2016 to December 2016. These data were compared to program objectives identified in these areas and used to identify trends. We reviewed data and briefings provided by the program office, Lockheed Martin, Pratt & Whitney, and the Defense Contract Management Agency in order to identify issues in manufacturing processes. We discussed reasons for delivery delays and plans for improvement with Lockheed Martin and Pratt & Whitney. We collected and analyzed data related to aircraft quality through December 2016. We collected and analyzed supply chain performance data and discussed steps taken to improve quality and deliveries with Lockheed Martin and Pratt & Whitney. We also analyzed reliability and maintainability data and discussed these issues with program and contractor officials.\nWe assessed the reliability of DOD and contractor data by reviewing existing information about the data and interviewing agency officials knowledgeable about the data. We determined that the data were sufficiently reliable for the purposes of this report.\nWe conducted this performance audit from June 2016 to April 2017 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.", "As developmental testing nears completion, the F-35 program continues to address technical risks. The program has incorporated design changes that appear to have mitigated several of the technical risks that we have highlighted in prior reports, including problems with the arresting hook system and bulkhead cracks on the F-35B. However, over the past year, the program continued to address risks with the Helmet Mounted Display, Autonomic Logistics Information System (ALIS), the ejection seat and engine seal that we have identified in the past. The program also identified new risks with the F-35C wing structure and catapult launches, and coolant tube insulation. The status of the Department of Defense’s (DOD) efforts to address these issues is as follows: Helmet Mounted Display: A new helmet intended to address shortfalls in night vision capability, among other things, was developed and delivered to the program in 2015. Developmental testing of the new helmet is mostly complete, and officials believe that issues such as latency and jitter have been addressed. Green glow, although improved, continues to add workload for the pilots when landing at sea. Officials believe that they have done as much as they can to fix the green glow problems with the hardware currently available.\nALIS: ALIS continues to lack required capabilities; for instance, engine parts information is not included in the current version of ALIS, although it is expected to be completed in the spring of 2017. In 2016, officials began testing ALIS in an operational environment which has led to some improvements. However, capabilities, including the prognostics health management downlink, have been deferred to follow-on modernization. In 2016, officials acknowledged compounding development delays and restructured the development schedule for ALIS. The new schedule shows that some capabilities that were planned in the earlier versions of ALIS will now be deferred to later versions. In April 2016, we reported that F-35 pilots and maintainers identified potential functionality risks to ALIS and that DOD lacked a plan to address these risks as key milestone dates approached, which could result in operational and schedule risks.\nEngine seal: Officials have identified a design change to address the technical problem that resulted in an engine fire in June 2014. This design change was validated and incorporated into production in 2015. Engine contractor officials identified 194 engines that needed to be retrofitted, and as of October 2016, 189 of those retrofits had been completed. The engine contractor, Pratt & Whitney, is paying for these retrofits.\nEjection seat: In 2015, officials discovered that pilots who weigh less than 136 pounds could possibly suffer neck injuries during ejection. Officials stated that the risk of injury is due to the over-rotation of the ejection seat in combination with the thrust from the parachute deployment during ejection. Officials noted that although the problem was discovered during testing of the new Helmet Mounted Display, the helmet’s weight was not the root cause. The program has explored a number of solutions to ensure pilot safety including installing a switch for light-weight pilots that would slow the release of the parachute deployment, installing a head support panel that would reduce head movement, and reducing the weight of the helmet. The final design completed qualification testing in 2016 and is expected to be incorporated into production lot 10. The cost of these changes has not yet been determined.\nF-35C outer-wings: In 2016, officials identified structural issues on the F- 35C outer-wing when carrying an AIM-9X missile. In order to resume the test program, officials identified a design change to include strengthening the wings’ material that was incorporated onto a test aircraft. Officials expect to incorporate retrofits to delivered aircraft by 2019 and will incorporate changes into production in lot 10.\nF-35C catapult launches: In 2016, officials identified issues with violent, uncomfortable, and distracting movement during catapult launches. Specifically, officials stated that the nose gear strut moves up and down as an aircraft accelerates to takeoff, which can cause neck and jaw soreness for the pilot because the helmet and oxygen mask are pushed back on the pilot’s face during take-off. This can be a safety risk as the helmet can hit the canopy, possibly resulting in damage, and flight critical symbology on the helmet can become difficult to read during and immediately after launch due to the rotation of the helmet on the pilot’s head. Officials evaluated several options for adjusting the nose gear to alleviate the issue, but determined that none of the options would significantly affect the forces felt by the pilot. Officials subsequently assembled a team to identify a root cause and a redesign. According to officials, adjustments to the catapult system load settings are being considered to address this issue, and a design change to the aircraft may not be required. But flight testing of the proposed changes is required to confirm this solution.\nInsulation on coolant tubes: During maintenance on an aircraft in 2016, officials found that insulation around coolant tubes within the aircraft’s fuel system were cracking and contaminating the fuel lines. According to officials, the problem was a result of a supplier using the incorrect material for insulation. The faulty insulation was installed on 57 aircraft— including the entire Air Force initial operational capability fleet—which were prohibited from flight until the insulation was removed. Officials determined that the insulation would not need to be replaced as the aircraft meets specifications without it. Officials are considering removing the insulation from the tubes across the rest of the aircraft going forward. As of January 2017, all of the fielded aircraft have been repaired and returned to flight.", "", "", "", "In addition to the contact named above, the following staff members made key contributions to this report: Travis Masters (Assistant Director), Emily Bond, Raj Chitikila, Kristine Hassinger, Karen Richey, Jillena Roberts, Megan Setser, Hai Tran, and Robin Wilson.", "F-35 Joint Strike Fighter: Continued Oversight Needed as Program Plans to Begin Development of New Capabilities. GAO-16-390. Washington, D.C.: April 14, 2016.\nF-35 Sustainment: DOD Needs a Plan to Address Risks Related to Its Central Logistics System. GAO-16-439. Washington, D.C.: April 14, 2016.\nF-35 Joint Strike Fighter: Preliminary Observations on Program Progress. GAO-16-489T. Washington, D.C.: March 23, 2016.\nF-35 Joint Strike Fighter: Assessment Needed to Address Affordability Challenges. GAO-15-364. Washington, D.C.: April 14, 2015.\nF-35 Sustainment: Need for Affordable Strategy, Greater Attention to Risks, and Improved Cost Estimates. GAO-14-778. Washington, D.C.: September 23, 2014.\nF-35 Joint Strike Fighter: Slower Than Expected Progress in Software Testing May Limit Initial Warfighting Capabilities. GAO-14-468T. Washington, D.C.: March 26, 2014.\nF-35 Joint Strike Fighter: Problems Completing Software Testing May Hinder Delivery of Expected Warfighting Capabilities. GAO-14-322. Washington, D.C.: March 24, 2014.\nF-35 Joint Strike Fighter: Restructuring Has Improved the Program, but Affordability Challenges and Other Risks Remain. GAO-13-690T. Washington, D.C.: June 19, 2013.\nF-35 Joint Strike Fighter: Program Has Improved in Some Areas, but Affordability Challenges and Other Risks Remain. GAO-13-500T. Washington, D.C.: April 17, 2013.\nF-35 Joint Strike Fighter: Current Outlook Is Improved, but Long-Term Affordability Is a Major Concern. GAO-13-309. Washington, D.C.: March 11, 2013.\nFighter Aircraft: Better Cost Estimates Needed for Extending the Service Life of Selected F-16s and F/A-18s. GAO-13-51. Washington, D.C.: November 15, 2012.\nJoint Strike Fighter: DOD Actions Needed to Further Enhance Restructuring and Address Affordability Risks. GAO-12-437. Washington, D.C.: June 14, 2012.\nDefense Acquisitions: Assessments of Selected Weapon Programs. GAO-12-400SP. Washington, D.C.: March 29, 2012.\nJoint Strike Fighter: Restructuring Added Resources and Reduced Risk, but Concurrency Is Still a Major Concern. GAO-12-525T. Washington, D.C.: March 20, 2012.\nJoint Strike Fighter: Implications of Program Restructuring and Other Recent Developments on Key Aspects of DOD’s Prior Alternate Engine Analyses. GAO-11-903R. Washington, D.C.: September 14, 2011.\nJoint Strike Fighter: Restructuring Places Program on Firmer Footing, but Progress Is Still Lagging. GAO-11-677T. Washington, D.C.: May 19, 2011.\nJoint Strike Fighter: Restructuring Places Program on Firmer Footing, but Progress Still Lags. GAO-11-325. Washington, D.C.: April 7, 2011.\nJoint Strike Fighter: Restructuring Should Improve Outcomes, but Progress Is Still Lagging Overall. GAO-11-450T. Washington, D.C.: March 15, 2011." ], "depth": [ 1, 1, 2, 2, 2, 1, 2, 2, 1, 2, 2, 1, 1, 1, 1, 1, 1, 1, 1, 2, 2, 1 ], "alignment": [ "", "h0_title", "h0_full", "h0_full", "h0_full", "h3_title h1_full", "h3_full h1_full", "h1_full", "", "", "", "", "", "h3_full h1_full", "", "h2_full", "", "", "", "", "", "h2_full h1_full" ] }

{ "question": [ "How could cascading F-35 delays affect the DOD?", "What kinds of delays hs the program faced?", "What are these estimates based on?", "How does this estimate compare to GAO's estimate?", "How could these delays affect the F-35 schedule?", "What is needed for DOD follow-on modernization?", "How will DOD request Block 4 development proposals?", "How does this timeline compare with best practices?", "What is needed for the program to pursue bulk quantity procurement?", "To what extent is has this plan been finalized?", "Why is communication with Congress vital for an accurate estimate?", "What is the relationship between Block 3F and Block 4?", "Why did GAO review the F-35 acquisition program?", "What does this report assess?", "How did GAO collect data for this report?", "What did GAO recommend?", "To what extent did DOD concur with these recommendations?", "How did this affect GAO's stance regarding its recommendations?" ], "summary": [ "Cascading F-35 testing delays could cost the Department of Defense (DOD) over a billion dollars more than currently budgeted to complete development of the F-35 baseline program.", "Because of problems with the mission systems software, known as Block 3F, program officials optimistically estimate that the program will need an additional 5 months to complete developmental testing.", "According to best practices, credible estimates are rooted in historical data. The program's projections are based on anticipated test point achievements and not historical data.", "GAO's analysis—based on historical F-35 flight test data—indicates that developmental testing could take an additional 12 months (see table below).", "These delays could affect the start of the F-35's initial operational test and evaluation, postpone the Navy's initial operational capability, and delay the program's full rate production decision, currently planned for April 2019.", "First, DOD expects it will need over $600 million for follow-on modernization (known as Block 4).", "F-35 program officials plan to release a request for Block 4 development proposals nearly 1 year before GAO estimates that Block 3F—the last block of software for the F-35 baseline program—developmental testing will be completed.", "DOD policy and GAO best practices state that requirements should be approved and a sound business case formed before requesting development proposals from contractors. Until Block 3F testing is complete, DOD will not have the knowledge it needs to present a sound business case for Block 4.", "Second, the program may ask Congress for more than $650 million in fiscal year 2018 to procure economic order quantities—bulk quantities. However, as of January 2017 the details of this plan were unclear because DOD's 2018 budget was not final and negotiations with the contractors were ongoing.", "However, as of January 2017 the details of this plan were unclear because DOD's 2018 budget was not final and negotiations with the contractors were ongoing.", "According to internal controls, agencies should communicate with Congress, otherwise it may not have the information it needs to make a fully informed budget decision for fiscal year 2018.", "Completing Block 3F development is essential for a sound business case and warrants funding priority over Block 4 and economic order quantities at this time.", "The National Defense Authorization Act for Fiscal Year 2015 included a provision for GAO to review the F-35 acquisition program annually until the program reaches full-rate production.", "This, GAO's second report in response to that mandate, assesses, among other objectives, (1) progress of remaining program development and testing and (2) proposed future plans for acquisition investments.", "To conduct this work, GAO reviewed and analyzed management reports and historical test data; discussed key aspects of F-35 development with program management and contractor officials; and compared acquisition plans to DOD policy and GAO acquisition best practices.", "GAO recommends that DOD use historical data to reassess the cost of completing development of Block 3F, complete Block 3F testing before soliciting contractor proposals for Block 4 development, and identify for Congress the cost and benefits associated with procuring economic order quantities of parts.", "DOD did not concur with the first two recommendations and partially concurred with the third while outlining actions to address it.", "GAO continues to believe its recommendations are valid, as discussed in the report." ], "parent_pair_index": [ -1, 0, 1, 1, 0, -1, 0, 1, -1, 3, 3, -1, -1, 0, 0, -1, 0, 1 ], "summary_paragraph_index": [ 2, 2, 2, 2, 2, 4, 4, 4, 4, 4, 4, 4, 1, 1, 1, 5, 5, 5 ] }

{ "title": [ "", "Introduction", "Military Construction Appropriations for FY2017", "Impact of the Recent Budget Limitations", "The Legislative Path for Military Construction Appropriations", "Base Realignment and Closure (BRAC) FY2017 Status", "Military Construction Appropriations Since FY2000", "Additional Resources", "Appropriations", "Defense Appropriations", "Veterans Issues", "Appendix. Detailed Appropriations Tables", "" ], "paragraphs": [ "", "Military construction for active and reserve components of the Armed Forces, military family housing construction and operations, the U.S. contribution to the NATO Security Investment Program, military base closures and realignment actions, and the military housing privatization initiative will be funded through Title I and Title IV of the FY2017 Military Construction, Veterans Affairs, and Related Agencies Appropriations Act. The act is associated with three separate bill numbers: H.R. 4974 , S. 2806 , and H.R. 2577 .\nIn February 2016, the Administration requested $7.62 billion in new budget authority to fund military construction activities in the Department of Defense (DOD) for FY2017. Of this amount, $7.44 billion was dedicated to base military construction activities. The request included an additional $172.4 million for construction activities associated with Overseas Contingency Operations (OCO).\nThe $7.62 billion request was $554.5 million less than new budget authority appropriated for military construction in FY2016. The House proposed an appropriation of $7.87 billion in new budget authority for FY2017, while the Senate proposed $7.93 billion. The House-Senate conference reported a new budget authority appropriation of $7.90 billion that, after incorporating budget authority rescinded from previous years, would make available a total appropriation of $8.21 billion, as shown in Table 1 . The House has agreed to the conference report. Further action in the Senate is pending. Detailed military construction appropriations tables may be seen in the Appendix to this report.", "", "Congressional deliberations on the FY2017 defense budget in general, including military construction, may be influenced by broader budget discussions over annual appropriations bills. Since 2011, binding annual caps on discretionary appropriations (through FY2021) were codified by the Budget Control Act (BCA) of 2011 ( P.L. 112-25 ). The effect on appropriations in general, with specific emphasis on defense, has been substantial and is discussed in detail in CRS Report R44519, Overseas Contingency Operations Funding: Background and Status , coordinated by [author name scrubbed] and [author name scrubbed].", "H.R. 4974 , the first version of the military construction appropriations bill of the legislative session, was introduced in the House on April 15, 2016. A companion bill, S. 2806 , was introduced in the Senate on April 18. H.R. 2577 , originally the Department of Transportation and Housing and Urban Development (T-HUD) appropriations bill for FY2016, was adopted to serve as the vehicle for a compromise appropriation bill. As such, the bill was reintroduced to the Senate in May 2016 with amendments that eventually encompassed what had been three separate appropriations. Division A of the amended bill would have provided FY2017 T-HUD appropriations, and Division B would have provided FY2017 MILCON/VA appropriations. An additional Title V of the Senate-proposed act would fund the Department of Health and Human Services for Zika virus response and preparedness. The amended bill was passed by the Senate on May 19, 2016, and sent to the House.\nUpon receipt of the amended bill, the House proposed an additional amendment. H.R. 2577 , as engrossed by the House, would have established Division A as the Military Construction, Veterans Affairs, and Related Agencies Appropriations Act, 2017; Division B as the Zika Response Appropriations Act, 2016; and Division C as the Zika Vector Control Act. The House passed the amended bill on May 26, 2016, and requested a conference.\nThe conference was held on June 15, 2016, and the conferees filed their report, H.Rept. 114-640 , on June 22, 2016. The House agreed to the report on June 23, 2016, by the Yeas and Nays, 239 – 171 ( Roll no. 342 ).\nIn the Senate, portions of the bill were incorporated into H.R. 5325 , the Legislative Branch Appropriations Bill, 2017, which was renamed the Continuing Appropriations and Military Construction, Veterans Affairs, and Related Agencies Appropriations Act, 2017, and Zika Response and Preparedness Act. The amended bill contained four parts: (1) Division A: Military Construction, Veterans Affairs, and Related Agencies Appropriations Act, 2017; (2) Division B: Zika Response and Preparedness; (3) Division C: Continuing Appropriations Act, 2017; and (4) Division D: Rescissions of Funds. The Senate passed the amended bill by Yea-Nay vote, 72-26 ( Record Vote Number 151 ) on September 28, 2016. The House agreed to the Senate amendment by the Yeas and Nays, 342-85 ( Roll no. 573 ) the same day. The President signed the bill into law ( P.L. 114-223 ) on September 29, 2016.", "Since the end of the Cold War, Congress has periodically authorized the Secretary of Defense to reduce or realign domestic defense property in order to better employ military forces and their supporting agencies and to eliminate the cost of operating and maintaining facilities no longer needed. Congress authorized the first so-called BRAC round in 1988 with an amendment to the defense authorization act for that year. In 1990, Congress included authorization for three additional BRAC rounds in a title to the National Defense Authorization Act for FY1991. These rounds were carried out in 1991, 1993, and 1995.\nFollowing the conclusion of the 1995 BRAC round, the Secretary requested legislation to continue disposing of excess property, but Congress did not incorporate a reauthorization until the NDAA for FY2002 (P.L. 107-107, Title XXX). That act sanctioned a single BRAC round for 2005. The approved recommendations for that round were carried out between 2006 and late 2011.\nIn 2012, then-Secretary of Defense Leon Panetta asked Congress to authorize two new BRAC rounds. Secretaries have repeated the request for one or two rounds in each subsequent year, including the current year, but Congress has thus far declined to do so, as illustrated in Figure 1 . The current versions of the NDAA contain an explicit prohibition against a new round, stating, \"Nothing in this Act shall be construed to authorize an additional base realignment and closure (BRAC) round.\" The Obama Administration, in its Statements of Administration Policy on the NDAA bills, has objected to the absence of a BRAC authorization and this prohibition.", "The President has requested new budget authority in the amounts of $7.44 billion (base budget) and $172.4 million (Overseas Contingency Operations, OCO) for a total of $7.62 billion for military construction and military family housing for FY2017. This compares with $7.72 billion made available for FY2015 and $8.54 billion enacted for FY2016. This continues a downward trend in military construction appropriations begun in FY2010, when construction activity associated with the 2005 Base Closure (BRAC) round began to subside.\nThe President has requested significantly less military construction funding for FY2017 than was the norm during the early years of the 2000s. Figure 2 illustrates the amounts of new budget authority enacted between FY2000 and FY2016 and projected by DOD through FY2021.\nThe OCO portion of the request continues a shift in emphasis that has become apparent in recent years. OCO construction has shifted from the CENTCOM (Middle East and Southwest Asia) and AFRICOM (Africa, less Egypt) Areas of Responsibility (AOR) to EUCOM (Europe). OCO military construction through FY2011 was directed to the CENTCOM AOR in Southwest Asia. For example, in FY2011, $1.22 billion in OCO construction was devoted to Afghanistan, Qatar, and Bahrain (see Figure 3 ).\nThis began to be redirected in FY2012, when $269.7 million in OCO construction went to projects in Afghanistan, Bahrain, and Djibouti. The FY2013 OCO appropriation included $355.6 million for construction in Djibouti, Bahrain, and Diego Garcia (a British Protectorate in the Indian Ocean), plus funds to construct the ballistic missile defense AEGIS Ashore complex in Romania.\nNo construction funding was identified as OCO for FY2014, but the FY2015 appropriation included $151.9 million that encompassed some OCO construction in Djibouti and Bahrain but devoted most of its emphasis to improving airfields in Romania, Bulgaria, Poland, and the Baltic states of Lithuania, Estonia, and Latvia. The FY2016 appropriation of $428.9 million was devoted largely to an AEGIS Ashore Missile Defense Complex in Poland, with the remainder going to ship repair and pier construction in Bahrain and airfield improvements in Oman, Niger, and Djibouti. Nearly two-thirds of the FY2017 request of $172.4 million is designated as part of the European Reassurance Initiative and is dedicated to airfield improvements in Estonia, Lithuania, Romania, Bulgaria, and Poland, plus additional facilities in Iceland and Germany to accommodate the Navy's P-8A Poseidon and the Air Force's F/A-22 Raptor aircraft. The remainder of the FY2017 request is intended for projects in Djibouti.", "", "CRS Report R44582, Overview of Funding Mechanisms in the Federal Budget Process, and Selected Examples , by [author name scrubbed].\nCRS Report R44625, Department of Veterans Affairs FY2017 Appropriations , by [author name scrubbed].", "CRS Report R44531, FY2017 Defense Appropriations Fact Sheet: Selected Highlights of H.R. 5293 and S. 3000 , by [author name scrubbed] and [author name scrubbed].\nCRS Report R44497, Fact Sheet: Selected Highlights of the FY2017 National Defense Authorization Act (H.R. 4909, S. 2943) , by [author name scrubbed] and [author name scrubbed].\nCRS Report R44454, Defense: FY2017 Budget Request, Authorization, and Appropriations , by [author name scrubbed] and [author name scrubbed].\nCRS Report R44519, Overseas Contingency Operations Funding: Background and Status , coordinated by [author name scrubbed] and [author name scrubbed].\nCRS Report R44039, Defense Spending and the Budget Control Act Limits , by [author name scrubbed].", "CRS Report R42747, Health Care for Veterans: Answers to Frequently Asked Questions , by [author name scrubbed].\nCRS Report R43704, Veterans Access, Choice, and Accountability Act of 2014 (H.R. 3230; P.L. 113-146) , by [author name scrubbed] et al.\nCRS In Focus IF10396, Caregiver Support to Veterans , by [author name scrubbed].\nCRS Report R43547, Veterans' Medical Care: FY2015 Appropriations , by [author name scrubbed].\nCRS Report RL34024, Veterans and Homelessness , by [author name scrubbed].", "Table A-1 shows the amounts of budget authority granted to the various military construction and family housing appropriations accounts as enacted for FY2016 and as requested by the President, passed by the two chambers and reported by the conference committee.\nThe table is grouped into seven separate clusters similar to those present in the bills. The bill's Administrative Provisions section, which includes both rescissions of funds and new funding for the military departments' Unfunded Priorities List (UPL), has had the UPL extracted to indicate the budget authority not requested by the President:\nActive Components (Army, Navy and Marine Corps, Air Force, and Defense-Wide, which includes defense agencies and Special Operations Command [SOCOM]); Reserve Components (National Guard and Reserves); NATO Security Investment Program (NSIP); Family Housing (including the Family Housing Improvement Fund, the principal DOD support for the military housing privatization initiative); BRAC (military base realignment and closure); Administrative Provisions (the normal location for rescission of prior-year appropriated budget authority); and Unfunded Priority Lists (budget authority not requested by the President in his annual budget request but planned for future years).\nTable A-2 presents the military construction funding requested and recommended for Overseas Contingency Operations construction.", "" ], "depth": [ 0, 1, 1, 2, 2, 2, 2, 1, 2, 2, 2, 3, 1 ], "alignment": [ "h0_title h1_title", "h0_full", "h0_title h1_title", "", "h0_full h1_full", "", "", "", "", "", "", "", "" ] }

{ "question": [ "What are the origins of the FY2017 Military Construction, Veterans Affairs, and Related Agencies Appropriations Act?", "How did the Senate combine versions of the Transportation, Housing and Urban Development (T-HUD), Military Construction and Veterans Affairs (MILCON/VA), and Zika Response and Preparedness appropriations bills?", "How did the House modify the Senate's bill?", "What divisions did the conference bill consist of?", "How did the Senate pass the provisions?", "How did the House pass the bill?", "How was the bill signed into law?" ], "summary": [ "The FY2017 Military Construction, Veterans Affairs, and Related Agencies Appropriations Act originated in the House as H.R. 4974, introduced on April 15, 2016.", "On May 19, 2016, the Senate combined the versions of the Transportation, Housing and Urban Development (T-HUD), Military Construction and Veterans Affairs (MILCON/VA), and Zika Response and Preparedness appropriations bills into H.R. 2577 (a T-HUD appropriations bill for FY2016 that the House had passed in June, 2015), passed the amended bill, and sent it to the House.", "The House substituted its own amendment in three divisions (Division A: MILCON/VA, Division B: Zika Response Appropriations, and Division C: Zika Vector Control), removing the T-HUD portion for H.R. 2577, passed the bill, and requested a conference.", "The conference bill contained four divisions: (1) Division A: MILCON/VA; (2) Division B: Zika Response and Preparedness Appropriations; (3) Division C: Zika Vector Control; and (4) Division D: Rescission of Funds.", "The Senate incorporated portions of the amended H.R. 2577 into another bill, H.R. 5325, organized as (1) Division A: Military Construction, Veterans Affairs, and Related Agencies Appropriations Act, 2017; (2) Division B: Zika Response and Preparedness; (3) Division C: Continuing Appropriations Act, 2017; and (4) Division D: Rescissions of Funds, and passed the bill.", "The House agreed to the amended H.R. 5325 the same day.", "The President signed H.R. 5325 into law (P.L. 114-223 ) on September 29, 2016." ], "parent_pair_index": [ -1, -1, 1, -1, 0, 0, 0 ], "summary_paragraph_index": [ 2, 2, 2, 3, 3, 3, 3 ] }

{ "title": [ "", "Introduction", "Concerns of Consumers and Privacy Rights Advocates", "Spam", "\"Wireless 411\" Directory", "Selling Cell Phone Records", "EPIC Filings with the FTC and FCC", "FTC and FCC Actions", "Reaction from Sellers of Cell Phone Information", "Reaction from the Telecommunications Industry", "Congressional Response", "Other Concerns", "Fair Information Practices", "Industry Efforts to Respond to Privacy Concerns", "Existing Laws", "The Telephone Consumer Protection Act (TCPA)", "The Wireless Communications and Public Safety Act (the \"911 Act\")", "The CAN-SPAM Act", "The U.S. SAFE WEB Act", "Previous Legislative Action: 109th Congress", "Wireless Location Information Privacy", "Wireless Directory Assistance Services (\"Wireless 411\")", "Customer Proprietary Network Information (Customer Records)" ], "paragraphs": [ "", "Wireless communications devices—including mobile telephones, personal digital assistants (PDAs), pagers, and automobile-based services such as OnStar—are ubiquitous. Many of the services provided by these devices require data on the user's location, whether it is to connect a phone call or dispatch emergency services when an airbag deploys.\nConsumers and privacy rights advocates are increasingly concerned about the privacy implications of these wireless location-based services. If a company providing a wireless service knows the user's location, with whom can that data be shared? How long can the data be retained? Will the data be used to create individual profiles that will be sold to marketing companies or used for other purposes unknown to the user or contrary to his or her preference? Will consumers be deluged with messages on their communications devices advertising sales at nearby stores or restaurants not unlike the \"spam\" in their e-mail inboxes?\nThe precision with which wireless service providers can determine a subscriber's exact location is improving with the implementation of Enhanced 911 (E911) capabilities for mobile telephones and other wireless devices, wherein wireless carriers are required to provide Public Safety Answering Points (PSAPs) with the location of wireless callers who dial 911 within 50-300 meters (150-900 feet). While this serves the laudable goal of ensuring mobile telephone users immediate access to emergency services, many worry about what other uses will be made of such location information. Once the technical ability exists to provide a user's precise coordinates, some privacy advocates worry that more and more devices will incorporate it, making location information widely available without proper privacy safeguards.\nThe debate over wireless privacy in many ways parallels the debate over Internet privacy and Internet spam. Indeed, since wireless Internet access devices are on the market, the issues intersect. One particular similarity is that the policy debate focuses on whether legislation is needed, or if industry can be relied upon to self-regulate.\nFour laws, each discussed later in this report, address some of the issues—the Telephone Consumer Protection Act ( P.L. 102-243 ), the Wireless Communications and Public Safety Act ( P.L. 106-81 ), the Controlling the Assault of Non-Solicited Pornography and Marketing Act (CAN-SPAM, P.L. 108-187 ), and the Undertaking Spam, Spyware, and Fraud Enforcement With Enforcers beyond Borders Act (US SAFE WEB, P.L. 109-455 )—however, other concerns remain.", "", "Some consumers and privacy rights groups, including the Center for Democracy and Technology (CDT) and the Electronic Privacy Information Center (EPIC), worry that the ability to identify a wireless customer's location could lead to further erosion of individual privacy. Although the E911 requirements apply only to calls made from mobile telephones seeking emergency assistance, once that capability is available, many worry that such information will be collected and sold for other purposes, such as marketing. Some observers point out that wireless carriers may be motivated to sell such customer data to recoup the costs of deploying wireless E911.\nUsers of wireless devices such as pagers, personal digital assistants, or automobile-based services such as OnStar, might be affected along with mobile telephone customers. A major concern is that if location information is available to commercial entities, a wireless customer walking or driving along the street may be deluged with unsolicited advertisements from nearby restaurants or stores alerting them to merchandise available in their establishments. Supporters of unsolicited advertising insist that consumers benefit from directed advertisements because they are more likely to offer products in which the consumer is interested. They also argue that advertising is protected by the First Amendment.\nOne aspect of this concern is that companies could build profiles of consumers using data collected over a period of time. In that context, one question is whether limits should be set on the length of time location information can be retained. Some argue that once a 911 call has been completed, or after a subscriber to a location-based service received the desired information (such as directions to the nearest restaurant), that the location information should be deleted.\nWireless spam was addressed by Congress in the CAN-SPAM Act (discussed below), although it does not focus specifically on the location aspects of the issue.", "Another aspect of the wireless privacy debate concerns the rights of subscribers to have, or not have, their numbers listed in a \"wireless 411\" cell phone directory. Such a directory does not currently exist, but CTIA—The Wireless Association, began developing one in 2004 for six of the seven largest mobile service providers. One estimate is that a wireless directory could generate as much as $3 billion a year for the wireless industry by 2009 in fees and additional minutes. Qsent is the \"aggregator\" for the directory service.\nIn early 2005, some of the companies backing the directory project announced changes in their plans. Sprint and ALLTEL were the first to indicate that they would delay offering such a service until the regulatory climate stabilized. Some cited a new California law that requires carriers to obtain separate authorization from subscribers before including them in the directory as an example of the evolving regulatory climate. A number of other states are considering similar legislation. By the end of April 2005, T-Mobile reportedly was the only major carrier still planning to offer directory services, pledging to do so on an opt-in basis.\nA key difference between wireless and wireline phones is that subscribers must pay for incoming as well as outgoing calls. Thus, some argue that subscribers need to be assured that they will not receive unwanted calls, not only because of a nuisance factor, but for cost reasons. Consumers may list their cell phone numbers on the National Do Not Call Registry, but concerns persist about unwanted calls from telemarketers or others. (In December 2004, an e-mail was widely circulated on the Internet warning consumers that they must list their cell phone numbers on the Do Not Call list before the end of 2004, but that is incorrect. Phone numbers may be added to the Do Not Call list at any time.)\nQuestions that are arising include whether subscribers should be able to decline to have their numbers published without paying a fee (as wireline customers must do if they want an unlisted number). Proponents of the directory insist that customers will have to consent to having their numbers listed. Opponents counter that many subscribers do not realize that they already have given consent through the contract they sign with their service provider. Other critics point out that wireless subscribers pay for every call, and view their cell phones as distinctly private. From the beginning, one of the largest mobile service providers, Verizon Wireless, decided not to participate in the directory. The company's President and CEO, Denny Strigl, argues against the notion of an \"opt-in\" directory, where subscribers would have to give their express prior authorization to being listed, saying that \"Customers see opt-in as a disingenuous foot-in-the-door—leading to 'opt-out' clauses and fees for not publishing a number. Nor does opt-in allow customers any degree of control over how and to whom their information is revealed—they either keep full privacy or face full exposure, with nothing in-between.\" (\"Opt-in\" and \"Opt-out\" are explained below.) Consumers Union established a website to encourage individuals to contact their Members of Congress in support of wireless directory legislation.\nIn September 2004, hearings were held by the Senate Commerce, Science, and Transportation Committee, and by the House Energy and Commerce Committee's Subcommittee on Telecommunications and the Internet. At the 2004 Senate hearing, CTIA testified that there is no need for legislation because the directory does not yet exist so it is premature to pass legislation now, the wireless industry has a proven track record in protecting consumer privacy, and subscribers would not be forced to participate in the directory nor charged a fee for opting-out. Mr. Strigl from Verizon Wireless repeated his strong opposition to the directory, but agreed that legislation is not necessary. Some opponents of the legislation point to Verizon Wireless's decision not to participate in the directory as indicative of a market-based solution to the problem, since subscribers wishing not to be listed could switch to Verizon Wireless.\nAdvocates of the legislation at the 2004 House hearing countered that, for example, the wireless industry's track record is less than perfect. According to Communications Daily , Representative Pitts, who sponsored one of the 108 th Congress bills, stated that when he first discussed a wireless directory with industry representatives two years earlier, they insisted that opt-in was impossible, and they would need to charge for the service. Yet now, he noted, the industry is asserting that the system would be opt-in and free. Representative Markey commented that the fact that the carriers informed consumers that their numbers might become listed in a wireless directory only in the fine print of their service contracts made some observers suspicious of their intentions. Senator Boxer testified at the House hearing, noting that cell phones are quite different from home phones because people take them wherever they go, so unwanted calls are even more intrusive. She emphasized the need to allow parents to control whether their children's numbers are listed, and the need to act quickly, before the directory comes into existence. Witnesses from EPIC and the AARP testified in favor of the legislation at the Senate hearing.\nLegislation has been reintroduced in the 109 th Congress, as discussed later in this report.", "Concern is mounting about the public availability of cell phone records, which may include detailed information on calls to and from a particular number, such as the number dialed, the duration, and the location of the cell phone. Some of these records, along with records from other telephone and voice communications, may become available for sale over the Internet from \"data brokers\" who collect and sell the information. Attention is focused on how the data brokers obtain the information, and whether telecommunications companies are adequately protecting the so-called Customer Proprietary Network Information (CPNI) as required by law. For more discussion of CPNI, see \" The Wireless Communications and Public Safety Act (the \"911 Act\") \" below.\nFrom a legislative standpoint, a fundamental issue is whether existing laws—the Federal Trade Commission (FTC) Act (15 U.S.C. §§ 41-51), which bans unfair and deceptive practices that might be employed by pretexters, and the 1996 Telecommunications Act, which requires telecommunications carriers to protect CPNI—are adequate, or if new laws are needed to criminalize specifically the fraudulent acquisition and sale of cell phone (or all telephone) records. Generally, privacy rights groups want additional legislation. One telecommunications association, CTIA, supports new legislation to criminalize obtaining phone records by fraudulent means. Another, USTelecom, wants improved enforcement of existing laws instead of new laws. The FCC supports three potential legislative actions: making the commercial availability of consumers' phone records illegal, overturning a 1999 court ruling that limited the FCC's ability to implement more stringent protections of consumer phone record information, and strengthening the FCC's enforcement tools. The FTC has not endorsed new laws, but recommends a multi-faceted approach that includes coordinated law enforcement by government agencies and telephone carriers, outreach to educate consumers and industry, and improved security measures by record holders.", "In July 2005, EPIC filed a complaint with the FTC regarding the sale of cell phone records by a company named Intelligent e-Commerce, Inc. (IEI), which operates the bestpeoplesearch.com website. Among the charges was that IEI was violating section 222 of the 1996 Telecommunications Act (47 U.S.C. §222) by selling information about cell phone calls made by subscribers, including billing records and other data defined as CPNI. Current law requires telecommunications carriers to protect the confidentiality of CPNI. EPIC later expanded its request to the FTC, asking for an industry-wide investigation. An IEI spokesman described the company as a customer-service and billing agency for licensed private investigators and was not aware that it was breaking any laws.\nEPIC's original complaint focused on the actions of IEI in obtaining the records, asserting that it only could have done so through unfair and deceptive practices, which are under the FTC's jurisdiction. Subsequently, EPIC filed a petition with the Federal Communications Commission (FCC) as to whether telecommunications carriers are adequately safeguarding those records as required by law.", "According to the January 17, 2006 edition of TR Daily , in November 2005, Representative Markey asked the FCC and the FTC to act to stop the sale of cell phone subscribers' records. TR Daily reported that in a December 13, 2005 letter to Mr. Markey, FTC Chairman Deborah Platt Majoras declined to discuss ongoing investigations, but noted that the FTC has the authority to bring a law enforcement action against a \"pretexter\" if it believes the pretexter's activities constitute unfair or deceptive practices as defined in the FTC Act. (Pretexters obtain consumer data by impersonating customers, employees, regulators, or others with a legitimate reason to access to the information.)\nTR Daily further reported that in a January 13, 2006 letter, FCC Chairman Kevin Martin told Mr. Markey that the FCC's Enforcement Bureau is investigating the issue. On January 17, 2006, FCC commissioners Adelstein and Copps issued separate statements applauding the investigation. On January 30, 2006, the Enforcement Bureau issued Notices of Apparent Liability for Forfeiture (NALs) to AT&T Wireless and Alltel for failing to certify that they have protected CPNI. The Enforcement Bureau recommended $100,000 fines for each company. The FCC also issued subpoenas to several prominent data brokers seeking details on how they obtain the telephone records and asked about the sale of those records. Mr. Martin testified to the House Energy and Commerce Committee on February 1, 2006 that the data brokers did not reply adequately to the request, and that the FCC issued letters of citation to the companies and referred the inadequate responses to the Justice Department for enforcement of the subpoenas. He added that the FCC subsequently issued subpoenas to an additional 30 data brokers, and, as of February 1, was awaiting their responses. He also reported that the FCC made undercover purchases of phone records from various data brokers to assist in the investigation.", "IEI president Noah Webster reportedly defended his company's practices by saying that cell phone records have been obtained by private investigators for a long time, and the issue is only being raised now because of privacy groups, which \"often have their own agenda.\" Mr. Webster reportedly said that subscribers could protect themselves by asking their phone company to remove call details from their bills: \"I have done this personally, so I know it works. No one will be able to get your detailed phone records, because they won't exist.\"\nAccording to the Associated Press , in January 2006, 40 websites were offering cell phone numbers, unlisted numbers, and calling records for sale. The AP story reported that operators of such websites insist they are not doing anything illegal because there is no specific prohibition against pretexting to obtain another person's data unless it involves financial data (the latter would violate the Gramm-Leach-Bliley Act). Subsequently, following an FTC sweep of these sites, about 20 reportedly discontinued offering cell phone records.", "Four major wireless service providers (Verizon Wireless, Cingular Wireless, Sprint Nextel, and T-Mobile) have taken legal actions to stop companies that allegedly fraudulently obtain or sell their customers' cell phone records. Representatives of two major telecommunications associations—USTelecom and CTIA—testified at House and Senate hearings in 2006, as summarized below. As noted already, CTIA supports legislation to criminalize obtaining cell phone records fraudulently, while USTelecom does not support new legislation, but wants better enforcement of existing laws instead.", "Several bills have been introduced in the House and Senate. Each is briefly summarized at the end of the report. The House Energy and Commere Committee held a hearing on February 1, 2006, and the Senate Commerce, Science, and Transportation Subcommittee on Consumer Affairs, Product Safety, and Insurance, held a hearing on February 8, 2006. A number of organizations were represented at both hearings: FCC, FTC, CTIA, EPIC, and PrivacyToday.com.\nWitnesses from the FCC and FTC indicated that the two agencies are working collaboratively on the issue. In his prepared statement (cited previously) to the House Energy and Commerce Committee, after summarizing the actions already taken by the FCC, FCC Chairman Martin pledged to take strong action against companies that do not comply with the CPNI protection requirements. He said that EPIC's petition to open a proceeding on this matter will be acted upon formally by the FCC by February 10, 2006. Finally, he listed three actions Congress could take: make illegal the commercial availability of consumer's phone records, overturn a 1999 ruling by the 10 th Circuit Court that limited the FCC's ability to implement more stringent protection of CPNI, and strengthen the FCC's enforcement tools.\nFTC Commissioner Jon Leibowitz's prepared statement to the House Energy and Commerce Committee reviewed FTC's actions against pretexters, particularly in the context of enforcing the Gramm-Leach-Bliley Act that prohibits obtaining financial data through pretexting. He also recounted the FTC's actions against data brokers who do not adequately safeguard data, noting that the FTC reached a settlement with data broker ChoicePoint the previous week in which ChoicePoint will pay $10 million in civil penalties and $5 million in consumer redress. That case did not involve cell phone records, however, but he explained that the FTC may bring a law enforcement action against a pretexter who obtains telephone records as an unfair and deceptive practice. Mr. Leibowitz did not make recommendations on actions Congress might take.\nOther witnesses before the House committee included CTIA President Steve Largent, Robert Douglas from PrivacyToday.com, and Marc Rotenberg from EPIC. Mr. Largent and Mr. Douglas supported legislation to criminalize obtaining phone records by fraudulent means. In addition, Mr. Larson stressed that such legislation may not entirely solve the problem, while Mr. Douglas argued that the legislation should not be limited to telephone records, and that the FTC should not be given primary authority for enforcement. Mr. Rotenberg summarized his organization's efforts at raising awareness of this issue through the filings with the FCC and FTC (discussed above). He explained that telephone carriers opposed the use of enhanced security requirements for the data they collect, arguing that bringing lawsuits against pretexters would be sufficient. He insisted that enforcement alone would only drive the practice underground, and that \"simple security enhancements, such as sending a wireless phone user a text message in advance of releasing records, could tip off a victim ....\"\nSimilar sentiments were offered by those witnesses or other representatives of their organizations at the Senate hearing on February 8. In addition, the House committee heard from the Attorney General of Illinois, who asked that state laws not be preempted if federal legislation is enacted, and from a representative of the U.S. Telecom Association, who argued in favor of enforcement of existing laws and increased penalties, and against new security mandates. The Senate subcommittee also heard from Ms. Cindy Southworth representing the National Network to End Domestic Violence. She testified about the potential impact of the availability of stolen cell phone records and other personal information on victims of domestic violence", "Other wireless privacy concerns exist, but are outside the scope of this report to discuss in depth. Briefly, some are concerned about whether law enforcement authorities might require wireless carriers to provide location information. CDT's James Dempsey notes that government access to data stored on a third party network is not subject to Fourth Amendment protections that require probable cause before conducting searches. CDT's Alan Davidson was quoted in Computerworld about other ominous implications. \"'The first time somebody steals location information on the whereabouts of a kid and he goes missing, there will be a backlash and lawsuits,' he added. Or a phone company employee could have a crush on a woman with a cell phone and use the purloined data to follow her around, he said.\"\nIt should be noted that privacy concerns often are tempered by consumers' desires for new services and low prices. The extent to which consumers would choose one wireless carrier over another purely because one promised better privacy safeguards is unclear.", "Much of the wireless privacy controversy parallels the debate over Internet privacy (see CRS Report RL31408, Internet Privacy: Overview and Legislation in the 109 th Congress, 1 st Session , by [author name scrubbed]) and spam (see CRS Report RL31953, \" Spam \" : An Overview of Issues Concerning Commercial Electronic Mail , by [author name scrubbed]). In that context, questions have arisen over whether wireless carriers should be required to follow \"fair information practices\" with regard to collection, use, or dissemination of call location information.\nThe FTC has identified four \"fair information practices\" for operators of commercial websites: providing notice to users of their information practices before collecting personal information, allowing users choice as to whether and how personal information is used, allowing users access to data collected and the ability to contest its accuracy, and ensuring security of the information from unauthorized use. Enforcement is sometimes included as a fifth practice. \"Choice\" is often described as \"opt-in\" or \"opt-out.\" To opt-in, consumers must give their affirmative consent to a website's information practices. To opt-out, consumers are assumed to have given consent unless they indicate otherwise.\nSome argue that similar practices should be observed by wireless carriers or providers of location-based information and services. A major issue is whether Congress should pass a law requiring them to do so, or if industry self-regulation is sufficient.", "Several industry segments are involved in the wireless privacy debate: the wireless telecommunications carriers; companies offering location-based information and services; and websites that can be accessed over wireless devices. The optimism surrounding the business potential of wireless devices is exemplified by the emergence of the terms M-Commerce (mobile commerce) and L-Commerce (location commerce) and the creation of industry associations to promote them. The Mobile Marketing Association developed a code of conduct that was adopted by MMA's Board of Directors in November 2003. It combines opt-in and opt-out approaches. In September 2004, MMA established a wireless anti-spam committee in what it called the second phase of its efforts to ensure wireless applications are spam-free (the release of the code of conduct was the first phase).\nTRUSTe, a company that offers privacy \"seals\" to websites that follow certain privacy guidelines, released what it called the \"first wireless privacy standards\" on February 18, 2004. The \"Wireless Privacy and Principles and Implementation Guidelines\" call for—\nwireless service providers to give notice to their customers prior to or during the collection of personally identifiable information (PII), or upon first use of a service; wireless service providers to disclose customers' PII to third parties only if the customer has opted-in, and the customer should be able to change that preference at any time; and wireless service providers may only use location information for services other than those related to placing or receiving calls if the customer has opted-in, and wireless service providers should disclose the fact that they retain location information beyond the time reasonably needed to provide the requested service.\nThe MMA's code of conduct includes a requirement to \"align\" with the TRUSTe principles.\nThe FTC held a workshop on wireless Web privacy issues in December 2000. According to a media account, participants conceded that many companies developing wireless applications are too busy implementing their services to focus on privacy issues, and that since these companies are not certain of what future applications may emerge, \"they tend to collect far more data than they need right now ... and even more collection is likely once there's ready buyer [sic] for information.\" Some participants noted the importance of determining privacy requirements early in the development of wireless and location-based services so systems and equipment need not be retrofitted in the future.\nIn November 2000, CTIA asked the FCC to initiate a rulemaking, separate from its rulemaking on Customer Proprietary Network Information (CPNI, see discussion of the 911 Act, below), on implementation of the wireless location information amendments made by P.L. 106-81 . CTIA argued that location privacy information is uniquely a wireless concern, and such an FCC rulemaking would attract commenters who would not be interested in the general CPNI rulemaking. CTIA asked that the FCC adopt privacy principles to assure that mobile services users would be informed of the location information collection and use practices of their service providers before the information is disclosed or used. Specifically, CTIA wanted the FCC to adopt technology neutral (i.e., for either handset- or network-based systems) rules requiring notice, choice, and \"security and integrity.\" The latter phrase was described as meaning that location information should be protected from unauthorized use and disclosure to third parties, and third parties must adhere to the provider's location information practices. The FCC issued a Public Notice on March 16, 2001 requesting comments on CTIA's request. After receiving comments and deliberating on the request, the FCC announced in July 2002 that it would not commence such a proceeding. The FCC concluded that the \"statute imposes clear legal obligations and protections for consumers\" and \"we do not wish to artificially constrain the still-developing market for location-based services...\" The FCC added that it would closely monitor the issues and initiate a rulemaking proceeding \"only when the need to do so has been clearly demonstrated.\"\nWireless privacy issues have expanded beyond the initial concerns about privacy principles and fair information practices. As discussed earlier, a major issue today is the sale of cell phone records, and four of the major wireless service providers have brought legal actions against companies that allegedly fraudulently obtain or sell their customers' cell phone records. CTIA applauded the introduction of legislation in the Senate in January 2006, but also said that prosecutors could act under existing law. At the House Energy and Commerce Committee hearing on February 1, 2006, CTIA President Steve Largent again said his organization supports the need for legislation, but cautioned that it might not entirely solve the problem (discussed earlier). Verizon Wireless and T-Mobile are supporting Senator Schumer's bill.", "Three existing laws directly address some aspects of the wireless privacy and spam debate: TCPA, the \"911 Act,\" and the CAN-SPAM Act. They are summarized in this section. The privacy of cell phone records, an issue which has arisen quite recently, is not addressed by any of these three laws. Instead, the Federal Trade Commission Act (FTC Act) and the 1996 Telecommunications Act contain provisions relevant to that debate. They are discussed earlier in this report (see \" Selling Cell Phone Records \" ), so that information is not repeated here.", "The 1991 Telephone Consumer Protection Act (TCPA, P.L. 102-243 ), inter alia , prohibits the use of autodialers or prerecorded voice messages to call cellular phones, pagers, or other services for which the person would be charged for the call, unless the person has given prior consent. In 2003, the FCC ruled that TCPA applies to any call that uses an automatic dialing system or artificial or recorded message to a wireless phone number, including both voice messages and text messages, such as Short Message Service (SMS).", "Since 1996, the FCC has issued a series of orders to ensure that users of wireless phones and certain other mobile devices can reach emergency services personnel by dialing the numbers 911. The FCC rules, referred to as \"Enhanced 911\" or E911, apply to all cellular and Personal Communications Services (PCS) licensees, and to certain Specialized Mobile Radio licensees. This report addresses only the privacy implications of the availability of the call location information that will enable wireless E911 to work. Other E911 issues, including implementation, are discussed in CRS Report RL32939, An Emergency Communications Safety Net: Integrating 911 and Other Services , by [author name scrubbed].\nBecause the technologies needed to implement E911 enable wireless telecommunications carriers to track, with considerable precision, a user's location any time the device is activated, some worry that information on an individual's daily habits—such as eating, working, and shopping—will become a commodity for sale to advertising companies, for example.\nIn 1999, Congress passed the Wireless Communications and Public Safety Act ( P.L. 106-81 ), often called \"the 911 Act.\" In addition to making 911 the universal emergency assistance number in the United States, the 911 Act also amended section 222 of the Communications Act of 1934 (47 U.S.C. §222), which establishes privacy protections for customer proprietary network information (CPNI) held by telecommunications carriers. Inter alia , the 911 Act added \"location\" to the definition of CPNI.\nUnder section 222(h), as amended, CPNI is defined as:\n(A) information that relates to the quantity, technical configuration, type, destination, location, and amount of use of a telecommunications service subscribed to by any customer of a telecommunications carrier, and that is made available to the carrier by the customer solely by virtue of the carrier-customer relationship; and (b) information contained in the bills pertaining to telephone exchange service or telephone toll service received by a customer of a carrier, except that such term does not include subscriber list information.\nSection 222 required the FCC to establish rules regarding how telecommunications carriers treat CPNI. The FCC adopted its Third Report and Order on CPNI on July 16, 2002, setting forth a dual approach in which \"opt-in\" is required in some circumstances, and \"opt-out\" is permitted in others.\nIn addition to adding location to the definition of CPNI, the 911 Act amended section 222(d)(4) regarding authorized uses of CPNI. As amended, the law determines those circumstances under which wireless carriers need to obtain a customer's prior consent to use wireless location information, and when prior consent is not required. A customer's prior consent is not required (section 222 (d))—\nto provide call location information to a PSAP or to emergency service and law enforcement officials in order to respond to the user's call for emergency services; to inform the user's legal guardian or members of the user's immediate family of the user's location in an emergency situation that involves the risk of death or serious physical harm; or to information or database management services providers solely for purposes of assistance in the delivery of emergency services in response to an emergency.\nIn a newly created section 222(f), the 911 Act states that, except in the circumstances listed above, without express prior authorization , customers shall not be considered to have approved the use or disclosure of or access to (1) call location information, or (2) automatic crash notification information to anyone other than for use in an automatic crash notification system.\nThe phrase \"express prior authorization\" is not further defined in the law, however, nor the measures telecommunications carriers must take to obtain it. H.R. 83 (see \" Previous Legislative Action: 109 th Congress , \" below) would set such requirements.", "In 2003, Congress passed a broad anti-spam bill, the CAN-SPAM Act ( P.L. 108-187 ), which is addressed in more detail in CRS Report RL31953, \" Spam \" : An Overview of Issues Concerning Commercial Electronic Mail , by [author name scrubbed]. The original version of the bill, S. 877 , and the version passed by the Senate on October 22, 2003, did not address spam on wireless devices. The House, however, added such a provision (Sec. 14) in the version it passed on November 21, 2003. The Senate amended several provisions of S. 877 , including the section on wireless spam, when it concurred with the House version on November 25, 2003. The House adopted the Senate version on December 8. The bill was signed into law by President Bush on December 16, 2003.\nThe law required the FCC, in consultation with the FTC, to promulgate rules within 270 days of enactment to protect consumers from unwanted \" mobile service commercial messages \" ( MSCMs ). That term is defined in the law as a commercial e-mail message \"that is transmitted directly to a wireless device that is utilized by a subscriber of commercial mobile service\" as defined in the 1934 Communications Act. (In this report, an MSCM is referred to as a wireless commercial e-mail message.)\nThe FCC announced a Notice of Proposed Rulemaking on March 11, 2004. According to Communications Daily , during the comment period, several wireless carriers and the CTIA urged that they be exempted from the requirement to obtain express prior authorization before sending commercial messages to their customers if the customers are not charged for them, arguing that those are carrier-customer relationship issues and are protected by the First Amendment. CTIA reportedly agreed with the FCC's preliminary interpretation that the CAN-SPAM Act applies only to messages sent to an e-mail address consisting of two parts, a unique user name or mailbox and a reference to an Internet domain (e.g., janedoe@wirelesscarrier.com), and therefore should not apply to SMS, short code or other text messages sent using other address formats.\nThe FCC adopted the new rules on August 4, 2004; they were released on August 12. Most went into effect on October 18, 2004, although several that deal with information collection requirements must obtain approval of the Office of Management and Budget. The FCC took the following actions:\nProhibited sending wireless commercial e-mail messages unless the individual addressee has given the sender express prior authorization (\"opt-in\"), which may be given orally or in writing, including electronically. Requests for such authorization may not be sent to a wireless subscriber's wireless device because of the potential costs to the subscriber for receiving, accessing, reviewing and discarding such mail. Authorization provided to a particular sender does not entitle that sender to send wireless commercial e-mail messages on behalf of third parties, including affiliated entities and marketing partners. The request for authorization must contain specified information, such as the fact that the recipient may be charged by their wireless service provider for receiving the message, and subscribers may revoke their authorization at any time.\nThe rules do not apply to—\nmessages that are forwarded by a subscriber to his or her own wireless device (although they do apply to any person who receives consideration or inducement to forward the message to someone else's wireless device), or\nphone-to-phone SMS messages if they are not autodialed (Internet-to-phone SMS messages are covered by the rules since they involve a domain name address).\nAnnounced that it would create a publicly available FCC wireless domain names list with the domain names used for mobile service messaging so that senders of commercial mail can determine which addresses are directed at mobile services, and—\nProhibited sending any commercial message to addresses that have been on the list for at least 30 days, or at any time prior to 30 days if the sender otherwise knows that the message is addressed to a wireless device, and\nRequired all wireless service providers to supply the FCC with the names of all Internet domains on which they offer mobile service messaging services.\nDetermined that all autodialed calls, including SMS, are already covered by the TCPA. Interpreted the definition of wireless commercial e-mail message to include any commercial message sent to an e-mail address provided by a wireless service provider (formally called a \"commercial mobile radio service,\" or CMRS) specifically for delivery to the subscriber's wireless device. Provided guidance on the definition of \"commercial,\" but noted that the Federal Trade Commission is ultimately responsible for determining the criteria for \"commercial\" and \"transactional or relationship\" messages.\nAs noted, some wireless service providers sought an exemption from the requirement to obtain express prior authorization for them to communicate with their own subscribers, as long as the subscribers did not incur additional costs. The FCC did not grant such as exemption, in part because it concluded that the existing exemption in the CAN-SPAM Act for transactional or relationship messages is sufficient to cover many types of communication needed between a provider and a subscriber. Furthermore, the Commission concluded that the CAN-SPAM Act required it to protect consumers from unwanted commercial messages, not only those that involve additional costs.", "The Undertaking Spam, Spyware, and Fraud Enforcement With Enforcers beyond Borders Act (U.S. SAFE WEB Act, P.L. 109-455 ) is primarily concerned with \"traditional\" forms of spam via email. However, the law also covers wireless spam. Specifically, the act permits the FTC and parallel foreign law enforcement agencies to share information while investigating allegations of \"unfair and deceptive practices\" that involve foreign commerce.", "The 110 th Congress will likely continue to consider whether additional legislation is needed to protect wireless subscribers.", "H.R. 83 (Frelinghuysen) , the Wireless Privacy Protection Act , is identical to H.R. 71 from the 108 th Congress. The bill would amend the Communications Act of 1934 to require informed customer prior written consent to the provision of wireless call location and crash information to a third party. The bill was referred to the House Energy and Commerce Committee.\nS. 2130 (Schumer) , would amend 18 U.S.C. § 2510(8) to include (1) within the definition of \"contents\" of any interception of wire, electronic, and oral communications to include contemporaneous, real-time, or prospective information regarding the physical location of a cellular telephone; and (2) within the definition of \"tracking device,\" a cellular telephone for which the government seeks contemporaneous, real-time, or prospective information regarding its location. The bill was referred to the Committee on the Judiciary.", "H.R. 1139 (Pitts) , the Wireless 411 Privacy Act , is identical to H.R. 3558 from the 108 th Congress. This bill would enable wireless subscribers to keep their wireless telephone numbers unlisted, for free, if a directory assistance database for wireless subscribers were to be created. The legislation requires commercial mobile service providers to obtain express prior authorization (\"opt-in\") from each current subscriber, separate from any authorization obtained to provide the subscriber with mobile service or any associated calling plan or other service, to include the subscriber's wireless phone number in the database. For new subscribers, mobile service providers may include a subscriber's number in a 411 directory only if they provide a separate notice at the time a new subscriber signs up for service, and at least once a year thereafter, informing the subscriber of the right not to be listed, and providing a convenient mechanism for the subscriber to decline or refuse to be listed (\"opt-out\"). Call forwarding from a directory assistance operator to a subscriber would be permitted only if the operator first informs the subscriber of who is calling and the subscriber may accept or reject the incoming call on a per-call basis, and the subscriber's phone number may not be disclosed to the calling party. Call forwarding would not be permitted to subscribers whose numbers are unlisted. The bill also prohibits commercial mobile service providers from publishing, in print, electronic, or other form, the contents of any wireless directory assistance database. No fees may be charged to subscribers for keeping their phone numbers private. The bill was referred to the Subcommittee on Telecommunications and the Internet of the Committee on Energy and Commerce.\nS. 1350 (Specter) has the same title as H.R. 1139 , but the provisions are somewhat different. It does not differentiate between current and new subscribers, for example. In H.R. 1139 , the opt-in requirement is only for current subscribers; new subscribers would be given the opportunity to opt-out. In S. 1350 , opt-in consent is required from all subscribers. Also, in S. 1350 , if a subscriber's number is listed in a 411 directory, and the subscriber wants it removed, the mobile service provider must do so without any cost to the subscriber. S. 1350 contains language similar to the call forwarding provisions of H.R. 1139 under the heading \"wireless accessibility.\" Whereas H.R. 1139 prohibits commercial mobile service providers from publishing the contents of a wireless 411 directory, S. 1350 allows such publication if opt-in consent is obtained. Like H.R. 1139 , S. 1350 specifies that no fees may be charged to subscribers for keeping their phone numbers private. S. 1350 also would preempt state and local laws that are inconsistent with the requirements in the bill; H.R. 1139 does not address that issue. S. 1350 was referred to the Senate Commerce, Science, and Transportation Committee.\nS. 2389 (Allen) , the Protecting Consumer Phone Records Act (also discussed below) ( S.Rept. 109-253 ), would prohibit a provider of commercial mobile services from including the wireless telephone number of any subscriber in any wireless directory assistance database, or publishing such a directory, without first (1) providing a clear notice to the subscriber of the right not to be listed; and (2) obtaining express prior authorization from such subscriber for such listing. The bill would also require cost-free delisting for subscribers and prohibit provider from charging a fee to the subscriber for the exercise of such privacy rights. The bill was placed on the Senate Legislative Calendar under General Orders (Calendar No. 425).", "S. 2177 (Durbin) , the Phone Records Protection Act , prohibits the sale, fraudulent transfer or use of telephone records. The bill covers telecommunications carriers as defined in section 3 of the Communications Act of 1934, including any form of wireless telephone services such as cell phones, broadband Personal Communications Service (PCS), Specialized Mobile Radio (SMR) service, and successors to those services. The bill creates criminal penalties, including fines and up to 10 years in prison. Exceptions are provided for law enforcement agencies. The bill was referred to the Senate Judiciary Committee.\nS. 2178 (Schumer) , the Consumer Telephone Records Protection Act , would make it a criminal violation to obtain, or attempt to obtain, confidential phone records without authorization from the customer to whom those records relate by knowingly and intentionally making false or fraudulent statements or representations to an employee or customer of covered entities, providing false documentation to a covered entity knowing it was false, or accessing customer accounts via the Internet. The bill covers telecommunications carriers as defined in Section 3 of the Communications Act of 1934, and any provider of IP-enabled voice service. (IP means Internet Protocol.) The bill also prohibits any person, including employees of telephone companies or data brokers, from knowingly and intentionally selling such records without authorization from the customer. Violators would be fined, imprisoned for no more than five years, or both. Exceptions are provided for law enforcement agencies. The bill creates enhanced penalties if the violation is committed while violating another law or as part of a pattern of illegal activity involving more than $100,000 or more than 50 customers in a 12-month period. The enhanced penalty would double the fine and allow imprisonment for up to 10 years. The bill was placed on Senate Legislative Calendar under General Orders (Calendar No. 368).\nS. 2264 (Pryor) , the Consumer Phone Record Security Act , would make it unlawful for a person to: (1) obtain, or attempt to obtain, through fraud an individual's CPNI, or cause, or attempt to cause, an individual's CPNI to be disclosed to another person without authorization; (2) sell, or offer for sale, a person's CPNI without their authorization; or (3) request another person to obtain a person's CPNI from a telecommunications carrier without proper authorization (with an exception authorizing a law enforcement official to obtain a person's CPNI provided certain conditions are met). The bill would assign enforcement of the requirements of the bill to the Federal Trade Commission (FTC), the Federal Communications Commission (FCC), and the states, and authorize a person whose CPNI has been obtained, used, or sold to file an action for civil relief against the violator. Finally, the bill would amend the Communications Act of 1934 to require telecommunications carriers to implement certain measures to protect a person's CPNI. The bill was referred to the Senate Committee on Commerce, Science, and Transportation.\nS. 2389 (Allen) , the Protecting Consumer Phone Records Act , would make it unlawful for a person to: (1) acquire or use a an individual's CPNI without written consent; (2) misrepresent that another person has consented to the acquisition of CPNI in order to obtain such information; (3) obtain unauthorized access to data processing systems or records in order to obtain such information; (4) sell, or offer to sell, CPNI; or (5) request that another person obtain CPNI from a telecommunications carrier or Internet Protocol-enabled voice service provider, knowing that the other person will obtain such information in an unlawful manner. The bill does provide for some exceptions while also providing for both civil and criminal penalties for violations. The bill would require enforcement by the FTC, the FCC, and the states, and preempt contrary state law. It would also require the FTC and FCC to conduct a public awareness campaign about protecting CPNI. This bill was placed on Senate Legislative Calendar under General Orders (Calendar No. 425).\nH.R. 4657 (Lipinski) , the Secure Telephone Operations Act , would make it a crime to knowingly sell CPNI. Violators would be subject to fines or imprisonment for up to 10 years, or both. It was referred to the House Judiciary Committee Subcommittee on Crime, Terrorism, and Homeland Security.\nH.R. 4662 (Blackburn) , the Consumer Telephone Records Protection Act , has the same title as S. 2178 , but is different. Section 3 would make it unlawful for any person to obtain or cause to be disclosed (or attempt to do so) CPNI by making false, fictitious or fraudulent statements or representations to an officer, employee, or agent of a telecommunications carrier; or by providing by any means, including the Internet, any document or information to an officer, employee, or agent of a telecommunications carrier knowing it was forged, counterfeit, lost, stolen, obtained fraudulently or without the customer's consent, or contained a false, fictitious or fraudulent statement or representation. It also would be unlawful to request someone to obtain CPNI knowing it would be obtained in that manner, or to sell CPNI knowing that it was obtained by such means. Exceptions are provided for law enforcement agencies. Section 4 would require telecommunications carriers to notify customers if their CPNI was disclosed in violation of the act (that topic is not addressed in S. 2178 .) The FTC would enforce Section 3. The bill sets the same criminal penalties and enhanced penalties as S. 2178 . It was referred to the House Energy and Commerce Committee Subcommittee on Telecommunications and the Internet.\nH.R. 4678 (Schakowsky) , the Stop Attempted Fraud Against Everyone ' s Cell and Land Line (SAFE CALL) Act , is similar to H.R. 4662 , except that it does not set criminal penalties (it would be enforced by the FTC), and does not require customers to be notified if their CPNI is disclosed. It was referred to the House Energy and Commerce Committee Subcommittee on Commerce, Trade and Consumer Protection.\nH.R. 4709 (L. Smith), the Law Enforcement and Phone Privacy Protection Act ( H.Rept. 109-395 ) , would make it a crime knowingly and intentionally obtain, or attempt to obtain, confidential phone records information of a covered entity by making false or fraudulent statements or providing such documents, or accessing customer accounts via the Internet without prior authorization from the customer to whom the records relate. The term \"confidential phone records information\" is defined as information that relates to the quantity, technical configuration, type, destination, location, or amount of use of a service offered by a covered entity subscribed to by a customer of the covered entity, and is made available to a covered entity by a customer only because of the relationship between the covered entity and the customer. The term \"covered entity\" is defined as a telecommunications carrier (as defined in 47 U.S.C. 153) and includes any provider of IP-enabled voice service. (IP is Internet Protocol). This bill was presented to the President on December 22, 2006.\nH.R. 4714 (Boswell), the Phone Records Protection Act , is identical to S. 2177 . It was referred to the House Judiciary Committee." ], "depth": [ 0, 1, 1, 2, 2, 2, 3, 3, 3, 3, 3, 2, 1, 1, 1, 2, 2, 2, 2, 1, 2, 2, 2 ], "alignment": [ "h0_title h2_title h1_title", "h0_full h1_full", "h0_title h1_title", "h0_full", "h1_full", "", "", "", "", "", "", "h0_full", "", "", "h0_title h2_title h1_full", "h1_full", "h0_full h1_full", "", "h2_full", "h2_full", "", "", "" ] }

{ "question": [ "What factors are pushing the development of technologies which can precisely locate mobile callers?", "How might these technologies affect consumers?", "How could this information be used for advertising purposes?", "What might be the consumer response to such tracking?", "What does the wireless privacy debate focus on?", "What is the purpose of the 1991 Telephone Consumer Protection Act?", "What is the purpose of the 1999 Wireless Communications and Public Safety Act?", "What is the purpose of the CAN-SPAM Act?", "How else may customers protect their privacy?", "How did the 109th Congress address wireless privacy and spam?", "What are the effects of this bill?", "What Congressional debates continue regarding wireless privacy?" ], "summary": [ "In particular, federal requirements under the Enhanced 911 (E911) initiative to ensure that mobile telephone users can obtain emergency services as easily as users of wireline telephones, are driving wireless telecommunications carriers to implement technologies that can locate a caller with significant precision.", "Wireless telecommunications carriers then will have the ability to track a user's location any time a wireless telephone, for example, is activated. Therefore some worry that information on an individual's daily habits—such as eating, working, and shopping—will become a commodity for sale to advertising companies.", "As consumers walk or drive past restaurants and other businesses, they may receive calls advertising sales or otherwise soliciting their patronage.", "While some may find this helpful, others may find it a nuisance, particularly if they incur usage charges.", "As with the parallel debates over Internet privacy and spam, the wireless privacy discussion focuses on whether industry can be relied upon to self-regulate, or if legislation is needed. Three laws already address wireless privacy and spam concerns.", "The 1991 Telephone Consumer Protection Act (TCPA, P.L. 102-243) prohibits the use of autodialers or prerecorded voice messages to call wireless devices if the recipient would be charged for the call, unless the recipient has given prior consent.", "The 1999 Wireless Communications and Public Safety Act (the \"911 Act,\" P.L. 106-81) expanded on privacy protections for Customer Proprietary Network Information (CPNI) held by telecommunications carriers by adding \"location\" to the definition of CPNI, and set forth circumstances under which that information could be used with or without the customer's express prior consent.", "The 2003 Controlling the Assault of Non-Solicited Pornography and Marketing Act (the CAN-SPAM Act, P.L. 108-187) required the Federal Communications Commission (FCC) to issue rules to protect wireless subscribers from unwanted mobile service commercial messages (they were issued in August 2004).", "Consumers also may list their cell phone numbers on the National Do Not Call Registry.", "Most recently, the 109th Congress passed the Undertaking Spam, Spyware, and Fraud Enforcement With Enforcers beyond Borders Act of 2005 (U.S. SAFE WEB Act); the bill was signed into law on December 22, 2006 (P.L. 109-455).", "The bill would allow the FTC and parallel foreign law enforcement agencies to share information while investigating allegations of \"unfair and deceptive practices\" that involve foreign commerce.", "Congress continues to debate how to protect the privacy of wireless subscribers, primarily in the areas of CPNI, wireless location data, and proposed wireless directory assistance services." ], "parent_pair_index": [ -1, 0, 1, 0, -1, 0, 0, 0, 0, -1, 0, -1 ], "summary_paragraph_index": [ 1, 1, 1, 1, 2, 2, 2, 2, 2, 3, 3, 3 ] }

{ "title": [ "Background", "Range of DOD Efforts to Engage with Partner Nation Security Forces", "Geographic Combatant Command Theater Campaign Plans Develop Strategies for Engaging with Partner Nations", "DOD Has Taken Steps to Establish Its Concept for Conducting Security Force Assistance, Including Broadly Defining the Term and Identifying Actions Needed to Plan for and Prepare Forces to Execute It", "DOD Has Issued an Instruction That Broadly Defines Security Force Assistance and Outlines Responsibilities for Key Stakeholders", "DOD Has Identified Tasks to Address Gaps in Implementing Security Force Assistance and Developed a Lexicon Framework Intended to Clarify the Meaning of Security Force Assistance", "DOD Has Established Organizations to Manage Its Efforts to Implement Security Force Assistance", "Geographic Combatant Commands Face Challenges That Limit Their Ability to Plan for and Track Security Force Assistance as a Distinct Activity", "Geographic Combatant Commands Lack a Common Understanding of Security Force Assistance", "System for Tracking Security Force Assistance Activities Contains Limitations", "Geographic Combatant Commands May Face Challenges in Developing and Executing Long-Term Security Force Assistance Plans within Existing Statutory Authorities", "The Services Are Developing General Purpose Forces with Capabilities to Conduct Security Force Assistance to Meet Current Requirements but Lack Clarity on Future Requirements", "The Services Have Taken Some Steps and Invested Resources to Organize Dedicated Forces", "Services Are Training Certain Personnel for Security Force Assistance, but Have Not Yet Fully Determined the Level of Training Required for All Security Force Assistance Activities", "Services Have Taken Steps to Track Uniformed Military Personnel with Security Force Assistance Training and Experience, but Face Challenges Identifying What Should Be Tracked", "Conclusions", "Recommendations for Executive Action", "Agency Comments and Our Evaluation", "Appendix I: Scope and Methodology", "Appendix II: Comments from the Department of Defense", "Appendix III: GAO Contact and Staff Acknowledgments", "GAO Contact", "Staff Acknowledgments" ], "paragraphs": [ "", "DOD engages with partner nation security forces through a range of security cooperation efforts, which can include security assistance and foreign internal defense. Security cooperation is the broad term used to define those activities taken by DOD to build relationships that promote specified U.S. interests, build partner nation capabilities for self-defense and coalition operations, and provide U.S. forces with peacetime and contingency access. These activities are carried out under various statutory authorities. For example, DOD may conduct activities with partner nations, such as sending out military liaison teams, exchanging military personnel between units, and conducting seminars and conferences in theaters of operations under U.S. Code Title 10. DOD also may conduct security cooperation activities through security assistance programs, authorized by U.S. Code Title 22, which include foreign military sales and foreign military financing programs, and allow DOD to provide defense articles and services to partner nations in support of U.S. national policies and objectives. These security assistance programs are tools that can allow DOD to train and equip partner nation security forces. Additionally, the National Defense Authorization Act provides for authorities to facilitate DOD’s engagement with partner nations under certain conditions.\nDOD’s 2010 Quadrennial Defense Review cites building the security capacity of partner nations as a key mission area and emphasizes security force assistance as an increasingly critical element of this mission. It also identifies several initiatives to enhance its ability to build partner nation security capacity, such as strengthening and institutionalizing general purpose force capabilities to conduct security force assistance; enhancing linguistic, regional, and cultural abilities; strengthening and expanding capabilities to train partner nation aviation forces; and strengthening the department’s capacities for ministerial-level training. Historically, DOD has primarily relied on special operations forces to train and advise partner nation security forces as part of their foreign internal defense mission, which is to assist foreign governments in protecting themselves from internal threats. More recently, the increased demand on special operations forces in Iraq and Afghanistan has required the department to use general purpose forces to advise and assist the Iraqi and Afghan security forces. For example, in Iraq and Afghanistan, DOD has used training and transition teams and augmented brigade combat teams, respectively, to train, advise, equip, and mentor those countries’ security forces. As a result of its experiences in Iraq and Afghanistan, its increasing emphasis on the importance of security force assistance, and its intent to expand these types of efforts to other parts of the globe, DOD has highlighted the need to further develop security force assistance capabilities within its general purpose forces.", "To perform its military missions around the world, DOD operates six unified military geographic combatant commands, which are responsible for a variety of functions including planning for and conducting missions that range from humanitarian assistance to combat operations. Each geographic combatant command is supported by service component commands (Army, Navy, Marine Corps, and Air Force) and a theater special operations command. In addition, the military services are responsible for organizing, training, and equipping their forces to execute the current and future operational requirements of the combatant commands.\nAs part of their planning responsibilities, geographic combatant commands develop theater campaign plans, which are multiyear plans that reflect the command’s strategy to achieve certain end states within their areas of responsibility. These plans are the primary vehicle for designing, organizing, integrating, and executing security cooperation activities. A hierarchy of national and strategic guidance—including the National Security Strategy, the National Defense Strategy, the National Military Strategy, and the Guidance for Employment of the Force— informs the development of the combatant commands’ theater campaign plans. For example, the Guidance for Employment of the Force provides 2-year direction to geographic combatant commands on security cooperation, among other things, and consolidates and integrates DOD planning guidance related to operations and other military activities into a single overarching document. This guidance is considered essential to geographic combatant command planners as it provides the strategic end states that form the basis for theater campaign plans, including the assumptions and level of detail to be considered in developing those plans. For example, the Guidance for Employment of the Force has eight security cooperation focus areas, which include Operational Access and Global Freedom of Action, Operational Capacity and Capability Building, and Interoperability with U.S. Forces / Support to U.S. Capabilities. These focus areas are designed to link geographic combatant command security cooperation activities to achieve theater campaign plan end states. In order to execute the activities in their theater campaign plans, geographic combatant commands request the required force capabilities through the Global Force Management system. The Global Force Management system is a DOD system that provides insight into the global availability of U.S. military forces to meet rotational and emergent force requirements from geographic combatant commands as they arise.", "DOD has taken steps to establish its concept for conducting security force assistance, including broadly defining the term and identifying actions needed to plan for and prepare forces to execute security force assistance activities. For example, DOD issued an instruction that broadly defines security force assistance and outlines responsibilities for key stakeholders. The department also conducted an assessment to identify gaps in key areas such as doctrine, organization, and training related to the implementation of security force assistance across the department. This effort identified tasks to address these gaps and called on DOD to develop a document, referred to as the Lexicon Framework, to clarify the term security force assistance and its relationship to other key terms.", "In October 2010, DOD issued an instruction—DOD Instruction 5000.68— that broadly defines security force assistance and outlines responsibilities for key stakeholders to plan, prepare for, and execute security force assistance. The instruction defines security force assistance as “DOD activities that contribute to unified action by the U.S. government to support the development of the capacity and capability of partner nation The instruction states that DOD forces and their supporting institutions.”should develop and maintain forces, including general purpose forces and special operations forces, that can conduct security force assistance activities in a variety of conditions that include (1) politically sensitive environments where an overt U.S. presence is unacceptable to the host country government; (2) environments where a limited, overt U.S. presence is acceptable to the host country government; and (3) environments where a large-scale U.S. presence is considered necessary and acceptable by the host country government. According to Office of the Secretary of Defense (OSD) and U.S. Special Operations Command officials, special operations forces would be favored to lead missions in the first environment, and the other environments could either use general purpose forces or an appropriate combination of forces.\nIn addition, responsibilities of key stakeholders, including the geographic combatant commands and the military services, to plan for and conduct security force assistance are outlined in the instruction. For example, DOD Instruction 5000.68 states that the geographic combatant commands should incorporate security force assistance into their theater campaign plans; conduct security force assistance within their areas of responsibility; annually forecast and report security force assistance requirements for a 5-year time frame; and record security force assistance activities into the Theater Security Cooperation Management Information System; and military services should develop, maintain, and institutionalize capabilities to support DOD efforts to organize, train, equip, and advise foreign military forces and their supporting institutions; provide scalable capabilities to meet geographic combatant command requirements for security force assistance; develop training and education standards for security force assistance capabilities; and identify and track military service personnel who have security force assistance-related training, education, or experience.", "DOD conducted a capabilities-based assessment to identify gaps in key areas of doctrine, organization, training, materiel, leadership and education, personnel, and facilities, related to the implementation of security force assistance across the department. The effort resulted in an April 2011 Joint Staff memorandum that identified 25 tasks needed to address the identified gaps, along with the organizations responsible for completing the tasks and associated milestones. The tasks have targeted completion dates through April 2014 and include recommending changes to joint and service-level doctrine to incorporate security force assistance as needed; developing measures to assess security force assistance progress in partner nations; and developing joint training standards for U.S. forces training for security force assistance missions.\nCiting a need to clarify the definition of security force assistance beyond the information found in DOD Instruction 5000.68, the Joint Staff memorandum also directed DOD to develop a lexicon framework. In November 2011, DOD published the Security Force Assistance Lexicon Framework. According to the Lexicon Framework, its intent was to promote a common understanding of security force assistance and related terms by providing greater clarity on the definition of security force assistance and how it relates to other existing terms, such as security cooperation and security assistance. The Lexicon Framework also expands upon the DOD Instruction’s definition of security force assistance. Specifically, DOD Instruction 5000.68 states that security force assistance is defined as “DOD activities that contribute to unified action by the U.S. government to support the development of the capacity and capability of partner nation forces and their supporting institutions.” The Lexicon Framework restates this definition, but also adds that security force assistance is all DOD activities conducted under various programs to “organize, train, equip, rebuild/build, and advise foreign security forces and their supporting institutions from the tactical to ministerial levels.”", "DOD has established organizations to help manage its security force assistance implementation efforts. For example, in February 2011, the department established a Security Force Assistance Steering Committee and Working Group to guide the department’s efforts to develop security force assistance policy and capabilities, and manage the implementation of DOD Instruction 5000.68 and the completion of the tasks noted in the Joint Staff memorandum. The Steering Committee and Working Group are both cochaired by Assistant Secretary of Defense for Special Operations/Low-Intensity Conflict and the Joint Staff J-5 Strategic Plans and Policy directorate, and also include other DOD organizations. For example, U.S. Special Operations Command and the military services are included in the steering committee, and the geographic combatant commands participate in the working group.\nAdditionally, DOD established the Joint Center for International Security Force Assistance in 2006, which according to its charter is supposed to collect, analyze, and document security force assistance lessons learned and best practices, advise and assist the geographic combatant commands, the military services, and other government agencies with security force assistance, and actively support the long-term integration of security force assistance into joint training, leader development, and doctrine. This center is funded through the Army’s training budget and received $1.3 million in base funding for fiscal year 2012 with the majority of this used to cover civilian personnel costs, as well as operating costs and travel costs for personnel. The center has focused on supporting the warfighter in Iraq and Afghanistan, but recently has begun to conduct outreach with geographic combatant command planners to educate key staff on security force assistance and how to incorporate it into theater campaign planning efforts. It previously published a Security Force Assistance Planner’s Guide in 2008, most recently updated in 2009, and officials stated that the center is updating the Planner’s Guide for 2012 in light of the generally accepted set of terms in the lexicon and to serve as a resource for planners of security force assistance.\nThe department also relies on other long-standing organizations to support U.S. efforts to interact with partner nation security forces. For example, the Defense Security Cooperation Agency is responsible for administering certain security cooperation and security assistance activities that fall under Title 10 and Title 22 of the U.S. Code. In addition, Defense Security Cooperation Agency officials said the agency offers opportunities to help educate personnel on ways to provide security cooperation assistance to partner nations. For example, the Defense Institute of Security Assistance Management, an institute run by the Defense Security Cooperation Agency, provides professional education, research, and support to enhance security assistance management capabilities of DOD military and civilian personnel. Moreover, Defense Security Cooperation Agency officials cited the Defense Institution Reform Initiative and the Ministry of Defense Advisors program as two efforts that were developed to help support geographic combatant command efforts to build capacity and capability of partner nations’ ministerial institutions.", "The geographic combatant commands are conducting activities to build partner nation capacity and capability, but face challenges planning for and conducting security force assistance as a distinct activity, including the following: (1) a lack of common understanding of security force assistance which may limit their ability to plan for it as OSD intends; (2) limitations in the system where security force assistance activities are to be tracked; and (3) the ability to develop and execute long-term security force assistance plans within existing legislative authorities.", "OSD has presented security force assistance as a distinct activity requiring the geographic combatant commands to develop new and innovative strategies that go beyond traditional security cooperation. However, despite DOD’s effort to clarify its terminology, the four geographic combatant commands we spoke to lack a common understanding of security force assistance, and therefore some are unclear as to the additional efforts that may be needed on their part to meet the department’s intent for security force assistance and do not see the value in distinguishing security force assistance from other security cooperation activities.\nAccording to officials from the Security Force Assistance Working Group, the emphasis recently placed on security force assistance in the Quadrennial Defense Review, Defense Strategic Guidance, and other documents like DOD Instruction 5000.68 and the Lexicon Framework, is indicative of DOD’s intention to take a more strategic and proactive approach to building the capacity and capability of partners and allies around the world. DOD documents characterize security force assistance as a subset of security cooperation, but identify it as a distinct activity from other types of security cooperation activities. The Lexicon Framework states that the purposes of security force assistance are to create, maintain, or enhance a capacity or capability to achieve a desired end state. It distinguishes these purposes from other types of security cooperation activities, such as activities conducted to gain access, influence, or diplomatic or political action with a partner nation, but do not enhance any capacity or capability. To further illustrate this distinction, an OSD official said that the geographic combatant commands conduct security cooperation activities, such as military-to-military engagements and joint exercises, but these activities do not have the primary purpose to build partner nation capacity and capability and thus are not considered security force assistance. The Lexicon Framework states that the effective execution of security force assistance requires geographic combatant commands to develop objectives for the development of partner nation security forces, articulate regional objectives, link resources to overarching goals, and create operational roadmaps for persistent cooperation. It further states that this comprehensive, global approach to improving partner security capacity will require new and innovative strategies and authorities that go beyond traditional security cooperation applications.\nAccording to OSD, the emphasis on security force assistance in recent guidance reflects an expectation that geographic combatant commands will conduct increased security force assistance activities through sustained and proactive plans focused on building partner nation capacity and capability. For example, Security Force Assistance Working Group officials said that as U.S. forces are drawn down in Afghanistan, the demand for security force assistance outside of Afghanistan is expected to increase over the next few years. The geographic combatant commands are expected to identify and plan for security force assistance based on the needs of the partner nations in their areas of responsibility and forecast the forces needed to conduct planned activities. The services, in turn, are responsible for providing forces to meet the geographic combatant commands’ forecasted requirements.\nDOD Instruction 5000.68 directs the geographic combatant commands to incorporate security force assistance into their theater campaign plans and to forecast their force requirements for security force assistance. Notwithstanding DOD’s efforts to present security force assistance as a distinct and potentially expansive activity beyond existing security cooperation efforts, geographic combatant commands lack a common understanding of security force assistance, and therefore some are unclear as to the additional efforts that may be needed on their part to meet the department’s intent for security force assistance and do not see the value in distinguishing security force assistance from other security cooperation activities. Generally, all four of the geographic combatant commands we spoke to viewed security force assistance as a recharacterization of some of their existing security cooperation activities since all of the commands conducted some activities, such as training partner nation forces, targeted to build partner nation capacity and capability. The lack of common understanding of security force assistance both among and within geographic combatant commands led to inconsistencies regarding which of their current activities they considered to be security force assistance when discussing their efforts, including the following:\nOfficials from one service component command told us that they consider nearly every activity with partner nations to be security force assistance—from subject matter expert exchanges that are meant to increase interoperability between the nations to U.S. instructor-led training of partner nation security forces—because they believe them to build the capacity and capability of partner nations.\nU.S. European Command identified individual efforts to train partner nations as security force assistance, such as its efforts to train infantry battalions from the country of Georgia to deploy to Afghanistan, but excluded activities such as military-to-military exchanges.\nU.S. Africa Command considered only comprehensive, persistent programs to improve partner nation security forces from the tactical to the ministerial to be security force assistance and identified only one activity as such. However, officials from one of the command’s service components identified episodic activities aimed at increasing regional and maritime safety and security within the command’s area of responsibility as security force assistance.\nIn addition, the geographic combatant commands we visited plan for interactions with partner nations, including some activities to build partner nation capacity and capability. However, because the geographic combatant commands view security force assistance as a recharacterization of some of their existing security cooperation activities, they did not see a need to distinguish security force assistance from other security cooperation activities in their planning efforts, as indicated in the following examples:\nU.S. European Command officials said that they did not incorporate the term security force assistance in their theater campaign plan, but the plan emphasizes the importance of building allies’ and partners’ capacity to contribute to regional security.\nU.S. Southern Command’s theater campaign plan includes one specific reference to security force assistance, but includes references to other activities that link back to the command’s military objectives, including objectives related to building partner capacity and capability.\nU.S. Africa Command’s theater campaign plan includes some general references to security force assistance, but the references are not linked to specific objectives. The plan does include information on the need to develop partner nation capacity and capability.\nU.S. Central Command officials said they do not use the term security force assistance in their theater campaign plan.\nFurther, some geographic combatant command officials said that they were not clear as to OSD’s intent behind the emphasis on security force assistance, including the level of effort that should be devoted to it, and whether that intent should have any effect on their future theater plans and activities. Officials from several combatant commands said that they develop their theater campaign plans and strategies based on the Guidance for Employment of the Force and other strategic guidance and that they would expect any emphasis requiring them to change how they plan for and conduct activities to be reflected in that guidance. According to OSD, strategic guidance documents are being reviewed to determine whether they should be revised based on the January 2012 Defense Strategic Guidance to reflect greater emphasis on security force assistance.\nWe recognize that the department has taken steps intended to increase understanding of security force assistance, such as the issuance of the Lexicon Framework in November 2011. Nonetheless, as the above examples demonstrate, the geographic combatant commands continue to lack a common understanding of security force assistance, what additional efforts may be needed on their part to meet the department’s intent for security force assistance, and the value of distinguishing security force assistance from other security cooperation activities. We also recognize that the Lexicon Framework was issued recently. However, some geographic combatant command and service officials familiar with the framework said that they found some of the distinctions within the document to be confusing and others cited the need for additional guidance that provides greater clarity on what is required to plan for and conduct security force assistance as OSD intends. Further, officials from the Joint Center for International Security Force Assistance said that, while they believe the Lexicon Framework is helpful to clarify the relationship between security force assistance and other related terms, joint doctrine on security force assistance is necessary to ensure that all stakeholders understand security force assistance. Moreover, we found that neither the framework nor the instruction provide clear guidance on the level of effort that geographic combatant commands should devote to security force assistance and how security force assistance differs from some of the geographic combatant commands’ current efforts to build partner nation capacity and capability. Our prior work on key practices for successful organizational transformations shows the necessity to communicate clear objectives for what is to be achieved. Further, DOD guidance states that clear strategic guidance and frequent interaction between senior leaders and planners promotes an early, shared understanding of the complex operational problem presented, and of strategic and military end states, objectives, and missions. Without additional clarification from OSD, the geographic combatant commands will continue to lack a common understanding of security force assistance, which may hinder the department in meeting its strategic goals.", "DOD Instruction 5000.68 directs the geographic combatant commands to record their security force assistance activities in the Theater Security Cooperation Management Information System, which, according to officials, has been identified by the Guidance for Employment of the Force as the system of record for tracking all security cooperation activities. Beyond the challenges that commands face in distinguishing between security force assistance activities and other types of activities, we also found that the system into which they are instructed to track security force assistance activities has limitations. For example, the system does not contain a corresponding data field specifically for security force assistance activities. There are several different versions of the Theater Security Cooperation Management Information System currently in use by the geographic combatant commands and service component commands, including individual command legacy systems and an interim system being used by multiple commands. According to a Joint Staff official, neither the interim version of the Theater Security Cooperation Management Information System nor the legacy systems, with the exception of the system put in place by the Army, contain a data field for specifically tracking security force assistance activities. The Joint Staff is currently developing the Global Theater Security Cooperation Management Information System to replace the legacy and interim systems in order to create a single global interface for users, with initial fielding planned for fiscal year 2013. Joint Staff officials responsible for the development of this system told us no plans currently exist to create such a data field within the Global Theater Security Cooperation Management Information System. According to these officials, they are not planning to add this field because they believe security force assistance is a broad category and different users of the system may prefer more specific data fields for the individual types of engagements with partner nations, such as military-to-military engagement and training. Security Force Assistance Working Group officials have suggested that a security force assistance field should be added to the Global Theater Security Cooperation Management Information System because tracking and monitoring security force assistance activities is important to ensure that the department is directing resources toward its strategic goal of building partner capacity and capability. As the department continues to develop and manage security force assistance as a stand-alone concept, without a data field or other mechanism within the future Global Theater Security Cooperation Management Information System to specify which activities are security force assistance activities, and a consistent approach to collecting data on these activities, OSD will lack visibility over both security force assistance activities and the U.S. resources being invested in building the capacity and capability of partner nations.\nMoreover, while the Theater Security Cooperation Management Information System is intended to enable planning, tracking, and forecasting security cooperation activities, eliminate potential overlap and duplication of activities by different commands, and ensure that resources are being directed towards priority countries, the different versions of the system currently lack standard global business rules to guide how information on activities should be entered. Thus, it is up to the geographic combatant commands and services to develop their own set of rules—formal or informal—governing how activities are entered into the legacy and interim systems. Some commands enter all proposed activities into the system, while another enters data less consistently thus reducing the value of the system as a planning and forecasting tool. The inconsistency of reporting in this system can result in an inefficient use of resources. For instance, Navy officials told us of a recent example in which an Air Force-sponsored medical engagement with a partner nation was conducted in the same location as a similar Navy-sponsored medical engagement, but the Air Force was unaware of this until it arrived on location. The officials noted that, had the activities been identified and forecasted in the system, the Air Force and Navy could have coordinated and either chosen to redirect resources to another location or planned the activities to build upon one another. As part of the process to update the Global Theater Security Cooperation Management Information System, Joint Staff officials recognize the need to have some level of standardization in how activities are entered across the department so that they have a complete and consistent picture of global activities, and are in the process of developing global business rules to that effect, expected to be completed by the end of fiscal year 2012.", "Geographic combatant commands conduct security cooperation and security assistance activities, which may include security force assistance, through a variety of different statutory authorities within Title 10 (Armed Services) and Title 22 (Foreign Relations and Intercourse) of the U.S. Code. For example, geographic combatant commands conduct security cooperation activities including military-to-military engagements, interoperability activities, and joint training exercises under traditional Title 10 authorities. DOD also can conduct activities involving interactions with partner nation security forces through State Department-led Title 22 security assistance programs and authorities, which include, foreign military sales, foreign military financing, international military training and education, and peacekeeping operations. All of the geographic combatant commands we spoke with told us that they used Title 22 programs such as Foreign Military Assistance and International Military Education and to provide training to partner nation forces. While the statutory Trainingauthorities codified within Title 10 or Title 22 remain available unless Congress repeals them, other authorities are temporary and must be renewed periodically through legislation. For example, the annual National Defense Authorization Acts can provide specific authorities that allow the geographic combatant commands to conduct activities, such as counternarcotics training with partner nations. Table 1 below shows selected statutory authorities used by geographic combatant commands to conduct security cooperation and security force assistance activities.\nThese statutory authorities are specific in nature and some contain limitations and restrictions on the types of activities that can be conducted under these authorities. For example, the authorities codified within Title 10 do not authorize general purpose forces to conduct security force assistance activities, such as training, advising, and assisting partner nation security forces. Thus, geographic combatant commands rely on statutory authorities beyond traditional Title 10 authorities, such as the aforementioned specific authorities provided for in the National Defense Authorization Acts or through Title 22 security assistance programs. For example, both U.S. Central Command and U.S. Southern Command stated that they used authority originally provided by section 1004 of the Fiscal Year 1991 National Defense Authorization Act to conduct counterdrug and counternarcotics training with militaries in their respective regions. Further, all four of the geographic combatant commands that we spoke to had at some point used authority originally provided by section 1206 of the Fiscal Year 2006 National Defense Authorization Act to train and equip partner nation forces. Like Title 10, many of these National Defense Authorization Act authorities and Title 22 security assistance programs have limitations in how they can be used. For example, section 1206 of the Fiscal Year 2006 National Defense Authorization Act only allows for training and equipping programs that build the capacity of foreign militaries to conduct counterterrorism operations or participate in or support military and stability operations in which U.S. forces participate.\nOnce the geographic combatant commands’ theater campaign plans are approved by the Secretary of Defense, they must find separate authorization for activities that they will conduct with partner nations. Some geographic combatant command and service component command officials said that they often have to cobble together multiple authorities in order to carry out a single activity with partner nation forces because of the specificity of the authorities. For example, officials from one service component command stated that a single training event targeted toward building the aviation capabilities of a partner nation required 11 different authorities and funding streams.\nSome geographic combatant command officials noted that they may require additional or revised authorities in order to plan for and conduct increased and sustained security force assistance activities, such as training and equipping partner nation forces, beyond their current level of effort. According to an OSD official, current authorities generally allow for more short-term relationships with partner nations, but planning for and conducting security force assistance as the department envisions it requires longer-term, sustained interaction. In that regard, this official stated that the department has efforts underway to review the current statutory authorities available to DOD to determine whether additional authorities are needed and to potentially develop proposals to Congress. As of February 2012, DOD was still conducting this review.", "The services are taking steps and investing resources to organize and train general purpose forces that are capable of conducting security force assistance and tracking uniformed military personnel with related experience and training. However, the services’ efforts are still in progress and uncertainties remain about any additional capabilities that may be needed due to a lack of clarity in regard to future geographic combatant command requirements.", "DOD Instruction 5000.68 directs the services to develop, maintain, and institutionalize the capabilities to support DOD efforts to organize, train, equip, and advise foreign military forces and relevant supporting institutions in order to meet the geographic combatant command requirements. In providing these capabilities, it further elaborates that the services are to meet the requirements of all three conditions identified by the instruction under which security force assistance activities are conducted, and to identify joint capabilities across all domains, such as air, land, maritime, and cyberspace. The services have historically built teams on an as-needed basis to engage with partner nation security forces rather than developing dedicated forces to conduct these activities. However, officials stated that lessons learned from Iraq and Afghanistan established the need to organize and deploy forces to train and advise partner nation security forces in a more deliberate manner. In light of this experience, and the department’s growing emphasis on security force assistance, the services have undertaken efforts to organize dedicated forces that they consider to be capable of conducting security force assistance. For example, service efforts include the following:\nThe Army is planning to regionally align forces that will be tailored to meet the requirements of the geographic combatant command to which they are aligned. The regionally-aligned forces will remain at homestation and deploy only those elements of the unit that are required to meet the specific geographic combatant command requirements. The Army’s initial regionally-aligned force will be a brigade combat team that will be aligned to U.S. Africa Command starting in January 2013, with additional forces expected to be aligned to the other geographic combatant commands beginning in fiscal year 2014. Although the initial unit will be a brigade combat team, officials said that future aligned forces could be smaller or larger units, depending on geographic combatant command requirements and can be augmented by specialized capabilities as needed. This initial regionally-aligned brigade is to conduct approximately 120 activities with partner nations within U.S. Africa Command’s area of responsibility over the course of a year. According to Army headquarters officials, most of the 120 activities will be short-duration, small-footprint activities, conducted by teams as small as three people, while larger exercises with partner nations may be longer duration events, conducted by battalion-sized units.\nThe aligned brigade will receive training for the full spectrum of operations, comprising offense, defense, and stability operations, as well as tailored language, culture, and advising training for the specific missions. The Army has identified language proficiency as a beneficial skill but is still determining the level of language proficiency required within its regionally-aligned forces. For the initial regionally-aligned brigade, the Army plans to provide the majority of the brigade with basic language training that would allow it to build rapport with partner nation security forces, while smaller elements of the brigade are intended to receive more specialized training in one of the five key languages identified for Africa: Arabic, French, Swahili, Hausa, or Portuguese. In addition, a small portion of the brigade may be sent through a full culturally-based language training course provided by a language training detachment at the unit’s homestation. After the initial regional alignment, the Army will assess the level of language training that was provided to see whether it is sufficient or whether it should be adjusted for future regionally-aligned forces.\nOnce fully established, the Army’s regionally-aligned forces are expected to conduct most engagements with partner nation security forces, but officials stated that the Army will still employ other options as necessary to meet combatant command requirements. The Army is projecting costs of approximately $1 million to establish the aforementioned language training detachment. In addition, the Army is estimating costs of about $100,000 for soldiers to travel to train with the 162nd Infantry Brigade. Army headquarters officials told us that the costs for force generation of the initial regionally-aligned brigade are not expected to be substantially different than those for a standard infantry brigade being trained for full-spectrum operations.\nThe Marine Corps has organized several types of forces to meet geographic combatant command requirements with deployed teams ranging in size from one or two marines to larger task forces. For example, the Marine Corps deploys tailored special-purpose marine- air-ground task forces on a rotational basis to different regions to conduct activities with partner nation security forces. These task forces are meant to build military capacity of partner nations, provide regional stability, and develop lasting partnerships with nations in the region. According to officials, the Marine Corps also has small teams, such as 15-to-50-person security cooperation teams to conduct military-to-military engagements, and 11-person coordination, liaison, and assessment teams that have specific cultural knowledge of regions and are available to help the Marine Corps component commands with planning, coordination with partner nation forces, and assessment of partner nation forces. In addition to these efforts, the Marine Corps has been conducting a sustained effort with the country of Georgia’s military, called the Georgia Deployment Program, to train and deploy Georgian battalions for full-spectrum operations in Afghanistan.\nAccording to officials, the Navy builds partner nation capacity and capability through a variety of ways using both its fleet and expeditionary forces. For example, officials stated that personnel from Navy ships regularly interact with partner nation security forces through port visits and engagements with partner nation navies.\nFurther, the Navy conducts ship-based rotational deployments, referred to as Partnership Stations, which include activities with partner nation security forces such as military-to-military engagements, exercises, and training. In addition to naval personnel, partnership stations also can include embarked marines or mobile training teams from other services depending on the activities planned by the respective geographic combatant commands. Moreover, the Navy provides expeditionary capabilities through its Naval Expeditionary Combat Command and Maritime Civil Affairs and Security Training Command. Specifically, the Maritime Civil Affairs and Security Training Command, budgeted in the Navy base budget to cost approximately $41 million for fiscal year 2012, is organized to provide tailored mobile training teams, referred to as Security Force Assistance Detachments, to geographic combatant commands to conduct training with partner nation navies across a range of topics such as small boat operations, weapons training, and leadership and professional development.\nThe Air Force is standing up two mobility support advisory squadrons with one to be aligned to U.S. Africa Command and the other to U.S. Southern Command for the purposes of conducting capacity- and capability-building activities with partner nations. Mobility support advisory squadrons are expected to conduct activities in air mobility processes, such as maintenance, air traffic control, and airfield operations. All airmen assigned to the mobility support advisory squadrons receive training that is tailored to the region to which the squadron will be aligned. The mobility support advisory squadrons will remain at homestation and deploy only elements of the unit for specific activities as required to meet specific geographic combatant command requirements. Officials from Air Force Mobility Command stated that the approximate cost of standing up each squadron is just over $2 million, which covers the organizing, training, and equipping costs for the squadrons annually, but not the man-hours for the personnel in the squadrons. In addition to the mobility support advisory squadrons, the Air Force provides capabilities through mobile training teams and Extended Training Service Specialist teams, among others.\nAs previously discussed, the department’s emphasis on security force assistance is indicative of its expectation that the geographic combatant commands will conduct more security force assistance activities, such as organizing, training, and advising partner nation security forces to build their capacity and capability, and officials stated that they expect requirements for forces capable of conducting security force assistance activities outside of Afghanistan to increase in the future. The services’ efforts to develop capabilities are based on the current requirements from geographic combatant commands, but without greater clarity in regard to future requirements, service officials stated that they are not able to assess whether their current efforts to develop force capabilities in this area are sufficient or whether additional capabilities may be required. For example, an Army official stated that the initial regionally-aligned force will provide the Army valuable information in regard to the sufficiency of the force to meet geographic combatant command requirements, the effectiveness of the training provided for the security force assistance mission, and the level of language proficiency required, but that future geographic combatant command requirements would influence the scope of the Army’s efforts to develop capabilities for this mission. Additionally, Air Force officials said that the Air Force Campaign Support Plan is intended to provide structure and guidance to Air Force theater planners to support the development of future geographic combatant command security cooperation requirements, including security force assistance, which will then inform the Air Force’s efforts to develop security force assistance capabilities.", "DOD Instruction 5000.68 directs the services to establish training and education requirements for personnel conducting security force assistance activities and to develop service-specific training and education proficiency standards for security force assistance capabilities. Training is a standard part of predeployment preparations for the formally organized units, such as the Army’s regionally-aligned forces, the Air Force’s mobility support advisory squadrons, the Navy’s security force assistance detachments, or the Marine Corps special-purpose marine-air- ground task forces, and most of the services have established schools or organizations that provide language, culture, and advising training to these forces, as identified below:\nThe Army provides some language, culture, and advising training through the 162nd Infantry Brigade located at Fort Polk, which was originally stood up to train forces for advise and assist missions in Iraq and Afghanistan. The 162nd is primarily focused on training advisors deploying to Afghanistan and will also assume the mission to train the Army’s regionally-aligned brigade. As such, this organization receives funding from both the Army’s base budget and overseas contingency operations funds at a cost of $40.1 million for fiscal year 2012. The 162nd also can provide training to other Army teams that will engage with partner nation security forces at the request of unit commanders.\nThe Marine Corps provides tailored language, culture, and advising training through the Marine Corps Security Cooperation Group. This group, budgeted to cost about $3.1 million in fiscal year 2012, provides training to the Marine Corps’ special-purpose marine-air- ground task forces and security cooperation teams, among others.\nThe Air Force provides language, culture, and advising training through the Air Advisor Academy, which was initially stood up to train airmen deploying to Iraq and Afghanistan as advisors. According to Air Force headquarters officials, the Air Advisor Academy will provide training for up to 1,500 airmen in fiscal year 2013, including advisors deploying to Afghanistan, mobility support advisory squadrons, mobile training teams, and extended training service specialist teams, among others. The total cost for the Air Advisor Academy for fiscal year 2012 is expected to be approximately $6.4 million.\nThe Navy provides its forces with language and culture training prior to every deployment, but has not established specific advisor training. According to Navy headquarters officials, because sailors typically deploy on ships for extended periods of time, the service trains them for a broad range of missions in accordance with the Fleet Readiness Training Program and based on the requirements set forth by the geographic combatant commands. As a result, Navy officials said that they would need clear security force assistance requirements from the geographic combatant commands to train forces to meet those specific requirements. Unlike the other services, the Navy’s method for training depends less on training at schools and more on learning required skills from superiors while on the job. Officials added that, since sailors can train their subordinates, they can also deliver subject-matter training to partner nation security forces, if necessary. However, expeditionary personnel assigned to the Maritime Civil Affairs and Security Training Command may receive training in methods of instruction and in the course topics they will be teaching while deployed.\nFurther, DOD and service officials noted that theater security cooperation planners’ courses are available to personnel who may assist or be responsible for the geographic combatant command and service component command planning efforts. According to these officials, these courses are intended to provide an understanding of security cooperation planning, including some information related to security force assistance. For example, Marine Corps officials told us that the Marine Corps offers the Security Cooperation Planner’s Course, which is a 1-week course that provides students with basic knowledge regarding security cooperation planning systems and operations, as well as the statutory authorities that allow for activities with partner nation security forces. Over the past 2 years, officials said that this course has been offered to a variety of organizations, including personnel from all of the military services, OSD, the Defense Security Cooperation Agency, and State Department. Additionally, according to Air Force officials, the Air Force has recently established an online course intended to provide Air Force planners and air advisors education and training in the areas of irregular warfare, security cooperation, security force assistance, and theater campaign planning, among other topics, and is developing a 1-week in-residence course at the Air Advisor Academy, projected to begin in September 2012.\nHowever, while personnel complete predeployment training prior to deploying on missions, and the services have established the various training and education efforts discussed above, the services have not yet fully determined what level of training should be provided for forces deploying on an as-needed basis for shorter-term missions, such as for mobile training teams or for teams of individuals formed and deployed to conduct individual activities. The Air Force is in the process of developing an instruction that identifies which airmen will get training from the Air Advisor Academy and for which missions, and officials said that, at a minimum, the instruction will likely direct that all security force assistance missions will require some air advisor training. An Army headquarters official stated that it is difficult to determine which missions should require advisor training for the purposes of establishing an official requirement. For example, regionally-aligned forces deploying for months at a time to provide training to partner nation forces in Africa and a team of four individuals from Army Training and Doctrine Command deploying to conduct a 1-week classroom training could both potentially be considered security force assistance, but training and mission requirements could be significantly different, and it is unclear whether the latter would really require training on advising, language, and culture skills. Moreover, the Army has established security force assistance mission essential tasks and incorporated them into their mission essential tasks for full-spectrum operations. Similarly, the Marine Corps has published a security cooperation training and readiness manual, which includes training tasks required for personnel deploying on security cooperation missions, including security force assistance. Army and Marine Corps officials stated that personnel who do not attend the formal training provided by the 162nd Infantry Brigade and the Marine Corps Security Cooperation Group are still expected to be trained for those tasks based on unit commanders’ analysis of the mission.", "DOD Instruction 5000.68 also directs the services to identify and track individuals who have completed security force assistance-related training, education, or experience in the Defense Readiness Reporting System with a relevant skill-designator indicating their security force assistance qualifications. The services are taking steps to approach this requirement in a variety of ways, including the following:\nThe Army has established eight different Personnel Development Skill Identifiers that it believes are related to security force assistance, including an identifier for uniformed military personnel who have completed certain advisor training, such as that provided by the 162nd Infantry Brigade. These identifiers are self-reported or reported by unit commands to Army Human Resources Command and are recorded on each individual soldier’s personnel record. In addition to identifying personnel through these identifiers, Army headquarters officials stated that they can identify individuals who have completed certain security force assistance deployments through existing personnel systems, such as deployments as advisors to Iraq and Afghanistan. As a result, these officials believe that the Army’s current efforts to track individuals for security force assistance are sufficient until new requirements are determined by the geographic combatant commands or OSD.\nThe Marine Corps has a database to track uniformed military personnel training and experience and will eventually be using that to track security force assistance and irregular warfare skills in accordance with those identified in the Chairman of the Joint Chiefs Instruction 3210.06 on irregular warfare. According to both OSD and service officials, irregular warfare skills would include those skills needed to conduct security force assistance. Marine Corps officials stated that the Marine Corps is still evaluating different options of tracking deployment experience for security force assistance missions and has not yet identified how it will track skills related to advising.\nThe Navy has personnel systems that would allow them to track security force assistance training and experience—to include qualification designators, Navy enlisted classifications, subspecialty codes, and community designators—but is not currently so. According to Navy officials, greater clarity is needed from OSD on what skills should be tracked and officials further stated that it is difficult to identify and track individuals who may conduct some security force assistance activities as part of a fleet rotation. For example, a sailor may conduct a single activity with a partner nation navy while aboard a ship, but it is not clear whether that experience merits tracking.\nThe Air Force plans to track uniformed military personnel with security force assistance training and experience within its Career Path Tool database as part of its broader effort to track irregular warfare capabilities, in accordance with the aforementioned instruction on irregular warfare. Air Force headquarters officials said that they are not tracking personnel yet because the system has to be updated to allow for such tracking.\nAs noted above, the services are taking steps to track uniformed military personnel, but service officials have cited general challenges with regard to tracking, such as how best to capture the varying degrees of experience individuals may have in conducting security force assistance (e.g., a 2-week mission training partner nation security forces in Africa versus a year-long deployment as an advisor in Afghanistan). OSD Personnel and Readiness and the services are currently working together as part of the Security Force Assistance Working Group to discuss what types of skills, training, and experience should be tracked and in what systems, but these efforts are still in progress. Moreover, OSD Personnel and Readiness, in coordination with the services, is working to finalize a DOD Instruction that will define the process for tracking irregular warfare and security force assistance skills. According to officials, the instruction is expected to be completed before the end of fiscal year 2012.", "Security force assistance has become an increasingly important and distinct element of U.S. military strategy, both in Afghanistan and elsewhere in the world, as the United States seeks to enable partner nations to assist in countering terrorism and establishing and maintaining regional security. In anticipation of its growing importance, DOD has taken steps intended to define and institutionalize the security force assistance concept throughout the department. We recognize this concept is still evolving, but the challenges we have identified suggest that additional clarification is necessary to better position stakeholders to plan for and prepare forces to execute security force assistance activities to meet the department’s strategic goals. DOD needs to do more to define its intent for security force assistance, including the level of effort that geographic combatant commands should devote to security force assistance, how that intent should influence the geographic combatant commands’ strategies, and what additional actions are required by the geographic combatant commands to plan for and conduct security force assistance beyond their existing security cooperation efforts. This clarification, along with an increased ability to track security force assistance activities, would facilitate the geographic combatant commands’ planning efforts and would increase DOD’s visibility over security force assistance efforts to ensure that resources are being directed toward identified strategic goals and measure progress in implementing various initiatives. Furthermore, these steps would inform the services’ efforts to ensure that the capabilities that they are developing and thus, the resources that they are investing, are appropriate and adequate to meet future security force assistance requirements.", "To instill a common understanding of security force assistance throughout DOD and therefore better guide the geographic combatant commands’ and services’ efforts to plan for and prepare forces to execute security force assistance, we recommend that the Secretary of Defense, in consultation with the Chairman of the Joint Chiefs of Staff, direct the Assistant Secretary of Defense for Special Operations/Low Intensity Conflict and the Chief of Staff, Joint Staff J-5, in their positions as cochairs of the Security Force Assistance Steering Committee, to develop or modify existing guidance that further defines the department’s intent for security force assistance and what additional actions are required by the geographic combatant commands to plan for and conduct security force assistance beyond their existing security cooperation efforts. For example, DOD could include more-specific direction as to how to determine which activities should be considered security force assistance, how they should be discussed in plans, and whether an increased level of effort, such as increased scope, nature, or frequency of activities, is required.\nTo facilitate the management and oversight of resources being directed toward building partner capacity and capability, we recommend that the Secretary of Defense, in consultation with the Chairman of the Joint Chiefs of Staff, take actions to ensure that updates to the Global Theater Security Cooperation Management Information System and the business rules being developed provide a mechanism and guidance to stakeholders to specifically identify and track security force assistance activities.", "In written comments on a draft of this report, DOD partially concurred with our two recommendations, adding that it believes that the department has taken some steps that it believes address some of the issues identified in our report. The full text of DOD’s written comments is reprinted in appendix II. DOD also provided technical comments, which were incorporated as appropriate.\nDOD partially concurred with our recommendation that the Secretary of Defense, in consultation with the Chairman of the Joint Chiefs of Staff, direct the Assistant Secretary of Defense for Special Operations/Low Intensity Conflict and the Chief of Staff, Joint Staff J-5, in their positions as cochairs of the Security Force Assistance Steering Committee, to develop or modify existing guidance that further defines the department’s intent for security force assistance and what additional actions are required by the geographic combatant commands to plan for and conduct security force assistance beyond their existing security cooperation efforts. In its comments, DOD stated that additional guidance to the geographic combatant commands and services would be useful to promote understanding of security force assistance. However, the department believes that recently published strategic and planning guidance incorporates security force assistance planning requirements. Specifically, it noted that the recently released Strategic Guidance, Sustaining U.S. Global Leadership: Priorities for 21st Century Defense emphasizes the importance of security force assistance planning and execution. Further, DOD stated that the recently released Theater Campaign Planning Planner’s Handbook provides additional direction to the geographic combatant commands to incorporate security force assistance into campaign planning. DOD added that it will review other existing guidance for necessary modifications, as required.\nWe recognized in our report that DOD has issued various documents that emphasize the importance of building partner nation capacity and capability through security force assistance activities. Notwithstanding this guidance, we found that the geographic combatant commands continued to lack a common understanding of security force assistance, what additional efforts may be needed on their part to meet the department’s intent for security force assistance, and the value of distinguishing security force assistance from other security cooperation activities. While we agree that the Defense Strategic Guidance emphasizes the importance of security force assistance in broad terms, it does not specify the level of effort that the geographic combatant commands should devote to security force assistance or how the emphasis on security force assistance should influence the geographic combatant commands’ strategies. Further, we note that the handbook that DOD cited focused on theater campaign planning in general and does not specifically address planning for security force assistance as a distinct activity. Therefore, we continue to believe that more specific guidance is necessary.\nDOD partially concurred with our recommendation that the Chairman of the Joint Chiefs of Staff direct the Joint Staff to ensure that updates to the Global Theater Security Cooperation Management Information System and the business rules being developed provide a mechanism and guidance to stakeholders to specifically identify and track security force assistance activities. The department stated that the Global Theater Security Cooperation Management Information System will be an important tool in identifying and tracking security force assistance activities. While DOD concurred that the global system and the business rules being developed should provide a mechanism to specifically identify and track these activities, it did not agree that it is the responsibility of the Chairman of the Joint Chiefs of Staff to direct this. Instead, DOD noted that a Governance Council, chaired by members from the Deputy Assistant Secretary of Defense for Partnership Strategy and Stability Operations, the Joint Staff J-5, and the Joint Staff J-8, maintains oversight and management of the system. In light of DOD’s comments, we have modified our recommendation to reflect both Office of the Secretary of Defense and the Joint Staff’s shared role in overseeing the development of this system.\nWe are sending copies of this report to appropriate congressional committees, the Secretary of Defense, the Chairman of the Joint Chiefs of Staff, the Secretaries of the Army, Navy, and Air Force, and the Commandant of the Marine Corps. The report also is available at no charge on the GAO website at http://www.gao.gov.\nIf you or your staff have any questions about this report, please contact me at (202) 512-9619 or pickups@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix III.", "To determine the extent that the Department of Defense (DOD) has established its concept for conducting security force assistance, including defining the term and identifying actions needed to plan for and prepare forces to execute security force assistance, we reviewed relevant existing DOD doctrine, policy, and guidance, including the DOD Instruction 5000.68 Security Force Assistance. We also examined the Joint Requirements Oversight Council Security Force Assistance Change Recommendation Memorandum, which identified actions to be taken and organizations of primary responsibility and support to implement security force assistance across the doctrine, organization, training, materiel, leadership and education, personnel and facilities spectrum. Additionally, we reviewed the department’s Security Force Assistance Lexicon Framework document to understand the department’s attempt to further explain and clarify the security force assistance concept. We also met with officials from the Assistant Secretary of Defense for Special Operations/Low-Intensity Conflict, Office of the Under Secretary of Defense for Personnel and Readiness, the Joint Staff J-5 Strategic Plans and Policy directorate, and Joint Staff J-7 Operational Plans and Force Development directorate to discuss the security force assistance concept, its definition, the roles and responsibilities of stakeholders identified in the DOD Instruction and the Joint Staff Security Force Assistance Change Recommendation Memorandum, and what other steps the department has taken to implement the security force assistance concept. In addition, we met with Joint Center for International Security Force Assistance and U.S. Special Operations Command officials to discuss their understanding of security force assistance and role in the department’s efforts to institutionalize the concept. Further, we examined the charter for the Security Force Assistance Steering Committee and Working Group, which the Assistant Secretary of Defense for Special Operations/Low- Intensity Conflict and Joint Staff J-5 cochair, to determine the group’s responsibilities to implement and oversee security force assistance efforts throughout the department.\nTo identify the extent to which the geographic combatant commands have taken steps to plan for and conduct security force assistance, and what challenges, if any, they face, we met with officials from U.S. Africa Command, U.S. Central Command, U.S. European Command, and U.S. Southern Command and selected military service component commands. In these meetings, we discussed their understanding of the security force assistance concept, their responsibilities as outlined in the DOD Instruction, as well as their efforts to plan for, request forces for, and track theater security cooperation activities. These commands were selected and visited as a nonprobability sample of four of the six geographic combatant commands. U.S. Africa Command and U.S. Southern Command and their service component commands were selected because the Office of the Secretary of Defense (OSD) suggested them as primary examples of geographic combatant commands conducting security force assistance in a peacetime environment—the expected environment of future security force assistance efforts. The two other commands—U.S. Central Command and U.S. European Command and their service component commands—were selected because of efficiencies gained by colocation to other site visits. We examined relevant geographic combatant command and service component command planning documentation, such as theater campaign plans and strategy briefings related to theater security cooperation planning, requirements, and activities being conducted in their respective areas of responsibility. We further met with geographic combatant command and Joint Staff J-5 Strategic Plans and Policy officials regarding the Theater Security Cooperation Management Information System to discuss how the system is intended to be used, and reviewed documentation related to its development. Finally, we reviewed relevant statutory authorities and Defense Security Cooperation Agency and geographic combatant command guidance documents outlining available statutory authorities to determine the authorities and funding available for the execution of security force assistance, and discussed these authorities and related challenges with geographic combatant command and service component command officials.\nTo identify what steps the services have taken to organize and train general purpose forces to be capable of conducting security force assistance, and what challenges, if any, they face, we met with officials from the U.S. Army, U.S. Marine Corps, U.S. Navy, and U.S. Air Force who were responsible for implementing security force assistance within each service, including officials from each service’s headquarters, force providers and training commands, and other service organizations related to security force assistance. We examined relevant service-level documentation, which included doctrine, policy and guidance, briefings, and white papers related to security force assistance. We also discussed with each service their efforts to implement the security force assistance concept, their understanding of the concept, service capabilities being developed, and any potential cost factors related to security force assistance. To understand how the services are organizing for security force assistance and what capabilities are being provided, we met with officials from the service headquarters and service force providers, including U.S. Army Forces Command, U.S. Marine Forces Command, U.S. Fleet Forces Command, U.S. Air Force Combat Command, and U.S.\nAir Force Mobility Command. To understand the training and education that is being provided to service personnel who conduct security force assistance missions, we met with officials about service-level training and education from the U.S. Army 162nd Infantry Brigade, U.S. Marine Corps Security Cooperation Group, and the U.S. Air Force Air Advisor Academy, and discussed joint training standards with U.S. Special Operations Command. In addition, we met with service officials to discuss each service’s efforts to track uniformed military personnel with security force assistance-related skills, training, or experience. We also met with the Office of the Under Secretary of Defense for Personnel and Readiness to discuss DOD efforts to establish policy and guidance for tracking uniformed military personnel with security force assistance skills, training, and experience departmentwide.\nWe interviewed the following organizations during our review:\nOffice of the Assistant Secretary of Defense for Special Operations/Low-Intensity Conflict, Arlington, Va.\nOffice of the Deputy Undersecretary of Defense for Personnel and Readiness, Arlington, Va.\nOffice of Secretary of Defense Cost Assessment and Program Evaluation, Arlington, Va.\nSecurity Cooperation Reform Task Force, Arlington, Va.\nJoint Staff, Operations (J-3), Arlington, Va. Joint Staff, Chief of Strategic Plans and Policy (J-5), Arlington, Va. Joint Staff, Chief of Joint Exercises and Training Division (J-7), Arlington, Va.\nDefense Security Cooperation Agency, Arlington, Va.\nJoint Center for International Security Force Assistance, Fort Leavenworth, Kans.\nUnified and Geographic Combatant Commands\nU.S. Africa Command, Stuttgart, Germany\nU.S. Central Command, Tampa, Fla.\nU.S. European Command, Stuttgart, Germany\nU.S. Southern Command, Miami, Fla.\nU.S. Special Operations Command, Tampa, Fla.\nService and Unified Component Commands\nU.S. Army Africa Command, Vicenza, Italy\nU.S. Army European Command, Heidelberg, Germany\nU.S. Army South, Fort Sam Houston, Tex.\nU.S. Marine Corps Forces Africa, Stuttgart, Germany\nU.S. Marine Corps Forces Central Command, Tampa, Fla.\nU.S. Marine Corps Forces Europe, Stuttgart, Germany\nU.S. Marine Corps Forces South, Miami, Fla.\nU.S. Naval Forces Africa, Naples, Italy\nU.S. Naval Forces Europe, Naples, Italy\nU.S. Naval Forces Southern Command, Mayport, Fla.\nU.S. Air Force Africa, Ramstein, Germany\nU.S. Air Force Europe, Ramstein, Germany\nU.S. Air Force South, Tucson, Ariz.\nSpecial Operations Command Central, Tampa, Fla.\nSpecial Operations Command Europe, Stuttgart, Germany\nSpecial Operations Command South, Miami, Fla.\nDepartment of the Army, Military Operations-Security and Stability Office, Arlington, Va.\nArmy Security Force Assistance Proponent Office, Fort Leavenworth, Kans.\nU.S. Army Forces Command, Fort Bragg, N.C.\nSecurity Assistance Training Management Organization, Fort Bragg, N.C.\n162nd Infantry Training Brigade, Fort Polk, La.\nHeadquarters Marine Corps, International Affairs Branch, Arlington, Va.\nMarine Corps Security Cooperation Group, Virginia Beach, Va.\nMarine Forces Command, Norfolk, Va.\nCenter for Irregular Warfare Integration Division, Quantico, Va.\nNaval Operations N52 and N523, Arlington, Va.\nU.S. Fleet Forces Command, Norfolk, Va.\nNaval Expeditionary Combat Command, Virginia Beach, Va.\nMaritime Civil Affairs and Security Training Command, Virginia Beach, Va.\nNaval Education and Training Command, Pensacola, Fla.\nNaval Education and Training Security Assistance Field Activity, Pensacola, Fla.\nHeadquarters, U.S. Air Force, Irregular Warfare Integration, Arlington, Va.\nHeadquarters, U.S. Air Force, Secretary of the Air Force International Affairs, Arlington, Va.\nAir Combat Command, Langley, Va.\nAir Mobility Command, Scott Air Force Base, Ill.\nAir Education and Training Command, Randolph Air Force Base, Tex.\nWe focused on the department’s efforts to plan for and conduct security force assistance in areas of operation other than Afghanistan because DOD’s focus on security force assistance is more long term than current operations in Afghanistan and the scope of the mission in that country may not be typical of efforts worldwide. Finally, we understand the State Department is a critical stakeholder in U.S. security force assistance efforts, but our review focused solely on DOD efforts to plan for and institutionalize security force assistance within the general purpose force.\nWe conducted this performance audit from July 2011 to May 2012 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.", "", "", "", "In addition to the contact named above, James A. Reynolds, Assistant Director; Grace Coleman; Mark Dowling; Kasea Hamar; Ashley Lipton; Charles Perdue; Michael Pose; and John Van Schaik made key contributions to this report." ], "depth": [ 1, 2, 2, 1, 2, 2, 2, 1, 2, 2, 2, 1, 2, 2, 2, 1, 1, 1, 1, 1, 1, 2, 2 ], "alignment": [ "", "", "", "h0_title h1_title", "h0_full", "h0_full h1_full", "", "h2_full h3_title h1_full", "h3_full h1_full", "h1_full", "", "h2_full", "h2_full", "", "h2_full", "h3_full", "", "h3_full", "h0_full h3_full h1_full", "", "", "", "" ] }

{ "question": [ "What steps has the DOD taken to conduct security force assistance?", "How has DOD clarified its stance regarding security force assistance?", "What flaws has the DOD found in the implementation of security force assistance?", "What do these tasks consist of?", "Why did the DOD publish a Lexicon Framework?", "To what extent are geographic combatant commends ready to implement security force assistance?", "To what extent do the commands clearly understand the purpose and state of security force assistance?", "How clearly did DOD communicate its change in focus?", "Why did DOD introduce the Lexicon Framework?", "How effective was the Lexicon Framework?", "What other challenges exist regarding combatant command?", "How does GAO's work establish the stakes for clear combatant command?", "How are the services preparing for security force assistance missions?", "What approaches have the services taken?", "What uncertainties exist regarding their role?", "What tracking challenges exist?", "How is DOD planning to build the capacity and capability of partner nation forces?", "How does DOD plan on preparing for this purpose?", "Why did GAO report on DOD's plans?", "What did GAO evaluate?", "What data did GAO use in writing this report?" ], "summary": [ "The Department of Defense (DOD) has taken steps to establish its concept for conducting security force assistance, including broadly defining the term and identifying actions needed to plan for and prepare forces to execute these activities.", "For example, in October 2010, the department issued an instruction that broadly defines security force assistance and outlines responsibilities for key stakeholders, including the geographic combatant commands and military services.", "DOD also identified gaps in key areas of doctrine, organization, and training related to the implementation of security force assistance and tasks needed to address those gaps.", "The tasks include reviewing joint and service-level doctrine to incorporate security force assistance as needed and developing measures to assess progress in partner nations.", "Citing a need to clarify the definition of security force assistance beyond the DOD Instruction, DOD published a document referred to as a Lexicon Framework in November 2011 that included information to describe how security force assistance relates to other existing terms, such as security cooperation.", "The geographic combatant commands conduct activities to build partner nation capacity and capability, but face challenges planning for and tracking security force assistance as a distinct activity.", "Notwithstanding DOD’s efforts to present security force assistance as a distinct and potentially expansive activity and clarify its terminology, the commands lack a common understanding of security force assistance, and therefore some were unclear as to what additional actions were needed to meet DOD’s intent. Specifically, officials interviewed generally viewed it as a recharacterization of some existing activities, but had different interpretations of what types of activities should be considered security force assistance.", "Further, some command officials stated that they were not clear as to the intent of DOD’s increased focus on security force assistance and whether any related adjustments should be made in their plans and scope or level of activities. As a result, they do not currently distinguish security force assistance from other security cooperation activities in their plans.", "DOD intended the Lexicon Framework to provide greater clarity on the meaning of security force assistance and its relationship to security cooperation and other related terms.", "However, some officials said that they found the distinctions to be confusing and others believed that additional guidance was needed.", "Moreover, the system that the commands are directed to use to track security force assistance activities does not include a specific data field to identify those activities. The commands also face challenges planning for and executing long-term, sustained security force assistance plans within existing statutory authorities, which contain some limitations on the types of activities that can be conducted.", "GAO’s prior work on key practices for successful organizational transformations states the necessity to communicate clear objectives for what is to be achieved. Without additional clarification, the geographic combatant commands will continue to lack a common understanding, which may hinder the department’s ability to meet its strategic goals.", "The services are taking steps and investing resources to organize and train general purpose forces capable of conducting security force assistance based on current requirements.", "For example, to conduct activities with partner nation security forces, the Army and the Air Force are aligning certain units to geographic regions, and the Marine Corps has created tailored task forces.", "However, the services face certain challenges. Due to a lack of clarity on how DOD’s increased emphasis on security force assistance will affect future requirements, they are uncertain whether their current efforts are sufficient or whether additional capabilities will be required.", "Further, services face challenges in tracking personnel with security force assistance training and experience, particularly in identifying the attributes to track.", "DOD is emphasizing security force assistance (e.g., efforts to train, equip, and advise partner nation forces) as a distinct activity to build the capacity and capability of partner nation forces.", "In anticipation of its growing importance, DOD has identified the need to strengthen and institutionalize security force assistance capabilities within its general purpose forces.", "Accordingly, a committee report accompanying the Fiscal Year 2012 National Defense Authorization Act directed GAO to report on DOD’s plans.", "GAO evaluated: (1) the extent to which DOD has established its concept for conducting security force assistance, including defining the term and identifying actions needed to plan for and prepare forces to execute it; (2) the extent to which the geographic combatant commands have taken steps to plan for and conduct security force assistance, and what challenges, if any, they face; and (3) what steps the services have taken to organize and train general purpose forces capable of conducting security force assistance, and what challenges, if any, they face.", "GAO reviewed relevant documents, and interviewed officials from combatant commands, the services, and other DOD organizations." ], "parent_pair_index": [ -1, 0, 0, 2, -1, -1, 0, 0, 0, 3, 0, -1, -1, 0, 0, 0, -1, 0, -1, 2, 3 ], "summary_paragraph_index": [ 1, 1, 1, 1, 1, 2, 2, 2, 2, 2, 2, 2, 3, 3, 3, 3, 0, 0, 0, 0, 0 ] }

{ "title": [ "Background", "Definition of Trafficking in Persons", "U.S. Government Approach to Trafficking in Persons in Acquisitions Policy", "Use of Subcontractors", "Foreign Workers on U.S. Government Contracts Overseas", "Current Agency Policy and Guidance on the Payment of Recruitment Fees Do Not Provide Clear Instructions", "The FAR and Agency Policy and Guidance Lack Specificity Regarding Recruitment Fees", "Other Entities Provide Definitions of Permissible Recruitment Fees", "Some Foreign Workers Employed on U.S. Contracts Paid Recruitment Fees to Subcontractors or Recruitment Agencies", "Prime Contractors Used Subcontractors to Recruit Foreign Workers, and Some Did Not Know if Recruitment Fees Were Paid", "Agencies’ Monitoring of Contractor Labor Practices in Our Sample Varied, but Contractors’ Labor Practices Reflect Efforts to Combat TIP", "Agencies Monitored Contractor Labor Practices on Some Contracts in Our Sample but Not on Others", "Federal Acquisition Regulations and Agency Guidance Include Instructions on Monitoring Contractor Labor Practices", "DOD and State Have Developed Specific Processes for Monitoring Contractor Labor Practices on Some Contracts", "On Some Contracts, Agencies’ Monitoring Efforts Were Limited to Contractor-Provided Goods and Services", "Some Contracting Officials Were Unaware of Their Monitoring Responsibilities to Combat TIP", "Contractors Reported to Us that Their Labor Practices Reflect Efforts to Combat TIP", "Contractors Reported that Practices Related to Wages, Hours, Leave and Overtime Generally Complied with Host Country Labor Laws", "Contractors Reported that Housing Practices Reflect Efforts to Combat TIP", "Contractors Reported that They Provided Foreign Workers with Return Travel", "Conclusions", "Recommendations for Executive Action", "Agency Comments and Our Evaluation", "Appendix I: Objectives, Scope, and Methodology", "Appendix II: International Definitions and Indicators of Trafficking in Persons", "Appendix III: Migrant Workers in Gulf Countries", "Migrants from Source Countries in Asia and Africa Move to Gulf Countries for Economic Reasons", "Source Country Regulation of Overseas Employment", "Host Country Labor Practices", "Appendix IV: Federal Acquisition Regulations and Agency Policy and Guidance Related to Contractor Recruitment and Labor Practices", "Appendix V: Sample Defense Contract Management Agency Universal Examination Record for Combating Trafficking in Persons, May 2011", "Appendix VI: Comments from the Department of Defense", "Appendix VII: Comments from the Department of State", "GAO Comments", "Appendix VIII: Comments from the U.S. Agency for International Development", "GAO Comments", "Appendix IX: GAO Contact and Staff Acknowledgments", "GAO Contact", "Staff Acknowledgments", "Related GAO Products" ], "paragraphs": [ "", "Human trafficking—the worldwide criminal exploitation of men, women, and children for others’ financial gain—is a violation of human rights. Victims are often lured or abducted and forced to work in involuntary servitude. Although the crime of human trafficking can take different forms in different regions and countries around the world, most human trafficking cases follow a similar pattern. Traffickers use acquaintances or false advertisements to recruit men, women, and children in or near their homes, and then transfer them to and exploit them in another city, region, or country. The U.S. government defines severe forms of trafficking in persons to include the recruitment, harboring, transportation, provision, or obtaining of a person for labor or services, through the use of force, fraud, or coercion for the purpose of subjection to involuntary servitude, peonage, debt bondage, or slavery. International organizations have also defined trafficking in persons and developed a list of indicators of trafficking for labor exploitation. Appendix II describes these efforts in more detail.\nCongress and others have highlighted the role that deceptive recruitment practices can play in contributing to trafficking in persons. Workers who pay for their jobs are at an increased risk for human trafficking and other labor abuses. State’s Inspector General has reported that such recruitment fees, which can amount to many months’ salary, are a possible indicator of coercive recruitment and may indicate an increased risk of debt bondage, as some workers borrow large sums of money to pay the recruiter. A 2011 ILO survey of workers in Kuwait and the United Arab Emirates found that the recruitment fees and interest on loans may limit workers’ ability to negotiate the terms of their work contracts. This debt burden can result in involuntary servitude through excessive work hours or virtually no pay for months to recover the advance payments of fees and interest.", "Since 2007, the Federal Acquisition Regulation (FAR) has required all U.S. government contracts to include a clause citing the U.S. government’s zero tolerance policy regarding TIP. This clause prohibits contractors from engaging in severe forms of trafficking, procuring commercial sex acts, or using forced labor during the period of performance of the contract. In addition, this clause establishes several contractor requirements to implement this policy, such as notifying the contracting officer of any information that alleges a contractor employee, subcontractor, or subcontractor employee has engaged in conduct that violates this policy and adding this clause in all subcontracts.\nIn 2012, Congress and the President took further steps to reduce the risk of trafficking on U.S. government contracts. The TVPA, as amended, and an executive order both address acts related to TIP, such as denying foreign workers access to their identity documents and failing to pay for return travel for foreign workers. In September 2013, amendments to the FAR were proposed to implement the requirements of the 2013 amendments to the TVPA and the executive order related to strengthening protections against trafficking in persons. As of October 2014, these proposed amendments to the FAR are still under review.\nAgencies also have developed their own acquisition policies and guidance to augment the FAR that aim to protect foreign workers on specific contracts. Many of these policies and much of this guidance include requirements related to recruitment and other labor practices, including housing, wages, and access to identity documents.\nDOD policy is intended to deter activities of a variety of actors, including contractor personnel, that would facilitate or support TIP. A region-specific DOD acquisition policy that addresses combating TIP has evolved in recent years and has applied to different places of performance at different times. Currently, this policy requires the insertion of a clause to combat TIP into certain service and construction contracts that require performance in Iraq or Afghanistan. In 2011 and 2012, State issued acquisition guidance, applicable to all domestic and overseas contracting activities, on how to monitor contracts for TIP compliance and to provide a clause and procedures to reduce the risk of abusive labor practices that contribute to the potential for TIP. Among other things, this guidance requires contracting officers to require offerors to include information related to the recruitment and housing of foreign workers in their proposals for certain contracts.\nIn 2012, USAID issued guidance reminding contracting officials of their responsibilities to implement TIP requirements and requiring officials to, among other things, discuss issues such as access to certain documents and understanding local labor laws with contractors following contract award.", "Subcontracting is an acquisition practice in which the vendor with the direct responsibility to perform a contract, known as the prime contractor, enters into direct contracts with other vendors, known as subcontractors, to furnish supplies or services for the performance of the contract. This practice can help contractors to consider core competencies and supplier capabilities to achieve efficiencies from the marketplace. In some cases, prime contractors use subcontractors to supply labor on government contracts, and these subcontractors may use second-tier subcontractors or recruitment agencies to identify prospective employees. Our prior work has shown that government visibility into subcontracts is generally limited. Government agencies have a direct relationship only with the prime contractor, and generally “privity of contract” limits the government’s authority to direct subcontractors to perform tasks under the contract. As a result, agencies generally do not monitor subcontractors directly, as they expect the prime contractor to monitor its subcontractors. Further, the FAR notes the prime contractor’s responsibility in managing its subcontractors, and officials have underscored the limited role of the government in selecting and managing subcontracts.", "Contractors performing U.S. government contracts overseas operate under local conditions and in accordance with local labor practices. In Gulf countries, contractors employ large numbers of foreign workers, who make up a significant portion of the local labor force. These workers typically come from countries such as India, Bangladesh, and the Philippines for economic reasons. According to State and the ILO, several common and restrictive labor practices in Gulf countries stem from these countries’ sponsorship system, which limits workers’ freedom of movement. Appendix III provides further detail on the prevalence of foreign workers in Gulf countries, as well as efforts to regulate this migration of workers in home and destination countries. State’s 2014 Trafficking in Persons Report found that certain labor practices in the Middle East, including Kuwait, Qatar, and Bahrain, can render foreign workers susceptible to severe forms of trafficking in persons.\nIn addition, U.S. government contractors in Iraq and Afghanistan often employ foreign workers for cost and security reasons. As of July 2014, DOD reported nearly 17,000 foreign workers on contracts in Afghanistan, approximately one-third of the department’s total contractor workforce in that country. Although DOD reports that it no longer has foreign workers in Iraq, it reported more than 40,000 foreign workers on DOD contracts in Iraq—nearly 60 percent of its total contractor workforce in the country—as of January 2011. State contractors currently employ foreign workers in Iraq for security and operations and maintenance services. GAO and others have reported that operating in insecure environments can hinder agencies’ ability to monitor contracts, including efforts to combat TIP, because of the general absence of security, among other factors. Table 2 shows the prevalence of migrants in Gulf countries, Afghanistan, and Iraq, as well as State’s Trafficking in Persons Report tier placement for 2014, which illustrates areas where the risk of TIP is high.", "Agency policy and guidance on combating trafficking in persons has attempted to address the payment of recruitment fees by foreign workers on certain U.S. government contracts. However, current policy and guidance does not specifically define the components or amount of permissible fees related to recruitment. Agency officials and contractors said that without an explicit definition of what constitutes a recruitment fee, they may not be able to effectively implement existing policy and guidance on this issue. Despite efforts to prohibit or restrict the payment of recruitment fees, we found that some foreign workers on U.S. government contracts have reported paying for their jobs. Prime contractor reliance on subcontractors for recruitment of foreign workers further limits visibility into recruitment fees.", "The FAR provides broad prohibitions against contractors engaging in trafficking but does not explicitly address the payment of recruitment fees. The FAR prohibits contractors from engaging in severe forms of trafficking, including recruitment of a person for labor or services through the use of force, fraud, or coercion for the purposes of subjection to debt bondage, but it does not address more specific issues related to how contractors recruit foreign workers, such as recruitment fees.\nSome agencies have developed policy and guidance that address certain recruitment issues more specifically. Although DOD’s department-wide guidance on combating TIP does not explicitly address recruitment, its current region-specific policy requires certain services and construction contracts in Afghanistan to include a clause requiring contractors to avoid using unlicensed recruitment firms or firms that charge illegal recruitment fees. However, this policy does not define “illegal” recruitment fees. State’s 2012 guidance required certain contracts to include a clause requiring contractors to submit, as part of their proposals, recruitment plans that must state that employees will not be charged any recruitment or similar fees and that contractors and subcontractors will use only bona fide licensed recruitment companies. USAID’s 2012 guidance on combating trafficking in persons reminds officials of the FAR requirements, but it provides no further guidance on the recruitment of foreign workers for work on USAID contracts. Table 3 illustrates how the FAR and agency policy and guidance address recruitment fees with varying levels of specificity.\nWe found that some agency officials, both on contracts in our sample and on others, and contractors in our sample did not have a common understanding of what constitutes a permissible fee related to recruitment—in terms of components or amount—or whether contractors or subcontractors at any level were permitted to charge such fees to recruited employees. According to GAO’s standards for internal control, information should be recorded and communicated to management and others in a form that enables them to carry out their internal control and other responsibilities. Currently, agency contracting officials lack policy or guidance that specifies what components are considered to be recruitment fees and may not be able to determine which fees are permissible, hindering their ability to carry out their responsibilities. For example, neither the FAR nor agency policy or guidance specifies what components are considered to constitute recruitment fees, but these fees could include air tickets, lodging, passport and visa fees, or medical screening, among other expenses. One subcontractor who hires foreign workers in Dubai for work in Afghanistan said that the definition of recruitment fees is imprecise and varies widely within the contracting community. He added that he believed every foreign worker hired in Dubai for this contract had paid someone some type of fee for his or her job, but the fee could have included airfare from the home country to Dubai, housing and food in Dubai, or a commission for the recruiter, any of which may be legal. In addition, the Qatari Under Secretary of Labor noted that Qatari law prohibits recruitment fees, but he and State and DOD officials in Qatar acknowledged that most foreign workers are initially recruited in their home countries, where such fees may or may not be allowed. Without explicit definitions of what, if anything, constitute permissible fees related to recruitment, contractors said that they could not ensure that they were in compliance with contractual requirements. DOD contracting officials in Kuwait said that a definition of recruitment fees would improve their ability to implement the government’s antitrafficking policy.\nThe President and Congress have both directed that the FAR be amended to address several issues related to trafficking, including the payment of recruitment fees. The 2012 executive order directed amendments to the FAR that would expressly prohibit federal contractors from charging employees any recruitment fees, while amendments to the TVPA in 2013 allow the government to terminate a contract if contractors, subcontractors, labor brokers, or other agents charge unreasonable placement or recruitment fees. Public comments on the proposed FAR rule have noted that the FAR Council will have to reconcile these prohibitions, deciding whether to prohibit all recruitment fees or only unreasonable ones and defining what is considered unreasonable.", "The TVPA states that unreasonable placement or recruitment fees include fees equal to or greater than the employee’s monthly salary, or recruitment fees that violate the laws of the country from which an employee is recruited. The Department of Labor and foreign governments have also defined permissible fees paid by workers to their employers.\nA Department of Labor regulation relating to assurances that employers must provide in seeking to employ certain temporary foreign workers in the United States allows for reimbursements from workers for costs that are the responsibility and primarily for the benefit of the worker, such as government-required passport fees.\nThe government of India permits recruiting agents to recover service charges from workers of up to the equivalent of 45 days’ wages, subject to a maximum of 20,000 rupees (currently about $325), according to India’s Ministry of Overseas Indian Affairs.\nThe government of the Philippines permits recruiters to charge its hired workers a placement fee in an amount equivalent to 1 month’s salary, excluding documentation costs such as expenses for passports, birth certificates, and medical examinations, according to the Philippine Overseas Employment Administration.\nThe International Organization for Migration, with others, has established the International Recruitment Integrity System (IRIS), which is a voluntary consortium of stakeholders including recruitment and employment agents. Members of IRIS are prohibited from charging any recruitment fees to job seekers.\nSenior acquisition officials expressed conflicting views regarding the feasibility of prohibiting recruitment fees. Senior officials in State’s Office of the Procurement Executive stated that they would prefer that all recruitment fees be prohibited, in line with the executive order, to eliminate any uncertainty or ambiguity among contracting officials. They said that they had consulted State’s Office to Monitor and Combat Trafficking in Persons, which took the same position of the Office of the Procurement Executive given that such fees create vulnerability among workers and often are the precursor to debt bondage. These officials further stated that the term “reasonable recruitment fees” was difficult to define and apply in practice. In public comments on the proposed FAR rule, one nongovernmental organization noted that “the definition of reasonableness is amorphous and is unduly burdensome on private industry to enforce.” Other officials, including DOD contracting officials in Kuwait, stated that it may be reasonable for employees to pay a fee for a job in some cases, echoing the recent amendment to the TVPA. They noted that eliminating these fees would be nearly impossible, and that recruiters would pass these fees on to workers in some other form if recruitment fees were explicitly banned. DOD Joint Staff officials added that the elimination of recruitment fees will cause contractors to change the name from recruitment fees to travel or per diem fees to cover air travel, housing and food, thus a precise definition of these fees that specifically addresses travel costs is needed. A subcontractor supplying foreign workers on the largest contract in our sample said that its recruitment agencies likely charge fees to recruits for services such as air tickets, housing, and food, which the subcontractor deemed reasonable. However, according to senior State, DOD, and contractor officials, regardless of whether recruitment fees are banned in their entirety or only when unreasonable, the ability of contracting officers and contractors to implement this restriction will be limited until recruitment fees, including what is considered permissible, are defined in regulation, guidance, or policy.", "On at least two contracts in our sample, including the one employing the largest number of foreign workers, contractors reported that workers have paid for their jobs. We found that, on the largest contract in our sample, employing nearly 10,000 foreign workers in Afghanistan, recruitment agencies have likely charged fees to some foreign workers. On this contract, the prime contractor uses several subcontractors to supply labor, including one that hires workers through more than 10 recruitment agencies in Dubai. We found that from September 2012 through April 2014, more than 1,900 subcontractor employees reported to the prime contractor that they had paid fees for their jobs, including to recruitment agencies with which the subcontractor had a recruitment agreement. For 2012 and 2013, recruitment agencies used by this subcontractor signed statements acknowledging that they would not charge any recruitment fees to candidates facilitated as part of their agreements with the subcontractor. In April 2014, the last month for which data were available, 82 workers reported having paid an average of approximately $3,000 to get their jobs. The fees that these workers reported paying averaged approximately 5 months’ salary and, in one case, amounted to more than 1 year’s salary. According to the subcontractor who employed all 82 of these workers, these fees were likely paid to an agent who assisted foreign workers with transportation and housing prior to being hired for work on the U.S. government contract. Although the prime contractor provided DOD information about reported fees, neither DOD nor the prime contractor took further action because the allegations did not involve the prime contractor or its subcontractor.\nOn another DOD services contract in Afghanistan, we found that the contractor modified its subcontract with a recruiter in January 2014 to clarify that the contractor would pay recruitment fees previously charged to foreign workers—$670 per worker. The contractor reported that this modification to the subcontract was a result of its interpretation of the FAR clause prohibiting TIP. According to the contractor, the contracting agency had not directed it to make this modification; it made this change on its own initiative to prevent potential TIP abuses in the performance of the contract.\nThese practices may be long-standing and widespread in Gulf countries. In January 2011, the State Inspector General reported in an evaluation of efforts to combat TIP on contracts in four Gulf countries that a substantial portion of the workers they interviewed had obtained their jobs by paying a recruitment agency in their country of origin. Some of these workers reported paying more than 1 year’s salary in such fees.", "Nearly all prime contractors in our sample reported that they generally used subcontractors or recruitment agencies to recruit foreign workers, and some reported that their knowledge about the payment of recruitment fees is limited. These subcontractors generally recruited foreign workers either from their home countries or in host countries where they may have lived and worked for an extended period of time. In other cases, subcontractors recruited workers in a third country, neither their home country nor the host country, and then transported them to the contract location. Figure 1 illustrates a variety of potential paths a foreign worker may take to be recruited for work on a U.S. government contract overseas.\nFor foreign workers recruited in their home countries, prime contractors in our sample reported that they often used subcontractors who relied on recruitment agencies to identify workers. Since prime contractors do not have a direct relationship with these recruitment agencies, their visibility into these agencies’ practices, including whether the agencies charged workers recruitment fees, was limited. For foreign workers recruited in host countries, prime contractors in our sample reported that they typically also used subcontractors to identify workers. When foreign workers are already living in the host country, prime contractors may not know whether these workers paid recruitment fees when they first came to the host country. For example, one subcontractor that employs more than 2,500 foreign workers in Afghanistan said that it hired foreign workers from the previous contractor and did not know whether these workers had paid recruitment fees previously.\nThe following examples illustrate how contractors use subcontractors to recruit foreign workers and their limited knowledge about recruitment fees:\nOn a DOD services contract in Kuwait, a local subcontractor recruited, employed, and housed foreign workers supporting the prime contract. According to the subcontractor, some employees were recruited from an existing pool of foreign workers living in Kuwait. The prime contractor reported that it did not monitor the subcontractor’s recruitment practices, including if recruitment fees were paid by foreign workers in this existing pool (see scenario 1, fig. 1).\nOn a DOD services contract in Afghanistan, the prime contractor used a subcontractor to supply labor. This subcontractor recruited workers in Dubai using several recruitment agencies. In some instances, these agencies identified workers in countries such as India and Nepal and transported them to Dubai. As noted above, many workers on this contract reported having paid for their jobs, but the prime contractor did not investigate these reports because they did not involve the prime contractor or its subcontractors (see scenario 2, fig. 1).\nOn a DOD construction contract in Qatar, the prime contractor used a subcontractor that maintained a pool of foreign workers in Qatar who were originally identified by recruitment agencies in source countries such as Sri Lanka, Nepal, India, and Jordan. The prime contractor reported that it had no way of knowing how these workers had been initially recruited, including if they had paid any recruitment fees (see scenario 3, fig. 1).\nOn a State services contract in Iraq, the prime contractor said that it did not use subcontractors. Instead, it transferred workers from another contract it was supporting in Djibouti and also employed several foreign workers from the contractor that had previously performed this work for DOD. Consequently, most workers had already been recruited before contract award.\nOn a State security contract in Iraq, the prime contractor used subcontractors in Kenya and Uganda to recruit foreign workers. According to the prime contractor, subcontractors were paid a fixed fee for each worker it hired and the prime contractor did not believe workers paid a separate fee for these services.", "The FAR and DOD, State, and USAID guidance outline requirements for monitoring contractor labor practices, and DOD and State had processes for monitoring these practices and efforts to combat TIP on some contracts in our sample. However, we found that DOD, State, and USAID did not specifically monitor these practices on other contracts, hindering their ability to detect potential TIP abuses and implement the U.S. government’s zero tolerance policy. For example, we found that agencies did not specifically monitor for labor practices on some contracts, but rather focused on contractor-provided goods and services, such as building construction. The FAR and agency policy and guidance require the use of contract clauses that outline contractor responsibilities related to labor practices in areas such as wages and hours, housing, access to identity documents, and return travel, which have been linked to TIP abuses by the U.S. government and international organizations. All contractors in our sample reported to us that their practices reflect efforts to combat TIP.", "The FAR and agency policy and guidance outline requirements for DOD, State, and USAID to monitor contractor labor practices. For some contracts in our sample, DOD and State had specific processes to monitor efforts to combat TIP. On other contracts, however, neither DOD, nor State, nor USAID had such specific processes and focused their monitoring on contractor-provided goods and services. In addition, some agency contracting officials indicated that they were unaware of their monitoring responsibilities to combat TIP.", "Federal acquisition regulations and agency guidance provide instructions for agencies to monitor contractor labor practices. The FAR requires that agencies conduct contract quality assurance activities as necessary to determine that supplies or services conform to contract requirements, which would include requirements related to efforts to combat TIP. In addition, DOD guidance states that quality assurance surveillance plans should describe how the government will monitor a contractor’s performance regarding trafficking in persons. State’s guidance requires contracting officials to document a monitoring plan to combat TIP, obtain information on employer-furnished housing and periodically visit to ensure adequacy, and verify that the contractor does not hold employee passports or visas. Finally, USAID guidance requires contracting officials to monitor all awards to ensure compliance with TIP requirements. Specifically, the guidance states that officials should conduct appropriate site visits and employee interviews to verify that the contractor does not hold employee passports, among other things.", "DOD and State have developed specific processes for monitoring contractor labor practices, including efforts to combat TIP, for some contracts in our sample. Specifically, DOD developed a process for monitoring efforts to combat TIP for five of the seven DOD contracts included in our sample, all of which were awarded by the Army Contracting Command, and State had a TIP-specific process for two of the three State contracts in our sample. On the other four contracts in our sample, DOD, State, and USAID did not monitor specifically for TIP because of a focus on contractor provided goods and services, as discussed in the next section.\nFor DOD, the Defense Contract Management Agency (DCMA) administered four contracts in Afghanistan, Kuwait, and Qatar and used a checklist to help it conduct systematic audits of contractor compliance with certain requirements related to labor practices and efforts to combat TIP. (See app. V for a sample checklist used by DCMA in Afghanistan.) DCMA’s checklist included questions about foreign worker housing, employment contracts, and policies and procedures for reporting potential TIP abuses. DCMA also interviewed a sample of foreign workers to further validate contractor compliance with requirements related to combating TIP. For example, in Kuwait, DCMA inspectors asked workers about wages, hours, overtime, identity documents, and return travel. The inspectors asked workers how the contractor paid their wages, if the contractor held their passports, and if the contractor paid for their return travel. DCMA documented contractor noncompliance with contract requirements related to labor practices and efforts to combat TIP through corrective action requests. DCMA issued such requests related to contractor labor practices—including housing, wage, and TIP issues—on three out of the four contracts it was responsible for administering in our sample. According to agency officials, none of these requests was issued in response to a serious or unacceptable contract violation. For example, on a facilities support contract in Afghanistan, the contractor was issued a corrective action request in January 2012 for not providing foreign workers an employment contract in their native language. This request was closed in December 2012 after the contractor provided DCMA a corrective action plan.\nDCMA officials stated that it is transitioning its contract administration responsibilities, including its process for monitoring efforts to combat TIP in Iraq and Afghanistan, to the military services. In 2009, DOD directed selected contract administration service tasks to be transferred from DCMA to the military services. Although DCMA continued to administer selected contracts until after the beginning of fiscal year 2014, DCMA officials said that it is currently developing a plan to transition contract administration responsibilities to the military services, including the Army’s contracts in Kuwait, Qatar, and Afghanistan.\nState monitored contract requirements related to labor practices and efforts to combat TIP for two contracts in our sample in Iraq. For a security contract, State used an inspection checklist to help it monitor contractor compliance with these requirements. This checklist included verification of wages and access to identity documents, as well as other labor practices. State officials responsible for monitoring this contract conducted monthly foreign worker housing inspections and verified that workers (1) willingly accepted their living and working conditions, (2) were paid in accordance with the terms of their employment contracts, (3) had access to their passports, (4) had access to their employment contracts and fully understood them, and (5) were free to end their employment contracts at any time, acknowledging that certain penalties may apply. On another services contract, State’s Contract Management Office—a regional office established in August 2013 to improve management and oversight of contract performance of major contracts in Iraq—used in- country interviews of foreign workers to monitor contractor labor practices, including access to identify documents and return travel.", "For 4 of the 11 contracts in our sample, agency officials stated that they did not specifically monitor contractor labor practices or efforts to combat TIP, as their monitoring processes were primarily focused on contractor- provided goods and services. First, on a construction contract in Qatar, DOD officials reported that they focused their monitoring on areas such as building design and quality of materials and that they did not specifically monitor for potential TIP abuses. As a result, according to an agency official, they have no ability to monitor the treatment of foreign workers once they step off the work site and thus might not be able to detect potential abuses. Second, on a DOD food services contract in Kuwait, agency officials said that they did not specifically monitor recruitment practices or have an audit program or checklist designed to combat TIP. Third, on a State security contract in Qatar, an official responsible for contract monitoring reported that monitoring efforts were focused on technical issues such as personnel qualifications and performance of duties, not on contractor labor practices or efforts to combat TIP. Finally, on a USAID construction contract in Afghanistan, an agency official stated that the agency monitored only for quality assurance and technical specifications and did not monitor specifically for TIP abuses. In addition, the contractor on this contract said it did not monitor subcontractors’ labor practices. Agency officials reported that they had not documented any concerns regarding recruitment or labor practices on any of these 4 contracts. However, without efforts to specifically monitor labor practices or efforts to combat TIP, agencies’ ability to detect such concerns is limited, and they cannot ensure that foreign workers are being treated in accordance with the U.S. government’s zero tolerance policy regarding trafficking in persons.", "Some DOD and State contracting officials were unaware of relevant acquisitions policy and guidance for combating TIP and did not clearly understand their monitoring responsibilities. For example, DOD officials responsible for monitoring a construction contract in Qatar expressed uncertainty about their authorities for combating TIP. As a result, these officials indicated that they conducted little monitoring of labor practices or other efforts to combat potential TIP abuses. Furthermore, a State official in Qatar responsible for contract monitoring stated that he had only recently become aware of State’s 2012 acquisition guidance on combating TIP and his monitoring activities did not specifically include efforts to combat TIP. In addition, a State official in Afghanistan with monitoring responsibilities for a services contract said that he was not aware of State’s current guidance on combating TIP in contracts. This official noted that some State officials responsible for contract monitoring may need refresher training because their initial training occurred prior to the issuance of this guidance. Finally, State’s Inspector General found, in a recent inspection of the U.S. embassy in Afghanistan, that embassy officials involved in contract administration were unaware of their responsibilities for monitoring grants and contracts for TIP violations.\nAgencies have developed training to help contracting officials become more aware of their monitoring responsibilities. DOD has developed new training for contracting officials that, according to a senior official, will help ensure that these officials are knowledgeable, qualified, and authorized to complete their TIP monitoring responsibilities. In October 2014, DOD made this training mandatory for all DOD personnel with job responsibilities that require daily contact with DOD contractors, foreign national personnel, or both. State officials noted that required training for officials responsible for contract monitoring includes a module on combating TIP, and State recently conducted a series of web-based seminars for acquisition personnel on how to monitor contracts for TIP abuses.", "The FAR and agency policy and guidance recognize that contractors should follow various labor practices. For example, for certain contracts, State requires the inclusion of a clause that prohibits contractors from denying employees access to their passports, which helps to ensure that workers have freedom of movement. In addition, both DOD and State generally require the inclusion of clauses in certain contracts that speak to a minimum of 50 square feet of space per employee in contractor- provided housing. Contractors in our sample reported to us that their practices related to wages and hours, housing, access to identity documents, and the provision of return travel reflected efforts to combat TIP. Appendix IV provides more detailed information about requirements in the FAR and agency policy and guidance related to these practices.", "In general, the FAR and DOD’s FAR supplement require the inclusion of clauses in certain contracts that require contractors to comply with the labor laws of the host country, which, according to officials, govern practices related to wages, hours, leave, and overtime for the contracts in our sample. State and USAID guidance directs contracting officials to discuss the observance of local labor laws with contractors after awarding the contract.\nAccording to agency and contractor officials, local labor laws in Kuwait, Qatar, Bahrain, and Iraq governed wages, hours, leave, and overtime for foreign workers on U.S. government contracts in these countries. All eight of the contractors in our sample operating in Gulf countries or Iraq reported that their practices for foreign workers’ hours, wages, leave, and overtime were generally established in accordance with the labor laws of the country in which they were performing their U.S. contract. According to agency officials and contractors, foreign workers employed on six contracts in our sample in these countries worked 8 to12 hours per day and 6 days per week. On the contracts for which overtime was permitted, contractors reported that workers often earned overtime wage rates of 125 to 150 percent of their base pay for any hours worked in excess of their regularly scheduled shifts. Furthermore, employers generally provided these workers with 1 day off per week and 3 to 4 weeks of leave per year.", "Both DOD and State generally require the inclusion of clauses in certain contracts that speak to a minimum of 50 square feet of space per employee in contractor-provided housing. Contractors in our sample reported to us that housing practices for contracts in our sample generally fell into the following categories, which reflect efforts to combat TIP:\nForeign workers were provided housing by the U.S. government on U.S. installations. All of the DOD and State contractors in our sample that were operating in Iraq or Afghanistan reported that their foreign workers lived on-site at U.S. installations in U.S. government-provided housing.\nForeign workers lived in contractor-provided housing facilities that included at least 50 square feet of living space per person, according to the contractors. For example, on a DOD services contract in Qatar, the contractor reported that its subcontractors provided housing for foreign workers. See figure 2 for examples of subcontractor-provided housing on this contract.\nForeign workers were provided a housing stipend by the contractor, which workers used to secure their own housing. For instance, on the same DOD services contract in Qatar, the contractor reported that foreign workers who did not live in subcontractor-provided housing were given a housing stipend by the subcontractor and found their own housing. According to a DOD official associated with this contract, foreign workers who had families living in Qatar often choose to take the stipend to find housing that would accommodate their families.\nForeign workers received no housing support from the contractor and had to secure and pay for their housing themselves. For example, on a DOD services contract in Bahrain, most foreign workers secured their own housing at their own expense, according to the contractor.\nDOD and State require the inclusion of clauses in certain contracts that require contractors to provide workers with access to their identity documents. DOD’s contract clause generally allows contractors to hold employee passports only for the shortest time reasonable for administrative processing, and State’s contract clause prohibits contractors from destroying, concealing, confiscating, or otherwise denying employees’ access to identity documents or passports.\nContractors reported that foreign workers on the 11 contracts in our sample generally had access to their identity documents, such as passports. In general, workers either maintained personal possession of their documents or were guaranteed access to documents that they voluntarily submitted to the contractor for safekeeping. For the majority of contracts in our sample, the contractor reported that workers maintain possession of their identity documents and therefore had access to them. A DOD services contractor in Kuwait, for instance, reported that all of its foreign workers kept possession of their identity documents, including passports, work permits, driver’s licenses, and insurance cards. For other contracts in our sample, contractors offered foreign workers the option to voluntarily submit their identity documents to the contractor for safekeeping and gave them access to their documents upon request. For example, on a DOD services contract in Bahrain, the contractor reported that it would hold foreign workers’ identity documents for safekeeping if requested, but required them to sign a waiver that stated they had voluntarily submitted the documents.\nContractors included in our sample did not report any instances of withholding or restricting employees’ access to identity documents; however, agency officials at two State posts we visited said that some contractors performing smaller-scale contracts for the U.S. government restricted access to identity documents. According to State’s 2014 Trafficking in Persons Report, withholding employees’ passports is a common practice in these countries. State officials in Kuwait, for instance, said that a Kuwaiti company providing janitorial services for the embassy was found to have withheld employee passports against the employees’ will. These officials said that they removed the employees’ supervisor from the contract when they learned of these allegations. State officials we spoke to in Jordan reported similar allegations of passport withholding against the embassy’s janitorial services contractor. These officials reported that they took corrective action against the contractor that partially addressed this concern.", "Under certain circumstances, DOD policy and State guidance require the inclusion of contract clauses in certain contracts that require contractors to provide workers with return travel upon completion of their employment contract. Certain DOD contracts in Afghanistan are to include a clause generally requiring contractors to return their employees to their point of origin or home country within 30 days after the end of the contract’s period of performance. State’s contract clause notes that contractors are generally responsible for repatriation of workers imported for contract performance.\nContractors reported that they provide transportation to foreign workers to their home countries at the conclusion of their employment on all 11 contracts in our sample. For example, on a USAID construction contract in Afghanistan, the contractor provided return travel for all of the foreign workers on its contract by purchasing one-way plane tickets for the workers back to their home countries. In Bahrain, a DOD services contractor provided each foreign worker with a range of return travel options, including transportation to their home country, to a new employment location, or to any other desired location, or allowed them to stay in Bahrain and seek new employment arrangements.\nOn 6 of the contracts in our sample, officials stated that foreign worker repatriation was explicitly addressed in the terms of the contract. For example, State officials reported that a security contract in Iraq required the contractor to provide return travel for its foreign workers and that this requirement was discussed with the contractor at the end of the contract. On 5 of these 6 contracts, officials reported that the contract also included provisions for repatriation expenses incurred by the contractor to be reimbursable by the U.S. government. For instance, State officials associated with a services contract in Iraq explained that State reimbursed the contractor for repatriation expenses because Iraqi law required all foreign workers to leave the country immediately following the conclusion of their employment, and State wanted to ensure that these workers returned to their home countries.", "Human trafficking victimizes hundreds of thousands of men, women, and children worldwide, including workers who move from their home countries to seek employment overseas and improve their own and their families’ well-being. The United States conducts diplomatic, defense, and development activities throughout the world, including in countries with restrictive labor practices and poor records related to trafficking in persons. The United States has an obligation to prevent entities working on its behalf from engaging in trafficking in persons, and when it uses contractors to support its activities in such countries, it bears an even greater responsibility to protect workers given the increased risk of abuse. Accordingly, it has taken several steps to eliminate trafficking in persons from government contracts and strengthened these efforts in 2007 with amendments to a contract clause required on all contracts that prohibits contractors from engaging in a variety of trafficking-related activities. Recognizing the need for further guidance on how to implement these regulations, agencies developed their own guidance and policy to augment worker protections and to clarify agency and contractor responsibilities.\nThe President and Congress both signaled the need for further clarity in reducing the risk of TIP on government contracts by directing amendments to existing regulations in 2012. While improving the government’s ability to oversee its contractors’ labor practices is a step in the right direction, ambiguity regarding the components and amounts of permissible fees related to recruitment can limit the effectiveness of these efforts. Many contractors acknowledge that their employees may have been charged a fee for their jobs, a common practice in many countries, but they do not know if these fees are acceptable, given the existing guidance and policy. Some fees may appear reasonable, but others could be exploitative or lead to debt bondage and other conditions that contribute to trafficking. Without a more precise definition of what constitutes a recruitment fee, agencies are hindered in effectively determining which fees are allowed, and therefore developing effective practices in this area.\nSome agencies have established systematic processes for monitoring efforts to combat TIP on some contracts but do not monitor other contracts for TIP, focusing rather on contractor-provided goods and services. The lack of monitoring could inhibit agencies’ ability to detect potential abuses of foreign workers and reflects the limited utility of existing guidance on monitoring. Further, without consistent monitoring of contractors’ labor practices, the U.S. government is unable to send a clear signal to contractors, subcontractors, and foreign workers that the U.S. government will follow through forcefully on its zero tolerance human trafficking policy.", "To help ensure agencies can more fully implement their monitoring policy and guidance related to recruitment of foreign workers, the Secretaries of Defense and State and the Administrator of the U.S. Agency for International Development should each develop, as part of their agency policy and guidance, a more precise definition of recruitment fees, including permissible components and amounts.\nTo help improve agencies’ abilities to detect potential TIP abuses and implement the U.S. government’s zero tolerance policy, the Secretaries of Defense and State and the Administrator of the U.S. Agency for International Development should each take actions to better ensure that contracting officials specifically include TIP in monitoring plans and processes, especially in areas where the risk of trafficking is high. Such actions could include developing a process for auditing efforts to combat TIP or ensuring that officials responsible for contract monitoring are aware of all relevant acquisition policy and guidance on combating TIP.", "We provided a draft of this product to DOD, State, and USAID for comment. These agencies provided written comments, which are reproduced in appendices VI through VIII.\nRegarding our recommendation for agencies to develop a more precise definition of recruitment fees as part of their policy and guidance, DOD concurred, while State and USAID neither agreed nor disagreed. DOD indicated that it would define recruitment fees during the next review of its policy related to combating TIP and incorporate this requirement in agency acquisition regulations as necessary. Such actions, if implemented effectively, should address the intent of our recommendation to DOD. State commented that it prohibits charging any recruitment fees to foreign workers, and both State and USAID noted that the proposed FAR rule on combating TIP would prohibit charging employees any recruitment fees. However, even if the final FAR rule prohibits all recruitment fees, it remains unclear whether the term “recruitment fees” includes components such as air tickets, lodging, passport and visa fees, and other fees that recruited individuals may be charged before being hired. Contracting officers and agency officials with monitoring responsibilities currently rely on policy and guidance that do not define recruitment fees, resulting in ambiguity over what constitutes such a fee. Without an explicit definition of what components constitute recruitment fees, prohibited fees may be renamed and passed on to foreign workers, increasing the risk of debt bondage and other conditions that contribute to trafficking. State also commented that, to ensure consistent treatment of recruitment fees across government, we should recommend that the Office of Management and Budget draft a FAR definition of recruitment fees. However, we believe that each agency should have the flexibility to determine, within its implementing regulations or policy, which components it considers to be included in the term “recruitment fees” to address each agency’s contracting practices. Thus we continue to believe our recommendation is valid and should be fully implemented by State and USAID.\nDOD and State concurred with our recommendation to better ensure that contracting officials specifically include TIP in monitoring plans and processes in areas where the risk of trafficking is high. DOD said that it would update its FAR supplement following the publication of the final FAR rule on combating TIP to improve the government’s oversight of contractor compliance with TIP. State noted that it would add a requirement to the process that contracting officer’s representatives use to certify that they are familiar with requirements for TIP monitoring and include verification of TIP monitoring in reviews of contracting operations. USAID stated that all USAID staff would be required to take training in TIP, which will be released by the end of 2014. Further, USAID said that it will develop training for contracting officer’s representatives on how to include combating TIP in monitoring plans, as well as training for contracting officers to verify that efforts to combat TIP have been appropriately included in the monitoring plans. These actions, if fully implemented, may address the intent of our recommendation, but we continue to believe that DOD, State, and USAID should ensure that contracting officials specifically include TIP in monitoring plans and processes, especially in areas where the risk of trafficking is high.\nIn addition, USAID stated that it would be useful to obtain further guidance to help it and other agencies consistently determine what areas are considered high risk for TIP. One useful source of guidance is State’s annual Trafficking in Persons Report, which places countries into tiers based on the extent of their governments’ efforts to comply with the TVPA’s minimum standards for the elimination of human trafficking. In addition, in its written comments, State noted that it is developing a tool for procurement and contracting officers and federal contractors to assess the risk of TIP, expected to be completed in spring 2015.\nWe also received technical comments from DOD and State, which we incorporated as appropriate.\nWe are sending copies of this report to the appropriate congressional committees, the Secretary of the Department of Defense, the Secretary of the Department of State, the Administrator of the U.S. Agency for International Development, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov.\nIf you or your staff have any questions about this report, please contact me at (202) 512-9601 or melitot@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IX.", "This report responds to a requirement included in the Violence Against Women Reauthorization Act of 2013 for GAO to report on the use of foreign workers both overseas and domestically, including those employed on U.S. government contracts. Our objectives were to examine (1) policies and guidance governing the recruitment of foreign workers and the fees these workers may pay to secure work on U.S. government contracts overseas and (2) agencies’ monitoring of contractor efforts to combat TIP.\nThis report focuses on Department of Defense (DOD), Department of State (State), and U.S. Agency for International Development (USAID) contracts with performance in countries with large percentages of migrants as compared with local nationals, and in Afghanistan and Iraq, where U.S. government contractors employ significant numbers of foreign workers. We selected a nongeneralizable sample of 11 contracts based on the contracts’ place of performance, value, type of service provided, and the number of foreign workers employed. Specifically, we obtained a list of all contracts in the Federal Procurement Data System based on the following criteria:\nThe contract was awarded by DOD, State, or USAID.\nThe contract’s completion date was on or after October 1, 2013.\nThe contract’s place of performance was in a country with a large portion of migrants, according to data from the United Nations, or was in Afghanistan or Iraq.\nThe contract’s product or service code indicated that the contract was for services, construction, or security—areas that were likely to include low-wage, low-skilled labor, because these types of jobs may be associated with a higher risk of TIP.\nWe narrowed this list to reflect a range of agencies, countries, and services. We compared this list with data provided by DOD, State, and USAID through the Synchronized Pre-deployment and Operational Tracker (SPOT) database at the end of fiscal year 2013 to identify contracts that employed large numbers of foreign workers. On the basis of this comparison, we selected 11 contracts that represent nearly one- third of all reported foreign workers employed on contracts awarded by these three agencies as reported in SPOT. Our previous work has described several data limitations related to SPOT, but we determined that these data were sufficiently reliable for the purposes of identifying and selecting contracts employing large numbers of foreign workers for in-depth review. Table 4 provides basic information on the selected contracts.\nTo examine the recruitment of foreign workers and the fees they might pay to secure work on U.S. government contracts overseas, we conducted structured interviews with agency officials and contractors responsible for the contracts in our sample to identify, among other things, the relevant laws, regulations in the Federal Acquisition Regulation (FAR), agency acquisition policies, and agency acquisition guidance related to contractor recruitment practices. We reviewed these laws, regulations, policies, and guidance, as well as the Trafficking Victims Protection Act and Executive Order 13627—Strengthening Protections Against Trafficking in Persons in Federal Contracts—which include additional requirements related to the recruitment of workers on U.S. government contracts. We also obtained detailed information from contractors performing the contracts in our sample about their recruitment practices through structured interviews, and, in some cases, we interviewed subcontractors who recruited and employed foreign workers regarding their practices. In addition, we reviewed DOD and State Inspector General reports to identify instances where foreign workers have reported paying recruitment fees. We conducted site visits in Afghanistan, Kuwait, and Qatar to interview DOD, State, and USAID officials, including personnel responsible for contract monitoring, contractors, subcontractors, host government officials, and nongovernmental organizations about the recruitment of foreign workers in these countries. We chose these countries based on the range of U.S. government activities in these countries, the prevalence of foreign workers, and State’s assessment of the host government’s efforts to combat TIP as indicated by State’s annual Trafficking in Persons Report tier placement. We also spoke with State and USAID officials in Jordan during preliminary fieldwork to inform our research design and methodology.\nOn the contract employing the largest number of foreign workers in our sample, we obtained data from the contractor detailing cases of workers reporting that they had paid for their job. These data, collected from September 2012 through April 2014, included 2,534 reports of workers having paid for their jobs, and to whom, when, and where these reported payments were made. We analyzed these data to determine the number of unique individuals who had reported paying for their jobs. We then compared the data on who received these payments with a list of recruitment agencies provided by the subcontractor to determine if workers reported paying fees to recruitment agencies with which the subcontractor had agreements. We also obtained data from the contractor listing the monthly salaries in April 2014 of workers who had reported, in April 2014, having paid for their job at some point in the past. We then compared these data with the amount these workers reported having paid to determine the range and average number of months required for workers to earn the amount they reported having paid for their job. We analyzed these data to calculate the mean, median, and mode of the reported fees for April 2014. We assessed the reliability of the survey data by interviewing knowledgeable officials, including the contractor and subcontractor, and analyzing the data for outliers and duplicate records. We found these data sufficiently reliable to show that workers reported having paid for their jobs and that these payments were made to several recruitment agencies that supplied workers for this contract; and to calculate the number of months’ reported salary required to pay for the reported fee.\nTo assess agencies’ monitoring of contractor labor practices affecting foreign workers, we obtained information through our structured interviews regarding housing, wages and hours, access to identity documents, and return travel for foreign workers on contracts in our sample. We selected these practices because they were mentioned explicitly in either or both an amendment to the Trafficking Victims Protection Act, contained in the National Defense Authorization Act for Fiscal Year 2013, and Executive Order 13627—Strengthening Protections Against Trafficking in Persons in Federal Contracts—and were included in a list of potential indicators of trafficking in persons (TIP) by the International Labour Organization (ILO). We analyzed information from DOD and State officials regarding their monitoring processes for these practices, including monitoring checklists and audit procedures for combating TIP provided by the Defense Contract Management Agency. We conducted site visits to contractor-provided housing for foreign workers on 2 contracts in our sample during our fieldwork in Kuwait and Qatar. In these countries and in Afghanistan, we interviewed DOD and State officials; contractors; and, in some cases, subcontractors about labor practices related to foreign workers on the contracts in our sample. We also met with DOD and State officials responsible for monitoring contracts to discuss their efforts to monitor contracts in our sample for potential TIP abuses. We reviewed relevant laws, regulations in the FAR, agency acquisition policies, and agency acquisition guidance related to contractor labor practices and agencies’ responsibilities for monitoring these practices. We also reviewed training requirements for acquisition personnel related to monitoring for TIP abuses and discussed existing and planned training with DOD and State officials.\nWe also reviewed relevant studies and reports on TIP and foreign workers, including reports by DOD’s and State’s Inspectors General, the United Nations, the International Labour Organization, and nongovernmental organizations. We reviewed the methodologies used to conduct these studies and, for those that we used to corroborate our findings, we determined that they were sufficiently reliable for that purpose.\nWe conducted this performance audit from June 2013 to November 2014 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.", "In the United Nations’ Protocol to Prevent, Suppress and Punish Trafficking in Persons, Especially Women and Children, Supplementing the United Nations Convention Against Transnational Organized Crime, trafficking in persons is defined as the recruitment, transportation, transfer, harboring, or receipt of persons, by means of the threat or use of force or other forms of coercion, of abduction, of fraud, of deception, of the abuse of power or of a position of vulnerability or of the giving or receiving of payments or benefits to achieve the consent of a person having control over another person, for the purpose of exploitation.\nIn addition, the ILO has developed a list of indicators of trafficking for labor exploitation. These indicators specify several indicators of deceptive or coercive recruitment, recruitment by abuse of vulnerability, exploitation, and coercion or abuse of vulnerability at the destination. For example, these indicators include deception about travel and recruitment conditions, confiscation of documents, debt bondage, excessive working days or hours, and no respect for labor laws or signed contracts.", "", "Migrants, such as foreign workers, from many countries seek employment in the Gulf region. In 2013, the top five source countries of international migrants to Gulf countries were India, Bangladesh, Pakistan, Egypt, and the Philippines (see table 5). Growing labor forces in source countries provide an increasing supply of low-cost workers for employers in the Gulf and other host countries where, according to the International Labour Organization (ILO), demand for foreign labor is high.\nEconomic conditions and disparities in per capita income between source and host countries encourage foreign workers to leave their countries to seek employment. In 2012, average per capita income in the six Gulf countries was nearly 25 times higher than average income per capita in the top five source countries, and some differences between individual countries were even more dramatic, according to the World Bank. For example, in 2012, annual per capita income in Qatar was more than $58,000, nearly 100 times higher than in Bangladesh, where per capita income was almost $600. Foreign workers in Gulf countries send billions of dollars in remittances to their home countries annually. For example, in 2012 the World Bank estimated that migrant workers from the top five source countries sent home almost $60 billion from the Gulf countries, including nearly $33 billion to India, nearly $10 billion to Egypt, and nearly $7 billion to Pakistan.", "Source countries regulate the recruitment of their nationals for overseas employment in a variety of ways. According to relevant regulatory agencies in their countries, some source countries, such as India and the Philippines, have a licensing process for recruitment agencies and require potential overseas employers to use only licensed recruiters. According to these agencies, these countries also permit recruiters to charge prospective migrant workers a fee in specified circumstances but limit the amount of this fee. For example, according to the Indian Ministry of Overseas Indian Affairs, India’s Emigration Act and Rules detail requirements for the registration of recruiters, prohibit the use of subagents, prescribe the emigration clearance process, and permit registered recruiters to charge migrant workers fees up to 20,000 rupees, currently about $325, for their services. Similarly, according to the Philippines Overseas Employment Administration, the government of the Philippines facilitates the emigration of Filipino workers employed abroad and provides standards and oversight through licensing, required contract provisions, and placement fees. Filipino embassies in host countries also provide services for its citizens in those countries, such as assistance establishing bank accounts and wiring money home and information regarding worker rights in the host country, according to the Filipino Labor Attaché in Qatar. According to the Bangladeshi Ministry of Expatriates’ Welfare and Overseas Employment, the ministry was established in 2001 to ensure the overall welfare of migrant workers and has established a process for licensing recruitment agents. Other countries, such as Egypt, do not regulate overseas recruitment, lacking a licensing process for recruiters and regulations on the amount of fees that these recruiters may charge, according to the Egyptian Ministry of Manpower and Emigration.", "The ILO has reported that in Gulf countries, several common and restrictive labor practices stem from the Kafala sponsorship system of foreign workers. According to the ILO, the Kafala system is a sponsorship system whereby a foreign worker is employed in a Gulf country by a specific employer that controls the worker’s residency, immigration, and employment status. Under this system, employers meet their demand for labor either by direct recruitment or through the use of recruitment agents who find foreign workers. The system generally ties workers’ residency and immigration status to the employer, which can prevent workers from changing employers and limit their freedom of movement, according to the ILO. The ILO further stated that sponsors can also prohibit workers from leaving the country and have the right to terminate workers’ employment contracts and have residency permits canceled. According to State’s Qatar 2013 Human Rights Report, international media and human rights organizations alleged numerous abuses against foreign workers, including a sponsorship system that gave employers an inordinate level of control over foreign workers.\nIn addition to the labor practices associated with the Kafala system, the withholding of workers’ passports is an additional restrictive labor practice common in many Gulf countries. For example, State reported that in Qatar, despite laws prohibiting the withholding of foreign workers’ identity documents, employers withheld the passports of a large portion of their foreign workers in that country. According to State’s most recent Trafficking in Persons Report, the withholding of foreign workers’ passports contributes to the potential for trafficking in persons (TIP). Furthermore, the ILO has reported that employers in Gulf countries may refuse to release workers or may charge high fees for release, withhold wages as security to prevent workers from running away, and withhold personal travel documents. The ILO also found that workers in these countries may be subjected to forced overtime, limited freedom of movement, degrading living and working conditions, and physical violence and threats. Overall, the ILO estimated that there were 600,000 victims of forced labor in the Middle East at any given point in time between 2002 and 2011.", "The Federal Acquisition Regulation (FAR) requires all solicitations and contracts to include Clause 52.222-50, Combating Trafficking in Persons (TIP). This clause includes a prohibition on contractors engaging in severe forms of TIP, which includes the recruitment, harboring, transportation, provision or obtaining of a person for labor or services, through the use of force, fraud, or coercion for the purpose of subjection to involuntary servitude, peonage, debt bondage, or slavery. However, the clause contains no further provisions related to recruitment or other labor practices discussed in this report. The Department of Defense (DOD), Department of State (State), and the U.S. Agency for International Development (USAID) have developed policy and guidance that provides more specificity on these practices, as outlined in table 6.", "", "", "", "1. State said that we should direct our recommendation to develop a more precise definition of recruitment fees to the Office of Management and Budget. We believe that each agency should have the flexibility to determine, within its implementing regulations, which items it considers to be included in the term “recruitment fees” to address each agency’s contracting practices. 2. State noted that the new regulations that will amend the Federal Acquisition Regulation will prohibit charging employees recruitment fees. As our report notes, even if the final FAR rule prohibits all recruitment fees, it remains unclear whether the term “recruitment fees” includes items such as air tickets, lodging, passport and visa fees, and other fees that recruited individuals may be charged before being hired. Contracting officers and agency officials with monitoring responsibilities currently rely on policy and guidance regarding recruitment fees that are ambiguous. Without an explicit definition of the components of recruitment fees, prohibited fees may be renamed and passed on to foreign workers, increasing the risk of debt bondage and other conditions that contribute to trafficking.", "", "1. USAID stated that the final draft Federal Acquisition Regulation rule contained language that would prohibit charging contractor employees any recruitment fees and therefore USAID did not see any need to establish any policy or guidance that provides a \"more precise definition of recruitment fees, including permissible components and amounts.\" As our report notes, even if the final FAR rule prohibits all recruitment fees, it remains unclear whether the term “recruitment fees” includes items such as air tickets, lodging, passport and visa fees, and other fees that recruited individuals may be charged before being hired. Contracting officers and agency officials with monitoring responsibilities currently rely on policy and guidance regarding recruitment fees that are ambiguous. Without an explicit definition of the components of recruitment fees, prohibited fees may be renamed and passed on to foreign workers, increasing the risk of debt bondage and other conditions that contribute to trafficking. 2. USAID said that it would be useful to obtain further guidance on the recommendation to take actions to better ensure that contracting officials specifically include TIP in monitoring plans and processes in areas where the \"risk of trafficking is high.\" One useful source of guidance is State’s annual Trafficking in Persons Report, which places countries into tiers based on the extent of their governments’ efforts to comply with the TVPA’s minimum standards for the elimination of human trafficking. In addition, in its written comments, State noted that it is developing a tool for procurement and contracting officers and federal contractors to assess the risk of TIP, expected to be completed in the spring of 2015.", "", "", "In addition to the individual named above, Leslie Holen, Assistant Director; J. Robert Ball; Gergana Danailova-Trainor; Brian Egger; Justine Lazaro; Jillian Schofield; and Gwyneth Woolwine made key contributions to this report. Lynn Cothern, Etana Finkler, Grace Lui, Walter Vance, Shana Wallace, and Alyssa Weir provided technical assistance.", "International Labor Grants: DOL’s Use of Financial and Performance Monitoring Tools Needs to Be Strengthened. GAO-14-832. Washington, D.C.: September 24, 2014.\nInternational Labor Grants: Labor Should Improve Management of Key Award Documentation. GAO-14-493. Washington, D.C.: May 15, 2014.\nHuman Rights: U.S. Government’s Efforts to Address Alleged Abuse of Household Workers by Foreign Diplomats with Immunity Could Be Strengthened. GAO-08-892. Washington, D.C.: July 29, 2008.\nHuman Trafficking: Monitoring and Evaluation of International Projects Are Limited, but Experts Suggest Improvements. GAO-07-1034. Washington, D.C.: July 26, 2007.\nHuman Trafficking: Better Data, Strategy, and Reporting Needed to Enhance U.S. Antitrafficking Efforts Abroad. GAO-06-825. Washington, D.C.: July 18, 2006." ], "depth": [ 1, 2, 2, 2, 2, 1, 2, 2, 2, 2, 1, 2, 3, 3, 3, 3, 2, 3, 3, 3, 1, 1, 1, 1, 1, 1, 2, 2, 2, 1, 1, 1, 1, 2, 1, 2, 1, 2, 2, 1 ], "alignment": [ "h0_title h2_title", "h0_full", "h2_full", "", "h2_full", "h0_full h3_title", "h0_full h3_full", "", "h0_full", "", "h1_title", "h1_title", "", "h1_full", "h1_full", "h1_full", "", "", "", "", "h1_full", "", "", "h0_full h3_full h2_full", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "" ] }

{ "question": [ "What level of guidance is provided concerning the payment of recruitment fees by foreign workers on U.S. government contracts?", "What flawed employment situations did GAO find?", "How can this negatively affect the workers?", "How common are such abuses?", "How did DOD, State, and USAID approach the issue of recruitment fees?", "To what extent did agency monitoring effectively combat TIP?", "How successful were the sampled contracts in combating TIP?", "How well-aware are contracting officials of guidance regarding TIP?", "How are DOD and State addressing this issue?", "How have U.S. government contracts been affected by TIP?", "How did these allegations affect the U.S.'s stance regarding TIP?", "Why is this policy important?", "Why did GAO report on the use of foreign workers?", "What does this report address?", "What contracts did GAO examine?", "How did GAO collect information for this report?" ], "summary": [ "Current policies and guidance governing the payment of recruitment fees by foreign workers on certain U.S. government contracts do not provide clear instructions to agencies or contractors regarding the components or amounts of permissible fees related to recruitment.", "GAO found that some foreign workers—individuals who are not citizens of the United States or the host country—had reported paying for their jobs.", "Such recruitment fees can lead to various abuses related to trafficking in persons (TIP), such as debt bondage.", "For example, on the contract employing the largest number of foreign workers in its sample, GAO found that more than 1,900 foreign workers reported paying fees for their jobs, including to recruitment agencies used by a subcontractor. According to the subcontractor, these fees were likely paid to a recruiter who assisted foreign workers with transportation to and housing in Dubai before they were hired to work on the contract in Afghanistan (see figure).", "DOD, the Department of State (State), and the U.S. Agency for International Development (USAID) have developed policy and guidance for certain contracts addressing recruitment fees in different ways. However, these agencies do not specify what components or amounts of recruitment fees are considered permissible, limiting the ability of contracting officers and contractors to implement agency policy and guidance.", "GAO found that agency monitoring, called for by federal acquisition regulations and agency guidance, did not always include processes to specifically monitor contractor efforts to combat TIP.", "For 7 of the 11 contracts in GAO's sample, DOD and State had specific monitoring processes to combat TIP. On the 4 remaining contracts, agencies did not specifically monitor for TIP, but rather focused on contractor-provided goods and services, such as building construction.", "In addition, some DOD and State contracting officials said they were unaware of relevant acquisitions policy and guidance for combating TIP and did not clearly understand their monitoring responsibilities.", "Both DOD and State have developed additional training to help make contracting officials more aware of their monitoring responsibilities to combat TIP.", "Since the 1990s, there have been allegations of abuse of foreign workers on U.S. government contracts overseas, including allegations of TIP.", "In 2002, the United States adopted a zero tolerance policy on TIP regarding U.S. government employees and contractors abroad and began requiring the inclusion of this policy in all contracts in 2007.", "Such policy is important because the government relies on contractors that employ foreign workers in countries where, according to State, they may be vulnerable to abuse.", "GAO was mandated to report on the use of foreign workers.", "This report examines (1) policies and guidance governing the recruitment of foreign workers and the fees these workers may pay to secure work on U.S. government contracts overseas and (2) agencies' monitoring of contractor efforts to combat TIP.", "GAO reviewed a nongeneralizable sample of 11 contracts awarded by DOD, State, and USAID, composing nearly one-third of all reported foreign workers on contracts awarded by these agencies at the end of fiscal year 2013.", "GAO interviewed agency officials and contractors about labor practices and oversight activities on these contracts." ], "parent_pair_index": [ -1, 0, 1, 1, 1, -1, 0, 0, 2, -1, 0, 1, -1, 0, 1, 1 ], "summary_paragraph_index": [ 2, 2, 2, 2, 2, 3, 3, 3, 3, 0, 0, 0, 1, 1, 1, 1 ] }

{ "title": [ "", "Introduction", "Carcieri Background", "Appellate Court Rulings", "Supreme Court Decision", "Potential Impact", "In General", "DOI Solicitor's Memorandum Indicates How a Tribe May Demonstrate That It Was \"Under Federal Jurisdiction\" in 1934", "Big Lagoon Rancheria v. California: Challenge to Validity of Trust Acquisition for a Tribe Not Recognized in 1934 Is Not Subject to Collateral Attack Decades Later.", "Judicial Treatment of SOI Post Carcieri Land Acquisition Determinations", "U.S. Court of Appeals for the District of Columbia Upholds Trust Land Acquisition for Gaming as an Initial Reservation for a Tribe Recognized in 2002", "Other Federal District Court Decisions Deferring to SOI Interpretation of IRA Jurisdictional and Recognition Requirements in Taking Land Into Trust", "Trust Acquisition for the Oneida Indian Nation of New York", "Trust Acquisition for Ione Band of Miwok Indians", "District Court Decision Invalidating Trust Acquisition for the Mashpee Wampanoag Tribe", "Congressional Activity", "111th Congress", "S. 1703 as Reported by the Senate Committee on Indian Affairs", "Section 2727 of H.R. 3082, the Continuing Appropriations, 2011", "112th Congress", "113th Congress", "114th Congress", "S. 1879", "Other Bills" ], "paragraphs": [ "", "On February 24, 2009, the U.S. Supreme Court, in Carcieri v. Salazar , ruled that the Secretary of the Interior (SOI) did not have authority to take land into trust for the Narragansett Indian Tribe (Tribe) under 25 U.S.C. §465, a provision of the Indian Reorganization Act of 1934 (IRA). Although the facts of the case involve only a small parcel of land in Rhode Island, the reach of the decision may be much broader because it rests on the major statute under which the SOI acquires land in trust for the benefit of Indians and Indian tribes and restricts its coverage with respect to Indian tribes receiving federal recognition after 1934.\nThe extent to which the holding in Carcieri with respect to the SOI's authority to take land into trust for newly recognized tribes may foster other litigation is not yet known. A June 2012 Supreme Court decision, Match-E-Be - Nash-She-Wish Band of Pottawatomi Indians v. Patchak , is likely to encourage more suits seeking to set aside SOI decisions to take land into trust for Indian tribes. The case involves a challenge to a secretarial acquisition of land on the theory that the trust land acquisition was without authority because the tribe was not federally recognized in 1934. The case was brought under the Administrative Procedure Act within the six-year period covered by the applicable statute of limitations. The Supreme Court ruled that the suit directly challenging the DOI and its decision to acquire the land in trust could go forward, refuting a long-held assumption that U.S. sovereign immunity under the Quiet Title Act barred challenges to any decision of the Secretary to take land into trust once title has passed to the United States. Under the decision, plaintiffs who can meet the standing requirements under the Federal Administrative Procedure Act may bring a suit within six years of final agency action, provided they are not seeking to quiet title (i.e., claim title for themselves). On June 4, 2015, in Big Lagoon Rancheria v. California, an en banc decision of the U.S. Court of Appeals for the Ninth Circuit held that a claim challenging the validity of a trust acquisition for a tribe not recognized in 1934 may not be raised as a collateral attack on the status of the land for purposes of the Indian Gaming Regulatory Act. According to the court in that decision, a challenge to a decision to take land into trust is governed by the APA's six-year statute of limitations.\nIn response to the Patchak decision, the Bureau of Indian Affairs (BIA) of the Department of the Interior (DOI) revised its Land Acquisition regulations, 25 C.F.R., Part 151. The regulations now specify how parties seeking judicial review of land-into-trust decisions may discern when final agency action occurs for the two kinds of decisions possible for land-into-trust applications. Decisions by the SOI or the Assistant Secretary of the Interior for Indian Affairs (AS-IA) are final agency actions. When the SOI or the AS-IA issues a decision to take land into trust, the DOI must publish a notice of the decision \"promptly\" in the Federal Register and take the land into trust \"[i]immediately.\" In contrast, land-into-trust decisions by Bureau of Indian Affairs officials (BIA-level decisions) are not final agency action and do not require Federal Register notice. They require notice in \"a newspaper of general circulation serving the affected area of the decision\" as well as notice to state and local officials with \"regulatory jurisdiction over the land to be acquired\" and to \"interested parties who have made themselves known, in writing, to the official prior to the decision.\" Land may not be taken into trust pursuant to BIA-level decisions \"until administrative remedies are exhausted ... or ... the time for filing a notice of appeal has expired and no administrative appeal has been filed.\" Once a BIA-level decision has become final, the land is to be acquired in trust \"[i]mmediately.\"\nThis report discusses both the trial court and appellate court decisions as background to the Supreme Court's ruling in Carcieri . Next, it provides an analysis of the potential impact of the Carcieri decision. This includes an analysis of a memorandum issued by the Solicitor of the Department of the Interior in response to the Supreme Court's decision and a discussion of some of the post- Carcieri judicial decisions. Finally, the report summarizes legislative proposals, beginning with those introduced in the 111 th Congress.", "The Narragansett Indian Tribe's history in Rhode Island predates colonial settlement and includes a continuing relationship with the state of Rhode Island. The Tribe's formal relationship with the federal government, however, was found by the Court to have been established in 1983, after enactment of the Rhode Island Indian Claims Settlement Act of 1978 (RIICSA). Federal recognition of the Tribe occurred with the approval of the Tribe's petition for inclusion on the (DOI) \"List of Indian Entities Recognized and Eligible To Receive Services From the United States Bureau of Indian Affairs\" under the DOI \"Procedures for Establishing that an American Indian Group Exists as an Indian Tribe.\" Thereafter, the Tribe succeeded in having the SOI place in trust the tribal lands that RIICSA designated as \"settlement lands,\" subject to the civil and criminal jurisdiction of the state of Rhode Island (State) rather than under the laws which apply under the \"Indian country\" jurisdiction of the United States.\nThe dispute with the State began in 1991 when the Tribe's housing authority purchased 31 acres adjacent to the \"settlement lands\" and asserted that the land was free of state jurisdiction. After losing on that claim, the Tribe applied to the SOI to have the land taken into trust and received a favorable determination, which has been upheld by the Interior Board of Indian Appeals and by both the federal trial and appellate courts. A sharply divided U.S. Court of Appeals for the First Circuit, sitting en banc, ruled in favor of the trust acquisition, with the majority relying predominantly on statutory construction of RIICSA. Dissents, however, criticized this method of resolving the case as mechanical and emphasized the fact that permitting the trust acquisition and the consequent elimination of Rhode Island jurisdiction over the land would directly conflict with the overriding purpose of RIICSA and the State's bargained-for-objective in agreeing to the settlement—ending all Indian claims to sovereign authority in Rhode Island.\nThe case represents the latest in a series of cases in which the State of Rhode Island and the Narragansett Indian Tribe have contested jurisdiction over tribal lands. The Tribe's current reservation consists of lands designated as \"settlement lands\" under RIICSA. Under the terms of RIICSA, these \"settlement lands\" are subject to Rhode Island civil and criminal jurisdiction and, therefore, not available for gaming under the Indian Gaming Regulatory Act. The Supreme Court agreed to review the ruling of the appellate court on the basis of two issues: (1) whether the IRA provision covers trust acquisitions by a tribe not recognized by DOI in 1934 or under federal jurisdiction at that time, and (2) whether the trust acquisition violated the terms of RIICSA.\nThe case involves the interaction of two federal statutes: (1) RIICSA, which settled land claims of the Tribe, and (2) 25 U.S.C. §465, a provision of the IRA of 1934. RIICSA embodies the terms of the Joint Memorandum of Understanding Concerning Settlement of the Rhode Island Indian Land Claims (JMOU) executed on February 28, 1978, by the Tribe, the state of Rhode Island, and private landowners; it ratifies the settlement ending a lawsuit brought by the Tribe claiming land in Charlestown, RI. The Tribe had asserted that land transfers covering hundreds of pieces of property and dating to 1880 violated the Indian Trade and Intercourse Act, 25 U.S.C. §177, which requires federal approval for any land conveyance by an Indian tribe. RIICSA required tribal relinquishment of land claims; federal ratification of earlier land transactions; establishment by the state of an Indian-owned, non-business corporation, the \"Narragansett Tribe of Indians\"; a settlement fund with which private lands were to be purchased and transferred to the corporation; the transfer of 900 acres of state land to the corporation for the Tribe; designation of the transferred lands as \"settlement lands\"; and a jurisdictional provision providing for state jurisdiction on the \"settlement lands.\" The Settlement Act was the necessary federal ratification of the JMOU. Under the federal legislation, Rhode Island was to set up a corporation to hold the land initially, for the Tribe's benefit, with the possibility that subsequently the Tribe would gain recognition as an Indian tribe through the DOI federal acknowledgment process. The Settlement Act contained language extinguishing all Indian claims to land in Rhode Island once the State had enacted legislation creating the Indian corporation and conveying to that corporation settlement lands. RIICSA did not provide federal recognition for the Tribe, that is, establish it as an Indian Tribe entitled to federal services for Indians. It did, however, envision the possibility that tribal status would be acknowledged administratively by the SOI. Nonetheless, it contains no explicit provision as to the ability of the Tribe, following recognition by the SOI, to acquire further trust land in Rhode Island. Essentially, it makes no express reference to Section 465 or to the Secretary's authority to take land into trust. After the Tribe received federal recognition in 1983, it successfully sought to have the settlement lands transferred from the corporation to the Tribe, and taken into trust pursuant to 25 U.S.C. §465 and proclaimed an Indian reservation under 25 U.S.C. §467.\nThe central issue in the litigation was the IRA definitions of \"Indians\" and \"tribe.\" Under Section 465, the SOI is authorized to take land into trust \"for the purpose of providing land for Indians.\" \"Indians\" is defined in another IRA section to \"include all persons of Indian descent who are members of any recognized Indian tribe now under Federal jurisdiction, and all persons who are descendants of such members who were, on June 1, 1934, residing within the present boundaries of any Indian reservation, and ... all other persons of one-half or more Indian blood.\" That same provision, 25 U.S.C. §479, states that \"tribe\" is to \"be construed to refer to any Indian tribe, organized band, pueblo, or the Indians residing on one reservation.\"\nThe district court upheld the SOI's decision to take the 31-acre tract into trust. The court ruled that the SOI had authority under the IRA to take the land into trust for the Tribe. It read the reference in the IRA to \"members of any recognized Indian tribe now under Federal jurisdiction\" as covering the Narragansett Indian Tribe by finding the Tribe to have been under federal jurisdiction in 1934 even though it was not formally recognized until 1983. The court reasoned that because the Tribe's existence from 1614 was not in doubt, whether or not it was recognized, it was a tribe and, thus, under federal supervision.", "There are three decisions of the U.S. Court of Appeals for the First Circuit, two of which have been withdrawn but are worth attention for their reasoning. A three-judge panel, in an opinion subsequently withdrawn, ruled in favor of the trust acquisition. The panel found that Section 465 provided the SOI with authority to take land into trust for the Tribe in spite of the fact that the Tribe had not been federally recognized in 1934. It rejected Rhode Island's arguments that, for Section 465 to apply, a tribe must have been both recognized and subject to federal jurisdiction in 1934. The opinion focused on the interaction between Section 465, which authorizes the SOI to take land into trust \"for Indians,\" and Section 479, which defines \"Indians\" as \"all persons of Indian descent who are members of any recognized Indian tribe now under Federal jurisdiction.\" The court chose to defer to DOI's \"longstanding interpretation of the term 'now'\" as meaning \"today\" rather than \"1934.\" It viewed this interpretation as in accord with the Supreme Court's interpretation of the statute in United States v. John and buttressed by the Federally Recognized Indian Tribe List Act and a 1994 amendment to the IRA.\nOn rehearing, the panel reiterated its earlier rationale on the IRA issue and squarely addressed the jurisdictional issue. A majority of the panel, relying on a principle of statutory construction sometimes used to interpret Indian affairs legislation, rejected Rhode Island's arguments that, taken together, certain provisions of the Settlement Act precluded any tribe from exercising sovereignty over land in Rhode Island except to the extent specified in RIICSA. The majority of the panel read RIICSA as crystal clear in settling claims related to prior land transactions but ambiguous in failing to mention future land transfers. The majority, relying on the canon of construction, resolved this ambiguity in favor of the Narragansetts: \"Once the tribe received federal recognition in 1983 ... it gained the same benefits as other Indian tribes, including the right to apply to have land taken into trust pursuant to § 465.\"\nIn a dissent, however, Circuit Judge Howard took the view that the intent of the parties to the Settlement Act was that Rhode Island laws should apply throughout Rhode Island and that the language in the JMOU and in RIICSA could fairly be interpreted to that end.\nOn rehearing, en banc, a divided First Circuit ruled on both the IRA and jurisdictional issues. It found that the definition of Indian in 25 U.S.C. §479, with its use of the phrase \"now under Federal jurisdiction,\" is \"sufficiently ambiguous\" to implicate what is known as the Chevron test. This involves a two-part examination of statutory language: (1) If Congress has directly spoken on the precise question at issue and its intent is clear and unambiguous, courts must defer to that interpretation of the law; (2) If the meaning or intent of a statute is silent or ambiguous, courts must give deference to the agency's interpretation of the law if it is based on a permissible and reasonable construction. The court found, by examining text and context, that the IRA is ambiguous on the question of whether trust acquisitions are available for tribes not recognized in 1934. It, therefore, moved to the second prong of the Chevron test and found the Secretary's interpretation to be reasonable and consistent with the statute.\nOn the jurisdictional issue, the en banc majority ruled against the State's basic arguments principally by characterizing them as requiring a finding that RIICSA implicitly repealed the Secretary's authority to take land into trust for the Tribe. It cited Supreme Court authority requiring a high standard for repeals by implication. It found \"nothing in the text of the Settlement Act that clearly indicates an intent to repeal the Secretary's trust acquisition powers under IRA, or that is fundamentally inconsistent with those powers.\" The opinion also identified support for its position in the existence of other statutes settling Indian land claims which did have provisions clearly limiting SOI trust acquisition authority. From this it reasoned, Congress knew how to preclude future trust acquisitions and clearly did not choose to use this approach in RIICSA.\nThe court turned down as not within its power the State's request that, if the court were to uphold the trust acquisition, it should require the SOI to limit the Tribe's jurisdiction to that specified for the settlement lands, that is, with Rhode Island retaining civil and criminal jurisdiction. The court acknowledged that such a directive would preserve what the State, in good faith, believed to have been the essential component of its bargain in agreeing to the JMOU and to RIICSA, that is, maintaining State sovereignty. It suggested, however that the power to limit jurisdiction over the newly acquired land was the prerogative of Congress, not the courts or the SOI.\nThe two dissenting opinions raised arguments based on RIICSA. Circuit Judge Howard would have found that (1) the parties to the JMOU and Congress, in enacting RIICSA, intended to resolve all Indian claims in Rhode Island past, present, and future; (2) RIICSA contains broad language which may be fairly interpreted as impliedly and partially repealing SOI authority under the IRA to take land into trust for the Tribe; (3) the fact that other settlement acts included provisions limiting jurisdiction, should there be subsequent approvals of trust acquisitions, is irrelevant because RIICSA clearly contemplated that there would be no trust acquisition other than that of the settlement lands; and (4) to read RIICSA as if it did not preclude subsequent jurisdictional adjustments outside of the settlement lands would be \"antithetical to Congress' intent\" and \"absurd.\" Senior Circuit Judge Selya's dissent characterizes the majority's construction of the RIICSA as \"wooden\" and \"too narrow,\" and the result, \"absurd.\" Judge Selya argued that RIICSA must not be divorced from its historical context.", "The Supreme Court found that the SOI had no authority under the IRA to take land into trust for the Tribe; it, therefore, did not address the RIICSA issue. Six Justices concurred in the opinion of the Court, one of which identified certain qualifications; two other Justices concurred in part and dissented in part. The Court, in an opinion written by Justice Thomas, found that the 1934 legislation unambiguously restricted beneficiaries for whom the SOI may take land into trust under this statute to \"Indians\" and \"Indian tribe[s]\" as defined in the statute. Because the IRA defines \"Indian\" in terms of persons \" now under Federal jurisdiction\" and includes the word \"Indian\" in its definition of \"tribe,\" the Court reasoned that the meaning of \"now\" was critical to interpreting the reach of the SOI's authority to take land into trust. Rhode Island had argued that \"now\" meant \"at the time of enactment of the IRA.\" The SOI had urged the Court to find the meaning of \"now\" ambiguous and, therefore, under the Chevron doctrine, amenable to a reasonable explication of its meaning by DOI as the agency charged with interpreting it.\nThe decision focuses on Section 5 of the IRA, 25 U.S.C. §465, the statute under which the trust acquisition was approved by the SOI, and the definitions provided for \"Indian\" and \"Indian tribe\" in Section 19 of the IRA, 25 U.S.C. §479. Section 5 authorizes the SOI \"to acquire, through purchase, relinquishment, gift, exchange, or assignment, any interest in lands, water rights, or surface rights to lands, within or without existing reservations, including trust or otherwise restricted allotments, whether the allottee be living or deceased, for the purpose of providing land for Indians .\" Section 5 further provides that \"[t]itle to any lands or rights acquired ... shall be taken in the name of the United States in trust for the Indian tribe or individual Indian for which the land is acquired and such lands or rights shall be exempt from State and local taxation.\"\nSection 19 supplies definitions of \"Indian\" and \"tribe\" for various sections of the IRA, including Section 5. It reads, in pertinent part:\n[t]he term \"Indian\" as used in sections ... 465 ... and 479 of this title shall include all persons of Indian descent now under Federal jurisdiction who are members of any recognized Indian tribe now under Federal jurisdiction, and all persons who are descendants of such members who were, on June 1, 1934, residing within the present boundaries of any Indian reservation, and shall further include all other persons of one-half or more Indian blood. For the purposes of said sections, Eskimos and other aboriginal peoples of Alaska shall be considered Indians. The term \"tribe\" wherever used in said sections shall be construed to refer to any Indian tribe, organized band, pueblo, or the Indians residing on one reservation.\nThe Court's opinion rests squarely on statutory construction. It looked first to see if the statutory language was \"plain and unambiguous\" on the question of \"whether the Narragansetts are members of a 'recognized Indian Tribe now under Federal jurisdiction.'\" This led the Court to examine whether \"now under Federal jurisdiction\" means the date of the trust acquisition or 1934. By examining the language and context of the terms \"Indian\" and \"tribe\" and construing them in harmony with one another, the Court ruled that trust acquisitions may be undertaken only for tribes that, in 1934, were \"under Federal jurisdiction.\" Because it relied on the plain meaning of the statute, the Court did not address in any detail the legislative history. According to the Court, \"although § 465 authorizes the United States to take land in trust for an Indian tribe, § 465 limits the Secretary's exercise of that authority 'for the purpose of providing land for Indians.' There simply is no legitimate way to circumvent the definition of 'Indian' in delineating the Secretary's authority under §§ 465 and 479.\"\nThe Court also rebutted an argument that 25 U.S.C. §2202 authorizes trust acquisitions for the Narragansett Tribe and, by extension, other tribes not \"under Federal jurisdiction\" in 1934. Section 2202 provides that \"The provisions of section 465 of this title shall apply to all tribes notwithstanding the provisions of section 478 of this title: Provided, That nothing in this section is intended to supersede any other provision of Federal law which authorizes, prohibits, or restricts the acquisition of land for Indians with respect to any specific tribe, reservation, or state(s).\"\nAccording to the Court's analysis of the language of §2202, this statute does not alter the terms of §465; it merely \"ensures that tribes may benefit from § 465 even if they opted out of the IRA pursuant to § 478, which allowed tribal members to reject the application of the IRA to their tribe.\"\nRather than remand the case for further exploration on the issue of whether the Narragansetts were \"under Federal jurisdiction\" at the time of enactment of the IRA, the Court resolved that question itself. In doing so, it cited undisputed evidence, contemporaneous with enactment of the IRA, that was included in the record of the case. For example, there was a letter, written in 1937, by John Collier, who was then Commissioner of Indian Affairs and a driving force behind the IRA, stating forthrightly that the federal government had no jurisdiction over the Narragansett Indian Tribe of Rhode Island. The Court, therefore, found that the Narragansett Indian Tribe was not \"under Federal jurisdiction\" in 1934 and ruled that the trust acquisition was contrary to the statute and reversed the lower court.\nJustice Stevens filed a dissenting opinion, also relying on the plain meaning of the 1934 legislation. Unlike the majority, he did not incorporate the IRA's definition of \"Indian\" in his interpretation of \"tribe.\" He read the two separately and found that the SOI had authority delegated under the IRA to confine the meaning of \"tribe\" to those \"recognized\" by DOI. To support his conclusion, he drew upon the structure of the IRA in providing separate benefits for tribes and individual Indians and the long-time administrative practice of the SOI in taking land into trust under Section 465 only for federally recognized tribes, whether recognized before or after 1934. He also criticized the majority for ignoring one of the canons of statutory construction often employed when courts are interpreting statutes enacted for the benefit of Indians.", "", "Although the Supreme Court found that the Narragansetts were not \"under Federal jurisdiction\" in 1934, it did not rely on the 1983 date of official SOI recognition. It examined the Tribe's situation at the time of enactment of the IRA, looking for indicia that it was \"under Federal jurisdiction\" even if not officially included in DOI lists of Indian tribes. The decision appears to call into question the ability of the SOI to take land into trust for any tribe added to DOI's list of federally recognized tribes since 1934 unless the trust acquisition has been authorized under legislation other than the 1934 Act. The Court's decision appears to mean that the SOI may not take land into trust under the IRA for any tribe that cannot clearly show that it was among those tribes under federal jurisdiction in 1934 or that is unable to cite another statute as providing authority for trust acquisitions.", "The DOI released a memorandum, on March 12, 2014, in which the Solicitor of the Department of the Interior interprets \"The Meaning of 'Under Federal Jurisdiction' for the Purposes of the Indian Reorganization Act\" (Memorandum). In it, the Solicitor concludes that the Supreme Court's Carcieri decision leaves room for a tribe officially recognized post-1934 to establish that it was \"under Federal jurisdiction\" in 1934 and, thus, eligible for having land taken into trust under the IRA. This conclusion was drawn from an analysis of Carcieri. According to the Solicitor, not only were the components of jurisdiction not addressed by the Court's majority opinion in Carcieri, but the possibility that some tribes would be able to present evidence of pre-1934 dealings with the federal government sufficient to establish that they were actually under federal jurisdiction in 1934 appears to have been recognized by three Justices (two dissenters and Justice Breyer in his concurring opinion).\nBefore it focuses on the kinds of evidence that might be probative of a tribe's being \"under Federal jurisdiction,\" the Memorandum examines the phrase \"now under Federal jurisdiction\" to determine how to construe it, looking to dictionary meanings, legislative history, and offering several disparate possible constructions. Then, it concludes that the phrase is ambiguous and fails to establish clearly a standard to determine which tribes qualify as being \"under Federal jurisdiction\" in 1934. This leads the Solicitor to assume that the question must be analyzed under the two-pronged test applicable to agency interpretations of statutes used by the Supreme Court in Chevron v. Natural Resources Defense Council . Under that analysis, courts are to determine whether a statute speaks directly to an issue; and, if not (i.e., if the statutory language is ambiguous), they are to defer to a reasonable construction of the statute by the agency charged by Congress with interpreting it. The implication is that the Solicitor is endeavoring to provide such an interpretation—a reasonable construction of an ambiguous statute.\nAccording to the memorandum, the DOI's examination—of the question of how to interpret \"under Federal jurisdiction\"—necessarily requires an exploration of the backdrop against which Congress enacted the IRA, which involves not only the contemporaneous legislative purposes, debates, and hearings, but also the role of the various periodic shifts in federal Indian policy. After reviewing the history of the IRA and the evolution of federal Indian policy, the memorandum contemplates the impact of the vast range of powers over Indian affairs conferred on and traditionally exercised by Congress and the executive branch under the U.S. Constitution. Finally, before drawing inferences as to what types of evidence might show a tribe to have been \"under Federal jurisdiction\" in 1934, the Solicitor points out the unique statutory construction tools that the courts have employed when construing federal Indian statutes. Under these \"canons of construction\" traditionally employed by the courts, Indian treaties and statutes are to be liberally interpreted with ambiguities resolved in favor of Indians.\nDrawing upon inferences made from its exposition of federal Indian policy, the memorandum sets out to determine what \"under Federal jurisdiction\" in 1934 means and how it is to be proven. In general, according to the memorandum \"under Federal jurisdiction,\" in 1934, meant more than that a tribe or group was generally subject to the Indian power of the federal government. It \"meant that the recognized Indian tribe was subject to the Indian Affairs' authority of the United States, either expressly or implicitly . \" The basic requirement, therefore, according to the Solicitor is that there be a showing that the federal government exercised jurisdiction before 1934 and that the jurisdictional status remained in 1934. This, in turn, requires a showing that \"the tribe's history priory to 1934, [shows] an action or series of actions—through a course of dealings—that are sufficient to establish ... federal obligations, duties, responsibility for or authority over the tribe by the Federal Government.\" It further requires \"indicia of the tribe having retained its jurisdictional status in 1934.\"\nThis memorandum is consistent with the 2010 DOI decision to accept land into trust for gaming for the Cowlitz Tribe of Indians in Clark County, Washington. That decision indicates that there will not be an automatic dismissal of applications from newly recognized tribes, but that the department will review such applications thoroughly, collaborating with the Solicitor's Office, to determine whether the history of the tribe as presented in the petition meets the legal standard. In general, however, the decision appears to mean that some tribes administratively acknowledged since 1934 under the SOI's administrative process may not acquire trust land without further legislation.", "On June 4, 2015, in an en banc decision, Big Lagoon Rancheria v. California, the U.S. Court of Appeals for the Ninth Circuit held that a claim to the validity of a trust acquisition for a tribe not recognized in 1934 may not be raised decades after the trust acquisition. The case involved a challenge the status of the land as \"Indian lands\" qualifying for gaming under the Indian Gaming Regulatory Act (IGRA). According to the decision, such a claim must be brought under the Administrative Procedure Act (APA) and is, therefore, subject to a six-year statute of limitations.\nThe en banc court overturned an earlier opinion issued by a divided three-judge panel. The case involves a tract of land taken into trust in 1994 for the Big Lagoon Rancheria of California (Big Lagoon). Big Lagoon first appeared on the list of \"Indian Tribal Entities That Have a Government-to-Government Relationship With the United States\" in 1979. The dispute with California was precipitated by a breakdown in negotiations for a tribal-state gaming compact under IGRA when California objected to the site preferred by the Big Lagoon for its gaming operation. On the basis of the Carcieri decision, the state claimed that the site had not been validly taken into trust because the tribe had not been under federal jurisdiction in 1934. It, therefore, asserted that the state was under no obligation to negotiate in good faith for tribal gaming on a tract of land that did not meet IGRA's definition of \"Indian lands,\" and, thus, was not eligible for IGRA gaming.\nIn the decision that was overturned by the en banc Ninth Circuit, a divided three-judge panel agreed with California. It found that \"[t]here was no family or other group on what is now the Big Lagoon Rancheria in 1934\"; that Big Lagoon was not a tribe under federal jurisdiction in 1934; and, therefore, that the DOI had no authority under the IRA to take land into trust for Big Lagoon. A dissent voiced the view that was eventually adopted by the en banc court—that the APA, which has a six-year statute of limitation, was the only avenue to challenge a land-into-trust decision.\nThe en banc court rejected this approach. It quoted the statement by the Supreme Court in Match-E-Be-Nash-She-Wish Band of Pottawatomi Indians v. Patchak, that \"a challenge to the BIA's 'decision to take land into trust' is 'a garden-variety APA claim.'\" It contrasted the Big Lagoon fact situation—\"a belated collateral attack\"—from the timely challenge to a SOI decision to take land into trust that was at issue in Carcieri. Citing various Ninth Circuit precedents, the en banc court stated that:\n[a]llowing California to attack collaterally the BIA's decision to take the eleven-acre parcel into trust outside the APA would constitute just the sort of end-run that we have previously refused to allow, and would cast a cloud of doubt over countless acres of land that have been taken into trust for tribes recognized by the Federal government.", "Recent federal court decisions indicate that there are likely to be challenges to many land-into-trust determinations based on Carcieri , whether or not a tribe is newly recognized. Three cases have upheld the SOI's process for determining whether a tribe was \"under Federal jurisdiction\" in 1934 and, thereby qualifies for taking land into trust under the IRA. The three district courts and the one appellate court in these cases have agreed with the SOI that the IRA's reference to \"under Federal jurisdiction\" and \"any recognized Indian tribe\" is ambiguous. They have further found the SOI's interpretations of the phrases to be reasonable and have upheld trust land applications at issue. One case involves a tribe that was not formally recognized until 2002; another, a tribe that dates to colonial times. A third case involves a currently recognized tribe that had not been consistently treated as a federally recognized tribe.", "On July 29, 2016, the U.S. Court of Appeals for the District of Columbia issued Confederated Tribes of the Grand Ronde Community of Oregon v. Jewell . The appellate decision affirms a December 12, 2014, ruling by the U.S. District Court for the District of Columbia in The Confederate Tribes of the Grand Ronde Community of Oregon v. Jewell . The district court had upheld the SOI's decision to take land into trust for gaming for the Cowlitz Indian Tribe, which had been officially acknowledged to be an Indian tribe pursuant to a 2002 DOI administrative ruling. The plaintiffs included a neighboring Indian tribe, local government entities, nearby homeowners, and local businesses. They alleged that the trust acquisition would be injurious to them and that it should be set aside as arbitrary and capricious in violation of the APA. They argued that the decision to take the land into trust was defective because the tribe was not eligible for land acquisition under the plain language of the IRA. They also argued that, even if the tribe were eligible to have land taken into trust, the land was not eligible for gaming under IGRA as an \"initial reservation.\" They lost on both counts.\nBoth the district court and the appellate court agreed with the SOI's interpretation of the statutory language as ambiguous and, thus, looked to see if the agency's interpretation of it is a reasonable one. They focused on the language of Section 19 of the IRA, which authorizes the SOI to acquire trust land for \"members of any recognized Indian tribe now under Federal jurisdiction.\" They found the language ambiguous with respect to whether it was limited to tribes that were recognized in 1934 and under federal jurisdiction in 1934 or whether it could apply to a tribe that could be found to be under federal jurisdiction in 1934 but not recognized formally until after 1934.\nThe district court reached the conclusion that the language was ambiguous after it had examined legislative history and statutory context. The district court found no clear indication that the statutory language applied only to tribes that were recognized in 1934. It agreed with the SOI both in terms of the language being ambiguous and the reasonableness of concluding that recognition need not have been operative in 1934. The district court then evaluated whether the SOI's test to determine if a tribe was \"under Federal jurisdiction\" in 1934 was reasonable and found that it was a reasonable test. It also found that, as applied to the Cowlitz Indian Tribe, the SOI decision warranted deference by the court. The court buttressed its conclusion by referring to Justice Breyer's concurrence in Carcieri , which had identified factors that could be used to show that a tribe, not formally recognized in 1934, was \"under Federal jurisdiction\" at that time.\nThe test used by the SOI consists of two parts. It is based on the Solicitor's March 12, 2014, memorandum, on \"The Meaning of 'Under Federal Jurisdiction' for the Purposes of the Indian Reorganization Act.\" The district court saw this two-part test as looking at whether a tribe can show (1) \"that Federal Government officials undertook guardian-like action on behalf of the tribe\" and (2) that there is an absence of any \"probative evidence\" terminating that jurisdictional status before 1934. Among the factors that the agency relied on to determine that the Cowlitz Indian Tribe met the IRA's \"under Federal jurisdiction\" test were the following: (1) 1855 failed treaty negotiations; (2) various dealings between the Cowlitz Indian Tribe and federal officials from the mid-1850s until 1934; (3) provision of medical and educational resources for the Cowlitz Indians during the period; (4) representation of Cowlitz Indian tribal fishing rights by the BIA's Taholah Agency in 1927; (5) issuance of allotments to individual Cowlitz Indians in the late 19 th and early 20 th centuries; and (6) approval by the DOI of an attorney contract for the Cowlitz Indian Tribe in 1932.\nThe appellate court reviewed the trust acquisition on the basis of the APA's arbitrary and capricious standard and the Supreme Court's two-part Chevron analysis. It declared itself \"mindful of the 'governing canon of construction requir[ing] that statutes are to be construed liberally in favor of Indians, with ambiguous provisions interpreted to their benefit.'\" With respect to the question of whether the Cowlitz Indian Tribe was \"under Federal jurisdiction\" in 1934, the court viewed the text of the statute as comprising three prongs:\n[1] [A]ll persons of Indian descent who are members of any recognized Indian tribe now under Federal jurisdiction ...[2] [A]ll persons who are descendants of such members who were, on June 1, 1934, residing within the present boundaries of any Indian reservation, and ...[3] [A]ll other persons of one-half or more Indian blood.\nIt analyzed the phrase \"recognized Indian tribe now under Federal jurisdiction\" in terms of whether for a tribe to be eligible for a trust acquisition under the IRA, it must have been recognized in 1934 as well as \"under Federal jurisdiction\" in 1934. After considering both statutory context and its legislative history, it concluded that the phrase was ambiguous. Specifically, the court found the statute ambiguous as to whether \" now under Federal jurisdiction\" applied to \"tribe\" or \" recognized tribe.\" It found the SOI's interpretation of the ambiguity reasonable and permissible: a trust acquisition under the IRA requires that the tribe be recognized at the time of the trust acquisition; the tribe need not have been recognized in 1934.\nThe appellate court next analyzed the validity of the SOI's conclusion that the Cowlitz Indian Tribe satisfied the statutory requirement of being \"under Federal jurisdiction\" in 1934. The court noted found the SOI's \"two-part inquiry\" to be \"reasonable.\" This consisted of examining pre-1934 relations between the federal government and the Cowlitz Indian Tribe for indications of \"jurisdictional status\" and then proceeding to analyzing \"whether the Federal-jurisdictional status remained intact in 1934.\" With respect to the SOI's interpretation, the court stated:\nWe are not persuaded that the Secretary's interpretation is unreasonable for failure to require a formal, government to-government relationship carried out between the tribe and the highest levels of the Interior Department. The statute does not mandate such an approach, which also does not follow from any ordinary meaning of jurisdiction. Whether the government acknowledged federal responsibilities toward a tribe through a specialized, political relationship is a different question from whether those responsibilities in fact existed.... we can understand the existence of such responsibilities sometimes from one federal action that in and of itself will be sufficient, and at other times from a \"variety of actions when viewed in concert.\" ... Such contextual analysis takes into account the diversity of kinds of evidence a tribe might be able to produce, as well as evolving agency practice in administering Indian affairs and implementing the statute. It is a reasonable one in light of the remedial purposes of the IRA and applicable canons of statutory construction.", "", "On March 26, 2015, the U.S. District Court for the Northern District of New York, in Central New York Fair Business Association v. Jewell , applied the framework employed by the Supreme Court in Chevron, U.S.A., Inc. v. Natural Resources Defense Council ( Chevron ) and found that the SOI's interpretation of \"under Federal jurisdiction\" warranted judicial deference. The case involved a challenge to a trust acquisition of 17,370 acres in Madison and Oneida Counties, New York, for the Oneida Indian Nation of New York. The case involved a tribe that had conducted a vote in 1934 under a provision of the IRA and had had a relationship with the federal government that included a 1794 treaty. Despite this history, the plaintiffs claimed that the Oneidas were not under federal jurisdiction in 1934 because they were under state jurisdiction. They argued that the 1830 Removal Act and the 1838 Treaty of Buffalo Creek disestablished the Oneida Reservation and \"relinquished\" federal jurisdiction. They also argued that the Oneida's 1934 IRA vote was not proof of their being under federal jurisdiction at the time. The court refuted the plaintiffs' assertions. In upholding the SOI's decision, the court noted with approval the SOI's determination that the IRA language—\"now under Federal jurisdiction\" and \"recognized Indian tribe\"—was ambiguous and found the SOI's interpretation of it to be reasonable and worthy of Chevron deference. In reaching this conclusion, the court elaborated on how the SOI ha d interpreted the recognition requirement in the IRA:\n[h]aving found ... that DOI's interpretation that there is no time limit upon recognition is reasonable, the Court agrees that recognition is not limited to the mechanism in the [administrative process under [25 C.F.R., Part 83] ... regulations, and that DOI's interpretation of recognition as entailing a cognitive and a formal sense is reasonable. Accordingly, the Court agrees that the same evidence that establishes that OIN [Oneida Indian Nation] was under federal jurisdiction in 1934, also demonstrates that OIN is a federally recognized tribe.", "On September 30, 2015, the U.S. District Court for the Eastern District of California filed two opinions dismissing suits by the County of Amador, California, and various citizens advocate groups contesting a SOI decision to take land into trust for the Ione Band of Miwok Indians (Ione Band). The plaintiffs had alleged that the Ione Band was not \"under federal jurisdiction\" in 1934. The court began by determining, in agreement with the agency, that the term \"under Federal jurisdiction\" is ambiguous. It cited with approval the reasoning of the U.S. District Court for the District of Columbia in Confederated Tribes of the Grand Ronde Community of Oregon v. Jewell with respect to deferring to an agency's reasonable interpretation of an ambiguous statute.\nThe plaintiffs claimed that the Ione Band was not \"under Federal jurisdiction\" in 1934 because there were two distinct tribes in Amador County at that time and the Ione Band was not one of them. The court viewed its role as limited: \"[i]t is clearly beyond the scope of this Court's authority and expertise to conduct an independent investigation into the genealogy and political history supporting recognition of the Ione Band as a distinct tribe, and then to substitute that analysis for the BIA's. Rather the Court's role is to insure that BIA made no 'clear error of judgment' that would render its action arbitrary and capricious.\" Despite noting various inconsistencies in the DOI's treatment of the Ione Band over the years, the court found that the DOI's determination that the Ione Band was \"under Federal jurisdiction\" in 1934 \"was not arbitrary, capricious, unlawful, or an abuse of discretion,\" because it \"was based on multiple determinations by the Department throughout the history of the Ione Band's relationship with the federal government.\"", "On July 28, 2016, in Littlefield v. U.S. Department of the Interior, the U.S. District Court for the District of Massachusetts invalidated the SOI's decision to take land into trust for the Mashpee Wampanoag Tribe (Mashpee Tribe). The decision did not turn on the provision of the IRA at issue in Carcieri ¸ that is, the definition of \"Indian\" as \"all persons of Indian descent who are members of any recognized Indian tribe now under Federal jurisdiction.\" It turned on the IRA's second definition of \"Indian\": \"all persons who are descendants of such members who were, on June 1, 1934, residing within the present boundaries of any Indian reservation.\"\nThe Mashpee Tribe was officially acknowledged to be an Indian tribe in 2007. Subsequently, it applied to have land taken into trust. In 2015, the SOI issued a decision approving the trust acquisition. In the decision, the DOI determined that the Mashpee Tribe qualifies as \"Indian\" under the second definition provided in Section 19 of the IRA and, thus, was eligible to have land taken into trust under Section 16 of the IRA. Section 16 authorizes the SOI to take land into trust \"for Indians.\" Section 19 defines \"Indian\" as follows:\n[t]he term \"Indian\" as used in this Act shall include all persons of Indian descent who are members of any recognized Indian tribe now under Federal jurisdiction, and all persons who are descendants of such members who were, on June 1, 1934 , residing within the present boundaries of any Indian reservation ....\"\nThe DOI found that the Mashpee Tribe fell within the meaning of the language covering \"all persons who are descendants of such members who were, on June 1, 1934, residing within the present boundaries of any Indian reservation.\" It reached this conclusion after identifying several ambiguities in the statutory language that, in accordance with Chevron , the agency provided interpretative elucidation . The agency's decision identified the Town of Mashpee as the Mashpee Tribe's \"reservation\" for purposes of this definition. The decision also interpreted the words \"such members\" to refer to \"members of any recognized Indian tribe\" whether or not the tribe was, in 1934, \"now under Federal jurisdiction.\"\nAccording to the DOI:\nIn light of Congress's broad intent to restore and provide new homelands for Indians and the clear rule that statutory ambiguities are to be construed for the benefit of Indians, it would make little sense to interpret the second definition in such a way that would limit its applicability.\nTherefore, regarding the meaning of the referent of \"such members\" contained in the second definition, we believe it was intended to incorporate only the phrase \"members of any recognized Indian tribe\" and not \"under federal jurisdiction\" in 1934. To interpret it otherwise would be to completely subsume the second definition into the first, resulting in surplusage. The Supreme Court has stated that a cardinal principle of statutory construction is that \"a statute ought, upon the whole, to be so construed that, if it can be prevented, no clause, sentence, or word shall be superfluous, void, or insignificant.\" Fully incorporating the first definition into the second would render the requirement of reservation residency meaningless, since all individuals would qualify under the first definition regardless of their residency. It would eliminate the significance of the term \"reservation,\" which is a different concept than \"under federal jurisdiction.\" Additionally, the term \"and all\" is conjunctive and indicates that Congress intended that the second definition be independent of the first. Accordingly, the most reasonable way to interpret the relationship of the second definition to the first, as well as the overall structure of the three definitions, is to construe them as three partially overlapping sets that are defined by different limitations.\nFurthermore, it would have been redundant for Congress to incorporate the phrase \"under federal jurisdiction\" where it was well established at the time of IRA that Indian residents of a reservation were automatically subject to Federal authority. Congress is assumed to know the state of the law at the time it enacts legislation. The plain language of the statute is clear that 1934 applies to and limits the application of the second definition. Therefore, in the same way that the Supreme Court has interpreted the statutory language as imposing a temporal limitation in the first definition to members of tribes under Federal jurisdiction in 1934, the statute similarly established the temporal scope of the second category as reservation residents as of June 1, 1934. Congress intentionally preserved the jurisdictional framework existing at the time of the IRA by limiting the first category of Indians to those under federal jurisdiction in 1934 and by limiting the second category to reservation residents in 1934.\nThe district court, however, found the statutory language to be unambiguous. On the basis of its analysis of the grammatical structure of the IRA's second definition of \"Indian,\" the court held that the plain meaning of the language is that \"a descendant of a 'recognized Indian tribe' will be an eligible beneficiary of the IRA's land-into-trust provision only if that tribe was under federal jurisdiction in June 1934.\" It reinforced this conclusion by citing analogous cases interpreting different statutes and by noting that, in the IRA:\nthere is no language in Section 479 ... to indicate that the term 'such members' references only a portion of the antecedent phrase 'members of any recognized Indian tribe now under Federal jurisdiction[.]' Thus., ... the term 'such' here 'unmistakabl[y]' references the entire antecedent phrase.", "", "The 111 th Congress explored the ramifications of the Carcieri decision. The House Committee on Natural Resources held a hearing on April 1, 2009, to take testimony on how well the Supreme Court had explicated the legislative history of the IRA and how \"now under federal jurisdiction\" is to be interpreted. Witnesses testified to widespread concerns about potential litigation based on the Court's interpretation of Carcieri that will go beyond the question of further land-into-trust acquisitions for tribes recognized after 1934. Representative Nick Rahall, chairman of the committee, noted that \"[P]lacing land into trust for an Indian tribe is an essential component of combating the situations experienced by Indian tribes as a result of their treatment by the United States. Even beyond the legal responsibility, the Federal government has a moral responsibility to rectify this situation.\"\nOn May 21, 2009, the Senate Committee on Indian Affairs held a hearing to examine executive branch authority to acquire trust lands for Indian tribes. Testifying at the hearing, Edward P. Lazarus made suggestions for legislative and administrative approaches and cautioned that anything short of legislation would likely result in protracted and costly litigation. He suggested two possible legislative approaches: (1) amending the IRA to remove \"now\" from \"now under Federal jurisdiction\" and (2) ratifying any pre- Carcieri land-into-trust administrative determinations under the IRA for tribes not recognized in 1934. According to Mr. Lazarus, after Carcieri , when DOI is presented with a request to take land into trust under the IRA, for a tribe recognized after 1934, it is now obliged to make a legal determination as to whether the tribe was \"under Federal jurisdiction\" in 1934. He expressed his own opinion that Justice Breyer's concurring opinion in Carcieri identified some of the factors that would be involved in such a determination (e.g., whether there were treaty obligations, appropriations, enrollment duties, or written records of continuous existence). He pointed out that each tribe qualifying for federal acknowledgement since 1978 under the DOI regulations, 25 C.F.R., Part 83, has established that it has \"been identified as an American Indian entity on a substantially continuous basis since 1900,\" and argued that each of these tribes has, therefore, established that it has been \"under Federal jurisdiction\" since 1934. He also suggested that it would be legally supportable, if unwise because it would provoke costly litigation, for DOI formally to embrace its once-held position distinguishing formal recognition of a tribe from a tribe's being \"under Federal jurisdiction\" despite the fact that the Solicitor General had rejected the distinction in oral argument in Carcieri . Mr. Lazarus also mentioned other possible but perhaps more limited means of providing trust status or similar protection for lands of tribes recognized since 1934: (1) making use of a statutory provision authorizing the transfer of excess federal real property to tribes, and (2) exploring whether there exists some inherent presidential authority to provide some form of protection for fee lands held by Indian tribes.\nAt the same hearing, W. Ron Allen, Secretary of the National Congress of American Indians, provided draft language for an amendment to the IRA to remove the word \"now\" from \"now under federal jurisdiction\" and to protect pre- Carcieri decisions by the Secretary to take land into trust from judicial invalidation based on a tribe's not having been recognized in 1934. He indicated that although an administrative solution to the potential effects of Carcieri is possible, anything other than legislation is likely to result in wasteful and protracted litigation. Another witness, Lawrence E. Long, Attorney General of South Dakota, and chair of the Conference of Western Attorneys General, recommended a general review of the trust acquisition policy, including its overall goals and the criteria that DOI uses in making determinations to take land into trust.\nIn the 111 th Congress, there were several bills introduced to extend authority to the Secretary to take land into trust for all federally recognized tribes; none, however, were enacted. Of the three introduced bills, H.R. 3697 , H.R. 3742 , and S. 1703 , only S. 1703 was reported out of committee.", "On December 17, 2009, the Senate Committee on Indian Affairs approved an amended version of S. 1703 . Both versions received the endorsement of the SOI. The reported version of S. 1703 included an amendment offered by Senator Tom Coburn which would have required DOI to study the impact of the Supreme Court's decision and provide Congress with a list of affected tribes and lands. There was also a provision in the reported version of S. 1703 , which, according to the Senate Committee on Indian Affairs, \"clarifies that the legislation does not affect any law other than the Indian Reorganization Act or limit the authority of the Secretary of the Interior under any federal law or regulation other than the Indian Reorganization Act.\" Otherwise, the legislation paralleled H.R. 3697 and H.R. 3742 , as introduced. It would have amended the IRA as of its date of enactment, June 18, 1934. It would have changed the IRA definition of \"Indian\" to refer to members of \"any federally recognized Indian tribe\" instead of members of \"any recognized Indian tribe now under Federal jurisdiction.\" This legislation, therefore, would have removed the language which led the Supreme Court to hold that the Secretary's authority to take land into trust under 25 U.S.C. §465 was limited to acquisitions for tribes under federal jurisdiction in 1934. In addition, it would have specified that \"In this section, the term 'Indian tribe' means any Indian or Alaska Native tribe, band, nation, pueblo, village, or community that the Secretary of the Interior acknowledges to exist as an Indian tribe.\"\nIt would have substituted that definition for the following language defining \"tribe\" for IRA purposes: \"The term 'tribe' wherever used in said sections shall be construed to refer to any Indian tribe, organized band, pueblo, or Indians residing on one reservation.\"\nThe Senate Committee on Indian Affairs characterized the legislation as a means of correcting a judicial decision that\nruns contrary to longstanding and settled practice of the Department of the Interior regarding trust land acquisitions; invites disparate treatment of federally recognized tribes contrary to previous Acts of Congress; creates uncertainty about the scope of the Secretary's authority; and threatens unnecessary and burdensome administrative proceedings and litigation for both the United States and the tribes on matters that Congress long ago intended to resolve.\nThis view is consistent with that of Senator Dorgan, who indicated, in introducing the legislation, that the Supreme Court's decision in Carcieri v. Salazar prompted a need for Congress to act to avoid the creation of \"two classes of Indian tribes—those who were recognized as of 1934, for whom land may be taken into trust, and those recognized after 1934 that would be unable to have land taken into trust status.\" He stated: \"The legislation I'm introducing today is necessary to reaffirm the Secretary's authority to take lands into trust for Indian tribes, regardless of when they were recognized by the federal government. The amendment ratifies the prior trust acquisitions of the Secretary, who for the past 75 years has been exercising his authority to take lands into trust, as intended by the Indian Reorganization Act.\"", "In addition to S. 1703 , there was another legislative vehicle in which language appeared that would have amended the IRA to cover \"any federally recognized Indian tribe.\" This was Section 2727 of H.R. 3082 , the Full-Year Continuing Appropriations Act, 2011, which was passed by the House on December 8, 2010, but not acted upon by the Senate thereafter. It contained provisions directed at ratifying past land-into-trust acquisitions by the Secretary and clarifying how the IRA amendment interacted with other laws.", "In the 112 th Congress, none of the bills relating to Carcieri were enacted. Three bills were introduced to extend authority to the Secretary to take land into trust for all federally recognized tribes: H.R. 1234 , H.R. 1291 , and S. 676 . One, S. 676 , was amended and reported out of committee—by the Senate Committee on Indian Affairs on April 7, 2011. It contains language which parallels that of Section 2727 of H.R. 3082 of the 111 th Congress. Like that bill, it retroactively amends the IRA to cover \"any federally recognized Indian tribe,\" and contains provisions directed at ratifying past land-into-trust acquisitions by the Secretary as well as language designed to clarify its interaction with other law.\nS. 676 also includes a provision that requires DOI to study the impact of the Supreme Court's decision and provide Congress with a list of affected tribes and lands. In reporting out the bill, the Senate Committee on Indian Affairs criticized the Departments of Justice and of the Interior's handling of Carcieri before the Supreme Court by failing to contest the assertion that the tribe was not under federal jurisdiction in 1934 and by failing to show the array of statutes by which Congress sought to eliminate any disparate treatment of tribes based on recognition date. Moreover, in the report, the committee characterized the Carcieri decision as impacting all tribes by \"threaten[ing] public safety and tribal law enforcement\"; creating \"a barrier to economic development\"; \"freez[ing] access to capital\"; and, \"increas[ing] Federal litigation over settled Federal policy and practice.\" H.R. 1234 also contains language similar to that of Section 2727 of H.R. 3082 , of the 111 th Congress, as it was passed by the House of Representatives on December 8, 2010. H.R. 1291 would apply the IRA retroactively to \"any federally recognized Indian tribe,\" but would specify that the Secretary's authority under Section 19 of the IRA, 25 U.S.C. §465, to take land into trust does not extend to Alaska.\nIn the 112 th Congress, there was also legislation to compensate local governments for lost revenue associated with taking land into trust: S. 988 , H.R. 1851 , and H.R. 1882 . These bills share the same title: the Land-In-Trust Schools and Local Governments Equitable Compensation Act. Under these bills, when lands are taken into trust for an Indian tribe or an individual Indian after October 1, 2008, there would be compensation from the U.S. Treasury's general fund for lost tax revenue unless the Secretary of the Interior negotiates waiver agreements. Eligible entities included local education agencies or units of local government and states that suffer loss of tax revenue as a result of the trust acquisition. Payment of compensation would require no further appropriation.", "In the 113 th Congress, one bill, S. 1603 , the Gun Lake Trust Land Reaffirmation Act, was enacted into law. It reaffirms the DOI's May 15, 2005, trust acquisition of the land at issue in the Supreme Court's decision in Match-E-Be-Nash-She-Wish Band of Pottawatomi Indians v. Patchak and requires that any federal court action relating to that land be dismissed.\nThere was an Indian Affairs Committee hearing, \" Carcieri: Bringing Certainty to Trust Land Acquisitions.\" At that hearing, Kevin K. Washburn, Assistant Secretary of the Interior for Indian Affairs, stated that the Obama Administration's \"practical solution\" for this issue is language, included in the President's budget request, that would amend the IRA as follows:\nEffective beginning on June 18, 1934, the term \"Indian\" as used in this Act shall include all persons of Indian descent who are members of any federally recognized Indian tribe, and all persons who are descendants of such members who were, on June 1, 1934, residing within the present boundaries of any Indian reservation, and shall further include all other persons of one-half or more Indian blood.\nH.R. 279 would have amended the IRA retroactively to define \"Indian\" to mean \"any federally recognized Indian tribe.\" It would also strike the following sentence: \"The term 'tribe' wherever used in this Act shall be construed to refer to any Indian tribe, organized band, pueblo, or Indians residing on one reservation,\" and substitute: \"In said sections, the term 'Indian tribe' means any Indian or Alaska Native tribe, band, nation, pueblo, village, or community that the Secretary of the Interior acknowledges to exist as an Indian tribe.\"\nH.R. 666 / S. 2188 would have amended the IRA retroactively to define \"Indian\" to mean \"any federally recognized Indian tribe.\" These bills also contained provisions aimed at insulating past land-into-trust acquisitions for tribes recognized at the time of the acquisition against challenges based on the tribe's not having been federally recognized as of June 18, 1934. The bills also include a disclaimer with respect to effect on laws other than IRA or laws limiting the authority of the SOI.", "", "On June 6, 2016, the Senate Committee on Indian Affairs reported an amended version of S. 1879 , the Interior Improvement Act, which had been introduced by Senator John Barrasso, chairman of the Senate Indian Affairs Committee, on July 28, 2015. It would amend the Indian Reorganization Act to declare that \"[e]ffective beginning on June 18, 1934, the term 'Indian' as used in this Act shall include all persons of Indian descent who are members of any federally recognized Indian tribe.\" It would also provide procedures and standards for applications from Indian tribes and individual Indians to have off-reservation land taken into trust for their benefit. It includes provisions contemplating cooperative agreements with nearby local and tribal governments regarding the mitigation of the economic impact of proposed land-into-trust applications.\nSpecifically, S. 1879 would amend Section 5 of the IRA, 25 U.S.C. §465, to read as follows:\nEffective beginning on June 18, 1934, the term 'Indian\" as used in this Act shall include all persons of Indian descent who are members of any federally recognized Indian tribe and all persons who are descendants of such members who were, on June 1, 1934, residing within the present boundaries of any Indian reservation, and shall further include all other persons of one-half or more Indian blood. For the purposes of this Act, Eskimos and other aboriginal peoples of Alaska shall be considered Indians. The term \"tribe\" wherever used in this Act shall be construed to refer to any Indian tribe, organized band, pueblo, or the Indians residing on one reservation. The words \"adult Indians\" wherever used in this Act shall be construed to refer to Indians who have attained the age of twenty-one years.\nThe bill would ratify and confirm any trust acquisition challenged on the basis of the tribe's not being under federal jurisdiction in 1934. The legislation would also state that it does not impact other federal Indian land determinations; that nothing in it \"affects ... the application or effect of any Federal law\" other than the Indian Reorganization Act; and that nothing in it \"affects ... any limitation on the authority\" of the Secretary of the Interior (SOI) under any other law.\nS. 1879 would add a new Section 5A to the IRA as 25 U.S.C. §465A, that would establish a land-into-trust acquisition application process for tribes or individual Indians seeking to have off-reservation land taken into trust by the SOI. That new Section 5A of the IRA would be entitled \"Discretionary Off-reservation Acquisitions.\" It would include certain definitions. It would define \"contiguous\" to mean \"2 parcels of land having a common boundary, notwithstanding the existence of non-navigable waters or a public road or right-of way ... and includes parcels that touch at a point.\" It would define \"contiguous jurisdiction\" as \"any county, county equivalent, or Indian tribe, or the Federal Government, with authority and control over the land contiguous to the land under consideration in an application.\" It would define \"county and county equivalent\" as \"the largest territorial division for local government within a State with the authority to enter into enforceable cooperative agreements with Indian tribes or individual Indians.\" It would define \"impacts\" as \"the anticipated costs and benefits to the applicant, contiguous jurisdictions, and any other Indian tribe with governmental functions, infrastructure, or services that would be directly, immediately, and significantly impacted by the proposed acquisition.\"\nUnder the legislation, off-reservation land acquisition applications would be required to include, in addition to other requirements imposed by the SOI, such requirements as descriptions of the need for and the purpose of the proposed acquisition; a deed or other legal instrument to verify current ownership; a business plan for managing the land to be acquired; verification of current ownership; and \"the location of the land relative to state and local boundaries.\" The bill also would include requirements for the SOI to provide notice to contiguous jurisdictions when applications are received, updated, modified, or withdrawn, and to provide public notice of completed applications and final decisions. It would include timetables for receipt of comments from contiguous jurisdictions and for publication of notices.\nThe bill would require the SOI \"to encourage, but not require, applicants to enter into cooperative agreements with contiguous jurisdictions.\" Under the legislation, there would be an expedited process for applications accompanied by cooperative agreements. The legislation would provide that cooperative agreements \"may include terms relating to mitigation, changes in land use, dispute resolution, fees, and other terms determined by the parties to be appropriate.\" Under the bill, if a completed application includes a cooperative agreement, the SOI's decision would be subject to a specified timeline requiring a final decision within 120 days, provided there has been verification of clear title to the land and satisfaction of all applicable requirements under federal laws and regulations. If the SOI fails to meet that timeline, under the bill, the application would be deemed approved. If an application is not accompanied by a cooperative agreement, under the legislation the SOI would be required to \"issue a written determination of mitigation.\" Such a determination would be required to include consideration of how the acquisition might impact the economy of contiguous jurisdictions and whether the lack of a cooperative agreement is attributable to \"failure of any contiguous jurisdiction to work in good faith to reach an agreement.\" The legislation would also specify that failure to submit a cooperative agreement would not prejudice an application if the Secretary determines it attributable to \"failure by any contiguous jurisdiction to work in good faith honestly and without fraud or unfair dealing to reach an agreement.\" The legislation would require the SOI to encourage contiguous jurisdictions to \"engage in local cooperation through reciprocal notice and comment procedures, particularly with regard to changes in land use.\" The legislation would specify requirements to be satisfied before the SOI may issue a final decision on an application. These include verification of clear title to the land; satisfaction of all legal requirements; consideration of all materials submitted and comments and responses to comments; determination of mitigation; \"relevant and material cooperative agreements\" with contiguous and non-contiguous jurisdictions; and any other relevant information. The bill would include a statement that \"'[n]othing in this Act requires the publication or the release of proprietary information by an applicant under this section.\"\nUnder the bill, before conducting a notice and comment rulemaking to implement the legislation, the SOI would be required to consult with Indian tribes and publish a summary of consultation in the Federal Register within 180 days of completing the consultation. The bill would specify that interested parties may seek judicial review of final decisions in federal district court under the Administrative Procedure Act.", "S. 732 / H.R. 407 would amend the Indian Reorganization Act to declare that, \"[e]ffective beginning on June 18, 1934, the term 'Indian' as used in this Act shall include all persons of Indian descent who are members of any federally recognized Indian tribe.\" It contains a provision ratifying previous SOI acquisitions for tribes federally recognized on the date that acquisition was confirmed and ratified and a provision preserving limitations on the SOI's authority to take land into trust in laws other than the Indian Reorganization Act.\nH.R. 249 would amend the Indian Reorganization Act to declare that, \"[e]ffective beginning on June 18, 1934, the term 'Indian' as used in this Act shall include all persons of Indian descent who are members of any federally recognized Indian tribe.\" It would strike the following language found in 25 U.S.C. §479: \"The term 'tribe' wherever used in this Act shall be construed to refer to any Indian tribe, organized band, pueblo, or the Indians residing on one reservation.\" It would substitute for it the following language: \"In said sections, the term 'Indian tribe' means any Indian or Alaska Native tribe, band, nation, pueblo, village, or community that the Secretary of the Interior acknowledges to exist as an Indian tribe.\"" ], "depth": [ 0, 1, 1, 1, 1, 1, 2, 2, 2, 1, 2, 2, 3, 3, 2, 1, 2, 3, 3, 2, 2, 2, 3, 3 ], "alignment": [ "h0_title h2_title h1_title", "h0_full h1_full", "h1_full", "", "h1_full", "h0_title", "h0_full", "", "", "h2_full h1_title", "", "", "", "", "h2_full h1_full", "h2_title", "", "", "", "", "", "h2_title", "h2_full", "" ] }

{ "question": [ "What did the Court conclude in Carcieri v. Salazar?", "How far-reaching are the implications of this decision?", "How does this ruling affect the SOI?", "What is Carcieri's relation to the Narragansett Tribe?", "How is the land currently managed?", "To what extent does RIICSA address the possibility of this issue?", "What were the issues before the Supreme Court?", "What is the basis of the Court's decision?", "What was the Court's decision?", "How did Littlefield v. U.S. Department of the Interior affect the SOI's land-into-trust determinations?", "Why doesn't the 1934 legislation cover this tribe?", "Why was its application for a land-into-trust acquisition approved?", "To what extent did the federal district court agree with DOI?" ], "summary": [ "In Carcieri v. Salazar, 555 U.S. 379 (2009), the U.S. Supreme Court ruled that a 1934 statute provides no authority for the Secretary of the Interior (SOI) to take land into trust for the Narragansett Indian Tribe (Tribe) because the statute applies only to tribes under federal jurisdiction when that law was enacted.", "The reach of the decision may be broad because it relies on the major statute under which the SOI acquires land in trust for the benefit of Indians.", "It affects the SOI's authority to take land into trust for any recently recognized tribe unless the trust acquisition has been authorized by legislation other than the 1934 Indian Reorganization Act (IRA) or the tribe can show that it was \"under Federal jurisdiction\" in 1934.", "Carcieri involves a parcel of land which the SOI had agreed to take into trust for the benefit of the Narragansett Tribe, thereby presumably subjecting it to federal and tribal jurisdiction and possibly opening the way for gaming under the Indian Gaming Regulatory Act.", "The land is outside the Tribe's current reservation, which is subject to the civil and criminal laws of Rhode Island according to the terms of the Rhode Island Indian Claims Settlement Act of 1974 (RIICSA).", "RIICSA does not explicitly address the possibility that lands other than the \"settlement lands\" could be placed in trust; nor does it specify what jurisdictional arrangement should apply should that occur.", "The issues before the Supreme Court were (1) whether the authority under which the SOI has agreed to acquire the land, 25 U.S.C. §465, a provision of the IRA of 1934, covers trust acquisitions by a tribe that was neither federally recognized nor under federal jurisdiction in 1934, and (2) whether the trust acquisition violated the terms of RIICSA.", "The Supreme Court's decision is predicated on the Court's finding that the definitions of \"Indians\" and \"Indian tribe\" in the 1934 legislation unambiguously restrict the beneficiaries for whom the SOI may take land into trust to tribes that, in 1934, were \"under Federal jurisdiction.\"", "The Court also held that the Narragansett Indian Tribe was not \"under Federal jurisdiction\" in 1934. It, therefore, ruled that the trust was not authorized by the statute and reversed the lower court.", "Littlefield v. U.S. Department of the Interior, No. 16-10184-WGY (D. Mass. July 28, 2016), invalidated a DOI decision to take land into trust under the 1934 legislation for the Mashpee Wampanoag Tribe.", "That tribe had been formally acknowledged in 2007.", "Its application for a land-into-trust acquisition was approved on the basis of a second definition of \"Indian\" in the IRA. The DOI had found that definition to be ambiguous.", "The federal district court disagreed. It ruled that, under its plain meaning, that definition applies only to Indians whose tribes were \"under Federal jurisdiction\" in 1934." ], "parent_pair_index": [ -1, 0, 0, -1, 0, 0, -1, 3, 3, -1, 0, 0, 2 ], "summary_paragraph_index": [ 0, 0, 0, 2, 2, 2, 2, 2, 2, 4, 4, 4, 4 ] }

{ "title": [ "", "Overview of Sanctions", "Recent U.S. Sanctions Policy", "Brief History of U.S. Sanctions on Burma", "Summary of Burma-Specific Sanctions", "Visa Bans", "", "Restrictions on Financial Services", "", "\"Frozen Assets\"", "", "General Import Restrictions", "Specific Import Restrictions", "Investment Ban", "Bilateral and Multilateral Assistance Ban", "Additional Sanctions Based on Functional Issues", "Options for the 113th Congress", "Burma and the 112th Congress", "Issues for the 113th Congress", "Sanction Renewal", "Sanction Removal", "Appropriations", "General Policy Oversight" ], "paragraphs": [ "", "The United States imposes sanctions on Burma through a variety of means, including certain laws and presidential executive orders (E.O.s) specifically targeting Burma, as well as laws that impose sanctions on countries for unacceptable behavior related to functional issues of importance to the U.S. government, such as nuclear proliferation or human trafficking. The Burma-specific laws and E.O.s were issued between 1990 and 2012, often in response to actions on the part of Burma's ruling military junta, the State Peace and Development Council (SPDC), that were considered sufficiently egregious to warrant the imposition of sanctions. In addition, several presidential determinations, memoranda, proclamations, and other documents have been issued that refine and/or alter the implementation of the sanctions. The result is a web of overlapping sanctions subject to differing restrictions, waiver provisions, expiration conditions, and reporting requirements.\nU.S. sanctions targeted solely at Burma are specified in six federal laws, a series of presidential executive orders, and other presidential documents. The six laws are:\nSection 138 of the Customs and Trade Act of 1990 (Section 138) ( P.L. 101-382 )—requires the President to impose \"such economic sanctions upon Burma as the President determines to be appropriate,\" unless the President certifies certain conditions pertaining to human rights and counternarcotics have been met; Section 307 of the Foreign Assistance Act of 1961 (Section 307) (P.L. 87–195), as amended by the Foreign Relations Authorization Act, Fiscal Years 1994 and 1995 ( P.L. 103-236 )—withholds U.S. contributions to selected international organizations with programs in Burma; Section 570 of the Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1997 (Section 570) ( P.L. 104-208 ) —imposes various specific sanctions on Burma, unless the President certifies that certain human rights and democracy standards have been met; The Burmese Freedom and Democracy Act of 2003 (2003 BFDA) ( P.L. 108-61 )—requires the President to impose a ban on the import of products of Burma; freeze assets of certain Burmese officials; block U.S. support for loans from international financial institutions (IFIs); and allows the President to ban visas for certain Burmese officials; The Tom Lantos Block Burmese JADE (Junta's Anti-Democratic Efforts) Act of 2008 (Tom Lantos Block Burmese JADE Act) ( P.L. 110-286 )—bans the direct and indirect import of products containing Burmese jadeite and rubies; expands the list of Burmese officials subjected to visa bans and financial sanctions; and allows for the placement of restrictions on use of correspondent accounts to provide services to Burmese officials; and P.L. 112-192 —provides the President with the authority to waive U.S. opposition to assistance to Burma from IFIs, subject to certain conditions.\nSix presidential executive orders (E.O.) have imposed sanctions on Burma. The six E.O.s are:\nE.O. 13047 —Issued on May 20, 1997, by President Bill Clinton, it bans all new investments in Burma, as required by Section 570; E.O. 13310 —Issued on July 28, 2003, by President George W. Bush, it brings the sanction regime into compliance with certain provisions of the BFDA, including the freezing of assets of certain Burmese officials and the prohibition of the provision of financial services to Burma; E.O. 13448 —Issued on October 18, 2007, by President Bush, it added to the list of Burmese officials and entities subject to the freezing of assets; E.O. 13464 —Issued on April 30, 2008, by President Bush, it added to the list of Burmese officials and entities subject to the freezing of assets; E.O. 13619 —Issued on July 11, 2012, by President Obama, it expanded the list of Burmese nationals subject to visa bans, the freezing of assets, and other targeted sanctions; and E.O. 13 651 —Issued on August 6, 2013, by President Obama, it prohibits the import of jadeite and rubies extracted from Burma, and articles of jewelry containing jadeite and rubies extracted from Burma; waives restrictions on the provision of financial services to certain Burmese nationals as specified in Section 5(b) of the Tom Lantos Block Burmese JADE Act; and lifts restrictions contained in E.O. 13310 on the provision of articles \"intended to be used to relieve human suffering.\"\nBeyond the laws and E.O.s, a number of presidential determinations, memoranda, proclamations and other documents have been issued that either refine the specifics of the sanctions to be imposed or alter the scope of the sanctions in effect. For example, President Clinton issued Presidential Proclamation 6925 on October 3, 1996, denying entry into the United States of \"persons who formulate, implement, or benefit from policies that impede Burma's transition to democracy, and the immediate family members of such persons.\" On May 2, 2013, Secretary of State John Kerry terminated Presidential Proclamation 6925, while leaving other laws and presidential decisions restricting the provision of visas to certain Burmese nationals in place. Similarly, President Bush issued Pres idential Determination No. 2009- 11 on January 15, 2009, providing a limited waiver of some of the sanctions in the Tom Lantos Block Burmese JADE Act, stating that doing so was \"in the national interest of the United States.\" President Obama issued Presidential Determination No. 2012-15 on September 14, 2012, waiving the restrictions on U.S. assistance to Burma under Foreign Relations Authorization Act, Fiscal Year 2003 ( P.L. 107-228 ) by determining that doing so was in the \"national interests of the United States.\" References to the relevant presidential documents are discussed later in the report under the specific type of sanction affected or altered by the documents.\nThe E.O.s sanctioning Burma rely on the authority vested in the President by the Constitution, the five Burma sanctions laws, and the following laws:\nThe International Emergency Economic Powers Act of 1997, or IEEPA ( P.L. 95-223 ; 50 U.S.C. 1701 et seq.)—authorizes the President to impose certain types of international trade or financial sanctions to deal with a threat to national security, foreign policy, or economy of the United States; and The National Emergencies Act, or NEA ( P.L. 94-412 ; 50 U.S.C. 1601 et seq.)—authorizes the President (under certain conditions) to declare a national emergency.\nTo carry out and execute the authority conveyed by the IEEPA, the President must declare a national emergency by invoking the NEA. Invocations of the IEEPA are subject to annual renewal requirements. Section 301 of U.S.C. Title 3, Chapter 35 allows the President to delegate authority (under certain conditions) to other government officials to carry out responsibilities on behalf of the President. In most cases, this has been either the Secretary of State or the Treasury Secretary. President Obama gave official notice to Congress on May 2, 2013, that he was continuing for another year the international emergency with respect to Burma, and renewing the provisions of E.O. 13047, E.O. 13310, E.O. 13448, E.O. 13464, and E.O. 13619 which are still in force.\nThe implementation of the Burma-specific sanctions instituted by the preceding laws and E.O.s, and that have been delegated to the Treasury Secretary, is governed by Part 537 of Title 31 of the Code of Federal Regulations (CFR). These Burmese sanction regulations cover the import ban, the prohibition of the provision of financial services, and the prohibition of new investments in Burma. Other portions of the CFR cover some portions of Burmese-specific sanctions.", "Current U.S. policy towards Burma can be characterized as the balancing of bilateral engagement and the maintenance of an assortment of political and economic sanctions. The stated intent of U.S. policy is to persuade and/or pressure Burma's Union Government to release all political prisoners from detention and advance the nation's transition to a representative, democratically elected civilian government that will respect the human rights of the people of Burma, including its ethnic minorities. Since Burma's former ruling military junta, the State Peace and Development Council (SPDC), formally transferred power to a mixed military/civilian government in March 2011, Burma's Union Government and Union Parliament have implemented a number of political reforms that the Obama Administration sees as progress towards the fulfillment of U.S. objectives in Burma.\nThe Obama Administration's strategy was previously described as an \"action for action\" approach. In an April 4, 2012, press briefing, two unnamed senior Administration officials gave some indication of the current principles underlying current Burma policy. The first principle is \"to send a clear signal of support for the reform process and reformers.\" The second principle is to remove the \"bluntness\" of the existing sanctions and refocus them onto \"the regressive elements, the corrupt elements, the elements that are not looking forward and consistent with reform going forward.\"\nHowever, an unnamed senior state department official provided a slightly different formulation for the Obama Administration's approach to U.S. policy towards Burma following the May 2013 announcement to terminate Presidential Proclamation 6925 and renew the IIEEPA emergency:\n[L]et me first say a few words about our Burma policy and our specific actions today. From our perspective, Burma continues to make important progress in areas of concern to the United States.... We'll continue political engagement and technical and capacity-building assistance to Burma's reform efforts. We've also eased many sanctions. We've done so working very closely with Congress to reflect our move from quite general broad restrictions to more calibrated engagement. And with the calibration, we target those who persist in hindering the country's democratic transition. But it's a fundamentally different approach to Burma than in past years. So the steps today acknowledged the important changes the Government of Burma has made, and encourage and empower the government and the people of Burma to continue on the path of political and economic reform.\nSince the autumn of 2011, the Obama Administration has taken steps to terminate or waive many of the sanctions on Burma in an effort to foster further reforms in Burma and support individuals identified as being generally supportive of political and economic reforms. Secretary Clinton announced plans to ease certain sanctions during her historic trip to Burma in late 2011, the first made by a U.S. Secretary of State since 1955. Another easing of sanctions was announced following Burma's April 2012 parliamentary by-elections. More relaxations of sanctions were announced to coincide with the visits of President Thein Sein and Aung San Suu Kyi to the United States in September 2012. Subsequent changes in the sanctions regime were made in October and November 2012. As previously mentioned, Secretary Kerry terminated the visa ban in Presidential Proclamation 6925 on May 2, 2013.\nA major element of the Obama's Administration's efforts to foster reforms in Burma has been the utilization of presidential authority to waive or terminate some of the existing political and economic sanctions on Burma. Although the presidential waivers effectively lift the sanctions, they do not revoke or remove the sanctions, which can be reimposed at any time. Table 1 summarizes the sanction actions authorized to date, as well as which sanctions remain in effect. Details of each presidential waiver are discussed in the relevant sections below.", "U.S. sanctions on Burma are the result of a general, but uneven decline in U.S. relations with Burma and its military, the Tatmadaw, after World War II and continuing until the establishment of the Union Government. For the most part, the decline was due to what the U.S. government saw as a general disregard by the Burmese military for the human rights and civil liberties of the people of Burma. However, part of the tensions between the Tatmadaw and the United States can be attributed to a failure to address Burma's internal security concerns in the early years after its independence.\nDuring World War II, the United States utilized Burma as a base of operations against Japanese forces in China and Southeast Asia, engendering generally cordial relations with Burma's civilian and military leadership. Following the war, the former British colony of Burma became an independent nation, led by a civilian government. The new nation became a member of the United Nations in 1948, was a founding member of the General Agreement on Tariffs and Trade (GATT), and joined the International Monetary Fund (IMF) in 1952—with the full support of the United States. The United States and Burma also established full diplomatic relations.\nRelations between the two nations began to sour following World War II for various reasons. First, Burma was increasingly frustrated by U.S. reluctance to resolve the status of displaced Kuomintang (KMT) soldiers operating out of northeastern Burma against the newly established People's Republic of China (PRC). In 1953, U.S. economic assistance to Burma temporarily ceased in part because of the friction over these KMT soldiers. Second, Burma's civilian government proved to be unstable, due in part to various ethnic-based militia groups operating in the country, and in part due to a 1962 coup d'état staged by the military under the name of the Burmese Socialist Programme Party (BSPP). The new military government chose to foster closer ties to the PRC, a decision that the United States did not like. Third, the military government also demonstrated a general lack of respect for the human rights of its citizens, clamping down on opposition groups calling for a return to civilian rule.\nDespite the cooling of relations, U.S. policy towards Burma remained relatively normal. The United States accepted Burma as one of the original beneficiaries of its Generalized System of Preference (GSP) program in 1976. It also granted Burma Most Favored Nation (MFN, now referred to as Normal Trade Relations, or NTR) status, and supported the provision of developmental assistance by international financial institutions. There were also close military-to-military relations (including a major International Military Education and Training [IMET] program) until 1988.\nThe implementing of sanctions on Burma did not begin until after the Tatmadaw brutally suppressed a peaceful, popular protest that has become known as the 8888 Uprising. Starting in the fall of 1987, popular protests against the military government sprang up throughout Burma, reaching a peak in August 1988. On August 8, 1988, the military quashed the protest, killing and injuring an unknown number of protesters. In the aftermath of the event, the military regrouped and the State Law and Order Restoration Council (SLORC) assumed power.\nThree days following the crackdown, the Senate passed S.Res. 464 , condemning the killings and mass arrests, supporting a return to democracy in Burma, and calling on the Reagan Administration to raise the issue of human rights and reconciliation with Burmese officials. On September 7, 1988, the House of Representatives passed H.Res. 529 condemning the killing of unarmed protesters, paying tribute to the people of Burma and their struggle for democracy, and calling on the executive branch to review assistance programs in Burma. The Reagan Administration responded on September 23, 1988, by suspending all U.S. aid to Burma, including counternarcotics programs, and stopping all arms sales—starting the gradual progress of sanctions on Burma. On April 13, 1989, President George H. W. Bush issued Presidential Proclamation 5955, amending the Generalized System of Preferences (GSP) program and suspending preferential treatment.\nAfter assuming power, SLORC announced that it intended to expedite the return to civilian rule by holding parliamentary elections to form a Pyithu Hluttaw (Union Assembly) on May 27, 1990. On September 27, 1988, SLORC released a new law governing the registration of political parties, and on May 31, 1989, it issued a new law governing the upcoming parliamentary election. Although 235 political parties registered for the election, only 4 parties won more than 10 of the 485 contested seats. In a surprise to many, the National League for Democracy (NLD), led by Aung San Suu Kyi, received 59.9% of the valid votes and won 382 seats, while SLORC's political party, the National Unity Party, received 21.2% of the vote, but only 10 seats.\nSLORC and Burma's military were shocked by the election results, and refused to allow the Union Assembly to meet. Instead, the Burmese military arrested and detained many of the opposition leaders, including Aung San Suu Kyi (who was under detention prior to the election). Protests, led by Buddhist monks and university students, were brutally suppressed. SLORC declared martial law.\nCongress responded to the post-election crackdown by including Burmese sanction language in the Customs and Trade Act of 1990 ( P.L. 101-382 ), which it passed on August 20, 1990. Section 138 of the law granted the President the authority to impose \"such economic sanctions upon Burma as the President determines to be appropriate, including any sanctions appropriate under the Narcotics Control Trade Act of 1986.\" A version of the act which passed the Senate by a vote of 92-0 would have prohibited all imports from Burma.\nAs previously noted, President Bush had already suspended Burma's eligibility for the Generalized System of Preferences (GSP) program on April 13, 1989. President Bush also designated Burma as a drug-producing and/or drug-trafficking country under the Foreign Assistance Act of 1961 on February 28, 1990, which required the United States to oppose loans to Burma by international financial institutions. After the passage of Customs and Trade Act of 1990, the Bush Administration invoked the law's authority on August 5, 1991, and refused to renew the Bilateral Textile Agreement with Burma, which had lapsed on December 31, 1990.\nDuring the 1990s, Congress considered a number of bills and resolutions calling for additional sanctions on Burma. Most of those measures failed to emerge from committee, with a few notable exceptions. On April 30, 1994, Congress passed the Foreign Relations Authorization Act, Fiscal Years 1994 and 1995 ( P.L. 103-236 ) which amended the Foreign Assistance Act of 1961 and withheld a portion of U.S. contributions to international organizations with programs for Burma, including the United Nations Development Program (UNDP), but excluding the International Atomic Energy Agency (IAEA) and the United Nations Children's Fund (UNICEF). Language restricting U.S. funding for UNDP if it conducted programs in Burma was included in legislation up to FY2008, but not since then.\nIn July 1995, the Free Burma Act of 1995 ( S. 1092 ) was introduced, which would have placed a broad range of sanctions on Burma, including a ban on U.S. investment and assistance, the suspension of GSP privileges and normal trade relations, the prohibition of all imports of Burmese goods, travel restrictions to and from Burma, and U.S. opposition to all multilateral assistance. According to some scholars, the severity of the sanctions in this bill was sufficient to persuade SLORC to release Aung San Suu Kyi from house arrest on July 10, 1995.\nEven after the release of Aung San Suu Kyi, Congress approved new sanctions on Burma in Section 570 of the Omnibus Consolidated Appropriations Act, 1997 ( P.L. 104-208 ), including a cessation of all non-humanitarian assistance, a ban on the issuance of entry visas for Burmese government officials, and instructions for U.S. representatives for international financial institutions to vote against loans or funding to Burma. On October 3, 1996, President Clinton issued Presidential Proclamation 6925, suspending visas for \"persons who formulate, implement, or benefit from policies that impede Burma's transition to democracy, and the immediate family members of such persons.\" In addition, the law required the President to prohibit new investments in Burma by U.S. persons. On May 20, 1997, President Clinton released E.O. 13047 banning all new investments in Burma.\nSince 2000, additional bills and resolutions have been introduced in Congress seeking to apply more sanctions on Burma. In October 2000, identical bills were introduced in the House and the Senate ( H.R. 5603 and S. 3246 ; 106 th Congress) that would have banned all textile and apparel imports from Burma. In the spring of 2001, similar bills ( H.R. 2211 and S. 926 ; 107 th Congress) were introduced that would have \"prohibited the importation of any article that is produced, manufactured, or grown in Burma.\" However, Congress did not pass any new sanction legislation until after the spring 2003 crackdown on opposition parties (which included the detention of Aung San Suu Kyi and other opposition leaders), when it approved the Burmese Freedom and Democracy Act of 2003 ( P.L. 108-61 ). Similarly, Congress did not pass the Tom Lantos Block Burmese JADE Act until the SPDC crushed a nationwide protest initiated by Buddhist monks in the autumn of 2007—the so-called \"Saffron Revolution.\" After the protests had been quashed, the SPDC arrested and imprisoned many of the leaders, and defrocked and relocated a number of the Buddhist monks involved in the protests.\nThe George W. Bush Administration did not take significant action on Burma until after the attacks on the Burmese opposition in the spring of 2003 and the passage of the Burmese Freedom and Democracy Act of 2003 (BFDA). Using authority granted by the BFDA and other laws (see \" Summary of Burma-Specific Sanctions \"), President George W. Bush issued E.O. 13310, E.O. 13448, and E.O. 13464 on July 28, 2003, October 18, 2007, and April 30, 2008, respectively.\nFrom the preceding overview, some distinct patterns emerge in the history of U.S. relations with Burma. First, despite the general decline in relations following World War II, the imposition of sanctions did not begin until after the suppression of the 8888 Uprising in 1988. Second, subsequent U.S. sanctions were generally imposed after Burma's military had severely violated the human rights and civil liberties of its political opponents and/or the Burmese people. Third, Congress has been more proactive in pushing for the imposition of sanctions on Burma than the White House. Fourth, it is unclear if the imposition of sanctions had a demonstrable effect on the SPDC or its predecessors. Fifth, it is equally unclear if the absence of U.S. sanctions on Burma would have led to an improvement in the political situation in Burma.", "The existing U.S. sanctions specifically targeted at Burma can be generally divided into several broad categories:\nBans on issuing visas to certain past and present Burmese government officials (particularly the leadership of the State Peace and Development Council [SDPC] and the Union Solidarity Development Association [USDA]), members of their families, and their business associates. Restrictions on the provision of financial services to certain past and present Burmese government officials, members of their families, and their business associates. \"Freezing\" certain assets of selected individuals held by U.S. entities. A general prohibition on the import of goods of Burmese origin. A prohibition on the import of certain types of goods and goods from certain companies. A ban on new U.S. investments in Burma, including investments in third country companies. Restrictions on the provision of bilateral and multilateral assistance to Burma.\nAs previously mentioned, the enforcement of many of these sanctions have been waived, but the legal authority to impose the sanctions remain in effect and their enforcement could be resumed at any time.\nSome of the types of sanctions are included in more than one of the laws or E.O.s listed above, with at times apparently overlapping provisions. In addition, depending on the specific provisions of the laws or E.O.s, the sanctions may be subject to differing presidential waiver provisions, renewal or extension conditions, or reporting requirements. A summary of the various provisions in the laws or E.O.s for each type of sanction follows in tabular form. In cases where the Obama Administration has waived or eased a sanction, a brief description of what steps were taken, as well as possible ambiguities about the resulting situation, is provided.", "Three laws include restrictions on the issuance of visas to certain Burmese nationals: Section 570 of the Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1997; the 2003 BFDA; and the Tom Lantos Block Burmese JADE Act. In addition E.O. 13619 and Presidential Proclamation 6925 also include restrictions on the issuance of visas. The nature and scope of the visa restrictions differ in each case.\nOn April 4, 2012, Secretary Clinton said that the Obama Administration was prepared to facilitate \"travel to the United States for selected government officials and parliamentarians.\" In a subsequent press briefing, unnamed Administration officials indicated that the intent is to allow visits by \"select reform-minded authorities.\" Existing sanctions laws—most notably Section 570 of the Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1997 and the Tom Lantos Block Burmese JADE Act—authorize the President to waive restrictions on the issuance of visas to Burmese officials. In the case of the Tom Lantos Block Burmese JADE Act, the President is to determine and certify in writing to Congress that the waiver is in the national interest of the United States. Presumably, such a written notification to Congress is required for each case in which the President invokes the authority to waive the visa ban.\nOn July 11, 2012, President Obama released E.O. 13619, \"Blocking Property of Persons Threatening the Peace, Security, or Stability of Burma.\" Section 5 of E.O. 13619 prohibits the entry into the United States as immigrants or nonimmigrants \"aliens determined to meet one or more of the criteria in subsection 1(a) of the document.\"\nOn May 2, 2013, Secretary of State John Kerry terminated Presidential Proclamation 6925 denying entry into the United States of \"persons who formulate, implement, or benefit from policies that impede Burma's transition to democracy, and the immediate family members of such persons.\"\nThe State Department presumably maintains a list of Burmese nationals that it has determined are subject to the visa bans contained in the three laws and E.O. 13619, but it has chosen not to make this list public. As a result, it is not known how many—if any—Burmese nationals have been added to the sanctions list under the provisions of E.O. 13619. Similarly, it is difficult to determine if the Obama Administration has properly notified the designated congressional committees on the occasions when visas have been granted to Burmese nationals who should have been subject to the visa sanction under the current sanction laws.", "", "Restrictions on the provision of certain types of financial services to Burma from the United States or by a \"United States person\" are in the Tom Lantos Block Burmese JADE Act, E.O. 13047, E.O. 13310, E.O. 13619, and E.O. 13651. The Tom Lantos Block Burmese JADE Act also allows the Secretary of the Treasury to place restrictions on the use of correspondent or payable-through accounts in U.S. financial institutions, but the Secretary has not exercised this option.\nSection 5(b)(2) of the Tom Lantos Block Burmese JADE Act prohibits engaging in financial transactions with certain designated Burmese nationals. President Obama issued E.O. 13651 on August 6, 2013, which waived these restrictions on the provision of financial services in the Tom Lantos Block Burmese JADE Act. However, this waiver does not apply to persons included in the Department of Treasury's List of Specially Designated Nationals and Blocked Persons.\nOn May 17, 2012, Secretary Clinton stated, \"Today, I am announcing new steps to permit American investment in the country and the export of U.S. financial services—the most significant adjustments to our sanctions to date.\" She also said that the United States will \"allow Burmese citizens access to international credit markets and dollar-based transactions.\" On July 11, 2012, the Office of Foreign Assets Control (OFAC) of the Department of the Treasury issued General License No. 16, authorizing the exportation or reexportation of financial services to Burma, except \"to any person whose property and interests in property are blocked pursuant to 31 C.F.R. §537.201(a), Executive Order 13448 …, Executive Order 13464 …, or Executive Order 13619.…\"\nSection 2 of E.O. 13310 established the general prohibition on the export or reexport of financial services to Burma, subject to the restrictions on financial transaction sanctions contained in Section 203(b) of IEEPA. Section 13 allows the continuation of financial transactions related to U.S. investments or agreements in Burma that pre-date the implementation of the new investment ban on May 21, 1997.\nGiven that these provisions of E.O. 13310 are based on IEEPA, the President has the authority to waive, amend, or terminate the general prohibition of the export or reexport of financial services to Burma. However, Section 1703 of IEEPA requires that the President report to Congress anytime he exercises IEEPA authority. The report to Congress must contain:\nthe circumstances which necessitate such exercise of authority; an explanation of why the President believes those circumstances constitute an unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States; the authorities to be exercised and the actions to be taken in the exercise of those authorities to deal with those circumstances; a statement as to why the President believes such actions are necessary to deal with those circumstances; and identification of any foreign countries with respect to which such actions are to be taken and why such actions are to be taken with respect to those countries.", "", "The \"freezing\" of assets of sanctioned Burmese officials is included in five executive orders—E.O. 13310, E.O. 13448, E.O. 13464, E.O. 13619, and E.O. 13651—as well as the 2003 BFDA and the Tom Lantos Block Burmese JADE Act. The first four executive orders broadened the list of Burmese persons and entities subjected to the asset freeze. Section 5(b)(1) of the Tom Lantos Block Burmese JADE Act directly tied the list of sanctioned persons to the visa ban list. The last executive order waived the freezing of assets as provided for by Section 5(b)(1) of the Tom Lantos Block Burmese JADE Act.", "", "Restrictions on the import of goods of Burmese origin in general are included in two laws—Section 138 of the Customs and Trade Act of 1990 and the 2003 BFDA—and one executive order, E.O. 13310. While the two laws ban the import of Burmese products, the executive order provides a waiver to comply with existing international obligations of the United States. On August 2, 2012, Congress passed H.R. 5986 ( P.L. 112-163 ), extending the general import ban to July 25, 2013. Because the 113 th Congress did not pass the required joint resolution to extend the general import ban in the 2003 BFDA, the sanctions specified in Sections 3(a)(1), 3(a)(2), and 3A of the 2003 BFDA expired on July 26, 2013.\nOn November 15, 2012, Deputy Secretary of State William J. Burns issued a determination that \"it is in the national interest of the United States to waive the prohibitions described in Section 3(a) of the BFDA.\" Section 3(a) contains two distinct import bans—a general ban on \"the importation of any article that is a product of Burma\" (discussed in this section), and a \"ban on imports from certain companies\" (discussed in \" Specific Import Restrictions \" below). As indicated in the determination, Deputy Secretary Burns had the authority to issue the determination pursuant to Section 3(b) of the BFDA and Section 9 of E.O. 13310 (in which President Bush authorized the Secretary of State to exercise the presidential authority granted in Section 3(b) of the BFDA and redelegate that authority).\nBased on the State Department determination, the Office of Foreign Assets Control (OFAC) of the Department of the Treasury issued General License No. 18 on November 16, 2012, indicating the types of products on Burma that could be imported into the United States. According to OFAC, any product of Burma may be imported into the United States except:\nJadeite or rubies mined or extracted from Burma, or articles of jewelry containing jadeite or rubies mined or extracted from Burma, or any other activity prohibited by Section 3A of the BFDA, as amended by Section 6 of the Tom Lantos Block Burmese JADE Act; and Transactions, directly or indirectly, with any person whose property or interest in property are blocked by E.O. 13448, E.O. 13464, or E.O. 13619, as well as 31 C.F.R. §537.201(a).\nThe latter condition insures compliance with restrictions on payments to persons whose assets have been frozen or have otherwise been identified as being subject to sanctions (see \"Frozen Assets\" and \" Restrictions on Financial Services \"). OFAC removed General License No. 18 after the termination of the import sanctions in the 2003 BFDA and the issuance of E.O. 13651.", "Both the 2003 BFDA and the Tom Lantos Block Burmese JADE Act contain specific import restrictions in addition to the general prohibition on the import of products described above. Section 3(a)(2) of the 2003 BFDA bans import of products and services from certain companies. The Tom Lantos Block Burmese JADE Act prohibits the importation of certain products by adding Section 3A to the 2003 BFDA.\nOn July 26, 2013, the specific import bans contained in Section 3(a)(2), as well as Section 3A of the BFDA (as amended by the Tom Lantos Block Burmese JADE Act) ceased to be in effect after Congress failed to pass the necessary joint resolution to maintain the sanctions. On August 6, 2013, President Obama issued E.O. 13651, reinstating the ban on the \"importation into the United States of any jadeite or rubies mined or extracted from Burma and any articles of jewelry containing jadeite or rubies mined or extracted from Burma,\" that had been imposed by Section 3A of the 2003 BFDA.\nOn November 15, 2012, Deputy Secretary Burns issued a determination waiving the import restrictions in Section 3(a) of the BFDA, including Section 3(a)(2) that banned the import of Burmese goods from select entities (see Table 6 below). General License No. 18, issued the following day by OFAC, indicated that the prohibition on transactions, directly or indirectly, with any person whose property or interest in property are blocked by E.O. 13448, E.O. 13464, or E.O. 13619, as well as 31 C.F.R. §537.201(a) remained in effect, thereby blocking the import of goods from these entities. OFAC, however, removed General License No. 18 after the termination of the import sanctions in the 2003 BFDA and the issuance of E.O. 13651. As a result, the restrictions on the importation of products from companies specified in Section 3(a)(2) of the 2003 BFDA are no longer in effect.", "The ban on new investments in Burma is in Section 570 of the Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1997, and E.O. 13047, with the law providing the presidential authority and the E.O. exercising that authority. On May 2, 2013, President Obama issued an official notice renewing the national emergency with respect to Burma.\nOn April 4, 2012, Secretary Clinton stated that the Obama Administration was considering easing the ban on new investments in Burma. In a subsequent press briefing, two unnamed senior Administration officials indicated that no final decision had been made on the nature of the easing of the investment ban, but consideration was being given to select certain sectors such as agriculture, tourism, and potentially telecommunications as they are more likely to provide \"the most benefit for the average Burmese.\" Other sectors, associated with \"regressive elements [of] the Burmese economy and Burmese society\" such as gems and timber, may not be opened to new investments at this time. The financial services sector was also being considered.\nOn July 11, 2012, the Obama Administration issued several documents to waive the ban on new U.S. investments in Burma, subject to certain conditions on with whom the investment can be made. General License No. 17, issued by the Office of Foreign Assets Control of the Department of the Treasury, explicitly prohibits U.S. investments with:\nBurma's Ministry of Defense (including its Office of Procurement); Any state or non-state armed group; Any entity in which the Ministry of Defense or an armed group own 50% or more interest; or Any person whose property is blocked pursuant to 31 C.F.R. §537.201(a); E.O. 13448, E.O. 13464, or E.O. 13619.\nAmong the people covered by 31 C.F.R. §537.201(a); are persons determined by the U.S. Treasury to be \"a senior official of the Government of Burma, the State Peace and Development Council of Burma, the Union Solidarity and Development Association of Burma, or any successor entity to any of the foregoing.\"", "Restrictions on bilateral assistance to Burma are in Section 570 of the Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1997; and Section 307 of the Foreign Assistance Act of 1961, which withholds U.S. funding for international organizations with programs in Burma, with some specific exceptions. Section 5 of the 2003 BFDA requires the U.S. executive director of each international financial institution (IFI) in which the United States participates to vote against the extension of any loan, financial or technical assistance to Burma. Although the United States lacks enough votes to block an IFI from providing loans or assistance to Burma, in practice, it is unlikely that any IFI will proceed if the United States opposes the aid.\nThe 112 th Congress passed H.R. 6431 in September 2012, granting the President the authority to waive U.S. opposition to IFI assistance to Burma required under Section 5 of the 2003 BFDA if the President determines to do so is in the national interest of the United States. It also states that prior to the President making such a determination, the Secretary of State and the Secretary of the Treasury shall consult with \"the appropriate congressional committees on assistance to be provided to Burma by an international financial institution, and the national interest served by such assistance.\" The law defines the \"appropriate congressional committees\" to be \"the Committees on Foreign Relations, Banking, Housing and Urban Affairs, and Appropriations of the Senate, and the Committees on Financial Services, Foreign Affairs, and Appropriations of the House of Representatives.\" The term \"assistance\" includes loans, financial or technical assistance, or \"any other use of funds.\" The bill became P.L. 112-192 on October 5, 2012.\nPresident Obama issued a memorandum on October 10, 2012, delegating the authority granted by P.L. 112-192 to Secretary Clinton, who then issued a determination stating that \"it is in the national interest of the United States to support assistance for Burma.\" A memorandum of justification provided to Congress on October 12, 2012, states that IFI assistance for Burma \"encourages Burma's transition to democracy and economic reforms efforts,\" and is thereby in the national interest of the United States. The memorandum specifically mentions a World Bank vote to be taken on October 30, 2012, to provide a grant of $80 million for community-driven development in Burma. The World Bank approved the grant on November 1, 2012.\nIt is not clear if Secretary Clinton's determination was intended to permit U.S. support for any IFI assistance for Burma in the future, or was meant to apply solely to the pending World Bank grant. Section 2 of P.L. 112-192 requires that Secretary of State and the Secretary of the Treasury consult with \"the appropriate congressional committees\" prior to the making of the determination required by Section 1 on the nature of the assistance and \"the national interests served by such assistance,\" which can be read as restricting the determination to specific assistance about which the congressional committees were consulted. The Departments of State and the Treasury did not respond to requests for a clarification of their understanding of the interpretation of the determination of October 12, 2012.\nWith regard to Secretary Clinton's announcement that the United States would support the UNDP establishing a \"normal country program\" in Burma, current sanction laws may preclude the United States contributing funds to the program. Section 307 of the FAA (22 U.S.C. 2227), \"Withholding of United States proportionate share for certain programs of international organizations,\" states:\nNotwithstanding any other provisions of law, none of the funds authorized to be appropriated by this part shall be available for the United States proportionate share for programs for Burma [emphasis added], North Korea, Syria, Iran, Cuba, or the Palestine Liberation Organization or for projects whose purpose is to provide benefits to the Palestine Liberation Organization or entities associated with it, or at the discretion of the President, Communist countries listed in section 2370(f) of this title.\nIn other words, Section 307 prohibits the use of U.S. funds contributed to the UNDP and other international organizations for programs for Burma. In practice, according to the State Department, for the past decade it has sent a letter to UNDP indicating that the United States may withhold a portion of its contributions if the UNDP funded new programs and activities in Burma.\nSubsection (c) provides an exemption for the International Atomic Energy Agency (IAEA) and the United Nations Children's Fund (UNICEF). The FAA does not grant the President the authority to waive the funding restrictions in Section 307. As a result, the United States cannot financially support a \"normal country program\" of the UNDP in Burma without Congress passing legislation to permit such funding.\nIn addition, several past laws—including some appropriation laws—included language that either prohibited the use of U.S. contributions to UNDP for programs and activities in Burma or withheld a portion of U.S. contributions to UNDP until the President or the Secretary of State certified to Congress that the UNDP was in compliance with specific conditions on its programs and activities in Burma. Among the past laws that contained language tying U.S. contributions to UNDP to its programs and activities in Burma were:\nSection 431 of the Foreign Relations Authorization Act for Fiscal Years 1994 and 1995 ( P.L. 103-236 ); Section 108(c) of the Consolidated Appropriations Act of 2000 ( P.L. 106-113 ); and Section 6689b) of the Consolidated Appropriations Act of 2008 ( P.L. 110-161 ).\nHowever, the Consolidated Appropriations Act, 2012 ( P.L. 112-74 ) does not contain language regarding the use of U.S. contributions to UNDP in Burma. It does, however, state in Section 7044(b)(1) that \"The Secretary of the Treasury shall instruct the United States executive directors of the appropriate international financial institutions to vote against any loan, agreement, or other financial support to Burma.\"", "In addition to the targeted sanctions, Burma is currently subject to a number of sanctions specified in U.S. laws based on various functional issues. In many cases, the type of assistance or relations restricted or prohibited by these provisions is also addressed under Burma-specific sanction laws. The functional issues include:\nChild Soldiers: Burma is prohibited from receiving certain types of foreign assistance under the provisions of the Child Soldiers Preventions Act of 2008 (Title IV of P.L. 110-457 ) because of its designation as a foreign government that hosts governmental armed forces or supports armed groups that recruit and use child soldiers. As a result, Burma is ineligible to receive aid under International Military Education and Training (IMET), Foreign Military Financing (FMF), and Section 1206 assistance, as well as excess defense articles and the issuance of licenses for direct commercial sales of military equipment. Human Trafficking: Burma had been prohibited from receiving non-humanitarian and non-trade-related foreign assistance because of its designation by the President as a \"Tier 3\" country in the 2012 Trafficking in Persons (TIP) Report. In the 2013 TIP report, Burma was elevated to the Tier 2 Watch List, ending the restrictions on non-humanitarian and non-trade-related foreign assistance. However, under the provisions of the Victims of Trafficking and Violence Protection Act of 2000 (TVPA, P.L. 106-386 , as amended), countries that remain on the Tier 2 Watch List for two consecutive years are automatically redesignated as Tier 3 nations and subject to the assistance restrictions. Illicit Drug Transit or Drug Production : Section 706 of the Foreign Relations Authorization Act, Fiscal Year 2003 (FRAA) ( P.L. 107-228 ) requires the President provide to designated congressional committees a report by September 15 each year listing countries that the President has determined to be major drug transit and/or major illicit drug producing countries as defined in Section 481(e) of the Foreign Assistance Act of 1961 (P.L. 87-195). On September 13, 2013, President Obama issued Presidential Determination 2013-14, identifying Burma as a major drug transit and/or major illicit drug producing country. Designation as a major drug transit and/or major illicit drug producing country may result in a reduction in bilateral assistance and U.S. opposition to IFI assistance. However, in the same document, President Obama determines that providing assistance to Burma \"is vital to the national interest of the United States,\" thereby waiving the restriction on assistance to Burma. An accompanying memorandum of justification states that a waiver was warranted because of the Burmese government's \"demonstrated commitment to reform, and promising sign on future poppy eradication.\" Money Laundering and Organized Crime: In 2004, Burma's Mayflower Bank and Asia Wealth Bank, and the jurisdiction of Burma as a whole, including its state-run banks, were designated as \"primary money laundering jurisdictions of concern\" under Section 311 of the USA PATRIOT Act ( P.L. 107-56 , as amended) for the country's absence of money laundering regulations, weak oversight of the banking sector, and private bank connections to account holders involved in organized crime, particularly drug trafficking. Under this provision, the Treasury Department imposed a \"special measure\" to prohibit certain U.S. financial institutions from establishing, maintaining, administering, or managing correspondent or payable-through accounts for, or on behalf of, Myanmar Mayflower Bank, Asia Wealth Bank, and any other Burmese banking institution. This prohibition extends to correspondent or payable-through accounts maintained for other foreign banks when such accounts are used to provide banking services to Burmese banks indirectly. The Department of the Treasury repealed the special measures against Myanmar Mayflower Bank and Asia Wealth Bank effective October 1, 2012. Religious Freedom: The International Religious Freedom Act (IRFA, P.L. 105-292 , as amended) requires that the President conduct an annual review of the status of religious freedom in other nations, and authorizes the imposition of various types of sanctions on nations that seriously violate religious freedom. Burma has been designated a \"country of particular concern for religious freedom\" pursuant to this act since 1999. As the sanctioning action imposed on Burma pursuant to IRFA and currently in effect, the Secretary of State has elected to continue the existing arms embargo against Burma. Workers ' Rights: The Trade Reform Act of 1974 ( P.L. 93-618 , as amended) grants the President the authority to withdraw preferential trade treatment under the U.S. generalized system of preferences (GSP) program if a country \"has not taken or is not taking steps to afford internationally recognized worker rights to workers in the country.\" On April 13, 1989, President George H. W. Bush issued Presidential Proclamation 5955 suspending Burma's preferential treatment under the GSP program, invoking his authority under the Trade Reform Act of 1974. On April 15, 2013, the Office of the U.S. Trade Representative issued a notice in the Federal Register indicating that it was undertaking a review of the Union of Burma's eligibility for the GSP program. World Peace and the Security and Foreign Policy of the United States: The President has the authority under the Arms Export Control Act of 1976 ( P.L. 94-329 ) to prohibit all arms exports to a country \"in furtherance of world peace and the security and foreign policy of the United States.\" On September 23, 1988, President Reagan invoked his powers under this law to impose an arms embargo on Burma. In addition, on June 9, 1993, the State Department issued a public notice implementing an immediate ban on export of defense articles and services to Burma. The U.S. arms embargo on Burma remains in effect.", "Various recent developments in Burma have sparked a general reexamination of U.S. policy towards Burma, and a discussion of whether U.S. sanctions continue to be an effective means of achieving policy goals or effecting change in Burma. After Senior General Than Shwe formally dissolved the SPDC on March 30, 2011, and officially transferred power to the new Union Government, an era of political reforms and improved communications with the United States has ensued. Since taking office, President Thein Sein has issued prisoner amnesties on 11 occasions, resulting in the release of 29,545 prisoners, including 946 political prisoners. The Union Parliament has enacted laws that allowed the NLD and other opposition parties to participate in parliamentary by-elections in April 2012, and permit the formation of labor unions. In addition, the Union Government has begun ceasefire talks with several of the nation's ethnic-based militias, concluding preliminary agreements in some cases.\nOver the last two years, the Obama Administration has fostered closer ties with the Burmese government and eased restrictions on political and economic relations in the hopes that such actions will foster changes in Burma consistent with U.S. policy towards that nation. In most cases, these actions have been taken using existing presidential authority provided by the Constitution and existing laws, including Burmese sanctions laws—an approach that was generally acceptable to both the White House and Congress.\nThe Obama Administration, however, is nearing the limits of steps it can take without Congress passing new legislation. The White House has waived existing sanctions for most of the situations in which current law provides for such presidential authority, so additional easing of restrictions on political and economic relations with Burma would likely require Congress to pass new laws. In addition, maintaining the current status in bilateral relations would also take congressional action as certain provisions in the sanctions laws are subject to annual renewal by Congress and the appointment of a Special Representative and Policy Coordinator for Burma is subject to Senate approval. It is unknown if and when the White House may approach Congress about the possible removal or amending of remaining sanctions on Burma.\nSerious human rights violations continue to occur in Burma. According to Assistance Association for Political Prisoners (Burma), over 180 political prisoners remain in detention. The government-backed Union Election Commission refuses to register several ethnic-based political parties. Some labor unions have been unable to register and union organizers have been subjected to harassment and arbitrary dismissal, despite the passage of the new law. Although President Thein Sein issued instructions to stop all attacks on ethnic-based militias, the Tatmadaw continues its assaults and commits severe human rights abuses against civilians in conflict areas.", "The 112 th Congress acted several times to retain or reaffirm the existing sanctions on Burma. In its first session, it passed H.R. 2017 ( P.L. 112-33 ) on September 30, 2011, extending the import restrictions in Section 3 of the 2003 BDFA through July 2012. It subsequently renewed the general import restrictions for a second time on October 5, 2011, when it passed H.R. 2608 ( P.L. 112-36 ). The Consolidated Appropriations Act, 2012 ( P.L. 112-74 ), passed on December 15, 2011, reaffirmed other existing sanctions by barring the use of funds for international military education and training, foreign military financing, excess defense articles, or Section 1206 assistance; restricting the use of the State Department's Economic Support Fund to humanitarian assistance in Burma; and restating the requirement that the U.S. executive directors to IFIs vote against \"any loan, agreement, or other financial support to Burma.\" In its second session, the 112 th Congress passed P.L. 112-163 extending the import restrictions in Section 3 of the 2003 BDFA through July 2013, and P.L. 112-192 , described previously in the report. In general, the 112 th Congress allowed the Obama Administration to take the lead on deciding when to selectively ease or waive some of the existing sanctions (see \" Recent U.S. Sanctions Policy \").\nThe relative dearth of legislative action does not imply that the 112 th Congress did not demonstrate an interest in U.S. policy in Burma. The House Committee on Foreign Affairs Subcommittee on Asia and the Pacific held oversight hearings in June 2011 and April 2012 on U.S. policy in Burma. The Senate Committee on Foreign Relations held nomination hearings for Ambassador Mitchell in June 2011 for the position as Special Representative and Policy Coordinator for Burma and in June 2012 for the position of ambassador to Burma, plus a policy oversight hearing in April 2012. Several congressional delegations from both the House of Representatives and the Senate traveled to Burma to assess the extent of the political reforms and discuss U.S. policy with various political leaders. During the 112 th Congress, the Obama Administration frequently consulted with key Members of Congress regarding possible policy options, as well as to inform Congress of the Administration's interpretation of the situation in Burma. Several Members of Congress also released statements on Burma, ranging from support for the removal of all sanctions to disapproval of \"pragmatic engagement\" and the endorsement of the maintenance of all sanctions.", "The 113 th Congress may be asked by the Administration either to waive or extend waivers for existing sanctions, or to take legislative action to fully remove sanctions. It will also play a role in U.S. policy towards Burma when it considers appropriating funds for various assistance programs in the country. Possibly the largest and most noteworthy will be consideration of funds for the newly established U.S. Agency for International Development (USAID) mission located in the U.S. embassy in Rangoon, Burma. However, funding for other forms of assistance programs—including some previously prohibited by sanction laws, but not possible due to presidential waivers—would also face congressional consideration.\nThe 113 th Congress has the option of continuing to monitor and oversee the administration of existing laws establishing U.S. policy towards Burma, as well as the general conduct of U.S. policy. Certain aspects of current enforcement may not be fully within the spirit or the letter of the existing laws, particularly with respect to visa bans, assets freezes, and restrictions on the provision of financial services. In addition, recent discussions about closer military-to-military relations have raised concerns about the limits on such interactions. While the 112 th Congress held hearings on U.S. policy towards Burma in general, the 113 th Congress may consider hearings targeted at specific aspects of U.S. policy and/or critical issues in the dynamic situation in Burma.", "Section 9(b) of the BFDA requires Congress annually to renew the general import ban contained in Section 3(a)(1), 3(a)(2) and 3A. Congress had done so regularly since the BFDA went into effect on July 28, 2003, with the most recent renewal occurring on August 2, 2012, when Congress passed H.R. 5986 ( P.L. 112-163 ), extending the BFDA's import ban to July 25, 2013. The 113 th Congress, however, did not take up the renewal resolution before the sanctions expiration, effectively terminating the sanctions.\nThe Obama Administration waived the general import ban contained in Section 3(a)(1) of the BFDA on November 15, 2012 (see \" General Import Restrictions \" above), but reinstated the trade restrictions in Section 3A by issuing E.O. 13651. Prior to the 2012 congressional passage of renewal resolution, the State Department indicated its support for the extension of the general import ban for another year. It is unclear if the Obama Administration would support or oppose the passage of a renewal resolution given the issuance of E.O. 13651.", "Although presidential waivers permit the temporary suspension of sanctions, the actual removal of existing sanctions may be a more complex proposition because of the overlapping provisions of the laws governing the current sanction regime. In addition, because Burma is subject to sanctions based on assessments related to certain functional issues (e.g., human trafficking, religious freedoms), the repeal of Burma-specific sanction laws or E.O.s may not eliminate certain types of restrictions on Burma. In addition, Congress would likely give consideration to matching the importance or weight of the sanction to the intended message it would be trying to convey to the Burmese government and the people of Burma. Such a balance would also heavily depend on the course of events in Burma in the months ahead.\nCongress can select among several alternative approaches to remove sanctions on Burma, if it decides such actions are warranted. One approach would be to pass legislation superseding the existing laws. Such legislation would require cautious wording to avoid unintentionally revoking sanctions other than those targeted in the bill. An alternative would be to amend or repeal relative sections of the existing laws to remove the corresponding sanctions. Bills of this sort would also require special attention to insure that all relevant provisions are included without unintentional consequences. Congress could also provide the President with the authority to remove or revoke the sanction, possibly subject to certain conditions being met in Burma. Existing sanction laws already grant the President such authority for certain sanctions.", "As part of the easing of sanctions on Burma, the Obama Administration has periodically announced its intention to provide various forms of assistance to Burma, including the reopening of a USAID mission there. While the various presidential waivers described above have provided the legal basis for the provision of such assistance, it remains for Congress to consider the appropriation of funds to finance the specific forms of assistance the White House would like to provide to Burma.\nCongressional appropriations for assistance programs for Burma have been around $38 million per year since FY2010, with most of the amount allocated through the State Department's Economic Support Fund (ESF). Under the President's proposed budget for FY2013, the overall amount is to remain relatively unchanged, but about $6 million is to be shifted from humanitarian assistance to health programs. Support for civil society and education projects—which have traditionally gone to programs outside Burma, mostly in Thailand—are to be reduced by about $1 million each, according to the President's proposal.\nThe 113 th Congress has utilized appropriation legislation to restrict funding to Burma for fiscal year 2013. Section 8115 of P.L. 113-6 prohibits the use of appropriated funds for IMET, FMF, excess defense article and Section 1206 assistance in Burma, except as otherwise permitted under Section 404 of the Child Soldiers Prevention Act of 2008 ( P.L. 110-457 ).\nThe 113 th Congress could decide to continue exert its appropriations authority in two distinct ways. First, it may refuse to fund or bar the usage of funds for certain types of assistance in Burma that Congress considers inappropriate at this time. Second, Congress could effectively set assistance priorities by its allocation of funds to differing projects to be conducted in Burma.", "The various presidential waivers have significantly altered the scope of sanctions that remain in force in Burma. The general pattern has been to lift the enforcement of global restrictions on political and economic relations, but to keep in effect sanctions on designated individuals or entities deemed to be counter-productive to U.S. policy goals in Burma. This selective process of sanction waivers has in some cases made the enforcement of the sanction laws more complex. For certain sanctions—particularly the visa ban, the freezing of assets, and restrictions on the provision of financial services—questions have been raised on whether the Department of State and the Department of the Treasury have acted in full compliance with the law and have taken sufficient steps to fully implement the sanctions laws.\nAs described above, three laws and two presidential documents contain provisions specifying which Burmese nationals are to be denied a visa to enter the United States, as well as possible conditions for a waiver. Over the last two years, a number of Burmese government officials have been issued visas to visit the United States, but it is unclear if in each case the required waiver process was adequately followed, including the requirement that Congress be notified in writing that a waiver is to be provided.\nA similar issue of compliance arises with respect to the requirement that the assets of certain Burmese persons be frozen and the restriction of financial services to certain Burmese entities. The BFDA and the Tom Lantos Block Burmese JADE Act specify two similar but distinct categories of persons subject to the freezing of assets. The Tom Lantos Block Burmese JADE Act designates a number of different people who cannot be provided financial services by U.S. financial institutions. In practice, the Specially Designated Nationals (SDN) list maintained by OFAC has served as the mechanism for enforcing the provisions of these two laws. Several organizations have indicated to the State Department and OFAC that there are dozens of Burmese nationals that appear to meet the criteria set in the two laws that are not included on the SDN list. Secretary Clinton and other U.S. officials have stated that a more detailed review of the existing SDN list with respect to the Burmese sanctions should be conducted. Since the start of 2012, 15 names have been added to the SDN list for Burma and two names (President Thein Sein and Speaker of Burma's Parliament's lower house Shwe Mann) have been removed from the list.\nAs previously stated, the 112 th Congress held hearings that examined the general conduct of U.S. policy in Burma. Given the questions that have arisen over the implementation of existing sanctions that remain in effect, the 113 th Congress may consider holding hearings to examine the effectiveness of current enforcement of U.S. sanctions on Burma." ], "depth": [ 0, 1, 1, 1, 1, 2, 2, 2, 2, 2, 2, 2, 2, 2, 2, 1, 1, 2, 2, 3, 3, 3, 3 ], "alignment": [ "h0_title h2_title h1_title h3_title", "h2_full h1_full", "h2_full", "h0_full h1_full", "h3_full h2_full h0_title", "", "h3_full h2_full", "", "h3_full h2_full", "", "h3_full h2_full", "", "h0_full", "", "", "h3_full", "h0_full h2_title h3_title", "", "h2_title h3_title", "", "", "h3_full", "h2_full" ] }

{ "question": [ "To what extent can the United States ease Burma sanctions?", "How might the Obama Administration push for a selective removal of Burma sanctions?", "How were sanctions from the Burmese Freedom and Democracy Act of 2003 ended?", "What actions might the 113th Congress take regarding Burma sanctions?", "Why were sanctions enacted on Burma?", "In response to what events were Burma-specific sanctions enacted?", "How does this affect the resulting sanctions?", "On what are existing Burma sanctions based?", "How can the types of sanctions be categorized?", "What does this report cover?", "How does this report address Congressional actions regarding Burma?", "What sanctions is Burma subject to?", "How are these issues clarified?", "How does Congress manage the use of designated funds in Burma?", "How will this report be kept current?" ], "summary": [ "The United States is nearing the limits of steps it can take to ease Burma sanctions without Congress passing new legislation.", "Thus, President Obama may approach Congress about the selective repeal or removal of one or more of the current sanctions on Burma.", "The 113th Congress allowed some of the sanctions contained in the Burmese Freedom and Democracy Act of 2003 to expire on July 26, 2013, when it did not pass an annual renewal resolution.", "The 113th Congress may consider either the imposition of additional sanctions or the removal of the remaining sanctions on Burma, depending on the conduct of the Burmese government and other developments in the country.", "The current U.S. sanctions on Burma were enacted, for the most part, due to what the U.S. government saw as a general disregard by the SPDC for the human rights and civil liberties of the people of Burma.", "Burma-specific sanctions began following the Burmese military's violent suppression of popular protests in 1988, and have continued through several subsequent periods in which Congress perceived major human rights violations in Burma.", "The result is a web of overlapping sanctions with differing restrictions, waiver provisions, expiration conditions, and reporting requirements.", "Existing U.S. sanctions on Burma are based on various U.S. laws and presidential executive orders.", "They can be generally divided into several broad categories, such as visa bans, restrictions on financial services, prohibitions of Burmese imported goods, a ban on new investments in Burma, and constraints on U.S. assistance to Burma.", "This report provides a brief history of U.S. policy towards Burma and the development of U.S. sanctions, a topical summary of those sanctions, and an overview of actions taken to waive or ease those sanctions by the Obama Administration.", "The report concludes with a discussion of actions taken by the 112th Congress and options for the 113th Congress.", "In addition to the targeted sanctions, Burma may be subject to certain sanctions specified in U.S. laws addressing various functional issues, such as the use of child soldiers, drug trafficking, human trafficking.", "In many cases, the type of assistance or relations restricted or prohibited by these provisions is also addressed under Burma-specific sanction laws.", "Finally, Congress has used appropriation legislation to restrict or prevent the use of designated funds in Burma.", "This report will be updated as conditions warrant." ], "parent_pair_index": [ -1, 0, 0, 0, -1, 0, 1, -1, 0, -1, 2, -1, 0, 0, 0 ], "summary_paragraph_index": [ 2, 2, 2, 2, 3, 3, 3, 4, 4, 4, 4, 5, 5, 5, 5 ] }

{ "title": [ "", "Introduction", "Patent Fundamentals", "Introduction to Compulsory Licenses", "Compulsory Licenses Under U.S. Law", "Specialized Statutes", "Antitrust Enforcement", "The Bayh-Dole Act", "Judicial Denial of Injunction", "Uses by the U.S. Government", "Compulsory Licenses Abroad", "Brazil", "India", "South Africa", "Thailand", "Issues and Observations" ], "paragraphs": [ "", "Congressional interest in the patent system has been demonstrated by the recent enactment of the Leahy-Smith America Invents Act (AIA), arguably the most significant amendments to the patent laws since 1952. Subsequent to the enactment of the AIA, Members of Congress have expressed criticism with respect to the grant of compulsory licenses on patented inventions by the trading partners of the United States. Compulsory patent licenses have in fact been a longstanding source of tension between the United States and other nations. However, U.S. law also provides for compulsory licensing of patented inventions under certain circumstances.\nThe term \"compulsory license\" refers to the grant of permission for an enterprise seeking to use another's intellectual property to do so without the consent of its proprietor. The grant of a compulsory patent license typically requires the sanction of a governmental entity and provides for compensation to the patent owner. In the patent system, compulsory licenses most often relate to pharmaceuticals and other inventions pertaining to public health, but they potentially apply to information technologies, manufacturing methods, and any other sort of patented invention.\nFor some observers, compulsory patent licenses present an unwise derogation from the exclusive rights awarded to patent owners. In their view, the routine grant of compulsory licenses will diminish incentives for innovation. On the other hand, other observers believe that compulsory licenses may serve important national interests such as public health and technology transfer.\nThis report provides an overview of compulsory licenses on patented inventions. It begins with a brief introduction of the patent system and the concept of compulsory patent licenses, including limitations imposed upon World Trade Organization members by the Agreement on Trade-Related Aspects of Intellectual Property Rights (the \"TRIPS\" Agreement). The report next reviews the availability of compulsory licenses under U.S. law. The report next considers the practice of compulsory licensing on patented inventions abroad. The report closes with a discussion of the role of compulsory licenses in innovation policy and a review of possible congressional options.", "The patent system is grounded in Article I, Section 8, Clause 8 of the U.S. Constitution, which states that \"The Congress Shall Have Power ... To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries....\" U.S. patent rights do not arise automatically. Inventors must prepare and submit applications to the U.S. Patent and Trademark Office (USPTO) if they wish to obtain patent protection. USPTO officials known as examiners then assess whether the application merits the award of a patent.\nIn deciding whether to approve a patent application, a USPTO examiner will consider whether the submitted application fully discloses and distinctly claims the invention. In addition, the application must disclose the \"best mode,\" or preferred way, that the applicant knows to practice the invention. The examiner will also determine whether the invention itself fulfills certain substantive standards set by the patent statute. To be patentable, an invention must consist of a process, machine, manufacture, or composition of matter that is useful, novel, and nonobvious. The requirement of usefulness, or utility, is satisfied if the invention is operable and provides a tangible benefit. To be judged novel, the invention must not be fully anticipated by a prior patent, publication, or other state-of-the-art knowledge that is collectively termed the \"prior art.\" A nonobvious invention must not have been readily within the ordinary skills of a competent artisan at the time the invention was made.\nIf the USPTO allows the patent to issue, the patent proprietor obtains the right to exclude others from making, using, selling, offering to sell, or importing into the United States the patented invention. Those who engage in these acts without the permission of the patentee during the term of the patent can be held liable for infringement. Adjudicated infringers may be enjoined from further infringing acts. The patent statute also provides for the award of damages \"adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer.\"\nThe maximum term of patent protection is ordinarily set at 20 years from the date the application is filed. At the end of that period, others may employ that invention without regard to the expired patent.\nPatent rights are not self-enforcing. Patentees who wish to compel others to observe their rights must commence enforcement proceedings, which most commonly consist of litigation in the federal courts. Although issued patents enjoy a presumption of validity, accused infringers may assert that a patent is invalid or unenforceable on a number of grounds. The U.S. Court of Appeals for the Federal Circuit (Federal Circuit) possesses national jurisdiction over most patent appeals from the district courts. The U.S. Supreme Court enjoys discretionary authority to review cases decided by the Federal Circuit.", "As noted, patents afford their owners the right to exclude others from practicing the patented invention. Patent owners may decline to enforce their exclusionary rights and allow another entity to use their proprietary technology, however. This permission is typically granted in exchange for the payment of a royalty or other consideration. This private contractual arrangement is termed a \"license.\"\nIn addition to a voluntary license, patents may be subject to a compulsory license. Although no universally accepted definition exists, the term \"compulsory license\" implies that anyone who meets certain statutory criteria may use the patented invention. The permission of the patent owner is not required. Depending upon particular national laws, the grounds for government award of a compulsory license may include:\nCircumstances of national emergency or extreme urgency. Where the invention serves vital public health needs. A strong societal interest has arisen in access to the patented invention. The patent owner has failed to practice the patented invention in the jurisdiction that granted the patent within a reasonable period of time. The patent owner has abused its economic power in such a manner as to violate the antitrust laws. In circumstances where multiple patents held by different owners cover a particular technology. For example, combination therapies—such as triple antiretroviral drugs—may be subject to more than one patent. In such cases, if one patent owner refuses to license, then the technology may not be marketed absent a compulsory licensing.\nThese statutes typically require an interested party formally to request the compulsory license from a foreign government. Competent authorities then decide whether to grant the license as well as the terms of any granted license. While some accounts suggest that formal compulsory licenses are awarded infrequently, the mere existence of a compulsory licensing statute may do much to encourage bargaining between a patentee and an interested manufacturer, on terms favorable to the manufacturer.\nTwo notable multilateral international agreements address compulsory patent licenses. The first, the Convention of Paris for the Protection of Industrial Property, has been joined by 175 countries including the United States. The Paris Convention states that its member states \"have the right to take legislative measures providing for the grant of compulsory licenses to prevent the abuses which might result from the exercise of the exclusive rights conferred by the patent, for example, failure to work.\" Paris Convention member states have agreed that a compulsory license \"may not be applied for on the ground of failure to work or insufficient working before the expiration of a period of four years from the date of filing of the patent application or three years from the date of the grant of the patent, whichever period expires last; it shall be refused if the patentee justifies his inaction by legitimate reasons.\"\nThe other significant multilateral agreement that speaks to compulsory patent licensing, a component of the international agreements forming the World Trade Organization (WTO), is the Agreement on Trade-Related Aspects of Intellectual Property Rights. The so-called \"TRIPS Agreement\" places further limitations upon the ability of WTO member states to award compulsory licenses for the use of another's patented invention. Among the most detailed provisions of the TRIPS Agreement, Article 31 imposes in part the following restrictions upon the issuance of compulsory licenses:\nEach application for a compulsory license must be considered on its individual merits. The proposed user must have made efforts to obtain authorization from the patent owner on reasonable commercial terms and conditions and such efforts have not been successful within a reasonable period of time. However, this requirement may be waived in the case of national emergency or other circumstances of extreme urgency. The scope and duration of the compulsory license is limited to the purpose for which it was authorized. The compulsory license must be nonexclusive—that is to say, the patent owner and possibly other licensed parties may also practice the patented invention. Any such use shall be authorized predominantly for the supply of the domestic market of the Member authorizing such use. The compulsory license must be revocable if and when its motivating circumstances cease to exist and are unlikely to recur. The patent owner must be paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization. The legal validity of any decision relating to the authorization of such use shall be subject to judicial or other independent review.\nArticle 31(k) of the TRIPS Agreement waives some of these requirements when use of a patented invention \"is permitted to remedy a practice determined after judicial or administrative practice to be anti-competitive.\" In addition, Article 31(l) allows for a compulsory license to issue to allow holders of improvement patents to make use of dominant patents that would otherwise bar the commercialization of an important technical advance.\nIn November 2001, WTO signatories adopted the Doha Declaration on the TRIPS Agreement and Public Health. The Doha Declaration stated that the TRIPS Agreement \"can and should be interpreted and implemented in a manner supportive of WTO Members' right to protect public health and, in particular, to promote access to medicines for all.\" The Doha Declaration granted broad discretion with regard to compulsory licensing, asserting that WTO signatories have \"the right to grant compulsory licences [sic] and the freedom to determine the grounds upon which such licences [sic] can be granted.\" In addition, WTO signatories proposed an amendment to the TRIPS Agreement in the form of Article 31bis. That provision allows WTO member states with limited or no manufacturing capacity to declare a compulsory license to import generic drugs from other countries.\nThe conditions for compulsory licensing within the TRIPS Agreement involve a number of ambiguities. Such terms as \"national emergency\" or \"circumstance of extreme urgency\" are not further defined. It is arguably not clear what exactly is meant by the requirement that a compulsory license be granted primarily for the supply of the domestic market. Nor is there any precise definition of what level of \"adequate remuneration\" to the patent holder suffices. The application of these limitations may not be further understood until a competent tribunal is called upon to interpret them, an event that has yet to occur.\nIn addition to the TRIPS Agreement and Paris Convention, the United States has entered into a number of free trade agreements that also address compulsory patent licenses. These agreements require their signatories to grant compulsory patent licenses on more restrictive terms than permitted by the TRIPS Agreement or Paris Convention. For example, the Free Trade Agreement between the United States and Australia provides:\nA Party shall not permit the use of the subject matter of a patent without the authorisation of the right holder except in the following circumstances:\n(a) to remedy a practice determined after judicial or administrative process to be anticompetitive under the Party's laws relating to prevention of anti-competitive practices; or\n(b) in cases of public non-commercial use, or of national emergency, or other circumstances of extreme urgency, provided that:\n(i) the Party shall limit such use to use by the government or third persons authorised by the government;\n(ii) the Party shall ensure that the patent owner is provided with reasonable compensation for such use; and\n(iii) the Party may not require the patent owner to provide undisclosed information or technical know-how related to a patented invention that has been authorised for use in accordance with this paragraph.\nTo the extent that compliance with treaties is desired, member states of the Paris Convention, TRIPS Agreement, and other pertinent international agreements may need to take these provisions into account when addressing compulsory licensing.", "In contrast to the patent statutes of many nations, the U.S. patent code does not include a general compulsory licensing provision. However, other domestic laws include provisions that allow for the compulsory licensing of patented inventions. In addition, circumstances that are arguably akin to a compulsory license may occur through antitrust enforcement, judicial determinations in patent infringement litigation, and activities of the federal government.", "A modest number of additional compulsory licenses exist with respect to U.S. patents, each pertaining to specialized subject matter. For example, the Atomic Energy Act allows for compulsory licenses \"if the invention or discovery covered by the patent is of primary importance in the production or utilization of special nuclear material or atomic energy.\" The Clean Air Act contains a similar provision relating to devices for reducing air pollution. Finally, the Plant Variety Protection Act provides for the compulsory licensing of seed-bearing plants that are protected by plant variety certificates, a patent-like instrument granted by the Department of Agriculture.\nResearch completed in connection with this report has failed to discover even a single instance where any of these compulsory licenses has actually been invoked. Plainly, none of these provisions have been frequently employed in the past. Some commentators speculate that the threat of a compulsory license usually induces the grant of contractual licenses on reasonable terms. As a result, there is no need for the government to invoke a compulsory license formally.", "Enforcement of the antitrust laws by government entities and private parties on occasion results in a patent owner either agreeing to license its patents to competitors or being compelled to do so. Stated broadly, if an enterprise has been found to have acted in an anticompetitive manner in connection with its patents, then government or private enforcement authorities may call for the enterprise to license those patents to interested parties. This step is arguably akin to the grant of a compulsory license.", "The Bayh-Dole Act and accompanying regulations allow government contractors to obtain patents on inventions they made using federal funding. However, the government retains a \"march-in right\" that allows the funding agency to grant additional licenses to other \"reasonable applicants.\" March-in rights are available only where the contractor\nhas not taken effective steps to achieve practical application of the invention; has not reasonably satisfied health and safety needs; has not met requirements for public use specified by federal regulation; or has granted an exclusive right to use the patented invention to another without obtaining the promise that the invention will be manufactured substantially in the United States.\nThe march-in right, which is arguably identical or similar to a compulsory license, has yet to be exercised.", "An injunction consists of a court order preventing or commanding a particular action. Prior to 2006, courts would virtually always enjoin an adjudicated infringer from future practice of the patented invention. This rule changed following the issuance of the Supreme Court decision in eBay Inc. v. MercExchange, L.L.C . There the Court unanimously held that an injunction should not automatically issue based on a finding of patent infringement. Under the eBay ruling, courts must weigh equitable factors traditionally used to determine if an injunction should issue, including whether the patent proprietor suffered an irreparable injury; the award of damages would be inadequate to compensate for that injury; that considering the balance of hardships between the patent owner and infringer, an injunction is warranted; and that the public interest would not be disserved by a permanent injunction.\nFollowing the eBay decision, courts most often award an injunction to the prevailing patentee. They have also declined to do so, however, particularly where the patent owner does not commercialize the claimed invention, where the patented invention forms a small component of a larger product, and where the patent owner had liberally licensed its patented invention to others. In such cases the adjudicated infringer may continue to practice the patented invention but usually must pay a royalty to the patent proprietor until the term of the patent expires.\nJudicial unwillingness to enjoin an adjudicated infringer differs as a technical matter from the usual understanding of a compulsory license. Compulsory licenses are generally available to any entity that meets the statutory requirements, in contrast to the specific adjudicated infringer involved in a single litigation. As a result, some federal jurists prefer to use the term \"ongoing royalty\" to describe circumstances where courts have declined to award a permanent injunction but require the payment of royalties by the infringer during the term of the patent. However, for some, the distinction between a compulsory license and an \"ongoing royalty\" is one without a difference.", "The U.S. government possesses the power to take private property for public use. For example, the government may condemn a parcel of land in order to build a highway. This authority is ordinarily termed \"eminent domain.\" This government right is not unlimited, however. In particular, in some circumstances the government must compensate the property owner for use of the property.\nThese general principles are most frequently applied to real estate, but they potentially apply to intellectual property as well. As a result, the U.S. government effectively enjoys the ability to declare a compulsory license that allows it to use a patented invention without obtaining the permission of the patentee. In turn, the federal government has consented to suit by private patent owners in order to obtain compensation. Section 1498(a) of Title 28 of the U.S. Code provides in part:\nWhenever an invention described in and covered by a patent of the United States is used or manufactured by or for the United States without license of the owner thereof or lawful right to use or manufacture the same, the owner's remedy shall be by action against the United States in the United States Claims Court for the recovery of his reasonable and entire compensation for such use and manufacture.\nUnder Section 1498(a), all patent suits against the U.S. government are litigated in the U.S. Court of Federal Claims. That statute limits available remedies to \"reasonable and entire compensation\" to the patent owner. As a result, the government may not be enjoined from practicing a patented invention. The courts have also generally limited the damages that the government must pay to the patentee to the level of a \"reasonable royalty.\" A \"reasonable royalty\" for purposes of patent infringement damages is \"the amount that a person desiring to manufacture or use a patented article, as a business proposition, would be willing to pay as a royalty and yet be able to make or use the patented article, in the market at a reasonable profit.\"", "The patent statutes of many U.S. trading partners include general provisions that allow for the award of compulsory licenses under specified conditions. These circumstances include public health needs, inadequacy of supply of the patented invention, failure to practice the patented invention within the jurisdiction, and other public interest rationales. Reportedly, a number of jurisdictions have invoked these provisions since the advent of the TRIPS Agreement, including, among others, Cameroon, Ecuador, Egypt, Eritrea, Ghana, Italy, Kenya, Malaysia, Mozambique, Zambia, and Zimbabwe. This paper reviews a number of notable incidents with respect to compulsory licenses on patented inventions, focusing on Brazil, India, South Africa, and Thailand.", "In response to its accession to the WTO, Brazil enacted a new industrial property law that in part addressed compulsory patent licenses. The 1997 statute allowed the issuance of compulsory licenses for \"non-exploitation of the object of the patent within the Brazilian territory for failure to manufacture or incomplete manufacture of the product....\" The United States initiated proceedings before the WTO asserting that the Brazilian law violated the TRIPS Agreement. In particular, the United States alleged that the Brazilian statute violated a TRIPS Agreement requirement that patents must be \"enjoyable without discrimination as to ... whether patents are imported or locally produced.\" Brazil and the United States ultimately agreed to a \"mutually satisfactory situation\" under which Brazil agreed to hold talks with the U.S. government prior to granting compulsory license on patents owned by U.S. companies. The WTO proceedings were then terminated.\nUnder the 1997 statute, Brazil issued a compulsory license in 2007 for the AIDS drug efavirenz, which is sold by Merck & Co. under the trademark STOCRIN®. Reportedly Merck lowered the price under which it sold efavirnz to the satisfaction of the Brazilian authorities following the issuance of the compulsory license, thereby rendering this action moot. In addition, the Brazilian government has reportedly used the threat of issuing compulsory licensing to receive discounts on AIDS therapies.", "On March 9, 2012, the Controller of Patents issued what is reportedly India's first compulsory license. The compulsory license relates to the chemotherapy drug sorafenib, sold by Bayer & Co. under the trademark NEXAVAR®. According to the Controller, Bayer failed to provide sufficient NEXAVAR® to meet public demand, did not sell NEXAVAR® at a reasonably affordable price, and did not manufacture NEXAVAR® in India. As a result, the Controller awarded a license to Natco Pharma Ltd., an Indian generic firm, to manufacture a generic version of NEXAVAR®. Under the Controller's decision, Natco was required to pay a royalty at the rate of 6% of net sales of the drug to Bayer. The Intellectual Property Appellate Board of India upheld the Controller's decision on March 4, 2013, although it increased the royalty owed to Bayer from 6% to 7%.\nFollowing the grant of the NEXAVAR® compulsory license, Indian authorities are reportedly considering the grant of compulsory licenses for Genetech's breast cancer drug HERCPETIN®, BMS's breast cancer drug IXEMPRA®, and BMS's leukemia drug SPRYCEL®.", "In 1997, the South African legislature passed a law to allow, among other measures, the compulsory licensing of patented pharmaceuticals. The South African Pharmaceutical Manufacturers' Association and numerous pharmaceutical companies subsequently commenced litigation, asserting that the law violated both the TRIPS Agreement and South Africa's own patent statute. South Africa agreed to redraft in keeping with the TRIPS Agreement and to consult with the pharmaceutical industry on the proposed amendment, while the pharmaceutical industry agreed to withdraw the lawsuit. Domestically, the incident reportedly prompted the issuance of Executive Order 13,155 by President Clinton on May 10, 2000. That Order prohibits the United States \"from taking action pursuant to section 301(b) of the Trade Act of 1974 with respect to any law or policy in beneficiary sub-Saharan African countries that promotes access to HIV/AIDS pharmaceuticals or medical technologies and that provides adequate and effective intellectual property protection consistent with the TRIPS Agreement.\"\nAlthough the South African government apparently did not invoke the contested provisions, it subsequently determined that providers of two patented HIV/AIDS medicines had committed antitrust violations. In particular, in 2003 the South African Competition Commission concluded that the providers had engaged in excessive pricing and denied competitors access to an essential facility. The Commission subsequently settled with the providers on terms that required these providers to license several competitors to sell the patented medications.", "Thailand issued seven compulsory patent licenses from 2006 through 2008. The compulsory licenses concerned patents claiming:\nthe AIDS drug efavirenz (sold by Merck & Co. under the trademark STOCRIN®); the combination AIDS drug of lopinavir and ritonavir (sold by Abbott under the trademark KALETRA®); the antiplatelet drug clopidegrel (sold by Bristol Myers under the trademark PLAVIX®); the breast cancer medicine letrozole (sold by Novartis AG under the trademark FEMARA®); the breast and lung cancer drug docetaxel (sold by Sanofi-Aventis under the trademark TAXOTERE®); the lung, pancreatic, and ovarian cancer drug erlotinib (sold by Roche under the trademark Tarceva TARCEVA®); and the cancer drug Imitinab (sold by Novartis AG as GLEEVEC®).\nThe Thai compulsory licenses attracted controversy due to their relatively large number, Thailand's status as a middle-income country, and concerns that the Thai government had not complied with the TRIPS Agreement. In addition, five of the compulsory licenses concerned drugs for treating cancer and heart diseases—chronic, noninfectious diseases that are common in developed countries. However, public health advocates applauded the Thai government's willingness to address the needs of its citizens.", "Observers who have supported the ability of patent-granting states to issue compulsory licenses have pointed out that the rules established under the TRIPS Agreement are quite liberal. Compulsory licenses are not limited to patents relating to contagious diseases; indeed, they are not limited to health emergencies at all. Under the TRIPS Agreement, any patent may potentially be subject to a compulsory license. They also assert that the United States allows compulsory licenses to issue with respect to patents through a number of mechanisms.\nStill others observe that many least-developed and developing nations suffer from severe public health problems. These jurisdictions also may have limited ability to pay for patented medications. Further, in the view of some commentators, because many of these nations offer small markets, their use of compulsory licenses is likely to have a negligible impact on innovation.\nOn the other hand, some commentators believe that the grant of compulsory licenses diminishes incentives for enterprises to undertake research and development. In their view, the pharmaceutical industry is less likely to endeavor to develop new drugs if they can expect that their patents will be subject to compulsory licenses, thereby causing the industry to lose its expected earnings. To the extent that the U.S. firms are subject to these measures, the issuance of compulsory licenses may also negatively impact the U.S. economy.\nCommentators have also observed that although most compulsory licenses have been issued by developing and least-developed nations, these jurisdictions might have the most to lose by doing so. Pharmaceutical firms might devote fewer resources towards developing cures for diseases, such as malaria and tuberculosis, which primarily plague the developing world. Instead, a rational actor would allocate resources towards medicines that are likely to have a successful commercial market in developed countries. In addition, the issuance of compulsory licenses may discourage foreign direct investment in that jurisdiction.\nShould Congress consider current circumstances with respect to compulsory licenses to be appropriate, then no action need be taken. Alternatively, Congress may wish to review whether domestic legislation providing for compulsory patent licenses is appropriate. The most recent bill relating to compulsory licensing, the Public Health Emergency Medicines Act in the 109 th Congress, would have created an additional compulsory license in the patent law. This bill, H.R. 4131 , would have allowed the government to use the patented invention without the patent owner's permission if the Secretary of Health and Human Services determined that the invention is needed to address a public health emergency. Under the bill, the Secretary of Health and Human Services would have determined compensation for government use of the patented invention. In determining the reasonableness of remuneration for use of a patent, the Secretary of Health and Human Services may consider—\n(1) evidence of the risks and costs associated with the invention claimed in the patent and the commercial development of products that use the invention;\n(2) evidence of the efficacy and innovative nature and importance to the public health of the invention or products using that invention;\n(3) the degree to which the invention benefitted from publicly funded research;\n(4) the need for adequate incentives for the creation and commercialization of new inventions;\n(5) the interests of the public as patients and payers for health care services;\n(6) the public health benefits of expanded access to the invention;\n(7) the benefits of making the invention available to working families and retired persons;\n(8) the need to correct anti-competitive practices; and\n(9) other public interest considerations.\nThis legislation was not enacted.\nCongress may also wish to continue to monitor the activity of U.S. trade partners with respect to compulsory patent licenses. For example, on June 18, 2013, 171 Members of Congress wrote to President Obama expressing concern over India's \"intellectual property (IP) climate.\" The letter in part observed:\n[T]he Indian Government issued its first compulsory license (CL) on a stage three liver and kidney cancer drug. It has been reported that additional drugs may be subject to CLs imminently and that the decisions related to these CLs are being improperly driven by an interest in growing the pharmaceutical market in India. These actions by the Indian Government greatly concern us because innovation and the protection of intellectual property are significant driving engines of the U.S. economy.\nThe letter urged the President \"to make sure these issues are raised at the highest levels of the Indian government.\"\nCompulsory licenses for patented inventions highlight the tension between two competing aspirations of the patent system: Encouraging the labors that lead to innovation, on one hand, and placing the fruits of those labors before the public, on the other. As different patent-granting states possess distinct perceived interests and values with respect to innovation, proprietary rights, and public health and other social needs, conflicts among these jurisdictions have occurred in the post-WTO era. Assessing the role of compulsory licenses within the patent system of the United States and our trading partners remains a matter for congressional judgment." ], "depth": [ 0, 1, 1, 1, 1, 2, 2, 2, 2, 2, 1, 2, 2, 2, 2, 1 ], "alignment": [ "h0_title h1_title", "", "", "h0_full h1_full", "h0_full", "h0_full", "", "h0_full", "h0_full", "h0_full", "h1_full", "", "h1_full", "", "", "" ] }

{ "question": [ "To what extent does U.S. law allow for compulsory licensing?", "What laws allow for compulsory licensing?", "How has compulsory licensing been used in antitrust cases?", "How can courts practically grant compulsory licenses?", "How is the issue of compulsory licensing addressed?", "How do the patent statutes of many other nations contrast with that of the United States?", "How commonly have these provisions been used?", "What compulsory licensing decisions have been controversial?" ], "summary": [ "U.S. law allows for the issuance of compulsory licenses in a number of circumstances, and also allows for circumstances that are arguably akin to a compulsory license.", "The Atomic Energy Act, Clean Air Act, and Plant Variety Protection Act provide for compulsory licensing, although these provisions have been used infrequently at best. The Bayh-Dole Act offers the federal government \"march-in rights,\" although these have not been invoked in the three decades since that legislation has been enacted. 28 U.S.C. Section 1498 provides the U.S. government with broad ability to use inventions patented by others.", "Compulsory licenses have also been awarded as a remedy for antitrust violations.", "Finally, a court may decline to award an injunction in favor of a prevailing patent owner during infringement litigation, an outcome that some observers believe is akin to the grant of a compulsory license.", "A number of international agreements to which the United States and its trading partners are signatories, including the Paris Convention for the Protection of Industrial Property, World Trade Organization agreements, and certain free trade agreements, address compulsory licensing.", "In contrast to the United States, the patent statutes of many other nations include general provisions that allow for the award of compulsory licenses under specified conditions.", "A number of U.S. trading partners, including Brazil, South Africa, and Thailand, have invoked these provisions.", "The March 9, 2012, decision of the Indian government to grant a compulsory license on the chemotherapy drug sorafenib has attracted controversy." ], "parent_pair_index": [ -1, 0, 0, 0, -1, 0, 1, 1 ], "summary_paragraph_index": [ 1, 1, 1, 1, 2, 2, 2, 2 ] }

{ "title": [ "Background", "CMS Has Made Limited Progress since July 2014 to Validate MA Encounter Data; Stakeholder Organizations Questioned the Effectiveness of CMS Efforts", "CMS Has Detailed Plans for Using MA Encounter Data for Risk Adjustment but Not for Other Purposes, Creating Unease among Some Stakeholder Organizations", "CMS Plans to Fully Transition to Using MA Encounter Data for Risk Adjustment Purposes by 2020, Generating Mixed Reactions from Some Stakeholder Organizations", "CMS’s Plans and Time Frames for Using MA Encounter Data for Other Authorized Purposes Remain Undeveloped, Creating Unease among Some Stakeholder Organizations", "Agency Comments", "Appendix I: GAO Contact and Staff Acknowledgments", "GAO Contact", "Staff Acknowledgments" ], "paragraphs": [ "Compared with RAPS data, MA encounter data contain more data elements, including data on diagnoses not used for risk adjustment. Specifically, MAOs may enter more diagnoses on each encounter data submission than on each RAPS data submission and may transmit encounter data more frequently than RAPS data. (See table 1.) Although there are a number of differences between RAPS data and encounter data, an important distinction is a shift in who is responsible for identifying diagnoses used for risk adjustment. Under RAPS data submissions, MAOs individually analyze all their claims data and only submit data with diagnoses that are relevant for risk adjustment. In contrast, for encounter data submissions, MAOs transmit data to CMS on all enrollee encounters, regardless of whether the encounter contains diagnoses used for risk adjustment.\nIn addition, the encounter data submission process involves a number of steps and exchanges of information between providers, MAOs, and CMS. First, MAOs collect encounter data—originating from an enrollee’s medical record—from providers to manage and process reimbursement for health care services and supplies for enrollees. After collecting and reviewing these data, MAOs submit the data to CMS through the Encounter Data System. CMS then processes and checks the data for problems. CMS designed the system to reject and return problematic data to MAOs for corrections. MAOs are expected to work with providers to correct the encounter files and resubmit the data to CMS. (See fig. 1.)", "Since our July 2014 report, CMS has taken additional steps across several activities to ensure that MA encounter data are complete but has yet to fully address data accuracy. (See fig. 2)\nThe agency has taken the following steps, which address primarily the completeness of encounter data and provide feedback to MAOs on data submission:\nCreating a report card with basic statistics on the completeness of encounter data for MAOs. This step partially fulfills CMS’s Medicaid data validation protocol activity to conduct statistical analyses to assess completeness and accuracy. Analyzing values in specific data elements and generating basic statistics on the volume and consistency of data elements can help detect data validity issues. Agency officials told us they are using the report cards to encourage MAOs to submit data more frequently and completely. The report cards contain the following information: quarterly performance indicators. These indicators relate to submission frequency (such as the percentage of biweekly periods with submitted data), data volume (such as the numbers of submitted encounters per 1,000 enrollees), and data quality (such as rejection rates of data submissions). comparisons with other MAOs. These MAO-specific comparisons display an MAO’s volume of encounters—overall and by service type (professional, inpatient, outpatient, and durable medical equipment)—alongside the regional and national averages for both MA encounter data submissions and Medicare FFS claims for each of the past 3 years.\nDeveloping an automated report for MAOs on diagnoses used for risk adjustment. This step partially fulfills the data validation protocol activity to summarize findings on encounter data completeness and accuracy to provide recommendations to MAOs. The automated report identifies diagnoses from MAO encounter data submissions that CMS will use to calculate risk scores for the next payment year. The report is primarily intended to help MAOs ascertain the basis of enrollee risk scores, though representatives from health insurance trade associations told us that they have also used the automated reports to prepare internal financial projections and compare patient diagnoses between encounter data and RAPS data submissions. MAOs first received these reports in December 2015, and since then, CMS has modified the report layout in response to MAO feedback. According to agency officials, CMS has finalized the initial version of the automated report and is distributing the automated reports to MAOs on a monthly basis. Further, the agency intends to make technical changes as necessary in the future.\nAccording to agency officials, they finalized the protocol for validating MA encounter data in November 2016 and have begun implementing several parts of it. In September 2016, CMS awarded a contract to update the protocol and report annually on the implementation and outcomes of protocol activities.\nThe stakeholder organizations we interviewed raised several issues with CMS’s recent actions to ensure the completeness of MA encounter data.\nThe main issues mentioned by several stakeholder organizations included the following:\nErrors in identifying diagnoses used for risk adjustment. Representatives from health insurance trade associations we interviewed criticized CMS’s process for identifying diagnoses that are relevant for risk adjustment. First, they stated that MAOs question the integrity of CMS’s data processing. They noted, for example, that the automated reports MAOs receive had missing procedure codes for some encounters where the original data submissions had included them. CMS told us that they are working with MAOs to make needed corrections to these reports. Second, representatives said that MAOs have been unable to replicate CMS’s analyses because CMS has made adjustments to how it identifies diagnoses eligible for risk adjustment using encounter data. As a result, they say, MAOs are unsure whether CMS is properly distinguishing diagnoses that are used for risk adjustment from those that are not used. When asked about this concern, CMS officials noted that they publicly announced how the agency intends to implement the risk adjustment transition in December 2015, and the methodology has not changed.\nInclusion of encounter data elements considered irrelevant. Representatives we interviewed from some health insurance and provider trade associations questioned CMS’s inclusion and checks of data elements the agency does not use for risk adjustment and which they contend are irrelevant for the purposes enumerated in the August 2014 final rulemaking. CMS’s Encounter Data System is designed to reject erroneous information by applying a subset of the edits used to process FFS claims, which are not all relevant to MA encounter data, according to CMS officials. CMS requires MAOs to make corrections and resubmit the data for all rejected encounters. Representatives stated that both MAOs and providers must dedicate significant resources to meet CMS requirements. In particular, they said MAOs must alter their data systems and submit numerous requests to providers for data corrections and medical record reviews. When asked about this comment, CMS officials noted that the agency wants encounter data elements to be comparable to FFS claims data. Although not all of the encounter data elements are used for risk adjustment purposes, CMS noted that they should be reliable, comprehensive, and complete in the event they are used for any authorized purposes.\nTechnical problems with encounter data submission.\nRepresentatives we interviewed from several health insurance and provider trade associations reported that MAOs have experienced difficulties with certain data submissions. They cited, for example, difficulty with submitting encounters for recurring services, such as physical therapy. While MAOs and providers typically record such services as a single encounter, they must submit multiple separate encounters to CMS for recurring services. Agency officials told us they had not heard about this problem from MAOs. In addition, stakeholder representatives mentioned challenges resulting from frequent, randomly scheduled changes to data submission requirements, which they say generate costs and confusion. CMS stated that technical changes occur quarterly, which is typical for other CMS data collection efforts. Agency officials pointed out that CMS has worked with some of the larger MAOs to address data submission issues.\nInadequate CMS communication with individual MAOs. Although some researchers praised CMS officials for their assistance and support, representatives from several health insurance trade associations told us that their members are dissatisfied with CMS’s communication efforts. Representatives noted that CMS’s webinars are not designed to facilitate a conversation between the agency and MAOs, and that the email address CMS set up to handle questions from MAOs does not produce responses that can be shared across MAOs in a timely fashion. CMS officials told us that its response time for emailed questions on MA encounter data largely depends on the complexity of the issue. They said that the agency has not been able to provide individualized assistance because of resource limitations, but has recently contracted with an external organization to provide on-site assistance to MAOs to improve their data submission processes.\nAlthough CMS has taken several steps to ensure the completeness of MA encounter data, as of October 2016, the agency had yet to take a number of other important steps identified in the agency’s Medicaid protocol. Steps CMS has not taken include the following: establish benchmarks for completeness and accuracy. This step would address the data validation protocol activity to establish requirements for collecting and submitting MA encounter data. Without benchmarks, CMS has no objective standards against which it could hold MAOs accountable for complete and accurate data reporting. conduct analyses to compare against established benchmarks.\nThis step would address the data validation protocol activity to conduct statistical analyses to ensure accuracy and completeness. Without such analyses, CMS is limited in its ability to detect potentially inaccurate or unreliable data. determine sampling methodology for medical record review and obtain medical records. This step would address the data validation protocol activity to review medical records to ensure the accuracy of encounter data. Without medical record reviews, CMS cannot substantiate the information in MAO encounter data submissions and lacks evidence for determining the accuracy of encounter data. summarize analyses to highlight individual MAO issues. This step would address the data validation protocol activity to provide recommendations to MAOs for improving the completeness and accuracy of encounter data. Without actionable and specific recommendations from CMS, MAOs might not know how to improve their encounter data submissions.\nTo the extent that CMS is making payments based on data that have not been fully validated for completeness and accuracy, the soundness of billions of dollars in Medicare expenditures remains unsubstantiated. Given the limited progress CMS has made, we continue to believe that the agency should complete all the steps necessary to validate the data before using them to risk adjust payments or for other intended purposes, as we recommended in our July 2014 report.", "", "Since our July 2014 report, CMS has made progress in defining its objectives for using MA encounter data for risk adjustment purposes and in communicating its plans and time frames to MAOs. Although additional work is needed, CMS has improved its ability to manage a key aspect of the MA program.\nIn April 2014, CMS announced that it would begin incorporating patient diagnoses from MA encounter data submissions into risk score calculations. For 2015 MAO payments, CMS used encounter data diagnoses as an additional source of diagnoses to compute risk scores. CMS supplemented the diagnoses from each enrollee’s RAPS data file with the diagnoses from each enrollee’s MA encounter data file. For 2016, CMS used a different process that increased the importance of encounter data in computing risk scores. Specifically, CMS calculated risk scores as follows:\nCMS determined two separate risk scores for each enrollee. CMS based one risk score on the diagnoses from each enrollee’s RAPS data file and the other risk score on the diagnoses from each enrollee’s encounter data file.\nCMS combined the two risk scores, weighting the RAPS risk score by 90 percent and the encounter data risk score by 10 percent.\nCMS intends to increase the weight of encounter data in the risk score calculation in the next 4 years so that encounter data will be the sole source of diagnoses by 2020. (See fig. 3.)\nWhile some stakeholder organizations we interviewed supported CMS’s time frame for transitioning from RAPS data to encounter data for risk score calculation, others raised objections to CMS’s planned timeline. Representatives from several stakeholder organizations we interviewed— primarily research firms and a health insurance trade association—said that CMS’s time frame was appropriate and that MAOs had adequate time to adjust their data submission processes. However, representatives from several health insurance and provider trade associations we interviewed said that many MAOs and providers are apprehensive about CMS’s time frame because it does not allow sufficient time for a successful transition. They told us that many MAOs and providers are still configuring their encounter data systems. In a December 2015 memo to all MAOs, CMS noted that, since 2016 will be the fourth year of collecting encounter data, the transition time frame is a reasonable, modest step toward ultimately relying exclusively on encounter data as the source of diagnosis information in risk adjustment. The agency noted that it has worked with MAOs to correct issues with how the agency applies the methodology for identifying diagnoses for risk adjustment is applied.", "Although the agency has formulated general ideas of how to use MA encounter data for some purposes besides risk adjustment, CMS has not determined specific plans and time frames for most of the additional purposes for which the data may be used, namely (1) to update risk adjustment models; (2) to calculate Medicare disproportionate share hospital percentages; (3) to conduct quality review and improvement activities; (4) for Medicare coverage purposes; (5) to conduct evaluations and other analysis to support the Medicare program (including demonstrations) and to support public health initiatives and other health care-related research; (6) for activities to support the administration of the Medicare program; (7) for activities to support program integrity; and (8) for purposes authorized by other applicable laws. CMS officials explained that their main priority to date has been to use MA encounter data for calculating risk scores and that they plan to use the data for other purposes at a future time. However, this is inconsistent with federal internal control standards relating to risk assessment and information and communication that call for clearly defining objectives and communicating those objectives to key external organizations.\nIn addition to articulating plans for using encounter data for risk adjustment, CMS has indicated its interest in using MA encounter data for additional purposes. As of October 2016, CMS has begun planning for two of the eight remaining authorized uses: quality review and improvement activities. In April 2016, CMS awarded a contract to develop quality metrics that represent care coordination using encounter data. As of September 2016, the contractor had developed some plans for using encounter data to develop the metrics but testing and analyzing the data are ongoing. program integrity activities. CMS officials told us they anticipate including MA encounter data in the Fraud Prevention System to help identify abusive billing practices, but have yet to fully develop plans for this proposed use. To date, CMS officials reported that the Center for Program Integrity has begun using encounter data to determine improper payments to providers. It conducted a study of the number of services both paid as FFS claims and submitted as MA encounters. Additionally, it used encounter data to identify MA providers that were not enrolled in Medicare.\nFor the remaining authorized uses of encounter data, CMS reportedly has developed general ideas, but not specific plans and time frames. For example, CMS officials told us the CMS Innovation Center has plans to use MA encounter data to evaluate three demonstration models. Because these efforts are in their infancy, the officials could not provide details or specific time frames for these applications of encounter data. In addition, CMS has released MA encounter data to the Medicare Payment Advisory Commission and the Department of Health and Human Services’ Office of Inspector General for research purposes using standard protocols for releasing FFS data to those agencies. However, CMS has not yet released the data to other organizations or finalized protocols for doing so.\nStakeholder organizations we interviewed acknowledged that the agency has the authority to collect MA encounter data, but some indicated unease about CMS’s expansion of allowable uses of the data. In addition, some were concerned about the potential for future expansions because CMS has not fully defined its plans and time frames for other applications. In contrast, representatives from both health insurance and provider trade associations and research organizations noted that the authorized purposes are within CMS’s purview and that the agency already uses FFS data for similar purposes. CMS officials told us that some of the authorized uses are purposefully broad because they want to have some flexibility to expand their uses of encounter data in the future.\nA common point made by all of the stakeholder organizations we interviewed was the importance of privacy protections for releasing MA encounter data to researchers and other interested parties. Many organizations were concerned that CMS might release commercially sensitive information to external entities. A few also highlighted the importance of protecting patient privacy. To protect proprietary information and patient privacy, stakeholder organizations offered the following suggestions:\nAggregate the data. Representatives from some health insurance trade associations said aggregating the data on a geographic level, such as the county or state level, would generally allow MAOs to remain anonymous. One MAO stated that aggregating the data at the physician group level would be appropriate. In the preamble to its final rule, CMS clarified that payment data released to external entities would be aggregated at the level necessary to protect commercially sensitive information, such as proprietary payment rates between plans and providers.\nDeny or delay the release of certain data. Representatives from health insurance and provider trade associations were opposed to releasing encounter data elements—such as payment or utilization data—that could be used for anti-competitive behavior. They proposed delaying the release of encounter data by several years to protect proprietary information. In the preamble to its final rule, CMS stated that such delays in releasing the data to external entities would defeat the purposes of improving transparency in the Medicare program.\nLimit data access. Representatives from health insurance and provider trade associations and research organizations emphasized that CMS should implement appropriate safeguards for releasing MA encounter data to external entities similar to those protections used for Medicare FFS data. Representatives from three trade associations argued that encounter data should not be made available to researchers and other interested parties until the data quality is assured. In the preamble to its final rule, CMS stated that making encounter data available to researchers using a process similar to that applied to FFS data would enhance transparency in the MA program.\nTo the extent that specific plans for using the MA encounter data remain undeveloped, CMS is unable to communicate a set of well-defined objectives to stakeholders. Furthermore, in the absence of planning for all of the authorized uses, the agency cannot be assured that the amount and types of data being collected are necessary and sufficient for specific purposes. Given the agency’s limited progress on developing plans for additional uses of encounter data, we continue to believe that CMS should establish specific plans and time frames for using the data for all intended purposes, in addition to risk adjusting payments to MAOs, as we recommended in our July 2014 report.", "We provided a draft of this report to the Department of Health and Human Services (HHS) for comment. HHS provided technical comments, which we incorporated as appropriate.\nAs agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees and the Secretary of Health and Human Services. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov.\nIf you or your staffs have any questions about this report, please contact me at (202) 512-7114 or cosgrovej@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Major contributors to this report are listed in appendix I.", "", "", "In addition to the contact named above, Rosamond Katz (Assistant Director), Manuel Buentello, David Grossman, and Jessica Lin made key contributions to this report. Also contributing were Muriel Brown, Christine Davis, Elizabeth Morrison, and Jennifer Rudisill." ], "depth": [ 1, 1, 1, 2, 2, 1, 1, 2, 2 ], "alignment": [ "h0_full", "h0_full h3_full h2_full", "h0_title h2_title h1_title h3_title", "h0_full h1_full", "h3_full h2_full h1_full", "h0_full h3_full", "", "", "" ] }

{ "question": [ "What progress has CMS made to validate its MA encounter data?", "What is the purpose of CMS?", "What is the relationship between these entities and Medicare beneficiaries?", "How does CMS account for differences in enrollees' expected health care costs?", "Why does CMS need complete and accurate data?", "What progress has CMS made in assessing data submissions?", "What concerns have health insurance and provider trade associations had about CMS?", "How has CMS responded to this concern?", "What is the risk in proceeding without validated data?", "What is GAO's stance regarding the agency?", "How has CMS progressed in its efforts toward risk adjustment and program evaluation?", "What data is CMS using for these efforts?", "Why did CMS tell GAO that it has deferred planning?", "What does GAO think about CMS's deferred planning?", "What concerns did stakeholders have about the time frame?", "How did CMS respond to these concerns?", "What concerns did stakeholders express regarding confidentiality?", "In what way did CMS respond to these concerns?", "Why does CMS collect MA encounter data?", "On what does CMS's ability to make proper payments depend?", "What are the extent of CMS's actions to ensure proper payments?", "How did GAO determine whether CMS was making validating encounter data?", "What did GAO review to determine whether CMS was making validating encounter data?", "How did GAO interact with stakeholders to determine whether CMS was making validating encounter data?" ], "summary": [ "Since GAO issued its July 2014 report, the Centers for Medicare & Medicaid Services (CMS) within the Department of Health and Human Services (HHS) has made limited progress to validate the completeness and accuracy of Medicare Advantage (MA) encounter data.", "CMS collects encounter data—detailed information about the care and health status of MA enrollees—to determine payments to MA organizations (MAO).", "These entities received approximately $170 billion to provide coverage to nearly one-third of all Medicare beneficiaries in 2015.", "The agency uses a risk adjustment process to account for differences in enrollees' expected health care costs relative to an average beneficiary.", "Without complete and accurate encounter data, CMS cannot appropriately risk adjust MAO payments.", "CMS has begun compiling basic statistics on the volume and consistency of data submissions and preparing automated summary reports for MAOs indicating diagnosis information used for risk adjustment. However, CMS has yet to undertake activities that fully address encounter data accuracy, such as reviewing medical records. (See figure.)", "Furthermore, some health insurance and provider trade associations GAO interviewed voiced concerns about CMS's ability to properly identify diagnoses used for risk adjustment.", "CMS officials noted that they are working with MAOs to refine how the methodology used to obtain diagnoses data is applied.", "To the extent that CMS is making payments based on data that have not been fully validated for completeness and accuracy, the soundness of billions of dollars in Medicare expenditures remains unsubstantiated.", "Given the agency's limited progress, GAO continues to believe that CMS should implement GAO's July 2014 recommendation that CMS fully assess data quality before use.", "Since the July 2014 report, CMS has made progress in developing plans to use MA encounter data for risk adjustment, but has not specified plans and time frames for most other purposes, such as conducting program evaluations and supporting public health initiatives.", "CMS began phasing in patient diagnosis information from encounter data in its risk adjustment process in 2015 and intends to rely completely on those data by 2020.", "Because it has primarily focused on collecting comprehensive encounter information for risk adjustment purposes—which is key to ensuring proper payments—CMS officials told GAO that the agency has largely deferred planning for additional uses of the data.", "Given the agency's limited progress, GAO continues to believe that CMS should implement GAO's July 2014 recommendation that CMS fully develop plans for the additional uses of encounter data.", "Some stakeholder organizations have objected to the risk adjustment transition time frame, asserting that it does not allow sufficient time for a successful transition.", "According to CMS, the multiyear transition time frame is reasonable.", "Some stakeholders also were concerned that releasing data to external entities could compromise the confidentiality of proprietary information, such as payments to providers.", "CMS officials said that they intend to use data protections similar to those used with other Medicare data.", "CMS collects MA encounter data to help ensure the proper use of federal funds by improving risk adjustment in the MA program—the private health plan alternative to traditional Medicare—and for other potential purposes.", "CMS's ability to make proper payments depends on the completeness and accuracy of MA encounter data.", "In July 2014, GAO reported that CMS had taken some, but not all, appropriate actions to validate the completeness and accuracy of encounter data and had not fully developed plans for using them.", "To do this work, GAO compared CMS activities with the agency's protocol for validating Medicaid encounter data—comparable data collected and submitted by entities similar to MAOs—and federal internal control standards.", "In addition, GAO reviewed relevant agency documents and interviewed CMS officials on MA encounter data collection and reporting. GAO also reviewed comments in response to CMS's 2014 proposed rule and reports from stakeholder organizations.", "GAO also interviewed a non-generalizable selection of 11 stakeholders including health insurance and provider trade associations and research organizations. HHS provided technical comments on this report that were incorporated as appropriate." ], "parent_pair_index": [ -1, 0, 1, -1, 3, -1, -1, 6, 6, -1, -1, 0, 0, 2, -1, 4, -1, 6, -1, -1, 1, -1, 0, 0 ], "summary_paragraph_index": [ 3, 3, 3, 3, 3, 3, 3, 3, 3, 3, 4, 4, 4, 4, 4, 4, 4, 4, 0, 0, 0, 2, 2, 2 ] }

{ "title": [ "", "Introduction", "Health Information", "Use of Genetic and Other Health Information by Health Insurers", "The Problem of Adverse Selection", "Use of Genetic and Other Health Information by Employers", "Genetic Information", "Is Genetic Information Different from Other Health Information?", "What Evidence Is There That Genetic Discrimination Exists?", "Cases of Genetic Discrimination", "Genetic Testing by Employers", "Surveys of Employers", "Surveys of Consumers", "Court Cases and Legal Settlements", "Impact of the Fear of Discrimination on Behavior", "Examples of the Impact of Fear of Discrimination on Behavior", "The Role of Genetic Counseling", "The Genetic Information Nondiscrimination Act of 2007 (S. 358/H.R. 493)", "Title I: Genetic Nondiscrimination and Health Insurance", "Genetic Testing Requirements Prohibited", "Use and Disclosure of Genetic Information Restricted", "Health Insurance Discrimination Disallowed", "Penalties for Violations Permitted", "Title II: Genetic Nondiscrimination and Employment", "Genetic Testing Requirements Prohibited", "Discrimination in Employment Practices Disallowed", "Acquisition of Genetic Information Restricted", "Management of Genetic Information Specified", "Study of Violations Required", "Selected Legislative Issues", "Privacy Rule Background", "Title I: Is the Privacy Rule Sufficient to Protect Consumers?", "Titles I and II: Would Legislation Actually Increase Utilization?", "Title I: Would the Minimum Penalty Encourage Frivolous Lawsuits?", "Title II: Do the Bills Specify How Information May Flow Between a Group Health Plan and an Employer?", "Title II: Would the Bills Create an Incentive for Suing Employers?", "Title II: Do the Bills Strike the Right Balance Between Public and Individual Risk?", "Title II: Should the Bills have a Sunset Clause?", "Title II: Should the Bills Require Separate Medical Files?", "Title II: Should the Bills Create a Safe Harbor?", "Title I and Title II: How Do S. 358 and H.R. 493 Protect Genetic Information?", "Family Medical History", "Differences Between Title I and Title II", "Title I, Predictive vs. Manifested Disease Information and Type of Test" ], "paragraphs": [ "", "In order for Congress to address the key issue that it faces with respect to genetic discrimination, namely, whether the potential for genetic discrimination by employers and insurers merits protections for genetic information that are more extensive than those already in place for health information in general, there are several fundamental points that it may wish to consider. These include an understanding of what genetic information and discrimination are, how current laws affect employers' and insurers' use of genetic and other health information, how proposed legislation would amend current law, and the arguments that have been made both in favor of and against the passage of legislation.\nProperly defining genetic information in potential nondiscrimination legislation is essential, as the scope of the definition will largely determine the types of activities that are permitted and proscribed. Yet this basic concept may prove to be complex, as many types of health information have a genetic component. Genetic information may be defined and derived in a number of ways. Of course, it may be obtained via genetic testing. However, it may also be discernable through other laboratory testing that does not involve a specific examination of genes, such as some protein or molecular testing. It may sometimes be derived through physical examination (for example, Down's syndrome, which has a genetic basis, has specific physical characteristics such as a single crease across each palm). Finally, genetic information may be discernable from a family's medical history, which might reveal risks for certain types of cancer, hypertension, and a myriad of other diseases with a genetic component.\nOnce the definition of genetic information is settled, the question of what constitutes discrimination based on that information can be addressed. In the context of the current debate in Congress, genetic discrimination can be defined as the potential use of an individual's genetic information by employers or health insurers to discriminate against that individual in employment decisions (hiring, promotions, firing) or health insurance coverage decisions (eligibility or premiums). Although the use of health information, including genetic information, by employers and insurers is currently regulated, some argue that genetic information merits special protections under the law.\nThree federal laws and a presidential order touch on the issues raised by the use of genetic information: the Americans with Disabilities Act (ADA); Title VII of the Civil Rights Act of 1963; the Health Insurance Portability and Accountability Act (HIPAA); and Executive Order 13145, To Prohibit Discrimination in Federal Employment Based on Genetic Information (65 FR 6877). The ADA protects people from discrimination based on existing disability, history of disability, and perception of disability in employment. The executive order prohibits discrimination against federal employees based on protected genetic information, or information about a request for or the receipt of genetic services.\nIn general, the HIPAA statute limits denial of coverage based on pre-existing conditions to 12 months. In the absence of a current diagnosis, the HIPAA statute would not consider predictions of risk of future disease based on genetic information to be a pre-existing condition. In addition, the health information privacy rule, issued in 2000 pursuant to HIPAA's Administrative Simplification provisions, restricts the disclosure of health information, including genetic information, by group and individual health plans. The HIPAA privacy rule also allows group and individual health plans to use some health information (which could include genetic information) in underwriting. The Civil Rights Act provides some protections against genetic discrimination against members of a protected group, such as persons of a certain race, color, religion, sex or national origin.\nThe existence and scope of state anti-discrimination legislation that could be interpreted to cover genetics varies. Most state laws prohibit: (i) discrimination based on particular traits or diseases; (ii) discrimination based on genetic test results; or (iii) insurers or employers from requiring that an individual take a genetic test and using the results.\nLegislation reintroduced in the 110 th Congress ( S. 358 / H.R. 493 ) would extend current federal protections against discrimination to health insurers in the individual market, and would further limit the use and disclosure of genetic information. The bills would also bar insurers from using genetic information or family history of disease in underwriting for an individual (as an individual or applied to a group).\nS. 358 and H.R. 493 would also prohibit discrimination in employment because of genetic information and, with certain exceptions, prohibit an employer from requesting, requiring, or purchasing genetic information. If such information were obtained, the bills would require that it be treated as part of a confidential medical record. The bills include detailed provisions on enforcement which generally apply the remedies available in existing civil rights laws such as Title VII of the Civil Rights Act of 1964 (42 U.S.C. § 2000e-4 et seq.). Neither bill addresses life or disability insurance.\nGenetic nondiscrimination legislation has been debated since the 103 rd Congress. Since that time, many of the arguments and positions supporting and opposing genetic nondiscrimination legislation have remained largely unchanged. On January 18, 2007, President Bush called on Congress to pass bipartisan genetic nondiscrimination legislation. Genetic nondiscrimination legislation is supported by consumer groups, the medical profession, researchers and the medical products industry (including pharmaceutical companies). Opposition to genetic nondiscrimination legislation has come from some members of the insurance industry and from employers, represented broadly by the Genetic Information Nondiscrimination in Employment (GINE) Coalition, which includes the U.S. Chamber of Commerce.\nSupporters of the legislation argue that current laws are not clear on protection from discrimination based on genetic information; because existing federal laws have not been tested in court, the extent of their protection of genetic information is not assured. Despite the fact that few cases of genetic discrimination can be documented, supporters argue that proper protections are necessary to allay the fears of individuals about the potential for discriminatory practices. Allaying the public's fears, they argue, will encourage individuals to seek beneficial health services, participate in much-needed clinical research, and otherwise reap the benefits of the publicly funded Human Genome Project (HGP).\nMany professional and consumer groups argue that individuals should not be penalized in their ability to obtain insurance or a job because medical science can identify a genetic condition or a gene that predisposes a person to a future illness, but cannot yet offer an effective treatment. For example, the American Civil Liberties Union (ACLU) stated at a hearing in 2001 that \"Americans should be judged on their actual abilities, not their potential disabilities.\" On the other hand, this may create a disparity between people whose medical conditions have treatments available and those whose do not.\nOpponents of enacting special legislation to prevent potential discrimination on the basis of genetic information argue that current federal and state protections are sufficient. The insurance industry also argues that additional regulation would be confusing, unnecessary and costly. They claim that it would be unfair to prohibit them from acquiring genetic information when they already use other health information. Some groups, such as the American Association of Health Plans (now a part of the America's Health Insurance Plans), support the premise of federal nondiscrimination legislation and have indicated support for legislation that is consistent with their principles. However, others would further limit the definition of genetic information. One bill introduced in the 108 th Congress ( H.R. 3636 ) would have prohibited health insurers from discriminating based on predictive genetic information but would not have affected employers. The bill had no cosponsors, and many consumer groups indicated that they would not support nondiscrimination legislation without both insurance and employment provisions.\nSome employers question whether legislation is necessary because there are few documented cases of discrimination based on genetic information, and there is no evidence that employers would use the information if they had it. In addition, employers argue that existing law provides adequate protection against genetic discrimination in employment. Randy Johnson, vice president of the U.S. Chamber of Commerce's office of labor policy, stated that if the legislation were to pass, it should be narrowed to acknowledge that employers should be able to make employment decisions based on information that some workers with specified genetic markers could pose a \"significant risk to others.\" Other business coalition members suggest that the definition of \"family member\" should be revised to include only immediate family. Many also support federal preemption whereby any new federal law would preempt existing state law in this area.\nThis report provides an overview of the scope and current permissible uses of health information and genetic information. It reviews the existing evidence of genetic discrimination and the impact of the fear of discrimination. Then it provides a more detailed discussion of S. 358 / H.R. 493 and the key issues raised by the genetic nondiscrimination bills.\nFor a more detailed discussion of genetic testing and public policy, see CRS Report RL33832, Genetic Testing: Scientific Background for Policymakers , by [author name scrubbed].", "Understanding how health information is currently used and regulated provides a framework for discussion about whether extra protections are necessary for genetic information, and if so, which protections are most appropriate. Health information, which includes genetic information, is currently used by health insurers and employers. It is often presumed confidential, but increasing capabilities to store and rapidly transfer data electronically escalate the challenge of protecting privacy. Both the ways in which health insurers and employers use and are restricted from using health information are discussed in the sections that follow.", "Several federal laws help provide some protection against genetic discrimination in health insurance. These laws include the Health Insurance Portability and Accountability Act (HIPAA) of 1996 (specifically Title I: Health Care Access, Portability, and Renewability); the Social Security Act (SSA); and the HIPAA privacy rule. HIPAA prohibits group health plans from imposing a preexisting condition exclusion on the basis of genetic information or establishing eligibility requirements for any individual based on genetic information. However, HIPAA does not prohibit a group health plan from charging all members of a group higher premiums on the basis of an individual's genetic information. The SSA contains provisions that prohibit discrimination in the pricing or issuance of Medigap policies on the basis of health status. However, those protections generally expire six months after a person becomes eligible for Medigap, and they do not expressly extend to genetic information. In addition, the SSA does not currently prohibit an issuer of a Medicare supplemental policy from requesting or requiring genetic testing.\nThe privacy rule gives patients the right of access to their medical information and places certain limitations on when and how health plans and health care providers may use and disclose medical information. Generally, plans may use and disclose information for their own treatment, payment, and health care operations without the individual's authorization and with few restrictions. The rule covers all individually identifiable health information, including genetic tests and information about an individual's family history. The rule permits a group health plan to disclose individually identifiable health information to an employer that sponsors the plan, provided the information is used only for plan administration purposes.\nHealth insurers typically use family history, among many health factors, in the process of placing individuals or groups in a risk category for determining their premiums (underwriting). Individuals or groups at higher risk may be charged higher premiums to cover the anticipated costs of their care. Traditional approaches to underwriting also use age, sex, type of occupation, financial stability of group members, employee turnover and prior cost (of care) experience to determine what a group's insurance premium should be.\nIn general, premiums for a large group with one or two sick members can remain relatively stable, as the cost of the sick individuals is spread among all members of the group. However, as groups become smaller, the cost of insurance for the group is more dependent on the health of the individual group members, since one sick individual in a small group can result in high premiums for the whole group. Individuals who are not part of a group coverage, seeking to purchase individual health insurance, must bear the entire premium increase associated with any illness, thus making such insurance prohibitively expensive for many sick individuals.\nInsurers claim that most genetic information is not currently useful to the underwriting process because the clinical significance and relationship to the severity of illness is not known for many conditions. However, once the link to future illness is established and the costs thereof become predictable, insurers' use of genetic information might be no different than the use of other diagnostic information. Some actuaries agree that adding diagnostic information significantly improves the power of traditional underwriting methods to predict future medical expense.\nOne author has provided a model demonstrating how genetic information (including family history) that has a known correlation to a specific disease, such as Huntington's disease or breast cancer, could be used to underwrite life insurance. Some health care providers and consumers fear that the model could also be applied to health insurance. The model's author suggests that insurers support screening for genetic mutations for which preventive interventions can reduce the risk of death. However, health insurers may disagree, depending on the nature, expense and effectiveness of the interventions in preventing symptoms and other medical costs of treating an acute or chronic illness. That which reduces the risk of death may not reduce health or disability expenses (and lower life insurance premiums). In addition, health insurers may be reluctant to bear the costs of preventive care. Particularly in a climate in which individuals change health insurers frequently, an insurer that pays for prevention may not ultimately reap the financial benefits of avoiding the illness.", "The predictive power of genetic testing raises a concern for insurers about the possibility of adverse selection. Adverse selection can occur when an insurance applicant knows—and the insurance company does not know—that the applicant has some health risk, possibly due to genetic information. In this case, the applicant may be motivated to purchase insurance with greater coverage and may be able to do so at a lesser premium.\nSome argue that the specter of adverse selection requires that insurance companies have access to genetic information, or else their financial solvency may be threatened because individuals might obtain insurance at premiums that did not accurately reflect their risk of expenditures. Others argue that concerns about adverse selection with respect to genetic information may be unfounded. The majority of Americans receive their insurance through their employers, which are group rated (i.e., premiums are based on an assessment of the average risk among all employees). This system creates incentives for low-risk individuals to purchase coverage, thus diminishing the potential impact of adverse selection. In addition, some note that genetic information about disease risk may prove to be so complicated as to be essentially useless to an insurer. For example, for a complex multigenic disease, there may be numerous genes involved, each of which contributes relatively little to an individual's risk of developing disease. In addition, these variants will be modified by environmental factors that further complicate the analysis.", "One federal law, the Americans with Disabilities Act (ADA), may provide some protections against employers' use of employees' genetic information. The ADA prohibits employers from revoking an offer, or from making other promotion decisions on the basis of that health information. Though genetics is not specifically addressed by the ADA, the Equal Employment Opportunities Commission (EEOC) interprets the ADA to mean that employees and/or job applicants cannot be required to undergo genetic screening. However, current law permits employers to require medical examinations of prospective employees who have been given conditional offers of employment, if all employees in a similar situation are given the medical exam. Employers may also receive information related to applicants' or employees' current disability or health status when the information is related to the individuals' abilities to do their job.\nSupporters of genetic nondiscrimination legislation argue that because ADA does not explicitly address genetics, the ADA protections that would be applied by the court system are not clear. Opponents argue that the ADA protections are sufficient, and that the proposed legislation is not clear on workplace situations where an employee's genetic makeup could interfere with the major functions of the individual's job or put others at risk of harm.\nAnother federal law, the Occupational Safety and Hazard Act (OSHA), may permit employers to conduct some genetic tests on employees. OSHA establishes a legal duty for employers to protect employees from hazards in the workplace. Although the statute does not require an employer to perform particular tests, the employer may choose to implement programs that monitor employees' potential exposure to toxic or hazardous elements. Standards for these programs allow for genetic testing.\nGenetic monitoring for acquired damage resulting from exposure to a toxic element is different from genetic screening for an inherited predisposition to an occupationally related disease. For example, monitoring may be used to determine if an employee is developing DNA damage from being exposed to asbestos. On the other hand, a different type of test could potentially determine if the employee were more susceptible to asbestos damage to begin with. The distinction may be relevant should questions arise regarding whether any ill-health effects sustained by the worker were a result of occupational exposure.", "As noted in the introduction, the definition of genetic information is a key issue for Congress in its consideration of genetic nondiscrimination legislation, because the broader the definition the more expansive the prohibitions on discrimination. The definition of genetic information varies among sources. Genetic information is generally described as the information from a genetic test about genes, gene products, inherited characteristics or other traits that are derived from an individual or an individual's family member(s). Information about an individual's current health status (such as sex, age, results of physical examination, and chemical, blood, or urine analysis, where the analyses do not provide information about an individual's genotype) is generally not considered to be genetic information. The two key sources of genetic information are family medical histories and genetic test results.", "Understanding the ways in which genetic information is like and unlike other types of information can help to inform the debate over the need for genetic-specific nondiscrimination legislation. Congress faces two questions on this topic. First, is genetic information different from other health information? Second, if so, do the differences indicate that genetic information merits additional protections?\nGenetic information has been described as being different from other health information because of factors such as its stability, its unique predictive qualities, its potential use for individual and familial identification, and the impact that public fear of discrimination is having on the behavior of patients and healthcare providers. Some argue that these factors may make the misuse of genetic information particularly detrimental to individuals, and, therefore, that the information deserves special protections. Further, they argue that the public health benefits that could come from large-scale genetic research and the utilization of new genetic technologies may not be fully realized unless public fear is assuaged by genetic nondiscrimination legislation.\nThose opposed to special protections assert that genetic information is fundamentally no different than other health data, at least not in ways relevant to special protections, and that genetic information is already adequately protected by medical privacy laws. The Senate report for S. 1053 ( S.Rept. 108-122 ), the genetic nondiscrimination bill that was passed by the Senate in 2003, included the statement that eventually \"it may not be possible or even desirable in health care delivery or scientific research to isolate genetic information as it pervades health information.\"\nTo address the question of whether genetic information merits special protections, one study compared the experiences, attitudes and beliefs of persons with genetic conditions (cystic fibrosis and sickle cell disease) to those with other serious medical conditions (diabetes, HIV, breast cancer and colon cancer) and to persons at risk for developing a disease (breast or colon cancer) due to strong family history. The authors found that in most instances, patients felt strongly that their health information needed to be protected regardless of whether it was genetic. In fact, respondents indicated that information about non-genetic stigmatizing conditions—such as abortion history, mental health history, drug and alcohol history, HIV status, and sexually transmitted disease—needed special protection. Based on their findings, the authors concluded that separate privacy policies for genetic and non-genetic health information would be unwarranted.\nOther studies and public opinion polls suggest that patients and members of the community desire and may benefit from additional protections for their genetic information. A 2003 study of 470 people with a family history of colorectal cancer showed that nearly half rated their level of concern about genetic discrimination as high. Those individuals with high levels of concern indicated that they would be significantly less likely to consider meeting with a health care professional to discuss genetic testing, or to undergo testing. A 2004 survey by the Center for Genetics and Public Policy found that 92% of survey respondents thought employers should not have access to their genetic test results, and 80% opposed letting insurance companies have access to results.", "Critics of genetic nondiscrimination legislation have argued that legislation is not necessary because genetic discrimination is not occurring. There have indeed been relatively few reported cases of genetic discrimination in health insurance and employment. Rothenberg and Terry hypothesize that this is because: (1) the use of genetic information by employers and insurers is not widespread; (2) affected persons may not know the underlying basis for adverse employment or insurance decisions; and (3) many cases may go unreported because of disincentives associated with publicizing discrimination lawsuits. Reports of cases of genetic discrimination and genetic testing by employers are presented below.", "There have been a few studies of the prevalence of genetic discrimination in health insurance, employment, and other settings, and these studies are quite dated. One study reported that 22% of survey respondents indicated that they or a family member were refused health insurance as a result of a genetic condition. This study was strongly criticized by the Health Insurance Association of America (HIAA) at the time, which argued that there is no evidence showing that insurers engage in genetic discrimination, and that federal legislation to prohibit discrimination based on genetic information is unnecessary. However, another study found that a number of institutions, including health and life insurance companies, health care providers, blood banks, adoption agencies, the military and schools, were reported to have engaged in genetic discrimination against asymptomatic individuals. The alleged discriminatory practices included an insurance company treating a genetic diagnosis as a preexisting condition, an adoption agency refusing to allow a woman at risk for Huntington's disease to adopt a child, and an employer terminating an employee after the employee disclosed a risk of Huntington's disease.\nOn October 18, 2004, several individuals shared stories of genetic discrimination with the Secretary's Advisory Committee on Genetics, Health and Society (SACGHS). These cases are highlighted below:\nPhil Hardt has hemophilia B, a bleeding disorder, and Huntington's disease. He testified that a human resource manager for an early employer had indicated that he should withhold information about his hemophilia and any bleeding episodes from his employer or he would never be promoted or trained. In addition, he indicated that his daughter was unable to receive mortgage life insurance unless she tested negative for Huntington's disease. His grandson was denied health insurance because of the hemophilia B that he inherited, and he was forced to accept lower wages so that they could qualify for state welfare and insurance coverage. Two of his other children decided to pay out of pocket to be tested anonymously for Huntington's disease to protect them from discrimination. Mr. Hardt applied—and was rejected—for long-term care insurance. Rebecca Fisher, a mother and early-onset breast cancer survivor with a strong family history recounted how her employer, a small, self-insured community hospital, was more concerned that the cost of her bone marrow transplantation and other health care had exceeded the cap for that year than with her health or productivity. Tonia Phillips, a woman with a BRCA1 mutation in her family, chose to undergo prophylactic surgery to reduce her risk of breast and/or ovarian cancer. After her procedures, her employer-sponsored health insurance policy had increased by $13,000. Her employer asked her to switch to her husband's policy, and in doing so, indicated that she would receive a wage increase. Paula Funk, another individual who carried a BRCA1 mutation, indicated that, because of the potential for discrimination, she and her family paid out of pocket for testing so her physicians and health care providers would not write her BRCA1 status on insurance claims forms. She further testified regarding her difficulty in finding an insurance company that would cover herself and her husband, co-owners of a small business, as a group so that their premiums would be affordable, given her family history and genetic testing status. Heidi Williams, an individual diagnosed with alpha-1 antitrypsin deficiency, also spoke at a press conference at the House of Representatives on April 1, 2004. She explained that a large health insurance company (Humana) had denied health insurance coverage for her two children on the basis that they were carriers of alpha-1 antitrypsin disease. Carriers only have one copy of an abnormal gene, and typically do not exhibit symptoms of the disease. After receiving inquiries from the Genetic Alliance (a consumer advocacy organization) and the press, the insurance company reversed its decision to deny coverage, and provided six months of free coverage. On July 20, 2000, Terri Seargent, also an individual diagnosed with alpha-1 antitrypsin deficiency, filed a statement with the Senate Health, Education, Labor and Pension Committee indicating that soon after her diagnosis, she was unexpectedly released from employment. Without a job, and having a pre-existing condition, she also lost her health, life and disability insurance. Later, an investigation by the Equal Employment Opportunity Commission (EEOC) supported her allegation of discrimination under the Americans with Disabilities Act (ADA).\nIt is difficult to gauge the appropriate weight that clusters of stories like those above should have in the policy arena. On one hand, drawing broad conclusions based on a few examples may not be valid. On the other hand, obtaining information from a representative sample of the population may be difficult, because individuals may be reluctant to share their personal genetic information.", "Employers' testing of employees for genetic markers is not currently believed to be a widespread practice; however, surveys of employer practice and employee experience indicate that some instances exist. No cases of employment discrimination based on genetics have been decided in a federal court or the U.S. Supreme Court. However, several have been brought or threatened, and two cases were settled out of court.", "Employers have long been interested in identifying \"optimal\" employees using non-health characteristics—such as behavior (i.e., substance abuse, mental instability, compulsive disorders) or intelligence—to identify special skills or deficits that are predictive of productivity. Though behavioral genetic testing is not ready for commercial use (largely due to the very complex interaction of genes and the environment), other forms of testing are common.\nThe American Management Association (AMA) has conducted several surveys of employers' medical testing practices. In a1998 survey, the AMA questioned the employers about their use and understanding of what constituted a genetic test. Respondents were presented with National Institutes of Health's definition of genetic test: \"an analysis of human DNA, RNA, chromosomes, proteins, and certain metabolites in order to detect heritable disease-related genotypes, mutations, phenotypes, or karyotypes for clinical purposes. Such purposes include predicting risk of disease, identifying carriers, and establishing prenatal and clinical diagnosis or prognosis.\" Only two respondents (out of 1,627) indicated that they performed genetic testing. A larger percentage (14.3%) indicated testing for \"susceptibility to workplace hazards.\" The results were modified by a 1999 follow-up survey in which AMA found that not all of the testing their 1998 respondents had characterized as \"genetic\" actually was. Only nine of 44 employers who indicated having testing programs actually had genetic testing programs. Some employers believed that any blood test constituted genetic testing; others believed that diagnostic testing, rather than susceptibility testing, was genetic testing.\nIn 2001, the AMA conducted another survey of employers' medical testing practices. The results indicated that 68% of major U.S. firms required medical examinations for new hires, current employees, or both. These were most frequently required in public administration and manufacturing positions and less frequently in business or professional positions. Establishing \"fitness for duty\" was the leading reason that firms engaged in complete medical examinations (48% of respondents). Testing for illegal substance use was the most common form of workplace testing, practiced by 67% of employers. Some employers also reported testing new or current employees for the genetic diseases sickle cell anemia (1.3%) or Huntington's disease (0.4%), and a larger proportion asked about family medical history (20.1%). In addition, some employers indicated that they used the medical test results—about sickle cell anemia (1.0%), about Huntington's disease (0.8%), and about family history (5.5%)—for purposes of hiring, reassigning, retaining or dismissing employees.", "A 1996 study of 332 consumers who were members of genetic support groups found that 13% of respondents reported that they or another family member were denied a job or let go because of a genetic condition in the family. The experience was significantly different for respondents who had a genetic condition (21%) compared to respondents who did not have a genetic condition (4%). Two examples were highlighted: one respondent, a man with a sex chromosome disorder, indicated that he was denied a job when a doctor wrote the name of the disorder on his medical report during his pre-employment physical. The potential employer told the applicant of the decision and, knowing it was illegal, also stated that they would deny having the conversation. In the second example, a woman with a skeletal disorder reported that her employment was terminated after she informed her employer of her diagnosis. The woman sought legal counsel, and the termination was withdrawn.\nAuthors of a recently published study interviewed approximately 100 adults or parents of children with sickle cell disease, cystic fibrosis, diabetes, and HIV, and 200 adults with or at risk for breast or colon cancer about their experiences and attitudes regarding health insurance. Twenty-seven percent of the respondents self-reported having been denied health insurance or offered insurance at a prohibitively expensive rate. Respondents with sickle cell disease and cystic fibrosis were twice as likely to report this as those with non-genetic conditions (e.g., HIV). More than one-third of all respondents thought there was a high chance they would be denied health insurance in the future or their insurance would become unaffordable. While the study may have suggested that insurers make decisions based on genetic information or diseases, S. 358 / H.R. 493 would only limit discrimination due to genetic predisposition to diseases. The bills would have no effect on insurance availability or costs for people like many of those in the study who had manifested genetic diseases.", "To date, there have been two court cases alleging genetic discrimination. In 2002, Burlington Northern Santa Fe Railway Corporation, one of the country's biggest railroads, agreed to pay $2.2 million to settle charges related to genetic testing and discrimination. Employees charged those who had filed for workers compensation for carpel tunnel syndrome (CTS) were tested without their knowledge for a genetic marker dubiously associated with the syndrome. CTS is a painful hand and wrist condition caused by repetitive motion. The railway denied violating the law, and insisted that testing was necessary to determine the cause of injury to 36 employees who claimed to have job-related CTS (20 actually underwent testing before the program was voluntarily suspended). Burlington Northern halted the testing under the terms of a settlement shortly after a lawsuit was filed.\nIn another case, Lawrence Berkeley Laboratory was accused of conducting pre-employment screening for sensitive medical information, testing for genetic traits such as sickle cell trait, and for non-genetic factors such as syphilis and pregnancy. The case was settled out of court in 1999. Prior to settlement, the employees had filed a court case, claiming that the Laboratory had violated Title VII and right to privacy as guaranteed in the U.S. and California Constitutions. In response, the laboratory sought to have the case dismissed without a trial (in summary judgement), claiming that the employees had waited so long after the alleged testing to file their case that their right to sue had expired (the statue of limitations had tolled). On this issue, an appellate court sided with the plaintiffs, determining that the question of when employees knew or had reason to know that the laboratory was conducting testing should be decided by a court (issues of material fact existed), thus precluding summary judgement. ( Norman-Bloodsaw v. Lawrence Berkeley Laboratory (135 F.3d 1260, 1269; 9 th Cir. 1998)).", "While there are few documented cases of genetic discrimination by employers and health insurers, studies have shown that public fear of discrimination influences both the use of genetic testing and the use of genetic information by consumers and health professionals. Fear of genetic discrimination may cause consumers to refuse genetic testing and therapies that could be beneficial to their health. It may deter people from participating in genetic research, thus slowing the development of new technologies. In other words, whether or not genetic discrimination is actually occurring, public worry about the issue may itself have detrimental effects. Related questions have been raised about whether genetic counseling, in which professionals inform and assist patients making genetic-related healthcare decisions, may serve to unduly increase the fear of discrimination, amplifying the behavioral impact. Both examples of the behavioral impact of genetic discrimination and investigation into the role of genetic counseling are presented in this section.", "In January 2000, the Secretary's Advisory Committee on Genetic Testing (SACGT) sponsored a public forum that focused on the impact that the fear of genetic discrimination was having on various groups. SACGT received comments from patients, consumers, health professionals, scientists, genetic test developers, educators, industry representatives, policymakers, lawyers, students and others representing a wide range of diverse ethnic and racial groups, and from a survey mailed to 2,500 individuals. The comments revealed several anecdotal cases of discrimination, and resulted in the committee forwarding two letters to the Secretary of Health and Human Services (HHS) urging support for nondiscrimination protections:\nDuring consultations with the public SACGT heard from many Americans who are concerned about the misuse of genetic information by third parties, such as health insurers and employers, and the potential for discrimination based on that information. Many stated that fear of genetic discrimination would dissuade them from undergoing a genetic test or participating in genetic research studies. Others stated that they would pay out of pocket for a genetic test to prevent the results from being placed in their medical record. Such concerns are a deterrent to advances in the field of genetic testing and may limit the realization of the benefits of genetic testing.\nSome examples of the specific impact that the fear of genetic discrimination has on behavior were provided in October 2004, when several individuals testified at a SACGHS meeting:\nCarolina Hinestrosa, a 10-year, two-time survivor of breast cancer and executive vice president for programs and planning of the National Breast Cancer Coalition stated that despite her strong personal and family history, she has not undergone genetic testing for fear of discrimination against herself and her daughter. A mother, Phaedra Malatek, described how her family has not taken advantage of the health benefits of genetic testing for hemochromatosis that ran in her family because of their fear of losing their health insurance, and possible discrimination against her children when they seek employment.\nSurveys of professionals and patients suggest that individuals are most likely to withhold information about genetic testing from insurance companies and their employers. A survey of genetic counselors found that, should counselors themselves be at risk of developing either breast cancer or hereditary non-polyposis colon cancer, most (108 out of 159 surveyed) would not submit charges to their insurance companies primarily because of the fear of discrimination. Twenty-five percent would use an alias when obtaining a test to reduce the risk of discrimination and maximize confidentiality. Most respondents indicated that, while they would share results with their physicians, family and friends, 60% would not share the information with colleagues because of the need for privacy and fear of job discrimination based on the result.\nOf 91 participants in a study on hereditary pancreatitis, 22% believed that knowing their test results \"might lead to medical insurance discrimination\" for themselves or their families. While most individuals would share information with a physician or their family, only 4% indicated they would share results with their insurance companies, and 20% would share them with their employers. Another study of 98 extended families with a history of breast or ovarian cancer, reported on 716 of 1,315 individuals who underwent counseling and DNA testing. Before receiving results, about half were concerned about insurance discrimination, and 1% indicated that they felt strongly that their family history of cancer had been the basis for insurance discrimination.\nA group of scientists at the University of Michigan offered genetic testing for susceptibility to breast cancer to 184 individuals participating in a cancer risk evaluation clinic. Patients were charged about $225 for the initial consultation, and were required to pay Myriad Genetics directly for any testing they pursued. At the time, Myriad charged $395 for analysis of a single mutation, $450 for analysis of three common mutations found in individuals of Ashkenazi Jewish descent, and $2,400 for full sequencing of the breast cancer susceptibility genes (also called BRCA1 and 2). Patients had the option of self-paying, or billing their insurance companies. Though discussion of potential discrimination was standard practice in the counseling session that accompanied testing, the researchers only counted concerns initiated by the patient during the session. Of the 184 patients, 106 underwent testing. Of the 78 patients who declined testing, 48 (or 26% of the original cohort of 184) declined due to concerns about cost, confidentiality or insurance discrimination. The authors found it difficult to separate these concerns. Although a patient may have wanted to self-pay for fear of potential discrimination, the high cost of testing may have forced the patient to choose to bill insurance, or decline testing. The authors estimated that approximately 14% of patients eligible for testing would have had a BRCA mutation, but would not undergo testing because of cost, discrimination, or confidentiality concerns.\nA follow-up telephone interview was conducted with 92 of the 184 patients concerning their actual experiences with their insurance companies. Of the 92, 15% paid out of pocket, intentionally not involving their insurance companies, while 38% (35 of 92) indicated that they did not have any problems obtaining insurance coverage for the services requested. However, of those 35 patients, 23 only requested payment for the consult and surgery—not the testing—from their insurers. The remaining 47% experienced various difficulties in obtaining coverage for some or all of the services. The patient's family income was a significant factor in the decision to seek insurance reimbursement. In another study of 68 patients offered genetic testing for breast cancer, while 18 had access to free testing, and 13 sought insurance reimbursement, the remaining 37 chose to pay out of pocket citing concerns over insurability and confidentiality reasons. Other authors have postulated that those with the lowest income who were covered by government healthcare programs, such as Medicaid, may be less concerned about genetic discrimination because their eligibility for health insurance does not depend on health status or underwriting decisions.", "When viewing evidence of the ways in which fear of genetic discrimination affects behavior, some have questioned whether genetic counseling itself may inadvertently add to the fear. The risk of discrimination by employers and insurers is often discussed in the counseling session that accompanies testing. Most counselors typically spend up to 15 minutes of a one- to two-hour counseling session discussing patient concerns about discrimination, even in states with more comprehensive anti-discrimination laws. Counselors typically note that actual cases of discrimination are few, and will provide information regarding the various legal protections. While many counselors indicate that a significant proportion (25-50%) of patients may decline testing due to potential discrimination, other patients accept testing because the benefits of the information to their health or the health of a relative outweigh the risk of discrimination. Either way, counselors note that the potential risk adds to an already stressful situation.\nIn order to reassure patients about privacy, genetic counselors may vary their practices in several ways: they may be discreet about how a visit is documented (i.e., for cancer screening, not genetic testing); they may not send the results to the referring physician unless asked specifically by the patient to do so; or, they may request that the physician keep the results in a separate medical record. Some will forward coded samples to the laboratories for testing. Many genetic counselors will themselves maintain patient files that are separate from the rest of the hospital or medical center's records to minimize the possibility that an insurer will obtain genetic information in the process of reviewing a medical record for reimbursement.\nGenetic counselors note that the fears associated with predictive testing for future adult onset illness are not as apparent in testing in the prenatal and pediatric populations. Presumably this is because of the \"crisis atmosphere\" created with the diagnosis of a potential birth defect and the parents' decision of whether or not to terminate a pregnancy. In some cases including those involving newborns, the fear of insurability may be mitigated by the fact that children are covered under their parents' policies. However, some counselors have expressed concern about the way in which genetic information will be viewed when children become adults and have to find insurance on their own.", "The Genetic Information Nondiscrimination Act of 2007 would restrict insurers' and employers' acquisition and use of genetic information in several ways. These restrictions build upon those already imposed in current law. The specifics of the proposed restrictions have sparked debates in both the employment and insurance arenas since they were first proposed. This section of the report summarizes the current privacy protections in place for both insurers and employers, and then surveys the persistent debates that have accompanied genetic nondiscrimination legislation generally.", "Title I of S. 358 and H.R. 493 would extend the current HIPAA protections against discrimination by group health plans and issuers of health insurance in both the group and individual markets, and restrict their acquisition, use and disclosure of genetic information. Currently, group plans and insurance issuers may require individuals to provide genetic information or undergo genetic tests as a condition of issuing coverage. The HIPAA privacy rule permits plans and insurers to use and disclose genetic information for health care operations, a broadly defined term that includes underwriting, premium rating, and other activities related to the creation, renewal, or replacement of an insurance contract.\nUnder HIPAA's current group market protections against discrimination, plans or insurance issuers may not: (1) deny enrollment to an individual enrolling as part of a group based on the individual's health status, which is defined to include genetic information; or (2) charge individuals enrolling as part of a group more than others in the group based on genetic information. However, insurers may charge the entire group more based on genetic information about an individual or individuals within the group. In the individual market, HIPAA permits insurers to set premiums based on an applicant's genetic information, or deny that applicant coverage if the individual is not HIPAA-protected (although some states prohibit such activity).\nThe bills would place the following restrictions on group health plans and health insurers.", "The bills would prohibit group plans and insurers from requesting or requiring that individuals or their family members undergo a genetic test. However, they would not limit the ability of a health care professional to provide health services even if they were employed by or affiliated with a group health plan or health insurance issuer. That is, health care professionals who are providing care may request or suggest that individuals or their family undergo a test.", "The bills would prohibit group plans and insurers from requesting, requiring, purchasing, using or disclosing genetic information for the purposes of underwriting, eligibility determination (before or during the enrollment process), premium rating, or the creation, renewal, or replacement of a health insurance plan or contract. \"Incidental collection\" of genetic information would not be considered a violation.", "The bills would prohibit plans and insurers in the group health insurance market from: (1) denying enrollment to an individual based on genetic information about that individual or their family members (as noted above, a similar nondiscrimination provision is already in HIPAA); and (2) adjusting a group's premium based on genetic information about an individual in the group or their family members. In the individual market, the bills would prohibit insurers from denying enrollment or adjusting premiums based on genetic information about the individual or their family members.", "The bills would permit the Secretary to impose a penalty of $100 per day during a period of noncompliance with the provisions in Title I. Where willful neglect was found, they would establish a minimum penalty of $2,500, or $15,000 for more severe or prolonged violations.", "Title II of S. 358 and H.R. 493 would make it unlawful employment practice for an employer to discriminate against an employee on the basis of genetic information. Employers also would be prohibited from acquiring genetic information, except under certain specified circumstances (see below). The bills would cover employers and employees as defined in Sections 701 and 717 of the Civil Rights Act of 1964, state employees and employers described in the Government Employee Rights Act of 1991, employees and employers described in the Congressional Accountability Act of 1995 and as defined in Section 3 U.S.C. 411(c), and job applicants. The bills would place the following restrictions on employers.", "The bills would prohibit employers, employment agencies and labor organizations from requiring or requesting that an individual or a family member undergo a genetic test. However, they would not limit the ability of a health care professional to provide health services; that is, health care professionals who are providing care could request or suggest that individuals or their family members undergo testing in the context of providing care.", "The bills would prohibit employers, employment agencies, and labor organizations from using genetic information when making decisions about employees' or applicants' hiring, promotion, or eligibility or selection for training programs or apprenticeships.", "Generally, the bills would prohibit employers, employment agencies, and labor organizations from requesting, requiring or purchasing genetic information. They would allow employers, employment agencies and labor organizations to acquire genetic information about an individual in the following circumstances:\nwhen they offered a health service program; when the employee provided written authorization; when the information was used to monitor the biological effects of toxic substances in the workplace, but only if:\n—the genetic monitoring was required by federal or state law;\n—the employee provided written authorization;\n—the employer provided written notice of genetic monitoring;\n—the employee was informed of the monitoring results;\n—the monitoring was conducted in compliance with federal genetic monitoring regulations; and\n—the identity of specific employees was not disclosed.\nIn addition, the proposed bills would allow an employer to obtain genetic information in the following situations:\nwhen the employer inadvertently requested or required family medical history; when the employer offered health or genetic services, and the individual provided authorization; when the identity of specific employees was not disclosed; when the employer requested information to comply with Section 103 of the Family and Medical Leave Act; and when the employer purchased publically available documents that may have included family medical histories (books, magazines, etc.).", "The bills would treat genetic information as part of the individual's confidential medical record, and require the employer to maintain separate forms or files for genetic information if they obtained it. Disclosure of information would be prohibited except when disclosure is:\nto the individual or employee at their request (including family members if family members are receiving services); to an occupational or other health researcher in compliance with 45 CFR Part 46; in response to a court order when the employer has given the employee notice and sufficient time to challenge the order; and to government officials investigating compliance with Title II.\nLimitations on disclosure would apply to the employer, employment agency, labor organization and labor-management committee. With regard to disclosure under a court order, the bills would limit disclosure to only the genetic information specifically authorized in the order, and would include an exception on disclosure made in connection to an employee's compliance with certification provisions of Section 103 of the Family and Medical Leave Act.", "S. 358 and H.R. 493 would not limit employees' rights or protections under the ADA or Rehabilitation Act of 1973 or any other federal or state statutes. The bills would establish a commission to review the science of genetics and make recommendations on whether the \"disparate impact\" is necessary to continue to protect individuals from situations where an employer (with no discriminatory intent) unwittingly violated the law, and as a result, disproportionate adverse effects are experienced by some individuals with certain genetic information. The bills would not apply to the Armed Forces Repository of Specimen Samples for the Identification of Remains.", "Debate about genetic nondiscrimination legislation has continued since such bills were first introduced in the 103 rd Congress. In order to fully appreciate the debate, an understanding of how the HIPAA privacy rule currently governs insurers' and employers' use of health information is useful. The sections that follow present background about the privacy rule, and then present several of the issues that have been the topic of debate over time.", "In general, the privacy rule covers all individually identifiable health information that is created or received by a health plan or health care provider, including genetic information and information about an individual's family medical history. Plans and providers may use and disclose health information for their own treatment, payment, and other routine health care operations without patient authorization and with few restrictions. The rule, however, does not apply to other entities that collect and maintain health information such as financial institutions that offer life insurance. Employers that sponsor health plans on behalf of their employees present a challenge for the rule's implementation because of their interrelationship with the insurer or health maintenance organization (HMO) that typically administers the plan. In their role as plan sponsor, employers may seek health information to carry out various plan functions.\nWhile the rule in general does not regulate employers, it does address the use and disclosure of health information (including genetic information) by employers that sponsor group health plans. The rule permits a group health plan, a health insurance issuer, or an HMO acting for a group health plan to disclose health information to a plan sponsor (employer), provided the plan documents are amended so that they limit the uses and disclosures of information by the sponsor to those consistent with the privacy rule. In addition, an employer must certify to a group health plan that it will not use the information for employment-related actions (e.g., hiring and promotion decisions). The employer must agree to establish adequate firewalls, so that only those employees that need health information to perform functions on behalf of the group health plan have access to such information.", "S. 358 and H.R. 493 would extend privacy rule protections to insurance and employment functions to clarify the permitted uses of information as exchanged between plan sponsors (employers) and group health plans. Some have questioned whether these additional privacy and confidentiality provisions are necessary. Others have argued that while HIPAA addresses what to do with information that has already been obtained, the proposed bills would address more specifically the acquisition of information.", "Title II of S. 358 and H.R. 493 would require employers to keep genetic information in files separate from other employee medical information. This requirement would not apply to groups covered by Title I (health insurers), even those that are sponsored by employers as employee benefit packages, and would not affect the use of services within the group health plan. In previous Congresses, some expressed concern that the legislation, which was intended to increase utilization of health care services and participation in clinical studies, would actually reduce utilization because the overly burdensome separate file requirement would raise the cost of providing genetic services and would affect insurers' willingness to pay for them. Others argued that the separate file requirement was not particularly burdensome (the privacy rule already requires employers limit access to employees' protected health information). They further argued that the separate file requirement was restricted to employers and would not affect insurers or their customers.", "The bills provide that, when Title I is violated and willful neglect is found, there is a minimum penalty of $2,500. For more severe or prolonged violations, the minimum penalty is $15,000. Some have argued that the establishment of a minimum penalty would increase the incentive for individuals to sue health plans for violations of privacy or denial of coverage based on genetic information, and could act as a disincentive for settling disagreements. Others have argued that the penalty clauses are equivalent to those contained in other civil rights legislation, and that appropriate penalties are necessary to deter discriminatory practices.", "S. 358 and H.R. 493 generally prohibit employers from requesting or requiring genetic information about their employees. This is more restrictive than what HIPAA currently permits. HIPAA allows group health plans to disclose health information—including genetic information—to plan sponsors (employers) if certain conditions are met. The conditions are generally designed to allow sponsors to use the information to perform functions on behalf of the group health plan (i.e., administer the plan and develop of new insurance contracts), but not for employment-related actions (i.e., hiring and promotion decisions). Opponents of the legislation argue that such restrictions will create confusion regarding which types of health information insurers can release to employers, particularly if genetic information, which would have to be separated from other health information and be withheld from employers, is not clearly defined. Supporters of the legislation indicate that the bills would not change the foundation of protections established by HIPAA and the privacy rule. Instead, the net affect would be to build upon that foundation, to clarify the role of genetic information in the context of other health information, and to establish specific protections for genetic information for entities that are not described by HIPAA (e.g., plan sponsors).", "The bills would permit individuals to sue without first filing a complaint with the EEOC. Some have argued that this, coupled with the absence of a cap on compensatory and punitive damages, would encourage frivolous litigation. Others argue that, as with Title I, penalties are consistent with remedies under existing civil rights legislation (e.g., ADA), and argue that they are necessary to assure compliance with the provisions.", "S. 358 and H.R. 493 would not permit an employer to make an employment decision based on predictive genetic information, even when there may be some resulting risk to public health. OSHA currently has guidelines for monitoring for genetic changes associated with exposure in the workplace and susceptibility to exposure (29 C.F.R. Part 1910). Some argue that the bills should permit employers to make decisions based on predictive genetic information in situations where the public might be harmed (such as an employee carrying a gene predisposing him or her to epilepsy when the employee is a bus driver). Others stated that it was unfair to deny healthy people opportunities when only a possibility of becoming ill existed. Even if it could be known that a person would definitely become ill (as in the case with those that have a gene for Huntington's Disease), the precise time that the illness would prevent the employee from doing his or her job could not be known. Furthermore, they argue that allowing the use of predictive genetic information in these circumstances would create bias against those people who happened to be predisposed to a disease for which a test existed. If two people were genetically destined to become incapacitated at the same time, but by different diseases, and if there happened to be a predictive test developed for only one of the diseases, the person with a predisposition for that disease may be subject to adverse consequences from the availability of the information, while the other person would not.", "S. 358 and H.R. 493 do not have a sunset clause. Some opponents argue that any genetic nondiscrimination legislation should have an expiration date to enable public policy to keep pace with scientific advances and allow Congress to decide how effectively the law has worked. This type of sunset clause is unusual in civil rights legislation; there is only one example of civil rights legislation that has an expiratory term. Supporters of nondiscrimination legislation point out that Congress always reserves the right to evaluate the effectiveness of laws and make modifications as deemed necessary. Further, they do not believe that discrimination issues will go away in the near term. For example, a sunset provision may not protect a person who agreed to be tested when the laws were in effect, but whose genetic information would then be in his or her record after the laws expired.", "S. 358 and H.R. 493 require employers to keep employees' genetic information in separate medical files. The House Committee on Education and Labor adopted an amendment to H.R. 493 on February 14, 2007, specifying that genetic information protected by the act could be maintained with and treated as a confidential medical record under ADA §102(d)(3)(B). S. 358 contains no parallel provision.\nNo federal or state law has a separate file requirement for group health plans acting to provide medical services, even though some studies show some physicians and genetics professionals are already keeping separate files in the absence of protecting legislation. In fact, Executive Order 13145 already requires federal agencies, acting as employers, to maintain genetic information as part of their \"confidential medical records which must be kept apart from personnel files.\" Some have argued that requiring maintenance of genetic information in separate files increases potential for medical error. Others point out that, because the language states that the requirement applies only to employers, the risk of medical error would only increase if Title II could be construed to include group health plans administering employer-sponsored benefits, which is contrary to precedent.", "S. 358 and H.R. 493 would not preempt state laws. The legislation would set a floor of basic federal nondiscrimination regulations that would apply in all states, but would permit states to keep or enact their own more comprehensive genetic nondiscrimination legislation. The bills would not provide a safe harbor , which would protect federally-compliant employers from prosecution under state genetic nondiscrimination laws. Because states vary widely in their approaches to genetic nondiscrimination, opponents of federal legislation proposed that any federal law should include a safe harbor provision. Supporters of the legislation argue that a federal floor is appropriate, and that states should continue to be able to enact and test the effects of additional genetic nondiscrimination provisions within their borders.", "An overarching question regarding S. 358 and H.R. 493 is how the bills would protect genetic information. The answer depends both on types of protections (specifying what can be done with genetic information), and on the definition of genetic information itself (specifying what is protected and what is not). As discussed in previous sections, the types of protections would primarily be restrictions on the manner in which genetic information could be used in determining eligibility for health insurance, establishing premiums for health insurance, and in making decisions regarding employment. The definition of genetic information is discussed in detail below.\nThe bills define genetic information as—and therefore protect—knowledge derived from a genetic test performed on individuals or their family members that relates to the occurrence of a disease or disorder. The protections would apply to predictive genetic tests that provide information regarding a future possible health status of a currently non-affected person. The bills' precise definition of genetic information, and thus protections that they would provide, hinge on factors discussed below, including the definition of family medical history, differences between Title I and Title II, and predictive versus manifested disease information combined with the type of genetic test performed.", "S. 358 and H.R. 493 specify that genetic information includes the fact that an individual or his/her family member has taken a genetic test. The bills define family members to include distant relatives and adopted children (which have no blood relationship and therefore would not be affected by genetic information in the family). Historically, genetic nondiscrimination act bills have stressed the importance of family history. The Senate report to accompany S. 1053 (108 th ) stated that \"the committee realizes that family medical history could be used as a surrogate for a genetic trait by a health plan or health insurance issuer ... it is important to include family medical history in the definition of genetic information.\" The report further clarified the concept of family medical history as being consistent with the American Medical Association definition, and expected that the definition would evolve over time. Some debate has ensued over the question of who should be considered to be in one's family.\nThe risk of sharing genetic traits or conditions is greatest in first and second-degree blood relatives. The risk of sharing genes decreases as the blood relationship becomes more distant. For example, first degree relatives share one-half of their genetic material, second degree relatives share one-fourth, and third degree relatives (first cousins), share one-eighth. Fourth cousins, which are ninth degree relatives, share only 1/512 of their genetic material. At this level of relationship, only very rare conditions appear more frequently in family members, and the risk of sharing many common diseases is virtually the same as in the general population.\nProponents of the legislation argue that the inclusion of individuals that have no blood relation (i.e., adoptive children) is necessary to insure that the family remains insurable as a unit; that adoptive children (or adoptive parents) are not penalized because one or the other has a genetic trait that they themselves could not have. Opponents argued that inclusion of distant or non-blood related individuals further extends the potential for litigation against insurers or employers.\nThe House Education and Labor Committee Chairman's version of H.R. 493 as reported by the committee defined a family member as someone related by blood within four generations. S. 358 contains no parallel provisions. During the February 14, 2007, House Education and Labor Committee markup, a proposed amendment to expand the definition of family member to include fetuses was defeated. However, the Chairman's amended version of the bill contains provisions in Title I and Title II specifying that the definition of genetic information (rather than family member ) would include that of a fetus. S. 358 contains no similar provisions.\nAlthough prenatal testing may be either diagnostic or predictive in nature, coverage for a child does not usually begin until the moment of birth. In general, medical insurance covers the named insured and dependents of the named insured. Any genetic information collected about a fetus while a woman is pregnant would likely arise in the context of providing prenatal care to the insured woman. Because the fetus would not appear to be a separate insured individual, it seems likely that any genetic information collected about the fetus would probably be attributed to the woman as the named insured, and protected from discrimination to the extent that her own medical information was protected.", "The bills' two titles define genetic information differently and, therefore, apply different restrictions to employers and insurers (see Table 1 ). Title I (health insurance provisions) specifically excludes from its definition of genetic information—and therefore does not protect—medical information that is not genetic information, including the analysis of proteins or metabolites directly related to manifested disease, disorder, or pathological condition. This exemption is not present in Title II (employment provisions), making the definition of genetic information—and the scope of what is protected—broader for employers than insurers. In addition, the bills would permit health insurers to use or disclose the individual's current health status (as determined without a genetic test), consistent with existing law. This permission is not present in Title II, as employers are already prohibited from using a person's current health status in specific ways by existing law.", "Title I of the bills focuses on protecting predictive information (i.e., information about a future or potential health state in a currently symptom-free individual). It does so by exempting from the definition of genetic information analyses of proteins or metabolites that are directly related to manifested diseases . Insurers could thus use this type of genetic information in accordance with current law governing insurance and employment practices. The definition of genetic test in the bills is more limited than the medical or scientific definition of genetic test, which covers both predictive and diagnostic reasons for testing. Instances in which the distinction is blurred between predictive information and that related to a manifested disease may cause some confusion if the bills are enacted.\nBased upon the definition of genetic test in Title II, analyses of a person's DNA or RNA would be protected regardless of whether any related disease had manifested. By contrast, as mentioned above, the definition of genetic test in Title I does not include analyses that are both conducted on proteins or metabolites , and are directly related to manifested diseases . Thus, information derived from studying a protein or metabolite would only be protected before symptoms appeared. These provisions create potentially unclear results when a single genetic test, which could be performed on DNA or proteins, yields results that are both related to a manifested disease or condition, and are predictive in nature. The potential dilemma is illustrated by the following example.\nIf a person had cancer, a test of the tumor DNA or proteins may simultaneously provide information about the tumor itself (a manifested disease), and its likelihood of recurrence (a predictive probability). If surgery were performed to remove the tumor and the patient went in to remission, the information obtained from the patients' tumor could be considered both diagnostic for the previously manifested tumor and predictive regarding a potential recurrence. If the test had been performed on tumor DNA, the information would be protected no matter whether it was considered to be diagnostic or predictive. However, if it had been performed on tumor proteins, if it were considered diagnostic it would not be protected. If it were considered predictive, it would be (see Table 2 ).\nThis same lack of clarity may create issues in the case in which a person undergoes a pharmacogenetic test, which is a genetic test to determine whether a person is susceptible to adverse reactions to or beneficial results from a certain drug or other treatment. Information from pharmacogenomic tests reveals normal variability in how different people's bodies process different medications—personalized medicine. It is unclear whether this type of test would be protected under current legislation. Pharmacogenetic tests for individual susceptibilities to certain drugs can be performed at any point in an individual's life (i.e., when an individual does not have a manifested disease). Thus, the scope of protections afforded to pharmacogenomic test results might depend on whether the person already had a disease for which the treatment was indicated. Under the current definition it is possible that, in the presence of manifested disease, information that a person would not likely respond to a drug could potentially be used in a negative manner by health insurers. This may be of particular concern if only one treatment exists." ], "depth": [ 0, 1, 1, 2, 3, 2, 1, 2, 1, 2, 2, 3, 3, 3, 1, 2, 2, 1, 2, 3, 3, 3, 3, 2, 3, 3, 3, 3, 3, 2, 3, 3, 3, 3, 3, 3, 3, 3, 3, 3, 1, 2, 2, 2 ], "alignment": [ "h0_title h1_title", "h0_full h1_full", "h1_title", "", "", "h1_full", "h1_title", "h1_full", "h0_full h1_title", "", "h1_title", "h1_full", "", "", "h1_full", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "" ] }

{ "question": [ "What are various stakeholder opinions regarding genetic nondiscrimination legislation?", "How have arguments about genetic nondiscrimination legislation changed since the first bills were introduced?", "What do supporters of nondiscrimination legislation believe?", "What do opponents of nondiscrimination legislation believe?", "What is the relationship between genetic diseases and public health>", "What are scientists focused on regarding genetic diseases?", "How is genetic testing being used?", "What are some issues with genetic testing?" ], "summary": [ "Genetic nondiscrimination legislation is supported by consumer groups, the medical profession, researchers, the medical products industry (including pharmaceutical companies), and President Bush, and are opposed primarily by the U.S. Chamber of Commerce.", "Since the first bills were introduced in the 103rd Congress, many of the arguments and positions supporting and opposing genetic nondiscrimination legislation have remained largely unchanged.", "Supporters of nondiscrimination legislation feel that current laws are not sufficient to protect individuals from discrimination in health insurance or employment. Supporters of the legislation further contend that without protection, individuals are hesitant to seek potentially beneficial genetic services or participate in much needed clinical research.", "Opponents believe that current law provides sufficient protection. They are primarily concerned that new legislation will provide further incentives and additional opportunities for litigation against employers.", "Collectively, genetic diseases and common diseases with a genetic component pose a significant public health burden.", "With completion of the human genome sequence, scientists are now focusing on the development of clinical applications based on the sequence information.", "One such application, clinical genetic testing, is becoming available at a rapid rate, and some tests are beginning to be included in health insurance benefits packages.", "Genetic testing may both facilitate and be inhibited by the potential for genetic discrimination." ], "parent_pair_index": [ -1, 0, 0, 0, -1, -1, -1, 2 ], "summary_paragraph_index": [ 1, 1, 1, 1, 2, 2, 2, 2 ] }

{ "title": [ "", "Introduction", "Recent Developments", "U.S. Policy Background", "Clinton Administration", "Bush Administration", "Obama Administration", "U.S. Funding Levels and Trends", "Trends in Funding for HIV/AIDS, TB, and Malaria: FY2001-FY2012", "FY2012 Funding", "FY2013 Budget", "Progress in Combating HIV/AIDS, TB, and Malaria", "Progress in Global HIV/AIDS", "Progress in Global TB", "Progress in Global Malaria", "Key Disease-Specific Issues", "HIV/AIDS", "Tuberculosis", "HIV/TB Co-infection", "Drug-Resistant TB", "Malaria", "Drug and Insecticide Resistance", "Control, Elimination, and Eradication", "", "Key Cross-Cutting Issues", "Health Systems Strengthening (HSS)", "Health Worker Shortages", "Country Ownership", "Research and Development (R&D)", "Monitoring and Evaluation (M&E)", "Engagement with Multilateral Organizations", "Looking Forward" ], "paragraphs": [ "", "Human immunodeficiency virus/acquired immune deficiency syndrome (HIV/AIDS), tuberculosis (TB), and malaria are three of the world's leading causes of morbidity and mortality. Along with the direct health effects, HIV/AIDS, TB, and malaria have far-reaching socioeconomic consequences, posing what many analysts believe are threats to international development and security. Because of this, the United States has considered the fights against these three diseases to be important foreign policy priorities. In FY2012, of the $8.8 billion the United States spent on global health programs under the Global Health Initiative (GHI)—the Obama Administration's effort to coordinate and improve U.S. global health programming—approximately 84% was on bilateral and multilateral HIV/AIDS, TB, and malaria combined, with bilateral HIV/AIDS programs accounting for 58% of all funding. The United States is currently the single largest donor for global HIV/AIDS and has played a key role in generating a robust international response to TB and malaria.\nDespite growing international support for global health programs over the last decade and progress made in controlling HIV/AIDS, TB, and malaria in much of the world, significant obstacles remain in fighting the three diseases. In many countries, HIV infection rates are outpacing access to treatment, rates of drug resistance are increasing for TB and malaria, and health systems in resource-poor settings are under growing pressure to address these diseases while struggling to provide basic health care.\nOver the last few years, Congress has debated the U.S. strategy to confronting these diseases, including how to best support a long-term approach to these diseases that generates positive outcomes for global health in general. In response, implementing agencies have begun to make programmatic changes, and the Obama Administration has called for a revised U.S. approach to HIV/AIDS, TB, and malaria programs in the hopes of making related efforts more effective and efficient. This process has led to a broader discussion on how best to allocate global health funding, both within and between programs. The financial crisis and economic recession, and consequent calls to reduce the U.S. budget deficit, have led to decreased funding for these diseases in recent years, and have heightened the urgency of reevaluating U.S. global health investments. This report highlights some of the current challenges posed by HIV/AIDS, TB, and malaria, as well as several cross-cutting policy issues that the 112 th Congress may consider as it determines U.S. global health funding for these three diseases, including\nhealth systems strengthening, country ownership, research and development, monitoring and evaluation, and engagement with multilateral organizations.", "In May 2011, results from a study demonstrated that early HIV treatment in couples with one infected partner reduced the risk of transmission by 96%. This finding indicated the preventative benefits of HIV treatment and has been hailed by many as a \"game-changer\" in the fight against global HIV/AIDS. In November 2011, the Board of the Global Fund to Fight AIDS, Tuberculosis, and Malaria (Global Fund) announced that due to the current fiscal environment and resulting inadequate funding, it would cancel its 11 th round of funding. While it has put a \"transitional funding mechanism\" in place to avoid disruption of existing services, it will not be offering any new funding until 2014. On December 23, 2011, the President signed into law the Consolidated Appropriations Act, 2012 ( P.L. 112-74 ). Congress appropriated $7.4 billion for HIV/AIDS, TB, and malaria programs in FY2012, including slightly decreased or level funding for HIV/AIDS, and slightly increased funding for malaria and TB programs. On February 13, 2012, the President released the FY2013 budget request. The request included approximately $7.2 billion for HIV/AIDS, TB, and malaria programs, which included further decreases in funding for bilateral HIV/AIDS, TB, and malaria programs. At the same time, the request included a considerable increase in funding for the Global Fund. Despite the proposed decrease in bilateral HIV/AIDS funding, the budget request affirmed the Administration's commitment to treating 6 million HIV-positive people by the end of 2013, a target announced on World AIDS Day in December 2011.", "U.S. efforts to address HIV/AIDS, TB, and malaria have grown significantly over the last few decades, as successive Administrations and Congresses have increasingly recognized the severity and impact of these diseases.", "An expansive U.S. government response to HIV/AIDS began under President Bill Clinton. In 1999, President Clinton launched the Leadership and Investment in Fighting an Epidemic (LIFE) Initiative to address HIV/AIDS in 14 African countries and India, marking the first interagency response to the epidemic. The following year, President Clinton signed into law the Global AIDS and Tuberculosis Relief Act of 2000 ( P.L. 106-264 ), boosting funding for both HIV/AIDS and TB activities.", "The George W. Bush Administration greatly elevated the fight against HIV/AIDS, TB, and malaria in the U.S. foreign policy agenda. In 2001, President Bush contributed the \"founding pledge\" to the Global Fund to Fight AIDS, Tuberculosis, and Malaria (Global Fund), a public-private financing mechanism for the global response to HIV/AIDS, TB, and malaria. Shortly thereafter, in 2002, President Bush launched the International Mother and Child HIV Prevention Initiative, supporting prevention of mother-to-child transmission (PMTCT) activities in 12 African and 2 Caribbean countries.\nIn 2003, the Bush Administration announced the establishment of the President's Emergency Plan for AIDS Relief (PEPFAR), pledging $15 billion over the course of five years to combat HIV/AIDS, TB, and malaria. This pledge represented the largest commitment ever by a single nation toward an international health issue, and established a new and central role for donor governments in the fight against HIV/AIDS. Of the $15 billion, the President proposed spending $9 billion on HIV/AIDS prevention, treatment, and care services in 15 focus countries. The President also proposed spending $5 billion of the funds on existing bilateral HIV/AIDS, TB, and malaria programs in roughly 100 other countries and $1 billion of the funds for U.S. contribution to the Global Fund.\nThe 108 th Congress authorized the establishment of PEPFAR in May 2003 through the U.S. Leadership Against HIV/AIDS, TB, and Malaria Act of 2003 (Leadership Act, P.L. 108-25 ). The act authorized $15 billion for U.S. efforts to combat global HIV/AIDS, TB, and malaria from FY2004 through FY2008, including $1 billion for the Global Fund in FY2004. The act also authorized the creation of the Office of the Global AIDS Coordinator (OGAC) at the Department of State to oversee all U.S. global HIV/AIDS activities. Beyond increasing the scope of U.S. HIV/AIDS programs, the Leadership Act also shifted the focus of U.S. HIV/AIDS activities. In particular, while past U.S. global HIV/AIDS programs had primarily supported prevention activities, the Leadership Act set targets for extending anti-retroviral therapy (ART) and required that 55% of PEPFAR funds be spent on HIV/AIDS treatment.\nBuilding on the success of PEPFAR in harnessing resources to combat a disease, President Bush announced the establishment of the President's Malaria Initiative (PMI) in 2005, which significantly increased U.S. funding for global malaria programs. PMI was announced as a five-year, $1.2 billion commitment to halve the number of malaria-related deaths in 15 sub-Saharan African countries by 2010 through the use of four proven techniques:\n1. indoor residual spraying (IRS), 2. insecticide-treated bed nets (ITNs), 3. artemisinin-based combination therapies (ACTs) to treat malaria, and 4. intermittent preventative treatment for pregnant women (IPTp).\nPMI represented a significant shift from past United States Agency for International Development (USAID) malaria programs. Until then, USAID's malaria programs had provided primarily technical assistance. Under PMI, a minimum of 50% of the budget was devoted to the purchase and distribution of malaria-fighting commodities. The design of PMI also took into account some of the criticism levied against PEPFAR in its first two years, including the need to strengthen the alignment of programs with country priorities and better integrate programs into national health systems.\nNo analogous initiative was established for global TB. However, in 2007, the 110 th Congress enacted the Consolidated Appropriations Act of 2008 ( P.L. 110-161 ), which markedly increased funding for TB control efforts. The act provided unprecedented funding to expand USAID TB programs in high-burden countries. The act also recognized the growing threat of HIV/TB co-infection and directed OGAC to spend at least $150 million of its funds for PEPFAR on joint HIV/TB activities.\nIn July 2008, the 110 th Congress enacted the Tom Lantos and Henry J. Hyde United States Global Leadership Against HIV/AIDS, Tuberculosis, and Malaria Reauthorization Act of 2008 (Lantos-Hyde Act, P.L. 110-293 ), authorizing $48 billion for bilateral and multilateral efforts to fight global HIV/AIDS, TB, and malaria from FY2009 through FY2013. Of the $48 billion, $4 billion was for bilateral TB programs, $5 billion was for bilateral malaria programs, and $2 billion was for U.S. contributions to the Global Fund in FY2009. The act also authorized the establishment of the Global Malaria Coordinator at USAID to oversee and coordinate all U.S. global malaria activities.\nU.S. HIV/AIDS, TB, and malaria programs under the Bush Administration received strong bipartisan congressional support. At the same time, Congress and the global health community debated several aspects of PEPFAR, including\nthe relationship between HIV/AIDS activities and other global health activities; the effectiveness of abstinence-only education; the integration of family planning into HIV/AIDS activities; the use of branded versus generic drugs; the role of recipient countries in setting assistance priorities; and the balance of funding between prevention, treatment, and care activities.\nMany critics argued that PEPFAR was overly unilateral, relied too heavily on U.S.-based organizations, and did little to strengthen national health systems or country capacity to cope with the epidemic in the long run. The Lantos-Hyde Act was intended to respond to a number of these criticisms and support the transition of PEPFAR from an emergency plan to a sustainable, country-led program.", "Partly in response to the above-mentioned debates, on May 5, 2009, President Barack Obama announced the Global Health Initiative (GHI), initially proposed as a six-year, $63 billion effort. The GHI is a comprehensive U.S. global health strategy that brings together a number of existing global health funding streams and programs managed and implemented by the Department of State, USAID, the Centers for Disease Control (CDC), the National Institutes of Health, and the Department of Defense (DOD). The initiative calls for the coordination and integration of established HIV/AIDS, TB, and malaria programs with one another and with other, broader health activities to maximize effectiveness, efficiency, and sustainability of U.S. global health programs. It also encourages increased efforts to strengthen underlying health systems and support country ownership. Finally, the GHI supports woman- and girl-centered approaches to global health, recognizing that women and girls often suffer disproportionately from poor health.\nHIV/AIDS, TB, and malaria programs are core components of GHI. The Obama Administration proposes spending 81% of all GHI funding on the three diseases from FY2009 through FY2014 ( Figure 1 ). Since 2009, implementing agencies have produced multi-year HIV/AIDS, TB, and malaria strategies, which each articulate goals and strategies to support an integrated, long-term, and country-led approach to global health, in accordance with the GHI principles (see the \" HIV/AIDS, TB, and Malaria GHI Goals \" section). In a demonstration of his commitment to the fight against global HIV/AIDS, on World AIDS Day in 2011, President Obama announced an increased target of providing treatment to 6 million people infected with HIV by 2013.\nIn the three years since the launch of the GHI, the Administration has released a number of key documents demonstrating how the GHI principles are beginning to be implemented in the field. As of November 2011, 29 \"GHI Plus\" countries have been chosen to receive additional resources and technical assistance to accelerate implementation of the GHI and to serve as \"learning laboratories\" for best practices (the GHI will ultimately be implemented in every country receiving health assistance).\nIn March 2011, the Administration released the \"United States Government Global Health Initiative Strategy Document\" as well as GHI Country Strategies outlining high-level priority areas and targets for country programs. These multi-year strategies also serve as guidelines for new coordination efforts between PEPFAR, USAID, and CDC, as they aim to reduce duplication between programs, integrate services where appropriate, and better align programs with the priorities of partner governments. Several outside studies have documented early signs of progress toward a more cohesive and coordinated approach to global health, including in relation to HIV/AIDS, TB, and malaria programs. Questions remain over how GHI will lend itself to significant innovation, whether early progress in coordination can be brought to scale, and whether efforts to better integrate global health activities can be sustained without significant additional resources. Also, despite the Administration's stated commitment to existing initiatives like PEPFAR and PMI, some experts have expressed concern that a new focus on coordination and integration will lead to decreasing support for touchstone disease-specific programs.", "Congress provides funds for HIV/AIDS, TB, and malaria assistance through several appropriations vehicles, including State and Foreign Operations; Labor, Health and Human Services, and Education; and the Department of Defense. Funds are appropriated to a number of U.S. agencies including the Department of State, USAID, CDC, and DOD. Congress also provides sufficient resources to the Office of AIDS Research at the National Institutes of Health (NIH) to support international HIV/AIDS research efforts, and to NIH and DOD for malaria research efforts. The agencies use the funds for bilateral HIV/AIDS, TB, and malaria programs and research and for contributions to multilateral organizations that address these diseases, including the Global Fund.\nSince FY2001, U.S. funding in support of global HIV/AIDS, TB, and malaria programs has significantly increased. Funding for FY2012, as signed into law by the President on December 23, 2011, demonstrates continued congressional commitment to global HIV/AIDS, TB, and malaria programs, although it did not support the increased funding for these programs included in the President's FY2012 budget request. For a snapshot of recent years, Table 1 includes U.S. actual, enacted, and requested funding for global HIV/AIDS, TB, and malaria from FY2008 through FY2013. Appendix C includes all U.S. actual and estimated funding for global HIV/AIDS, TB, and malaria from FY2001 through FY2012, as well as the President's FY2013 budget request.", "Over the past decade, Congress has demonstrated significant support for U.S. programs targeting global HIV/AIDS, TB, and malaria. In particular, the enactment of the Leadership Act and the Lantos-Hyde Act raised the profile of HIV/AIDS, TB, and malaria and authorized increases in U.S. investments for countering each disease. Congress has also held a number of hearings in recent years to evaluate U.S. HIV/AIDS, TB, and malaria programs and to debate various approaches to fighting the diseases. While congressional action (including legislation and hearings) has tended to group the three diseases together, the response to each has varied widely, with HIV/AIDS receiving considerably more funding and attention than either TB or malaria.\nFunding for each of the diseases has increased drastically since FY2001. Despite the marked increases in funding, there are significant differences in the percentage of the global health budget that each disease receives. Since the establishment of PEPFAR, HIV/AIDS programs have accounted for close to or over 50% of the global health budget, while TB programs have received between approximately 1.6% and 3.6%, and malaria programs have received between approximately 5.0% and 9.1% of global health funding, depending on the year ( Figure 2 ). U.S. support for fighting global TB has trailed that of HIV/AIDS and malaria and, unlike the other two, global TB has no U.S. presidential initiative or designated U.S. coordinator. Health experts continue to debate the appropriate apportionment of funding for the three diseases, including questions over the relative impact of and costs of treatment for each disease.\nAlthough absolute funding for all three diseases has increased since FY2001, specific trends for each disease have differed ( Figure 3 ). Funding for HIV/AIDS increased rapidly from FY2004 through FY2008, during the first phase of PEPFAR, and has largely leveled off since the initiative was reauthorized. Funding for malaria increased significantly following the establishment of PMI in FY2006 and has since seen further increases. Funding for TB increased most rapidly in FY2008 and FY2010, followed by a slight decrease in FY2011 and a slight increase in FY2012.", "On December 23, 2011, the President signed into law the Consolidated Appropriations Act, 2012 ( P.L. 112-74 ). The act included specific appropriations for State Department, USAID, HHS, and DOD global HIV/AIDS programs; USAID TB and malaria programs; and U.S. contributions to the Global Fund. FY2012 funding for HIV/AIDS, TB, and malaria programs together was slightly lower than in FY2011, and included a decrease in funding for global HIV/AIDS programs, slight increases in funding for global TB and malaria programs, and a larger increase in funding for the U.S. contribution to the Global Fund. Some health experts have expressed concern over the leveling of global health funding, particularly for HIV/AIDS, over the past few years. Specifically, advocates have argued that any reductions in funding undermine recent scientific breakthroughs, which demonstrate that with adequate financial support, available prevention and treatment methods can be harnessed to significantly decrease new HIV infections and AIDS-related deaths. Others argue that given that HIV/AIDS funding tied to continuing lifelong treatment for people with HIV will likely be considered impervious, coupled with the new increased targets for treatment by 2013, the cuts made to HIV/AIDS programs may affect critical prevention and care activities, as well as broader HIV-related efforts in areas like health systems strengthening and country ownership.\nWhile the FY2012 Consolidated Appropriations Act relatively small decreases for programs targeting the three diseases, its enactment occurred after prolonged congressional debate over reducing the budget deficit through lower discretionary spending levels, with some Members explicitly proposing cuts to global health programs. Some Members of Congress argued that these cuts could lead to important savings, while others strongly criticized any reduction in funding, arguing that it would undermine essential programs with humanitarian, development, diplomatic, and security implications. Compared to the President's request of $8.7 billion for all global health programs under the GHCS/GHP Account in FY2012, the House Subcommittee on State, Foreign Operations, and Related Programs mark-up of the FY2012 State-Foreign Operations appropriations bill recommended $7.1 billion for global health programs under the GHCS/GHP Account, representing an 18% decrease from the request, and the Senate Appropriations Committee-passed bill recommended $7.9 billion for global health, a 9.2% decrease from the request. The estimated total funding level for these global health programs in FY2012 was higher than both the House and Senate recommendations, representing a 6.9% decrease from the Administration's request. A number of health advocates have applauded the relatively small reductions made in FY2012.", "On February 13, 2012, President Obama released the FY2013 budget request. When compared to FY2012 estimated funding levels, the budget requests funding decreases for most bilateral HIV/AIDS, TB, and malaria programs, including, most prominently, a 10.8% decrease in funding for bilateral HIV/AIDS programs. At the same time, the budget requested significantly increased funding for the Global Fund, representing a 26.9% increase in funding over FY2012 levels (see Table 1 ).\nWhile the proposed increase in support to the Global Fund has been applauded by some health advocates, many express concern over the reduction in funding for bilateral programs, most especially PEPFAR programs. These experts argue that divestment in U.S. global HIV/AIDS and TB programs could imperil lives, reverse recent progress, undermine significant scientific findings, and lead to decreasing levels of support from other donors. Early action and debate within both the House and the Senate on FY2013 appropriations indicate that Congress may not support proposed reductions in funding for many global health programs. Certain program areas, however, will likely be the subject of ongoing congressional debate, including the U.S. contribution to the Global Fund.\nThe Lantos-Hyde Act authorized $48 billion for global HIV/AIDS, TB, and malaria programs from FY2009 through FY2013, including contributions to the Global Fund. Current spending trends suggest that the authorized level may exceed appropriated amounts by over $10 billion.", "In late 2011, the World Health Organization (WHO) and the Joint United Nations Program on HIV/AIDS (UNAIDS) released new estimates of the scale of the global HIV/AIDS, TB, and malaria epidemics. The separate reports on each disease highlighted significant progress being made in the fight against the diseases, much of which is attributable to the leadership and support of the United States. The reports, characterized below, also identified major obstacles that remain.", "The 2011 WHO/UNAIDS report on global HIV/AIDS noted advancements in combating the global HIV/AIDS epidemic, including the landmark finding that among couples with one infected partner, early use of antiretroviral therapy can reduce transmission by at least 96%. The report also noted expanded access to several HIV/AIDS interventions, including HIV testing and counseling, anti-retroviral therapy, and drugs to prevent mother-to-child HIV transmission (PMTCT). Partly as a result of these interventions, both HIV-related mortality and incidence rates have declined. In 2010, HIV-related deaths were close to one-fifth lower than in 2004 and the rate of new HIV infections was almost 25% lower than in 1996, the year that the HIV incidence rate is thought to have peaked. At the same time, WHO cited several ongoing challenges. HIV/AIDS is still without a cure or vaccine, and in 2010 alone, an estimated 2.7 million people were newly infected. New infections, combined with expanded access to ART for those already infected, create greater numbers of people requiring indefinite, lifelong treatment.", "According to the 2011 WHO report on global TB, by 2008, most countries in the world had adopted WHO's Stop TB Strategy (the international guidance for prevention and treatment of TB). The global adoption of WHO prevention and treatment standards has enabled more than 55 million people infected with TB to receive treatment and prevented up to 7 million deaths between 1995 and 2010. Global rates of new TB infection have been declining since 2002, and the absolute number of TB cases has been declining since 2006. The WHO report highlighted some ongoing obstacles to TB control as well. Progress in global TB control is also challenged by HIV/TB co-infection and new forms of drug resistant TB. Outdated tools for diagnosis and treatment, particularly in relation to HIV/TB co-infection and resistant forms of the disease, hamper further progress.", "The 2011 WHO report on global malaria emphasized the effective scale-up of several malaria control interventions, including greater use of the latest malaria treatments, insecticide-treated bednets, indoor residual spraying, and drugs to reduce the transmission of malaria during pregnancy. Since 2000, 43 countries have experienced more than a 50% reduction in reported number of malaria cases and eight African countries have experienced at least a 50% reduction in either confirmed malaria cases or malaria admissions and deaths. The decreases in each of these African countries are associated with intense malaria control activities. Despite this success, the report also noted obstacles in the fight against malaria. In particular, coverage rates of ITNs and IRS and access to ACTs remain low in many African countries, and increasing drug and insecticide resistance pose new challenges. Finally, while WHO estimated that there were 0.7 million deaths from malaria in 2010, a study published in The Lancet in February 2012 estimated that there were actually 1.1 million malaria deaths in 2010, indicating that the epidemic might have been far more severe than previously thought.", "HIV/AIDS, TB, and malaria overlap geographically, share risk factors, and can worsen the symptoms of each other in instances of co-infection. Despite these common factors, each disease presents unique challenges, which Congress may consider as it debates the U.S. response to each disease. For more information on the particular characteristics of and U.S. response to each of the diseases, see the following CRS reports by Alexandra Kendall: CRS Report R41645, U.S. Response to the Global Threat of HIV/AIDS: Basic Facts ; CRS Report R41643, U.S. Response to the Global Threat of Tuberculosis: Basic Facts ; and CRS Report R41644, U.S. Response to the Global Threat of Malaria: Basic Facts .", "Sustaining the successes achieved in fighting HIV/AIDS presents new policy challenges. While AIDS-related mortality and HIV incidence rates have declined, improved access to anti-retroviral therapy (ART) combined with continued new infections has led to growing numbers of people living with HIV/AIDS and requiring lifelong treatment. At the same time, the new and long-term financial costs associated with expanded access to ART have increased concern over the sustainability of U.S. treatment programs, and have increased calls for considerable scale-up of prevention efforts.\nThe expansion of ART to treat HIV/AIDS has significantly reduced AIDS-related mortality. 2011 UNAIDS estimates suggest that 2.5 million deaths in low- and middle-income countries have been averted since the introduction of ART in 1995. Treatment has been a central component of PEPFAR programs. According to a 2010 Government Accountability Office (GAO) report, from FY2006 to FY2009, 46% of PEPFAR funds were used to support treatment efforts, with the rest of the funds divided between prevention and care activities ( Figure 4 ). As of September 2011, PEPFAR was directly supporting ART for over 3.9 million individuals in 30 countries—representing over half of the estimated 6.7 million people on treatment around the world. In 2009, the Administration committed the United States to treating an additional 4 million people infected with HIV/AIDS from FY2009 to FY2014. On World AIDS Day in December 2011, President Obama announced that the United States was committing to a new target of providing treatment to 6 million people by the end of 2013.\nIn spite of the strides made in HIV treatment, the number of individuals newly infected with HIV exceeded the number of individuals placed on treatment by almost a 2 to 1 margin in 2010. At the end of that year, the 6.7 million people receiving treatment represented 47% of those in need. The number of people newly infected with HIV and requiring treatment is projected to grow significantly in coming years. Expanding access to ART for new patients who will require lifelong treatment will increase long-term treatment costs. Compounding this challenge is the potential for increased rates of drug resistance and consequent need for second-line therapies, which cost 5-10 times more than first-line drugs.\nThe logistical and fiscal challenges of scaling up treatment have led some experts to argue that prevention efforts must be rapidly scaled up so that HIV incidence can be reduced. In 2011, the results of an HIV prevention trial indicated that early initiation of ART in discordant couples reduced HIV transmission by 96%, by lowering the viral loads of infected people and therefore reducing the possibility of transmission. These findings have confirmed the preventative implications of HIV treatment and have reduced what was previously seen by some as a dichotomous choice between increasing funds for treatment versus increasing funds for prevention. At the same time, these findings raise new questions related to the appropriate distribution of limited—or decreasing—funding for global HIV/AIDS, including how funds should be divided between ART as treatment, ART as prevention, and other non-treatment-based forms of prevention. Some also argue that the United States must consider how to make more efficient use of available treatment resources, including in relation to earlier versus later initiation of treatment and the distribution of resources between first-line and second-line drugs. The President's FY2013 budget request, which proposed decreased funding for bilateral global HIV/AIDS programs while also reaffirming the Administration's commitment to the new goal of treating 6 million HIV-positive individuals by 2013, demonstrated the importance of evaluating how to best allocate global HIV/AIDS funds.\nMany HIV/AIDS experts stress that ART, as a tool of both treatment and prevention, must not only be used increasingly, but also in tandem with increased support for other \"combination prevention\" options, including biomedical, behavioral, and structural interventions (efforts to address the social, political, and economic factors impacting vulnerability to HIV). In 2009, prevention-specific activities accounted for 22% of HIV/AIDS spending in low- and middle-income countries by all sources. According to UNAIDS, several methods of prevention have demonstrated clear success. Prevention of mother-to-child transmission (PMTCT) has led to reductions in children infected with HIV, and male circumcision has led to reduced likelihood of uninfected men acquiring HIV from HIV-infected female partners. At the same time, UNAIDS has argued that global prevention interventions are often not adequately directed at the populations most in need, including people who inject drugs, sex workers and their clients, and men who have sex with men (MSM). A major factor limiting the success of ART-based prevention efforts, including early initiation of ART and PMTCT, is that more than 60% of people living with HIV are unaware of their HIV status. Many experts argue that to improve the effectiveness of HIV prevention, there must also be efforts to expand HIV testing and counseling.\nIn recent years, PEPFAR has placed new emphasis on prevention. For example, it committed to preventing more than 12 million new infections from FY2009 to FY2014. PEPFAR's five-year strategy emphasizes scaling up combined interventions tailored to the key drivers of individual country epidemics, and puts particular emphasis on PMTCT and male circumcision activities. Despite this commitment, many health experts call for increased U.S. support of HIV/AIDS prevention efforts in general, and efforts targeting high-risk groups in particular. Many experts also urge the United States to increase its support for new methods to measure and evaluate infection trends and prevention program impact, in order to effectively tailor prevention programs to specific country epidemics and better assess the efficacy of various prevention programs.\nWhile many Members of Congress agree that prevention must be a priority of HIV/AIDS programs, there is less congressional consensus over which prevention activities are most effective and should receive support. In particular, some in Congress express reservation at U.S. support for prevention activities that they feel could be seen as supporting sex work or that may be integrated with family planning and reproductive health services that could be connected to abortion provision. Many health experts argue that in order for prevention efforts to be successful, programs must be driven by data that indicate the needs of specific countries.", "Tuberculosis is the second-leading cause of infectious disease mortality around the world, following HIV/AIDS, yet it receives less funding than either HIV/AIDS or malaria. Gains in global TB control are challenged by growing occurrences of HIV/TB co-infection and drug-resistance, as both strain already-dated tools used for TB diagnosis, treatment, and surveillance.", "TB is the leading cause of death for people with HIV. Of the 8.8 million new cases of TB in 2010, an estimated 1.1 million were HIV-positive. Along with HIV testing of TB patients, provision of HIV and TB treatment to those infected with both diseases, and general HIV prevention services for TB patients, WHO recommends three activities, known as the \"Three I's,\" to address HIV/TB co-infection: the provision of a prophylaxis, known as Isoniazid Preventative Therapy (IPT), for HIV-positive people with latent TB; intensified case finding for active TB; and TB infection control for HIV-positive people. Some argue that WHO's \"Three I's\" have been unevenly applied and that the global response to co-infection has been slow and uncoordinated, leading to limited access to diagnostic, prevention, and treatment services. Compounding the uneven implementation of joint TB/HIV programming, WHO reports that among the 63 high TB/HIV burden countries, less than half reported treatment outcomes disaggregated by HIV status, making it difficult to assess the success of any existing programs.\nU.S. HIV/TB collaborative activities are coordinated and led by PEPFAR. In FY2008, Congress directed OGAC to provide at least $150 million for joint HIV/TB activities. As a result, PEPFAR has scaled up its HIV/TB activities in recent years, most notably with regards to HIV screening, testing, and counseling for TB patients. Nonetheless, PEPFAR's FY2010 operational plan explains that integrating HIV and TB services remains challenging, in part due to operational differences between HIV and TB programs and programming that developed separately. Advocates of increased attention to HIV/TB co-infection argue that implementation of WHO's \"Three I's\" should be mandated as a core element of PEPFAR programming in settings with high co-infection rates. Similarly, while PEPFAR sets annual targets for HIV/TB activities for each focus country, some call for the creation of aggregate targets for joint HIV/TB activities.", "The past two decades have seen the emergence of multi-drug resistant (MDR) TB and extensively drug resistant (XDR) TB. Drug resistance primarily arises from poor treatment adherence or incorrect drug usage. In 2010, there were 650,000 cases of MDR-TB, and 58 countries had confirmed cases of XDR-TB. In January 2012, India reported several cases of TB that seemed to be resistant to all available treatment. Diagnosis and treatment of MDR/XDR-TB in low-resource countries has been limited, due to shortages of sufficiently equipped laboratories and poor surveillance systems. Treatment for drug-resistant TB is more time-intensive and costly than for basic TB and many resource-poor countries are ill-equipped to adhere to WHO guidance that MDR-TB patients be treated in separate facilities from those with HIV. In the absence of a scaled-up response, MDR- and XDR-TB are expected to result in increased TB-related mortality rates.\nThe United States has begun to respond to the problem of mounting drug resistance, but there is not consensus over the extent to which U.S. programs should target these particular threats. Some argue that in the absence of increased investment for drug-resistant TB interventions, MDR- and XDR-TB could become the dominant strains of the disease. Others argue that basic TB control efforts reduce the potential for drug-resistant TB, and that a shift in resources to MDR- and XDR-TB activities could threaten gains made in controlling basic TB. A particular area of concern for TB advocates is a divergence in U.S. targets for TB and MDR-TB control between the Lantos-Hyde Act and the 2010 U.S. TB Strategy. While the Lantos-Hyde Act recommends that by 2013 the United States support treatment of 4.5 million TB cases and at least 90,000 new MDR-TB cases, the 2010 U.S. TB Strategy states that by 2014 the United States will support treatment of 2.6 million TB cases and 57,200 new MDR-TB cases. Advocates have urged Congress to support the fulfillment of the original Lantos-Hyde goals.", "Recent data suggest significant reductions in global malaria cases and deaths, due in part to anti-malaria efforts. However, new drug-resistant forms of malaria and insecticide-resistant mosquitoes threaten these gains. At the same time, the success in the control of global malaria to date has led policy makers to consider renewing efforts to eliminate and possibly even eradicate malaria, raising questions over the appropriate distribution of malaria funds.", "Resistance to artemisinin-based malaria drugs—the most effective treatment currently available—has been identified in Asia, most prominently along the Thai-Cambodian and Thai-Myanmar borders. Along with the challenge of drug resistance, 27 African countries and 41 countries worldwide have reported mosquito resistance to the insecticides used in Indoor Residual Spraying (IRS), and increasingly to the insecticide used in insecticide-treated bed nets (ITNs). Factors leading to increased drug and insecticide resistance have included misdiagnosis of malaria, improper use of medications and insecticides, use of counterfeit malaria drugs, and lack of resistance surveillance.\nDrug and insecticide resistance pose clear threats to U.S. malaria efforts, which support the use of artemisinin-based combination therapies to treat malaria, IRS, and ITNs. The United States has taken a number of steps to respond to drug and insecticide resistance. For example, the United States is working with WHO to monitor insecticide resistance and assist countries with the judicious use of insecticides, promoting a regular rotation of insecticides from different classes to reduce resistance to IRS, and supporting surveillance networks and drug resistance monitoring systems in Southeast Asia and the Americas. Some experts call for an expanded commitment to reducing drug and insecticide resistance, particularly with regard to support for better surveillance systems. Others call for U.S. efforts to preemptively monitor for drug resistance in Africa.", "In October 2007, the Bill and Melinda Gates Foundation issued a call for a renewed global commitment to the eradication of malaria. Malaria eradication had been widely abandoned as a viable option in 1969, after a WHO-sponsored eradication campaign failed to gain traction in much of sub-Saharan Africa. Since the Gates announcement, key global health actors have compared and debated the merits and practicality of malaria control, elimination, and eradication efforts. The three levels of anti-malaria efforts can be classified as:\nMalaria control: reduction of the malaria disease burden to a level at which it no longer poses a major public health problem, with adequate surveillance and monitoring to address ongoing and emergent cases. Malaria elimination: interruption of local mosquito-to-human malaria transmission, and reduction to zero of new human cases in defined geographic areas, with continued measures to prevent reestablishment of transmission. Malaria eradication: permanent reduction to zero of worldwide malaria incidence, requiring no further public health action.\nWHO has categorized countries into the following malaria stages: control, pre-elimination, elimination, prevention of reintroduction, and malaria free ( Figure 5 ). The United States and its WHO partners have endorsed the long-term goal of universal malaria eradication and are increasingly supporting elimination activities in eligible countries. While the majority of PMI activities are focused in countries in the \"control\" stage, PMI has begun to support pre-elimination activities, such as intensified case detection and surveillance, in several specific areas within Zanzibar, Rwanda, and Senegal. At the same time, PMI embraces the goal of malaria elimination in the Greater Mekong Region and the Amazon Basin by 2020, primarily through support for improved surveillance and monitoring systems.\nDespite the widespread enthusiasm for eradication as a long-term objective, many health experts contend this goal is not feasible with existing malaria prevention and treatment tools, and will require new medications, prevention strategies, and a vaccine. Many experts argue that malaria elimination presents a more realistic option, although some posit that a shift toward elimination activities may pose new challenges as well. For instance, some argue that over-emphasizing and investing in elimination activities in areas with fewer cases of malaria could divert funds away from basic malaria control in high burden countries. Others argue that mass treatment in support of malaria elimination without the appropriate monitoring and surveillance capacity could lead to drug resistance. Finally, some warn that even if elimination is achieved, governments and donors must ensure that disease surveillance systems are in place to detect a resurgence of the disease.", "", "Along with the challenges specific to HIV/AIDS, TB, and malaria, a number of issues extend to all three diseases. This section looks at the following issues as they relate to all three of the diseases:\nhealth systems strengthening, including health worker shortages; country ownership; research and development; monitoring and evaluation; and engagement with multilateral organizations.", "In recent years, weak health systems, including limited availability of health facilities, equipment, laboratories, and personnel, have been a critical obstacle to scaling up HIV/AIDS, TB, and malaria interventions. For example, shortages of ART have been reported in a number of African countries due to inadequate forecasting and information sharing systems. Also, by 2010, only a handful of the 36 high-burden TB and MDR-TB countries had met the WHO recommendation of having at least one laboratory per 5 million people capable of culturing samples, the most definitive method for detecting TB. USAID documents also cite inadequate clinical management and unavailability of drugs as common causes of fatality among hospitalized malaria patients. These concerns have led many in the global health community to assert that health systems strengthening (HSS) must be considered an essential ingredient of a long-term approach to HIV/AIDS, TB, and malaria. HSS is one of the GHI target areas and has been integrated as a key goal in the U.S. HIV/AIDS, TB, and malaria strategies ( Appendix B ). At the same time, there is a lack of clarity over what HSS means and how it can be put into practice.\nWhile there is widespread recognition of the need for stronger health systems, no international consensus exists on the operational definition of HSS. The clearest direction comes from WHO, which maintains that six \"building blocks\" are critical for a health system: service delivery, health workforce, health information systems, access to essential medicines, financing, and leadership/governance. The GHI consultation document cites the following goals in the U.S. approach to HSS:\nImprove financial strategies that reduce financial barriers to health care (for example, increase government and/or private sector funding for health services); Decrease disparities in health outcomes by providing essential health services, such as skilled birth attendance and voluntary family planning; Increase the number of trained health workers and community workers and ensure their appropriate use throughout the country; and Improve the health management, information, and pharmaceutical systems to reduce stock-outs.\nDespite identifying these components for HSS, the Administration has not yet identified specific indicators for meeting these goals. The GHI consultation document states that specific HSS targets will vary according to country-specific needs, demographics, epidemiology, and structural conditions (such as the socioeconomic and political environment). GHI agencies including the Department of State, USAID, and CDC are working on producing indicators for HSS; however, as of early 2012 these have not been released. While some applaud the plan to align HSS activities with individual country needs, others argue that in the absence of more precise targets and ways to measure impact, the concept of HSS has the potential to be more rhetoric than reality.\nPEPFAR, PMI, and USAID TB programs have been integrated into national health systems to varying degrees. Since its establishment, PEPFAR has been progressively integrated into national health systems, but it has also supported the establishment of many stand-alone systems and has funded a number of activities through international nongovernmental organizations (NGOs), rather than local networks (including government, private, faith-based, and NGO groups). For example, PEPFAR has supported country health information systems for some of its programs, but has also set up some of its own information systems to collect data. Similarly, while PEPFAR has used some national distribution systems for AIDS treatment, it has also financed its own supply chain systems to procure antiretrovirals in a number of countries.\nGiven that PMI was established after PEPFAR, it was able to learn a number of lessons from PEPFAR's first few years in operation, including its relationship to the broad functioning of national health systems. As a result, PMI activities have historically been better integrated than PEPFAR into established clinics and laboratories. PMI services have also been frequently combined with other maternal and child health care services. Like PMI, USAID's TB programs have largely been integrated into general health services. USAID's TB programs are often implemented by local groups and USAID works closely with WHO TB initiatives to support the implementation of WHO's strategy for detection and treatment of TB known as \"directly observed treatment, short-course for TB\" (or DOTS), which emphasizes involvement of national governments in TB control.\nOver the past several years, debate about the impact of single disease initiatives on health systems has intensified. Some have argued that U.S. single disease initiatives, particularly PEPFAR, have had a detrimental impact on national health systems. For example, some critics argue that such initiatives have led to duplicative planning, operations, and monitoring systems that have often bypassed existing public institutions, doing little to strengthen country capacity. Likewise, some maintain that single disease programs have usurped resources and personnel out of general health services, leading to reduced care in other health areas. On the other hand, some argue that single disease initiatives have had a positive impact on broader systems. Advocates point to the role of HIV/AIDS, TB, and malaria funding in increased training of health care workers and improvements in health supply chain mechanisms, equipment, information systems, and health facilities. Some experts further argue that the implied dichotomy between single disease programs and systems strengthening is a false one, and that support for one should not preclude support for the other.", "A particular challenge for health systems strengthening (HSS) is the shortage of health care workers in countries confronting HIV/AIDS, TB, and malaria. According to WHO, only 5 out of the 49 low-income countries meet its minimum recommendation of 2.3 doctors, nurses, and midwives per 1,000 people. Sub-Saharan Africa, home to the majority of HIV/AIDS, malaria, and HIV/TB co-infection cases, boasts only 1.3% of the world's health workforce. Shortage of health workers limits the number of HIV/AIDS, TB, and malaria patients that can receive testing, counseling, treatment, and care. Health worker shortages lessen the likelihood of proper diagnosis and supervision once a patient is receiving medication, increasing the potential for poor adherence and eventual drug resistance. The reasons for the limited workforce are myriad, but experts point to factors such as \"brain drain\"; chronic underinvestment in health workforces, including frozen recruitment and salaries; and work environments with few supplies and limited support. Resource-poor countries with the highest disease burdens also suffer from widespread lack of educational and training opportunities.\nIn light of these challenges, U.S. HIV/AIDS, TB, and malaria programs have supported a range of efforts to build health worker capacity. Between FY2004 and FY2009, PEPFAR supported 5.2 million training and retraining encounters for health care workers. These efforts have largely addressed health worker shortages through HIV/AIDS-specific training for existing health workers and \"task-shifting\" through which less technical tasks are transferred to others, including community health workers. In FY2009, USAID-funded programs provided training to an estimated 63,000 health care works in DOTS and other TB interventions. These efforts have included pre-service and in-service training on TB to health care professionals and training of community health workers. According to the U.S. TB Strategy, support is provided to health-related academic institutions in partner countries to ensure that TB is a standard component of health worker curriculum. In FY2010, PMI reported the training more than 36,000 health workers in the diagnosis and treatment of malaria with ACTs. PMI programs sponsor malaria-specific trainings for health workers, particularly those working in maternal and child health, and for community health workers.\nAs with the general question of health systems strengthening, there has been debate over the impact of single disease initiatives, particularly PEPFAR, on the health workforce capacity. Critics argue that PEPFAR's role in workforce development has primarily benefited HIV/AIDS programs, with little impact on broader health systems. Moreover, observers maintain that in some countries compensation to health workers through PEPFAR programs has drawn staff away from other public health needs. Several experts also assert that the short-term contractual agreements that PEPFAR programs often used to hire health workers can cause disruptions in treatment and care. Finally, some argue that the use of short-term contacts and \"task-shifting\" do not address the underlying constraints on creating a stable workforce.\nIn response to concerns about health worker shortages, the Lantos-Hyde Act recommends that PEPFAR support the training and retention of more than 140,000 new health workers by 2013. The act also specifies that these health workers should be trained to deliver primary health care rather than HIV/AIDS-specific skills. The GHI consultation document includes the goal of training 140,000 new workers through HIV/AIDS programs, but extends the time period to 2014. To meet this goal, PEPFAR launched the Medical Education Partnership Initiative (MEPI) and the Nursing Education Partnership Initiative (NEPI), which provides support through grants to foreign institutions in African countries to expand or enhance models of medical education.\nAdvocates applaud the new attention to health workers, although many argue that the United States should adopt a much higher goal for training new health workers if it is to adequately confront shortages. Some also argue that while the Lantos-Hyde goal of training new workers was directed specifically to PEPFAR programs, increased efforts by malaria and TB programs are also necessary, with the ultimate goal to train workers in broad-based primary health care skills. To this end, some experts argue that the United States should employ performance incentives for a variety of health service responsibilities, rather than just disease-specific ones. Some experts also urge the United States to increase steps to reduce the attrition and migration of health workers from resource-poor countries, such as through health workforce strategic planning, health workforce needs analysis, increases in health worker remuneration, and improvement to workplace policies.", "In recent years, the international community, including the United States, has placed growing emphasis on \"country ownership\" of HIV/AIDS, TB, and malaria programs. Country ownership refers to strengthening the capacity of recipient governments and local civil society to develop and manage their own health programs, including the ability to develop health plans, forecast monetary and infrastructural needs, and ensure financial support of programs. Congress has demonstrated its support for country ownership through several mechanisms, including the Lantos-Hyde Act, which called on the Administration to better harmonize U.S. HIV/AIDS, TB, and malaria efforts with the national health strategies of recipient countries. The Administration also includes country ownership among its seven GHI goals. Despite this, a number of concerns have been raised over the feasibility of this goal, including whether countries will be willing and able to progressively \"own\" U.S.-supported HIV/AIDS, TB, and malaria programs.\nThe Lantos-Hyde Act authorized PEPFAR programs to develop strategic agreements with national governments to promote host government commitment to and ownership of HIV/AIDS programs. Since enactment, PEPFAR has implemented \"Partnership Frameworks\" with a number of countries. Partnership Frameworks are nonbinding five-year joint strategic planning documents that outline the goals, objectives, and commitments of the U.S. and recipient government. Over the five years, the United States is expected to shift increasing portions of aid from direct service provision to technical assistance, with the goal of the recipient government assuming primary responsibility for the management and funding of the programs to the fullest extent possible. As of early 2012, the United States has signed 21 PEPFAR partnership framework agreements.\nUnlike PEPFAR, PMI and USAID TB programs do not include a formal process of establishing agreements with recipient countries. Nevertheless, U.S. malaria and TB efforts have historically been better aligned with recipient country national plans than PEPFAR. According to PMI documents, malaria needs assessments and planning visits are carried out in conjunction with National Malaria Control Programs (NMCPs). Annual PMI Malaria Operational Plans directly support national malaria control strategies and PMI program targets are typically aligned with those of the host country. Likewise, U.S. TB support is generally provided to fill financing gaps identified in recipient country National Tuberculosis Plans (NTPs).\nThere is widespread support within the international community for countries assuming greater control over efforts to fight the three diseases. At the same time, a number of questions about the realization of this goal remain, particularly in relationship to HIV/AIDS. Some experts question whether recipient countries are in fact ready and willing to assume greater responsibility when few African countries spend 15% of their national budgets on health care, as they committed to do at the 2001 Abuja Summit. Alternatively, some analysts doubt Congress will prefer to have recipient countries manage the substantial resources aimed at addressing these diseases, given the possibility that funds may not be spent as efficiently or effectively as possible, along with the potential for misuse of funds by government officials. The legally nonbinding nature of Partnership Frameworks has also led some to question how effective they are in practice.\nA September 2010 Institute of Medicine (IOM) report focused on PEPFAR's country ownership efforts and found that activities were generally aligned with national HIV/AIDS strategies and helped to achieve national goals; however, the study raised a number of operational challenges to effective in-country management and control of global health programs.\" Challenges included\nweak in-country capacity, including in technical expertise; significant U.S. funding for HIV/AIDS, TB, and malaria programs for international contractors and private organizations rather than recipient governments; indicators used by the United States to evaluate HIV/AIDS, TB, and malaria program performance often differed from those used by host countries; and limitations in PEPFAR's willingness to share information about its programs and funding with recipient governments.", "Research and development (R&D) of diagnostic, preventative, and treatment tools is a key component of any long-term response to HIV/AIDS, TB, and malaria. Currently, these diseases are the top three targets of funding for global health R&D and, together, account for close to three-quarters of all investments in global health R&D. In 2008, of all global funds spent on global health R&D, 34.9% went to HIV/AIDS, 15.1% to TB, and 18.3% to malaria ( Table 2 ). The United States is the largest funder of global health R&D in the world, contributing approximately 45% of total global investment and 70% of all government investment each year. Of the U.S. R&D global health funding over the past decade, 57% has done toward HIV/AIDS, 12% toward TB, and 10% toward malaria. Five U.S. agencies conduct global health R&D: NIH accounts for the vast majority of U.S. global health R&D efforts and leads a range of basic and clinical research activities on global HIV/AIDS, TB, and malaria; USAID, DOD, and CDC each conduct field research related to these diseases; and the FDA supports product development by facilitating the regulatory process. As the United States reforms its HIV/AIDS, TB, and malaria programs to better support sustainable approaches to health, spending levels for R&D and the areas of R&D priority are up for debate.\nExisting R&D investments in HIV/AIDS, TB, and malaria have led to some progress in the tools available to combat the three diseases, such as the development of simpler HIV/AIDS drug regimens and long-lasting insecticide-treated bed nets (LLINs) for malaria control. There have also been several important recent R&D accomplishments. In 2011, results from an HIV prevention study found that early use of ART in discordant couples led to a 96% reduction in HIV transmission. A 2010 trial also demonstrated that HIV treatment used as prophylaxis reduced the risk of HIV infection by 44% in men who have sex with men. Results from another 2010 study in South Africa, funded in part by the United States, showed that a microbicide gel was 39% effective in reducing a woman's risk of contracting HIV during sex. In December 2010, WHO endorsed the rollout of a new rapid diagnostic test for TB and MDR-TB, funded in part by NIH. The test provides a diagnosis within 100 minutes, while existing tests can take as much as three months to produce results. Finally, while no vaccine for malaria exists, research has been promising. There are currently over a dozen vaccine candidates in clinical development and one, produced by GlaxoSmithKline, is in clinical trial. If these are successful, the vaccine could be available as early as 2014.\nIn many cases, however, the impact of these advances have been compromised by outdated or inadequate technologies. Despite progress made in AIDS treatment, even the most recent forms of ART include potentially severe side effects and many of the newer drugs, particularly second- and third-line therapies, are prohibitively expensive for many developing countries. Likewise, available HIV/AIDS treatment requires increased nutritional intake, which is often challenging for poor individuals and families. Many of the current TB diagnosis and treatment tools were developed decades ago and have had uneven success. The most common method of TB diagnosis, sputum smear microscopy, is labor intensive and does not consistently detect TB. Also, current treatment regimens require people with active TB to take medicines for a period lasting 6 to 12 months and to be monitored during their entire treatment cycle. The emergence of drug-resistant forms of TB and malaria highlight the need for even more advanced diagnostic and treatment tools, appropriate for resource-poor environments. Treatment of MDR- and XDR-TB is considerably more expensive than basic TB treatment and can take up to two years, including significant time spent in a hospital with special facilities. Growing malaria drug and insecticide resistance threaten the success of the most effective available methods to control the disease.\nMany health experts believe that U.S. funding for HIV/AIDS, TB, and malaria research and development lags behind what is needed. In particular, experts point to the need for increased R&D related to basic TB diagnostics and treatment, new drugs to tackle TB and malaria drug resistance, and an AIDS vaccine. Some argue that the long-term nature of R&D complicates efforts to raise financial support for the work, and the low incomes in the most affected countries provide little incentive for private companies to invest in expensive research. In recent years, the international community has taken some innovative steps to address this challenge. For example, in the absence of viable commercial markets for some health technologies for developing countries, a number of new nonprofit ventures, known as Product Development Partnerships (PDPs), have begun to support research and the development of drugs, vaccines, microbicides, and diagnostics. PDPs working on HIV/AIDS, TB, and malaria includes groups like the International AIDS Vaccine Initiative, the TB Alliance, and the Medicines for Malaria Venture. Similarly, in 2008, WHO supported the establishment of the African Network for Drugs and Diagnostics Innovation (ANDI), an initiative that aims to build Africa-based research capacity to respond to diseases on the continent. The United States is one of the largest public financiers for these efforts, but many experts advocate increased support of innovative approaches to R&D.\nMany also argue that the United States should significantly increase its support for what is known as operations, or implementation, research. Operations research is the study of how technology is used in the field, and aims to identify factors that affect service delivery and impact implementation or scale-up of interventions. Advocates applaud the support for operational research in the GHI consultation document and argue that it should be seen as necessary for improving prevention and treatment outcomes and for addressing strategies in support of more sustainable HIV/AIDS, TB, and malaria programs. The recent evidence in support of early use of ART as a prevention method has increased calls for innovative approaches to testing the impact, feasibility, and acceptability of this approach in the field.", "In recent years calls have increased within the global health community for more monitoring and evaluation (M&E) to track health activities, determine progress in meeting targets, and evaluate the activities' impact on health outcomes. M&E is a key component of the GHI and is emphasized in the United States' HIV, TB, and malaria strategies ( Appendix B ). The United States has recognized the need to make its HIV/AIDS, TB, and malaria programs increasingly results-based, yet these efforts remain nascent and experts have expressed a number of concerns over how to meet these goals for each of the diseases.\nWhile a systematic, quantitative evaluation of PEPFAR's impact has not yet been published, the Lantos-Hyde Act mandated a comprehensive assessment of U.S. HIV/AIDS programs and their impact on health, to be submitted to Congress in 2012. In 2010, IOM released a consensus report outlining its strategic approach for conducting this evaluation. Congress has also required several targeted evaluations from GAO and IOM. In 2007, IOM conducted a short-term evaluation of PEPFAR, focusing largely on its ability to meet its outlined targets for delivery of prevention, treatment, and care services in its focus countries. GAO has released reports in July 2011, analyzing PEPFAR's program planning and reporting processes, and in September 2010, analyzing efforts to align PEPFAR programs with partner countries' HIV/AIDS strategies. Neither the IOM nor the GAO evaluation included assessments of PEPFAR programs in relation to long-term health-related outcomes such as HIV incidence, prevalence, or mortality.\nOn February 21, 2012, USAID released the final report by an external evaluation team of the first five years (FY2006-FY2010) of PMI, originally commissioned in May 2011. The evaluation concluded that PMI was a largely successful program that had made substantive progress toward meeting its goals. The report also offered 10 recommendations, including, among others, that PMI expand its geographic reach, that it better apply the country ownership principle, that it expand its operations research component, and that it accelerate impact evaluation activities. The U.S. malaria strategy indicates that another large external evaluation will be conducted and published in 2015 that assesses progress on all U.S. malaria activities undertaken through 2014. Congress has not mandated a systematic review of USAID TB programs beyond annual reports that include progress on meeting predetermined targets.\nThe United States is taking steps to strengthen its ability to effectively monitor and evaluate its HIV/AIDS, TB, and malaria programs. In support of better M&E, PEPFAR has expanded its tracking of outcomes and impacts of its programs in the short and long term. In 2009, PEPFAR released its \"Next Generation Indicators\" (NGI), providing new indicators to track the impact of PEPFAR activities. Through this effort, PEPFAR has attempted to better align its indicators with those already used by many host nations and other international donors and to minimize PEPFAR-specific reporting, allowing country teams more flexibility to design M&E plans in line with national governments. NGI also includes new indicators related to program and population coverage as well as program quality. This marks a shift from past practices, in which M&E focused largely on program outputs, such as number of individuals on treatment.\nDocuments from the President's Malaria Initiative state that it is working closely with the Roll Back Malaria Monitoring and the Evaluation Reference Group to standardize data collection and use internationally accepted indicators of progress, and will assist recipient governments in conducting nationwide household surveys to measure changes in child mortality and malaria prevalence. Likewise, in support of TB-related M&E, USAID works with the WHO Global TB Monitoring and Surveillance project, the WHO body charged with leading TB M&E activities, to standardize TB control indicators. USAID TB programs also include efforts to bolster national M&E systems to track TB infection and mortality rates as a key component of DOTS.\nDespite these steps to strengthen U.S. capacity for M&E activities, a number of challenges remain. M&E requires collection of a variety of data from multiple sources, including household surveys, birth and death registration, census, and national surveillance systems. Resource-poor countries often have limited ability to produce data that is timely, standardized, and of a high enough quality to use for routine tracking and assessment of health programs. Malaria M&E efforts are particularly challenged because many resource-poor countries have weak health information systems necessary to track childhood health and many people infected with malaria, especially children, do not seek treatment in official health facilities. Similarly, gaps in TB coverage, treatment, and case detection impede effective and comprehensive M&E. Drug-resistant forms of TB pose new challenges to M&E efforts, as many resource-poor countries do not have the capacity to test for second-line drug resistance. Efforts to monitor and evaluate HIV/TB co-infection rates and activities are also precluded by limited information sharing between distinct TB and HIV programs.\nU.S. M&E efforts are also challenged by the interaction in the field between U.S. global health programs and those of other donors, including the Global Fund and a range of private and NGO actors, which make it difficult to evaluate the outcomes of any one program. Finally, given the number of factors that influence the functioning and capacity of health systems and national governments, effective ways to measure the progress and impact of activities related to issues such as health systems strengthening and country ownership remain contentious. Indeed, PEPFAR has yet to develop specific indicators for measuring the effectiveness of activities related to HSS, country ownership, and HIV prevention.\nMany have called for the United States to mandate regular and comprehensive M&E of its HIV/AIDS, TB, and malaria programs and increase support for in-country capacity to collect and assess health data. Some have also called on the United States to improve its data transparency and its dissemination of results to international and local partners. Experts have encouraged the alignment of health indicators used by the United States (through programs like PEPFAR and PMI) and those used by multilateral organizations and national governments. Some also urge the United States to support the use of national information systems for M&E as a way to strengthen these systems and increase country ownership of M&E. At the same time, other observers caution that additional measurement and reporting requirements have the potential to overburden already strained countries and programs and may reduce the time and money available for programs.", "The United States supports global HIV/AIDS, TB, and malaria efforts through bilateral programs as well as partnerships with and contributions to multilateral organizations. Over the last decade, Members of Congress have debated the appropriate balance between funding bilateral and multilateral global health efforts. This debate frequently focuses on the extent to which the United States should support the Global Fund to Fight AIDS, Tuberculosis, and Malaria (Global Fund), a multilateral public-private partnership established in 2002 to provide financial support for global responses to the three diseases. The Global Fund estimates that in 2009 it provided approximately 21% of all funding for global HIV/AIDS, 65% of all funding for global TB, and 65% of all funding for global malaria. Donors to the Global Fund include a number of governments as well as private and multilateral organizations. The United States is the single largest donor to the Global Fund, though U.S. bilateral spending on HIV/AIDS, TB, and malaria far outweighs contributions to the Global Fund and other multilateral groups ( Figure 6 ).\nThe Obama Administration has indicated support for increased engagement with multilateral organizations, including the Global Fund. In October 2010, the President pledged $4 billion to the Global Fund over the course of three fiscal years—the first multi-year pledge to the Global Fund from the United States. While requesting decreased funding amounts for all bilateral HIV/AIDS, TB, and malaria programs, the FY2013 budget request includes a 27% increase in funding for the Global Fund over estimated FY2012 levels, fulfilling the President's multi-year pledge. The Administration has also emphasized nonfinancial ways in which the United States can support multilateral organizations, including better coordination in-country with multilateral organizations, increased technical assistance to multilaterally funded field programs, and demonstrated leadership in shaping the policies of multilateral organizations (for instance, as a member of the Global Fund Board).\nDespite this support, in November 2011, the Global Fund announced that due to limited resources available from donor countries, it would cancel its 11 th round of funding. In order to prevent any gaps in services, the Global Fund has instituted a \"Transitional Funding Mechanism\" (TFM), which will secure funding for programs facing disruptions in services currently supported by the Global Fund between 2012 and 2014. Documents released by the Global Fund have made clear that in this same time period, it will be unable to support any new interventions, nor will it support the scale-up of services, including provision of ART.\nA number of experts contend that the Global Fund's decision demonstrates the critical need for increased multilateral funding from donors like the United States. Some argue that a reduction—or leveling—of funding to the Global Fund could imperil lives and cause significant losses in the progress made against the three diseases. Some experts argue that the U.S. fight against the three diseases would be better waged through increased support to multilateral organizations rather than to bilateral programming. Specifically, advocates argue that multilaterals cede greater control of the programs to recipient countries, which supports the goal of country ownership. Some also argue that multilateral programs have more flexibility than bilateral programs, allowing them to better respond to locally defined needs. Likewise, some assert that funds are more effectively spent through multilateral mechanisms because donors can pool their resources and achieve economy of scale. Also, multilateral groups are capable of extending multi-year support. Some argue that this is particularly useful when addressing diseases that require long-term funding, like HIV/AIDS. Finally, some contend that U.S. engagement in multilateral organizations offers the United States opportunities to demonstrate its leadership in global health and encourage other countries to share in the global fight against the three diseases. As a result, some of these advocates applaud the President's decision to request significantly increased funding for the Global Fund in the FY2013 budget.\nAdvocates of limited support for multilateral organizations argue that bilateral assistance increases the United States' ability to target health assistance to specific countries and determine funding priorities. In addition, others assert that bilateral assistance allows for better oversight of the use of funds by recipient governments and organizations. Some experts also contend that bilateral assistance is easier to track and measure than multilateral assistance, allowing for more effective monitoring and evaluation. Ongoing concerns about the capacity of multilateral groups like the Global Fund to detect and respond to corrupt practices propel this debate.", "The second session of the 112 th Congress will likely exercise oversight of and debate the appropriate funding amounts for global HIV/AIDS, TB, and malaria programs and priority areas within these programs. Discussions may focus on a number of critical disease-specific and cross-cutting issues, measurement of the effectiveness of the U.S. response, and tradeoffs the United States might consider as it sets priorities. As Congress reflects on these challenges, several overarching issues may also be considered:\nWays to assess impact and efficiency of global HIV/AIDS, TB, and malaria programs: As Congress debates funding the fight against these three diseases, it will likely consider which methods to use in determining the distribution of finite global health and overall foreign assistance resources. The United States might face decisions over whether it should invest in the lowest-cost interventions, such as anti-malaria bednets, versus the higher-cost interventions that high-burden countries may be unable to afford, such as antiretroviral therapy. Similarly, the United States might consider whether it should support programs tackling the high-mortality issues, such as drug-resistant TB, or the more widespread and commonplace issues, such as malaria infection. The United States may also consider how it should balance its funding between high-impact activities, such as ART programs, with dramatic results and areas like health systems strengthening, which may yield few immediate results but which could result in significant long-term progress. More broadly, policymakers may weigh support for these programs against other foreign policy priorities. Role of the United States in the global fight against HIV/AIDS, TB, and malaria: The United States is a central leader in combating HIV/AIDS, TB, and malaria. Some Members of Congress have targeted global health funding for cuts as a way to reduce the U.S. deficit. Many supporters of these cuts have argued that the United States has played an overly generous role in combating issues like global HIV/AIDS, TB, and malaria, especially since these investments do not necessarily have direct implications for the wellbeing of U.S. citizens. Alternatively, many supporters argue that U.S. leadership in the fight against these diseases remains critical, particularly as new tools for treatment and prevention become available. Many of these advocates assert that given the prominence of the United States, any U.S. divestment could have significant negative consequences for some of the most vulnerable people in resource-poor countries. Some also point out that while the United States has been a key donor for HIV/AIDS, TB, and malaria, several European countries give more for these diseases as a share of their country's GDP. Finally, advocates assert that U.S. leadership is vital for sustaining the activities of the Global Fund, a key financial player in the fight against these diseases. Many advocates and critics of expanding U.S. global health assistance call for other countries, including a number of European countries, as well as emerging economies like China, India, Brazil, and Saudi Arabia, to begin playing a larger role in combating global HIV/AIDS, TB, and malaria. Advocates argue that increased efforts among other donors could help achieve the United Nations (U.N.) Millennium Development (MDG) goal \"to combat HIV/AIDS, malaria, and other diseases,\" a goal which to which all U.N. member states have committed. At the same time, there is disagreement over the ways in which U.S. leadership can and should motivate this kind of engagement. HIV/AIDS, TB, and malaria assistance, economic development, and security: Congressional consideration of U.S. HIV/AIDS, TB, and malaria programs may be affected by debate over their role in the broader U.S. foreign policy agenda. HIV/AIDS, TB, and malaria have undeniable humanitarian consequences. At the same time, many argue that these diseases also have important implications for economic development and security. Development experts argue that disease can threaten political and economic stability in fragile areas of the world, undermining U.S. interests abroad. Health experts believe that U.S. citizens are threatened by the spread of infectious diseases across borders. Furthermore, foreign policy experts contend that global health efforts like PEPFAR have become critical diplomatic tools (often referred to as medical diplomacy) and have bolstered the image of the United States abroad, especially in sub-Saharan Africa. Alternatively, others caution against overly emphasizing the security and diplomatic implications of HIV/AIDS, TB, and malaria, and warn that doing so could lead to allocation of funding according to U.S. interests rather than human need.\nAppendix A. Acronyms and Abbreviations\nAppendix B. HIV/AIDS, TB, and Malaria GHI Goals\nPEPFAR Strategy Targets\nGHI set a number of goals to be reached from FY2010 through FY2014. GHI goals and projected targets for PEPFAR are:\nprovide direct support for more than 4 million people on treatment; support the prevention of more than 12 million new HIV infections; ensure that every partner country with a generalized HIV epidemic has both 80% coverage of testing for pregnant women at the national level, and 85% coverage of antiretroviral drug prophylaxis and treatment as indicated, of women found to be HIV-infected; double the number of at-risk babies born HIV-free, from a baseline of 240,000 babies of HIV-positive mothers born HIV-negative during the first five years of PEPFAR; provide direct support for care for more than 12 million people, including 5 million orphans and vulnerable children; support training and retention of more than 140,000 new health care workers to strengthen health systems; and ensure that in each country with major PEPFAR investment, the partner government leads efforts to evaluate and define needs and roles in the national response.\nU.S. TB Strategy Targets\nGHI goals and projected targets for U.S. TB programs are:\nto contribute to a 50% reduction in TB deaths and disease burden from the 1990 baseline; to sustain or exceed the detection of at least 70% of sputum smear-positive cases of TB and successfully treat at least 85% of cases detected in countries with established USG tuberculosis programs; to successfully treat 2.6 million new sputum smear-positive TB patients under DOTS programs by 2014, primarily through support for need services, commodities, health workers, and training, and additional treatment through coordinated multilateral efforts; and to diagnose and initiate treatment of at least 57,2000 new MDR-TB cases by 2014 and providing additional treatment through coordinated multilateral efforts.\nU.S. Malaria Strategy Targets\nGHI goals and projected targets for U.S. malaria programs are:\nto achieve Africa-wide impact, by halving the burden of malaria (morbidity and mortality) in 70% of at-risk populations in sub-Saharan Africa (approximately 450 million people), thereby removing malaria as a major public health problem and promoting economic growth and development throughout the region; to limit the spread of anti-malaria multi-drug resistance in Southeast Asia and the Americas; to increase emphasis on strategic integration of malaria prevention and treatment activities with maternal and child health, HIV/AIDS, neglected tropical diseases, and tuberculosis programs, and on multilateral collaboration to achieve internationally accepted goals; to intensify present efforts to strengthen health systems and strengthen the capacity of host-country workforces to ensure sustainability; to assist host countries to revise and update their National Malaria Control Strategies and Plans to reflect the declining burden of malaria, and link programming of U.S. malaria control resources to those host country strategies; and to ensure a woman-centered approach for malaria prevention and treatment activities at both the community and health facility levels, since women are the primary caretakers of young children in most families and are in the best position to help promote health behaviors related to malaria.\nAppendix C. HIV/AIDS, TB, and Malaria Funding\nTable C -1 presents an overview of U.S. funding for global HIV/AIDS, TB, and malaria efforts. The table does not include global health spending that does not correlate to specific congressional appropriations. For instance, CDC does not receive appropriations for global TB programs specifically, but spends a portion of its overall TB budget on international programs.\nAppendix D. HIV/AIDS, Tuberculosis, and Malaria Program Maps\nTwo maps are shown for each disease. The first displays U.S. bilateral funding levels across countries. The second highlights U.S. countries receiving assistance in relation to global prevalence estimates for each disease.\nHIV/AIDS\nFigure D -1 shows U.S. bilateral HIV/AIDS funding levels across countries in FY2011. Figure D -2 highlights U.S. countries receiving assistance in relation to global HIV prevalence estimates in 2009.\nTuberculosis\nFigure D -3 shows U.S. bilateral TB funding levels across countries in FY2011. Figure D -4 highlights U.S. countries receiving assistance in relation to global TB prevalence estimates in 2010.\nMalaria\nFigure D -5 shows U.S. bilateral malaria funding levels across countries in FY2011. Figure D -6 highlights U.S. countries receiving assistance in relation to global malaria prevalence estimates in 2010." ], "depth": [ 0, 1, 1, 1, 2, 2, 2, 1, 2, 2, 2, 1, 2, 2, 2, 1, 2, 2, 3, 3, 2, 3, 3, 1, 1, 2, 3, 2, 2, 2, 2, 1 ], "alignment": [ "h0_title h2_title h1_title", "h0_full h2_full", "", "h2_title h1_title", "", "h2_full h1_full", "h1_full", "h2_full h1_title", "h2_full h1_full", "", "h2_full", "", "", "", "", "h2_title", "h2_full", "", "", "", "h2_title", "h2_full", "", "", "h0_title h2_full", "h2_full", "", "h0_full", "", "", "h0_full", "h0_full h2_full" ] }

{ "question": [ "What diseases currently pose major global health challenges?", "What other threats do these diseases pose?", "How has the US been a leader in the fight against this problem?", "How will the US continue to consider taking action against this problem?", "How has Congress addressed global health challenges?", "What initiatives did Congress support?", "What has Obama accomplished through the Global Health Initiative?", "How has funding changed for HIV/AIDS, malara, and TB?", "What are experts' stances regarding the changes in funding for the three diseases?", "What issues exist regarding the three disease?", "What are the issues for HIV/AIDS?", "What issues exist regarding TB?", "What are the problems for malaria?", "What cross-cutting issues exist regarding the three diseases?" ], "summary": [ "The spread of human immunodeficiency virus/acquired immune deficiency syndrome (HIV/AIDS), tuberculosis (TB), and malaria across the world poses a major global health challenge.", "The international community has progressively recognized the humanitarian impact of these diseases, along with the threat they represent to economic development and international security.", "The United States has historically been a leader in the fight against HIV/AIDS, TB, and malaria; it is currently the largest single donor for global HIV/AIDS and has been central to the global response to TB and malaria.", "In its second session, the 112th Congress will likely consider HIV/AIDS, TB, and malaria programs during debate on and review of U.S.-supported global health programs, U.S. foreign assistance spending levels, and foreign relations authorization bills.", "Over the past decade, Congress has demonstrated bipartisan support for addressing HIV/AIDS, TB, and malaria worldwide, authorizing approximately $54 billion for U.S. global efforts to combat the diseases from FY2001 through FY2012.", "During this time, Congress supported initiatives proposed by President George W. Bush, including the President's Emergency Plan for AIDS Relief (PEPFAR) and the President's Malaria Initiative (PMI), both of which have demonstrated robust U.S. engagement in global health.", "Through the Global Health Initiative (GHI), President Barack Obama has led efforts to coordinate U.S. global HIV/AIDS, TB, and malaria programs and create an efficient, long-term, and sustainable approach to combating these diseases.", "Funding Trends: Combined funding for the three diseases has increased significantly over the past decade, from approximately $911 million in FY2001 to $7.4 billion in FY2012. The bulk of the increase over time has been targeted toward HIV/AIDS, although in recent years funding for global HIV/AIDS has begun to level off. When compared to FY2011, funding in FY2012 included decreases for global HIV/AIDS, and slight increases for global TB and malaria programs.", "Some health experts applaud what they see as a shift toward less expensive efforts that maximize health impact. Other experts warn that divestment from HIV/AIDS could significantly endanger the lives of those reliant on U.S. assistance and could reverse fragile gains made against the epidemic and other diseases.", "Disease-Specific Issues: HIV/AIDS, TB, and malaria each present unique challenges.", "Rising numbers of people in need of life-long HIV/AIDS treatment combined with reduced global HIV/AIDS funding have heightened concerns over the sustainability of treatment programs and incited debate over the appropriate balance of funding between antiretroviral treatment (ART) and other HIV/AIDS interventions.", "Growing rates of HIV/TB co-infection and drug-resistant TB strains have increased calls for escalating TB control efforts.", "Finally, growing resistance to anti-malaria drugs and insecticides threatens malaria control efforts, leading to calls for more attention to reducing resistance and developing new anti-malaria commodities.", "Cross-Cutting Issues: Several cross-cutting issues are currently being debated, particularly in relation to increased efficiency and sustainability of HIV/AIDS, TB, and malaria programs under the GHI. These include Health Systems Strengthening, Country Ownership in Recipient Countries, Research and Development, Monitoring and Evaluation, and Engagement with Multilateral Organizations." ], "parent_pair_index": [ -1, 0, 0, 2, -1, 0, -1, -1, 0, -1, 2, 2, 2, -1 ], "summary_paragraph_index": [ 0, 0, 0, 0, 1, 1, 1, 4, 4, 4, 4, 4, 4, 4 ] }

{ "title": [ "", "Introduction", "Sources of Trade Conflict", "Traditional Trade Conflict: Producer Protection", "Agriculture", "Aerospace9", "Steel", "Contingency Protection", "Foreign Policy Conflict: Clashing State Interests", "EU Concerns", "U.S. Complaints", "Regulatory Policy Conflict: Social and Environmental Protection", "Beef Hormones", "Genetically Engineered Crops27", "Audio-Visual Sector", "Aircraft Hushkits", "Conflict Management", "Traditional Trade Conflict", "Foreign Policy Conflict", "Regulatory Policy Conflict", "Trade Conflict in Perspective", "Relationship Impact", "Leadership Impact" ], "paragraphs": [ "", "The bilateral economic relationship between the United States and European Union (EU) is shaped by two outstanding trends. On the one hand, the two transatlantic economies share a high degree of commercial interaction, most notably a huge trade and investment relationship and a growing number of corporate mergers. Cooperation between the two partners has been critical to the promotion of world trade. On the other hand, the bilateral economic relationship is subject to limited, but increasingly contentious, trade conflicts that potentially could have adverse political and economic repercussions. These include a weakening of shared interests and bonds as well as an undermining of the credibility of the World Trade Organization.\nThe dimensions of the mutually beneficial side of the economic relationship are well known. The United States and EU are parties to the largest two-way trade and investment relationship in the world. Annual two-way flows of goods, services, and foreign direct investment exceeded $1.3 trillion in 2005. This sum means that over $3 billion is spent every day on transatlantic purchases of goods, services, and direct investments.\nThe European Union as a unit is the second largest (next to Canada) trading partner of the United States in merchandise or goods. In 2005 the EU accounted for 20.6% (or $186 billion) of U.S. exports and 18.5% (or $309 billion) of U.S. imports. The EU is also the largest U.S. trading partner in services. In 2005, the EU purchased slightly over 34% of total U.S. services exports (or $130 billion). But the United States since 1993 has been importing more goods from the EU than it has been exporting. In 2005, the resulting U.S. trade deficit with the EU totaled $122 billion or 16% of the U.S. merchandise trade deficit with the world. This trade deficit is partially offset by U.S. surpluses in services trade which have averaged around $10 billion dollars over the 2002-2005 period.\nBased on a population of some 457 million citizens and a gross domestic product of about $13.4 trillion (compared to a U.S. population of 298 million and a GDP of $12.5 trillion in 2005), the twenty-five members of the EU combine to form the single largest (in terms of GDP) market in the world. Given the reforms entailed in the introduction of the European single market in the early 1990s, along with the introduction of a single currency, the euro, for twelve members, the EU market is also increasingly open and standardized.\nThe fact that each side has a major ownership stake in the other's market may be the most remarkable aspect of the commercial relationship. At the end of 2004, the total stock of two-way direct investment reached $1.9 trillion (composed of $942 billion in EU investment in the United States and $965 billion in U.S. investment in the EU), making U.S. and European companies the largest investors in each other's market. Roughly 60% of corporate America's foreign investments are located in Europe, while almost 75% of Europe's foreign investments are based in the United States. This massive amount of ownership of companies in each other's markets translates into billions of dollars of sales, production, and expenditures on research and development. In addition, an estimated 6-7 million Americans are employed by European affiliates operating in the United States and almost an equal number of EU citizens work for American companies in Europe.\nForeign direct investment also serves to spur international trade flows. This is due to the fact that trade taking place within the same company (imports by U.S. affiliates from their EU parent firms and exports by U.S. companies to their EU affiliates) accounts for around one-third of U.S. total trade with the EU. The trade and employment linkages associated with foreign direct investment engender strong and politically active interest groups that lobby on both sides of the Atlantic in favor of maintaining friendly bilateral ties, reducing regulations, and in opposing protectionist proposals.\nThe United States and the European Union, acting in concert, are the superpowers of the world trading system. As shown in Tables 1 and 2 , together they accounted for 35% of world merchandise trade in 2004 and 60% of the world's production of goods and services in 2003. Cooperation and joint leadership between the two partners have historically been the key to all efforts to liberalize world trade on a multilateral basis, including the creation of the General Agreement on Tariffs and Trade (GATT) in 1948 and the World Trade Organization (WTO) in 1995.\nTrade tensions, disputes, and rivalry coexist alongside and, in part, result from these cooperative and generally positive currents. Bilateral trade disputes have been an important part of the relationship during the Cold War as well as after. They are nothing new nor unexpected given the huge volume of commercial interactions. Historically, with the possible exception of agriculture, the disputes have been managed without excessive political rancor, perhaps due to the balanced nature of the trade and investment relationship. Policymakers and many academics often emphasize that the U.S. and EU always have more in common than in dispute, and like to point out that trade disputes usually affect a tiny fraction (often estimated at 1-2 percent) of the trade in goods and services.\nIn the middle of this decade, however, Washington and Brussels are still at loggerheads over a number of issues, ranging from bio-engineered food products and aircraft to the treatment of agriculture in the Doha Round of multilateral trade negotiations. The conflicts have not been easy to resolve, and some of the efforts at dispute resolution have led to escalation and tit-for-tat retaliation. Instead of compromising in an effort to find solutions, policymakers on both sides sometimes appear more interested in getting even.\nCongress has been in the middle of many of the trade disputes. By both crafting and passing legislation, Congress has supported the efforts of U.S. agricultural and industrial interests to gain better access to EU markets. Congress has pressured the executive branch to take a harder line against the EU in resolving a number of disputes, but has also cooperated with the Administration in crafting compromise solutions.\nCombined with a growing value of trade now being disputed, the political and economic effects of trade discord between Brussels and Washington are important questions. Why are many disputes so difficult to resolve? What can be done to improve dispute resolution efforts? Are the disputes undermining business confidence or efforts at economic policy coordination? Are the disputes weakening the credibility of the WTO dispute settlement system? Do the political disputes reflect differences between the two partners in terms of basic values and orientations? If so, could the disputes force a fundamental re-evaluation of the importance of the bilateral relationship? In short, what is the significance of trade conflict to the bilateral relationship?\nThis report considers these overriding questions in three parts. The first part categorizes and evaluates the trade conflicts according to their underlying causes and characteristics. In light of the causes and dimensions of the disputes, the second section examines the potential for conflict management. A final section assesses the role that trade disputes may be playing in the U.S.-EU economic relationship.", "Changes in government regulations, laws, or practices that protect or promote domestic commercial interests at the expense of foreign interests are at the heart of most trade conflicts. While governments are the sole providers or suppliers of trade protection, there are a range of parties or interest groups that demand or request measures that result in protection for domestic parties. These include producers and workers, as well as consumer and environmental interest groups. Governments may also be the primary demanders or initiators of actions that have trade protectionist effects.\nU.S.-EU trade conflicts vary according to the nature of the demand for protection. Many of the major U.S.-EU trade conflicts are classified and discussed below according to the nature of the demand for protective action. While many of the conflicts are spurred by multiple demanders and causes, an attempt is made to classify disputes according to categories that seemingly account for the overriding cause or demand for government action.\nAs most trade conflicts embody a mixture of economic, political, and social dimensions, there is ample room for disagreement over the dominant cause of any particular dispute. By and large, this report classifies most of the conflicts according to American perspectives. U.S.-European disagreements over the cause and nature of the controversy, of course, provides the basis for many of the conflicts. Whether the conflict is propelled by protectionist or other domestic aims remains a key question in some disputes as well.", "Some conflicts stem primarily from demands from producer or vested interests for protection or state aids. These kinds of disagreements arise when both transatlantic trade partners, in support of vested interests and key industries, craft policies that try to open markets for exports but keep markets protected from imports as much as possible. Trade conflicts involving agriculture, aerospace, steel, and 'contingency protection' fit prominently in this grouping. These are examples of traditional trade conflicts, prompted by trade barriers such as tariffs, subsidies or industrial policy instruments, where the economic dimensions of the conflict predominate.", "Agricultural trade disputes historically have been major sticking points in transatlantic relations. Accounting for a declining percentage of output and employment in both the EU and United States, the agricultural sector has produced a disproportionate amount of the trade tension between the two sides. In the past, the majority of what can be called traditional conflicts stemmed primarily from government efforts to shield or protect farmers from the full effects of market forces (non-traditional agricultural disputes involving food safety and the application of biotechnology to food production are discussed below under Regulatory Protection ).\nFrom the U.S. perspective, the restrictive trade regime set up by the Common Agricultural Policy (CAP) has been the real villain. It has been a longstanding U.S. contention that the CAP is the largest single distortion of global agricultural trade. American farmers and policymakers have complained over the years that U.S. sales and profits are adversely affected by (1) EU restrictions on market access that have protected the European market for European farmers; (2) by EU export subsidies that have deflated U.S. sales to third markets; and (3) by EU domestic income support programs that have kept non-competitive European farmers in business.\nAgricultural conflict, particularly over the decline in U.S. exports to the EU and growing EU competition for sales in third markets, was intense in the 1980s. During this period, the majority of U.S. Section 301 cases were directed at the CAP and fierce subsidy wars were waged over third country markets. Acrimonious agricultural subsidy disputes over canned fruit, oilseeds, wine, wheat flour, pasta, sugar, and poultry between the two sides tested the GATT dispute settlement system to its limits in the 1980s.\nTensions, however, have moderated markedly since the completion of the Uruguay Round in the mid-1990s. The 1994 Uruguay Round Agreement on Agriculture defined more clearly what both partners can do in their agricultural and trade policies, as well as defined more clearly the quantities of agricultural products that countries can export with subsidies and strengthened the procedure for settling disputes involving those rules. The agreement also contained a nine-year \"peace clause\" whereby WTO members agreed not to challenge other countries' subsidies with domestic cases or WTO challenges.\nFor the most part, the U.S. and EU have honored their Uruguay Round agricultural commitments, including 'due restraint.' Scope for future conflict has been constrained, or perhaps redirected into areas not so clearly covered by the Agreement of Agriculture. These included a number of non-traditional disputes over beef hormones, bio-engineered food products, and geographical indicators—none of which involved domestic subsidies.\nNegotiations on agriculture in the Doha Round have continued to divide the two economic superpowers. The United States has proposed substantial reductions in domestic subsidies, expanded market access through both tariff reduction and expansion of market access quotas, and the elimination of export subsidies. The EU, for its part, has called on the United States to increase its offer to reduce trade-distorting domestic support but has not been willing to improve its offer to expand market access. Unless these positions can be bridged, the negotiations may remain deadlocked.", "Claims and counter-claims concerning government support for the aviation industry have been a major source of friction in U.S.-EU relations over the past several decades. The fights have focused primarily on EU member state support for Airbus Industrie, a consortium of four European companies that collectively produce Airbus aircraft. According to the Office of the U.S. Trade Representative (USTR), Airbus member governments (France, U.K., Germany and Spain) have provided massive subsidies since 1967 to their member companies to aid in the development, production, and marketing of the Airbus family of large civil aircraft. The U.S. has also accused the EU of providing other forms of support to gain an unfair advantage in this key sector, including equity infusions, debt forgiveness, debt rollovers, marketing assistance, and favored access to EU airports and airspace.\nFor its part, the EU has long resisted U.S. charges and argued that for strategic and economic purposes it could not cede the entire passenger market to the Americans, particularly in the wake of the 1997 Boeing-McDonnell Douglas merger and the pressing need to maintain sufficient global competition. The Europeans have also counter-charged that their actions are justified because U.S. aircraft producers have benefitted from huge indirect governmental subsidies in the form of military and space contracts and government sponsored aerospace research and development.\nThe most recent round of this longstanding trade dispute stems from a May 30, 2005 WTO filing by the United States alleging that European Community (EC) Member States provided Airbus with illegal subsidies giving the firm an unfair advantage in the world market for large commercial jet aircraft. The following day the EC submitted its own request to the WTO claiming that Boeing had received illegal subsidies from the U.S. government. Two panels were established on October 17, 2005 (one handling the U.S. charges against Airbus and the other handling the EU's counterclaims against Boeing), and both panels have begun hearing the cases. Final panel rulings are not expected to be handed down until October 31, 2007, at the earliest.\nMuch of the ongoing debate about the Airbus/Boeing relationship stems from Airbus's December 2000 launch of a program to construct the world's largest commercial passenger aircraft, the Airbus A380. The A380 is being offered in several passenger versions seating between 500 and 800 passengers, and as a freighter. At the end of 2005, Airbus was listing 159 firm orders for the aircraft from 16 different airlines. The project is believed to have cost about $13 billion, which includes some significant cost overruns identified by Airbus in 2005. Airbus expects that its member firms will provide 60% of this sum, with the remaining 40% coming from subcontractors. State-aid from European governments is also a source of funding for Airbus member firms. State-aid is limited to one-third of the project's total cost by the 1992 Agreement on Government Support for Civil Aircraft between the United States and the European Union (EU) (now repudiated by the United States, but not by the EC).\nShortly after the A380 project was announced, Boeing dropped its support of a competing new large aircraft. Boeing believes that the market for A380-size aircraft is limited. It has, therefore, settled on the concept of producing a new technology 250-seat aircraft, the 787, which is viewed as a replacement for 767-size aircraft. The 787 is designed to provide point-to-point service on a wide array of possible international and domestic U.S. routes. The aircraft design incorporates features such as increased use of composite materials in structural elements and new engines, with the goal of producing an aircraft that is significantly more fuel efficient than existing aircraft types. Boeing formally launched the program in 2004 and obtained 56 firm orders during the remainder of 2004. By the end of 2005 the order book for the 787 had expanded dramatically to 291 aircraft.\nTo construct this aircraft Boeing is proposing to greatly expand its use of non-U.S. subcontractors and non-traditional funding. For example, a Japanese group will provide approximately 35% of the funding for the project ($1.6 billion). In return this group will produce a large portion of the aircraft's structure and the wings (this will be the first time that a Boeing commercial product will use a non-U.S. built wing). Alenia of Italy is expected to provide $600 million and produce the rear fuselage of the aircraft. In each of these instances, the subcontractor is expected to receive some form of financial assistance from their respective governments. Other subcontractors are also expected to take large financial stakes in the new aircraft. The project is also expected to benefit from state and local tax and other incentives. Most notable among these is $3.2 billion of such incentives from the state of Washington. Many of these non-traditional funding arrangements are specifically cited by the EC in its WTO complaint as being illegal subsidies.\nWhether the WTO litigation provides an incentive for the United States and the EU to resolve the dispute bilaterally remains to be seen. To date the two sides have wrangled over a host of procedural issues, but have not been negotiating on a possible settlement to the dispute. Some analysts believe that as long as the dispute is not resolved, Boeing can use Airbus subsidies as an argument for securing a lucrative U.S. Air Force contract for refueling tankers. Other analysts speculate that Airbus' weakened business condition brought on by the delivery delays of its jumbo A380 plane may also be a reason why Boeing may not be pressing the U.S. government to settle the case.", "Conflict over trade in steel products has occurred sporadically over the past two decades. Although the EU industry has undergone significant consolidation and privatization in the 1990s, the U.S. government in the past has alleged that many EU companies still benefit from earlier state subsidies and/or engage in dumping steel products (selling at \"less than fair value\") in foreign markets. U.S. steel companies also have aggressively used U.S. trade laws to fight against EU steel imports by filing antidumping and countervailing duty petitions that include imports from EU countries. In return, the EU has countered with numerous challenges in the WTO against the alleged U.S. misuse of its countervailing duty and antidumping laws.\nIn addition to \"unfair\" trade disputes, President Bush in June 2001 requested the U.S. International Trade Commission (ITC) undertake a new Section 201 trade investigation on the steel industry. The petition had broad support from Congress, the steel industry, and labor unions. The ITC subsequently ruled that much of the industry was being injured by increased imports and recommended relief measures to President Bush. On March 5, 2003, the President decided to impose three-year safeguard tariffs with top rates of 30%. He imposed the restrictions for three years on all major steel exporting countries except U.S. free trade partners such as Canada and Mexico.\nThe U.S. decision raised cries of indignation and protectionism from European leaders, and prompted a quick response. On March 27, 2002, citing a threat of diversion of steel from the U.S. market to Europe, the EU announced provisional tariffs of 15% to 26% on 15 different steel products. The EU and a number of other countries adversely affected by the U.S. tariffs also formally challenged the U.S. action as being inconsistent with WTO rules.\nIn early 2003 a WTO panel determined that the U.S. action had a number of shortcomings. The panel found that the United States had failed to adequately demonstrate that rising imports were injuring the U.S. industry. In September 2003, the ITC issued its mid-term report of the safeguards, and determined that termination of the measures was warranted. This determination, in turn, provided President Bush with leeway to avoid further international conflict by terminating the steel safeguard measures on December 5, 2003.", "A variety of legal procedures, sanctioned by the WTO, provides domestic producers temporary protection against both \"fair\" and \"unfair\" trade practices. These include safeguard or import relief procedures for fair trade and anti-dumping and countervailing procedures for unfair trade practices. While these procedures are sanctioned by the WTO, and often referred to as contingency protection, either side's implementation of these procedures is often controversial.\nA case in point has been the Continued Dumping and Subsidy Offset Act (CDSOA), or Byrd Amendment. Enacted by the U.S. Congress in October 2000, this provision required that the proceeds from antidumping and countervailing duty cases be paid to the U.S. companies responsible for bringing the cases, instead of to the U.S. Treasury. Soon after enactment, the EU and eight other parties challenged the statute in the WTO on the grounds that the provision constituted a \"non-permissible specific action against dumping or a subsidy\" contrary to various WTO agreements. Basically, the plaintiffs argued that the action benefitted U.S. companies doubly: first, by the imposition of the antidumping or countervailing duties and, second, by receiving the duties at the expense of their competitors.\nThe WTO in January 2003 concluded that the Byrd Amendment was an impermissible action against dumping or subsidization and gave the United States until December 23, 2003, to comply with the WTO ruling. When the United States did not comply with the ruling, the complaining members requested authorization to impose retaliatory measures. A WTO arbitrator determined in August 2004 that each of the eight complainants could impose countermeasures on an annual basis in an amount equal to 72% of the CDSOA disbursements for the most recent year in which U.S. data are available.\nCanada and the EU began retaliating on May 2, 2005, by placing a 15% additional duty on selected U.S. exports. Mexico imposed higher tariffs on U.S. milk products, wine, and chewing gum, and Japan placed an additional tariff of 15% on 15 steel and industrial products.\nDespite strong congressional support for the Byrd Amendment in both chambers, a provision repealing the CDSOA was included in the conference report to S. 1932 , the Deficit Reduction Act of 2005, and approved in February 2006. The repeal however, allowed CDSOA payments on all goods that enter the United States to continue through October 1, 2007. As a result, the EU, Canada, and Mexico indicated their intention to keep the sanctions on U.S. imports in place as long as the disbursements continue. The EU, in particular, elected to increase the amount of retaliation by nearly $9 million (from $27.8 million to $36.9 million) and expand the list of products that will face punitive duties. U.S. trade officials and some Members of Congress have expressed disappointment and frustration that retaliation was not lifted in the wake of the Byrd repeal.", "This category comprises conflicts where the United States or the European Union has initiated actions or measures to protect or promote their political and economic interests, often in the absence of significant private sector pressures. The underlying causes of these disputes are quite different foreign policy goals and priorities, if not interests. Most of these conflicts have important economic interests at stake, but seldom are the economic stakes viewed as the overriding cause or explanation of the action that ostensibly precipitated the disagreement.\nFrom the EU perspective, extraterritorial provisions of U.S. sanctions legislation and unilateralism in U.S. trade legislation are concerns that fit into this category. From a U.S. perspective, the EU's preferential dealings with third countries, the Foreign Sales Corporation (FSC) export tax-rebate dispute, and challenges to varied U.S. trade laws could be said to be driven primarily by EU foreign policy priorities.", "U.S. legislation which requires the imposition of trade sanctions for foreign policy or non-trade reasons has been a major concern of the EU. While the EU often shares many of the foreign policy goals of the United States that are addressed in such legislation, it has opposed the extraterritorial provisions of certain pieces of U.S. legislation that seek to unilaterally regulate or control trade and investment activities conducted by companies outside the United States. Although these issues have been relatively quiet in recent years, a number of the provisions remain U.S. law, including the Cuban Liberty and Democratic Solidarity Act of 1996 (so-called Helms-Burton Act) and the Iran Libya Sanctions Act (ILSA), which threaten the extraterritorial imposition of U.S. sanctions against European firms doing business in Cuba, Iran, and Libya. Other EU concerns about different instances of U.S. extra-territoriality relate to various environmentally driven embargoes, export control legislation, and sub-federal (states) procurement provisions or boycott activities.\nThe Helms-Burton Act, passed in 1996 after the Cuban military shot down two small U.S. based civilian planes, led to a firestorm of protest in Europe. Perhaps not since the U.S. imposed sanctions against companies doing business on a Russian pipeline in the early 1980s had the European outcry been so vociferous. The bill, which was designed to further isolate Cuba economically, imposed a secondary boycott against foreign nationals and companies that \"traffic \"in Cuban-expropriated properties formerly owned by U.S. nationals.\nMaintaining that Helms-Burton is extraterritorial and a violation of WTO rules, the EU passed countervailing legislation against its enforcement and initiated a WTO panel investigation. The U.S. responded by claiming the WTO lacked competence to investigate the matter because Helms-Burton is a \"national security\" issue and therefore should qualify for a waiver under section 21 of the GATT. After a year of high-level political negotiations, an understanding was reached in April 1997 that charted a longer-term solution through negotiation of international disciplines and principles for greater protection of foreign investment, combined with the proposed amendment of the Helms-Burton Act. At the May 1998 EU-U.S. Summit, the United States agreed to either implement or seek measures that would protect EU companies from any penalties called for in Helms-Burton and Iran-Libya Sanction Act. Formal implementation of the Understanding, however, still awaits legislative action by Congress.\nClosely related to EU concerns about extraterritoriality are complaints about U.S. trade laws and procedures that allow for the \"unilateral\" imposition of trade sanctions against offending countries or companies. Most EU complaints relate to the \"Section 301\" family of trade provisions which authorize the executive branch to impose trade sanctions in an effort to enforce U.S. rights under international trade agreements and to combat foreign unfair trade practices. In addition to general trade barriers which the U.S. government deems discriminate against or burden U.S. commerce, other more specialized provisions dealing with government procurement barriers (often legislated by states) and intellectual property rights violations are also subject to EU charges as examples of U.S. unilateralism.\nAdditionally upsetting to some American interests, the EU during the 1997-2000 period filed a number of mostly technical challenges in the WTO to a variety of U.S. trade statutes, including Section 301, a law (section 337) dealing with the protection of intellectual property rights, and the U.S. antidumping laws. Some Americans view these WTO challenges as part of a systematic and concerted EU strategy to weaken or gut U.S. trade laws, perhaps in an effort to gain negotiating leverage that could be used in future efforts to arrive a transatlantic consensus on the agenda for a new round of multilateral trade negotiations.", "The United States in the past has expressed concerns about the discriminatory impact of preferential agreements the EU has negotiated with third countries. These include preferential trade agreements with prospective EU members in Eastern and Central Europe and with developing countries in Africa and the Caribbean. As a result of these agreements, only eight countries including the United States, Japan and Canada, now receive MFN treatment for their exports to EU.\nSome U.S. observers have also worried that enlargement and institutional deepening have become EU policy goals that are limiting its commitment to global trade liberalization. Under this view, the EU's \"internal\" preoccupation translates into less interest in negotiating any new MFN or WTO obligations because such obligations could intensify adjustment pressures EU firms are experiencing as a result of the drive toward a single market and the heightened import competition resulting from preferential tariff agreements negotiated with various regional trading partners. At the same time, the United States has also supported both enlargement and deepening in the political interest of \"European stability,\" thus raising a question concerning the compatibility of U.S. political and trade goals.\nFor its part, the EU has expressed fears that free trade agreements being pursued by the United States could lead to discrimination against its exports. Specifically, the EU is concerned that U.S. efforts to negotiate free trade agreements with Asia through the Asian Pacific Economic Cooperation (APEC) process and with Latin America through the Free Trade Area of the Americas (FTAA) could lead to discrimination against EU exports. This, in turn, has been a spur for the EU to negotiate its own free trade accords with Mexico, and the Mercosur countries of Latin America.\nA different U.S. concern relates to the Foreign Sales Corporation (FSC) provisions of the U.S. tax code. This provision allowed U.S. firms to exempt between 15% and 30% of export income from taxation by sheltering some income in offshore foreign sales corporations. General Electric, Boeing, Motorola, Caterpillar, Allied Signal, Cisco, Monsanto, and Archer Daniels Midland were among the top beneficiaries of this arrangement.\nThe FSC was enacted in 1984 to replace the Domestic International Sales Corporation (DISC)—a different tax benefit for exporting that the EU had successfully challenged in the GATT. Both provisions were designed to stimulate the U.S. economy through increased exports. While the European officials may not have been fully satisfied that the FSC was fully GATT legal, they nevertheless waited thirteen years (until November 1997) to take the first steps to challenge the scheme under the WTO dispute settlement system.\nThe EU argued that it challenged the FSC because it violated WTO subsidy obligations, distorted international competition, and provided U.S. exporters unfair advantages. Yet, with the possible exception of Airbus, the Brussels challenge appeared to have very limited backing from European business. A number of European subsidiaries operating in the United States, in fact, benefitted from the FSC.\nA more common explanation is that the EU challenge had more to do with an attempt to gain negotiating leverage over the United States, as well as with getting even for U.S. pressures over beef and bananas, than to redress a perceived commercial disadvantage. A Financial Times editorial viewed the challenge as \"tit-for-tat retaliation for U.S. bullying in trade disputes over bananas and beef. Having won its point, the EU now seems determined—in the name of upholding trade rules—to make the U.S. squirm.\"\nThe EU challenge was successful, with the requirement that the United States bring the FSC provisions in conformity with the WTO by October 2000. Following the ruling, Congress passed the replacement extraterritorial income (ETI) tax provision, but this law was also found inconsistent with WTO obligations in 2002. Subsequently, the WTO authorized the EU to retaliate in the absence of U.S. compliance, and the EU began imposing escalating retaliatory duties (starting at 5%) on $4 billion of U.S. exports on March 1, 2004. After reaching 14% in December 2004, these sanctions were lifted in January 2005 subsequent to congressional repeal of the FSC/ETI provisions in the American Jobs Creation Act ( P.L. 108-357 ) of October 2004. But a WTO ruling of February 13, 2006, determined that the act perpetuated the illegal subsidies with a two-year phase-out of the tax breaks and a grandfather clause covering exporters that had sales contracts dated before September 17, 2003.\nIn announcing the EU's decision to reimpose sanctions, Peter Mandelson, the EU's top trade official, said that \"the EU will not accept a system of tax benefits which give U.S. exporters, including Boeing, unfair advantage against their European competitors.\" But the reimposition of the tariffs was avoided when President Bush on May 17, 2006, signed a tax bill that among other things repealed the grandfathered FSC/ETI benefits.", "This category of conflict deals with an array of domestic policies, including regulations and standards, that produce conflict by altering the terms of competition in the name of promoting social, cultural, or environmental objectives. Often domestic producers benefit, either intentionally or inadvertently, at the expense of foreign producers. Many of these clashes have occurred as a result of efforts by both partners to strengthen food safety and environmental standards; others have occurred as a result of the EU's need to harmonize standards in support of its drive towards a single market. Still others have occurred as a result of a drive to maintain or promote cultural values and distinctiveness.\nThese disputes tend to involve complex new issues that have arisen as a result of increased economic interdependence and of significant U.S.-EU differences in regulatory approaches. The EU approach to regulation is based on the notion that every important economic activity should take place under a legal framework, whereas the central premise of the U.S. approach is that government does not need to regulate unless a problem arises.\nWhile the impact on trade may be the same as in other disputes, these conflicts are often characterized by delicate considerations of motives. Parties that have initiated the action, often consumer or environmental groups, tend to view the protective impact as an indirect consequence of an attempt to attain some valid domestic objective. Trade barriers motivated by food safety, for example, may be considered more legitimate by the public than barriers motivated by economic protectionism. If food safety is perceived as being sacrificed to free trade, support for free trade would erode. Similarly, if food safety is used as a disguise for protectionism, support for free trade could also erode.\nThe four disputes summarized below are rooted in different regulatory approaches and public preferences. Disputes over beef hormones and genetically engineered crops stem primarily from stronger European societal preferences for high food safety standards. A longstanding dispute over the EU's audio-visual sector has a strong cultural basis, steeped in a perceived need to preserve West European society from U.S. dominance. And a clash over an EU regulation banning airplanes outfitted with \"hushkitted\" or retooled engines ostensibly was driven by environmental demands to reduce noise pollution surrounding European airports.\nNumerous other disputes could also be included in the following discussion. For example, a dispute over data privacy reflects very different approaches between the U.S. and EU, as well as popular attitudes, towards the protection of personal information that is transmitted electronically. The issue of \"multi-functionality\" in agriculture, where the Europeans claim agriculture is more than just another industry, has deep cultural roots that divide the two sides. Disputes involving environmental, wildlife, and animal welfare protection, such as U.S. restrictions on imports of tuna from Europe and EU efforts to ban fur imports from the United States, also reflect competing social and cultural differences.", "The dispute over the EU ban, implemented in 1989, on the production and importation of meat treated with growth-promoting hormones has been one of the most bitter and intractable trade disputes between the United States and Europe. It is also a dispute that, on its surface, involves a relatively small amount of trade. The ban affected an estimated $100-$200 million in lost U.S. exports—less than one-tenth of one percent of U.S. exports to the EU in 1999. But the dispute has played off each side's sovereign right to regulate the safety of its food against its WTO obligations.\nThe EU justified the ban to protect the health and safety of consumers, but several WTO dispute settlement panels subsequently ruled that the ban was inconsistent with the Uruguay Round Sanitary and Phytosanitary (SPS) Agreement. The SPS Agreement provides criteria that have to be met when a country imposes food safety import regulations more stringent than those agreed upon in international standards. These include a scientific assessment that the hormones pose a health risk, along with a risk assessment. Although the WTO panels concluded that the EU ban lacked a scientific justification, the EU refused to remove the ban primarily out of concern that European consumers were opposed to having this kind of meat in the marketplace.\nIn lieu of lifting the ban, the EU in 1999 offered the United States compensation in the form of an expanded quota for hormone-free beef. The U.S. government, backed by most of the U.S. beef industry, opposed compensation on the grounds that exports of hormone-free meat would not be large enough to compensate for losses of hormone-treated exports. This led the way for the United States to impose 100% retaliatory tariffs on $116 million of EU agricultural products from mostly France, Germany, Italy, and Denmark, countries deemed the biggest supporters of the ban. These tariffs, in turn, sparked protests among French and European farmers, who seized on the beef hormones case as a symbol of the threat pose by Americanization and globalization to European regulations and traditions.\nThe U.S. hard line was buttressed by concerns that other countries might adopt similar measures based on health concerns that lack an objective scientific basis according to U.S. standards. Other U.S. interest groups are concerned that non-compliance by the EU undermines the future ability of the WTO to resolve disputes involving the use of SPS measures.\nIn October 2003, the European Commission notified the WTO that it had changed its hormone ban legislation in a way that it believes complies with international trade rules. The legislation made provisional a previous permanent ban for five growth hormones used to raise beef and keeps in place a permanent ban on the use of oestradiaol 17 on the basis that it is a carcinogen. As a result, the EU argued that it should no longer be subject to punitive trade sanctions by the United States (as well as by Canada), and on November 8, 2004, took the initial step in the WTO to challenge the U.S. and Canadian sanctions still in effect. The U.S. and meat industry, however, argued that making a ban provisional for the long term does not meet WTO obligations. Nevertheless, in February 2005, the EU secured the establishment of a panel to determine whether the United States and Canada were in violation of WTO rules by maintaining punitive tariffs on a number of EU products in the dispute. A WTO dispute panel hearing on this issue was held on August 1, 2005. A second hearing was scheduled for November 2005 but later was postponed to September 2006. Agreement on the selection of scientific experts has been elusive, making process of settling the dispute even more difficult. Thus, so long as th EU refuses to eliminate or modify the ban, U.S. retaliatory tariffs are likely to remain in effect.", "Differences between the United States and the EU over genetically engineered (GE) crops and food products that contain them pose a potential threat to, and in some cases have already disrupted, U.S. agricultural trade. Underlying the conflicts are pronounced differences between the United States and EU about GE products and their potential health and environmental effects.\nWidespread farmer adoption of bio-engineered crops in the United States makes consumer acceptance of GE crops and foods at home and abroad critical to producers, processors, and exporters. U.S. farmers use GE crops because they can reduce input costs or make field work more flexible. Supporters of GE crops maintain that the technology also holds promise for enhancing agricultural productivity and improving nutrition in developing countries. U.S. consumers, with some exceptions, have been generally accepting of the health and safety of GE foods and willing to put their trust in a credible regulatory process.\nIn contrast, EU consumers, environmentalists, and some scientists maintain that the long-term effects of GE foods on health and the environment are unknown and not scientifically established. By and large, Europeans are more risk averse to the human health and safety issues associated with bio-engineered food products than U.S. citizens.\nIn 1999 the EU instituted a de facto moratorium on any new approval of GE products. The moratorium halted some $300 million in annual U.S. corn shipments. EU policymakers also moved toward establishing mandatory labeling requirements for products containing GE ingredients.\nFor several years, U.S. trade officials refrained from challenging the EU moratorium in the WTO, partly out of fear that the EU, if it lost the case, would not comply due to public opposition. But in May 2003, facing the potential spread of the EU approach to third countries, the United States (along with Canada, and Argentina) challenged the EU de facto moratorium in the WTO.\nAlthough the EU effectively lifted the moratorium in May 2004 by approving a genetically engineered corn variety, the three complainants pursued the case, in part because a number of EU member states continued to block approved biotech products. On February 7, 2006, the WTO, in an interim confidential report, ruled that a moratorium had existed, that bans on EU-approved genetically-engineered crops in six EU member countries violated WTO rules, and that the EU failed to ensure that its approval procedures were conducted without \"undue delay.\" Some other claims by the United States were rejected. With the legal battle likely to continue for several years, this dispute still has considerable potential to adversely affect transatlantic relations.", "This dispute dates back to 1989 when the EU issued a Broadcast Directive that required that a majority of entertainment broadcast transmission time be reserved for programs of European origin \"where practicable\" and \"by appropriate means.\" All EU member states, including the ten new Member States, have enacted legislation implementing the Broadcast Directive.\nImplementation of the directive has varied from country to country. In general, efforts to strengthen European content quotas have failed to materialize, but a number of countries have passed specific laws that hinder the free flow of programming. France, for example, has prime time rules that limit the access of U.S. programs in prime time. Radio broadcast quotas also limit broadcasts of American music. Italy also has a European content prime time rule, as well as requirements that large movie theaters show EU films on a \"stable\" basis.\nWithin the EU, the Broadcast Directive has been controversial. Efforts to tighten restrictions have been opposed by Germany and Britain and by some elements of the European industry. Moreover, consumer demand for foreign movies, coupled with technological innovation through the introduction of cable and satellite television, have undermined movement in the direction of increased protection.\nThe dispute highlights European concerns, particularly in France and Italy, about creeping \"Americanization\" threatening to undermine their national identities and cultures. It also underlines a fundamental U.S.-EU divide over the role of cultural and social issues in trade disputes. While the U.S. tends to assign priority weight to maximizing the economic value of efficiency in trade negotiations, the EU, by attitude and law, places more weight on environmental and cultural values.", "European skies are quite crowded with aircraft, airports tend to be situated in heavily populated areas, and there is a serious noise problem. Public concerns about aircraft noise are combined with environmental policy discussions about emissions and greenhouse gases. To deal with this problem, the EU attempted in 1997 to develop an EU-wide noise standard. When it became clear that any such standard would likely impose high economic costs on European manufactures and airlines, the EU advanced a regulation that would limit the operation of \"hushkitted\" aircraft in European skies.\nHushkitting is a process that involves a combination of strategies, including renovated engine enclosures and replacement engine components, designed to reduce aircraft noise. Under standards adopted by the EU, it did not provide major reductions in noise levels.\nAs formally implemented by the EU on May 4, 2000, the vast majority of aircraft affected by the regulation were of U.S. manufacture. Also adversely affected were mostly U.S. manufacturers of noise reduction technology and new engines for older aircraft. Conversely, all European Airbus aircraft are unaffected and there were no major European hushkit producers. The U.S. aerospace industry estimated that the regulation has cost its airlines and manufacturers $2 billion.\nOn March 14, 2000, the United States filed a motion with the International Civil Aviation Organization (ICAO) seeking relief from the EU's regulation. The U.S. case maintained that the regulation did not comply with ICAO regulations and discriminated against U.S. interests. Proceedings were suspended pending settlement negotiations. In early 2002, a settlement was reached under which the EU repealed the regulation and the U.S. withdrew its complaint.", "The three categories of trade conflicts—traditional, foreign policy, and regulatory—appear to offer different possibilities for conflict management. This is due not only to the fact that the causes and dimensions of these categories of conflicts differ, but also because the institutional relationships and forces that affect the supply of and demand for protection are operative in varying degrees from category to category. These factors include the presence or absence of bilateral or multilateral agreements and rules that govern the settlement of the disputes, the extent to which the disputes fit into the standard free trade versus protectionism dichotomy, the relevance of underlying economic and political trends, and the effectiveness of other institutional arrangements designed to prevent or resolve the disputes.\nBilateral and multilateral trade agreements can dampen the inclination of governments to supply protection and the private sector to demand protection by providing a fairly detailed \"road map\" of permissible actions and obligations. While often litigated and disputed, the obligations tend to be relatively clear-cut and help resolve disagreements. When new spats arise, built-in procedures of many agreements can facilitate a settlement or help avoid escalation. Conflicts that fall into the standard free trade versus protectionism dichotomy also have a built-in potential for undercutting any rationale governments may have to supply protection or private parties may use in demanding protection. This happens due to an ideological consensus in both the U.S. and EU in favor of resisting protectionism on both economic and political grounds. As a result, most demands for protection from producer interests must be justified as exceptions to the generalized support for freer trade arrangements and policies. Diverse economic and political trends can also suppress the supply and demand for protection. For example, declining support for industrial policy initiatives, as has been the case in both the U.S. and EU, could make industry-specific pleas for government assistance less compelling. High priority political commitments, such as the EU's policy towards enlargement, may also create incentives for reform and liberalization as opposed to protection. Both formal and informal cooperative arrangements have proliferated over the past decade to better manage transatlantic trade disputes. These have included efforts to strengthen regulatory co-operation and the establishment of forums for bilateral consultations. By attempting to incorporate the views of a wider range of domestic interest groups, these efforts have also aimed at preventing disputes from arising.\nApplying these factors to the three categories of trade disputes, there are grounds for judging that traditional trade conflicts may become less disruptive to the bilateral relationship in the future, but more limited grounds for projecting a diminution of foreign policy induced friction. The prospects for future domestic-policy related trade disputes fall somewhere in between these two extremes, with reasons for foreseeing a reduction in friction associated with some disputes, but not all. The basis for this assessment is presented below.", "Traditional trade conflicts, involving demands from producer interests for protection or state aids, by definition raise fairly routine commercial questions that have been addressed by governments for decades. As a result, most are governed by some bilateral or multilateral agreement or understanding. The WTO in particular provides a body of multilateral rules governing the use of tariffs and other restrictive trade practices and a forum for consultation and dispute resolution. And in the event of non-compliance with WTO rulings, retaliation can be authorized to provide incentives for compliance with WTO rulings. Disputes involving agriculture, aerospace, steel, and contingency protection have all been tempered by the WTO framework of rules and obligations.\nThe Uruguay Round Agreement on Agriculture significantly dampened trade conflict in the areas of EU home market protection and export subsidy wars for third country markets. The multilateral agreement on subsidies provides the terms of engagement for the current clashes over \"launch\" aid for the A380. Steel trade conflict in recent years has pivoted around the utilization of anti-dumping and safeguard laws, procedures that both the U.S. and EU employ with considerable frequency and which both sides in the past have considered legitimate. The fact that the steel trade battle in 2002 was so heated may stem from a mutual perception that each side did not adhere to the letter or spirit of the safeguards agreement.\nTraditional trade conflicts also tend to fit into the standard free trade versus protectionism dichotomy. As in the case of agriculture, aerospace, steel, and the Byrd Amendment, proposals or requests for additional protection or promotion will be subject to full transparency, investigation, and debate. Given that both the United States and European Union have open societies with an ideological consensus in favor of competition and open markets, petitioners for protection will have the burden of arguing that their request merits being excepted from the dominant policy orientation.\nSeveral economic and political trends may also serve to limit future disputes involving producer protection. These include a decline of support for industrial policy in both Brussels and Washington, budgetary pressures in the EU, and a rising level of foreign direct investment and corporate mergers.\nSupport for industrial policy initiatives, mostly efforts to use state aids to boost the competitiveness of specific sectors or build up national champions in particular industries, were considerable in the late 1980s and early 1990s in both the EU and United States. Based on new rationales for targeted assistance from states, the support for industrial policies posed new challenges to the maintenance of free trade orthodoxy. For a variety of reasons, such policies today are viewed more skeptically in both Brussels and Washington, thereby lessening pressures for what many observers construed as a new and disguised vehicle for protectionism.\nThe issue of subsidies or state aids is closely related to the industrial policy debate. In Europe, with the movement towards a single market that is deregulated and more competitive, subsidies and state aids to individual companies have been increasingly challenged, scrutinized, and curtailed. This trend, which is reenforced by budgetary constraints associated with fiscal targets required of member states participating in the European Monetary Union, could serve not only as a strong force for reducing conflict in aviation and steel, but in other sectors as well.\nA rising level of foreign direct investment and a wave of new corporate mergers are also forces for dampening demands for protection. As these trends accelerate, many formerly domestic or nationally-based industries will become increasingly globalized. As transatlantic merger and acquisition activity picks up, the answer to the question of 'who is us?' becomes increasingly blurred. Even in the production of a new Airbus plane, it is estimated that American suppliers will provide a considerable amount of the sourcing of the parts. These developments, in turn, tend to create forces that may moderate demands for protection.\nA number of cross currents, of course, could create a much different outlook. Historically, many industries have been quite creative and successful in justifying demands for protection based on some unique argument. This has been particularly true in the area of agriculture where both sides have argued that agriculture is not just another industry. The strength of the European agricultural lobby rests in part on public support for it as a means of preserving a way of life and a particular kind of environment perceived as worth preserving. On-going efforts in Brussels to reform the CAP must deal with this challenge.\nMoreover, fundamental economic conditions can change rapidly. Bumper world crops creating an oversupply of basic agricultural commodities or an economic downturn creating an over-supply of steel could ignite old trade battles in steel and agriculture once again.", "Unlike traditional trade conflicts, foreign policy inspired trade squabbles tend to lack the same kind of institutional arrangements and pressures that dampen the supply of and demand for protection. Nor are these conflicts easily framed along free trade and protectionism lines. Some of these conflicts, but not all, may be moderated in the future by lobbying efforts of big business on both sides of the Atlantic to maintain stable commercial ties. However, if Brussels or Washington is determined to use trade to achieve foreign policy objectives, lobbying efforts are unlikely to be successful in the absence of a transatlantic agreement to treat these issues in a more consistent fashion.\nIn most U.S.-EU sanctions conflicts, there are no bilateral or multilateral understandings that can help resolve very basic foreign policy differences over how to respond to violations by third countries of international norms affecting human rights or security. Many trade measures taken in a foreign policy context are either exempt from WTO disciplines because they are either mandated by the United Nations or applied against non-WTO countries, or only very loosely regulated by the WTO. The latter arises because the national security provision of GATT (Article 21) provides wide latitude for countries to pursue sanctions if they deem the measures to be in their national security interest.\nWTO rules also provide little guidance and \"rules of the road\" concerning preferential regional agreements. While the WTO set up a new Committee on Regional Trade Agreements in 1995 to highlight abuses of Article 24 provisions that allow regional agreements to deviate from the non-discrimination principle of the WTO, few challenges have been launched. A major obstacle has been the difficulty of measuring the value of trade diverted from efficient producers to the beneficiaries of preferences granted. As a result, the drive to cut preferential deals continues to grow (along with mistrust) while the ability to challenge deals that raise new trade barriers remains quite weak. As the U.S. and EU embark on even more aggressive efforts to negotiate preferential trade agreements, increased conflict in this area may develop.\nWhile the U.S. pursuit of market opening through unilateral means has declined since passage of the Uruguay Round Agreements in 1995, pressures in the United States to revisit this issue could grow. The EU's refusal to implement WTO panel findings on bananas and beef hormones, coupled with continued attacks on U.S. trade laws, could lead U.S. policymakers to reconsider this Uruguay Round bargain of limits imposed on unilateralism in return for a more binding dispute settlement process.\nThe dispute over the U.S. export tax benefit program raises a different issue. It can be argued that the WTO was not the proper forum in which the dispute should have been pursued. But existing WTO \"rules of the road\" evidently presented a target of opportunity for achieving other foreign policy goals, namely enhancing the EU's negotiating leverage vis-à-vis Washington.\nPressures and temptations to apply sanctions against countries that violate international norms, to cut preferential trade deals, to act unilaterally in the pursuit of national trade interests, and to use the WTO to achieve foreign policy objectives are unlikely to go away. Nor are efforts of big and pro-trade business lobbies to curb future actions along these lines likely to be successful in the absence of a broad diplomatic undertaking or a pledge committing both sides to refrain from such actions. Such a pledge or non-aggression pact has been suggested as a way to bring greater coherence in areas of disagreement and in helping to achieve shared goals in a less contentious atmosphere. But little progress has been made, perhaps due to the high level of mutual suspicions, differences in diplomatic approaches, and foreign policy-making machinery.", "U.S.-EU trade disputes have focused increasingly on differences in regulation, rather than traditional barriers such as tariffs or subsidies. Regulatory requirements established primarily with legitimate domestic concerns of consumer and environmental protection or public health in mind do not discriminate (at least directly) between domestic and imported goods and services. But they may have the secondary effect of distorting or discriminating against the free flow of international trade, which in turn leads to disputes. For this reason, transatlantic regulatory disputes can be more bitter and difficult to resolve than traditional trade disputes, in so far as both sides feel their actions are justified by democratically derived decisions. In this context, such disputes are often difficult to resolve within the context of the WTO because they require a balancing of domestic concerns with international obligations.\nIn trying to resolve or prevent most regulatory disputes, the United States and the EU have tended to rely more on bilateral cooperation and negotiation than on the WTO dispute resolution system. The two sides have made much progress bilaterally in mitigating divergent standards and certification systems as a source of bilateral trade conflict.\nBilateral efforts to promote regulatory cooperation have been a top priority in both governments and private sectors since the signing of the \"New Transatlantic Agenda\" (NTA) and \"Action Plan\" in late 1995. The creation of the Transatlantic Business Dialogue (TABD), a multinational corporation-led initiative to lower trade and investment barriers across the Atlantic, spearheaded efforts to focus particular attention on problems posed by divergent standards and certification systems. In addition to promoting convergence in regulatory systems through the principle of \"approved once, accepted everywhere,\" efforts were undertaken to negotiate mutual recognition agreements (MRAs) covering key sectors such as pharmaceuticals and medical devices, and telecommunications equipment.\nIn June 1997, the two sides reached agreement on a package of MRA's affecting six sectors, including electrical equipment, pharmaceutical products, telecommunications and information technology equipment. Each side basically accepted the others' inspection, testing, and certification standards in these sectors. The agreements, which covered around $50 billion in U.S.-EU trade, allowed European companies to sell products directly into the U.S. market after they have been tested and certified to U.S. health and safety standards, and vice versa.\nUnder the 1998 Transatlantic Economic Partnership (TEP), the two sides agreed to begin negotiation of MRA's in other sectors, including regulatory processes connected with biotechnology. But negotiating and implementing these agreements have proven difficult due to very different industry interests and regulatory approaches of the United States and the EU.\nMore recently, German Chancellor Angela Merkel in January 2007 proposed the creation of a Transatlantic Free Trade Area (TAFTA). With Germany having assumed the Presidency of the EU for the first six months of 2007, Merkel's initiative aims to harmonize regulations across the Atlantic and reduce non-tariff barriers that constrain the free flow of capital, goods, and services.\nThere are numerous challenges raised by the application of modern biotechnology to food production. The Uruguay Round Sanitary and Phytosanitary Standards (SPS) Agreement was designed to deal with this issue. It requires countries that impose regulations or trade bans to protect the health of plants, animals, and people to base such decisions on risk assessments on sound scientific evidence. But the SPS requirement of a sound scientific basis is open to varying interpretations.\nAmbiguities in the SPS agreement are complicated because many European consumers may believe that avoidance of production practices associated with biotechnology is a value in itself. For these consumers, scientific studies showing that such technologies do not result in threats to human or animal health may not be convincing. Given these strong views, many European officials want leeway to impose trade restrictions on a \"precautionary basis\" and others want to renegotiate the SPS agreement. Both avenues could open up a large loophole for discriminatory trade barriers.\nMore ominously, some analysts are concerned that European agricultural policy makers may be \"under pressures to guarantee higher levels of safety than strictly is necessary in order to maintain consumer confidence in the food system.\" Even if these conflicts are not primarily due to the deliberate use of health, safety, or environmental standards as trade barriers, mistrust grows in terms of how much effort government authorities may have put into managing public concerns through educational efforts. Under these circumstances, one analyst has argued that trade disputes resulting from such differences are unlikely ever to be resolved; at best they can be contained.\nOn the other hand, transatlantic consumer views may be converging in some areas. For example, while U.S. consumers generally have been quite receptive to genetically modified organisms (GMOs), Kraft Foods' nationwide recall in 2000 of taco shells that contained a genetically engineered corn not approved for human consumption indicates some underlying discontent. The recall was initiated by a coalition of environmental and consumer groups critical of bio-engineered food. Others argue that in a number of other areas, including corporate mergers and Internet privacy, the European Union's more active role in protecting consumers will gain growing appreciation and support in the United States. At the same time, the European Commission is seeking actively to recreate an approval process for GMO crops, moving to establish a pan-EU food agency, and proposing action to provide consumers with more information on GM foods.\nIn other disputes, technological progress can be a force for change. The audio-visual dispute is a case in point where EU efforts to increase protection of this sector have faced growing technological obstacles, as well as consumer resistance. Rapid technological innovation in the form of cable and satellite television, innovations strongly supported by consumers, offer new products that are difficult to block or regulate. Regulations in this environment often are too complex to enforce or, if enforced, prove adverse to the interests of European producers.", "Mark Twain reportedly once said of Wagner's music that \"it is not as bad as it sounds.\" Similarly, U.S.-EU trade conflicts may not be as ominous and threatening as they appear. Despite the rise in trade tensions and episodes of tit-for-tat retaliation over the past few years, the notion that the relationship between the world's two most powerful economic powers is constantly teetering on the brink of a transatlantic trade war seems a stretch. Nor does it appear that the trade conflicts represent or symbolize any kind of fundamental rift that is possibly developing between the United States and Europe.\nAt the same time, the disputes do not appear to be ephemeral distractions or mere consequences of a mass media that tends to sensationalize and define the relationship unfairly. Nor are they products of trade negotiators, who like generals, are often accused of fighting the last war. Nor are they trivial or silly squabbles because they represent a mere 1-2% of transatlantic trade.\nTrade conflicts rather appear to have real, albeit limited, economic and political consequences for the bilateral relationship. Perhaps more significantly, trade disputes may also pose very real obstacles for the two partners in their efforts to play a leadership role in promoting a more open and prosperous world economy. This is particularly evident in the way bilateral trade disputes may be testing the functioning of the World Trade Organization.", "The economic and political impacts that result from U.S.-EU trade disputes can be easily identified, but are much harder to quantify. In both cases, a variety of forces effectively contains the economic and political costs from rising or getting out of hand.\nThe $300 million in retaliatory U.S. tariffs levied on European exports over the banana and beef disputes and the over $2 billion in EU tariffs imposed on U.S. exports over the FSC (now suspended) and Byrd Amendment disputes provide the most visible economic costs of trade conflict. The retaliatory tariffs are designed to dramatically increase the costs of selective European and U.S. products, making it much more difficult for those \"targeted\" foreign producers to sell in the U.S. or EU markets. In theory, foreign exporters denied access to markets are expected to pressure their respective governments to change the policies that are in violation of WTO rules.\nRetaliation is not, however, cost-free. The process also hurts importers, consumers, and firms dependent on those imports as inputs in their production process. These entities intensively lobby Congress and the European Commission to keep their products off any retaliation list that is drawn up. Domestic political pressures, thus, limit the scope and flexibility trade officials on both sides of the Atlantic have in devising a retaliation list. As a result, most retaliation lists tend to be dominated by luxury items or high value-added agricultural items that are produced by both economic superpowers. Under these conditions, coming up with a list of products whose export value matches the relatively small sum of a few billion dollars is no easy task.\nAttempts by either Brussels or Washington to retaliate on a much larger value of trade could be expected to ignite a firestorm of political opposition. The huge stake each side has in the other's market through foreign direct investments, merger and acquisition activity, combined with \"globalized\" patterns of production, would likely serve as major counter-forces to any rise in trade warfare. These trends create extensive overlapping interests among companies and strong incentives to contain disputes. In globally traded sectors, mass production in a single location is becoming rare as companies source inputs, research, design, and marketing strategies from all over the world. This, in turn, shrinks the scope of, as well as complicates, the definition of what is domestic production or a domestic company.\nIn terms of political impacts, trade disputes likely have some effect on public opinion and attitudes, as well as connect in some way to other transatlantic problems. Polls indicate that there is a great deal of fear in Europe that the United States, due to the strength of its economy, has the ability to impose both economic and social changes on the rest of the world. This fear and perhaps frustration may translate into antipathy to the United States, often expressed as anti-Americanism. U.S. retaliation against Europe for not accepting hormone-enhanced beef, for example, may only fuel these generalized anti-American feelings that the United States is a bully.\nThe reaction to U.S. retaliation may be even more acute among some European policymakers. By selectively targeting only those EU members that have clearly benefitted from WTO illegal policies, many European policymakers view retaliation as a frontal assault on European unity—an old-fashioned divide-and-conquer strategy. Commenting on the U.S. proposal to rotate items under trade sanctions from product to product and country to country, French President Chirac complained bitterly that carousel retaliation is \"much closer to 19 th Century gunboat diplomacy than to 21 st Century diplomacy.\"\nWhether or how these reactions affect cooperation in other problem areas is difficult to know. Clearly, if trade tensions work to undermine the notion that the United States and Europe share common interests or lead to a view that a weaker Europe or a weaker America is in the other's interest, then the consequences could be major. But there is no evidence to suggest that this is happening as the United States and the EU to date have been able to compartmentalize trade problems to a remarkable degree.", "Trade disputes may have discernible impacts on U.S.-EU efforts to provide leadership of the world economy. The disputes absorb a significant amount of time and energy of key policymakers at the expense of efforts to pursue common interests and objectives, such as completing the Doha round of multilateral trade negotiations. Moreover, the two powers need to set an example of cooperation and adherence to WTO rules if the whole system is not to unravel.\nThe credibility of the WTO depends critically on a prompt, effective, and fair dispute-settlement mechanism. Unfortunately, the EU is seen by U.S. policymakers and interest groups affected by the beef and banana cases as having used every loophole to delay decisions and then refuse to comply with panel decisions. Similarly, U.S. compliance efforts in FSC and Byrd Amendment disputes are found wanting by EU policymakers. While only a handful of U.S.-EU WTO disputes have ended in withdrawal of concessions (i.e. retaliation) since 1995, non-compliance by a key member arguably weakens the authority of the WTO and serves as a poor model for the rest of the world. Why should we comply with WTO panel decisions if the EU does not have to, many countries ask. Non-compliance by one of the two leading economic powers is also said to diminish the perceived value of negotiating new trade agreements.\nBoth the U.S. and EU (bananas in the case of the U.S. and the FSC in the case of the EU) have brought complaints to the WTO that may have been motivated more by a desire to score points with domestic political interests or to rack up negotiating leverage by successfully prosecuting cases than to address serious trade problems. To the extent that a charge of capricious use of the dispute settlement process is valid, the WTO as an institution may also be weakened. Some may argue that no institution can survive for long this kind of treatment by the body's two biggest members.\nTo deal with the problem of non-compliance, the U.S. and EU have legalistic and diplomatic options. In the area of some of the most bitter U.S.-EU disagreements, particularly over GMOs, the WTO may be asked to make decisions on very complex issues that go deep into the domestic social and the environmental life of each side. Binding rulings in areas that have strong domestic roots can raise sovereignty issues and court a public backlash. Under these circumstances, where the formulations of right and wrong are increasingly blurred, it may be legitimate to question whether WTO panels should be asked to clarify vague rules where there is little U.S.-EU consensus, or whether trade officials should attempt to negotiate diplomatic solutions to disagreements that are so difficult to resolve." ], "depth": [ 0, 1, 1, 2, 3, 3, 3, 3, 2, 3, 3, 2, 3, 3, 3, 3, 1, 2, 2, 2, 1, 2, 2 ], "alignment": [ "h0_title h2_title h1_title h3_title", "", "h1_title", "h1_full", "", "", "", "", "h1_full", "", "", "h1_full", "", "", "", "", "h2_full h1_title", "", "h1_full", "h1_full", "h0_full h3_full", "", "h0_full" ] }

{ "question": [ "Why are trade tensions and disputes between US and EU to be predicted?", "What has been the pattern of trade tensions and disputes?", "What is an example of this pattern?", "What characterizes U.S.-E.U. trade disputes?", "What conflicts stem from demands from producer interests for support or protection?", "Why do these conflicts occur?", "Why do conflicts arise when the US or EU take action to protect or promote their interests?", "What conflicts come from domestic regulatory policies?", "What characterizes the different kinds of trade conflict?", "Why is there varied potential for these trade conflicts in the future?", "How can trade agreements lessen these conflicts?", "What is the difference between representation and reality for bilateral trade conflict?", "What characterizes U.S.-E.U. trade conflicts in truth?", "How can the conflicts be viewed from an economic perspective?" ], "summary": [ "Given the high level of U.S.-EU commercial interactions, trade tensions and disputes are not unexpected.", "In the past, U.S.-EU trade relations have witnessed periodic episodes of rising trade tensions and conflicts, only to be followed by successful efforts at dispute settlement.", "This ebb and flow of trade tensions occurred again in 2006 with high-profile disputes involving the Doha Round of multilateral trade negotiations and production subsidies for the commercial aircraft sector.", "Major U.S.-EU trade disputes have varied causes.", "Some disputes stem from demands from producer interests for support or protection. Trade conflicts involving agriculture, aerospace, steel, and 'contingency protection' fit prominently into this grouping.", "These conflicts tend to be prompted by traditional trade barriers such as subsidies, tariffs, or industrial policy instruments, where the economic dimensions of the conflict predominate.", "Other conflicts arise when the U.S. or the EU initiate actions or measures to protect or promote their political and economic interests, often in the absence of significant private sector pressures. The underlying cause of these disputes over such issues as sanctions, unilateral trade actions, and preferential trade agreements are different foreign policy goals and priorities of Brussels and Washington.", "Still other conflicts stem from an array of domestic regulatory policies that reflect differing social and environmental values and objectives. Conflicts over hormone-treated beef, bio-engineered food products, protection of the audio-visual sector, and aircraft hushkits, for example, are rooted in different U.S.-EU regulatory approaches, as well as social preferences.", "These three categories of trade conflicts—traditional, foreign policy, and regulatory—possess varied potential for future trade conflict.", "This is due mostly to the fact that bilateral and multilateral agreements governing the settlement of disputes affect each category of disputes differently.", "By providing a fairly detailed map of permissible actions and obligations, trade agreements can dampen the inclination of governments to supply protection and private sector parties to demand protection.", "In sum, U.S.-EU bilateral trade conflicts do not appear to be as ominous and threatening as the media often portray, but they are not ephemeral distractions either.", "Rather they appear to have real, albeit limited, economic and political consequences for the bilateral relationship.", "From an economic perspective, the disputes may also be weakening efforts of the two partners to provide strong leadership to the global trading system." ], "parent_pair_index": [ -1, 0, 1, -1, 0, 1, 0, 0, -1, 0, 0, -1, 0, 0 ], "summary_paragraph_index": [ 1, 1, 1, 2, 2, 2, 2, 2, 3, 3, 3, 4, 4, 4 ] }

{ "title": [ "", "Introduction", "Cybersecurity Overview", "Attacks3", "Terrorist Use of Cyberspace13", "Selected Federal Roles and Responsibilities", "Department of Defense20", "United States Cyber Command", "Department of Homeland Security (DHS)25", "Department of Justice31", "Selected Policy Issues", "Critical Infrastructure37", "Data Breaches and Data Security40", "Education and Training44", "Encryption47", "Encryption as a Cybersecurity Tool49", "Encryption and Law Enforcement Investigations55", "Information Sharing60", "Insurance62", "International Issues", "Trade67", "Internet of Things Security74", "Oversight of Federal Agency Information Technology Security76", "Response to Cybersecurity Incidents78", "Previous Policy Action82", "Recent Legislative Action", "Recent Executive Action", "Selected Hearings" ], "paragraphs": [ "", "Cybersecurity issues are gaining national prominence, generating extensive media coverage, and affecting constituents nationwide. The frequency of cybersecurity incidents and their effects on the U.S. economy and national security have elevated congressional interest in cybersecurity issues.\nThis report provides an overview of cybersecurity concepts, the role of selected federal agencies in addressing cybersecurity threats, and a discussion of cybersecurity issues that may be of interest to Congress, including the following:\nprotecting critical infrastructure; data breaches and data security; education and training; encryption; information sharing; insurance; international issues; the Internet of Things; oversight of federal agency information technology; and incident response.\nThis is a coordinated report with multiple authors, who are listed with their contact information in footnotes at the beginning of the section(s) they authored as well as at the end of the report.", "Essentially, cybersecurity is the security of cyberspace. Cyberspace can be considered to be the services that use the infrastructure of the internet to deliver information to users through their devices.\nIn practical terms, a person becomes a user of cyberspace when they use devices to access services , such as access to online banking, shopping, email, streaming video, social media, or the news. Those services do not exist independently, but rather rely on a common infrastructure of servers and switches; cable and wireless spectrum; and routers to ensure that a user has access to the service. That same infrastructure is used by other services too, such as utilities and shipping companies to ensure that products arrive as intended—or by businesses to develop new products more efficiently and to manage their operations.\nTherefore, for policymaking purposes, each of those elements (i.e., the services, infrastructure, devices, and user) are parts of cyberspace. The internet is a publicly accessible network within cyberspace, but cyberspace also contains private networks used by businesses and other users to help obtain greater confidentiality of their communications.\nThe United States government does not have a single definition of cybersecurity. However, the Report on Securing and Growing the Digital Economy by the U.S. Commission on Enhancing National Cybersecurity offers the following definition of cybersecurity:\nThe process of protecting information and information systems by preventing, detecting, and responding to unauthorized access, use, disclosure, disruption, modification, or destruction in order to provide confidentiality, integrity, and availability.\nThe concepts of \"confidentiality,\" \"integrity,\" and \"availability\" are defined in U.S. Code as part of the \"information security\" triad. \"Confidentiality\" refers to the attribute that data are known only to authorized parties and not made available or disclosed to unauthorized parties. \"Integrity\" refers to the attribute that data have not been altered or destroyed in an unauthorized manner. \"Availability\" refers to the attribute that data are available for access by an authorized party when they choose. These terms apply to the data stored, processed, and transmitted by information technology (IT) systems, but also to the IT systems themselves. A fourth term for information security is gaining prominence in discussions on cybersecurity: \"authentication,\" or the ability to confirm that parties using a system and accessing data are who they claim to be and have legitimate access to that data and system.\nElements to ensure cybersecurity involve policies spanning a range of fields, including education, workforce management, investment, entrepreneurship, and research and development. Software development, law enforcement, intelligence, incident response, and national defense may be involved in the response when something goes awry in cyberspace.", "Attacks against data and systems are possible because IT systems are large and complex. Through their size and complexity, vulnerabilities exist which can be exploited. Consider a single smartphone. That smartphone may have been designed by a company in the United States, but built abroad by another company using material from yet another country. It runs on software built by one company, but modern operating systems borrow code from other companies. All that complexity exists before the device gets to the user. Once the user has the device it will likely be connected to a variety of networks such as a home wireless network, a corporate network, or a cellular network—each with its own infrastructure, and which share common internet infrastructure. The interconnected nature of all these services necessary to ensure the smartphone works further contributes to the breadth and complexity of the IT system, which is where vulnerabilities may lie.\nThere are many ways to attack an IT system. Some of the commonly seen attacks are described below.\nDenial of Service (DOS): A DOS attack compromises the availability of data. In this attack, a network or website with information is overloaded with information, monopolizing the system's bandwidth and preventing legitimate users from getting their requests for service through, resulting in the user experiencing the system as unavailable. A DOS attack itself does not constitute an intrusion into the network or website, but it may be combined with other forms of attack to compromise the confidentiality or integrity of the network or its data. A distributed denial of service attack (DDOS) occurs when many disparate devices are used in the attack, as is the case when a botnet is employed for a DOS attack. DOS attacks are illegal under the Computer Fraud and Abuse Act. Ransomware : Ransomware is a specific form of malware (or malicious computer software) that installs itself on a user's computer and encrypts the user's hard drive so that the user cannot access her own files. The attacker then typically provides instructions to the victim to provide payment, payable via a cryptocurrency, usually Bitcoin. Upon receipt of payment, the attacker promises to provide the encryption key to the victim so that the victim may decrypt the attacked hard drive and access her files. However, the payment does not constitute a guarantee that the victim will receive the encryption key. Ransomware is illegal under the Computer Fraud and Abuse Act. Data Breaches : A data breach is a form of an attack against a computer system, but not all attacks are breaches. A data breach has the potential to compromise the confidentiality, integrity, and availability of an information system, and at a minimum violates the confidentiality of that system by exposing it to an unintended third party. In this sense, a breach is \"an incident that results in the disclosure or potential exposure of data.\" Disclosure is different from exposure: disclosure entails a confirmation that an unauthorized third party read the data, while exposure means that a third party merely has the opportunity to do so. Data breaches are illegal under the Computer Fraud and Abuse Act. Attacks against data and system integrity : The previous three types of attack attempt to disrupt the availability and confidentiality of data on a system. Integrity attacks attempt to disrupt trust in the data or the system itself. In an integrity attack on data, a file is accessed without authorization and altered to reflect some information other than what authorized users intend. An example of an integrity attack is someone accessing a system without authorization to change information in a file. Additionally, an entire system may have its integrity compromised by having unauthorized commands executed on that system. An example might be malware that tells a computer to perform an operation without the authorized user's knowledge, while giving the authorized user feedback that the computer is operating as normal. These types of attack are illegal under the Computer Fraud and Abuse Act.\nThe data and information technology systems of any entity, regardless of size, may be the targets of a cyber incident. Attackers may develop tools and techniques for a specific target and then reuse that tool or technique multiple times to attack other targets. Targets can include countries, multinational corporations, the federal government, large businesses, critical infrastructure entities, state and local governments, nonprofit organizations, academia, small businesses, and individuals. Additionally, attackers may have a particular target in mind, but penetrate their target by going through another entity. As such, partner entities, whether companies or other entities, may face an unforeseen risk of cyberattack based on their relationship to a targeted entity.", "Terrorist use of cyberspace is growing both in terms of reliance for supporting organizational activities and for gaining expertise to achieve operational goals. While no publicly accessible report has been published regarding a confirmed cyberterrorist attack against the United States, the possibility of one exists. Tighter physical and border security may encourage terrorists and extremists to try to use novel weapons to attack the United States. Persistent internet and computer security vulnerabilities, which have been widely publicized, may gradually encourage terrorists to continue to enhance their computer skills, or develop alliances with criminal organizations and consider attempting a cyberattack against U.S. critical infrastructure, facilities, and activities that support global security interests.\nCyberterrorists are state-sponsored and nonstate actors who engage in cyberattacks to pursue their objectives. Transnational terrorist organizations have used the internet as a tool for planning attacks, for radicalization and recruitment, as a method of propaganda distribution, as a means of communication, and for disruptive purposes.\nThe vulnerability of critical life-sustaining control systems being accessed and destroyed via the internet has been demonstrated. In 2009, the Department of Homeland Security (DHS) conducted an experiment that revealed some of the vulnerabilities to the nation's control systems that manage electric power generators and grids. The experiment, known as the Aurora Project, entailed a computer-based attack on a power generator's control system that caused operations to cease and the equipment to be destroyed. Cyberterrorists may be seeking a destructive capability to exploit these types of vulnerabilities in critical infrastructure but progress toward this goal is uncertain. As noted in March 2017 by then-Federal Bureau of Investigation (FBI) Director James Comey, \"terrorists have not yet figured out how to use the Internet as an instrument of destruction ... eventually these knuckleheads will.\"\nThere is no consensus definition of what constitutes cyberterrorism. The closest in law is found in the USA PATRIOT Act statute governing \"acts of terrorism transcending national boundaries,\" which includes in its definition of a \"federal crime of terrorism\" some violations of the Computer Fraud and Abuse Act (CFAA). One portion of the CFAA referenced by the USA PATRIOT Act makes it illegal for an entity to do the following:\nknowingly [access] a computer without authorization or exceeding authorized access, and by means of such conduct … [obtain] information that has been determined by the United States Government pursuant to an Executive order or statute to require protection against unauthorized disclosure for reasons of national defense or foreign relations, or any restricted data … with reason to believe that such information so obtained could be used to the injury of the United States, or to the advantage of any foreign nation….\nThe other CFAA provision referenced in the USA PATRIOT Act prohibits transmitting \"a program, information, code, or command\" to certain computers (including all government computers and most private ones) and thereby intentionally causing unauthorized damage.\nSome cyberwarfare experts define cyberterrorism as \"the premeditated use of disruptive activities, or the threat thereof, against computers and/or networks, with the intention to cause harm or further social, ideological, religious, political or similar objectives, or to intimidate any person in furtherance of such objectives.\" The USA PATRIOT Act's definition of \"federal crime of terrorism,\" with its inclusion of certain CFAA violations as predicate acts, has some similarities to this definition, though the statute is limited to only those attacks with political objectives. However, these provisions are also criminal statutes and generally refer to individuals or organizations rather than state actors. Naval Post Graduate School defense analyst Dorothy Denning's definition of cyberterrorism focuses on the distinction between destructive and disruptive action. Terrorism generates fear comparable to that of physical attack, and is not just a \"costly nuisance.\" Though a DDOS attack itself does not yield this kind of fear or destruction, the broader issue is the potential for second- or third-order effects. For example, if telecommunications and emergency services were completely dismantled in a time of crisis, the effects of that sort of infrastructure attack could potentially be catastrophic. If an attack on the emergency services system were to coincide with a planned real-world event, then cyberterror may be an appropriate metaphor. However, in this case, the emergency service system itself would most likely not be a target, but rather the result of collateral damage to a vulnerable telecommunications network.\nThere are a number of reasons that may explain why the term \"cyberterrorism\" has not been statutorily defined, including the difficulty in identifying applicable activities, whether articulating clear red lines would demand a response for lower-level incidents, and retaining strategic maneuverability so as not to bind future U.S. activities in cyberspace.", "", "The Department of Defense (DOD) is responsible for defending the nation and supporting the Department of Homeland Security's (DHS's) coordination of efforts for cyber defense, for protecting the defense industrial base (DIB), and for securing the DOD information networks (DODIN). Both DOD and DHS are charged with defending the U.S. homeland and U.S. national interests against cyberattacks of significant consequence. Military cyber assets may be deployed in the event of a major cyberattack on U.S. critical infrastructure only when directed to do so.\nDOD's cyberspace operations are composed of the military, intelligence, and ordinary business operations of the DOD in and through cyberspace. Military cyberspace operations use cyberspace capabilities to create effects that support operations across the physical domains and cyberspace. Cyberspace operations differ from information operations (IO), which may use cyberspace as a medium, but may also employ capabilities from the physical domains.\nCyberspace operations are categorized into the following.\nOffensive Cyberspace Operations , intended to project power by the application of force in and through cyberspace. These operations are authorized like operations in the physical domains. Defensive Cyberspace Operations , to defend DOD or other friendly cyberspace. These are both passive and active defense operations and are conducted inside and outside of DODIN. DODIN Operations , to design, build, configure, secure, operate, maintain, and sustain DOD communications systems and networks across the entire DODIN.\nIn 2012, President Obama directed DOD to organize and plan to defend the nation against cyberattacks of significant consequence, in concert with other U.S. government agencies. The resulting DOD Cyber Strategy focuses on three primary cyber missions:\nDefend DOD networks, systems, and information. Defend the U.S. homeland and U.S. national interests against cyberattacks of significant consequence. Provide cyber support to military operational and contingency plans.\nGuided by this strategy document, DOD began to build a Cyber Mission Force (CMF) in 2012 to carry out DOD's cyber missions. The CMF consists of 133 teams that are organized to meet DOD's three cyber missions. Specifically, CMF teams support the following mission sets though their respective assignments.\nCyber National Mission Force teams defend the nation by seeing adversary activity, blocking attacks, and maneuvering in cyberspace to defeat them. Cyber Combat Mission Force teams conduct military cyber operations in support of combatant commands. Cyber Protection Force teams defend the DOD information networks, protect priority missions, and prepare cyber forces for combat. Cyber Support Teams provide analytic and planning support to National Mission and Combat Mission teams.\nCyber Mission Force teams reached initial operating capability in October 2016. Currently comprising around 5,000 individuals, the cyber mission force is expected to grow to 6,200 by the end of 2018. Organizationally, the Cyber Mission Force is an entity of the United States Cyber Command.", "In response to the growing cyber threat, in 2009 the Secretary of Defense directed the establishment of a new military command devoted to cyber activities. The United States Cyber Command (USCYBERCOM) is currently a subunified command, under the U.S. Strategic Command, whose stated mission is to \"direct the operations and defense of specified Department of Defense information networks and; prepare to, and when directed, conduct full spectrum military cyberspace operations in order to enable actions in all domains, ensure US/Allied freedom of action in cyberspace and deny the same to our adversaries.\" Previously existing components, such as the Joint Task Force for Global Network Operations (JTF-GNO) and the Joint Functional Component Command for Network Warfare (JFCC-NW), were absorbed by USCYBERCOM and reorganized to provide centralized planning for cyberspace operations. USCYBERCOM is commanded by a four-star general, who is also the director of the National Security Agency (NSA) and chief of the Central Security Service (CSS). The commander manages day-to-day global cyberspace operations and leads defense and protection of DODIN. Each of the military services provides support to USCYBERCOM.", "DHS serves a variety of roles for ensuring cybersecurity, both in the federal government and the private sector. DHS secures federal networks, coordinates critical infrastructure protection efforts, responds to cyber threats, investigates cybercrimes, funds cybersecurity research and development, and promotes cybersecurity education and awareness. In order to accomplish these roles, DHS collects information on cybersecurity threats and shares that information across the federal government and with the private sector so others may be able to better protect themselves.\nIn working to secure federal government networks, DHS deploys tools at the gateway between the internet and agency networks to identify and stop known threats before they are able to access the agencies. DHS also deploys tools on agency networks to continuously identify risks and help to prioritize risk mitigation. Working with all federal agencies, DHS also assists in the implementation of and adherence to the Federal Information Security Management Act (FISMA, P.L. 107-347 , as amended), which, among other provisions, requires the head of each federal agency to take responsibility for managing risks to information security.\nPursuant to Presidential Policy Directive 41 (PPD-41) and the National Cyber Incident Response Plan (NCIRP), DHS serves as the federal lead for asset response activities. Asset response activities are those which provide technical assistance to victim entities. The assistance may be for mitigating vulnerabilities, reducing the impacts cyber incidents may cause, identifying other entities that may have been impacted by an incident, assessing risks related to an incident, and coordinating the response delivered by federal agencies to victim entities.\nDHS's agencies also carry out other cybersecurity responsibilities. The Science and Technology Directorate funds research into cybersecurity threats and invests in mitigating technologies. The U.S. Secret Service and Immigration and Customs Enforcement have authorities to investigate crimes targeting network infrastructure and crimes committed through information and communications technology. DHS serves as the sector-specific agency for 10 of the 16 critical infrastructure sectors, defined by presidential policy, and assists with the cybersecurity of the sectors through threat analysis and the promulgation of mitigating guidance.", "Combatting malicious actors who exploit cyberspace is a mission that cuts across the Department of Justice's (DOJ's) investigative, intelligence, prosecutorial, and technological components. DOJ is responsible for investigating and prosecuting a range of modern-day cyber threats. It is also responsible for protecting its own critical information systems from cyber intrusions.\nThe Obama Administration, through PPD-41, outlined how the government responds to significant cyber incidents. It specified that DOJ, through the Federal Bureau of Investigation (FBI) and the National Cyber Investigative Joint Task Force (NCIJTF), is the designated lead on cyber threat response. This involves \"conducting appropriate law enforcement and national security investigative activity at the affected entity's site; collecting evidence and gathering intelligence; providing attribution; linking related incidents; identifying additional affected entities; identifying threat pursuit and disruption opportunities; developing and executing courses of action to mitigate the immediate threat; and facilitating information sharing and operational coordination with asset response.\"\nThe FBI pursues cybercrime cases ranging from computer hacking and intellectual property rights violations to child exploitation, fraud, and identity theft. Its top priorities involve combating computer and network intrusions and investigating ransomware. Specifically, the FBI's Cyber Division focuses on \"high-level intrusions by state-sponsored hackers and global cyber syndicates, and the most prolific botnets.\" Further, with respect to prosecuting cyber threat actors, the U.S. Attorneys and the Criminal Division at DOJ are both centrally involved.", "Below is a list of selected policy issues related to cybersecurity which may be of interest to Congress. These issues are organized alphabetically rather than by theme or priority.", "Critical infrastructure (CI) is defined in 42 U.S.C. §5195c(e) as \"systems and assets, whether physical or virtual, so vital to the United States that the incapacity or destruction of such systems and assets would have a debilitating impact on security, national economic security, national public health or safety, or any combination of those matters.\" Most U.S. CI is controlled by the private sector. Under the Homeland Security Act of 2002, as amended, DHS coordinates CI security, including cybersecurity.\nCI is classified into sectors, most recently 16 under Presidential Policy Directive 21, issued in 2013, with each sector having a designated sector-specific agency. Some agencies have cross-sector responsibilities, such as DHS, DOJ, and the Federal Trade Commission (FTC).\nThe increasing potential for attacks that might cripple components of CI or otherwise damage the national economy has led to debate about the best ways to protect those sectors. Some, such as the chemical and financial sectors, are subject to federal regulation. The protection of others, such as information technology, relies largely on voluntary efforts. The efficacy of that mix of voluntary and regulatory efforts has long been a source of controversy.\nIn 2013, Executive Order 13636 established an alternative approach, in which the National Institute of Standards and Technology (NIST) facilitated a public-private effort to develop a cybersecurity framework for CI sectors. Subsequently, Congress authorized the framework process in the Cybersecurity Enhancement Act of 2014 ( P.L. 113-274 ). Issued in 2014, the framework consists of three parts: (1) a core set of activities and outcomes applicable to all the sectors, organized into five functions (identify, protect, detect, respond, and recover); (2) a profile describing an entity's current and target cybersecurity postures; and (3) implementation tiers that characterize the entity's current and intended practices. The DHS C 3 (for Critical infrastructure Cyber Community) program works to facilitate its voluntary adoption, and NIST released a draft update in January 2017.\nBefore the development of the voluntary cybersecurity framework, debate about the role of federal regulation appeared to be a significant factor impeding the enactment of cybersecurity legislation. However, events associated with the rapidly evolving threat environment continue to draw attention to the question of the appropriate federal role in protecting CI. Attacks such as the ones in 2016 using the Mirai botnet have led to renewed calls by some observers for broad security regulations. Attempts attributed to Russia at interfering with the November 2016 federal election have renewed concerns about the security of the U.S. election infrastructure, leading to the controversial designation by DHS of state and local election systems as a subsector under the government facilities CI sector. The 115 th Congress may be faced with the need to address such problems and resolve the controversies, which may be made more urgent by the expected continued evolution of cyberspace and more difficult by the unpredictable nature of emerging threats.", "Congress has sought policy responses to the loss of data by both private sector companies and government agencies, prompted by high-profile breaches such as those at Equifax and the Securities and Exchange Commission (SEC). Breaches frequently occur because of the reliance of modern business practices on IT. An increasingly used catchphrase among industry analysts is that today \"all companies are technology companies,\" or \"all companies are data companies.\" This concept reflects the role that IT and data play in enabling modern business practices that allow companies to compete and thrive in the marketplace. However, this reliance on IT and data also creates risk for corporate leadership to manage. Cybersecurity initiatives seek to control that risk.\nCongress has held hearings to examine individual instances of breaches and encourage the breached entities to assist those whose data has been compromised. Additionally, some Members have introduced legislation to address a variety of elements around a data breach, such as standards for securing sensitive data, data breach notification requirements, and the responsibilities affected entities have to those whose data has been breached.", "Increasing awareness of cyberattacks—and the increasing connectedness of cyber and cyber-physical systems—have raised concerns about whether U.S. homes, businesses, and government are prepared to secure themselves in our digitally integrated world. Some of this attention to preparedness has focused on the sufficiency of cybersecurity education, training, and workforce development in the United States. Federal policymakers have grappled with questions about both the quality and the quantity of U.S. postsecondary education graduates with cybersecurity credentials (in general) and the civilian and military workforce needs of the federal government (in particular). Federal programs and policies have also sought to increase awareness of secure computing practices (e.g., do not reuse passwords); and policymakers and agency officials often view educational benefits (e.g., scholarships, training) as a tool for attracting and retaining federal military and civilian cybersecurity workers.\nThe federal effort in cybersecurity education, training, and workforce development has not been comprehensively inventoried. However, federal funding supports a wide variety of activities in this area. These activities, which are sometimes offered in partnership with multiple federal and nonfederal entities, include cybersecurity awareness (StaySafeOnline.org), summer camps (GenCyber) and student competitions (CyberPatriot and the National Collegiate Cyber Defense Competition), scholarships for cybersecurity postsecondary students who agree to serve in government after graduation (CyberCorps), and professional development for federal personnel in specialized cybersecurity positions (College of Cyber and the Federal Virtual Training Environment). Federal programs not specifically designed to provide cybersecurity education and training—such as the TechHire and Advanced Technological Education programs—may also provide grants for these purposes.\nOver the past decade, analysts seeking to document the scope and scale of the U.S. cybersecurity workforce came to realize that the federal government, private employers, and academics were not using the same language to describe cybersecurity jobs or the knowledge, skills, and abilities necessary to hold those positions. This lack of a common language was perceived as a potential barrier in the cybersecurity labor market and an impediment in federal hiring. In response, the National Initiative for Cybersecurity Education (NICE)—the federal coordinating body for cybersecurity education, training, and workforce development—undertook a multiyear effort to develop standard terms and uses. When finalized, the NICE Cybersecurity Workforce Framework ( Framework ) is to provide a standard vocabulary that can be used to better align education and employment in cybersecurity fields. Among its many other cybersecurity education-related activities, NICE also provides grants to regional education-employment partnerships for the purpose of aligning academic pathways with cybersecurity occupations.\nOne key policy issue for the 115 th Congress may relate to the Framework 's implementation. Although the central issue for the Framework is its use as a cybersecurity workforce management tool in federal agencies, cybersecurity education programs may begin to adopt the language (and align curriculum and grantee requirements) during the next few years as well. Other policy topics that may be addressed during the 115 th Congress include the role or expansion of educational benefits as tools for attracting and retaining federal cybersecurity personnel, as well as funding for federal cybersecurity education, training, and workforce development programs. Longer-term policy issues in cybersecurity education may include the ongoing challenge of ensuring that educational content evolves in tandem with the rapidly changing cyber defense and operations landscape; continued training of incumbent workers in the federal government in secure computing practices; and, potentially, the continuing development of existing certifications, or the creation of new, nontraditional educational credentials, such as microcredentialing and digital badging.", "Encryption is a process to secure information from unwanted access or use. Encryption uses the art of cryptography to change information which can be read (plaintext) and make it so that it cannot be read (ciphertext). Decryption uses the same art of cryptography to change that ciphertext back to plaintext. Data that are in a state of being stored or transmitted are eligible for encryption. However, data that are in a state of being processed—that is, being generated, altered, or otherwise used—are unable to be encrypted and remain in plaintext and vulnerable to unauthorized access.", "Encryption is used by a variety of users for a variety of purposes. Fundamentally, encryption enables information to remain confidential to a single user or between a user and multiple users. Encryption also enables a level of certainty that the communicating parties are who they say they are and that the communication is only available to intended recipients.\nIndividuals use encryption to keep aspects of their lives that are held on digital platforms private on their devices and among those with whom they share information. Businesses use encryption to ensure that their research is kept confidential from their competitors, and to ensure that their transactions with their suppliers and customers are authentic. Governments use encryption to assure their information is kept and handled in confidence. Even without a user's interaction, devices may use encryption when communicating to other devices to ensure that commands received from one device are authentic and safe to execute. However, those seeking to obscure their malicious activities from legal authorities may also employ encryption to thwart opportunities to disrupt their malicious activity.", "Changing technology presents opportunities and challenges for U.S. law enforcement. While some feel that law enforcement now has more information available to them than ever before, others contend that law enforcement is \"going dark\" as their investigative capabilities are outpaced by the speed of technological change. As such, law enforcement cannot access certain information they otherwise may be authorized to obtain. One such technology-related hurdle for law enforcement is strong, end-to-end (or what law enforcement has sometimes called \"warrant-proof\") encryption.\nThe tension between law enforcement capabilities and technological change has received congressional attention for several decades. For instance, in the 1990s the \"crypto wars\" pitted the government against technology companies, and this tension was highlighted by proposals to build in vulnerabilities, or \"back doors,\" to certain encrypted communications devices as well as to restrict the export of strong encryption code. In addition, Congress passed the Communications Assistance for Law Enforcement Act (CALEA; P.L. 103-414 ) in 1994 to help law enforcement maintain their ability to execute authorized electronic surveillance as telecommunications providers turned to digital and wireless technology.\nThere has been previous executive and congressional action aimed at helping law enforcement conduct investigations of cybercrimes in the face of changing technology that can hamper such investigations. The going dark debate originally focused on data in motion, or law enforcement's ability to intercept real-time communications. However, more recent technology changes have affected law enforcement's capacity to access not only communications but also stored content, or data at rest. The Obama Administration urged the technology community to develop a means to assist law enforcement in accessing encrypted data and took steps to bolster law enforcement's technology capabilities to do so. In addition, policymakers have been evaluating whether legislation may be an appropriate response to the problem of going dark—particularly with regards to encryption. The Encryption Working Group in the 114 th Congress made several observations to set up the going dark discussion for the 115 th Congress. It noted that (1) any measure to weaken encryption would work against the nation's interest, (2) encryption technology is widely used and increasingly available worldwide, (3) there is no one-size-fits-all solution to the encryption and going dark challenge, and (4) Congress should promote cooperation between the law enforcement and technology communities.", "Cyberspace evolves at a rapid pace. That exacerbates the speed and intensity of the cybersecurity arms race between attackers and defenders. As a result, having timely, accurate information is essential for effective cybersecurity—not only threat information, but also defenses, best practices, and other things. Such information sharing is generally considered an important tool for protecting information systems from unauthorized access.\nHowever, barriers to information sharing—both within and across sectors—have long been considered by many to be a significant hindrance, especially with respect to critical infrastructure (CI) sectors. Private-sector entities have often asserted a reluctance to share such information among themselves because of concerns about legal liability, antitrust violations, and potential misuse, especially of intellectual property, including trade secrets and other proprietary business information.\nLegislation focusing specifically on alleviating such obstacles to information sharing in cybersecurity was first considered in the 112 th Congress, but debate about issues such as regulation and privacy continued until enactment in the 114 th . In December 2015, the Cybersecurity Information Sharing Act (CISA) was signed into law as part of the Cybersecurity Act of 2015 (Division N of P.L. 114-113 ). CISA takes steps to facilitate public- and private-sector sharing of information on cybersecurity threats and defensive measures and to permit private-sector entities to monitor and operate defenses on their information systems. It includes procedures for sharing of classified information; protections for security, privacy, nondisclosure, and correction of errors in shared information; exemptions from liability and antitrust actions for covered activities; and limitations on the uses of shared information by both public and private entities. The Cybersecurity Act of 2015 also makes the DHS National Cybersecurity and Communications Integration Center (NCCIC) the lead agency for federal information sharing.\nIn overseeing implementation of CISA, Congress might consider a number of factors that might affect its successful application:\nInformation that may be usefully shared can be complex in type and purpose, which may complicate determining the best methods and criteria for sharing. The timescale during which shared information will be most useful varies with the kind of information shared and its purpose. A large increase in information sharing could potentially lead to information overload, reducing the effectiveness of the sharing in reducing cybersecurity risks. Protection of confidentiality, privacy, and civil liberties in information sharing remains an area of controversy. The complexity of the current structure for information sharing may complicate implementation and assessment of effectiveness. It includes not only federal agencies and end users such as businesses but also private-sector information sharing and analysis entities (centers called information sharing and analysis centers, or ISACs, established pursuant to Presidential Decision Directive 63 in 1998, and organizations called information sharing and analysis organizations, or ISAOs, established under the Homeland Security Act of 2002 and Executive Order 13691 of 2015), trade and professional associations, and other mechanisms. Sharing of information among private-sector entities might not be substantially improved by CISA. Even if it is successful, information sharing is only one facet of cybersecurity, and the changes made by CISA might by themselves be of limited effectiveness in improving cybersecurity. Information sharing tends to focus on immediate concerns such as cyberattacks and imminent threats. While those must be addressed, that does not diminish the importance of other issues such as education and training, workforce, acquisition, or cybercrime law, or major long-term challenges such as building security into the design of hardware and software, changing the incentive structure for cybersecurity, developing a broad consensus about cybersecurity needs and requirements, and otherwise adapting to the rapid evolution of cyberspace.", "Businesses and individuals often use insurance for financial risks that they are unwilling or unable to bear on their own. With the uncertainty and potential size of damages from cyberattacks, entities' interest in insurance against such attacks has been growing in the past few years. Although policies covering cyber risk have been offered for over a decade, the market in general is still largely in its infancy. Much of the coverage is offered outside the regular admitted market made up of insurers fully licensed by the state in which they are operating. The National Association of Insurance Commissioners (NAIC) has estimated premiums for cyber insurance at approximately $1.5 billion but recognizes that \"a significant amount of premium\" is missing from this estimate since it is being offered by non-U.S. companies who do not file information with the states. The actuarial data regarding loss probabilities and severities upon which insurers depend to set premiums are still scarce, and policy language is not standardized, with policies generally including low dollar limits and \"a whole slew of exclusions\" to limit insurer risk.\nThe immaturity of the cyber insurance market could be seen as purely a matter of private concern bearing mainly on who may suffer losses from a particular cyberattack. In some circumstances, however, insurance may also be seen to have a public policy purpose. Insurance premiums can cause someone to internalize a risk or a benefit that otherwise might go unrecognized. With security on the internet, for example, being such an interdependent system, such recognition can be particularly important and increase security for everyone. Insurers also often act to transmit valuable information on avoiding and mitigating losses.\nIn the 114 th Congress, a Senate subcommittee hearing on cyber insurance was held and legislation was introduced in the House ( H.R. 6032 ) which would have provided a business tax credit for the purchase of \"data breach insurance.\" In addition to the incentive for purchasing cyber insurance inherent in the tax credit, H.R. 6032 would also have required compliance with NIST standards on cybersecurity to be eligible for the credit.\nCongress has enacted laws and programs affecting a range of other insurance markets such as health insurance (Medicare, Affordable Care Act), flood insurance (National Flood Insurance Program), and terrorism insurance (Terrorism Risk Insurance Act). Should the 115 th Congress seek to encourage cyber insurance, a relatively wide range of approaches from a tax, regulatory, or program perspective could be considered.", "", "Cybersecurity poses challenges in the international trade arena as more trade is conducted, or facilitated, online, potentially increasing the susceptibility of commerce to cyberattack and theft of information. Digital trade, including end products like movies and video games, and services such as email and online banking, enhances the productivity and overall competitiveness of an economy, enabling technological shifts that are transforming businesses. According to one study, the global economic impact of the internet is estimated at $4.2 trillion in 2016, and would rank as the fifth-largest national economy in the world. According to the Bureau of Economic Analysis, in 2015, the United States exported $751 billion in services, of which over 60% were information and communication technology (ICT) and potentially ICT-enabled services.\nThe increase in digital trade also raises new challenges in U.S. trade policy, including how best to address new and emerging trade barriers and risks related to cybersecurity. For example, hacks into company databases and systems could disrupt worldwide business operations and global supply chains, and pose a threat to consumers whose personal information may be stolen or manipulated. Publicized cyberattacks on firms may depress stock values. When governments of U.S. trading partners impose trade barriers, such as data localization measures compelling companies to store data within the country's border, a U.S. firm's data may become fragmented, creating vulnerabilities and increasing the risk of a cyberattack.\nThe internet is a key driver of intellectual property-related trade. However, it can make infringement of intellectual property rights (IPR) easier, and identifying those responsible for IPR infringement more challenging. Cyber theft of trade secrets can wipe out the value and competitive advantage of a firm's long-term research, presenting additional, increasingly prominent, barriers to digital trade. In May 2014, DOJ indicted five Chinese individuals for government-sponsored cyber espionage against U.S. companies and theft of proprietary information to aid the competitiveness of Chinese state-owned enterprises (SOEs).\nU.S. companies see potential challenges as countries develop new cyber regimes, such as China's new cybersecurity law, passed in November 2016. The law imposes several restrictions on internet firms including requiring operators of critical information infrastructure (defined as sectors such as telecommunications, energy, and finance) to store certain data in China, and requiring companies to assist Chinese police and national security agencies. The law's security reviews may force companies to disclose source code, a concern of many U.S. firms who are hesitant to reveal proprietary information about their business intellectual property that could potentially expose them to further cyberattacks. The law states that a key goal is \"secure and controllable\" technology, a term some see as an attempt to promote local ICT providers and lock out foreign firms. U.S. companies and various U.S. officials, such as former National Security Adviser Susan Rice, have raised U.S. concerns about the potential impact of the law.\nThe United States holds high-level cyber dialogues with multiple bilateral partners, such as China, India, and the European Union, to focus on cybersecurity efforts. Recent bilateral and plurilateral agreements have begun to address digital trade rules and barriers more explicitly. For example, the proposed Trans-Pacific Partnership (TPP) promoted cooperation among the parties on cybersecurity issues and has new enforceable commitments to combat cyber theft of trade secrets and localization barriers. The United States also discusses digital trade and cybersecurity norms in forums such as the Group of 20 (G-20), the Organization for Economic Co-operation and Development (OECD), and the Asia-Pacific Economic Cooperation (APEC). The 2016 G-7 Joint Declaration endorsed the \"G7 Principles and Actions on Cyber.\"\nCongress has an interest in ensuring the global rules and norms of the internet economy align with U.S. laws and norms, and that U.S. trade policy on digital trade and cybersecurity advances U.S. interests. Congress may consider specific actions to uphold the G-7 commitments to serve as a model for other countries; hold hearings on trade barriers, negotiations, or international forums in relation to cybersecurity; conduct oversight of the relevant executive branch agencies; or consider legislation to respond to cybersecurity threats to U.S. trade and businesses, including the imposition of sanctions.", "\"Internet of Things\" (IoT) refers to networks of objects that communicate with other objects and with computers through the internet. \"Things\" may include virtually any object for which remote communication, data collection, or control might be useful, such as vehicles, appliances, medical devices, electric grids, transportation infrastructure, manufacturing equipment, or building systems. In other words, the IoT potentially includes huge numbers and kinds of interconnected, \"smart\" objects. It is often considered the next major stage in the evolution of cyberspace.\nSmart devices can form systems that communicate among themselves, usually in concert with computers, allowing automated and remote control of many independent processes and potentially transforming them into integrated systems. Those systems can potentially impact homes and communities, factories and cities, and every sector of the economy, both domestically and globally. The IoT can contribute to more integrated and functional infrastructure, especially in \"smart cities,\" with projected improvements in transportation, utilities, and other municipal services.\nAlthough the full extent and nature of the IoT's impacts remain uncertain, economic analyses predict that it will contribute trillions of dollars to economic growth over the next decade. Sectors that may be particularly affected include agriculture, energy, government, health care, manufacturing, and transportation.\nIoT objects are potentially vulnerable targets for hackers. As the number of connected objects in the IoT grows, so will the potential risk of successful intrusions into IoT devices and increases in costs from those incidents. Economic and other factors may reduce the degree to which such objects are designed with adequate cybersecurity capabilities built in. IoT devices are small, are often built to be disposable, and may have limited capacity for software updates to address vulnerabilities that come to light after deployment.\nThe interconnectivity of IoT devices may also provide entry points through which hackers can access other parts of a network. Control of a set of smart objects could permit hackers to use their computing power in malicious networks called botnets to perform various kinds of cyberattacks, such as the 2016 attack using the Mirai botnet that interrupted the internet services of several companies. Access could also be used for destruction, such as by modifying the operation of industrial control systems, as with the Stuxnet malware that caused centrifuges to self-destruct at Iranian nuclear plants.", "The Federal Information Security Management Act (FISMA, P.L. 107-347 , as amended) places the responsibility for the information security of a federal agency with the agency head. Specifically, 44 U.S.C. §3554 states the following:\nThe head of each agency shall —\n(1) be responsible for—\n(A) providing information security protections commensurate with the risk and magnitude of the harm resulting from unauthorized access, use, disclosure, disruption, modification, or destruction of—\n(i) information collected or maintained by or on behalf of the agency; and\n(ii) information systems used or operated by an agency or by a contractor of an agency or other organization on behalf of an agency[.]\nIn executing this responsibility, each agency head shall also ensure the agency has senior officials who can operationally oversee the management and security of agency information technology. Congress requested an annual, independent evaluation of agency information security performance, conducted by the agency inspector general, to assist in Congress's oversight of the agency's IT management and security of its systems and data.\nCongress has also passed additional legislation regarding the management of federal information technology. The Federal Information Technology Acquisition Reform Act (FITARA, P.L. 113-291 , Title VIII) expanded the role of the chief information security officer (CIO) in the financial management of planning, programming, and execution of IT acquisitions for agencies. It also requires the Office of Management and Budget (OMB) to report to Congress on the net performance of capital investments. In addition, FISMA 2014 ( P.L. 113-283 ) specifies some operational roles for DHS and the Office of the Director of National Intelligence (DNI) in IT security. It also directs OMB to provide additional reports to Congress on the adoption of security technologies by federal agencies and sets out the guidance for agencies to directly report to Congress when they experience a data breach. Also, the Cybersecurity Act of 2015 ( P.L. 114-113 , Division N) requires the inspectors general of each agency with a national security system or a system that has access to personally identifiable information to report to Congress on the security policies and practices of those systems.\nThe OMB reports to Congress on annual FISMA performance usually arrive in the spring of each calendar year, and agency IG reports on annual information security evaluations or periodic information systems security reports are released throughout the year. These reports, along with those from the Government Accountabily Office (GAO), can assist Congress in executing oversight over agency operations, and can inform Congress on agency performance.", "Presidential Policy Directive 41 (PPD-41), issued on July 26, 2016, by the Obama Administration, outlines guiding principles and the government's policy response to a cyber incident. The National Cyber Incident Response Plan (NCIRP) elaborates on those principles by delineating responsibilities and outlining the coordinating of federal agencies. PPD-41 states that\nresponse is a shared responsibility among the victims, private sector, and the government; responses must be risk-based to determine which resources to bring to bear; any response must respect the affected entities and must require a unity of effort across federal agencies; and any response should be done in a manner that enables restoration and recovery of operations to the victim, not just retaliation against the hacker.\nThe policy also dictates that a government response is to have concurrent lines of effort. Threat response activities are to be led by the FBI and involve seeking out and delivering a response against the hacker. Asset response activities, as prescribed in PPD-41, are to be led by DHS and involve efforts to help victims mitigate the effects of an attack. The intelligence community is to provide assistance to both lines of effort.\nFollowing the release of PPD-41, the government adopted the NCIRP. The NCIRP follows a model developed to support conventional emergency management in the National Preparedness System, especially the National Response Framework. In doing so, it borrows the use of a core capability approach and adopts key aspects of the National Incident Management System (NIMS). Instead of prescribing specific actions for agencies to take, the NCIRP outlines how the government is to activate a Cyber Unified Coordination Group to address the specific incidents. This is similar to how the government activates a multiagency group at a Joint Field Office to deliver federal resources in response to a natural disaster.\nLacking specific responses, or even a menu of options for the Cyber Unified Coordination Group to consider, the NCIRP is not an operational plan, and as such may not have a deterrent effect on adversaries.\nPPD-41 describes two sides to a response: efforts directed at providing support for the victim and efforts directed at tracking down and punishing the aggressor. Similar to how the fire department will put out the fire and get people to safety while the police department pursues the arson, the federal government's response activities are directed toward both the victim and the attacker.\nResponse focusing on victims seeks to remediate the attack's effects. Such activities endeavor to remove any malware installed on systems, repair damaged systems, and work with incident response teams to restore unadulterated operations. Although DHS is the lead federal agency for such activities, it also relies on capabilities from partner agencies such as the DOD or the intelligence community in providing a response, as well as a critical infrastructure sector-specific agency. The federal government may provide resources to victims, but the victim is not under any obligation to accept federal resources. Victims may opt to respond to incidents with in-house teams, or by retaining cybersecurity firms. If the federal government is invited to assist with incident response, its work may only be made public with the victim's consent, by matter of administrative policy. However, the very action of federal resources being delivered to assist with response to a cyber incident can act as an overt federal reaction, signaling to both other victims and adversaries the options the federal government will pursue for cybersecurity.\nFrequently concurrent to a response directed at helping victims, response focused on attackers seeks to determine who committed the attack and deliver some form of retaliation. Such activities endeavor to attribute the attack to a group or an individual, and develop options which will both punish the attacker and seek to deter additional adversarial action. Options may include an overt cyber-based response, a covert cyber-based attack against the adversary, announcing sanctions against the group or individual, indicting or arresting those responsible, or using some other form of national power. Although the FBI is the lead federal agency for responding domestically in this line of effort, it will also rely on the capabilities of partner agencies, such as DOD for a cyberattack, the intelligence community for attribution, the Department of the Treasury for sanctions, or the Department of State for diplomatic options.", "", "A complete list of bills considered during the 115 th Congress may be found in CRS Report R43317, Cybersecurity: Legislation, Hearings, and Executive Branch Documents , by [author name scrubbed].\nMore than 10 bills received consideration and action during the first session of the 115 th Congress to address several issues, including management of federal IT, assisting state and local governments investigate cybercrimes, improving information sharing, and the development of voluntary guidelines on ways to reduce cyber risks.\nMore than 30 bills were introduced in the 114 th Congress that would have addressed several issues, including data-breach notification, incidents involving other nation-states, information sharing, law enforcement and cybercrime, protection of critical infrastructure (CI), workforce development, and education. The Obama Administration released proposals for three bills—on information sharing, data-breach notification, and revision of cybercrime laws. Several bills received committee or floor action.\nOn December 18, 2015, H.R. 2029 , the Consolidated Appropriations Act, 2016, was signed into public law ( P.L. 114-113 ). The omnibus law's cybersecurity provisions are located in Division N (Cybersecurity Act of 2015), including Title I, Cybersecurity Information Sharing; Title II, National Cybersecurity Advancement; Title III, Federal Cybersecurity Workforce Assessment; and Title IV, Other Cyber Matters. The bill encourages private companies to voluntarily share information about cyber threats with each other as well as the government. Firms that participate in the information sharing are to receive liability protection.\nIn the 113 th Congress, five cybersecurity-focused bills were signed into law on December 18, 2014:\nH.R. 2952 , the Cybersecurity Workforce Assessment Act, which requires the DHS to develop a cyber-workforce strategy ( P.L. 113-246 ); S. 1353 , the Cybersecurity Enhancement Act of 2014, which codifies the National Institute of Standards and Technology's (NIST's) role in cybersecurity ( P.L. 113-274 ); S. 1691 , the Border Patrol Agent Pay Reform Act of 2014, which gives DHS new authorities for cybersecurity hiring ( P.L. 113-277 ); S. 2519 , the National Cybersecurity Protection Act of 2014, which codifies DHS's cybersecurity center ( P.L. 113-282 ); and S. 2521 , the Federal Information Security Modernization Act of 2014, which reforms federal IT security management ( P.L. 113-283 ).\nThe National Defense Authorization Act for Fiscal Year 2014, which became P.L. 113-66 on December 26, 2013, included a variety of cybersecurity-related provisions.\nThe below tables summarize recent legislative actions.", "The White House has taken actions independent of Congress to address a variety of cybersecurity issues. Recent executive actions are described below in reverse chronological order, starting with the most recent action.\nIn May 2017, the Trump Administration issued an executive order (E.O. 13800) designed to improve the cybersecurity of both federal networks and critical infrastructure. It requires federal agencies to manage cybersecurity risks holistically across the government. It also directs federal agencies to take specific steps to assist the private sector in managing cyber risks.\nPreviously, the Obama Administration issued an executive order (E.O. 13757) amending E.O. 13694 to allow for the imposition of sanctions on individuals and entities determined to be responsible for tampering, altering, or causing the misappropriation of information with the purpose or effect of interfering with or undermining election processes or institutions. Five entities and four individuals were identified in the Annex of the amended Executive Order and added to the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) list of Specially Designated Nationals and Blocked Persons (SDN List).\nOn April 1, 2015, the Obama Administration issued an executive order (E.O. 13694) placing sanctions on certain persons engaging in significant malicious cyber-enabled activities. The executive order established the first sanctions program to allow the Administration to impose penalties on individuals overseas who engage in destructive attacks or commercial espionage in cyberspace. The order declares \"significant malicious cyber-enabled activities\" a \"national emergency\" and enables the Treasury Secretary to target foreign individuals and entities that take part in the illicit cyber activity for sanctions that could include freezing their financial assets and barring commercial transactions with them.\nIn February 2015, the Obama Administration issued Executive Order 13691, which, along with a legislative proposal, is aimed at enhancing information sharing in cybersecurity among private sector entities. It promotes the use of information sharing and analysis organizations (ISAOs), which were defined in the Homeland Security Act (6 U.S.C. §131(5)) as entities that gather, analyze, and share information on the security of critical infrastructure to assist in defense against and recovery from incidents. These initiatives broadened the reach of ISAOs beyond CI to any affinity group (e.g., geography, business sector, etc.). In that sense, they differ from the more familiar information sharing and analysis centers (ISACs), created in response to Presidential Decision Directive (PDD) 63 in 1998 specifically to address information-sharing needs in CI sectors.\nAlso in February 2015, the Obama Administration created the Cyber Threat Intelligence Integration Center (CTIIC), established by the DNI. Its purposes are to provide integrated analysis on foreign cybersecurity threats and incidents affecting national interests and to support relevant government entities, including the National Cybersecurity and Communications Integration Center (NCCIC) at DHS, as well as other entities at DOD and DOJ.\nIn February 2013, the Obama Administration issued an executive order (E.O. 13636) designed to improve the cybersecurity of U.S. critical infrastructure. It attempts to enhance the security and resiliency of critical infrastructure through voluntary, collaborative efforts involving federal agencies and owners and operators of privately owned critical infrastructure, as well as the use of existing federal regulatory authorities. Given the absence of comprehensive cybersecurity legislation, some security observers contend that E.O. 13636 is a necessary step in securing vital assets against cyber threats. Others have expressed the view that the executive order could make enactment of a bill less likely or could lead to government intrusiveness into private-sector activities through increased regulation under existing statutory authority.\nBelow is a table of executive action on cybersecurity-related issues.", "The House has held over 30 hearings during the first session of the 115 th Congress on cybersecurity issues, and the Senate has held over 25. The House held 84 cybersecurity hearings during the 114 th Congress and the Senate held 35. The House committees holding the most hearings during the 114 th Congress were Homeland Security (17), Oversight and Government Reform (16), Science, Space, and Technology (8), and Energy and Commerce (7). The Senate committees holding the most hearings were Armed Services (8), Commerce, Science, and Transportation (6), and Homeland Security and Governmental Affairs (6).\nA few topics of interest to 114 th Congress committees were cybercrime (including privat-sector and federal data breaches and the Office of Personnel Management's 2015 cyber intrusions), critical infrastructure vulnerabilities, oversight of federal and military cybersecurity programs, and the Internet of Things." ], "depth": [ 0, 1, 1, 2, 2, 1, 2, 3, 2, 2, 1, 2, 2, 2, 2, 3, 3, 2, 2, 2, 3, 2, 2, 2, 1, 2, 2, 2 ], "alignment": [ "h0_title h1_title", "h0_full", "h0_title", "h0_full", "", "h1_title", "h1_full", "", "h1_full", "h1_full", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "" ] }

{ "question": [ "Why has cybersecurity been gaining attention as a national issue?", "What have cybersecurity incidents involved?", "Why are cybersecurity issues at the forefront of congressional policy conversations?", "What does this report provide regarding congressional policy conversation on cybersecurity?", "How does the federal government monitor cyberspace security?", "How is federal responsibility for cybersecurity allotted?", "What actions does the Department of Defense take with regards to cybersecurity?", "What cybersecurity measures does the Department of Homeland Security undertake?", "How does the Department of Justice promote cybersecurity?" ], "summary": [ "Cybersecurity has been gaining attention as a national issue for the past decade. During this time, the country has witnessed cyber incidents affecting both public and private sector systems and data.", "These incidents have included attacks in which data was stolen, altered, or access to it was disrupted or denied.", "The frequency of these attacks, and their effects on the U.S. economy, national security, and people's lives have driven cybersecurity issues to the forefront of congressional policy conversations.", "This report provides an overview of selected cybersecurity concepts and a discussion of cybersecurity issues that are likely to be of interest during the 115th Congress.", "To help secure and respond to incidents in cyberspace federal departments and agencies carry out their authorized responsibilities, run programs, and work with the private sector.", "While every federal agency has a role in protecting its own data and systems, certain agencies have significant responsibilities with regard to national cybersecurity.", "The Department of Defense supports domestic efforts on cybersecurity with its capabilities and capacity, and deploys military assets to protect American critical infrastructure from a cyberattack when directed to do so.", "The Department of Homeland Security secures federal networks, coordinates critical infrastructure protection efforts, responds to cyber threats, investigates cybercrimes, funds cybersecurity research and development, and promotes cybersecurity education and awareness.", "The Department of Justice investigates and prosecutes a variety of cyber threats, which range from computer hacking and intellectual property rights violations to fraud, child exploitation, and identity theft." ], "parent_pair_index": [ -1, 0, -1, 2, -1, 0, 1, 1, 1 ], "summary_paragraph_index": [ 0, 0, 0, 0, 2, 2, 2, 2, 2 ] }

{ "title": [ "", "Introduction", "Background", "Description of Policy", "Origins, Rationale, and Governing Regulations", "A Congressionally Imposed Policy", "Governing Regulations", "Alternative of Incremental Funding", "Non-Conforming Procurements", "Recent Procurements", "DOD Sealift and Auxiliary Ships in NDSF", "Individual Navy Ships in SCN in the 1990s", "LHD-8 Amphibious Assault Ship Incremental Funding", "LCS Lead Ships in RDT&E", "Leasing Authority for Refueling Tanker Aircraft", "Proposed or Suggested Procurements", "Large Satellites Incrementally Funded", "LHA-6 Amphibious Ship Incrementally Funded", "First Two DDG-1000 Destroyers Incrementally Funded", "CVN-78 Aircraft Carrier Incrementally Funded", "F-22 Aircraft Incrementally Funded", "First DDG-1000 Destroyer Incrementally Funded in RDT&E", "C-17 Airlift Aircraft MYP", "Advance Appropriations for Navy Ships in SCN", "Issues and Options for Congress", "Options", "Responding to Specific Non-Conforming Proposals", "General Legislative Options", "Issues", "Congressional Power of the Purse", "Congressional Oversight of DOD Procurement Programs", "Future Congresses", "DOD Budgeting and Program-Execution Discipline", "Potential Impact on Weapon Costs", "Legislative Activity For FY2008", "FY2008 Defense Authorization Bill (H.R. 1585/S. 1547)", "House", "Senate" ], "paragraphs": [ "", "The full funding policy is a federal budgeting rule that has been applied to Department of Defense (DOD) procurement programs since the 1950s. Although technical in nature, the policy relates to Congress's power of the purse and its responsibility for conducting oversight of DOD programs. The application of the full funding policy to DOD procurement programs has been affirmed at various times over the last five decades by Congress, the Government Accountability Office (GAO), and DOD.\nIn recent years, some DOD weapons—specifically, certain Navy ships—have been procured with funding profiles that do not conform to the policy as it traditionally has been applied to DOD weapon procurement programs. DOD, in recent budget submissions and testimony, has proposed or suggested procuring ships, aircraft, and satellites using funding approaches that do not conform to the policy as traditionally applied.\nDOD's proposals, if implemented, could establish new precedents for procuring other DOD weapons and equipment with non-conforming funding approaches. Such precedents could further circumscribe the full funding policy, which in turn could limit and complicate Congress's ability to conduct oversight of DOD procurement programs.\nThe issue for Congress is how to respond to DOD's proposals for procuring ships and aircraft for DOD with funding approaches that do not conform to the full funding policy as traditionally applied to DOD weapon procurement programs. Congress's decision on this issue could have significant implications for Congress's ability to conduct oversight of DOD procurement programs. It could also affect DOD's budgeting practices, budget discipline, and annual funding requirements.\nFor additional discussion of this issue as it relates to procurement of Navy ships, see CRS Report RL32776, Navy Ship Procurement: Alternative Funding Approaches—Background and Options for Congress , by [author name scrubbed].", "", "For DOD procurement programs, the full funding policy requires the entire procurement cost of a weapon or piece of equipment to be funded in the year in which the item is procured. The rule applies to all weapons and equipment that DOD procures through the procurement title of the annual DOD appropriations act. In general, the policy means that DOD cannot contract for the construction of a new weapon or piece of equipment until the entire cost of that item has been approved by Congress. Sufficient funding must be available for a complete, usable end item before a contract can be let for the construction of that item.\nA principal effect of the full funding policy is to prevent the use of incremental funding in the procurement of DOD weapons and equipment. Under incremental funding, a weapon's cost is divided into two or more annual portions, or increments, that reflect the need to make annual progress payments to the contractor as the weapon is built. Congress then approves each year's increment as part of its action on that year's budget. Under incremental funding, DOD can contract for the construction of a weapon after Congress approves only the initial increment of its cost, and completion of the weapon is dependent on the approval of the remaining increments in future years by that Congress or future Congresses.\nThere are two general exceptions to the full funding policy. One permits the use of advance procurement funding for components or parts of an item that have long production leadtimes. The other permits advance procurement funding for economic order quantity (EOQ) procurements, which normally occur in programs that have been approved for multiyear procurement (MYP).", "", "Congress imposed the full funding policy on DOD in the 1950s to make the total procurement costs of DOD weapons and equipment more visible and thereby enhance Congress's ability to understand and track these costs. Congress's intent in imposing the policy was to strengthen discipline in DOD budgeting and improve Congress's ability to control DOD spending and carry out its oversight of DOD activities. Understanding total costs and how previously appropriated funds are used are key components of Congress's oversight capability.", "The full funding policy is consistent with two basic laws regarding executive branch expenditures—the Antideficiency Act of 1870, as amended, and the Adequacy of Appropriations Act of 1861. Regulations governing the policy are found in Office of Management and Budget (OMB) Circular A-11 and DOD Directive 7000.14-R, which provide guidelines on budget formulation. Support for the policy has been periodically reaffirmed over the years by Congress, the Government Accountability Office (GAO), and DOD.\nFor a detailed discussion of the origins, rationale, and governing regulations of the full funding policy, as well as examples of where Congress, GAO, and DOD have affirmed their support for the policy, see Appendix B .", "Prior to the imposition of the full funding policy, DOD weapon procurement was accomplished through incremental funding. Incremental funding fell out of favor because opponents believed it did (or could do) one or more of the following:\nmake the total procurement costs of weapons and equipment more difficult for Congress to understand and track; create a potential for DOD to start procurement of an item without necessarily understanding its total cost, stating that total cost to Congress, or providing fully for that total cost in future DOD budgets—the so-called \"camel's-nose-under-the-tent\" issue; permit one Congress to \"tie the hands\" of one or more future Congresses by providing initial procurement funding for a weapon whose cost would have to be largely funded by one or more future Congresses; increase weapon procurement costs by exposing weapons under construction to potential uneconomic start-up and stop costs that can occur when budget reductions or other unexpected developments cause one or more of the planned increments to be reduced or deferred.\nAlthough incremental funding fell out of favor due to the above considerations, supporters of incremental funding could argue that its use in DOD (or federal) procurement can be advantageous because it can do one or more of the following:\npermit very expensive items, such as large Navy ships, to be procured in a given year without displacing other programs from that year's budget, which can increase the costs of the displaced programs due to uneconomic program-disruption start-up and start costs; avoid a potential bias against the procurement of very expensive items that might result from use of full funding due to the item's large up-front procurement cost (which appears in the budget) overshadowing the item's long-term benefits (which do not appear in the budget) or its lower life cycle operation and support (O&S) costs compared to alternatives with lower up-front procurement costs; permit construction to start on a larger number of items in a given year within that year's amount of funding, so as to achieve better production economies of that item than would have been possible under full funding; recognize that certain DOD procurement programs, particularly those incorporating significant amounts of advanced technology, bear some resemblance to research and development activities, even though they are intended to produce usable end items; reduce the amount of unobligated balances associated with DOD procurement programs; implicitly recognize potential limits on DOD's ability to accurately predict the total procurement cost of items, such as ships, that take several years to build; and preserve flexibility for future Congresses to stop \"throwing good money after bad\" by halting funding for the procurement of an item under construction that has become unnecessary or inappropriate due to unanticipated shifts in U.S. strategy or the international security environment.", "In recent years, some items, notably Navy ships, have been procured with funding profiles that do not conform to the policy as traditionally applied to DOD procurement programs. In addition, DOD is now proposing to procure other items, including both ships and aircraft, with funding profiles that do not conform to the policy as traditionally applied.", "", "As part of its action on the FY1993 defense budget, Congress created the National Defense Sealift Fund (NDSF)—a revolving fund in the DOD budget for the procurement, operation, and maintenance of DOD-owned sealift ships —and transferred procurement of new military sealift ships and certain Navy auxiliary ships from the Shipbuilding and Conversion, Navy (SCN) appropriation account, where they traditionally had been procured, to the NDSF. Since the NDSF is outside the procurement title of the defense appropriation act, sealift ships procured since FY1993, including DOD's new Large, Medium-Speed, Roll-on/Roll-off (LMSR) ships, as well as Navy Lewis and Clark (TAKE-1) dry cargo ships procured since FY2003, have not been subject to the full funding policy as traditionally applied to DOD procurement programs.\nAs discussed in a 1996 CRS report, although individual LMSRs were ostensibly fully funded each year by Congress, like ships procured in the SCN account, DOD in some cases actually applied LMSR funding provided in a given year to partially finance the construction of LMSRs authorized in various years. For example, although Congress ostensibly approved $546.4 million in FY1995 for the procurement of two LMSRs, the FY1995 funds were actually applied to help finance portions of 16 LMSRs whose construction contracts were awarded between FY1993 and FY1997. In explaining its use of funds in the LMSR program, DOD stated:\nThe National Defense Sealift Fund (NDSF) is not a procurement appropriation but a revolving fund. Dollars appropriated by Congress for the fund are not appropriated to purchase specific hulls as in the case of, for example the Navy's DDG-51 program. Rather, dollars made available to the NDSF are executed on an oldest money first basis. Therefore, full funding provisions as normally understood for ship acquisition do not apply.", "The Navy during the 1990s procured several individual ships in the SCN account during the 1990s—including amphibious ships, aircraft carriers, and an attack submarine—with funding profiles approved by Congress that, for various reasons, do not appear to conform to the full funding policy as traditionally applied to DOD procurement programs. These ships were listed and discussed in CRS testimony to the House Armed Services Committee on March 9, 1999.", "More recently, Congress included, in both the FY2000 and FY2001 defense appropriations acts, a provision in the SCN section stating \"That the Secretary of the Navy is hereby granted the authority to enter into a contract for an LHD-1 [class] Amphibious Assault Ship which shall be funded on an incremental basis.\" The ship in question is LHD-8, which was funded on an incremental basis, with the final increment provided in FY2006. DOD records the ship in its budget presentations as an FY2002-procured item.", "As part of its proposed FY2005 and FY2006 budget submissions, the Administration proposed, and Congress approved, funding the two lead Littoral Combat Ships (LCSs) in the Navy's research, development, test and evaluation (RDT&E) account rather than the SCN account, where Navy ships traditionally have been procured. Since the Navy's RDT&E account is outside the procurement title of the defense appropriation act, the ships are not subject to the full funding policy as traditionally applied to DOD procurement programs.", "As part of its action on the FY2002 defense appropriations bill, Congress granted DOD authority to enter into a 10-year leasing arrangement for 100 aircraft based on the Boeing 767 commercial aircraft design to serve as Air Force aerial refueling tankers. Although this was a leasing arrangement rather than a procurement action, some critics argued that the stream of annual lease payments to be made under the arrangement could be viewed as the equivalent of incremental funding. As part of its action on the FY2004 defense authorization bill, Congress granted DOD revised authority to enter into a 10-year leasing arrangement for 20 aircraft and to procure up to 80 additional aircraft under a multiyear procurement contract that uses incremental funding. The tanker lease was ultimately not implemented.", "In addition to the recent non-conforming examples cited above, DOD in recent budget submissions has proposed or suggested procuring additional ships, aircraft, and satellites using funding approaches that would not conform to the full funding policy as traditionally applied to DOD procurement programs.", "In testimony to the Strategic Forces subcommittee of the Senate Armed Services Committee on the proposed FY2008 military space programs budget, Ronald Sega, the Undersecretary of the Air Force, suggested using incremental funding for procuring large, expensive satellites that are not procured in large numbers.", "The Administration, as part of its FY2007 and FY2008 defense budget submission, proposed to procure an amphibious assault ship called LHA-6—the lead ship in the LHA (Replacement), or LHA(R) program—in FY2007 using split funding (a two-year form of incremental funding) in FY2007 and FY2008.", "The Administration, as part of its FY2007 and FY2008 defense budget submissions, proposed to procure each of the first two DDG-1000 (formerly DD(X)) destroyers in FY2007 using split funding in FY2007 and FY2008.", "The Administration, as part of its FY2007 and FY2008 defense budget submission, proposed to procure the aircraft carrier CVN-78 in FY2008 using split funding in FY2008 and FY2009. About 35.2% of the ship's estimated procurement cost of $10.5 billion was provided in the form of advance procurement funding between FY2001 and FY2007, 26.1% is to be provided in the procurement year of FY2008, and 38.8% is to be provided in FY2009.", "The Administration, as part of its FY2007 budget submission, is proposing to procure F-22 aircraft over the next several years using incremental funding.", "The Administration, as part of its FY2005 defense budget submission, proposed procuring the lead DDG-1000 destroyer in the Navy's RDT&E account rather than the SCN account. Congress, in acting on the FY2005 budget, directed that the lead DDG-1000 be funded in the SCN account.", "The Administration, as part of its FY2003, FY2004, and FY2005 defense budgets submissions, proposed procuring 60 C-17 airlift aircraft under a follow-on multiyear procurement (MYP) arrangement approved by Congress in FY2002 that would procure at least some of the aircraft with funding profiles that resembled incremental funding rather than full funding. Under this approach, the Air Force has requested Congress to appropriate enough money in a given year to make progress payments on the MYP contract rather than to fully fund a specific number of aircraft. The affect would be to reduce requested funding in the initial years of the contract and increase amounts requested in later years. This proposal is of particular note because it would, if implemented, extend use of something resembling incremental procurement to an area of defense weapon procurement outside shipbuilding.", "In 2001 and again in 2005, some Navy officials advocated the use of a funding arrangement called advance appropriations for Navy ships, particularly as a means of increasing the number of ships that could be placed under construction in the near term with available funding. Use of advance appropriations would enable the Navy to begin construction on a ship in a given year even though the budget authority for that year provided only an initial increment of the total procurement cost of the ship.\nUnder advance appropriations, funding for the entire procurement cost of a ship would be approved by Congress in a single decision. In contrast, however, to traditional full funding, in which the full procurement cost of the ship is assigned to (i.e., scored in) the budget year in which it is procured, under advance appropriations, the procurement cost of the ship approved in a given year would be divided into several portions, or increments, that would be scored across several budget years starting with the original year of procurement.\nIn contrast to incremental funding, under which Congress must take a positive action each year to approve the portion of the ship's cost assigned to that year, with advance appropriations, Congress each year would need to take a positive action to cancel the portion of the ship's cost assigned to that year. Although Navy supporters of the advance appropriation concept stressed that advance appropriations is a form of full funding rather than incremental funding, they acknowledge that advance appropriations could be described informally as a legislatively locked-in counterpart to incremental funding.\nOMB Circular A-11 defines advance appropriations as appropriations that are:\nEnacted normally in the current year; Scored after the budget year (e.g., in each of one, two, or more later years, depending on the language); and Available for obligation in the year scored and subsequent years if specified in the language.\nThe circular allows for the use of advance appropriations to help finance capital assets under certain circumstances. Specifically, Principle 2 in Appendix J on principles of financing capital assets, states (italics as in the original):\nRegular appropriations for the full funding of a capital project or a useful segment (or investment) of a capital project in the budget year are preferred. If this results in spikes that, in the judgment of OMB, cannot be accommodated by the agency or the Congress, a combination of regular and advance appropriations that together provide full funding for a capital project or a useful segment or an investment should be proposed in the budget.\nExplanation: Principle 1 (Full Funding) is met as long as a combination of regular and advance appropriations provide budget authority sufficient to complete the capital project or useful segment or investment. Full funding in the budget year with regular appropriations alone is preferred because it leads to tradeoffs within the budget year with spending for other capital assets and with spending for purposes other than capital assets. In contrast, full funding for a capital project (investment) over several years with regular appropriations for the first year and advance appropriations for subsequent years may bias tradeoffs in the budget year in favor of the proposed asset because with advance appropriations the full cost of the asset is not included in the budget year. Advance appropriations, because they are scored in the year they become available for obligation, may constrain the budget authority and outlays available for regular appropriations of that year.\nIf, however, the lumpiness caused by regular appropriations cannot be accommodated within an agency or Appropriations Subcommittee, advance appropriations can ameliorate that problem while still providing that all of the budget authority is enacted in advance for the capital project (investment) or useful segment. The latter helps ensure that agencies develop appropriate plans and budgets and that all costs and benefits are identified prior to providing resources. In addition, amounts of advance appropriations can be matched to funding requirements for completing natural components of the useful segment. Advance appropriations have the same benefits as regular appropriations for improved planning, management, and accountability of the project (investment).\nNavy advocates of using advance appropriations for Navy shipbuilding noted that the mechanism is used by several federal agencies other than DOD.\nAlthough use of advance appropriations for Navy shipbuilding was supported in 2001 by some Navy officials and some Members of Congress, the Navy in 2001 apparently did not receive approval from the Office of Management and Budget (OMB) to use the approach for shipbuilding, and did not officially propose its use as part of its FY2002 budget submission to Congress. Congress in 2001 did not adopt advance appropriations as a mechanism for funding Navy ships. The House Appropriations Committee, in its report ( H.Rept. 107-298 of November 19, 2001) on the FY2002 defense appropriations bill ( H.R. 3338 ), stated that it was\ndismayed that the Navy continues to advocate the use of alternative financing mechanisms to artificially increase shipbuilding rates, such as advanced appropriations, or incremental funding of ships, which only serve to decrease cost visibility and accountability on these important programs. In attempting to establish advanced appropriations as a legitimate budgeting technique, those Navy advocates of such practices would actually decrease the flexibility of future Administrations and Congresses to make rational capital budgeting decisions with regard to shipbuilding programs. Accordingly, the Committee bill includes a new general provision (section 8150) which prohibits the Defense Department from budgeting for shipbuilding programs on the basis of advanced appropriations.\nThe general provision mentioned above (Section 8150) was not included in the final version of the bill that was passed by Congress and signed into law ( P.L. 107-117 of January 10, 2002).\nFor discussion of proposals from Navy officials in 2005 for using advance appropriations for procuring Navy ships, see CRS Report RL32776, Navy Ship Procurement: Alternative Funding Approaches—Background and Options for Congress , by [author name scrubbed].", "", "", "In response to the proposals listed above to procure ships and aircraft with funding profiles that do not conform to the policy as traditionally applied to DOD procurement programs, Congress has six basic options:\nApprove procurement of the items using the proposed non-conforming approach without added bill or report language . This option, if implemented, might well be viewed by DOD or others as setting a precedent for applying non-conforming funding approaches to other DOD procurement programs in the future. Approve procurement of the items using the proposed non-conforming approach, but with added bill or report language intended to limit the application of the approach strictly to the specific program in question. This option would accommodate DOD's request for FY2003 while attempting to avoid setting such a precedent. The success of this option in not setting such a precedent could depend on the forcefulness of the wording used in the bill or report language. Approve procurement of the items with a conforming funding approach, but without added bill or report language. This option would avoid setting a precedent for using non-conforming approaches in the future and perhaps, by inference, also affirm Congress's preference for the full funding policy. Approve procurement of the items with both a conforming funding approach and added bill or report language affirming Congress's preference for the full funding policy. This option would avoid setting a precedent for using non-conforming approaches in the future and positively affirm Congress's preference for the full funding policy. Reject procurement of the requested items entirely, without added bill or report language. This option might or might not be interpreted by DOD as affirming Congress's preference for the full funding provision, depending on other issues relating to the program (e.g., concerns about need for the program, or its cost) that might be viewed as having influenced Congress's decision on it. Reject procurement of the items with added bill or report language affirming Congress's preference for the full funding policy. This option would positively affirm Congress's preference for the full funding provision, particularly if the added legislation or comment makes it clear that Congress's decision to not procure the items was directly related to the proposal to fund them using a non-conforming approach.", "In addition to responding to specific proposals for procuring ships and aircraft with non-conforming approaches, Congress may consider options for addressing legislatively the application of the full funding policy to DOD procurement programs generally. In this regard, Congress could decide to either maintain the status quo or add new bill or report language.\nNew bill or report language could be aimed at any of the following basic objectives:\nTerminating the application of the full funding policy to DOD procurement programs. This option could involve dropping the current policy preference for full funding and permitting DOD to employ either full funding, incremental funding, or some other funding approach, depending on which approach DOD deems most appropriate for the program in question. Alternatively, this option could involve instituting a new policy that prohibits the use of full funding and perhaps establishes a new policy preference for using incremental funding or some other funding approach. Relaxing or otherwise modifying the application of the policy to DOD procurement programs. This option could involve permitting non-conforming approaches to be used for certain categories of weapons or equipment, or for procurements conducted under certain circumstances. It could also involve permitting DOD to make greater use of alternative budgeting mechanisms, such as revolving funds, for procurement of weapons and equipment. As discussed in Appendix B , a 1996 GAO report examined some alternative mechanisms used at certain government agencies other than DOD and recommended that \"The Congress should consider enabling agencies to use more flexible budgeting mechanisms that accommodate up-front funding over the longer term while providing appropriate oversight and control.\" Strengthening or expanding the scope of application of the policy as it relates to DOD programs. This option could involve giving the full funding provision a specific basis in statute for DOD (or federal) programs, or applying it to DOD programs funded outside the procurement title of the DOD appropriations act, such as those funded in the RDT&E account or the National Defense Sealift Fund.\nOne recent example of proposed legislation relating to the use of full funding in DOD procurement programs, mentioned earlier, was Section 8150 of the FY2002 defense appropriations bill ( H.R. 3338 ) as reported by the House Appropriations Committee ( H.Rept. 107-298 of January 10, 2002), which stated:\nNone of the funds appropriated in this Act may be used to prepare a budget request for submission to Congress by the Department of Defense for fiscal year 2003 that contains any proposal to acquire ships for the Department of the Navy through the use of incremental funding amounts or advanced appropriations. The limitation against incremental funding does not apply to the specific shipbuilding programs that were funded on an incremental basis in fiscal year 2002.\nAs mentioned earlier, this provision was not included in the final version of the bill that was passed by Congress and signed into law ( P.L. 107-117 of January 10, 2002).\nA second example concerns the National Defense Airlift Fund (NDAF)—a revolving fund outside the procurement title of the DOD appropriations act that was similar to the NDSF, but intended for airlift aircraft such as the C-17. The NDAF was established by report language on the FY2001 defense appropriations bill ( H.R. 4576 / S. 2593 ). The conference report on the bill directed that C-17s be procured in the NDAF rather than the Air Force's aircraft procurement account, where airlift planes traditionally had been procured, but also directed that C-17 procurement conform to the full funding policy:\nThe conferees direct that the Department of Defense budget for all future C-17 procurement and support costs within the National Defense Airlift Fund. The conferees direct that future budget documents for the NDAF should conform to the requirements for other DOD procurement accounts including the content and format of budget exhibits, reprogramming thresholds among procurement, advanced procurement, and interim contractor support line items, application of the procurement full funding policy , and Congressional notification for changes in quantity.\nThe NDAF was disestablished as part of Congress's action on the FY2002 defense appropriations bill, and procurement of C-17s reverted to the Air Force's aircraft procurement account.\nA third example is Section 1007 of the FY1996 defense authorization bill ( H.R. 1530 ) as reported by the House National Security Committee ( H.Rept. 104-131 of June 1, 1995), which would amend 10 USC 114 at the end by adding the following new subsection:\n(f) (1) No funds may be appropriated, or authorized to be appropriated, for any fiscal year for a purpose named in paragraph (1), (3), (4), or (5) of subsection (a) using incremental funding.\n(2) In the budget submitted by the President for any fiscal year, the President may not request appropriations, or authorization of appropriations, on the basis of incremental funding for a purpose specified in paragraph (1).\n(3) In this subsection, the term ''incremental funding'' means the provision of funds for a fiscal year for a procurement in less than the full amount required for procurement of a complete and usable product, with the expectation (or plan) for additional funding to be made for subsequent fiscal years to complete the procurement of a complete and usable product.\n(4) This subsection does not apply with respect to funding classified as advance procurement funding.\nThis provision was not included in the final version of the bill ( S. 1124 ) that was passed by Congress and signed into law ( P.L. 104-106 of February 10, 1996).", "In considering options for responding to specific DOD proposals for non-conforming approaches, or for addressing the issue of full funding in DOD procurement generally, Congress can consider several factors, including Congress's power of the purse, congressional oversight of DOD procurement programs, future Congresses, DOD budgeting and program-execution discipline, and the potential impact on weapon procurement costs.", "As shown in the excerpts from the congressional hearings and reports presented in Appendix B , the full funding policy has long been considered important to Congress's ability to control executive branch spending. DOD spending forms a large part of overall federal spending (and an even larger share of discretionary federal spending). Procurement of weapons and equipment in turn forms an important part of overall DOD spending (and an even larger share of the portion of the DOD budget that is considered more \"discretionary\" in nature). Congressional hearings and GAO reports over the years suggest that circumscribing the application of the full funding policy to DOD procurement programs could reduce congressional control over spending.", "As also shown in the excerpts presented in Appendix B , the full funding policy has traditionally been viewed as beneficial in terms of making the total cost of DOD weapons and equipment more visible to Congress. As mentioned earlier, understanding total costs and how previously appropriated funds are used are key components of Congress's oversight capability. Incremental funding or other non-conforming funding approaches, by spreading the costs of individual weapons or pieces of equipment over several years, could complicate the task of understanding and tracking total weapon costs and the uses of previously appropriated funds, particularly if such approaches are applied to numerous weapon acquisition programs.\nAs also shown in the excerpts from the 1996 GAO report presented in Appendix B , however, GAO's case studies of certain federal agencies other than DOD suggests that there may be room under certain circumstances for using alternative funding mechanisms, such as revolving funds, in a way that preserves congressional control of spending and congressional oversight. The issue is whether these alternative mechanisms would be appropriate for DOD, which has a much larger budget and much larger annual capital needs than most other federal agencies.", "As discussed in the excerpts presented in Appendix B , use of incremental funding or other non-conforming approaches could commit future Congresses to providing funding for programs initiated by previous Congresses, and thereby reduce the flexibility of future Congresses to adapt current-year budgets to changing needs. Alternatively, as mentioned earlier, it could be argued that incremental funding can enhance Congress's ability to respond to changing circumstances by giving future congresses the ability to stop funding the construction of a weapon that suddenly becomes unnecessary or inappropriate due to unanticipated shifts in U.S. strategy or the international security environment. Incremental funding, in this view, could permit Congress to stop throwing good money after bad.", "Independent of its importance to congressional powers and responsibilities, the full funding policy is viewed by DOD and others as imposing discipline on DOD budgeting practices. As shown in the excerpts presented in Appendix B , full funding is often viewed as helping to ensure that DOD officials identify, make investment trade-offs on the basis of, and budget adequately for the full costs of its weapons and equipment. In addition, DOD has sometimes stated that full funding is a source of discipline on DOD program managers that encourages them to execute their programs within cost.\nAlternatively, as mentioned earlier, it could be argued that use of incremental funding can assist in the making of unbiased investment trade-offs by avoiding a potential bias against the procurement of very expensive items that might result from an item's large up-front procurement cost (which appears in the budget) overshadowing its long-term benefits (which do not appear in the budget) or its lower life cycle operation and support (O&S) costs compared to alternatives with lower up-front procurement costs. It could also be argued that some DOD procurement programs incorporate significant amounts of advanced technology and that GAO, in a 2001 letter report and briefing on incremental funding of capital asset acquisitions, stated that it \"recognizes that some incremental funding for high technology acquisitions is justified because, while such projects are intended to result in a usable asset, they are closer in nature to research and development activities.\"\nIn addition, it could be argued that use of incremental funding would be advantageous in DOD budgeting because, as mentioned earlier, it reduces the amount of unobligated balances associated with DOD procurement programs. Finally, it could be argued that use of incremental funding can be advantageous in DOD budgeting because it implicitly recognizes potential limits on DOD's ability to accurately predict the total procurement costs of items, such as ships, that take several years to build.", "Funding approaches like incremental funding and advance appropriations can permit the military services to start construction on a greater number of weapons in the near term than would be possible under full funding. This could make incremental funding and advance appropriations attractive in the near term to service officials, industry officials, and their supporters, particularly given the decreased rates of weapon procurement that began in the early 1990s and are currently programmed by DOD to continue for several more years. The full costs of weapons started under these approaches, however, would eventually have to be paid in later years (along with the costs of weapons procured in those later years).\nAs reflected in some of the excerpts presented in Appendix B , incremental funding traditionally has been viewed as creating a potential for increasing weapon procurement costs due to uneconomic start-up and stop costs that can occur when budget reductions or other unexpected developments cause one or more of the planned increments to be reduced or deferred. A related argument is that if firms are uncertain about approval of future funding increments for a particular weapon, they may be less inclined to invest in new and more efficient production technologies for that weapon, effectively increasing its cost.\nIt could also be argued, however, that incremental funding or advance appropriations can help reduce weapon procurement costs in at least two specific cases. The first concerns a very expensive item, such as a large ship, that is usually procured once every few years. The examples usually cited are aircraft carriers and amphibious assault ships. If the Navy is not permitted to have a one-year \"spike\" in the SCN account in the year that it procures such a ship, then fully funding the ship within the SCN account could require other planned ship-procurement efforts to be delayed to the following year. Such a delay, it can be argued, could disrupt the production lines for those other ships, which could increase their procurement prices due to the resulting shut-down and start-up costs.\nThe second concerns a very specific (and perhaps rare) scenario under which a weapon that is beyond its initial \"ramp-up\" period of procurement (i.e., a program that is ready from a technical and managerial standpoint to execute higher rates of procurement) is, due to near-term budget constraints, planned for procurement at a very uneconomic rate in the near term, but at a more-than-economic-rate a few years later. Under such a specific scenario, use of incremental funding or advance appropriations could permit the service to shift the start of production of some of the units planned for later years into the near term, improving production economies of scale in the near term while preserving adequate production economies of scale in later years. If the near-term gains in economies of scale are greater than the downstream losses in economies of scale, the result could be a reduced combined procurement cost for all of the weapons in question.\nTwo factors bear upon the current debate over whether to procure DOD weapons using non-conforming funding approaches: The first is the relatively low rates at which many DOD weapon and equipment programs are currently planned for procurement. The second is the interest that some Members of Congress have in modernizing DOD's weapons and equipment more quickly than now planned and in maintaining the financial health of U.S. defense firms, particularly those that have experienced several years of reduced production rates. One potentially important question is whether the military services or defense firms are taking advantage of these two factors to induce Congress to adopt non-conforming funding approaches that could permit increased weapon-procurement rates in the near term, but also, by reducing adherence to the full funding policy, permanently weaken Congress's ability to conduct oversight of DOD programs.\nMilitary and defense-industry officials likely would not admit openly to pursuing such a strategy. Indeed, they might not even be aware that proposals for non-conforming funding approaches could pose such a trade-off for Congress. Nevertheless, addressing such proposals may involve balancing a need to meet DOD procurement goals within available funding against the goal of preserving Congress's control over DOD spending and its ability to conduct oversight of DOD programs.", "", "", "The House Armed Services Committee, in its report ( H.Rept. 110-146 of May 11, 2007) on the FY2008 defense authorization bill ( H.R. 1585 ), approved the Navy's FY2008 request for the second of two increments of procurement funding for the amphibious assault ship LHA-6, the second of two increments of procurement funding for the first two DDG-1000 destroyers, and the first of two increments of procurement funding for the aircraft carrier CVN-78.", "The Senate Armed Services Committee, in its report ( S.Rept. 110-77 of June 5, 2007) on the FY2008 defense authorization bill ( S. 1547 ), approved the Navy's FY2008 request for the second of two increments of procurement funding for the amphibious assault ship LHA-6, the second of two increments of procurement funding for the first two DDG-1000 destroyers, and (with a recommended $20-million reduction) the first of two increments of procurement funding for the aircraft carrier CVN-78. With regard to Space-Based Infrared Satellite System (SBIRS) High satellites, the committees report states:\nThe budget request included $587.0 million in Research, Development, Test, and Evaluation, Air Force (RDTEAF), PE 64441F, for Space-Based Infrared Satellite System (SBIRS) High. The committee recommends an increase of $100.0 million to address nonrecurring and other obsolescence issues to support SBIRS High GEO satellites three and four. As a result of the time elapsed between the acquisition of the SBIRS High GEO satellites one and two and the planned acquisition of satellites three and four, some significant redesign work is necessary. This gap has served to highlight an issue in the allocation between research and development funding for constellations with a small number of satellites. While the committee does not support incremental funding of satellite programs, production or acquisition gaps in these small constellations, in certain limited circumstances may dictate treatment of these later satellites as research and development satellites. This problem is limited to constellations of no more than four satellites and occurs when substantial nonrecurring costs are incurred.\nThe committee directs the Secretary of Defense to submit a report no later than August 1, 2007 outlining the budgetary and programmatic implications of utilizing Research and Development funds for small constellations of satellites in limited circumstances, including when such a funding approach might be appropriate. The committee also directs the Secretary to address in the report alternative approaches and options to fund satellite development and testing, including the establishment of a single Air Force budget line for space research, development, and testing. (Page 230)\nAppendix A. Prior-Year Legislative Activity\nFY2007\nFY2007 Defense Authorization Act ( H.R. 5122 / P.L. 109-364 )\nHouse\nIn its report ( H.Rept. 109-452 of May 5, 2006) on H.R. 5122 , the House Armed Services Committee recommended approval of the Administration's proposed use of split funding FY2007 and FY2008 for procuring the amphibious assault ship LHA-6, but did not recommend approval of the Administration's proposal to use split funding in FY2007 and FY2008 for procuring the two lead DDG-1000 destroyers. The committee for FY2007 instead recommended full funding for one DDG-1000, and design funding for a second. The committee also did not recommend approval of the Administration's request to use incremental funding for procuring F-22 aircraft.\nRegarding shipbuilding programs, the committee's report also states:\nThe budget request recommends incremental funding for 3 of the 7 ships in the request, including for the first time construction of a surface combatant, the next-generation destroyer DD(X). Furthermore, during the consideration of the National Defense Authorization Act for Fiscal Year 2006 ( P.L. 109-163 ), the Navy sought and was granted the authority to use incremental funding for the next aircraft carrier [CVN-78], which will be recorded as procured in 2008.\nThe committee remains concerned that the use of incremental funding is not a solution to the Navy's problem in funding shipbuilding. While incremental funding can allow the Navy to smooth out the dramatic spikes in shipbuilding funding required as a result of aircraft carrier construction every four or five years, it does not fundamentally increase the number of ships that a given amount of money will purchase. During the committee's hearings on shipbuilding, all witnesses emphasized the importance of program and funding stability as the top priority for reducing the cost of shipbuilding and sustaining the shipbuilding industrial base. The committee notes that Congress adopted the full funding policy in the 1950s in part because of a concern that incremental funding was detrimental to funding stability. Future congresses may find themselves unwilling, or unable, to fund completion of ships begun in prior years and only partially funded. The committee remains convinced that the full funding policy is the correct policy for funding shipbuilding.\nThe committee understands that the Department of Defense this year considered submission of a legislative proposal that would permanently authorize the use of \"split funding\" for aircraft carriers and large deck amphibious ships, and the Navy's fiscal year 2007 shipbuilding plan already assumes such authority for the second LHA class amphibious assault ship. The committee has approved the use of split funding for certain ships in certain cases. However, the committee does not believe that a blanket policy supporting incremental funding for any class of ship is appropriate, and has not included such a provision in the bill. (Pages 68-69)\nRegarding the F-22 program, the committee's report states:\nThe committee notes that the Fiscal Year 2007 budget request included $2 billion for the Department of the Air Force's F-22 aircraft program. However, despite the Fiscal Year 2006 projection for procurement of 29 F-22's in Fiscal Year 2007, the funds requested for Fiscal Year 2007 were for subassemblies and not aircraft. Rather than authorize incremental funding for major aircraft programs, which Congress has not done in decades, the committee recommends an additional $1.4 billion for the full funding for procurement of 20 F-22 aircraft. (Page 14)\nThe report also states:\nThe budget request contained $1.5 billion for the F-22 aircraft procurement program, but included insufficient funds to procure 20 F-22 aircraft in fiscal year 2007....\nThe budget request included an F-22 multiyear acquisition strategy to procure 3 lots, numbered as lots 7 through 9, each consisting of 20 aircraft, between fiscal years 2008 and 2010. As part of this strategy, the budget request included a plan to incrementally fund each of these three lots over a three year period through budgeting for advance procurement two years prior to full funding, subassembly activities to be budgeted one year prior to full funding, and final assembly to be budgeted in the third year. The committee understands that the Department of Defense's F-22 multiyear acquisition strategy is inconsistent with the full-funding policy which would allow for advance procurement of long-lead items to protect a delivery schedule, and require a budget for procurement of complete and useable end items in a fiscal year.\nThe committee considers the F-22 incremental funding acquisition strategy to be wholly unacceptable. The committee believes that the full-funding policy should apply to the F-22 aircraft procurement program, and any other Department of Defense aircraft procurement program contemplated in the foreseeable future. The committee further believes that incremental funding of aircraft procurement programs presents an unacceptable budgeting risk that, due to unforeseen circumstances, future funding increments may not be authorized and appropriated to provide the required funding increments which would result in partially completed end items that are of no military value to the Department of Defense or to warfighting commands.\nTherefore, the committee recommends $2.9 billion to fully fund and procure 20 F-22 aircraft in fiscal year 2007, an increase of $1.4 billion. The committee very strongly urges the Department of Defense and the Department of the Air Force to restructure its future F-22 procurement budget plans to comply with the full-funding policy. (Page 105)\nThe report also commented on the use of incremental funding for military construction programs, which are not procurement programs, but rather programs for building military bases and facilities. Military construction programs are funded through a military construction appropriations bill that is separate from the DOD appropriation bill, and consequently are not subject to the full funding policy that covers items funded through the procurement title of the DOD appropriation bill. Military construction programs have made regular use of incremental funding. With regard to military construction programs, the report states:\nThe committee is troubled by the January 10, 2006, guidance from the Office of Management and Budget to cease use of incremental funding of military construction projects except for the purposes of base realignment and closure activities and projects that have \"major national security impacts.\"\nDue to the implementation of this guidance during the fiscal year 2007 budget process, Department of Defense components were forced to cut a number of important projects from the fiscal year 2007 program. As a result, several construction projects that are critical to military readiness, important to the effective conduct of military operations, or necessary to enhance quality of life have been indefinitely deferred. In at least one such case, incremental execution would likely be the more efficient means of funding and constructing the project.\nThe committee notes that the Department has a record of effective management while utilizing incremental funding for military construction projects. As such, the committee recommends \"re-incrementing\" two projects contained in the budget request, including recapitalization of hangar 5 at Naval Air Station Whidbey Island, Washington. While this would result in a funding reduction in fiscal year 2007 of $31,153,000, the committee recommends full authorization for the project of $57,653,000 and expects the Secretary of the Navy to execute the project under proven incremental funding practices. (Page 431)\nThe report similarly states:\nAs noted [earlier in the report], the committee is troubled by the January 10, 2006, guidance from the Office of Management and Budget to cease use of incremental funding of military construction projects except for the purposes of base realignment and closure activities and projects that have \"major national security impacts.\"\nIn light of the Department of Defense's proven record of effective management while utilizing incremental funding for military construction projects, the committee recommends \"re-incrementing\" the project to replace a clinic at MacDill Air Force Base, Florida. While this results in a funding reduction in fiscal year 2007 of $41,400,000, the committee recommends full authorization for the project of $92,000,000 and expects the Secretary of Defense to execute the project under proven incremental funding practices. (Page 434)\nSenate\nSection 121 of the Senate version of the FY2007 defense authorization bill ( S. 2766 would authorize the use of four-year incremental funding for procuring CVN-78 and future aircraft carriers, rather than split funding (i.e., 2-year incremental funding) as proposed by the Navy. Under 4-year incremental funding, the main portion of the procurement cost of CVN-78, for example, would be divided into four increments that would be provided in FY2008, the ship's year of procurement, and the three following years.\nSection 121 would also authorize the Navy to contract in FY2007 for the procurement long-lead items for CVN-79 and CVN-80, aircraft carriers that the Navy plans to procure in FY2012 and FY2016, respectively. This authority resembles an economic order quantity (EOQ) arrangement, except that EOQs normally take place within the context of a multiyear procurement (MYP). These ships have not been approved for MYP, and under past practice would not qualify for it under the requirements set forth in the law governing MYP arrangements. MYP arrangements are permitted to cover items to be procured over a period of up to five years, while the authority granted under Section 121 would cover three ships that the Navy wants to procure over a period of nine years (FY2008-FY2016).\nSection 146 of the bill would prohibit the use of incremental funding for procuring F-22 aircraft. (The section would also prohibit the Air Force from entering into a multiyear procurement (MYP) contract for the program in FY2007.)\nIn its report ( S.Rept. 109-254 of May 9, 2006) on S. 2766 , the Senate Armed Services Committee recommended approval of the Administration's proposed use of split funding FY2007 and FY2008 for procuring LHA-6 and the two lead DDG-1000s.\nWith regard to Section 121 on aircraft carriers, the report states:\nThe committee recommends a provision that would authorize the Secretary of the Navy to incrementally fund procurement of CVN-21 class aircraft carriers over four year periods, commencing with CVN-78 procurement in fiscal year 2008. The budget request included $739.1 million in Shipbuilding and Conversion, Navy (SCN) for CVN-78 advance procurement and $45.1 million in SCN for CVN-79 advance procurement. The provision would also authorize advance procurement for CVN-80, commencing in fiscal year 2007.\nIn reviewing the budget request for fiscal year 2006, the committee received testimony from the Navy and industry that the low rate of shipbuilding was driving higher costs, which in turn further reduced shipbuilding rates, creating a downward spiral. The committee believes that stable ship requirements, increased funding in the shipbuilding budget, and increased flexibility for funding large capital ships are critical elements of any strategy to reverse this trend.\nThe Secretary of the Navy's fiscal year 2007 report to Congress on the long-range plan for the construction of naval vessels identifies a requirement to procure the CVN-21 class aircraft carriers at 4-year intervals, commencing in fiscal year 2008. The Navy originally planned to procure the first CVN-21 class aircraft carrier, CVN-78, in fiscal year 2006. Since then, the Navy has delayed procurement to 2008, which has delayed fielding this vital capability, while significantly increasing the aircraft carrier's procurement cost. The committee believes that procuring and delivering the CVN-21 class aircraft carriers over 4-year periods in accordance with the Navy's long-range plan is vital to the National Defense Strategy, and is vital to the affordability of these capital ships.\nElsewhere in this report, the committee has expressed concern with cost growth on the CVN-77 program, and has urged the Navy and the shipbuilder to identify opportunities to improve affordability of future aircraft carriers. Procurement delays, excess inflation, and material escalation have been reported as significant contributors to CVN-77 cost growth. The shipbuilder has proposed to achieve significant CVN-21 class program savings through a stable procurement plan, and through procurement of economic order quantity material for CVN-79 and CVN-80 in conjunction with CVN-78 procurement.\nIn view of the potential for significant program savings, the committee recommends an increase of $50.0 million in SCN for CVN-21 class advance procurement, and directs the Secretary of the Navy to review economic order quantity and long lead time material procurement for the CVN-21 class. The Secretary is to submit a report to the congressional defense committees with the fiscal year 2008 budget request, outlining the advance procurement requirements to potentially optimize economic order quantity savings and escalation avoidance (to include offsetting factors) for the first three vessels of the CVN-21 class. Of the amount authorized to be appropriated for advance procurement for CVN-79 and CVN-80, none of the funds are available for obligation prior to 30 days following receipt of the Secretary's report. (Page 67)\nWith regard to Section 146's prohibition of incremental funding for the F-22 program, the report states:\nThe committee recommends a provision that would prohibit the Secretary of the Air Force from using incremental funding for the procurement of F-22A aircraft. In the past, the Congress has approved of incremental funding of certain space programs and a select number of shipbuilding programs. Notwithstanding assertions to the contrary, authorizing incremental funding for the F-22A would set a precedent for funding aircraft. The committee sees no justification for setting such a precedent in the case of the F-22A, where the Department of Defense has proposed incremental funding merely as a way of alleviating cash flow pressures on the overall Department. (Page 94)\nThe report similarly states:\nThe budget request included $1,981.3 million in Aircraft Procurement, Air Force (APAF) as part of an incremental funding strategy that would lead to a production profile of 20 aircraft per year for a three-year multiyear procurement of 60 aircraft, beginning in fiscal year 2008. No complete F-22A aircraft were to be procured in fiscal year 2007....\nThe committee does not agree with the Department of Defense acquisition strategy to incrementally fund the F-22A. The committee sees no justification for setting a precedent for funding aircraft, as in the case of the F-22A, where the Department of Defense has proposed incremental funding merely as a way of alleviating cash flow pressures on the overall Department. (Pages 96-97)\nConference Report\nSection 121 of the conference report on H.R. 5122 ( H.Rept. 109-702 of September 29, 2006) authorizes four-year incremental funding for the CVN-21 class aircraft carriers CVN-78, CVN-79, and CVN-80. Section 124 authorizes the procurement of the first two DDG-1000 destroyers in FY2007 using split funding in FY2007 and FY2008, as requested by the Navy. The section states in part:\n(c) SENSE OF CONGRESS ON FUNDING FOR FOLLOW-ON SHIPS.—It is the sense of Congress that there is sufficient benefit to authorizing the one-time exception provided in this section to the full funding policy in order to support the competitive procurement of the follow-on ships of the DDG-1000 Next-Generation Destroyer program. However, it is the expectation of Congress that the Secretary of the Navy will structure the DDG-1000 program so that each ship, after the first two ships, is procured using the method of full funding in a single year.\nSection 134 prohibits the use of incremental funding for the procurement of F-22A fighter aircraft.\nWith regard to funding of military construction projects, the conference report states:\nThe conferees note that, in a memo dated January 10, 2006, the Associate Director of National Security Programs in the Office of Management and Budget (OMB) provided guidance to the Under Secretary of Defense (Comptroller) and Chief Financial Officer about requests for incremental funding of military construction projects. OMB has stated the intent to limit incremental funding of military construction projects to an exceptional practice, as intended by OMB Circular A—11. This guidance represents a change in policy for the budgeting of certain military construction projects.\nThe conferees acknowledge that requesting full funding to ensure a military construction project results in a complete and useable facility, or useable improvement to an existing facility, should be the preferred practice consistent with law and current policy to ensure an accurate accounting of all obligations incurred by the Federal Government. The conferees also acknowledge that, for certain military construction projects estimated to exceed $50.0 million and where the construction period is planned to exceed 2 years, Congress has supported the use of incremental funding to address the fact that not all military construction funds appropriated by Congress for a project will be expended in the first year. In these cases, the Department of Defense has had the option of requesting only those appropriated amounts expected to be expended in the budget year, and notifying potential contractors that the project's completion is subject to subsequent appropriations. This option then allows the Department to address additional military requirements in the military construction budget request; and accelerating the completion of critical projects for military readiness, operations, and service members' quality of life. Because of the efficiencies gained by this method, the conferees' agreement includes the use of incremental funding not proposed in the budget request for certain military construction projects.\nThe conferees also note that the Department has requested incremental funding for single military construction projects that will construct multiple complete and useable facilities. The conferees are concerned that this practice will encourage the bundling of facility requirements into very large contracts, thereby curtailing contractor competition. Therefore, the conferees encourage the Department to avoid the use of incremental funding requests for projects with multiple complete and useable facilities, except in cases where operational requirements dictate a compelling need for facilities. (Pages 929-930)\nFY2007 Defense Appropriations Act ( H.R. 5631 / P.L. 109-289 )\nHouse\nSection 8008 of H.R. 5631 as reported in the House states in part\nThat none of the funds provided in this Act may be used for a multiyear contract executed after the date of the enactment of this Act unless in the case of any such contract—\n(1) the Secretary of Defense has submitted to Congress a budget request for full funding of units to be procured through the contract and, in the case of a contract for procurement of aircraft, that includes, for any aircraft unit to be procured through the contract for which procurement funds are requested in that budget request for production beyond advance procurement activities in the fiscal year covered by the budget, full funding of procurement of such unit in that fiscal year....\nIn its report ( H.Rept. 109-504 of June 16, 2006) on H.R. 5631 , the House Appropriations Committee recommended approval of the Administration's proposed use of split funding FY2007 and FY2008 for procuring the amphibious assault ship LHA-6, but did not recommend approval of the Administration's proposal to use split funding in FY2007 and FY2008 for procuring the two lead DDG-1000 destroyers. The committee for FY2007 instead recommended full funding for one DDG-1000. The committee also did not recommend approval of the Administration's request to use incremental funding for procuring F-22 aircraft. The committee's report states:\nFor fiscal year 2007, the Committee faces several challenges in recommending appropriations for the Department of Defense and the intelligence community. First, the President's budget proposes an unorthodox approach to funding two major procurement programs, the F-22 fighter of the Air Force and the DD(X) destroyer of the Navy. In both cases, the budget request includes incremental or partial funding, for these two programs. In the case of the F-22, incremental funding is requested in the middle of the production run.\nThe use of incremental funding mortgages the future of the procurement budget of the Defense Department in a manner that is not acceptable to the Committee. In addition, the precedent of incremental funding for these programs could be applied to a variety of other procurements, leading to a loss of budget transparency and reducing the ability to perform oversight. Therefore, the recommendations in this bill include full funding for one DD(X) destroyer and the F-22 fighter program.\nFunding of $2,568,111,000 is recommended to complete full funding of one DD(X) vessel. This is the same level as the funding request for this item, but under the President's budget these funds would have been allocated on an incremental basis against two ships. In the case of the F-22, the Committee has added $1,400,000,000 to fully procure 20 additional aircraft. In combination with the section 302(b) allocation for the Subcommittee on Defense, which is $4,000,000,000 below the President's request, this has necessitated difficult tradeoffs within the budget for the Department of Defense generally and the Air Force specifically. However, providing full funding for these programs this year avoids more difficult choices in the years ahead. (Page 4)\nRegarding the DD(X), the report states:\nThe Committee recommends $2,568,111,000 for the procurement of 1 DD(X) destroyer. The budget requested $2,568,111,000 to incrementally fund 2 ships, with the balance of funding to be provided in fiscal year 2008. The Committee cannot support such a far-reaching policy change which has implications beyond the Navy's shipbuilding program. Further, the Navy's proposal requires special legislative authority to be executed, and this authority is not included in the House-passed National Defense Authorization Act, 2007 ( H.R. 5122 ). (Page 139)\nRegarding the F-22, the report states:\nThe budget request proposes to incrementally fund the F-22 fighter procurement program. This proposal is contrary to the full funding requirement the Congress has required for aircraft procurement programs. The Department of Defense presented the Committee with essentially two options—agree to incremental funding, or find $1,400,000,000 in savings from other programs to fully fund F-22 procurement. The Committee has chosen the latter option and recommends an additional $1,400,000,000 for the procurement of 20 F-22 aircraft in fiscal year 2007. In making these changes and providing the additional funds, the Committee is reiterating the long standing requirement for full funding of major weapon system procurements. (Page 163)\nSenate\nIn its report ( S.Rept. 109-292 of July 25, 2006) on H.R. 5631 , the Senate Appropriations committee recommends rejecting the Air Force's request to incrementally fund the next lot of F-22 fighter aircraft, and approving the Navy's request to incrementally fund the first two DDG-1000 destroyers. Regarding the F-22 program, the report states:\nThe fiscal year 2007 budget requests $1,981,302,000 to begin incrementally funding the next lot of F-22A aircraft. The Committee finds no compelling reason to ignore the full funding policy and incrementally fund this program. Therefore, $1,400,000,000 was added to the budget estimate to fully fund the proposed multiyear procurement of aircraft consistent with the guidance in S. 2766 , the National Defense Authorization Act for Fiscal Year 2007. (Page 135)\nRegarding the DDG-1000 program, the report states:\nConsistent with the Senate-passed authorization bill and the Navy's current acquisition strategy, the Committee recommendation supports the budget request of $2,568,111,000 for [incremental funding of the] dual lead ships. The Committee reminds the Navy that this is a unique acquisition strategy and should not be used as a precedent for incrementally funding any future DDG-1000 or any other shipbuilding program. (Page 115)\nIn addition, regarding the Navy's Littoral Combat Ship (LCS), program, the report states:\nWith the fiscal year 2007 budget submission of $520,670,000 for the fifth and sixth LCS flight 0 ships, the Navy revealed the LCS unit cost estimate used as a basis for last year's appropriation was exclusive of contract change orders, planning and engineering services, program management support and other costs not included in the ship construction contract ... As a result, the Navy is unable to procure both the third and fourth LCS flight 0 ships without the availability of additional funding. The Committee is troubled by this revelation and recommends rescinding [in Section 8043] the insufficient fiscal year 2006 funds currently allocated to the fourth LCS flight 0 vessel.\nThe Committee is further troubled by reports that the first two LCS flight 0 ships under construction are exceeding their cost as previously budgeted.... As a result, the Committee believes the fiscal year 2007 budget request is insufficient to procure two ships and recommends $300,670,000 to fully fund procurement of one LCS seaframe, which is a reduction of $220,000,000 and one seaframe from the request. The Committee notes that this recommendation puts the Navy on its previously established path of procuring four LCS flight 0 ships by the end of fiscal year 2007. (Pages 115-116)\nConference Report\nSection 8008 of the conference report on H.R. 5631 ( H.Rept. 109-676 of September 25, 2006) states in part that\nThat none of the funds provided in this Act may be used for a multiyear contract executed after the date of the enactment of this Act unless in the case of any such contract—\n(1) the Secretary of Defense has submitted to Congress a budget request for full funding of units to be procured through the contract and, in the case of a contract for procurement of aircraft, that includes, for any aircraft unit to be procured through the contract for which procurement funds are requested in that budget request for production beyond advance procurement activities in the fiscal year covered by the budget, full funding of procurement of such unit in that fiscal year;...\nThe conference report approves the Navy's request for the initial (FY2007) increment of procurement funding for the LHA(R) amphibious assault ship, which the Navy wants to procure in FY2007 using split funding in FY2007 and FY2008. The conference report approves the Navy's request for the initial (FY2007) increment of procurement funding for the first two DDG-1000 destroyers, which the Navy wants to procure in FY2007 using split funding in FY2007 and FY2008. The report states:\nThe conferees agree to provide $2,568,111,000 for the DDG-1000 (formerly DDX) Destroyer Program, and agree to delete language proposed by the House requiring full funding of a single lead ship. The effect of the conference agreement would allow the Navy to split fund twin lead ships of the DDG-1000 class, if authorized in separate legislation by the Congress. This action is being taken based upon the expectation that the total cost of these two ships is well understood and low risk. The conferees are willing to make this one-time exception to the full funding principle because of the unique situation with the shipbuilding industrial base and with the DDG—1000 program. The conferees will not entertain future requests to fund ships other than under the full funding principle, except for those historically funded in this manner (aircraft carriers and some large deck amphibious ships).\nThe unusual procurement of twin lead ships raises the risk that future design changes or production problems will impact two ships under construction simultaneously. This could raise costs significantly compared to other lead ship programs. However, the Navy believes the cost and schedule risk in the DDG-1000 program is low enough to permit the twin lead ship acquisition strategy. The Navy has identified the total cost to procure the twin lead ships of the DDG—1000 class as $6,582,200,000. The conferees insist that the Navy manage this program within that total cost, and will be unlikely to increase funding through a reprogramming or an additional budget request except in the case of emergency, natural disaster, or other impact arising from outside the Navy's shipbuilding program. (Page 180)\nFY2006\nFY2006 Defense Authorization Act ( H.R. 1815 / P.L. 109-163 )\nHouse\nIn its report ( H.Rept. 109-89 of May 20, 2005) on the FY2006 defense authorization bill ( H.R. 1815 ), the House Armed Services Committee states:\n[Chief of Naval Operations] Admiral [Vernon] Clark, in his posture statement before the House Committee on Appropriations, Subcommittee on Defense stated, \"We need to partner with Congress and industry to regain our buying power. Acquisition and budget reforms, such as multi-year procurement, economic order quantity, and other approaches help to stabilize the production path, and in our view, reduce the per unit cost of ships and increase our shipbuilding rate.\" The committee does not agree that creative financing methodologies that delay recognizing the true cost of shipbuilding or that provide ever-increasing amounts of funding to cover the explosion in ship costs are responsible actions. Incremental funding, advanced procurement, multiyear procurement, and various creative shipyard work allocation arrangements have failed to control the cost growth of vessel classes such as the Virginia class submarine, the replacement amphibious assault ship (LHA(R)), the future major surface combatant ship (DD(X)), and the future aircraft carrier CVN-21. (Page 63)\nSection 1004 of the bill as reported by the committee states:\nSEC. 1004. REPORTS ON FEASIBILITY AND DESIRABILITY OF CAPITAL BUDGETING FOR MAJOR DEFENSE ACQUISITION PROGRAMS.\n(a) Capital Budgeting Defined- For the purposes of this section, the term 'capital budgeting' means a budget process that—\n(1) identifies large capital outlays that are expected to be made in future years, together with identification of the proposed means to finance those outlays and the expected benefits of those outlays;\n(2) separately identifies revenues and outlays for capital assets from revenues and outlays for an operating budget;\n(3) allows for the issue of long-term debt to finance capital investments; and\n(4) provides the budget authority for acquiring a capital asset over several fiscal years (rather than in a single fiscal year at the beginning of such acquisition).\n(b) Reports Required- Not later than July 1, 2006, the Secretary of Defense and the Secretary of each military department shall each submit to Congress a report analyzing the feasibility and desirability of using a capital budgeting system for the financing of major defense acquisition programs. Each such report shall address the following matters:\n(1) The potential long-term effect on the defense industrial base of the United States of continuing with the current full up-front funding system for major defense acquisition programs.\n(2) Whether use of a capital budgeting system could create a more effective decisionmaking process for long-term investments in major defense acquisition programs.\n(3) The manner in which a capital budgeting system for major defense acquisition programs would affect the budget planning and formulation process of the military departments.\n(4) The types of financial mechanisms that would be needed to provide funds for such a capital budgeting system.\nSenate\nSection 122 of the Senate version of the FY2006 defense authorization bill ( S. 1042 ) as reported by the Senate Armed Services Committee ( S.Rept. 109-69 of May 17, 2005) would permit the aircraft carrier CVN-78 to be procured with split funding (i.e., incremental funding) during the period FY2007-FY2010. The section states:\nSEC. 122. SPLIT FUNDING AUTHORIZATION FOR CVN-78 AIRCRAFT CARRIER.\n(a) AUTHORITY TO USE SPLIT FUNDING- The Secretary of the Navy is authorized to fund the detail design and construction of the aircraft carrier designated CVN-78 using split funding in the Shipbuilding and Conversion, Navy account in fiscal years 2007, 2008, 2009, and 2010.\n(b) CONDITION FOR OUT-YEAR CONTRACT PAYMENTS- A contract entered into for the detail design and construction of the aircraft carrier designated CVN-78 shall provide that any obligation of the United States to make a payment under the contract for a fiscal year after fiscal year 2006 is subject to the availability of appropriations for such fiscal year.\nSection 123 of the bill would permit an amphibious assault ship LHA(R) to be procured with split funding (i.e., incremental funding) in FY2007 and FY2008. The section would also permit FY2006 funding to be used for advance construction of the ship. The section states:\nSEC. 123. LHA REPLACEMENT (LHA(R)) SHIP.\n(a) AMOUNT AUTHORIZED FROM SCN ACCOUNT FOR FISCAL YEAR 2006- Of the amount authorized to be appropriated by section 102(a)(3) for fiscal year 2006 for shipbuilding and conversion, Navy, $325,447,000 shall be available for design, advance procurement, and advance construction with respect to the LHA Replacement (LHA(R)) ship.\n(b) AMOUNTS AUTHORIZED FROM SCN ACCOUNT FOR FISCAL YEARS 2007 AND 2008- Amounts authorized to be appropriated for fiscal years 2007 and 2008 for shipbuilding and conversion, Navy, shall be available for construction with respect to the LHA Replacement ship.\n(c) CONTRACT AUTHORITY-\n(1) DESIGN, ADVANCE PROCUREMENT, AND ADVANCE CONSTRUCTION- The Secretary of the Navy may enter into a contract during fiscal year 2006 for design, advance procurement, and advance construction with respect to the LHA Replacement ship.\n(2) DETAIL DESIGN AND CONSTRUCTION- The Secretary may enter into a contract during fiscal year 2007 for the detail design and construction of the LHA Replacement ship.\n(d) CONDITION FOR OUT-YEAR CONTRACT PAYMENTS- A contract entered into under subsection (c) shall provide that any obligation of the United States to make a payment under the contract for a fiscal year after fiscal year 2006 is subject to the availability of appropriations for that purpose for such fiscal year.\nS.Rept. 109-69 states:\nThe CVN-78 will be a new class of aircraft carrier, incorporating numerous new technologies. This budget request reflects the second one-year slip in the program in recent years. This slip would cause a delay in the delivery of the CVN-78 until fiscal year 2015, with the ship it is scheduled to replace, the USS Enterprise (CVN-65), scheduled to be decommissioned in fiscal year 2013. Additionally, this slip translates into a cost growth for CVN-78 of approximately $400.0 million, according to the Navy.\nThe committee is concerned about this delay. The committee has been told there is no technical reason for the delay, but that the delay was driven by budget considerations. Both the Secretary of the Navy and the Chief of Naval operations testified that large capital assets such as aircraft carriers are difficult to fund under the traditional full-funding policy, and that more flexible methods of funding must be found and used. The program of record for CVN-78 has the detail design and construction funding split between two years. This provision would authorize that same funding to be split over four years, thereby allowing needed funding flexibility. The committee directs the Navy to provide an updated funding profile, fully funding the remaining costs of the ship from fiscal years 2007 through 2010, with delivery of the fiscal year 2007 budget request.\nFY2006 Defense Appropriations Act ( H.R. 2863 / P.L. 109-148 )\nHouse\nIn its report ( H.Rept. 109-119 of June 10, 2005) on H.R. 2863 , the House Appropriations Committee stated, in the section on Navy shipbuilding, that it \"supports the LHA(R) [amphibious assault ship] program, and it directs the Navy to reconsider its proposal to request split funding for LHA(R) over the FY2007-08 timeframe, and instead follow the full funding principle for this ship class, to ensure an adequate budget is in hand before contract award.\" (Page 146)\nIn the section on Air Force aircraft procurement, the report stated:\nThe budget request includes $152,400,000 for procurement of long lead items to support the low rate initial production of five conventional take-off and landing variants of the Joint Strike Fighter. The Committee notes that under the revised aircraft build sequence all of these aircraft do not require full funding prior to the beginning of fiscal year 2008. Accordingly, a request to begin advance procurement of long lead items two years prior, in fiscal year 2006, is funding early to need and contrary to a conventional aircraft procurement strategy. Advance procurement funds should be requested in the Air Force's fiscal year 2007 budget submission. Full funding for these five aircraft should be requested in the fiscal year 2008 budget. (Page 172)\nSenate\nIn its report ( S.Rept. 109-141 of September 29, 2005), the Senate Appropriations Committee stated, in a section relating to Navy shipbuilding:\nFor fiscal year 2006, the Committee recommends providing the Navy additional reprogramming authority. This authority allows the Navy, through above threshold reprogramming procedures, to increase funding for programs experiencing unforeseen shortfalls. The Committee understands that in fiscal year 2005 after exhausting the $100,000,000 of the transfer authority the Congress provided, the Navy sought to use dollars specifically appropriated for outfitting and post delivery [of completed ships] to address [ship-construction] funding shortfalls. The Committee is concerned about this change in Navy policy as it will only further obscure actual program costs. The new reprogramming authority is provided only with the understanding that this change will not be implemented in the future.\nThe additional reprogramming authority essentially provides the Navy a reactive mechanism or approach to cost management. The Committee believes the situation requires more proactive program, budgetary and contract management and encourages the Department of Defense to consider whether using advance appropriations in future budgets will improve the shipbuilding program. (page 126)\nThe committee also stated:\nThe fiscal year 2006 President's budget requests $225,427,000 for [the]DDG-51 [destroyer program] for what the Navy describes as \"program completion requirements and shutdown costs.\" These funds are requested for a mix of Class and ship specific plan, basic construction, ordnance, certification, and inspection costs. Such costs are traditionally included in the budget request for each ship. However, when signing the multiyear contract for the construction of the final DDGs of the Class, the Department decided to change its policy and budget for these costs after the last ship was appropriated. The Committee finds this decision troubling. First, budgeting for such costs after procurement of the last vessel obscures the actual cost to procure each ship and overstates savings attributable to the multiyear contract authority under which these ships were purchased. The Congress approved the Navy's request for multiyear procurement authority in fiscal year 2002 assuming a level of savings to the taxpayer that are now not being realized. Most disconcerting about this change in policy and resultant budget request is the Navy's assertion that if these costs are not funded, the Navy will not be able to meet its contractual obligations and the Chief of Naval Operations will not be able to accept delivery of these ships. The Committee is alarmed that the Navy would knowingly sign a multibillion dollar contract for ships that would be both non-operational and undeliverable unless additional dollars, outside the contract, were provided. The Committee directs the Secretary of the Navy to provide a detailed report of all the costs required to complete each of the remaining 11 ships and a rationale for such a contractual arrangement by December 1, 2005. Until sufficient explanation is provided, the Committee recommends only providing funds for plans and those costs directly attributable to ships scheduled to deliver in the near-term. As such the Committee recommends reducing the budget request by $195,654,000. (Page 127)\nConcurrent Resolution on FY2006 Budget ( H.Con.Res. 95 )\nConference Report\nThe conference report ( H.Rept. 109-62 of April 28, 2005) on H.Con.Res. 95 , the budget resolution for FY2006, states:\nThe conference conferees understand the Navy may review whether advance appropriations can improve its procurement of ships and provide savings as it designs its 2007 budget. In addition, the conferees intend to request the Government Accountability Office [GAO] to assess the implications of using advance appropriations to procure ships.\nThe report notes that\nSection 401 [of H.Con.Res. 95 ] reflects an overall limit on advance appropriations of $23.158 billion in fiscal year 2007, which is the same limit on advance appropriations as has been included in all previous limitations on advance appropriations in past budget resolutions.\nThe report includes the Shipbuilding and Conversion, Navy (SCN) appropriation account in the list of accounts identified for advance appropriations in the Senate.\nS.Amdt. 146 to S.Con.Res. 18\nS.Con.Res. 18 is the earlier Senate version of the budget resolution. Senate Amendment ( S.Amdt. 146 ) to S.Con.Res. 18 was sponsored by Senator Warner, co-sponsored by several other members, and submitted on March 15, 2005. It would amend Section 401 of S.Con.Res. 18 —the section that restricts use of advance appropriations—to increase the amount of advance appropriations in FY2007 and FY2008 by $14 billion, to $37.393 billion. The amendment would also insert a new provision (Section 409) that would include the Shipbuilding and Conversion, Navy (SCN) appropriation account on a list of accounts identified for advance appropriations in the joint explanatory statement of the managers to accompany S.Con.Res. 18 . The amendment was ordered to lie on the table. The Senate passed S.Con.Res. 18 on March 17, 2005.\nFY2005\nFY2005 Defense Authorization Act ( H.R. 4200 / P.L. 108-375 )\nHouse\nIn marking up H.R. 4200 , the House Armed Services Committee included a provision (Section 804) that, as stated in the committee's report on the bill ( H.Rept. 108-491 of May 14, 2004, page 346), \"would amend section 2306b(g) and section 2306c(d) of title 10, United States Code [provisions relating to DOD multiyear procurement contracts], to require the head of the agency concerned to provide written notification, to the congressional defense committees, in those instances when cancellation costs that are above $100 million are not fully funded. The written notification would include a financial risk assessment for not fully funding the cancellation ceiling.\" The section stated:\nSEC. 804. FUNDING FOR CONTRACT CEILINGS FOR CERTAIN MULTIYEAR PROCUREMENT CONTRACTS.\n(a) MULTIYEAR CONTRACTS RELATING TO PROPERTY- Section 2306b(g) of title 10, United States Code, is amended—\n(1) by inserting '(1)' before 'Before any';\n(2) by striking 'Committee' through 'House of Representatives' and inserting 'congressional defense committees'; and\n(3) by adding at the end the following new paragraph:\n'(2) In the case of a contract described in subsection (a) with a cancellation ceiling described in paragraph (1), if the budget for the contract does not include proposed funding for the costs of contract cancellation up to the cancellation ceiling established in the contract, the head of the agency concerned shall, as part of the certification required by subsection (i)(1)(A), give written notification to the congressional defense committees of—\n'(A) the cancellation ceiling amounts planned for each program year in the proposed multiyear procurement contract, together with the reasons for the amounts planned;\n'(B) the extent to which costs of contract cancellation are not included in the budget for the contract; and\n'(C) a financial risk assessment of not including budgeting for costs of contract cancellation, including proposed funding sources to meet such cancellation costs if the contract is canceled.'\n(b) MULTIYEAR CONTRACTS RELATING TO SERVICES- Section 2306c(d) of title 10, United States Code, is amended—\n(1) in paragraphs (1), (3), and (4), by striking 'committees of Congress named in paragraph (5)' and inserting 'congressional defense committees' each place it appears; and\n(2) by amending paragraph (5) to read as follows:\n'(5) In the case of a contract described in subsection (a) with a cancellation ceiling described in paragraph (4), if the budget for the contract does not include proposed funding for the costs of contract cancellation up to the cancellation ceiling established in the contract, the head of the agency concerned shall give written notification to the congressional defense committees of—\n'(A) the cancellation ceiling amounts planned for each program year in the proposed multiyear procurement contract, together with the reasons for the amounts planned;\n'(B) the extent to which costs of contract cancellation are not included in the budget for the contract; and\n'(C) a financial risk assessment of not including budgeting for costs of contract cancellation, including proposed funding sources to meet such cancellation costs if the contract is canceled.'\nSenate\nIn its report ( S.Rept. 108-260 of May 11, 2004) on the FY2005 defense authorization bill ( S. 2400 ), the Senate Armed Services Committee stated:\nThe Future Years Defense Program submitted with the budget request included full funding for the first LHA(R)-class amphibious assault ship in fiscal year 2008. The committee understands that acceleration of this ship, by providing the first increment of SCN funding in fiscal year 2005, would reduce the cost of this ship by $150.0 million. The Chief of Naval Operations and the Commandant of the Marine Corps have included this acceleration on their Unfunded Priority Lists. Therefore, the committee recommends an increase of $150.0 million for advance procurement and advance construction of components for the first amphibious assault ship of the LHA(R)-class. (page 74)\nThe report also stated:\nTo ease the [F-22 fighter] production backlog, while maintaining the production rate at that established for the fiscal year 2004 contract, the committee recommends a decrease in APAF of $280.2 million, for a total authorization of $3.4 billion for the procurement of at least 22 F/A-22 aircraft in fiscal year 2005. The committee is aware that the Department of Defense has approved the F/A-22 program as a \"buy to budget\" program. If the authorized level of funding is sufficient to procure more than 22 aircraft, the Air Force may do so after the Secretary of the Air Force provides a letter to the Committees on Armed Services of the Senate and the House of Representatives certifying that the contractor is delivering aircraft within the contractual delivery schedule, and that the program is fully funded to include initial spares, logistics, and training requirements. (page 106)\nFY2005 Defense Appropriations Act ( H.R. 4613 / P.L. 108-287 )\nHouse\nSection 8008 of H.R. 4613 as reported by the House Appropriations Committee granted permission for multiyear procurement programs, with the following provision, among others:\nProvided further , That none of the funds provided in this Act may be used for a multiyear contract executed after the date of the enactment of this Act unless in the case of any such contract—\n(1) the Secretary of Defense has submitted to Congress a budget request for full funding of units to be procured through the contract;\n(2) cancellation provisions in the contract do not include consideration of recurring manufacturing costs of the contractor associated with the production of unfunded units to be delivered under the contract;\n(3) the contract provides that payments to the contractor under the contract shall not be made in advance of incurred costs on funded units; and\n(4) the contract does not provide for a price adjustment based on a failure to award a follow-on contract.\nThe Aircraft Procurement, Air Force, paragraph of the bill made funds available for the procurement of Air Force aircraft and related purposes, with the following provisions:\nProvided , That amounts provided under this heading shall be used for the procurement of 15 C-17 aircraft: Provided further , That amounts provided under this heading shall be used for the advance procurement of not less than 15 C-17 aircraft: Provided further , That the Secretary of the Air Force shall fully fund the procurement of not less than 15 C-17 aircraft in fiscal year 2006.\nIn its report ( H.Rept. 108-553 of June 18, 2004) on H.R. 4613 , the House Appropriations Committee stated, at the beginning of its discussion of procurement programs:\nIn the Aircraft Procurement, Air Force section of this report the Committee discusses how the Air Force ignored the law and the express intent of Congress by using the current multiyear contract for the C-17 aircraft as a vehicle to support an incremental funding strategy. In so doing, it also has inappropriately committed the government to potential Anti-Deficiency Act violations and unfunded liability costs running in the hundreds of millions of dollars in the event a follow-on contract for this program is not entered into by a date certain, or if certain production levels are not agreed to.\nRegrettably, the Committee has learned the Air Force has also entered into a similar multiyear contract for the C-130J aircraft. The current production profile includes three aircraft whose manufacture has been approved in the absence of a fully funded appropriation for this purpose. In addition, in this contract the contractor has received a commitment on behalf of the government by the Air Force that the annual production rate will be sustained at 16 aircraft from 2007 through 2009, between Air Force, Navy, and Marine Corps purchases and potential foreign sales. Failure to achieve this rate will significantly increase the cost per plane to the Air Force, representing a contingent liability the government is obliged to pay. At present, current projections suggest this rate will not be met, with shortfalls of 4 aircraft each in 2007 and 2008 and 6 aircraft in 2009. If these projections hold, the Air Force and the taxpayer will foot the bill. In effect, the Air Force has permitted itself to become a de facto sales agent for this program, putting it in a position to insist that other elements of the Department of Defense and the Congress help it find a way to fund this production profile or pay significant penalties.\nThe Committee realizes that properly administered multiyear procurements can result in significant savings. However, the multiple abuses of sound contracting principles and fiscal responsibility by the Air Force in these instances cannot and will not become a model for future multiyear acquisitions. Accordingly, the Committee has recommended several modifications to section 8008 of this bill, and the Committee directs these requirements be met before future multiyear production contracts can be entered into:\n(1) Multiyear contracts must follow full funding policies and not be used as vehicles for incrementally funding procurement;\n(2) Contract cancellation ceilings may not include recurring manufacturing costs of unfunded units;\n(3) Contract payments may not be made in advance of projected manufacturing costs (to include purchase of materials) for funded units;\n(4) Advance procurement funds may not be used to pay the costs of normal fabrication and assembly of unit components. The use of these funds should be restricted to long-lead items, economic-order quantity buys, and the one-time non-recurring costs of improving manufacturing capabilities;\n(5) Advance procurement funds are limited to no more than 10 percent of total procurement costs; and\n(6) Regular procurement funds for units should be requested for the appropriate fiscal year to be obligated to pay for normal fabrication and assembly of funded units and components.\nThe Committee also takes exception to the Air Force's use of a unique provision in the current C-17 multiyear contract that allows the contractor to add charges to the fixed price contract if a follow-on contract is not awarded. The amended general provision further directs that no new multiyear contracts provide for such a price adjustment. (pages 105-107)\nIn the section of the report concerning the C-17 program in particular, the report stated:\nThe Committee is extremely displeased by the Air Force's continued use of a flawed and irresponsible financial strategy for the C-17 multiyear procurement contract. In fiscal year 2003, the Air Force proposed a budget request it referred to as \"transformational\". The Committee, however, saw it for what it was—an incremental financing scheme that abused the political support for this program and flaunted acquisition regulations and standard practices. In that year, the Congress provided full funding for all 15 aircraft, and directed the Air Force to fully fund the same number in fiscal year 2004.\nUnfortunately, for fiscal year 2004 and now with the fiscal year 2005 Defense budget request, the Air Force has continued its financial sleight-of-hand on the C-17 program. Based on a recently concluded investigation by the Committee's Surveys and Investigations staff, the Committee learned the Air Force is using a combination of advance procurement funding and exorbitant cancellation ceilings to keep the contractor to a production schedule which has as many as 5 aircraft at any given time in the production line for which funds have not been appropriated. Not once in the past has the Committee indicated its approval for using advance procurement funding to proceed with production of aircraft for which full appropriations have not been approved. Nor is the Committee aware of any change in Department of Defense (DOD) fiscal policy or regulations that would permit this. As both DOD and Office of Management and Budget financial officials put it to Committee investigators, the Air Force had \"pushed the envelope.\" And, in the Committee's view, the 'envelope' has been pushed too far.\nMoreover, the Air Force also included a provision in the second C-17 multiyear procurement contract that assumes additional funding for aircraft will be approved following the end of the contract. Otherwise, the Department will be liable to pay the contractor significant termination costs. This contingent liability places a burden not just on the current Congress, but on the next Congress as well, and could be interpreted as a violation of the Anti-Deficiency Act.\nIn order to prevent such future financial chicanery on the part of the Air Force or any other military service, the Committee includes a new general provision that significantly amends authority carried in past Defense Appropriations acts regarding multiyear procurement contracts. This provision is discussed elsewhere in this report. With regard to the current funding shortfall in fiscal year 2005, the Committee has added an additional $158,600,000 and one aircraft. Bill language is also included in the Aircraft Procurement paragraph directing that funds provided are for the procurement of 15 aircraft in fiscal year 2005, that advance procurement funds are provided for the procurement of 15 aircraft in fiscal year 2006, and that the Secretary of the Air Force shall fully fund the procurement of 15 aircraft in fiscal year 2006. In placing this requirement upon the Air Force, the Committee would note the commitment of the Secretary of the Air Force, during a public hearing on this matter, to work with the Committee to \"set it right\". The Committee anticipates that the Secretary will do just that. (page 192)\nIn a follow-on section concerning interim contractor support (ICS) for the C-17 fleet, the report stated:\nIn the preceding part of this report, the Committee expresses its displeasure with the funding strategy the Air Force has employed to execute the C-17 program. That strategy has resulted in an incremental funding scheme for the C-17 that the Committee finds unacceptable. In order to fully fund 15 aircraft in fiscal year 2005, the budget request must be amended to provide for one additional aircraft and $158,600,000. Therefore, the Committee provides increased funding for one additional C-17 in fiscal year 2005, and reduced funding in this account by a like amount.\nThe Committee finds it puzzling that the Air Force refuses to fully fund aircraft in production, yet the fiscal year 2005 request for C-17 ICS includes funding of $176,000,000 in new capability block upgrades and improvements to the existing fleet. In budget justification materials, the Air Force identifies $114,000,000 of this amount as needed to address unfunded requirements. The Committee wishes to send a very clear message—it considers full funding of the aircraft in production to be this program's number one unfunded requirement. Once the Air Force understands this message and provides the resources needed to bring this program in line with a traditional, fully funded procurement program, the Committee will entertain any funding requests for new capability to the existing fleet. (page 193)\nIn its discussion of the Army's proposal for funding the construction a theater support vessel (TSV) through the Army's research and development account, the report stated:\nFiscal year 2005 is the first year in which funding has been requested to construct such a vessel. The Committee notes that the total cost of this vessel is approximately $141,600,000, and the Army had planned to incrementally fund its construction over the course of fiscal years 2005 through 2007. The Committee firmly believes that the Department should fully fund major investment items and accordingly has added sufficient funding in the fiscal year 2005 bill to complete this vessel. (pages 254-255; see also page 249)\nThe committee in the above passage is applying the traditional full funding policy to this vessel even though it is being acquired through the Army's research and development account, which falls outside the procurement title of the DOD appropriations act.\nIn its discussion of the Navy's proposal for funding the construction of the lead Littoral Combat Ship (LCS) through the Navy's research and development account, the report stated:\nThe Committee recommendation includes increasing the budget request for the construction of the first Flight 0 LCS by $107,000,000, fully funding this construction effort at $214,000,000. The fiscal year 2005 request included only $107,000,000 for the first increment of the LCS construction. Budget documentation indicates the Navy plans to request an additional $107,000,000 for the second and final increment for the first ship in fiscal year 2006. The Committee strongly opposes incremental funding of ship construction and therefore has provided a total of $214,000,000 in 2005 for construction of the first LCS, fully funding the construction requirement in one year. (page 288-289; see also page 274)\nThe committee in the above passage is applying the traditional full funding policy to this ship even though it is being acquired through the Navy's research and development account, which falls outside the procurement title of the DOD appropriations act.\nIn its discussion of the Navy's newest plan for procuring a new amphibious assault ship known as the LHA(R), or more simply as LHA, in FY2008, the report stated that\nthe Navy's new plan presumes designing a ship that would alter the amphibious nature of the LHA, and then, proposing an incrementally funded construction program.... Should the Navy and Marine Corps determine that the re-structure of the LHA(R) program is the way ahead for the future, a fully funded program for design and construction of a ship to meet this requirement should be included in a future budget request. The Committee will not support a proposal which suggests that construction be incrementally funded. (page 289)\nIn its discussion of the Navy's plan to fund the construction of a planned new class of ships known as Maritime Prepositioning Force (Future) (MPF[F]) ships through the National Defense Sealift Fund (NDSF) starting in FY2007, the report stated:\nBudget documentation provided to Congress in support of the fiscal year 2005 budget request provided no information detailing how the MPF(F) funds were to be spent. The only information provided states that lead hull construction costs are to be incrementally funded beginning in fiscal year 2007. Requests for additional information yielded no detail of the planned expenditures due to a not yet completed study by the Center for Naval Analysis. The Committee notes that while detail was not provided to Congress, the trade press was provided some information and printed articles quoting senior Navy officials on plans for the possible construction of a fleet of MPF(F) ships.\nThe Committee believes the Navy must provide sufficient justification of its requests for appropriated funds. While the Committee appreciates that the timing inherent in the budget process does not always favor rapid transition to new ideas, it is not reasonable to request Congress provide funds for a program with no justification except that which is printed in the trade press. Furthermore, the Navy is well aware of the Committee's views with respect to incremental funding of programs. The Committee finds little humor in being asked to fund an unjustified request of nearly $100 million, for what is intended upon its maturation to become an incrementally funded program. (page 352)\nThe committee in the above passage is suggesting that it will prefer to apply the traditional full funding policy to these ships even though they are to be acquired through the NDSF, which falls outside the procurement title of the DOD appropriations act.\nSenate\nIn its report ( S.Rept. 108-284 of June 24, 2004) on the FY2005 defense appropriations bill ( S. 2559 ), the Senate Appropriations Committee stated:\nThe Committee supports the budget request for the Littoral Combat Ship [LCS] and consents to the Navy's request to fund construction of the first prototype ship for each of two ship designs in the Research and Development, Navy account. Approval for funding LCS in the research and development account is strictly based on the acknowledgement of the prototypical nature and high level of technical risk inherent in this program. The Committee finds LCS to be unique and unlike any other shipbuilding program the Navy has previously pursued; and therefore, grants the Navy's request for the increased flexibility that funding within the research and development account affords. However, the Committee directs that all follow-on ships beyond one prototype for each LCS ship design be fully funded in the Shipbuilding and Conversion, Navy account. (Pages 156-157)\nConference Report\nThe conference report ( H.Rept. 108-622 of July 20, 2004) on H.R. 4613 contained bill language in the Aircraft Procurement, Air Force section stating that\nThat amounts provided under this heading shall be used for the procurement of 15 C-17 aircraft: Provided further, That amounts provided under this heading shall be used for the advance procurement of not less than 15 C-17 aircraft: Provided further, That the Secretary of the Air Force shall fully fund the procurement of not less than 15 C-17 aircraft in fiscal year 2006: Provided further, That the Secretary of the Air Force shall allocate a reduction of $158,600,000 proportionately to each budget activity, activity group, subactivity group, and each program, project, and activity funded by this appropriation. (Page 13)\nThe conference report stated:\nThe conferees have provided an additional $158,600,000 in funding for the procurement of 15 C-17s in fiscal year 2005. Language has also been included in \"Aircraft Procurement, Air Force\" requiring the Air Force to procure 15 aircraft in fiscal year 2005; provide advance procurement for 15 aircraft in 2006; and to fully fund 15 aircraft in fiscal year 2006. The conferees agree with the House language regarding the Air Force interpretation of multiyear procurement regulations in this and the C-130J program. The conference report includes a general provision [Section 8008] amending multiyear procurement contract requirements proposed in the House bill to prevent this approach in the future.\nA general reduction in funding for Aircraft Procurement, Air Force, has been included accordingly with a requirement that the reduction be applied equitably across all elements of this appropriation. (Page 215)\nSection 8008—the usual section in the DOD appropriations bill that grants authority for multiyear procurement contracts—stated in part\nThat none of the funds provided in this Act may be used for a multiyear contract executed after the date of the enactment of this Act unless in the case of any such contract—\n(1) the Secretary of Defense has submitted to Congress a budget request for full funding of units to be procured through the contract.... (Page 21)\nWith regard to the Navy's DDG-1000 destroyer program, the report stated:\nThe conferees agree to provide a total of $305,516,000 for advance procurement for the DD(X) class of ships instead of $320,516,000 as proposed by the Senate and no appropriation as proposed by the House. The conferees direct the Navy to include future funding requests for the DD(X) in the Shipbuilding and Conversion, Navy appropriation.\nWithin the funds provided, $221,116,000 is only for design and advance procurement requirements associated with the first ship of the DD(X) class and $84,400,000 is only for design and advance procurement requirements associated with construction of the second ship at an alternative second source shipyard. The conferees direct that no funds shall be available for the procurement of long leadtime material for items that are dependent upon delivery of a DD(X) key technology unless that technology has undergone testing, thereby reducing risk to overall program costs.\nThe conferees direct that full funding of the remaining financial requirement for these ships, not including traditional advance procurement requirements, shall be included in a future budget request. (Page 188)\nWith regard to the Navy's Littoral Combat Ship (LCS) program, the report stated that \"The conferees agree with the Senate that all follow-on ships, beyond one of each prototype design, should be fully funded in the Shipbuilding and Conversion, Navy appropriation.\" (Page 310)\nFY2004\nFY2004 Defense Authorization Act ( H.R. 1588 / P.L. 108-136 )\nConference Report\nThe conference report ( H.Rept. 108-354 of November 7 (legislative day, November 6), 2003) on H.R. 1588 contained a provision (Section 135) that, as stated on page 541 of the report, \"would authorize the Secretary of the Air Force to enter into a lease for no more than 20 aerial refueling tanker aircraft, and would further authorize the Secretary of the Air Force to enter into a multiyear procurement program, using incremental funding, for up to 80 aerial refueling aircraft for not in excess of 10 program years beginning as early as FY2004.\" Section 135 stated, in part:\n(b) MULTIYEAR PROCUREMENT AUTHORITY.—(1) Beginning with the fiscal year 2004 program year, the Secretary of the Air Force may, in accordance with section 2306b of title 10, United States Code, enter into a multiyear contract for the purchase of tanker aircraft necessary to meet the requirements of the Air Force for which leasing of tanker aircraft is provided for under the multiyear aircraft lease pilot program but for which the number of tanker aircraft leased under the authority of subsection (a) is insufficient.\n(2) The total number of tanker aircraft purchased through a multiyear contract under this subsection may not exceed 80.\n(3) Notwithstanding subsection (k) of section 2306b of title 10, United States Code, a contract under this subsection may be for any period not in excess of 10 program years.\n(4) A multiyear contract under this subsection may be initiated or continued for any fiscal year for which sufficient funds are available to pay the costs of such contract for that fiscal year, without regard to whether funds are available to pay the costs of such contract for any subsequent fiscal year. Such contract shall provide, however, that performance under the contract during the subsequent year or years of the contract is contingent upon the appropriation of funds and shall also provide for a cancellation payment to be made to the contractor if such appropriations are not made.\nFY2004 Defense Appropriations Act ( H.R. 2658 / P.L. 108-87 )\nHouse\nIn its report ( H.Rept. 108-187 of July 2, 2003) on H.R. 2658 , the House Appropriations Committee stated:\nThe Committee has altered the presentation of the fiscal year 2004 requested Shipbuilding and Conversion, Navy (SCN) appropriation language by merging the appropriation for full funding with the appropriation for advanced procurement. The Committee's intention is to provide a certain level of financial flexibility to better accommodate changes based on cost growth. This recommendation, if properly implemented by the Navy, should allow for managing costs within the program thereby limiting the necessity of reprogramming funds from other high priority programs to accommodate cost growth in a ship class. The Committee reserves the right to revert to the previous method of appropriating funds for SCN should the Navy not properly manage the merging of these appropriations. (page 150)\nSenate\nIn its report ( S.Rept. 108-87 of July 10, 2003) on the FY2004 defense appropriations bill ( S. 1382 ), the Senate Appropriations Committee stated:\nThe Committee is aware that the Department of the Navy plans to fund the purchase of ships in fiscal year 2005 within the Research and Development, Navy account. These ships—the first in their class—the DD(X) next-generation destroyer and the Littoral Combat Ship [LCS] are currently planned to be procured with research and development dollars with the second ship in each class to be procured with Shipbuilding and Conversion, Navy [SCN] funds in fiscal year 2006.\nThe Committee understands that there are seeming advantages to this approach—reducing prior year shipbuilding costs and providing these programs with the additional flexibility that is inherent in research and development funding. The Committee is concerned, however, that the Department will not reap the benefits it seeks. Central to the argument that supports building the first ship in a class with research and development funding is the necessity to learn lessons from the research, development and testing being done. If the Navy plans, as it currently does, to fund the second ship in each of these classes in fiscal year 2006 in SCN before actual construction even begins on the research and development funded ships, the distinction between funding in research and development and SCN only becomes one of full-funding.\nTherefore, the Committee directs that if these ships—the DD(X) and LCS—are funded in research and development, all research and development acquisition rules will apply, including technology readiness reviews, milestone decisions, and test and evaluation before these ships may enter Shipbuilding and Conversion, Navy for procurement.\nIf the Navy chooses not to follow the acquisition policies required of research and development programs before they enter procurement, funding for these first ships in their class shall be requested in Shipbuilding and Conversion, Navy, as has been the tradition. (pages 154-155)\nConference Report\nThe conference report ( H.Rept. 108-283 of September 24, 2003) on H.R. 2658 stated:\nThe conferees agree with the Senate concerning the Navy's plans to fund the purchase of ships—DD(X) and LCS—in fiscal year 2005 within the Research, Development, Test and Evaluation (RDT&E) appropriation. The conferees believe that the use of research and development funding to procure first ships of a class is not in keeping with budgetary guidelines regarding full-funding. The conferees agree that should the fiscal year 2005 request include these ships—DD(X) and LCS—within RDT&E, all research and development acquisition rules shall apply, including technology readiness reviews, milestone decisions, and test and evaluation before these ships may transition to procurement. (page 292)\nFY2003\nFY2003 Defense Authorization Act ( H.R. 4546 / P.L. 107-314 )\nHouse\nIn its markup of the FY2003 defense authorization bill ( H.R. 4546 ), the House Armed Services Committee included a provision (Section 141) that specifically requires the use of full funding for executing multiyear procurement (MYP) arrangements approved in the future, unless otherwise authorized by Congress. The provision would prohibit, unless specifically authorized by law, the use in future MYP arrangements of, among other things, funding approaches resembling incremental funding—including funding approaches like the one the Air Force proposed, as part of its FY2003 defense budget and FY2003-FY2007 FYDP, for the follow-on MYP arrangement for the C-17 program. Section 141 would not, however, apply to the follow-on C-17 MYP arrangement itself, because the section would cover MYP arrangements that are authorized in the future and the follow-on MYP arrangement for the C-17 program was approved by Congress in 2001 as part of its action on the FY2002 defense budget. The provision read as follows:\nSEC. 141. REVISIONS TO MULTIYEAR CONTRACTING AUTHORITY.\n(a) USE OF PROCUREMENT AND ADVANCE PROCUREMENT FUNDS- Section 2306b(i) of title 10, United States Code, is amended by adding at the end the following new paragraph:\n\"(4)(A) Unless otherwise authorized by law, the Secretary of Defense may obligate funds for procurement of an end item under a multiyear contract for the purchase of property only for procurement of a complete and usable end item.\n\"(B) Unless otherwise authorized by law, the Secretary of Defense may obligate funds appropriated for any fiscal year for advance procurement under a multiyear contract for the purchase of property only for the procurement of those long-lead items necessary in order to meet a planned delivery schedule for complete major end items that are programmed under the contract to be acquired with funds appropriated for a subsequent fiscal year.\".\n(b) EFFECTIVE DATE- Paragraph (4) of section 2306b(i) of title 10, United States Code, as added by subsection (a), shall not apply with respect to any multiyear contract authorized by law before the date of the enactment of this Act.\nConference Report\nThe conference report ( H.Rept. 107-772 of November 12, 2002) on the FY2003 defense authorization bill ( H.R. 4546 ) contained a provision (Section 820), similar to Section 141 of the House-reported version of H.R. 4546 , that requires the use of full funding for executing multiyear procurement (MYP) arrangements approved in the future:\nSEC. 820. REVISIONS TO MULTIYEAR CONTRACTING AUTHORITY.\n(a) USE OF PROCUREMENT AND ADVANCE PROCUREMENT FUNDS.—Section 2306b(i) of title 10, United States Code, is amended by adding at the end the following new paragraph:\n\"(4)(A) The Secretary of Defense may obligate funds for procurement of an end item under a multiyear contract for the purchase of property only for procurement of a complete and usable end item.\n\"(B) The Secretary of Defense may obligate funds appropriated for any fiscal year for advance procurement under a contract for the purchase of property only for the procurement of those long-lead items necessary in order to meet a planned delivery schedule for complete major end items that are programmed under the contract to be acquired with funds appropriated for a subsequent fiscal year (including an economic order quantity of such long-lead items when authorized by law).\"\n(b) EFFECTIVE DATE.—(1) Paragraph (4) of section 2306b(i) of title 10, United States Code, as added by subsection (a), shall not apply with respect to any contract awarded before the date of the enactment of this Act.\n(2) Nothing in this section shall be construed to authorize the expenditure of funds under any contract awarded before the date of the enactment of this Act for any purpose other than the purpose for which such funds have been authorized and appropriated.\nIn their report, the conferees noted that this section amended the language of the House-reported Section 141 to\npermit the purchase of economic order quantities of long-lead items where authorized by law. The conference amendment would also clarify that nothing in the section authorizes the use of funds available under contracts awarded prior to the effective date of the provision for any purpose other than the purpose for which such funds were authorized and appropriated. Consequently, although the section would not apply to contracts awarded before the date of enactment, funds available under such contracts could not be used in a manner that would be inconsistent with the requirements of the section unless such funds were authorized and appropriated for such purposes. (page 673)\nFY2003 Defense Appropriations Act ( H.R. 5010 / P.L. 107-248 )\nHouse\nIn its report ( H.Rept. 107-532 of June 25, 2002) on the FY2003 defense appropriations bill ( H.R. 5010 ), the House Appropriations Committee stated the following regarding the Air Force's FY2003 proposal to procure 60 C-17 airlift aircraft under a follow-on multiyear procurement (MYP) arrangement approved by Congress in FY2002 that would procure at least some of the aircraft with funding profiles that resemble incremental funding rather than full funding:\nThe Air Force has adopted a budgeting approach for the C-17 that delays the need to request $1,500,000,000 in budget authority until 2007 and 2008. Instead of following the traditional method of requesting funding equal to the cost of the planes being built, the Air Force has matched its funding request to when payments are due to the contractor. The Air Force calls this change \"transformation\". The proper term is incremental funding and it is inconsistent with DOD fiscal policy. Although the planes are delivered on the same schedule and at the same cost under either approach, incremental funding allows programs to push off onto future years costs that should be covered now.\nLast year, when the Congress was considering multiyear procurement authority for the C-17, the Air Force sought bill language specifically authorizing this new approach. The Congress approved the multiyear, but denied the Air Force's request for special authority. Nevertheless, the Air Force proceeded with the incremental funding and reinterpreted the regulations as permitting this approach. For example, while the DOD Financial Management Regulations (FMR) define Advance Procurement as being for \"long leadtime items\", the Air Force believes that this can be interpreted to apply to any component of the aircraft or even to final assembly. While the FMR calls for advance procurement to be \"relatively low\" compared to the cost of the end item, the Air Force proposal would, in some cases, fund half of the cost of the airplane with advanced procurement. The Air Force position is not consistent with any reasonable interpretation of the FMR.\nTherefore, the Committee has included bill language requiring that the fiscal year 2003 C-17 Advance Procurement be used to support the acquisition in fiscal year 2004 of 15 C-17 aircraft (the planned production rate) and directs the Air Force to include the funds to complete the purchase of those 15 C-17s in its 2004 budget submission.\nThe Committee directs the Under Secretary of Defense (Comptroller) to restructure the outyear funding for the C-17 program to bring it into compliance with the proper use of advance procurement as defined in the FMR. The Committee is fully supportive of the C-17 program and the multiyear procurement of 60 additional airplanes and directs that these changes be implemented in a manner that would not adversely affect the cost or delivery of these planes. (Page 168)\nSenate\nIn its report ( S.Rept. 107-213 of July 18, 2002) on H.R. 5010 , the Senate Appropriations Committee \"recommends several actions to restore fiscal discipline to the Department [of Defense].\" (Pages 4-5) Among these were recommendations to fully fund the C-17 multiyear procurement request and to reduce amounts requested for advance procurement for Navy shipbuilding programs.\nWith regard to the C-17 multiyear procurement funding request, the committee stated:\nThe Air Force has not requested sufficient funding in its budget proposal to fully fund the purchase of 15 [C-17] aircraft per year. Instead, it has chosen to request only the amount of funds it expects to obligate each year to start the production of 15 aircraft, and finance the remaining costs in later years. This financing scheme runs counter to the 'full funding' principles which guide Federal Government procurement practice, and thus creates a future liability for the Air Force and Congress. For these reasons, the Committee disapproves the Air Force's C-17 financing proposal. Instead the Committee recommends an increase of $585,900,000 to fully fund the purchase of 15 C-17 aircraft in fiscal year 2003. The Committee intends to work with the Air Force over the coming months to ensure that plans for executing the remainder of the C-17 multi-year procurement program are both cost effective and consistent with full funding principles. (Page 147)\nWith regard to requests for advance procurement funding for Navy shipbuilding programs, the committee stated:\nThe Committee notes that the Navy's requests for advance procurement funding for shipbuilding programs have increased in recent years. Almost universally among programs, the cumulative amount requested for advance procurement funds exceeds 30 percent of the total cost of the vessel.\nAs stated in DOD Directive 7000.14-R, advance procurement requests should be limited to those items whose lead-times are greater than the life of the appropriation and where the lead-time of an item far exceeds the production time of the end item itself. The regulation further states that the amounts budgeted for advance procurement should be relatively low compared to the remaining portion of the cost of the end item. However, based on detailed information received from the Department, the Committee finds countless inconsistencies in the Navy's adherence to this policy.\nAs the Committee endeavors to assist the Navy in increasing funding for shipbuilding programs, in addition to providing increased funding over the budget request, it finds that a portion of the funds requested for advance procurement would be more effectively used to alleviate the costs associated with completion of prior year [Navy shipbuilding] programs....\nThe Committee's recommendation fully funds the increased costs associated with the \"swap\" of DDG-51 and LPD-17 class workload among the two main shipbuilders. Further, it fully funds the entire DDG-51 class prior year completion bill throughout the Future Years Defense Plan, pays $150,000,000 towards the LPD-17 class fiscal year 2004 bill and fully funds both the fiscal year 2003 and fiscal year 2004 costs associated with the VA [Virginia] Class submarine program. (Page 127)\nConference Report\nThe conference report ( H.Rept. 107-732 of October 9, 2002) on H.R. 5010 stated the following with regard to the C-17 multiyear procurement funding request:\nIn the Department of Defense's fiscal year 2003 budget submission, the Air Force did not request a sufficient amount to fully fund the purchase of 15 C-17 cargo aircraft per year. Instead, it requested only the amount of funds it expected to obligate each year to start production of 15 aircraft, and financed the remaining costs in later years. This financing scheme runs counter to the \"full funding\" principles which guide Federal government procurement practice, and thereby creates a future liability for the Air Force and Congress. For this reason, the conferees disapprove the Air Force's C-17 financing proposal. As such, the conference agreement includes an increase of $585,900,000 over the budget request to fully fund the purchase of 15 C-17 aircraft in fiscal year 2003. Additionally, the conferees agree to retain House language which directs that funds made available within the \"Aircraft Procurement, Air Force\" account be used for advance procurement of 15 aircraft. (page 206)\nAppendix B. Detailed Background on the Policy\nThis appendix provides a detailed discussion of the origins, rationale, and governing regulations of the full funding policy, as well as examples of where Congress, GAO, and DOD have affirmed their support for the policy.\nLaws and Regulations\nAntideficiency and Adequacy of Appropriations Acts\nThe full funding policy, also known as up-front funding, is consistent with two basic laws regarding executive branch expenditures—the Antideficiency Act of 1870, as amended, and the Adequacy of Appropriations Act of 1861. As summarized in a 1996 GAO report:\nThe Antideficiency Act, as amended, implements Congress's constitutional oversight of the executive branch's expenditure of funds. The act reflects laws enacted by the Congress since 1870 to respond to abuses of budget authority and to gain more effective control over appropriations. The central provision of the act (31 U.S.C. 1341(a)(1)) prevents agencies from entering into obligations prior to an appropriation or from incurring obligations that exceed an appropriation, absent specific statutory authority. Thus, agencies may not enter into contracts that obligate the government to pay for goods and services unless there are sufficient funds available to cover their cost in full. Instead, agencies must budget for the full cost of contracts up-front. Also, the Adequacy of Appropriations Act (40 U.S.C. 11), established in 1861, prohibits agencies from entering into a contract unless the contract is authorized by law or there is an appropriation to cover the cost of the contract.\nOMB Circular A-11 (July 2003)\nCircular A-11 from the Office of Management (OMB) provides guidance to executive branch agencies on the preparation of budget submissions to Congress. The current version of the circular was issued on July 25, 2003. Section 31.4 of the circular, which covers the full funding policy, states in part:\nRequests for acquisition of capital assets must propose full funding to cover the full costs of the project or a useful segment of the project, consistent with the policy stated in section 300.6(b). Specifically, requests for procurement programs must provide for full funding of the entire cost.... Remember that Administration policy and the Antideficiency Act require you to have sufficient budget authority or other budgetary resources to cover the full amount of unconditional obligations under any contract.\nSection 300.6(a) of the circular states (italics as in the original):\n(a) Background.\nGood budgeting requires that appropriations for the full costs of asset acquisition be enacted in advance to help ensure that all costs and benefits are fully taken into account when decisions are made about providing resources. For most spending on acquisitions, this rule is followed throughout the Government. When capital assets are funded in increments, without certainty if or when future funding will be available, it can and occasionally does result in poor planning, acquisition of assets not fully justified, higher acquisition costs, project (investment) delays, cancellation of major investments, the loss of sunk costs, or inadequate funding to maintain and operate the assets.\nSection 300.6(b) of the circular states in part (italics as in the original):\n(b) Full funding policy.\nThe full funding policy (see section 31.4) requires that each useful segment (or module) of a capital investment be fully funded with either regular annual appropriations or advance appropriations. For definitions of these terms, see section 300.4 or the Glossary of Appendix J. Appendix J elaborates on the full funding concept (see Appendix J section C, Principles of Financing).\nAppendix J, Section C, lists four principles for financing capital assets. Principle 1, on full funding, states (italics as in the original):\nBudget authority sufficient to complete a useful segment of a capital project (investment) (or the entire capital project, if it is not divisible into useful segments) must be appropriated before any obligations for the useful segment (or project) (or investment) may be incurred.\nExplanation: Good budgeting requires that appropriations for the full costs of asset acquisition be enacted in advance to help ensure that all costs and benefits are fully taken into account at the time decisions are made to provide resources. Full funding with regular appropriations in the budget year also leads to tradeoffs within the budget year with spending for other capital assets and with spending for purposes other than capital assets. Full funding increases the opportunity to use performance-based fixed price contracts, allows for more efficient work planning and management of the capital project (or investment), and increases the accountability for the achievement of the baseline goals.\nWhen full funding is not followed and capital projects (or investments) or useful segments are funded in increments, without certainty if or when future funding will be available, the result is sometimes poor planning, acquisition of assets not fully justified, higher acquisition costs, cancellation of major investments, the loss of sunk costs, or inadequate funding to maintain and operate the assets.\nDOD Directive 7000.14-R (June 2004)\nSection 010202(A) of DOD Directive 7000.14-R on budget formulation and presentation (updated June 23, 2004) states (underlining as in the original):\nPolicy for Full Funding. It is the policy of the Department of Defense to fully fund procurements that are covered within the procurement title of the annual DOD Appropriations Act. There are 2 basic policies concerning full funding.\n1. The first is to provide funds at the outset for the total estimated cost of a given program so that the Congress and the public can be fully aware of the dimensions and cost when the program is first presented in the budget.\n2. The second is to provide funding each fiscal year to procure a complete, usable end item. In other words, an end item budgeted in a fiscal year cannot depend upon a future year's funding to complete the procurement. However, efficient production of major defense systems has necessitated two general exceptions to this policy—advance procurement for long lead-time items and advance economic order quantity (EOQ) procurement. EOQ is normally associated with multiyear procurements but can be requested for annualized procurements on an exception basis for unusual circumstances (such as combined parts buys for a block of satellites). Both efforts must be identified in an Exhibit P-10, Advance Procurement, when the Budget Estimate Submission is submitted to OSD and when the President's budget request is submitted to the Congress.\nCongressional Hearings and Reports\nThis section presents excerpts from five sources that discuss in some detail the origins of and rationale for the full funding policy. The excerpts also provide examples of how support for the policy has been periodically reaffirmed over the years by Congress, the Government Accountability Office (GAO), and DOD. The documents are a 1969 GAO report, a 1973 House Appropriations Committee report, a 1978 House Budget Committee hearing, a 1996 GAO report, and a 2001 GAO letter report and briefing.\n1969 GAO Report\nA 1969 GAO report on the full funding provision outlined the origins, rationale, and early DOD regulations governing the policy. Although it is a long excerpt (about 4 pages as reprinted here), it is significant as an early and detailed recapitulation of the history of the full funding policy:\nThe concept of full funding was initially applied to Navy shipbuilding authorized by the act of March 10, 1951 (65 Stat. 4). Prior to the execution of the act, the Navy shipbuilding program operated under contract authorizations with funds appropriated in annual increments as estimated to be required for contract expenditures during the budget year. After passage of the act, the Congress appropriated funds for the entire cost of Navy shipbuilding programs as then envisaged on the basis of prevailing prices, regardless of the period of expenditures under the individual contracts. No provision was made for anticipated increases in costs of materials and labor.\nIn a letter dated May 15, 1957, to the Secretary of Defense, Congressman [George Herman] Mahon, as Chairman of the Department of Defense Subcommittee, House Committee on Appropriations, stated, in part, that:\n\"The general prevailing practice of this Committee is to provide funds at the outset for the total estimated cost of a given item so that the Congress and the public can clearly see and have a complete knowledge of the full dimensions and cost of any item or program when it is first presented for an appropriation.\n\"During the course of these hearings, the Committee has learned that one or more contracts have been executed for material on a partially funded basis with the apparent expectation of completing the financing by ultimately fully obligating the transactions with succeeding years appropriations.\"\n* * * * *\n\"It is recommended that all necessary action be taken to prevent such practice in the future and to insure that procurement funds are administered so as to accomplish the full program for which the appropriation was justified.\"\nOn May 21, 1957, the Office of the Secretary of Defense issued DOD Directive 7200.4[,] \"Funding of Procurement Contracts and Interdepartmental Requests and Orders for Procurement,\" which had been in preparation. This directive was responsive to the suggestions expressed by Congressman Mahon in his letter of May 15, 1957. The directive was issued for the purpose of ensuring the orderly execution of the procurement programs within the appropriations and funds available. It states in part, that:\n\"No procurement of material, equipment, or work or services in connection therewith shall be directed or authorized unless adequate appropriations and funds are available under the applicable Department of Defense Financial Plan (1) for obligation, (2) set aside in the form of a commitment, or (3) set aside in a reserve account in an aggregate amount sufficient (a) to complete the procurement of a specified number of end items (including, where applicable, initial spares and spare parts) usable either in service units or for test and evaluation, or (b) when specifically provided for under a current apportionment of funds, to complete a pre-production program or procure components in advance of the fiscal year in which the related programmed end item is directed to be procured.\"\nThe directive also requires that:\n\"... all estimates shall be based upon the latest available firm prices. In the event firm prices are not available the best current working estimate of cost shall be used and adjustments will be made promptly when evidence of significant variation in costs becomes available.\"\nThe directive expressed funding policies for all procurement actions subsequent to fiscal year 1957 and requires that all procurements not wholly consummated but entered into up and including fiscal year 1957 be modified to conform to the full funding concept. Procurements from research and development appropriations are not subject to the provisions of the directive, and other procurements may be specifically excepted by the Secretary of Defense from its provisions. Under these provisions, exceptions were granted to the Air Force for activities undertaken under procurement appropriations for development-type projects, such as the intermediate range ballistic missile and the intercontinental ballistic missile.\nThough the directive does not employ the term \"full funding,\" it states the concepts which express the essentials of full funding.\nFurther, in a letter dated June 22, 1957, to the Chairman of the Subcommittee on the Department of Defense, Senate Committee on Appropriations, the Assistant Secretary of Defense (Comptroller) summarized the answers to certain questions which had arisen during the hearings on DOD appropriations concerning DOD Directive 7200.4. This letter, subsequently placed in the record of the hearings, explained the provisions of the subject directive and its implementation in fulfillment of the full funding principle which, it noted, had been applied generally by the Congress in providing funds for DOD procurement programs. DOD officials still cite the letter as authoritative in describing their procedures. In illustration of the full funding principle, the Assistant Secretary stated in his letter that:\n\"It has the merit of providing, at one time, for the total estimated cost of a given item or program so that the Congress and public can clearly see its full dimensions and costs at the time it is first presented for approval and appropriations. As you are well aware this system provides that when any Department directs a contracting officer to procure a hundred aircraft, tanks, etc., funds must be available (and set aside—some for obligation at once and some for obligation at a later date) to cover the total estimated cost to be incurred in completing delivery of one hundred usable end items plus their initial spares and spare parts when required.\"\nThe letter from the Assistant Secretary also clarified the use of full funding of preproduction preparations for new items to be procured and placed in production in a subsequent year. The latter clarified also the treatment of advance procurement of long-lead-time components, budget estimating, and cost increases under the full funding concept.\nThe military services issued formal implementation instructions on the full funding concept at different points in time. The Secretary of the Navy Instruction 7043.2 was dated June 22, 1957. Army Regulations 37-42 was [sic] issued on July 1, 1957. A letter from the Deputy Chief of Staff, Material, United States Air Force, to the Commander, Air Force Materiel Command, implementing DOD Directive 7200.4 was dated August 20, 1957.\nAs noted [above], the Air Force was granted exceptions from the full funding requirements for certain programs. In the fiscal year 1963 budget, these included the ATLAS, TITAN, MINUTEMAN, and SKYBOLT missile procurement programs which were incrementally funded to cover only expenditures plus contractor commitments.\nThe Assistant Secretary of Defense (Comptroller) felt, however, that the capability existed in 1962 to develop realistic programs and budgets for Air Force ballistic missiles on a fully funded basis and establish a consistent policy for funding all procurement programs.\nSubsequently, the Deputy Assistant Secretary of Defense (Comptroller) issued instructions to the military services on March 30, 1962, that the fiscal year 1964 budget be developed on the basis of providing new obligational authority to fully fund all budget line items and specifically the Air Force's ATLAS, TITAN, MINUTEMAN, and SKYBOLT missile procurement programs.\nIt was recognized with the Office of the Secretary of Defense that the implementation of the full funding policy would require a change in Air Force missile contracting from the \"work effort\" basis to the basis of the total cost of delivery for a specific number of missiles. The exception for Air Force ballistic missiles, which had been in effect for several years, represented a carry-over of research and development funding policies of those items.\nShipbuilding has been the procurement program most consistently reviewed and revised within DOD with respect to full funding. This is due to the length of procurement leadtime, 3 to 7 years depending primarily on the type of ship. Procedures have been refined as the need arose from the unique nature of the product. Prior to the fiscal year 1961 budget, ship cost estimates were based on the design concept and labor and material rates existing at the time the estimates were prepared with increases over the initial estimates being provided for by requesting additional funds in subsequent years or by reducing shipbuilding programs.\nThe fiscal year 1961 budget initiated a new policy in financing shipbuilding programs termed \"end cost\" budgeting. Construction and conversion cost estimates in that budget represented the full amount required to complete all ships in the 1961 fiscal year and prior years' programs and included allowances for such growth factors as design and minor characteristics changes and changes in labor and material rates which would affect costs during construction and conversion periods.\nThrough the fiscal year 1965 budget, the projected costs included estimates for the correction of deficiencies in a new ship through its first overhaul. This period was curtailed by NavShips Instruction 7301.25A, dated November 24, 1967, to a period of 11 months following preliminary acceptance trials or through post shakedown availability, whichever is earlier, for fiscal year 1964 and subsequent ship programs.\nA recent Navy Program/Budget Decision[,] \"SCN [Shipbuilding and Conversion, Navy] Financial Policy and Funding of Prior Year Programs,\" approved by the Deputy Secretary of Defense on December 9, 1968, refined the definition of full funding as it applied to ships. Estimates for outfitting and postdelivery deficiency corrections would be funded when required, that is funded on a lead-time basis rather than as part of the basic estimate. This change in application of the full funding concept to shipbuilding put shipbuilding procurement on the same basis as aircraft and electronics procurement with respect to postdelivery costs and outfitting. It also resulted in a substantial reduction of fiscal year 1969 and prior years' funding requirements for shipbuilding programs still in process.\nBureau of the Budget [now Office of Management and Budget] Circular No. A-11, issued in July 1962, stated that:\n\"Requests for major procurements and construction programs will provide for full financing of the complete cost...\"\nA revision to Circular A-11 on July 25, 1968, stated:\n\"Request for major procurement programs will provide for full financing of the entire cost.\"\nAlthough the Bureau of the Budget uses the terms \"full financing,\" \"complete cost,\" and \"entire cost\" and the Office, Secretary of Defense, uses the term \"total cost of an end-item\" as stated in DOD Instruction 5000.8 \"Glossary of Terms Used in the Areas of Financial, Supply and Installation Management,: dated June 15, 1961, it is generally understood that all four terms refer to the same concept as does the term \"full funding.\"\nTo supplement the concept of full funding as expressed in DOD Directive 7200.4 quoted [above], we have formulated the following expression of the concept based on our discussions with DOD personnel.\nFull funding exists when adequate obligational authority is available in the procurement appropriation to meet the currently estimated cost of a budget line item. A budget line item includes a specific quantity of end items, the procurement of which is authorized to be initiated in the program year.\n1973 House Appropriations Committee Report\nIn its report (H.Rept. 93-662 of November 26, 1973) on the FY1974 DOD Appropriation Bill (H.R. 11575), the Committee on Appropriations affirmed the full funding policy and issued a warning against the abuse of the exception permitting advance procurement funding:\nThe Committee is concerned that there is a growing tendency in the Department of Defense (DOD) to abuse the advance procurement exception to the long-established principle of \"full funding\" the procurement appropriations. It is important to understand that the technique of \"advance procurement\" is intended to be a well defined and narrowly-applied exception to a general rule. The basic rule of financing procurement appropriations, commonly known as \"full funding\", is that each annual budgetary request for a quantity of end items of military equipment will contain all of the obligational authority required to deliver those end items in a complete and militarily useful fashion. Said another way, no procurement budget request should be dependent upon future year appropriations to make it whole.\nThis general rule of \"full funding\" is well defined in DOD's own Directive 7200.4. This same directive also clearly defines and limits the one recognized exception to \"full funding\", i.e., the advance procurement technique. Where an end item of military hardware contains components meeting specified criteria, it is permissible for those components to be budgeted in the year prior to the year in which their intended end items will be budgeted....\nThe foregoing rules have been carefully drawn after extensive discussions between Congressional staff members and representatives of the DOD. They represent sound policy. Unfortunately, the Department of Defense has not always adhered to these rules....\nThe Secretary of Defense is requested to personally review advance procurement funding requests proposed for the fiscal year 1975 budget in light of the foregoing direction and DOD Directive 7200.4. If there are future abuses of the advance procurement funding concept, the Committee will have to reconsider the advance procurement technique itself.\n1978 House Budget Committee Hearing\nThe full funding policy was reviewed at a 1978 hearing before a House Budget Committee task force on budget process. The hearing focused on the Carter Administration's proposal to expand the application of the full funding policy to additional programs in the Federal budget.\nAt this hearing, John R. Quetsch, Principal Deputy Assistant Secretary (Comptroller), Department of Defense, provided DOD's perspective on the full funding policy. He began by summarizing the history of the policy in a fashion very similar to the above excerpt from the 1969 GAO report: He stated that the policy was first applied to the Navy shipbuilding program authorized by the act of March 10, 1951, and \"That once the principle was established for shipbuilding it was gradually applied to procurement programs in general.\" He cited the May 15, 1957 letter to the Secretary of Defense from Representative Mahon and the Secretary's issuance on May 21, 1957, of DOD Directive 7200.4, which he, like GAO, characterized as \"responsive to the suggestions expressed by Congressman Mahon in his letter of May 15, 1957.\" He stated that\nIn 1961, because of the problems that were developing as a result of the exception for shipbuilding wherein costs for changes and escalation were not being included in the original budget request, the Department [of Defense] proposed, and both the House Appropriations Committee and the Senate Appropriations Committee concurred the funds should be included for all predicted costs through completion of ship construction.\nHe stated that as a result of GAO's 1969 report, \"DOD directive 7200.4 was updated and strengthened on October 30, 1969. This version of the directive continues in full force and effect today.\" He then noted the endorsement of the policy in the 1973 House Appropriation Committee report. As part of a list of \"some considerations which are derivative from the policy,\" he stated:\nOnce funds are appropriated by the Congress, the principle creates an incentive for us to try to manage the program within our estimate....\nThe whole system for the reprogramming of funds for procurement and military construction programs, a system which has been carefully worked out with the Congress over many years, is predicated on the full funding principle. If we were able to apply all current year funds to current year requirements and defer consideration of cost growth to the year in which the expenditure would be required, the Congress and the public would lose substantial visibility....\nIf major procurement and construction programs were incrementally funded, future Congresses would be committed to financing the balance of incremental starts....\nIncremental funding would inject more uncertainty into our planning and cause the defense industry to be more skeptical of the stability of DOD procurement and construction programs. This, we believe, would translate into higher costs because long-term, cost-saving capital investments are highly dependent upon perceived program stability.\nComparing full funding to incremental funding in terms of its effects on unobligated balances, he stated:\nNow, if the objective were to reduce unobligated balances, this incremental approach does that. However, some unobligated balances would still be required to cover contingencies, termination liabilities, and other uncertainties.\nThe key point, in my judgment, centers on the fact that the expenditures, under both approaches, are the same. It is expenditures and not unobligated balances which influence the Government's need to borrow money. Since the approaches are equal in this regard, the Department of Defense continues to prefer full funding for procurement and military construction because of the stronger management control and discipline inherent in this policy.\nWhile there is the temptation to reduce a given fiscal year's budget by abandoning the full funding policy and applying prior year unobligated balances, this temptation should be resisted. The net result would be little change in our annual requests for appropriations. Instead of dealing with the full cost of new starts in our procurement and construction programs, the Congress would have to address not only the incremental costs of new starts, but also the incremental requirements of previously approved programs. In the absence of any advantages of incremental funding in the areas of reduced expenditures or requirements for budget authority, the advantages of full funding in the other areas I mentioned are evident.\nWhen asked whether DOD has experienced any operational or procedural problems with the full funding policy, he replied:\nWe have. We like the policy, but nothing is free. There are two kinds of problems, basically—those internal and those external. The external ones I think you are familiar with; primarily the criticism of our unobligated balances.\nWe basically feel if you go for the principle which is good you have to accept the unobligated balances. I will discuss the internal ones. Basically, they are the human resistance to discipline. We expect a fully funded program to be some sort of commitment on the part of the program manager that he can produce that program, that end result, that thing, at that price and what often happens is people do not like to do that. They want to get their foot in the door—they want to get us; they want to get OMB; they want to get the Congress committed to programs to the point where we have to bail them out. Almost all the internal procedure problems stem from that.\nWe have to review, as almost every level in DOD does, the cost estimates to make sure they are realistic and achievable. We have not always been successful.\nAgain, going back to the shipbuilding program which is most dramatic, we have to include line items for cost growth and escalation because our original estimates were not adequate particularly in a period of high and unpredicted inflation.\nWe have resisted that in recent years successfully but it can be a problem when you run into unexpected inflation or any other unexpected amounts.\nWhen asked whether he thought DOD has saved any money by using the full funding approach, he replied:\nYes, sir, sometimes at some expense to other programs, that is in enforcing the discipline.\nIn some cases, rather than come back to the Congress for the [additional needed] money, we have had to cancel programs in order to complete others, or have had to reduce some programs in order to complete others, but we certainly feel the discipline on the program manager has paid off substantially because he does know that he has made a commitment and he will have to live with it and that he or some fellow program manager will suffer if he does not come in at the budgeted price.\nLater in the hearing, he stated:\nBy appropriating the money on a full finding basis, you automatically subject it to the reporting and accounting discipline of the agencies involved. In addition, you have an obligated balance to look at under full funding.\nYou do not have any unobligated balances to look at under incremental funding. You have no measure on the books. You have no original plan which you can hold the agency to and actually expect them to reflect on the books. They can come up every year and explain what happened in the preceding year, but not by month [sic].\nYou cannot see how the project manager is spending against his original estimate and his obligation against his original estimate. It [full funding] gives you on the books of the Government, a record.\nAt this same hearing, W. Bowman Cutter, Executive Associate Director for Budget at OMB, testifying in support of the Carter Administration's proposal to apply the full funding concept more comprehensively through the federal budget, stated:\nThe President believes that full funding is desirable because it:\nProvides a clearer understanding of the total effect of budget proposals , since full funding requires appropriations in terms of total costs for an entire project at the time any funding is provided.\nIncreases flexibility in programming and the ability of the Government to speed up the project if changes in economic conditions warrant acceleration.\nPermits construction progress at more economic rates with resulting savings to the Government by providing program continuity and eliminating uneconomic start-up and stop costs that sometimes accompany incremental funding.\nDonald Scantlebury, Director of Financial and General Management Studies at GAO, stated at the hearing:\nThe significance of the full-funding concept is that it permits an agency to contract for the full cost of an item or items, such as ships, with the knowledge that full obligational authority is available to complete the item or items and that completion of the work will not be held up or stretched out by budget cuts or funding delays.\nPrior to the institution of full funding, funds were provided in annual increments. Shipbuilding has often been used as an example of explaining the full-funding concept because of the length of procurement lead which ranges from 3 to 7 years depending primarily on the type of ship.... Each year authority was granted for only a portion of the ship or ships being contracted for. Over the length of the contract budget reductions and constraints could delay timely completion of the ships and result in additional cost of the total ship....\nWe believe that full funding has the advantage of permitting agencies to complete long-term projects at optimum efficiency and reduces delays caused by funding restraints.\n1996 GAO Report\nA 1996 GAO report on budgeting for federal capital assets stated:\nDespite the potential problems for individual agencies, up-front funding is critical to safeguarding Congress's ability to control overall federal expenditures and to assess the impact of the federal budget on the economy. Without up-front funding, projects may be undertaken without adequate attention being given to their overall costs and benefits. Moreover, failure to fully funding projects before they are undertaken can distort the allocation of budge resources and obscure the impact of federal budgetary action on the private sector. Only a few agencies, including the Army Corps of Engineers (one of our case studies) have been exempted from the up-front funding requirement. Despite these agencies' use of incremental funding, OMB has taken steps to encourage consistent application of up-front funding across government in the future.\nThe report amplified on these points two pages later:\nAlthough possibly problematic for individual agencies, up-front funding has long been recognized as an important tool for maintaining governmentwide fiscal control. The requirement that budget authority be provided up-front, before the government enters into any commitment, was established over 100 years ago in the Adequacy of Appropriations Act and the Antideficiency Act. These acts responded to past problems in which agencies committed the government to payments that exceeded the resources made available to them by Congress.\nThe importance of the principle was reinforced by the 1967 Report of the President's Commission on Budget Concepts, which emphasized the primary purposes of the budget as being the efficient allocation of resources and the formulation of fiscal policy to benefit the national economy. The up-front funding requirement advances both. It is essential for efficient resource allocation decisions because it helped ensure that the Congress considers the full cost of all proposed commitments and makes trade-offs based on full costs. To be useful in the formulation of fiscal policy, the budget must be able to highlight the impact of the federal budget on the economy. For this purpose, the requirement for up-front funding also serves the Congress well. The point at which capital spending has the largest and most direct economic impact on the private sector occurs at the point the commitment is made—that is, up-front—not over the expected lifetime of a long-lived asset.\nFailure to recognize the full cost of a particular type of expenditure when budget decisions are being made could lead to distortions in the allocation of resources. In other words, if particular types of spending, such as for physical assets, were given preferential treatment in the budget by virtue of recognizing only a fraction of their total cost, then it is likely that relatively more spending for those types of assets would occur. While advocates for purchasing some federal assets may see this as a desirable end, such an outcome may not accurately reflect the nation's needs. In particular, other types of federal spending that also provide long-term benefits but that are not physical assets (including research and development and spending for human capital) would be arbitrarily disadvantaged in the budget process, even if national priorities remain unchallenged.\nFurthermore, failure to fully fund capital projects at the time the commitment is entered into can force future Congresses and administrations to choose between having an unusable asset and continuing projects' funding for years even after priorities may have changed. For example, if the Congress provides funding for only part of a project and that part is not usable absent completion of the entire project, then the Congress and the administration may feel compelled to continue funding in the future to avoid wasting the initial, partial funding that was already spent. Thus, if capital projects are begun without full funding, future Congresses and administrations may, in effect, be forced to commit a greater share of their annual resources to fulfilling past commitments and thus have less flexibility to respond to new or changing needs as they arise.\nIn the final chapter of its report, GAO stated:\nFull up-front funding is one of the tools that has been important to facilitating fiscal control and comparisons of the long-term costs of spending alternatives. An essential part of prudent capital planning must be an adherence to full up-front funding. When full up-front funding is not practiced, the Congress risks committing the government to capital acquisitions without determining whether the project is affordable over the long-term. Incremental funding also compels future Congresses to fund a project in order to prevent wasting resources previously appropriated. As budget constraints continue, incremental funding may lock the Congress into future spending patterns and reduce flexibility to respond to new needs. In the budget process, fully funded projects may be disadvantaged in competition with incrementally funded projects—even when the fully funded projects actually cost less in the long run.\nHowever, full up-front funding can impede agencies' ability to economically acquire capital in an environment of resource constraints. Full up-front funding of relatively expensive capital acquisitions can consume a large share of an agency's annual budget, thereby forcing today's decision-makers to pay all at once for projects with long-lived benefits. While various capital budgeting proposals have been advanced to address this, the proposals themselves have raised significant concern because of their potential diminution of fiscal accountability and control. Consequently, agencies need financing tools that can provide the fiscal control of up-front funding and can enable them to make prudent capital decisions within the current unified budget frame work.\nGAO observed and concluded the following:\nThe requirement of full up-front funding is an essential too in helping the Congress make trade-offs among various spending alternatives. However, in an environment of constrained budgetary resources, agencies need tools that can help facilitate these trade-offs and that enable them to accommodate up-front funding. Furthermore, to successfully implement GPRA's requirement for program performance measures, managers will also need to know the full costs of their programs—including capital usage.\nSome have recommend that the government adopt a full-scale capital budget, but this raises major budget control issues and may not be necessary to address agency-identified impediments to capital spending. Rather, our case studies demonstrate that more modest tools, such as revolving funds, investment components, and budgeting for stand-alone stages, can help accommodate up-front funding without raising the congressional or fiscal control issues of a separate capital budget.\nAs a \"matter for congressional consideration,\" the GAO report recommended the following:\nAlthough requiring that budget authority for the full cost of acquisitions be provided before an acquisition is made allows the Congress to control capital spending at the time a commitment is made, it also presents challenges. Because the entire cost for these relatively expensive acquisitions must be absorbed in the annual budget of an agency or program, fixed assets may seem prohibitively expensive despite their long-term benefits.\nThis report describes some strategies that a number of agencies have used to manage this dilemma. The Congress should consider enabling agencies to use more flexible budgeting mechanisms that accommodate up-front funding over the longer term while providing appropriate oversight and control. For agencies having proven financial management and capital planning capabilities and relatively small ongoing capital needs, these techniques could include revolving funds and investment components. Such techniques enable agencies to accumulate resources over a period of years in order to finance certain capital needs, promote full costing of programs and activities by including costs related to capital usage in program budgets, and provide a degree of funding predictability to aid in long-range planning. As GPRA move toward full implementation, these and other tools may take on increasing importance in helping managers and the Congress to identify program costs and to more efficiently manage capital assets.\n2001 GAO Letter Report and Briefing\nIn response to an August 2000 request from the Senate Budget Committee, the GAO prepared a briefing on incremental funding of capital asset acquisitions, including an assessment of \"the implications for future DOD budgets if the Navy's shipbuilding and conversion account were to change from incremental to full funding....\" The briefing was given to the staff of Senate Budget Committee in December 2000, and was subsequently given to staff from the Senate Armed Services Committee, the Senate Appropriations Committee, and the House Appropriations Committee.\nIn February 2001, GAO prepared a letter to the Senator Pete Domenici, the chairman of the Senate Budget Committee, and other congressional recipients, summarizing the briefing and enclosing the briefing slides. As summarized in the letter, the GAO briefing concluded the following, in part:\nIf the Navy shipbuilding and conversion account were to be moved from full to incremental funding for a given period of time, this would not allow the Navy to procure more ships for a given amount of funding. Additional ships would require additional funding. After the initial year, incremental funding reduces the amount of budget authority available to fund new ships in any given fiscal year because a portion of the funding must be devoted to completing ships partially funded in prior years. In addition, there is risk of cost growth associated with all capital projects—cost growth has occurred with fully funded projects as well as incrementally funded projects. Any cost growth on ships partially funded in prior years would further reduce the funding available for new ships. In addition, costs and commitments continue beyond the year depicted in the briefing slides in all scenarios.\nThere are several other budgetary implications as well as acquisition management issues related to incremental funding for the Navy and for agencies in general. In general, full funding ensures that the full estimated costs of decisions are recognized at the time that the commitment is made. Incremental funding erodes future fiscal flexibility for programs such as shipbuilding because funding is dedicated to completing procurements begun in previous years. According to DOD and OMB officials, incremental funding also limits cost visibility and accountability. These officials believe that acquisition estimates are likely to increase because there would be an incentive to \"low ball\" the estimate at the beginning. Additionally, contractors may hedge their bets on pricing because they may not be able to take advantage of economies of scale that can come with longer-term and more certain commitments.\nThe use of incremental funding and lease-purchase arrangements in the past has had some negative consequences. For example, a 1996 GAO report cited incremental funding as a key factor underlying Department of Energy project cost overruns and schedule delays. Another GAO report found that the use of long-term leases for auxiliary ships in the 1970s and 1980s resulted in higher costs per ship.\nPromoting effective management of capital asset acquisitions is important. We recognize that some incremental funding for high technology acquisitions is justified because, while such projects are intended to result in a usable asset, they are closer in nature to research and development activities. However, for other capital projects, as we have previously reported, full funding is an important tool for maintaining governmentwide fiscal control. Failure to recognize the full costs of proposed commitments when budget decisions are made could lead to distortions in the allocation of resources." ], "depth": [ 0, 1, 1, 2, 2, 3, 3, 3, 2, 3, 4, 4, 4, 4, 4, 3, 4, 4, 4, 4, 4, 4, 4, 4, 1, 2, 3, 3, 2, 3, 3, 3, 3, 3, 1, 2, 3, 3 ], "alignment": [ "h0_title h2_title h1_title", "h0_full", "h0_title h1_title", "h0_full h1_full", "h0_title h1_title", "", "h0_full", "h1_full", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "h2_title h1_title", "h2_title", "", "h2_full", "h2_full h1_title", "", "", "", "h1_full", "h2_full", "h2_title", "h2_title", "", "h2_full" ] }

{ "question": [ "What is the full funding policy?", "How is this policy related to Congress?", "How has this policy been supported?", "What is an effect of the full funding policy?", "Why did incremental funding fall out of favor?", "What do supporters of incremental funding believe?", "What are the potential effects of Congress's various options for responding to recent proposals for procuring DOD ships and aircraft that do not conform to full funding policy?", "What might Congress consider regarding these options?", "What factors will Congress need to take into consideration when making this decision?", "How frequently will this report be updated?" ], "summary": [ "The full funding policy is a federal budgeting rule imposed on the Department of Defense (DOD) by Congress in the 1950s that requires the entire procurement cost of a weapon or piece of military equipment to be funded in the year in which the item is procured.", "Although technical in nature, the policy relates to Congress's power of the purse and its responsibility for conducting oversight of DOD programs.", "Support for the policy has been periodically reaffirmed over the years by Congress, the Government Accountability Office, and DOD.", "A principal effect of the full funding policy is to prevent the use of incremental funding, under which the cost of a weapon is divided into two or more annual portions.", "Incremental funding fell out of favor because opponents believed it could make the total procurement costs of weapons and equipment more difficult for Congress to understand and track, create a potential for DOD to start procurement of an item without necessarily stating its total cost to Congress, permit one Congress to \"tie the hands\" of future Congresses, and increase weapon procurement costs by exposing weapons under construction to uneconomic start-up and stop costs.", "Supporters of incremental funding, however, could argue that its use in DOD procurement programs could produce certain advantages in terms of reducing disruption to other programs, avoiding investment bias against very expensive items, improving near-term production economies of scale, and preserving flexibility for future Congresses to halt funding for weapons under construction that have become unnecessary or inappropriate.", "Congress has several options for responding to recent proposals for procuring DOD ships and aircraft with funding mechanisms that do not conform to the full funding policy. These options could have the effect of terminating, modifying, maintaining, or strengthening the full funding policy.", "In weighing these options, Congress may consider several factors, including Congress's power of the purse, its ability to conduct oversight of DOD procurement programs, the impact on future Congresses, DOD budgeting discipline, and the potential impact on weapon costs.", "The process of weighing options may involve balancing a need to meet DOD procurement goals within available funding against the goal of preserving Congress's control over DOD spending and its ability to conduct oversight of DOD programs.", "This report will be updated as events warrant." ], "parent_pair_index": [ -1, 0, 0, -1, 0, 0, -1, 0, 0, -1 ], "summary_paragraph_index": [ 0, 0, 0, 2, 2, 2, 3, 3, 3, 3 ] }

{ "title": [ "", "Political and Economic Situation", "Political Background and Colombia's Internal Conflict", "Roots of the Conflict", "The Uribe Administration (2002-2010)", "The Santos Administration (2010-2018)", "A New Legislature and President in 2018", "Economic Background", "Peace Accord Implementation", "The Current Security Environment", "Instability in Venezuela Drives a Regional Migrant Crisis61", "Ongoing Human Rights Concerns", "Extrajudicial Executions and \"False Positives\"", "Human Rights Defenders and Journalists", "Violence and Labor", "Internal Displacement", "Regional Relations", "Colombia's Role in Training Security Personnel Abroad", "U.S. Relations and Policy", "Plan Colombia and Its Follow-On Strategies", "National Consolidation Plan and Peace Colombia", "Funding for Plan Colombia and Peace Colombia", "Human Rights Conditions on U.S. Assistance", "Assessing the Programs of Plan Colombia and Its Successors123", "Trends in Colombia's Coca Cultivation", "Drug Crop Eradication and Other Supply Control Alternatives", "New Developments Under the Duque Administration", "U.S.-Colombia Trade Relations, OECD, and the Pacific Alliance", "Outlook", "Appendix. Selected Online Human Rights Reporting on Colombia" ], "paragraphs": [ "", "", "Colombia, one of the oldest democracies in the Western Hemisphere and the third most populous Latin American country, has endured a multisided civil conflict for more than five decades until President Juan Ma nuel Santos declared the conflict over in August 2017 at the end of a U.N.-monitored disarmament. According to the National Center for Historical Memory 2013 report, presented to the Colombian government as part of the peace process to end the fighting, some 220,000 Colombians died in the armed conflict through 2012, 81% of them civilians.\nThe report also provided statistics quantifying the scale of the conflict, which has taken a huge toll on Colombian society: more than 23,000 selective assassinations between 1981 and 2012; internal displacement of more than 5 million Colombians due to land seizure and violence; 27,000 kidnappings between 1970 and 2010; and 11,000 deaths or amputees from anti-personnel land mines laid primarily by Colombia's main insurgent guerrilla group, the Revolutionary Armed Forces of Colombia (FARC). To date, more than 8 million Colombians, or roughly 15% of the population, have registered as conflict victims.\nAlthough the violence has scarred Colombia, the country has achieved a significant turnaround. Once considered a likely candidate to become a failed state, Colombia, over the past two decades, has overcome much of the violence that had clouded its future. For example, between 2000 and 2016, Colombia saw a 94% decrease in kidnappings and a 53% reduction in homicides (below 25 per 100,000 in 2016). Coupled with success in lowering violence, Colombia has opened its economy and promoted trade, investment, and growth. Colombia has become one of Latin America's most attractive locations for foreign direct investment. Yet, after steady growth over several years, Colombia's economy slowed to 3.1% growth in 2015 and declined to 1.7% in 2017. Many analysts identified Colombia's dependence on oil and other commodity exports as the primary cause.\nBetween 2012 and 2016, the Colombian government held formal peace talks with the FARC, Colombia's largest guerrilla organization. Upon taking office for a second term in August 2014, President Santos declared peace, equality, and education as his top priorities, although achieving the peace agreement remained his major focus. In August 2016, the government and FARC negotiators announced they had concluded their talks and achieved a 300-page peace agreement. The accord was subsequently narrowly defeated in a popular referendum held in early October 2016, but was revised by the Santos government and agreed to by the FARC and then ratified by the Colombian Congress at the end of November 2016.", "The Colombian conflict predates the formal founding of the FARC in 1964, as the FARC had its beginnings in the peasant self-defense groups of the 1940s and 1950s. Colombian political life has long suffered from polarization and violence based on the significant disparities and inequalities suffered by landless peasants in the country's peripheral regions. In the late 19 th century and a large part of the 20 th century, the elite Liberal and Conservative parties dominated Colombian political life. Violence and competition between the parties erupted in a period of extreme violence in Colombia, known as La Violencia , set off in 1948 by the assassination of Liberal presidential candidate Jorge Gaitán. The violence continued for the next decade.\nAfter a brief military rule (1953-1958), the Liberal and Conservative parties agreed to a form of coalition governance, known as the National Front. Under the arrangement, the presidency of the country alternated between Conservatives and Liberals, each holding office in turn for four-year intervals. This form of government continued for 16 years (1958-1974). The power-sharing formula did not resolve the tension between the two historic parties, and many leftist, Marxist-inspired insurgencies took root in Colombia, including the FARC, launched in 1964, and the smaller National Liberation Army (ELN), which formed the following year. The FARC and ELN conducted kidnappings, committed serious human rights violations, and carried out a campaign of terrorist activities to pursue their goal of unseating the central government in Bogotá.\nRightist paramilitary groups formed in the 1980s when wealthy ranchers and farmers, including drug traffickers, hired armed groups to protect them from the kidnapping and extortion plots of the FARC and ELN. In the 1990s, most of the paramilitary groups formed an umbrella organization, the United-Self Defense Forces of Colombia (AUC). The AUC massacred and assassinated suspected supporters of the insurgents and directly engaged the FARC and ELN in military battles. The Colombian military has long been accused of close collaboration with the AUC, accusations ranging from ignoring their activities to actively supporting them. Over time, the AUC became increasingly engaged in drug trafficking, and other illicit businesses. In the late 1990s and early 2000s, the U.S. government designated the FARC, ELN, and AUC as Foreign Terrorist Organizations (FTOs). The AUC was formally dissolved in a collective demobilization between 2003 and 2006 after many of its leaders stepped down. However, former paramilitaries joined armed groups (called criminal bands, or Bacrim, by the Colombian government) who continued to participate in the lucrative drug trade and commit other crimes and human rights abuses. When the FARC demobilized in 2017, other illegally armed groups began aggressive efforts to take control of former FARC territory and its criminal enterprises as FARC forces withdrew. (For more, see \" The Current Security Environment ,\" below.)", "The inability of Colombia's two dominant parties to address the root causes of violence in the country led to the election of an independent, Álvaro Uribe, in the presidential contest of 2002. Uribe, who served two terms, came to office with promises to take on the violent leftist guerrillas, address the paramilitary problem, and combat illegal drug trafficking.\nDuring the 1990s, Colombia had become the region's—and the world's—largest producer of cocaine. Peace negotiations with the FARC under the prior administration of President Andrés Pastrana (1998-2002) had ended in failure; the FARC used a large demilitarized zone located in the central Meta department (see map, Figure 1 ) to regroup and strengthen itself. The central Colombian government granted the FARC this demilitarized zone, a traditional practice in Colombian peace negotiations, but the FARC used it to launch terror attacks, conduct operations, and increase the cultivation of coca and its processing, while failing to negotiate seriously. Many analysts, noting the FARC's strength throughout the country, feared that the Colombian state might fail and some Colombian citizens thought the FARC might at some point successfully take power. The FARC was then reportedly at the apogee of its strength, numbering an estimated 16,000 to 20,000 fighters under arms.\nThis turmoil opened the way for the aggressive strategy advocated by Uribe. At President Uribe's August 2002 inauguration, the FARC showered the event with mortar fire, signaling the group's displeasure at the election of a hardliner, who believed a military victory over the Marxist rebels was possible. In his first term (2002-2006), President Uribe sought to shore up and expand the country's military, seeking to reverse the armed forces' losses by aggressively combating the FARC. He entered into peace negotiations with the AUC.\nPresident Pastrana had refused to negotiate with the rightist AUC, but Uribe promoted the process and urged the country to back a controversial Justice and Peace Law that went into effect in July 2005 and provided a framework for the AUC demobilization. By mid-2006, some 31,000 AUC paramilitary forces had demobilized. The AUC demobilization, combined with the stepped-up counternarcotics efforts of the Uribe administration and increased military victories against the FARC's irregular forces, helped to bring down violence, although a high level of human rights violations still plagued the country. Uribe became widely popular for the effectiveness of his security policies, a strategy he called \"Democratic Security.\" Uribe's popular support was evident when Colombian voters approved a referendum to amend their constitution in 2005 to permit Uribe to run for a second term.\nFollowing his reelection in 2006, President Uribe continued to aggressively combat the FARC. For Uribe, 2008 was a critical year. In March 2008, the Colombian military bombed the camp of FARC's second-in-command, Raul Reyes (located inside Ecuador a short distance from the border), killing him and 25 others. Also in March, another of FARC's ruling seven-member secretariat was murdered by his security guard. In May, the FARC announced that their supreme leader and founder, Manuel Marulanda, had died of a heart attack. The near-simultaneous deaths of three of the seven most important FARC leaders were a significant blow to the organization. In July 2008, the Colombian government dramatically rescued 15 long-time FARC hostages, including three U.S. defense contractors who had been held captive since 2003 and Colombian senator and former presidential candidate Ingrid Bentancourt. The widely acclaimed, bloodless rescue further undermined FARC morale.\nUribe's success and reputation, however, were marred by several scandals. They included the \"parapolitics\" scandal in 2006 that exposed links between illegal paramilitaries and politicians, especially prominent members of the national legislature. Subsequent scandals that came to light during Uribe's tenure included the \"false positive\" murders allegedly carried out by the military (primarily the Colombian Army) in which innocent civilians were executed and then dressed to look like guerilla fighters to increase the military's rebel body count. In 2009, the media revealed another scandal of illegal wiretapping and other surveillance by the government intelligence agency, the Department of Administrative Security (DAS), to discredit journalists, members of the judiciary, and political opponents of the Uribe government. (In early 2012, the tarnished national intelligence agency was replaced by Uribe's successor, Juan Manuel Santos.) Despite the controversies, President Uribe remained popular and his supporters urged him to run for a third term in 2010. Another referendum was proposed to alter the constitution to allow a third term; however, it was turned down by Colombia's Constitutional Court.", "Once it became clear that President Uribe was constitutionally ineligible to run again, Juan Manuel Santos of the pro-Uribe National Unity party (or Party of the U) quickly consolidated his preeminence in the 2010 presidential campaign. Santos, a centrist, who came from an elite family that once owned the country's largest newspaper, had served as Uribe's defense minister through 2009. In 2010, Santos campaigned on a continuation of the Uribe government's approach to security and its role encouraging free markets and economic opening, calling his reform policy \"Democratic Prosperity.\" In the May 2010 presidential race, Santos took almost twice as many votes as his nearest competitor, Antanas Mockus of the centrist Green Party, but he did not win a majority. Santos won the June runoff with 69% of the vote. Santos's \"national unity\" ruling coalition formed during his campaign included the center-right National Unity and Conservative parties, the centrist Radical Change Party, and the center-left Liberal party.\nOn August 7, 2010, President Santos said in his first inauguration speech that he planned to follow in the path of President Uribe, but that \"the door to [peace] talks [with armed rebels] is not locked.\" The Santos government was determined to improve relations with Ecuador and Venezuela, which had become strained under Uribe. Santos sought to increase cooperation on cross-border coordination and counternarcotics. He attempted to reduce tensions with Venezuela that had become fraught under Uribe, who claimed that Venezuelan President Hugo Chávez had long harbored FARC and ELN forces.\nDuring his first two years in office, President Santos reorganized the executive branch and built on the market opening strategies of the Uribe administration and secured a free-trade agreement with the United States, Colombia's largest trade partner, which went into effect in May 2012. To address U.S. congressional concerns about labor relations in Colombia, including the issue of violence against labor union members, the United States and Colombia agreed to an \"Action Plan Related to Labor Rights\" (Labor Action Plan) in April 2011. Many of the steps prescribed by the plan were completed in 2011 while the U.S. Congress was considering the free trade agreement.\nSignificantly, the Santos government maintained a vigorous security strategy and struck hard at the FARC's top leadership. In September 2010, the Colombian military killed the FARC's top military commander, Victor Julio Suárez (known as \"Mono Jojoy\"), in a bombing raid. In November 2011, the FARC's supreme leader, Guillermo Leon Saenz (aka \"Alfonso Cano\") was assassinated. He was replaced by Rodrigo Londoño Echeverri (known as \"Timoleón Jiménez\" or \"Timochenko\"), the group's current leader.\nWhile continuing the security strategy, the Santos administration began to re-orient the Colombian government's stance toward the internal armed conflict through a series of reforms. The first legislative reform that moved this new vision along, signed by President Santos in June 2011, was the Victims' and Land Restitution Law (Victims' Law), to provide comprehensive reparations to an estimated (at the time) 4 million to 5 million victims of the conflict. Reparations under the Victims' Law included monetary compensation, psycho-social support and other aid for victims, and the return of millions of hectares of stolen land to those displaced. The law was intended to process an estimated 360,000 land restitution cases. The government's implementation of this complex law began in early 2012. Between 2011 and 2016, there were more than 100,000 applications for restitution and 5,000 properties, or about 5%, were resolved by judges.\nThe Victims' Law, while not a land reform measure, tackled issues of land distribution including the restitution of stolen property to displaced victims. Given the centrality of land issues to the rural peasant-based FARC, passage of the Victims' Law was a strong indicator that the Santos government shared its interest in addressing land and agrarian concerns. In June 2012, another government initiative—the Peace Framework Law, also known as the Legal Framework for Peace—was approved by the Colombian Congress, which signaled that congressional support for a peace process was growing.\nIn August 2012, President Santos announced he had opened exploratory peace talks with the FARC and was ready to launch formal talks. The countries of Norway, Cuba, Venezuela, and Chile each held an international support role, with Norway and Cuba serving as peace talk hosts and \"guarantors.\" Following the formal start in Norway, the actual negotiations began a month later in mid-November 2012 in Cuba, where the FARC-government talks continued until their conclusion in August 2016.\nIn the midst of extended peace negotiations, Colombia's 2014 national elections presented a unique juncture for the country. During the elections, the opposition Centro Democrático (CD) party gained 20 seats in the Senate and 19 in the less powerful Chamber of Representatives, and its leader, former President Uribe, became a popular senator. His presence in the Senate challenged the new ruling coalition that backed President Santos.\nDuring his second-term inaugural address in August 2014, President Santos declared three pillars—peace, equality, and education—as his focus, yet his top priority was to conclude the peace negotiations with the FARC. In February 2015, the Obama Administration provided support to the peace talks by naming Bernard Aronson, a former U.S. assistant secretary of state for Inter-American Affairs, as the U.S. Special Envoy to the Colombian peace talks.\nTalks with the FARC concluded in August 2016. In early October, to the surprise of many, approval of the accord was narrowly defeated in a national plebiscite by less than a half percentage point of the votes cast, indicating a polarized electorate. Regardless, President Santos was awarded the Nobel Peace Prize in December 2016, in part demonstrating strong international support for the peace agreement. In response to the voters' criticisms, the Santos government and the FARC crafted a modified agreement, which they signed on November 24, 2016. Rather than presenting this agreement to a plebiscite, President Santos sent it directly to the Colombian Congress, where it was ratified on November 30, 2016. Although both chambers of Colombia's Congress approved the agreement unanimously, members of the opposition CD party criticized various provisions in the accord that they deemed inadequate and boycotted the vote.\nThe peace process was recognized as the most significant achievement of the Santos presidency and lauded outside of Colombia and throughout the region. Over the course of two terms, the President's approval ratings rose and fell rather significantly. His crowning achievement, the accord negotiated over 50 rounds of talks, covered five substantive topics: rural development and agricultural reform; political participation by the FARC; an end to the conflict, including demobilization, disarmament and reintegration; a solution to illegal drug trafficking; and justice for victims. A sixth topic provided for mechanisms to implement and monitor the peace agreement.", "Colombians elected a new congress in March 2018 and a new president in June 2018. Because no presidential candidate won more than 50% of the vote on May 27, 2018, as required for a victory in the first round, a second-round runoff was held June 17 between the rightist candidate Iván Duque and the leftist candidate Gustavo Petro (see results for presidential contest, Figure 3 ). Duque was carried to victory with almost 54% of the vote. Runner-up Petro, a former mayor of Bogotá, a former Colombian Senator, and once a member of the M-19 guerilla insurgency, nevertheless did better than any leftist candidate in a presidential race in the past century; he won 8 million votes and nearly 42% of the votes cast. Around 4.2% were protest votes, signifying Colombian voters who cast blank ballots.\nThrough alliance building, Duque achieved a functional majority or a \"unity\" government, which involved the Conservative Party, Santos's prior National Unity or Party of the U, joining the CD, although compromise was required to keep the two centrist parties in sync with the more conservative CD. In the new Congress, two extra seats, for the presidential and vice presidential runners up, became automatic seats in the Colombian Senate and House, due to a constitutional change in 2015, allowing presidential runner up Gustavo Petro to return to the Senate. The CD party, which gained seats in both houses in the March vote, won the majority in the Colombian Senate (see Figure 2 for seat breakouts by party).\nDuque, who was inaugurated on August 7, 2018, at the age of 42, was the youngest Colombian president elected in a century. He possessed limited experience in Colombian politics. Duque was partially educated in the United States and worked for at decade at the Inter-American Development Bank in Washington, DC. He was the handpicked candidate of former president Uribe, who vocally opposed many of Santos's policies. Disgruntled Colombians perceived Santos as an aloof president whose energy and political capital were expended accommodating an often-despised criminal group, the FARC. President Duque appeared to be technically oriented and interested in economic reform, presenting himself as a modernizer.\nDuring his campaign, Duque called for economic renewal and lower taxes, fighting crime, and building renewed confidence in the country's institutions through some reforms. On September 26, 2018, in a speech before the U.N. General Assembly, the new president outlined his policy objectives . Duque called for increasing legality, entrepreneurship, and fairness by (1) promoting peace; (2) combating drug trafficking and recognizing it as a global menace, and (3) fighting corruption, which he characterized as a threat to democracy. He also maintained that the humanitarian crisis in neighboring Venezuela, resulting in more than 1 million migrants fleeing to Colombia, was an emergency that threatened to destabilize the region. Duque proposed a leadership role for Colombia in denouncing the authoritarian government of President Nicolás Maduro and containing his government's damage. By late November 2018, 1.2 million Venezuelans already present in Colombia were putting increasing pressure on the government's finances, generating a burden estimated at nearly 0.5% of the country's gross domestic product (GDP).\nPresident Duque, along with his vice president, Marta Lucía Ramírez, who initially ran as the Conservative Party candidate in the first round, recommended that drug policy shift back to a stricter counterdrug approach rather than a model endorsed in the peace accord, which focuses on voluntary eradication and economic support to peasant farmers to transition away from illicit drug crops. Duque campaigned on returning to spraying coca crops with the herbicide glyphosate. This would reverse Colombia's decision in mid-2015 to end aerial spraying, which had been a central—albeit controversial—feature of U.S.-Colombian counter-drug cooperation for two decades.\nColombians' concerns with corruption became particularly acute during the 2018 elections, as major scandals were revealed. Similar to many countries in the region, government officials, including Santos during his 2014 campaign for reelection and the opposition candidate during that campaign were accused of taking payoffs (bribes) from the Odebrecht firm, the Brazilian construction company that became embroiled in a region-wide corruption scandal. In December 2018, presidential runner up Gustavo Petro was accused of taking political contributions from Odebrecht in a video released by a CD senator, indicating that both the left and the right of the Colombian political spectrum has been tainted by corruption allegations.\nIn June 2017, the U.S. Drug Enforcement Administration arrested Colombia's top anti-corruption official, Gustavo Moreno. In mid-September 2017, the former chief justice of Colombia's Supreme Court was arrested for his alleged role in a corruption scandal that involved other justices accused of taking bribes from Colombian congressmen, some with ties to illegal paramilitary groups. The series of corruption charges made against members of Colombia's judicial branch, politicians, and other officials made the issue a prominent one in Colombian politics and was the focus of a left-centrist candidate's campaign in the presidential contest.\nIn late August 2018, an anti-corruption referendum was defeated by narrowly missing a high vote threshold by less than a half percentage point, although the actual vote favored all seven proposed changes on the ballot. President Duque endorsed the referendum and maintains he will seek to curb many of the abuses identified in the referendum through legislation that his administration will propose.\nThe Duque Administration's first budget for 2019 presented in late October 2018 was linked to an unpopular tax reform that would expand a value-added tax to cover basic food and agricultural commodities (some 36 items in the basic basket of goods, such as eggs and rice, previously exempted). The 2019 budget totals $89.7 billion, providing the education, military and police, and health sectors with the biggest increases, and reducing funding for peace accord implementation. Duque's own Democratic Center party split with him on the value-added tax, which quickly sank his approval ratings from 53% in early September 2018 to a low of 27% in November 2018, among the lowest levels in the early part of a presidential mandate in recent Colombian history.", "Colombia's economy is the fourth largest in Latin America after Brazil, Mexico, and Argentina. The World Bank characterizes Colombia as an upper middle-income country, although its commodities-dependent economy has been hit by oil price declines and peso devaluation related to the erosion of fiscal revenue. Between 2010 and 2014, Colombia's economy grew at an average of more than 4%, but slowed to 3.1% GDP growth in 2015. In 2017, Colombia's GDP growth slowed further to 1.7%. Despite its relative economic stability, high poverty rates and inequality have contributed to social upheaval in Colombia for decades. The poverty rate in 2005 was slightly above 45%, but declined to below 27% in 2016. The issues of limited land ownership and high rural poverty rates remain a problem.\nAccording to a United Nations study published in 2011, 1.2% of the population owned 52% of the land, and data revealed in 2016 that about 49% of Colombians continued to work in the informal economy. Colombia is often described as a country bifurcated between metropolitan areas with a developed, middle-income economy, and some rural areas that are poor, conflict-ridden, and weakly governed. The fruits of the growing economy have not been shared equally with this ungoverned, largely rural periphery. Frequently these more remote areas are inhabited by ethnic minorities or other disadvantaged groups, such as Afro-Colombians, indigenous populations, or landless peasants and subsistence farmers, who are vulnerable to illicit economies due to few connections to the formal economy.\nThe United States is Colombia's leading trade partner. Colombia accounts for a small percentage of U.S. trade (approximately 1%), ranking 22 nd among U.S. export markets and 27 th among foreign exporters to the United States in 2017. Colombia has secured free trade agreements with the European Union, Canada, and the United States, and with most nations in Latin America. Colombian officials have worked over the past decade to increase the attractiveness of investing in Colombia, and foreign direct investment (FDI) grew by 16% between 2015 and 2016. This investment increase came not only from the extractive industries, such as petroleum and mining, but also from such areas as agricultural products, transportation, and financial services.\nPromoting more equitable growth and ending the internal conflict were twin goals of the two-term Santos administration. Unemployment, which historically has been high at over 10%, fell below that double-digit mark during Santos's first term and remained at 9.2% in 2016 but rose slightly to an estimated 9.6% in 2018.\nAlthough Colombia is ranked highly for business-friendly practices and has a favorable regulatory environment that encourages trade across borders, it is still plagued by persistent corruption and an inability to effectively implement institutional reforms it has undertaken, particularly in regions where government presence is weak. According to the U.S. State Department in its analysis of national investment climates, Colombia has demonstrated a political commitment to create jobs, develop sound capital markets, and achieve a legal and regulatory system that meets international norms for transparency and consistency.\nDespite its macroeconomic stability, several issues remain, such as a still-complicated tax system, a high corporate tax burden, and continuing piracy and counterfeiting issues. Colombia's rural-sector protestors formed strikes and blockades beginning in 2013 with demands for long-term and integrated-agricultural reform in a country with one of the most unequal patterns of land ownership. In October and November 2018, Colombian secondary and university students protested in high numbers during six large mobilizations, taking place over 60 days, to demand more funding for education.", "The four-year peace talks between the FARC and the Santos administration started in Norway and moved to Cuba where negotiators worked through a six-point agenda during more than 50 rounds of talks that produced agreements on six major topics. The final topic—verification to enact the programs outlined in the final accord—all parties knew would be the most challenging, especially with a polarized public and many Colombians skeptical of whether the FARC would be held accountable for its violence and crimes during the years of conflict.\nSome analysts have estimated that to implement the programs required by the commitments in the accord to ensure stable post-conflict development may require 15 years and cost from $30 billion to $45 billion. The country faces steep challenges to underwrite the post-accord peace programs in an era of declining revenues. While progress has been uneven, some programs (those related to drug trafficking) had external pressure to move forward quickly and some considered urgent received \"fast track\" treatment to expedite their regulation by Congress. The revised peace accord that was approved by the Colombian Congress in late 2016 was granted fast track implementation by the Colombian Constitutional Court in a ruling on December 13, 2016, particularly applied to the FARC's disarmament and demobilization. However, in May 2017, a new ruling by the high court determined that all legislation related to the implementation of the accord needed to be fully debated rather than passed in an expedited fashion, which some analysts maintain started to slow the process of implementing the accord significantly.\nThe Kroc Institute for International Peace Studies at the University of Notre Dame is responsible for monitoring and implementing the agreement. It issued two interim reports in November 2017 and August 2018. At the end of the last reporting period (June 2018), the Kroc Institute estimated that 63% of the 578 peace accord commitments have begun implementation. In relation to other peace accords it had studied, the Kroc Institute found that the implementation of Colombia's accord was on course as about average, although that progress took place prior to President Duque's election.\nThe first provision undertaken was the demobilization of the FARC, monitored by a U.N. mission that was approved by the U.N. Security Council to verify implementation of the accords. U.N. monitors also emptied large arm caches identified by FARC leaders, seizing the contents of more than 750 of the reported nearly 1,000 caches by the middle of 2017. With the final disarmament, President Santos declared the conflict over in mid-August 2017. The U.S. State Department reported in its Country Reports on Terrorism 201 , that by September 25, 2017, the United Nations had verified the collection of 8,994 arms, 1.7 million rounds, and more than 40 tons of explosives. The report states that the Colombian government had accredited \"roughly 11,000 ex-combatants for transition to civilian life.\"\nThe FARC also revealed its hidden assets in September 2017, listing more than $330 million in mostly real estate investments. This announcement drew criticism from several analysts who note that the FARC assets are likely much greater. In July 2017, the U.N. Security Council voted to expand its mandate and launch a second mission for three years to verify the reintegration of FARC guerrillas into civil society beginning September 20, 2017.\nOne of Colombia's greatest challenges continues to be ensuring security for ex-combatants and demobilized FARC. The FARC's reintegration into civil society is a charged topic because the FARC's efforts in the 1980s to start a political party, known as the Patriotic Union, or the UP by its Spanish acronym, resulted in more than 3,000 party members being killed by rightwing paramilitaries and others. As of the end of 2018, reportedly 85 FARC members and their close relatives had been killed. In addition to unmet government guarantees of security, the FARC also has criticized the government for not adequately preparing for the group's demobilization. According to observers, the government failed to provide basic resources to FARC gathered throughout the country in specially designated zones for disarmament and demobilization (later renamed reintegration zones). The demobilization areas or cantonments had been so little prepared in early 2017 that the FARC had in many cases to construct their own housing and locate food and other provisions.\nReintegration of former combatants has proceeded slowly. The Constitutional Court's May 2017 ruling to restrict fast track, and controversy about the new court to try war crimes and other serious violations, the \"Special Jurisdiction of Peace\" led to further delays. Peace process advocates have cited limited attention to include ethnic Colombians, such as Afro-Colombian leaders and indigenous communities, into the accord's implementation, as required by the \"ethnic chapter\" of the peace accord. A U.N. deputy human rights official warned in October 2017 that after a successful demobilization it would be dangerous not to reintegrate FARC former combatants by providing them realistic options for income and delaying effective reintegration could undermine peace going forward.\nUnder the peace accord, Territorially Focused Development Programs (PDETs in Spanish) are a tool for planning and managing a broad rural development process, with the aim of transforming170 municipalities (covering 16 subregions) most affected by the armed conflict. PDETs target those municipalities in Colombia with the highest number of displacements and those that have experienced the most killings, massacres, and forced disappearances. These marginal areas generally have experienced chronic poverty, high inequality, the presence of illicit crops such as coca, and low levels of local government institutional performance. Violence and forced displacements in some of the PDET municipalities increased in the last half of 2018.\nColombia's Constitutional Court determined in October 2017 that over the next three presidential terms (until 2030), Colombia must follow the peace accord commitments negotiated by the Santos administration and approved by the Colombian Congress in 2016. The Special Jurisdiction of Peace, set up to adjudicate the most heinous crimes of Colombia's decades-long armed conflict, began to hear cases in July 2018. However, Colombians remain skeptical of its capacity. A key challenge is the case of a FARC leader and lead negotiator in the peace process, Jesús Santrich, alleged to have committed drug trafficking crimes in 2017 after the accord was ratified, who has been jailed.", "Colombia has confronted a complex security environment of armed groups: two violent leftist insurgencies, the FARC and the ELN, and groups that succeeded the AUC following its demobilization during the Uribe administration.\nThe FARC, whittled down by the government's military campaign against it, continued to conduct a campaign of terrorist activities during peace negotiations with the government through mid-2015, but it imposed successive temporary unilateral cease-fires that significantly reduced violence levels. In August 2016, the FARC and the government concluded negotiations on a peace accord that was subsequently approved by Congress with modifications in November 2016. Authorities and some analysts maintain that since the peace accord was ratified, 5% to 10% of the FARC have become dissidents who reject the peace settlement, although other estimates suggest a higher percentage. These armed individuals remain a threat.\nAs agreed in the peace accord, the demobilized rebels transitioned to a political party that became known as the Common Alternative Revolutionary Force (retaining the acronym FARC) in September 2017. On November 1, 2017, the FARC announced their party's presidential ticket: current FARC leader Rodrigo Londoño (aka Timochenko) for president and Imelda Daza for vice president. The FARC Party ran several candidates in congressional races but failed to win any additional congressional race for which it competed in the March 2018 legislative elections, so the automatic seats in Congress were the only ones that it filled.\nThe ELN, like the FARC, became deeply involved in the drug trade and used extortion, kidnapping, and other criminal activities to fund itself. The ELN, with diminished resources and reduced offensive capability, according to government estimates, declined to fewer than 2,000 fighters, although some analysts maintain in 2018 the forces grew as high as 3,400, including former FARC who were recruited to join the ELN as the larger rebel group demobilized. In 2015, ELN leadership began exploratory peace talks with the Santos government in Ecuador, although the ELN continued to attack oil and transportation infrastructures and conduct kidnappings and extortions, at least periodically. Formal talks with the ELN finally opened in February 2017 in Quito, Ecuador. After the talks moved to Cuba in May 2018, at the request of Ecuador's President Lenín Moreno, several negotiating sessions took place. The ELN's central leadership, including Nicolás Rodríguez Bautista (aka \"Gabino\"), arrived in Cuba to continue the talks. However, President Duque in September 2018 suspended the talks and recalled the government negotiating team. The ELN is far more regionally oriented, decentralized, and nonhierarchical in its decisionmaking than the FARC. Late in 2018, a Colombian political online magazine claimed a meeting had been held two months earlier between FARC dissident groups and the ELN in Venezuela in which the parties discussed how to increase their coordination.\nOn January 17, 2019, a car bomb attack at a National Police academy in southern Bogotá shattered illusions that Colombia's long internal conflict with insurgents was coming to an end. The bombing, allegedly carried out by an experienced ELN bomb maker, killed 20 police cadets and the bomber and injured more than 65 others. The ELN took responsibility for the attack in a statement published on January 21. Large demonstrations took place in Bogotá protesting the return of violence to Colombia's capital city. The Duque government ended peace talks with the ELN, which had been ongoing sporadically since 2017. The Duque government then requested extradition of the ELN's delegation of negotiators to the peace talks in Cuba on terrorism charges. The Cuban government, which condemned the bombing, responded that the protocols for the peace talks required that the negotiators be returned to Colombia without arrest. The Duque government has persisted in requesting the negotiators to be extradited.\nThe AUC, the loosely affiliated national umbrella organization of paramilitaries, officially disbanded a decade ago. The organization was removed from the State Department's Foreign Terrorist Organizations list in July 2014. More than 31,000 AUC members demobilized between 2003 and 2006, and many AUC leaders stepped down. However, as noted, many former AUC paramilitaries continued their illicit activities or re-armed and joined criminal groups—known as Bacrim . Many observers view the Bacrim as successors to the paramilitaries, and the Colombian government has characterized these groups as the biggest threat to Colombia's security since 2011. The Bacrim do not appear to be motivated by the dream of defeating the national government, but they seek territorial control and appear to provide rudimentary justice in ungoverned parts of the country.\nIn 2013, the criminal group Los Urabeños, launched in 2006, emerged as the dominant Bacrim. Over its lifetime, the group has been referred to as the Gaitanistas, the Clan Úsuga, and most recently El Clan del Golfo, growing to about 3,000 members by 2015. The Urabeños organization is heavily involved in cocaine trafficking as well as arms trafficking, money laundering, extortion, gold mining, human trafficking, and prostitution. Early leaders of the group, such as founder Daniel Rendón Herrera (alias \"Don Mario\") and his brother Feddy Rendón Herrera were designated drug kingpins under the U.S. Kingpin Act in 2009 and 2010, respectively. However, because these men had been part of the AUC peace process, they could not be extradited to the United States until they had served time and paid reparations.\nIn June 2015, the Justice Department unsealed indictments against 17 alleged Urabeños members. The Colombian government's efforts to dismantle the Urabeños and interrupt its operations began to result in the capture of top leaders and gradually to disrupt its illicit activities. The Urabeños faced an intense enforcement campaign by the Colombian police and military, especially after the Urabeños reportedly advertised and paid rewards to its subcontracted assassins to murder Colombian police. In September 2017, the Urabeños top leader, Dairo Antonio Úsuga (alias \"Otoniel\"), requested terms of surrender from the Santos government after the arrest of his wife and the killing or arrest of siblings and co-leaders, but this offer was never formalized. Colombia captured a vast amount of cocaine, approximately 12 metric tons, linked to the the Urabeños in November 2017.\nSplinter groups of the large Colombian drug cartels of the 1980s and 1990s, such as the Medellin Cartel and Cali Cartel, have come and gone in Colombia, including the powerful transnational criminal organizations (TCOs) the Norte del Valle Cartel and Los Rastrajos. The U.S. Drug Enforcement Administration's 2018 National Drug Threat Assessment maintains \"large-scale Colombian TCOs\" work closely with Mexican and Central American TCOs to export large quantities of cocaine out of Colombia every year. Traditionally, the FARC and ELN had cooperated with Bacrim and other Colombian crime groups in defense of drug trafficking and other illicit activities despite the groups' ideological differences.\nVenezuela is a major transit corridor for Colombian cocaine. According to the State Department's 2018 International Narcotics Control Strategy Report , Venezuela's porous western border with Colombia, current economic crisis, weak judicial system, sporadic international drug control cooperation, and a permissive and corrupt environment make it a preferred trafficking route for illicit drugs. A May 2018 report by Insight Crime identified more than 120 high-level Venezuelan officials who have engaged in criminal activity. The report analyzes how the Venezuelan military, particularly the National Guard, has been involved in the drug trade since 2002 and colluded with other illegally armed groups.\nAnother Bacrim, Los Rastrojos, reportedly controls important gasoline smuggling routes between Venezuela and Colombia in 2018. Similarly, in the past year, ELN guerrillas reportedly have moved from seeking safe haven in Venezuela to taking control of illicit gold mining areas near Venezuela's border with Guyana. Both the ELN, which is still engaged in armed conflict with the Colombian government, and its rival, the Popular Liberation Army (EPL), reportedly recruit Venezuelans to cultivate coca in Colombia. Human trafficking and sexual exploitation of Venezuelan migrants throughout Colombia is prevalent. Dissident FARC guerrillas are using border areas and other remote areas in the countryside to regroup and could eventually seek to consolidate into a more unified organization or coordinate with other criminal groups sheltering in Venezuela.\nThe State Department's 2017 terrorism report published in April 2018 maintained that the number of terrorist incidents in Colombia—carried out by the FARC and ELN—decreased significantly, by 40%, over the already much-diminished level of 2016. ELN aggression included high-impact attacks, such as launching mortars at police stations and bombing pipelines, although the report also states that ELN demobilizations and surrenders have increased.", "The humanitarian crisis in Venezuela has set in motion a mass exodus of desperate migrants, who have come temporarily (or for extended stays) to Colombia. Although Venezuela has experienced hyperinflation (the highest in the world), a rapid contraction of its economy, and severe shortages of food and medicine, as of November 2018 Venezuelan President Nicolás Maduro has refused most international humanitarian assistance. Based on estimates from the U.N. High Commissioner for Refugees (UNHCR), as of November 2018, more than 3 million Venezuelans were living outside Venezuela; of these, an estimated 2.3 million left after 2015. As conditions in Venezuela have continued to deteriorate, increasing numbers of Venezuelans have left the country. Neighboring countries, particularly Colombia, are straining to absorb a migrant population that is often malnourished and in poor health. The spread of previously eradicated diseases, such as measles, is also a major regional concern.\nIn January 2019, the Trump Administration announced backing for the president of the Venezuelan National Assembly, Juan Guaidó, as interim president of Venezuela. The Trump Administration has called for Maduro's departure, and Colombia joined many other countries in Latin America and Europe to recognize Guaidó. U.S. Secretary of State Michael Pompeo announced that the United States was prepared to provide $20 million in humanitarian assistance to the people of Venezuela. Colombia joined 11 countries in the Lima Group that declared on February 4, 2019, their desire to hasten a return to democracy in Venezuela by working with Guaidó for a peaceful transition without the use of force.", "Colombia's multisided internal conflict over the last half century generated a lengthy record of human rights abuses. Although it is widely recognized that Colombia's efforts to reduce violence, combat drug trafficking and terrorism, and strengthen the economy have met with success, many nongovernmental organizations (NGOs) and human rights groups continue to report significant human rights violations, including violence targeting noncombatants, that involves killings, torture, kidnappings, disappearances, forced displacements, forced recruitments, massacres, and sexual attacks.\nThe Center for Historical Memory report issued to the Colombian government in July 2013 traces those responsible for human rights violations to the guerrillas (the FARC and ELN), the AUC paramilitaries and successor paramilitary groups, and the Colombian security forces. In analyzing nearly 2,000 massacres between 1980 and 2012 documented in the center's database, the report maintains that 58.9% were committed by paramilitaries, 17.3% by guerrillas, and 7.9% by public security forces. According to the U.S. State Department's annual report on human rights covering 2017, Colombia's most serious human rights abuses centered on extrajudicial and unlawful killings; torture and detentions; rape and sexual crimes. In addition to the State Department, numerous sources report regularly on human rights conditions in Colombia. (See Appendix .)\nColombia continues to experience murders and threats of violence against journalists, human rights defenders, labor union members, social activists such as land rights leaders, and others. Crimes of violence against women, children, Afro-Colombian and indigenous leaders, and other vulnerable groups continue at high rates. In December 2018, the U.N. special rapporteur on human rights defenders came out with strong criticism of heightened murders of human rights defenders, which he maintained were committed by hitmen paid no more than $100 per murder, according to reports he heard from activists and other community members whom he met with during a trip to Colombia. These ongoing issues reflect constraints of the Colombian judicial system to effectively prosecute crimes and overcome impunity.", "For many years, human rights organizations have raised concerns about extrajudicial executions committed by Colombian security forces, particularly the military. In 2008, it was revealed that several young men from the impoverished community of Soacha—who had been lured allegedly by military personnel from their homes to another part of the country with the promise of employment—had been executed. When discovered, the Soacha murder victims had been disguised as guerrilla fighters to inflate military claims of enemy body counts, resulting in the term false positives . Following an investigation into the Soacha murders, the military quickly fired 27 soldiers and officers, including three generals, and the army's commander resigned. The Colombian prosecutor general's criminal investigations of soldiers and officers who allegedly participated in the Soacha executions have proceeded quite slowly. Some 48 of the military members eventually charged with involvement in the Soacha cases were released due to the expiration of the statute of limitations. Whereas some soldiers have received long sentences, few sergeants or colonels have been successfully prosecuted.\nIn 2009, the false positive phenomenon was investigated by the U.N.'s Special Rapporteur on Extrajudicial Executions, who issued a report that concluded with no finding that such killings were a result of an official government policy. However, the Special Rapporteur did find, \"the sheer number of cases, their geographic spread, and the diversity of military units implicated, indicate that these killings were carried out in a more or less systematic fashion by significant elements within the military.\" The majority of the cases took place between 2004 and 2008, when U.S. assistance to Colombia peaked. In recent years, the number of new alleged false positive cases declined steeply, but human rights NGOs still reported a few cases in 2012 through 2015.\nTo address the military's human rights violations, the Santos administration proposed a change to policy that did not prevail. This reform was a constitutional change to expand the jurisdiction of military courts and, it was approved by the Colombian Congress in late December 2012 by a wide margin despite controversy. Human rights groups criticized the legislation's shift in the jurisdiction over serious human rights crimes allegedly committed by Colombia's public security forces from the civilian to the military justice system. In its review of the constitutional amendment, the Colombian Constitutional Court struck down the law over procedural issues in October 2013.\nHuman Rights Watch in a 2015 report on the false positive cases noted that prosecutors in the Human Rights Unit of the Prosecutor General's Office conducted investigations into more than 3,000 false positive homicide cases allegedly committed by army personnel that resulted in about 800 convictions, mostly of lower-ranking soldiers. Only a few of those convictions involved former commanders of battalions or other tactical units, and none of the investigations of 16 active and retired army generals had produced charges. In 2016, the prosecutions against generals accused of responsibility for false positives continued, although a few were closed and 12 remained under investigation at year's end. Additionally, in October 2016, the Colombian prosecutor general indicted Santiago Uribe, the brother of former President Uribe, on charges of murder and association to commit crimes for his alleged role in the paramilitary group \"The 12 Apostols\" in the 1990s. The State Department human rights report covering 2017, maintains that during the year through July, four new cases involving \"aggravated homicide\" committed by security forces and 11 new convictions were reached for \"simple homicide\" by security force members.", "Although estimates diverge, the number of human rights defenders murdered in 2016 totaled 80 and another 51 in the first half of 2017, according to Somos Defensores (\"We are Defenders\"), a Colombian NGO that tracks violence against defenders and is cited by the State Department. Some groups, such as the Colombian think tank, Indepaz, say the numbers are higher, up to 117 murders in 2016. In the two years since the approval of the 2016 peace accord, social leaders, ethnic community leaders, and human rights defenders have suffered from continued high levels of violence. Human rights organizations cite the murders of more than 100 activists in 2017 and in 2018. Of the 109 human rights and civil society activists killed in 2018 through November, some were leaders of efforts to implement the 2016 peace accord. For instance, 13 social leaders were assassinated in the southwest department of Cauca in the first six months of the year, a department in Colombia with the fourth largest area devoted to coca cultivation in the country and host to several peace accord programs associated with rural development, including voluntary eradication of drug crops. Few, if any, of those accused of making threats and ordering or carrying out assassinations have been prosecuted. According to these activists, perpetrators still have little to fear of legal consequences.\nSince early 2012, violence against land rights activists has risen sharply with the start of implementation of the Victims' Law that authorized the return of stolen land. A September 2013 report by Human Rights Watch pointing to the rise in violence against land activists and claimants maintained that the environment had turned so threatening that claimants who had received land judgments were too frightened to return, and the government had received more than 500 serious threats against claimants in less than 18 months. According to Human Rights Watch, many of the threats and killings have been conducted by paramilitary-influenced Bacrim, although they may be operating at the behest of third-party \"landowners,\" who are trying to protect their land from seizure.\nFor more than a decade, the Colombian government tried to suppress violence against groups facing extraordinary risk through the National Protection Unit (UPN) programs. Colombia's UPN provides protection measures, such as body guards and protective gear, to individuals in at-risk groups, including human rights defenders, journalists, trade unionists, and others. However, according to international and Colombian human rights groups, the UPN has been plagued by corruption issues and has inadequately supported the prosecution of those responsible for attacks. According to the State Department's Report on Human Rights Practices covering 2017, the UPN protected roughly 6,067 at-risk individuals, including 575 human rights activists, with a budget of $150 million. Journalists, a group that has traditionally received protection measures from the UPN, continue to operate in a dangerous environment in Colombia. According to the Committee to Protect Journalists (CPJ), 47 journalists have been killed in work-related circumstances since 1992. Three Ecuadorian journalists were killed by a FARC dissident group close to the border of Ecuador in 2018, leading to the end of the Colombian government's peace talks with the ELN in Ecuador and their subsequent move to Cuba.\nTo help monitor and verify that human rights were respected throughout implementation of the peace accord, the government formally renewed the mandate of the U.N.'s High Commissioner of Human Rights in 2016 for three years.", "The issue of violence against the labor movement in Colombia has sparked controversy and debate for years. Many human rights groups and labor advocates have maintained that Colombia's poor record on protecting its trade union members and leaders from violence is one reason to avoid closer trade relations with Colombia. The U.S.-Colombia Free Trade Agreement (also known as the U.S.-Colombia Trade Promotion Agreement) could not be enacted without addressing the deep concern of many Members of Congress that Colombia must enforce basic labor standards and especially measures to mitigate the alleged violence against trade union members and bring perpetrators of such violence to justice.\nIn April 2011, the United States and Colombia agreed to an \"Action Plan Related to Labor Rights\" (the Labor Action Plan, LAP), which contained 37 measures that Colombia would implement to address violence, impunity, and workers' rights protection. Before the U.S.-Colombia Free Trade Agreement entered into force in April 2012, the U.S. Trade Representative determined that Colombia had met all the important milestones in the LAP to date.\nDespite the programs launched and measures taken to implement the LAP, human rights and labor organizations claim that violence targeting labor union members continues. (Some analysts continue to debate whether labor activists are being targeted because of their union activities or for other reasons.) The Colombian government has acknowledged that violence and threats continue, but points to success in reducing violence generally and the number of homicides of labor unionists specifically. Violence levels in general are high in Colombia, but have steadily been decreasing. According to the data reported by the U.N. Office on Drugs and Crime (UNODC) in its annual homicide report, rates have decreased dramatically since 2002, when the homicide rate was at 68.9 per 100,000. The Colombian Ministry of Defense reported in 2016 that the homicide rate had declined to 24.4 per 100,000.\nIn this context of an overall steady decline in homicides, the number of labor union killings has also declined. For many years, the government and the leading NGO source that tabulates these crimes did not agree on the number of labor union murders because they used different methodologies. Both sources recorded a decline, but the government generally saw a steeper decline. According to the Colombian labor rights NGO and think tank, the National Labor School ( Escuela Nacional Sindical , ENS), there has been a significant decline from 191 labor union murders in 2001 to 20 reported in 2012. In 2017, through the month of August the ENS reported 14 labor murders. Of the cases covering homicides between January 2011 and August 2017, 162 homicide cases in which victims were labor union members, were 409 convictions, 31 for cases after 2011 and 378 for cases before 2011.\nIn addition, labor advocates note that tracking homicides does not capture the climate of intimidation that Colombian labor unions face. In addition to lethal attacks, trade union members encounter increased death threats, arbitrary detention, and other types of harassment. Measures to strengthen the judicial system to combat impunity for such crimes are also part of the Labor Action Plan. Nevertheless, many analysts maintain there remains a large backlog of cases yet to be investigated involving violent crimes against union members.", "The internal conflict has been the major cause of a massive displacement of the civilian population that has many societal consequences, including implications for Colombia's poverty levels and stability. Colombia has one of the largest populations of internally displaced persons (IDPs) in the world. Most estimates place the total at more than 7 million IDPs, or more than 10% of Colombia's estimated population of 49 million. This number of Colombians, forcibly displaced and impoverished as a result of the armed conflict, continues to grow and has been described by many observers as a humanitarian crisis. Indigenous and Afro-Colombian people make up an estimated 15%-22% of the Colombian population. They are, however, disproportionately represented among those displaced. The leading Colombian NGO that monitors displacement, Consultancy for Human Rights and Displacement (CODHES), reports that 36% of the victims of forced displacement nationwide in 2012 came from the country's Pacific region where Afro-Colombian and indigenous people predominate.\nThe Pacific region has marginal economic development as a result of weak central government presence and societal discrimination. (Some 84% of the land in the Pacific region is subject to collective-title rights granted to Afro-Colombian and indigenous communities. ) Illegal armed groups are active in usurping land in this region, which is valued for its proximity to a major port and drug trafficking routes, and the Afro- and indigenous communities are also caught in the middle of skirmishes between illegal groups and Colombian security forces.\nIDPs suffer stigma and poverty and are often subject to abuse and exploitation. In addition to the disproportionate representation of Colombia's ethnic communities among the displaced, other vulnerable populations, including women and children, have been disproportionally affected. Women, who make up more than half of the displaced population in Colombia, can become targets for sexual harassment, violence, and human trafficking. Displacement is driven by a number of factors, most frequently in more remote regions of the country where armed groups compete and seek to control territory or where they confront Colombian security forces. Violence that uproots people includes threatened or actual child recruitment or other forced recruitment by illegal armed groups, as well as physical, psychological, and sexual violence. Other contributing factors reported by NGOs include counternarcotics measures such as aerial spraying, illegal mining, and large-scale economic projects in rural areas. Inter-urban displacement is a growing phenomenon in cities such as Buenaventura and Medellin, which often results from violence and threats by organized crime groups.\nThe Victims' Law of 2011, which began to be implemented in 2012, is the major piece of legislation to redress Colombian displacement victims with the return of their stolen land. The historic law provides restitution of land to those IDPs who were displaced since January 1, 1991. The law aims to return land to as many as 360,000 families (impacting up to 1.5 million people) who had their land stolen. The government notes that some 50% of the land to be restituted has the presence of land mines and that the presence of illegally armed groups in areas where victims have presented their applications for land restitution has slowed implementation of the law.\nBetween 2011 and 2016, 100,000 applications for land restitution were filed and approximately 5,000 properties (roughly 5% of applications) were successfully returned following judgements on the cases. With the international support from U.S. Agency for International Development (USAID) and other donors, a Victims Unit was established to coordinate the range of services for victims, including financial compensation and psychosocial services, provided by a host of government agencies. The 2011 Victims' Law is considered a model and particularly the implementation of a Victims' registry, which was supported by USAID. Through its Victims Unit, the Colombian government had provided financial reparations to over 800,000 victims and psychosocial support to 700,000 as of October 2018.\nThe Global Report on Internal Displacement from the Internal Displacement Monitoring Centre (IDMC) reported, however, displacement inside Colombia continued with more than 171,000 internally displaced in 2016.\nAs the political crisis in Venezuela has grown, a wave of refugees and migrants have come across the border into Colombia reversing an earlier trend. Venezuelans were fleeing political instability and economic turmoil in Colombia's once-wealthy neighboring nation. Venezuela's economic crisis worsened throughout 2018, prompting a sharp increase in migrants seeking to escape into Colombia. In response to the growing flood of Venezuelans, former President Santos initially announced that he would impose stricter migratory controls and deploy thousands of new security personnel along the frontier. Nevertheless, he acknowledged that Venezuela had once served as a vital escape valve for Colombian refugees fleeing their half century internal conflict, for which he was grateful.", "Colombia shares long borders with neighboring countries, and some of these border areas have been described as porous to illegal armed groups that threaten regional security. Colombia has a 1,370-mile border with Venezuela, approximately 1,000-mile borders with both Peru and Brazil, and shorter borders with Ecuador and Panama. Much of the territory is remote and rugged and suffers from inconsistent state presence. Although all of Colombia's borders have been problematic and subject to spillover effects from Colombia's armed conflict, the most affected are Venezuela, Ecuador, and Panama.\nOver the years, Colombia's relations with Venezuela and Ecuador have been strained by Colombia's counterinsurgency operations, including cross-border military activity. The FARC and ELN insurgents have been present in shared-border regions and in some cases the insurgent groups used the neighboring countries to rest, resupply, and shelter.\nFormer President Uribe accused the former Venezuelan government of Hugo Chávez of harboring the FARC and ELN and maintained that he had evidence of FARC financing the 2006 political campaign of Ecuador's leftist President Rafael Correa. Relations between Ecuador and Colombia remained tense following the Colombian military bombardment of a FARC camp inside Ecuador in March 2008. Ecuador severed diplomatic relations with Colombia for 33 months. Also in 2008, Ecuador filed a suit against Colombia in the International Court of Justice (ICJ), claiming damages to Ecuadorian residents affected by spray drift from Colombia's aerial eradication of drug crops. In September 2013, Colombia reached an out-of-court settlement awarding Ecuador $15 million.\nOnce in office, President Santos reestablished diplomatic ties with both countries and in his first term (2010-2014) cooperation greatly increased between Colombia and Venezuela on border and security issues and with Ecuador's Correa. However, concerns about Venezuelan links to the FARC and the continued use of Venezuela by the FARC and ELN as a safe haven to make incursions into Colombia remained an irritant in Colombian-Venezuelan relations. Nevertheless, the Venezuelan and Colombian governments committed to jointly combat narcotics trafficking and illegal armed group activities along the porous Venezuelan-Colombian border and Venezuela remained a supporting government of the FARC-government peace talks (along with Chile, Norway, and Cuba) through 2016, even after former President Chávez died in office in March 2013. Ecuador's government hosted exploratory talks between the ELN and the Santos government beginning in 2015, which became formal talks hosted in Quito in February 2017, although Ecuador's president requested that the talks move to Cuba in May 2018, due to a spate of border violence that could have been related to the ELN.\nFor many years, the region in Panama that borders Colombia, the Darien, was host to a permanent presence of FARC soldiers who used the remote area for rest and resupply as well to transit drugs north. By 2015, according to the State Department, the FARC was no longer maintaining a permanent militarized presence in Panamanian territory, in part due to effective approaches taken by Panama's National Border Service in coordination with Colombia. Nevertheless, the remote Darien region still faces challenges from smaller drug trafficking organizations and criminal groups such as Bacrim and experiences problems with human smuggling with counterterrorism implications.", "When Colombia hosted the Sixth Summit of the Americas in April 2012, President Obama and President Santos announced a new joint endeavor, the Action Plan on Regional Security Cooperation. This joint effort, built on ongoing security cooperation, addresses hemispheric challenges, such as combating transnational organized crime, bolstering counternarcotics, strengthening institutions, and fostering resilient communities. The Action Plan focuses on capacity building for security personnel in Central America and the Caribbean by Colombian security forces (both Colombian military and police). To implement the plan, Colombia undertook several hundred activities in cooperation with Panama, Costa Rica, El Salvador, Honduras, Guatemala and the Dominican Republic, and between 2013 and 2017 trained almost 17,000 individuals (see Figure 4 ). The Colombian government notes that this program grew dramatically from 34 executed activities in 2013 to 441 activities planned for 2018.\nColombia has increasingly trained military and police from other countries both under this partnership and other arrangements, including countries across the globe. According to the Colombian Ministry of Defense, around 80% of those trained were from Mexico, Central America, and the Caribbean. U.S. and Colombian officials maintain that the broader effort is designed to export Colombian expertise in combating crime and terrorism while promoting the rule of law and greater bilateral and multilateral law enforcement cooperation.\nCritics of the effort to \"export Colombian security successes\" maintain that human rights concerns have not been adequately addressed. Some observers question the portion of these activities that are funded by the U.S. government and want to see more transparency. In one analysis of the training, a majority of the training was provided by Colombian National Police rather than the Colombian Army, in such areas as ground, air, maritime, and river interdiction; police testimony; explosives; intelligence operations; psychological operations; and Comando JUNGLA, Colombia's elite counternarcotics police program.\nOther analysts praise the Colombian training and maintain that U.S. assistance provided in this way has helped to improve, professionalize, and expand the Colombian military, making it the region's second largest. As that highly trained military shifts from combating the insurgency and the Colombian National Police take the dominant role in guaranteeing domestic security, Colombia may play a greater role in regional security and even in coalition efforts internationally. In September 2017, President Trump announced that he had considered designating Colombia in noncompliance with U.S. counternarcotics requirements, but noted that he had not proceeded with the step in part because of Colombian training efforts to assist others in the region with combating narcotics and related crime.", "Colombia is a key U.S. ally in the region. With diplomatic relations that began in the 19 th century following Colombia's independence from Spain, the countries have enjoyed close and strong ties. Because of Colombia's prominence in the production of illegal drugs, the United States and Colombia forged a close partnership over the past 16 years. Focused initially on counternarcotics, and later counterterrorism, a program called Plan Colombia laid the foundation for a strategic partnership that has broadened to include sustainable development, human rights, trade, regional security, and many other areas of cooperation. Between FY2000 and FY2016, the U.S. Congress appropriated more than $10 billion in assistance from U.S. State Department and Department of Defense (DOD) accounts to carry out Plan Colombia and its follow-on strategies. During this time, Colombia made notable progress combating drug trafficking and terrorist activities and reestablishing government control over much of its territory. Its economic and social policies have reduced the poverty rate and its security policies have lowered the homicide rate.\nCounternarcotics policy has been the defining issue in U.S.-Colombian relations since the 1980s because of Colombia's preeminence as a source country for illicit drugs. Peru and Bolivia were the main global producers of cocaine in the 1980s and early 1990s. However, successful efforts there in reducing supply pushed cocaine production from those countries to Colombia, which soon surpassed both its Andean neighbors. The FARC and other armed groups in the country financed themselves primarily through narcotics trafficking, and that lucrative illicit trade provided the gasoline for the decades-long internal armed conflict at least since the 1990s. Colombia emerged to dominate the cocaine trade by the late 1990s. National concern about the crack cocaine epidemic and extensive drug use in the United States led to greater concern with Colombia as a source. As Colombia became the largest producer of coca leaf and the largest exporter of finished cocaine, heroin produced from Colombian-grown poppies was supplying a growing proportion of the U.S. market. Alarm over the volumes of heroin and cocaine being exported to the United States was a driving force behind U.S. support for Plan Colombia at its inception.\nThe evolution of Plan Colombia took place under changing leadership and changing conditions in both the United States and Colombia. Plan Colombia was followed by successor strategies such as the National Consolidation Plan, described below, and U.S.-Colombia policy has reached a new phase anticipating post-conflict Colombia.", "Announced in 1999, Plan Colombia originally was a six-year strategy to end the country's decades-long armed conflict, eliminate drug trafficking, and promote development. The counternarcotics and security strategy was developed by the government of President Andrés Pastrana in consultation with U.S. officials. Colombia and its allies in the United States realized that for the nation to gain control of drug trafficking required a stronger security presence, the rebuilding of institutions, and extending state presence where it was weak or nonexistent.\nInitially, the U.S. policy focus was on programs to reduce the production of illicit drugs. U.S. support to Plan Colombia consisted of training and equipping counternarcotics battalions in the Colombian Army and specialized units of the Colombian National Police, drug eradication programs, alternative development, and other supply reduction programs. The original 1999 plan had a goal to reduce \"the cultivation, processing, and distribution of narcotics by 50%\" over the plan's six-year timeframe. The means to achieve this ambitious goal were a special focus on eradication and alternative development; strengthening, equipping, and professionalizing the Colombian Armed Forces and the police; strengthening the judiciary; and fighting corruption. Other objectives were to protect citizens from violence, promote human rights, bolster the economy, and improve governance. U.S. officials expressed their support for the program by emphasizing its counterdrug elements (including interdiction). The focus on counternarcotics was the basis for building bipartisan support to fund the program in the U.S. Congress because some Members of Congress were leery of involvement in fighting a counterinsurgency, which they likened to the \"slippery slope\" of the war in Vietnam.\nPresident George W. Bush came to office in 2001 and oversaw some changes to Plan Colombia. The primary vehicle for providing U.S. support to Plan Colombia was the Andean Counterdrug Initiative, which was included in foreign operations appropriations. The Bush Administration requested new flexibility so that U.S.-provided assistance would back a \"unified campaign against narcotics trafficking, terrorist activities, and other threats to [Colombia's] national security\" due to the breakdown of peace talks between the FARC and the Pastrana government in February 2002. Congress granted this request for a unified campaign to fight drug trafficking and terrorist organizations as Members of Congress came to realize how deeply intertwined the activities of Colombia's terrorist groups were with the illicit drug trade that funded them. However, Congress prohibited U.S. personnel from directly participating in combat missions. Congress placed a legislative cap on the number of U.S. military and civilian contractor personnel who could be stationed in Colombia, although the cap was adjusted to meet needs over time. The current limit (first specified in the FY2015 National Defense Authorization Act, as amended) caps total military personnel at 800 and civilian contractors at 600, although numbers deployed have been far below the 1,400-person cap for years and now total fewer than 200.\nPresident Uribe (2002-2010) embraced Plan Colombia with an aggressive strategy toward the insurgent forces that prioritized citizen security. His Democratic Security Policy, implemented first in a military campaign called Plan Patriota, relied on the military to push FARC forces away from the major cities to remote rural areas and the borderlands. Like his predecessor, President Pastrana, Uribe continued to expand the Colombian military and police. He enhanced the intelligence capacity, professionalization, and coordination of the forces, in part with training provided by U.S. forces. His strategy resulted in expanded state control over national territory and a significant reduction in kidnappings, terrorist attacks, and homicides. In 2007, the Uribe administration announced a shift to a \"Policy of Consolidation of Democratic Security.\" The new doctrine was based on a \"whole-of-government\" approach to consolidate state presence in marginal areas that were historically neglected—vulnerable to drug crop cultivation, violence, and control by illegal armed groups. Called a strategic leap forward by then-Defense Minister Juan Manuel Santos, in 2009 the new strategy came to be called the National Consolidation Plan (see below).\nColombian support for Plan Colombia and for the nation's security program grew under Uribe's leadership. President Uribe levied a \"wealth tax\" to fund Colombia's security efforts, taxing the wealthiest taxpayers to fund growing defense and security expenditures. Overall U.S. expenditures on Plan Colombia were only a modest portion of what Colombians spent on their own security. By one 2009 estimate, U.S. expenditures were not more than 10% of what Colombians invested in their total security costs. In 2000, Colombia devoted less than 2% of its GDP to military and police expenditures and in 2010 that investment had grown to more than 4% of GDP. One assessment notes \"in the end there is no substitute for host country dedication and funding\" to turn around a security crisis such as Colombia faced at the beginning of the millennium.\nIn 2008, congressional support for Plan Colombia and its successor programs also shifted. Some Members of Congress believed that the balance of programming was too heavily weighted toward security. Prior to 2008, the emphasis had been on \"hard side\" security assistance (to the military and police) compared with \"soft side\" traditional development and rule of law programs. Members debated if the roughly 75%/25% mix should be realigned. Since FY2008, Congress has reduced the proportion of assistance for security-related programs and increased the proportion for economic and social aid. As Colombia's security situation improved and Colombia's economy recovered, the United States also began turning over to Colombians operational and financial responsibility for efforts formerly funded by the U.S. government. The Colombian government \"nationalized\" the training, equipping, and support for Colombian military programs, such as the counterdrug brigade, Colombian Army aviation, and the air bridge denial program. U.S. funding overall began to decline. The nationalization efforts were not intended to end U.S. assistance, but rather to gradually reduce it to pre-Plan Colombia levels, adjusted for inflation.\nA key goal of Plan Colombia was to reduce the supply of illegal drugs produced and exported by Colombia but the goals became broader over time. Bipartisan support for the policy existed through three U.S. Administrations—President Bill Clinton, President George W. Bush, and President Barack Obama. Plan Colombia came to be viewed by some analysts as one of the most enduring and effective U.S. policy initiatives in the Western Hemisphere. Some have lauded the strategy as a model. In 2009, William Brownfield, then-U.S. Ambassador to Colombia, described Plan Colombia as \"the most successful nation-building exercise that the United States has associated itself with perhaps in the last 25-30 years.\" Other observers, however, were critical of the policy as it unfolded. Many in the NGO and human rights community maintained the strategy, with its emphasis on militarization and security, was inadequate for solving Colombia's persistent, underlying problems of rural violence, poverty, neglect and institutional weakness. Nevertheless, it appears that improvements in security conditions have been accompanied by substantial economic growth and a reduction in poverty levels over time.", "The National Consolidation Plan first launched during the Uribe Administration, (renamed the National Plan for Consolidation and Territorial Reconstruction), was designed to coordinate government efforts in regions where marginalization, drug trafficking, and violence converge. The whole-of-government consolidation was to integrate security, development, and counternarcotics to achieve a permanent state presence in vulnerable areas. Once security forces took control of a contested area, government agencies in housing, education, and development would regularize the presence of the state and reintegrate the municipalities of these marginalized zones into Colombia. The plan had been restructured several times by the Santos government.\nThe United States supported the Colombian government's consolidation strategy through an inter-agency program called the Colombia Strategic Development Initiative (CSDI). CSDI provided U.S. assistance to \"fill gaps\" in Colombian government programming. At the U.S. Embassy in Colombia, CSDI coordinated efforts of the U.S. Agency for International Development (USAID), the State Department's Narcotics Affairs Section, the U.S. Military Group, and the Department of Justice to assist Colombia in carrying out the consolidation plan by expanding state presence and promoting economic opportunities in priority zones. It combined traditional counternarcotics assistance for eradication, interdiction, alternative development, and capacity building for the police, military, and justice sector institutions with other economic and social development initiatives.\nAs the peace agreement between the FARC and the government moved forward into implementation, the focus of U.S. assistance to Colombia has shifted again. With a foundation of the work done to advance consolidation, U.S. assistance has begun to aid in post-conflict planning and support Colombia's transition to peace by building up democratic institutions, protecting human rights and racial and ethnic minorities, and promoting economic opportunity. USAID's country cooperation strategy for 2014-2018 anticipated the Colombian government reaching a negotiated agreement with the FARC, but remained flexible if an agreement was not signed. It recognized early implementation efforts, especially in the first 24 months after signature, would be critical to demonstrate or model effective practices. In the next five years, it envisioned Colombia evolving from aid recipient to provider of technical assistance to neighbors in the region.\nConsolidating state authority and presence in the rural areas with weak institutions remains a significant challenge following the FARC's disarmament in the summer of 2017. Reintegration of the FARC and possibly other insurgent forces, such as the ELN, will be expensive and delicate. In particular, critics of the consolidation efforts of the Colombian government maintain that the Santos administration often lacked the commitment to hand off targeted areas from the military to civilian-led development and achieve locally led democratic governance. Consolidation efforts suffered from low political support, disorganization at the top levels of government, and failure to administer national budgets effectively in more remote areas, among other challenges.\nIn August 2018, shortly after President Duque took office, USAID announced a framework of priorities for U.S. economic development assistance to Colombia. Some of these priorities include promoting and supporting a whole-of-government strategy to include the dismantling of organized crime; increasing the effectiveness of Colombia's security and criminal justice institutions; promoting enhanced prosperity and job creation through trade; improving the investment climate for U.S. companies; and advancing Colombia's capacity to strengthen governance and transition to sustainable peace, including reconciliation among victims, ex-combatants, and other citizens.", "The U.S. Congress initially approved legislation in support of Plan Colombia in 2000, as part of the Military Construction Appropriations Act of 2001 ( P.L. 106-246 ). Plan Colombia was never authorized by Congress, but it was funded annually through appropriations. From FY2000 through FY2016, U.S. funding for Plan Colombia and its follow-on strategies exceeded $10 billion in State Department and Defense Department programs. From FY2000 to FY2009, the United States provided foreign operations assistance to Colombia through the Andean Counterdrug Program (ACP) account, formerly known as the Andean Counterdrug Initiative, and other aid accounts. In FY2008, Congress continued to fund eradication and interdiction programs through the ACP account, but funded alternative development and institution building programs through the Economic Support Fund (ESF) account. In the FY2010 request, the Obama Administration shifted ACP funds into the International Narcotics Control and Law Enforcement (INCLE) account.\nSince FY2008, U.S. assistance has gradually declined because of tighter foreign aid budgets and nationalized Plan Colombia-related programs. In FY2014, in line with other foreign assistance reductions, funds appropriated to Colombia from State Department accounts declined to slightly below $325 million. In FY2015, Congress appropriated $300 million for bilateral assistance to Colombia in foreign operation. The FY2016 Omnibus Appropriations bill ( P.L. 114-113 ) provided Colombia from U.S. State Department and U.S. Agency for International Development accounts, slightly under $300 million, nearly identical to that appropriated in FY2015 (without P.L. 480, the Food for Peace account, the total for FY2016 was $293 million as shown in Table 1 ). In FY2017, Congress funded a program the Obama Administration had proposed called \"Peace Colombia\" to re-balance U.S. assistance to support the peace process and implementation of the accord. In May 2017, Congress approved a FY2017 omnibus appropriations measure, the Consolidated Appropriations Act, 2017 ( P.L. 115-31 ), which funded the various programs of Peace Colombia at $391.3 million. In the FY2017 legislation, Congress appropriated the following:\nThe ESF account increased to $187 million (from $134 million in FY2016) to build government presence, encourage crop substitution to replace drug crops, and provide other assistance to conflict victims, including Afro-Colombian and indigenous communities. However, only $180 million was subsequently allocated. INCLE funding increased to $143 million with a focus on manual eradication of coca crops, support for the Colombian National Police, and judicial reform efforts. INCLE funding also included $10 million for Colombian forces' training to counterparts in other countries. $38.5 million in Foreign Military Financing (FMF); and $21 million in Nonproliferation, Anti-Terrorism, Demining, and Related Programs (NADR), which was a relatively large increase from under $4 million in FY2016 to focus on the demining effort.\nHow the Trump Administration will engage with the issues of supporting post-conflict stability in Colombia has not been clearly defined by either the State Department or other executive departments. For example, the Trump Administration's proposed foreign aid budget for FY2018 would have reduced assistance to Colombia to $251 million. However, the FY2018 omnibus appropriations measure, approved by Congress in March 2018 ( P.L. 115-114 ), again included $391.3 million to support Colombia's transition to peace. The Trump Administration's FY2019 budget request for Colombia is $265 million, approximately a 32% reduction from the $391.3 million appropriated by Congress in FY2018. However, the House and Senate appropriations bills, H.R. 6385 and S. 3108 , again would support the funding level of $391.3 million. The FY2019 Administration request would reduce post-conflict recovery programs and place greater emphasis on counternarcotics and security.\nBelow, Table 1 provides account data from the annual international affairs congressional budget justification documents. The information about DOD-funded programs was provided to the Congressional Research Service by DOD analysts in December 2015 and October 2017 (and has not been updated). The breakout of DOD assistance to Colombia is shown in Table 2 .\n. Colombia also has received additional U.S. humanitarian funding to help it cope with more than 1 million Venezuelan migrants. As of September 30, 2018, U.S. government humanitarian funding for the Venezuela response totaled approximately $96.5 million for both FY2017 and FY2018 combined, of which $54.8 million was for Colombia. (Humanitarian funding is drawn primarily from the global humanitarian accounts in annual Department of State/Foreign Operations appropriations acts.) In addition, the U.S. Navy hospital ship USNS Comfort is on an 11-week medical support mission deployed through the end of 2018 to work with government partners, in part to assist with arrivals from Venezuela. In Colombia, the U.S. response aims to help the Venezuelan arrivals as well as the local Colombian communities that are hosting them. In addition to humanitarian assistance, the United States is providing $37 million in bilateral assistance to support medium- and longer-term efforts by Colombia.", "Some Members of Congress have been deeply concerned about human rights violations in Colombia—especially those perpetrated by any recipients or potential recipients of U.S. assistance. In Colombia's multisided, 50-year conflict, the FARC and ELN, the paramilitaries and their successors, and Colombia's security forces have all committed serious violations. Colombians have endured generations of noncombatant killings, massacres, kidnappings, forced displacements, forced disappearances, land mine casualties, and acts of violence that violate international humanitarian law. The extent of the crimes and the backlog of human rights cases to be prosecuted have overwhelmed the Colombian judiciary, which some describe as \"inefficient\" and overburdened. The United Nations and many human rights groups maintain that although some prosecutions have gone forward, most remain unresolved and the backlog of cases has been reduced slowly. In addition to the problem of impunity for such serious crimes, continued violations remain an issue.\nSince 2002, Congress has required in the annual foreign operations appropriations legislation that the Secretary of State certify annually to Congress that the Colombian military is severing ties to paramilitaries and that the government is investigating complaints of human rights abuses and meeting other human rights statutory criteria. (The certification criteria have evolved over time. ) For several years, certification was required before 30% of funds to the Colombian military could be released. The FY2014 appropriations legislation requires that 25% of funding under the Foreign Military Financing (FMF) program be held back pending certification by the Secretary of State. Some human rights groups have criticized the regular certification of Colombia, maintaining that evidence they have presented to the State Department has contradicted U.S. findings. However, even some critics have acknowledged the human rights conditions on military assistance to Colombia to be \"a flawed but useful tool\" because the certification process requires that the U.S. government regularly consult with Colombian and international human rights groups. Critics acknowledge that over time, conditionality can improve human rights compliance.\nAdditional tools for monitoring human rights compliance by Colombian security forces receiving U.S. assistance are the so-called \"Leahy Law\" restrictions, which Congress first passed in the late 1990s prior to the outset of Plan Colombia. First introduced by Senator Patrick Leahy, these provisions deny U.S. assistance to a foreign country's security forces if the U.S. Secretary of State has credible information that such units have committed \"a gross violation of human rights.\" The provisions apply to security assistance provided by the State Department and DOD. The Leahy Law under the State Department is authorized by the Foreign Assistance Act (FAA) of 1961, as amended, and is codified at 22 U.S.C. 2378d (§520M of the FAA). The DOD Leahy provisions, which for years applied just to DOD training, now include a broader range of assistance, as modified in the FY2014 appropriations legislation. The provision related to the Leahy Laws for DOD assistance is codified at 10 U.S.C. 362, and prohibits \"any training, equipment, or other assistance,\" to a foreign security force unit if there is credible information that the unit has committed a gross violation of human rights.\nBoth the State Department and DOD Leahy provisions require the State Department to review and clear—or vet—foreign security forces to determine if any individual or unit is credibly believed to be guilty of a gross human rights violation. Leahy vetting is typically conducted by U.S. embassies and State Department headquarters. Reportedly on an annual basis about 1% of foreign security forces are disqualified from receiving assistance under the Leahy provisions, although many more are affected by administrative issues and are denied assistance until those conditions are resolved. Tainted security force units that are denied assistance may be remediated or cleared, but the procedures for remediation differ slightly between the DOD and State (or FAA) provisions.\nBecause of the large amount of security assistance provided to Colombian forces (including the military and police), the State Department reportedly vets more candidates for assistance in Colombia than in any other country. In the late 1990s, poor human rights conditions in Colombia were a driving concern for developing the Leahy Law provisions. The U.S. Embassy in Bogotá, with nearly two decades of experience in its vetting operations, has been cited as a source of best practices for other embassies seeking to bring their operations into compliance or enhance their performance. State Department officials have cited Colombia as a model operation that has helped Colombia to improve its human rights compliance.\nHowever, some human rights organizations are critical of the Leahy vetting process in Colombia, and cite the prevalence of extrajudicial executions allegedly committed by Colombian military units as evidence that these restrictions on U.S. assistance have failed to remove human rights violators from the Colombian military. A human rights nongovernmental organization, Fellowship of Reconciliation, has published reports alleging an association between false positive killings and Colombian military units vetted by the State Department to receive U.S. assistance. However, some have questioned the group's methodology. Some human rights organizations contend that the U.S. government has tolerated abusive behavior by Colombian security forces without taking action or withholding assistance.", "Measured exclusively in counternarcotics terms, Plan Colombia has been a mixed success. Colombia remains the dominant producer of cocaine and in the DEA's National Drug Threat Assessment for 2017 continued to be the source for 95% of cocaine seized in the United States. Enforcement, eradication, and improved security squeezed production in Colombia, so that in 2012, Peru reemerged as the global leader in cocaine production, surpassing Colombia, for a year or so. In the early 2000s, given Colombia's predominance as the source of cocaine destined for U.S. markets and its status as the second-largest producer of heroin consumed in the United States, eradication of coca bush and opium poppy (from which heroin is derived) was an urgent priority and became the preferred tool for controlling the production of these drugs. Another critical component of the drug supply reduction effort was alternative development programs funded by the U.S. Agency for International Development (USAID) to assist illicit crop cultivators with transitioning to licit crop production and livelihoods.", "Analysts have long debated how effective Plan Colombia and its follow-on strategies were in combating illegal drugs. Although Plan Colombia failed to meet its goal of reducing the cultivation, processing, and distribution of illicit drugs by 50% in its original six-year time frame, Colombia has sustained significant reductions in coca cultivation in recent years. According to U.S. estimates, cultivation of coca declined from 167,000 hectares in 2007 to 78,000 hectares in 2012. (Poppy cultivation declined by more than 90% between 2000 and 2009.) According to U.S. government estimates, Colombia's potential production of pure cocaine fell to 170 metric tons in 2012, the lowest level in two decades. However, it started to rise slightly in 2013, and more dramatically in 2014 through 2016. In those years, cultivation of coca and production of cocaine grew significantly in part due to ending the aerial eradication of coca crops. In 2015, following a U.N. agency determination that the herbicide used to spray coca crops was probably carcinogenic, Colombia's minister of health determined that aerial eradication of coca was not consistent with requirements of Colombia's Constitutional Court. In 2016, as noted above, the U.S. DEA reported that 95% of cocaine seized in the United States originated in Colombia.\nAccording to U.S. Office of National Drug Control Policy, Colombia in 2017 cultivated an unprecedented 209,000 hectares of coca, from which cocaine is derived, capable of generating 921 metric tons of cocaine. The United Nations estimates for 2017, which typically differ in quantity but follow the same trends as U.S. estimates, maintained that Colombia's potential production of cocaine reached nearly 1,370 metric tons, 31% above its 2016 estimate. Even with Colombia's economic stability and improving security, cocaine exports (primarily to the U.S. market) remain a major concern for U.S. lawmakers. However, in drug interdiction, Colombia has set records for many years and is considered a strong and reliable U.S. partner. The United Nations Office on Drugs and Crime ( Table 4 ), shows Colombia cultivating 146,000 hectares of coca in 2016, a 52% increase over 2015 and another increase to 171,000 hectares, a 17% increase, in 2017. Although cocaine seizures were quite high in both years, the interdiction of cocaine was insufficient to counter the large increases in production.", "Both manual eradication and aerial eradication were central components of Plan Colombia to reduce coca and poppy cultivation. Manual eradication is conducted by teams, usually security personnel, who uproot and kill the plant. Aerial eradication involves spraying the plants from aircraft with an herbicide mixture to destroy the drug crop, but it may not kill the plants. In the context of Colombia's continuing internal conflict, manual eradication was far more dangerous than aerial spraying. U.S. and Colombian policymakers recognized the dangers of manual eradication and, therefore, employed large-scale aerial spray campaigns to reduce coca crop yields, especially from large coca plantations. Colombia is the only country globally that aerially sprayed its illicit crops, and the practice has been controversial for health and environmental reasons, resulting in a Colombian decision to end aerial eradication in 2015.\nSince 2002, as a condition of fully funding the spraying program, Congress has regularly directed the State Department, after study and consultation with the U.S. Environmental Protection Agency and other relevant agencies, to certify that the spraying did not \"pose unreasonable risks or adverse effects to humans or the environment.\" This certification requirement was included most years in the annual foreign operations appropriations legislation. Some analysts have also raised questions about the monetary and collateral costs of aerial eradication compared with other drug supply control strategies, its effectiveness, and its limited effect on the U.S. retail price of cocaine.\nU.S. State Department officials attribute Colombia's decline in coca cultivation after 2007 and prior to 2013 to the persistent aerial eradication of drug crops in tandem with manual eradication where viable. Between 2009 and 2013, Colombia aerially sprayed roughly 100,000 hectares annually. In 2013, however, eradication efforts declined. Colombia aerially eradicated roughly 47,000 hectares. It manually eradicated 22,120 hectares, short of the goal of 38,500 hectares. This reduction had a number of causes: the U.S.-supported spray program was suspended in October 2013 after two U.S. contract pilots were shot down, rural protests in Colombia hindered manual and aerial eradication efforts, and security challenges limited manual eradicators working in border areas.\nIn late 2013, Ecuador won an out-of-court settlement in a case filed in 2008 before the International Court of Justice in The Hague for the negative effects of spray drift over its border with Colombia. In negotiations with the FARC, the government and the FARC provisionally agreed in May 2014 that voluntary manual eradication would be prioritized over forced eradication. Aerial eradication remained a viable tool in the government's drug control strategy, according to the agreement, but would be permitted only if voluntary and manual eradication could not be conducted safely.\nIn April 2015, the Santos administration determined that glyphosate, a broad-spectrum, nonselective herbicide used commercially, but in Colombia sprayed on coca plants to eradicate them, was \"probably carcinogenic\" to humans in a review published by a World Health Organization (WHO) affiliate. In October 2015, the government ended spraying operations and began to implement a new public health approach toward illicit drugs, one that proponents suggested would reduce human rights violations. On the supply side, Colombia's new drug policy gives significant attention to expanding alternative development and licit crop substitution while intensifying interdiction efforts. The State Department in its 2015 International Narcotics Control Strategy Report (INCSR), however, warned that illicit cultivation was expanding in areas long off-limits to aerial spraying, including national parks, a buffer zone with Ecuador where aerial eradication has been restricted, and in indigenous or protected Afro-Colombian territories.\nColombian interdiction practices are deemed some of the most effective in the world. The Colombian government reported seizing more than 207 metric tons (mt) of cocaine base in 2014 and that seizure total doubled by 2017 with capture of 442 mt of cocaine. According to the U.S. State Department's 2018 INCSR , Colombia also seized 197 mt of marijuana, 348 kilograms of heroin, and destroyed more than 3,400 cocaine base and hydrochloride labs.\nUSAID funds and runs alternative development programs in Colombia to assist communities with transitioning from a dependency on illicit crops to licit employment and livelihoods. Alternative development was once focused narrowly on crop substitution and assistance with infrastructure and marketing. Since the Colombian government's shift to a consolidation strategy, USAID has supported \"consolidation and livelihoods\" programming in 40 of the 58 strategically located, conflict-affected municipalities targeted by the government's National Consolidation Plan. To facilitate economic development, USAID funds initiatives that assist farmers and others with shifting from coca growing to licit economic opportunities. These programs are designed to strengthen small farmer producer organizations, improve their productivity, and connect them to markets.\nSome observers maintain that poor and unsustainable outcomes from alternative development programs while the Colombian conflict was still under way resulted from ongoing insecurity and lack of timeliness or sequencing of program elements. The renewed commitment to alternative development and crop substitution in the 2016 peace accord with the FARC may be similarly challenged. Formal implementation of the peace accord on drug eradication and crop substitution began in late May 2017 with collective agreements committing communities to replace their coca crops with licit crops. In some regions, the program is extended to families who cultivate coca and also to producers of legal crops and landless harvesters. The Colombian government also committed to a combined approach of both voluntary and forced manual eradication. The government's goal set for 2017 was eradicating 100,000 hectares of coca, 50,000 through forced manual eradication and 50,000 through \"crop substitution\" accords reached with coca farming households who would voluntary eradicate.\nAt the U.S.-Colombia High Level Dialogue held in Bogotá in March 2018, a renewed commitment to the enduring partnership between the United States and Colombia was announced. A major outcome was a U.S.-Colombia pledge to reduce illegal narcotics trafficking through expanded counternarcotics cooperation. The new goal set was to reduce Colombia's estimated cocaine production and coca cultivation to 50% of current levels by 2023. In addition, a memorandum of understanding was signed to combat the illegal gold mining that funds transnational criminal organizations.", "Although President Duque appears determined to pursue a more aggressive approach to drug policy, he has not clearly stated how his approach to counternarcotics will differ from that of his predecessor. The government may restart aerial eradication, a strategy that ended in 2015 due to the Colombian Health Ministry's concerns over cancer-causing potential of the herbicide glyphosate, but no precise plans for restarting the program have been announced in the Duque Administration's first three months in office. Experimentation with delivering glyphosate by drones (rather than planes) began in June 2018 under the Santos Administration and is continuing under the Duque government.\nOn October 1, 2018, President Duque authorized police to confiscate and destroy any quantity of drugs found on persons in possession of them, resulting in the seizure of more than 7 metric tons of drugs in less than two weeks. This enforcement measure may violate a 1994 Colombian Constitutional Court ruling, however, in which Colombians may carry small doses of drugs for personal use, including marijuana, hashish, and cocaine. Several court challenges have been filed that seek to nullify the Duque decree on constitutional grounds of protected personal use.\nDrug trafficking continues to trigger conflict over land in Colombia while affecting the most vulnerable groups, including Afro-Colombian, peasant, and indigenous populations. Some analysts warn that national and international pressure for drug eradication could also lead to increased human rights violations, including health consequences by reviving aerial spraying of drug crops and government actions to forcibly break up demonstrations by coca producers who resist eradication. Some analysts have advocated that investments to lower drug supply need to go beyond eradication, which has not been a lasting approach to reducing drug crop cultivation. For instance, the government could provide economic and education opportunities to at-risk youth to enhance their role in peace building and to prevent their recruitment into the drug trade and other illegal activity.", "Economic relations between Colombia and the United States have deepened. The U.S.-Colombia Free Trade Agreement (FTA) entered into force in May 2012. By 2020, it will phase out all tariffs and other barriers to bilateral trade between Colombia and the United States, its largest trade partner. Since the U.S.-Colombia FTA went into force, the stock of U.S. investment in Colombia surpassed $7 billion in 2014 but dropped to $6.2 billion in 2016 (on a historical cost basis), concentrated mostly in mining and manufacturing. According to the U.S. Department of Commerce, U.S. exports to Colombia exceeded $26.8 billion in 2016 and Colombia was the 22 nd -largest market for U.S. exports; however, U.S. imports from Colombia declined between 2015 and 2016. Major U.S. exports to Colombia include oil (noncrude oil products including gasoline), machinery, cereals, organic chemicals, and plastic. Because 65% of U.S. imports from Colombia are crude oil imports, much of the decline in value was caused by the sharp fall in oil prices that began in 2014. Major U.S. imports beside crude oil, include gold, coffee, cut flowers, and fruits.\nCongressional interest in Colombia now extends far beyond security and counternarcotics and has grown in the area of bilateral trade following implementation of the U.S.-Colombia FTA, (also known at the U.S.-Colombia Trade Promotion Agreement). Colombia is a founding member of the Pacific Alliance, along with Chile, Mexico, and Peru, and has sought to deepen trade integration and cross-border investment with its partners in the alliance while reducing trade barriers. The Pacific Alliance aims to go further by creating a common stock market, allowing for the eventual free movement of businesses and persons, and serving as an export platform to the Asia-Pacific region.\nColombia's leadership role in the Pacific Alliance and Colombia's accession to the Organization for Economic Cooperation and Development (OECD) in May 2018, following a review of the country's macroeconomic policies and changes, are major new developments. The accession to the OECD was approved by Colombia's lower house in October 2018 and the Senate in November 2018, but it remained under final review by Colombia's Constitutional Court in early February 2019. The Santos administration pushed to meet the criteria required for OECD membership because it maintained that such recognition signified Colombia's attainment of world-class development standards and policies. Colombia has made progress on trade issues such as copyright, pharmaceuticals, fuel and trucking regulations, and labor concerns (including subcontracting methods and progress on resolving cases of violence against union activists).", "Congress remains interested in Colombia's future because the country has become one of the United States' closest allies. With 17 years of investment in Colombia's security and stability, some maintain that there has already been a strong return on U.S. investment. Plan Colombia and its successor strategies broadened from counternarcotics to include humanitarian concerns, efforts to bolster democratic development and human rights protections, and trade and investment to spark growth.\nThe record expansion of Colombia's coca crop and increasing cocaine exports to the United States, however, may significantly hinder the effort to consolidate peace in Colombia and could potentially increase corruption and extortion. A significant portion of the Colombian public remains skeptical of the peace process and the FARC's role in Colombia's democracy. Other Colombians maintain that support for peace programs in Colombia is important not only to benefit former FARC or other demobilized combatants but also to fulfill promises the government made in the peace accords to the country's 8.6 million victims of the five-decade conflict.\nAs President Duque concluded his first 100 days in office, his government faced overlapping challenges: (1) an upsurge in illicit drug crops, which had set records in 2016 and 2017; (2) implementation of provisions of the peace accord negotiated by former president Santos but marred by slow implementation, attacks on land and human rights activists, and projected budgetary shortfalls; (3) renewed violent competition among criminal groups in rural areas, some of which reportedly are sheltering in Venezuela; and (4) Venezuela's humanitarian crisis, which resulted in a surge of migrants fleeing to or through Colombia.\nThe annual level of foreign assistance provided by the U.S. Congress for Colombia began to decline in FY2008 and then gradually increased in FY2017 and FY2018 to support peace and implementation of the FARC-government peace accord. Some Members of Congress may want to build on cooperation with Colombian partners to continue to train Central Americans and other third-country nationals in counternarcotics and security, including programs in citizen security, crime prevention and monitoring, military and police capacity building, and hostage negotiation and cybersecurity. Congress may continue to closely monitor Colombia's domestic security situation. It also may continue to oversee issues such as drug trafficking; Colombia's effort to combat other illegal armed groups such as Bacrim; the status of human rights protections; and the expansion of health, economic, environmental, energy, and educational cooperation. Congress may seek to foster Colombian leadership in the region to counter growing political instability in Venezuela. The U.S. Congress has been interested in expanding investment and trade opportunities both bilaterally with Colombia and within regional groupings, such as the Pacific Alliance. Some analysts contend that U.S.-Colombian trade improvements rest on the strength of the overall relationship between Colombia and the United States.", "" ], "depth": [ 0, 1, 2, 3, 3, 3, 3, 3, 2, 2, 3, 2, 3, 3, 3, 3, 2, 3, 1, 2, 3, 3, 2, 2, 3, 3, 3, 2, 1, 2 ], "alignment": [ "h5_title h0_title h2_title h4_title h3_title h1_title", "h5_title h0_title h2_title h4_title h3_title h1_title", "h1_full h5_title h0_title h2_full h3_full", "h0_full", "", "", "h2_full", "h5_full", "h5_full h1_full", "h3_full h4_title", "h4_full", "", "", "", "", "", "h4_full", "", "h5_title h2_title h0_full h3_full h1_title", "h0_full h3_title h1_full", "h3_full", "h0_full", "", "h2_title", "", "h2_full", "", "h5_full", "", "" ] }

{ "question": [ "What is Colombia's recent history?", "What was the internal conflict in Colombia?", "What did the Colombian government do to address the conflict?", "What was the focus of Plan Colombia?", "How was Plan Colombia funded?", "What was President Juan Manuel Santos's main focus?", "How long did it take for FARC to be ratified?", "What happened after the ratification?", "How did Duque rise to power?", "What was Duque's campaign strategy?", "What was the effect of this campaign?", "How did Duque act on his campaign promises?", "How was Colombia's peace strategy changed?", "To what extent has Plan Colombia succeeded?", "What events have stymied Colombia's progress?", "Why do observers raise concerns about Colombia?", "Why is Venezuela a particular issue for Colombia?", "How has the situation in Venezuela changed?", "How did the U.S.-Colombia Trade Promotion Agreement begin?", "How is the current trade relationship between the U.S. and Colombia?", "How did the Trade Promotion Agreement affect Colombia's economy?", "How is the FARC-government peace accord expected to affect the economy?" ], "summary": [ "A key U.S. ally in the Latin American region, Colombia endured an internal armed conflict for half a century.", "Drug trafficking fueled the violence by funding both left-wing and right-wing armed groups.", "Some analysts feared Colombia would become a failed state in the late 1990s, but the Colombian government devised a new security strategy, known as Plan Colombia, to counter the insurgencies. Originally designed as a 6-year program, Plan Colombia ultimately became a 17-year U.S.-Colombian bilateral effort.", "The partnership focused initially on counternarcotics and later on counterterrorism; it then broadened to include sustainable development, human rights, trade, regional security, and many other areas of cooperation.", "Between FY2000 and FY2016, the U.S. Congress appropriated more than $10 billion to help fund Plan Colombia and its follow-on programs. For FY2018, Congress appropriated $391.3 million in foreign aid for Colombia, including assistance to promote peace and end the conflict.", "President Juan Manuel Santos (2010-2018) made concluding a peace accord with the Revolutionary Armed Forces of Colombia (FARC)—the country's largest leftist guerrilla organization—his government's primary focus.", "Following four years of formal peace negotiations, Colombia's Congress ratified the FARC-government peace accord in November 2016.", "During a U.N.-monitored demobilization effort in 2017, approximately 11,000 FARC disarmed and demobilized. This figure included FARC who had been held in prison for crimes of rebellion and those making up FARC militias, who were accredited by the Colombian government as eligible to demobilize.", "On August 7, 2018, Iván Duque, a senator from the conservative Democratic Center party, was inaugurated to a four-year presidential term.", "Duque, who also worked at the Inter-American Development Bank in Washington, DC, and is Colombia's youngest president in a century, campaigned as a critic of the peace accord with the FARC. His party objected to specific measures concerning justice and political representation.", "Some observers maintain that his election has generated uncertainty for implementation of the accord.", "Shortly after taking office, Duque suspended peace talks with the National Liberation Army (ELN), the country's second-largest rebel group, which had begun under President Santos.", "Since the ratification of the peace accord, Colombia's long-term strategy has evolved from defeating insurgents to post-conflict stabilization.", "Many considered Plan Colombia and its successor strategies a remarkable advance, given the country's improvements in security and economic stability. Nevertheless, recent developments have called into question Colombia's progress.", "The FARC's demobilization has triggered open conflict among armed actors (including FARC dissidents and transnational criminal groups), which seek to control drug cultivation and trafficking, illegal mining, and other illicit businesses that the demobilized FARC abandoned. The ongoing lack of governance in remote rural areas recalls the conditions that originally gave rise to the FARC and other armed groups.", "Many observers continue to raise concerns about the country's human-rights conditions, sharp increases in coca cultivation and cocaine production, and problems stemming from the failing authoritarian government of neighboring Venezuela, which shares a nearly 1,400-mile border with Colombia.", "Venezuela's humanitarian crisis has set in motion an exodus of migrants, many of whom have sought temporary residence (or extended stays) in Colombia.", "Political upheaval has added yet more uncertainty after the United States and many other Western Hemisphere and European nations, including Colombia, called for a democratic transition in Venezuela and recognized the president of the Venezuelan National Assembly, Juan Guaidó, as the country's interim president in January 2019.", "The U.S.-Colombia Trade Promotion Agreement went into force in May 2012.", "The United States remains Colombia's top trade partner.", "After several years of annual growth exceeding 4%, one of the steadiest expansion rates in the region, Colombia grew by an estimated 2.7% in 2018.", "The FARC-government peace accord is projected to cost more than $40 billion to implement over 15 years, adding to the polarization over the controversial peace process." ], "parent_pair_index": [ -1, 0, 0, 2, 2, -1, 0, 1, -1, 0, 1, 1, -1, 0, 1, -1, 0, 1, -1, 0, 0, 0 ], "summary_paragraph_index": [ 0, 0, 0, 0, 0, 1, 1, 1, 2, 2, 2, 2, 3, 3, 3, 4, 4, 4, 5, 5, 5, 5 ] }

{ "title": [ "", "Background", "Industrial Facilities", "Municipalities", "Phase I", "Phase II", "Congressional Interest", "Oil and Gas Facilities", "Stormwater Management at Federal Facilities", "EPA's Stormwater Rulemaking" ], "paragraphs": [ "", "Stormwater discharge systems are the pipes and sewer lines that carry rainwater or snow melt, but not domestic sanitary wastes, away from urban areas and commercial and industrial facilities. For many years the focus of the nation's water quality programs was on controlling pollutants associated with industr ial process wastewaters and municipal sewage discharges. More diffuse and episodic discharges (such as rainfall runoff from farm lands and urban runoff) and discharges believed to be relatively uncontaminated received less attention from policymakers and regulators.\nHowever, as the traditional sources of water pollution have become better controlled through laws and regulations, attention has increasingly focused on remaining problems that continue to prevent attainment of state and tribal water quality standards. Stormwater is one such source of pollution. For some time, it was generally believed that stormwater was largely clean, or uncontaminated. However, studies have demonstrated that this type of discharge—from rainfall and snow melt—carries with it large amounts of organic and toxic pollutants that can harm water quality, including oil and grease, heavy metals, pesticides, soil, and sediment.\nIn urban areas, widespread residential and commercial development results in the removal of vegetation cover and building of impervious structures such as roads and parking lots. These activities may change natural drainage patterns in an area, causing higher runoff flows during wet weather events. Urbanization and the human alteration of landscapes and land uses that is associated with it have resulted in the degradation of conditions in downstream waterbodies. States report that stormwater discharges, including urban runoff, industrial activity, construction, and mining, are a significant source of surface water quality problems today. But control of stormwater discharges and other sources of wet weather pollution, including overflows from combined and separate sewer systems, is complicated because discharges generally are intermittent and are less amenable to \"end of pipe\" solutions than conventional industrial and municipal water pollution.\nRecognition of the water quality problems of stormwater runoff led Congress in 1987, when it last comprehensively amended the Clean Water Act (CWA), to direct EPA to implement a specific permit program for stormwater discharges from industrial sources and municipalities ( P.L. 100-4 ). Even before the 1987 amendments, the issue of how to regulate stormwater discharges had a lengthy history of regulatory proposals, delays, legal challenges, and court decisions. Still, EPA had been unable to devise a comprehensive and flexible administrative process for regulating stormwater discharges before requirements were legislated in 1987. In that legislation, Congress established a phased and tiered approach to permitting of stormwater discharges that fundamentally redesigned the CWA's approach to stormwater discharges. Congress recognized that EPA's difficulties in addressing sources of stormwater stemmed in part from the large number of sources potentially subject to regulation, so the 1987 legislation adopted a procedure that would enable the major contributors of stormwater pollutants to be addressed first, and remaining stormwater discharges in later phases.\nEPA initially issued regulations to implement Congress's legislative mandate in 1990, utilizing a series of phased requirements. Phase I applied to large dischargers: those associated with industrial activities, municipal separate storm sewer systems serving 100,000 people or more, and construction projects disturbing more than 5 acres. Smaller sources were slated for possible regulation under Phase II of the program (discussed below) and included cities and towns with separate storm sewer systems serving fewer than 100,000 people, commercial operations, and smaller construction projects. Stormwater requirements are one element of the comprehensive permit program, the National Pollutant Discharge Elimination System (NPDES), authorized in Section 402 of the act. Under the act, it is illegal to discharge pollutants from point sources (e.g., industrial plant pipes, sewage treatment plants, or storm sewers) into the nation's waters without an NPDES permit—permits are the fundamental compliance and enforcement mechanism of the law. EPA manages the NPDES stormwater program in four states (Idaho, Massachusetts, New Hampshire, and New Mexico), plus the District of Columbia and most U.S. territories, and has delegated that authority to the remaining 46 states and the Virgin Islands.\nAn estimated 123,000 industrial facilities (twice the number of industrial sources subject to the base NPDES program) and 220 municipalities and counties were covered by the 1990 permit rules for Phase I of the program. The initial procedures and deadlines were complex and were made more confusing by subsequent deadline extensions.\nThe 1987 CWA amendments directed delegated states (or EPA) to issue stormwater permits not later than four years after enactment of that legislation. This would have required permits to be issued by February 4, 1991, but this did not occur, in part because EPA's 1990 rule was issued 21 months after the statutory deadline. Regulated sources must comply with stormwater permits within three years of their issuance.\nPermits require dischargers, at a minimum, to implement pollution prevention plans, although remediation or additional treatment of runoff may also be required. Permits issued to municipalities require cities to develop, implement, and enforce a stormwater management program that addresses key areas such as public education, eliminating illicit connections to storm sewers, good housekeeping of municipal operations, and control of erosion and sedimentation from construction sites.\nPrior to implementation of the stormwater regulatory program, the universe of NPDES permittees nationwide was less than 70,000 industrial and municipal facilities. The addition of stormwater permittees greatly expanded this regulatory program. EPA estimates that the total number of stormwater permittees at any one time exceeds half a million—thus, NPDES stormwater permittees outnumber wastewater permittees more than five-fold.", "Industries that manufacture, process, or store raw materials and which collect and convey stormwater associated with those activities were required to apply for an NPDES permit under the Phase I program. Several industries were specifically identified in EPA's 1990 regulation: mining operations; lumber and wood products; paper and allied products; printing, chemical products, paints, varnishes, and lacquers; stone, clay, glass, and concrete; metals; petroleum bulk terminals; hazardous waste treatment facilities; salvage operations; and powerplants.\nIndustrial facilities had several options to comply with these permit requirements. Chiefly, they could obtain either individual or group permits. Applications for individual facility permits were due to be submitted by October 1, 1992. For group permits (covering multiple facilities with similar stormwater discharges), a two-step process applied: submitting a list of facilities to be covered by September 30, 1991, and submitting more detailed information, such as sampling data on 10% of facilities in the group and a description of a stormwater management program, by October 1, 1992.\nEPA also provided a third option for industrial facilities, through a general permit procedure. A general permit is one that covers discharges from more than one facility, thus making the large number of stormwater permittees more manageable. Sources are only required to submit a Notice of Intent to be covered by a general permit, rather than the detailed application for an individual permit. EPA expected that general stormwater permits will make for a less costly and burdensome permitting process through less extensive testing and control requirements, as well as minimal monitoring and reporting. For most sources, general permits require preparation of a pollution prevention plan, and compliance with the plan six months later. EPA issued general permits for stormwater discharges associated with industrial and construction activities that disturb 5 acres or more, which apply in the four states where EPA is the permitting authority for the stormwater program. Using the EPA general permit as a model, most other states that have been delegated permitting responsibility use similar general permits to reduce the administrative burden of the industrial stormwater permit program.\nCongress addressed the deadlines for stormwater permitting of industrial facilities twice. Congress first extended aspects of the deadlines for group applications by industrial facilities ( P.L. 102-27 , Dire Emergency Supplemental Appropriations Act of 1991), and in the 1991 Surface Transportation Act ( P.L. 102-240 ), Congress clarified the deadlines applicable to industrial activities that are municipally owned or operated (such as airports or powerplants).", "", "Much of the controversy about stormwater requirements has focused on impacts on cities, not industrial sources. Municipalities with separate storm sewer systems (called MS4s) were subject to EPA's regulations under staggered deadlines based on the size of population served. In the 1990 Phase I regulations that apply to industrial activities, EPA also regulated discharges from medium-size and large cities (covering those with populations greater than 100,000 persons). The Phase I regulations are primarily application requirements that identify components that must be addressed in permit applications. The rules require large and medium MS4s to develop a stormwater management program, track and oversee industries facilities that are regulated under the stormwater program, conduct monitoring, and submit periodic reports. The regulations specified deadlines for these cities to provide regulators with information on legal authority over stormwater discharges and to provide detailed information on source identification and monitoring data. EPA identified 173 cities and parts of 47 urban counties as covered by Phase I.", "The 1987 CWA amendments exempted smaller cities (with populations of less than 100,000) from any stormwater permit requirements until October 1, 1992, and directed EPA to develop a suitable approach to address them under Phase II of the stormwater regulatory program. Because of problems in formulating a permitting strategy, EPA did not issue regulations by the 1992 deadline, nor did it meet the deadline in a one-year extension that Congress provided in P.L. 102-580 . In 1995, EPA convened an advisory committee of stakeholders to assist in developing rules by March 1, 1999, a deadline set in a judicial consent order in Natural Resources Defense Council v. EPA (Civ. No. 95-0634 PFL [DDC, Apr. 6, 1995]) that required EPA to clarify the scope of coverage and control mechanisms for the Phase II program. Based in part on extensive discussions with the stakeholder advisory committee and with another court-approved extension, EPA issued a final Phase II rule in 1999. EPA estimated that the rule would make approximately 3,000 more river miles safe for boating annually and protect up to 500,000 people a year from illness due to swimming in contaminated waters.\nThe 1999 Phase II rule extended Phase I by requiring permits of two additional classes of dischargers on a nationwide basis: (1) operators of MS4s serving populations of less than 100,000 persons in urbanized areas as defined by the Bureau of the Census, and (2) operators of construction activities that disturb greater than 1 and less than 5 acres of land (larger construction sites are covered by the Phase I rules). Separate storm sewer systems such as those serving military bases, universities, large hospital or prison complexes, and highways are also included in the definition of small MS4. EPA estimated that 5,040 small cities are covered by Phase II, along with about 110,200 construction starts per year.\nWaivers from coverage are available both for small cities (those with fewer than 10,000 persons) and construction activities if the discharges are not causing water quality impairment. At the same time, additional small municipal systems and construction sites may be brought into the stormwater program on a case-by-case basis, if permitting authorities determine that they are significant contributors to water pollution. Under the 1999 rule, covered facilities were required to apply for NPDES permit coverage by March 2003 (most under a general rather than an individual permit) and implement stormwater management programs that include six minimum management controls that effectively reduce or prevent pollutant discharges into receiving waters, such as pollution prevention and eliminating illicit discharge connections for municipal operations. The rule also provided that municipally operated industrial activities not previously regulated were required to apply for permit coverage under the same schedule as other facilities covered by Phase II.\nIn the final Phase II rule, EPA attempted to balance statutory requirements for a nationally applicable program with sufficient administrative flexibility to focus on significant water quality impairments. For example, EPA encouraged permitting authorities to use general rather than individual permits for the majority of covered dischargers. The agency's decision to not include construction sites smaller than 1 acre was based on the belief that regulating the smallest of such sites would overwhelm the resources of permitting authorities and might not yield corresponding water quality benefits. Further, EPA modified the previous Phase I rule to exclude industrial facilities that have \"no exposure\" of their activities (such as raw materials) to stormwater, thus reducing coverage by an estimated 76,000 facilities that have no industrial stormwater discharges. These efforts to provide flexibility notwithstanding, many regulated entities continued to criticize the scope of the stormwater program, saying that EPA had greatly underestimated the cost of the Phase II rules (projected to be $297 million annually for small cities and $505 million annually for construction activities).\nCities of all sizes have complained about the costs and difficulties of complying with EPA's regulations, especially because there is no specific CWA grant or other type of assistance program to help pay for developing and implementing local stormwater programs. Many contend that cities already are burdened with numerous environmental compliance requirements and lack adequate resources to address stormwater controls in addition to drinking water, solid waste, wastewater treatment, and sludge disposal problems. Where cities need to construct or install technology to control stormwater discharges, the principal source of financial assistance is the CWA's state revolving fund (SRF) loan program that is administered by states. However, because SRF assistance is not restricted to meeting just stormwater project needs, competition for available funds for all types of eligible projects is intense.\nMany municipal and industrial dischargers covered by the Phase I and Phase II programs have reached the end of their initial permit terms (NPDES permits are issued for five-year terms). For permit renewals, the agency is implementing a streamlined reapplication process that will not require the extensive information collection that characterized the first round of permitting.\nImplementation of permits (i.e., translating permits into specific steps to manage stormwater runoff) is now the challenge for permitting authorities and permittees. According to a 2001 Government Accountability Office (GAO) report, local governments are primarily using best management practices (BMPs, sometimes called stormwater control measures, or SCMs) to prevent or slow stormwater from quickly reaching nearby waterbodies and degrading water quality, rather than requiring that stormwater be transported to treatment facilities. BMPs include nonstructural measures to minimize contaminants getting into stormwater (e.g., street sweeping) and structural practices such as detention ponds to separate contaminants from stormwater. GAO criticized EPA for not establishing systematic efforts or measurable goals to evaluate the effectiveness of the program in reducing stormwater pollution or to determine its costs, which local governments have portrayed as high. In the 1999 rules, EPA set a goal of beginning to evaluate implementation of Phase II of the program in 2012.\nIn a 2007 report, GAO examined implementation of the stormwater regulatory program by municipalities. GAO found that implementation of both Phases I and II had been slow: nearly 11% of communities were not permitted as of 2006; and even in communities with permits, delays occurred due to litigation or other disputes. Thus, GAO reported that because many communities were still in the early stages of implementation at the time of the report, it was too early to determine the overall program burden. While EPA's regulations provide flexibility, which could limit program burden, increased burden could result if communities are required by states or EPA to expand stormwater management activities or meet more stringent specific permit conditions in the future. GAO found that EPA is not collecting complete and consistent cost and other data, which hampers assessment of program burden.\nThe 1999 Phase II rules were challenged by environmental groups. The litigation resulted in a 2003 federal court ruling (Environmental Defense Center v. EPA, 344 F.3d 832 (9 th Cir. 2003)). The Phase II rules allowed permitting authorities to issue general permits for MS4 stormwater discharges and required regulated MS4s to submit a Notice of Intent (NOI) to be covered by the general permit. The court found that the Phase II rules failed to require review of NOIs and failed to make NOIs available to the public or subject to public hearings and directed EPA to revise the rules to correct these procedural shortcomings. Following the court's ruling, EPA issued guidance but did not propose revised rules. In 2014, the environmental groups sued EPA for failing to follow the court's nearly 12-year-old ruling. Under a settlement agreement with the environmental plaintiffs, EPA agreed to issue final revised rules by November 17, 2016.\nThe agency issued revised MS4 rules on November 17. The new rule allows states to choose between two options for increasing scrutiny of the MS4s' compliance plants. It allows states and other authorities crafting general permits for small MS4s to either outline in the permit terms all compliance methods that are open to permittees, or set up a \"two-step\" process in which facilities that apply for coverage must add their compliance plans as enforceable permit terms, including a notice-and-comment process for each plan. According to EPA, the two-step general permit allows the permitting authority to establish some requirements in the general permit and others applicable to individual MS4s through a second proposal and public comment process. Most states reportedly were pleased that the final rule provides permitting authorities with flexibility, although a few states said that allowing states to choose the regulatory approach would be more time-intensive and expensive than the system under the previous MS4 rules. Environmentalists' responses to the new rule were mixed, with some supporting EPA's actions and saying that the revised rule would lead to tighter controls on MS4 permits, but others contending that the rule's flexibility would make oversight by the public more difficult.", "Prior to issuance of the final Phase II rule in 1999, Congress included language in EPA's FY2000 appropriation bill ( P.L. 106-74 ) directing the agency not to issue the final rule before submitting a detailed impact analysis to Congress. To meet a court-ordered deadline for the regulation, EPA released the report concurrently with the Phase II rule. In the 106 th Congress, legislation was introduced to exempt construction sites of less than 5 acres and certain above-ground drainage ditches from stormwater permitting requirements. At a 1999 Senate hearing, EPA witnesses opposed the bill, saying that above-ground drainage ditches and small construction sites are significant sources of water pollution and thus should be subject to stormwater management requirements. No further action occurred.\nIn response to concerns about program impacts and costs, the 107 th Congress enacted legislation allowing states to use Section 319 grant funds, which are used for projects to manage nonpoint sources of water pollution, for projects or activities related to developing and implementing a Phase II stormwater program (§301 of P.L. 107-303 ). This authority only applied to Section 319 funds in FY2003. Legislation to extend this authority beyond FY2003 was introduced in the 108 th Congress, but was not enacted.", "As the March 2003 Phase II deadline approached (affecting small municipalities and construction sites), EPA proposed a two-year extension of the rule for small oil and gas exploration and production facility construction sites to allow the agency to assess the rule's economic impact on that industry. EPA had initially assumed that most oil and gas facilities would be smaller than one acre in size and thus excluded from Phase II rules, but newer data indicated that up to 30,000 new sites per year would be of sizes subject to the rule. In March 2005 EPA extended the exemption until June 2006 for further study and said it would issue a specific rule for small oil and gas construction sites by that date. The postponement did not affect other industries, construction sites, or small cities covered by the 1999 rule. Under the 1987 amendments to the CWA, the operations of facilities involved in oil and gas exploration and production generally were exempted from compliance with stormwater runoff regulations (so long as the runoff is uncontaminated by pollutants), but the construction of associated facilities was not.\nOmnibus energy legislation enacted in the 109 th Congress ( P.L. 109-58 , the Energy Policy Act of 2005) included a provision addressing this issue. Section 323 amends the CWA to specifically include construction activities at all oil and gas development and production sites, regardless of size (including sites larger than 5 acres, previously covered by Phase I), in the law's general statutory exemption for oil and gas facilities from stormwater rules. Its intention was to exempt from the CWA all uncontaminated stormwater discharges that occur while setting up drilling operations.\nOil and gas officials, who supported the provision, said that the existing EPA stormwater rules create time-consuming permitting requirements, even though the short construction period for drilling sites carries little potential for stormwater runoff pollution. Opponents argued that the provision did not belong in the omnibus energy legislation and that there is no evidence that construction at oil and gas sites causes less pollution than other construction activities, which are regulated under EPA's stormwater program.\nEPA promulgated a rule to implement Section 323 in 2006. The rule was criticized by some interest groups and Members of Congress who argued that EPA had exceeded its authority by broadly defining the scope of contamination that is exempted by the rule beyond the statutory language to also include stormwater discharges contaminated solely with sediment. In May 2008, a federal court held that the rule is arbitrary and capricious, and it vacated the rule. EPA petitioned the court to rehear the case, but the request was denied—thus, the exemption is no longer in effect. At the time, EPA said that it intends to issue a revised rule that would remove the 2006 rule from the Code of Federal Regulations consistent with the court vacatur and codify the statutory exemption in P.L. 109-58 , but the agency has not proposed any revisions or announced a specific schedule for doing.\nLegislation to repeal Section 323 was introduced in the 109 th Congress, but no further action occurred. In the 111 th Congress, legislation to repeal the exemption passed the House (the provision was Section 728 of H.R. 3534 , the Consolidated Land, Energy, and Aquatic Resources Act), but it was not enacted. In the 114 th Congress, a bill has been introduced to repeal the oil and gas exemption enacted in P.L. 109-58 . This bill, H.R. 1460 , also would direct the Secretary of the Interior to conduct a study of stormwater runoff from oil and gas operations that may result in contamination. Similar legislation was introduced in the 113 th Congress.", "Congress often looks to federal agencies to lead or test new policy approaches, a fact reflected in legislation passed in 2007. Section 438 of P.L. 110-140 , the Energy Independence and Security Act (EISA), requires federal agencies to implement strict stormwater runoff requirements for development or redevelopment projects involving a federal facility in order to reduce stormwater runoff and associated pollutant loadings to water resources. The legislation requires agencies to use site planning, construction, and other strategies to maintain or restore, to the maximum extent technically feasible, the predevelopment hydrology of the property.\nTo assist agencies in meeting these requirements, EPA issued technical guidance. The guidance provides two options for meeting the performance objective of preserving or restoring the hydrology of a site: retaining the 95 th percentile rainfall event (i.e., managing rainfall on-site for storm events whose precipitation total is less than or equal to 95% of all storm events over a given period of record), or site-specific hydrologic analysis (i.e., using site-specific analysis to determine predevelopment runoff conditions). According to the guidance, using a performance-based approach rather than prescriptive requirements is intended to give site designers maximum flexibility in selecting appropriate control practices. Issuance of the guidance also fulfilled an element of an October 2009 executive order that formally assigned to EPA the responsibility to issue the Section 438 guidance, in coordination with other agencies, and to do so by December 5, 2009.\nIn December 2010 Congress passed legislation requiring federal agencies to pay local fees for treating and managing stormwater runoff. The legislation amends CWA Section 313, which requires federal agencies to comply with all federal, state, and local water pollution control requirements as nongovernmental entities, including the payment of reasonable service charges. The issue emerged earlier in 2010 when several federal agencies announced that they would not pay stormwater fees assessed by the District of Columbia, claiming that the fees amounted to a tax that the agencies were not required to pay, because the waiver of sovereign immunity in Section 313 applies to fees and charges, but not a tax. The legislation was intended to clarify uncertainty over whether federal agencies must pay local stormwater fees. President Obama signed the legislation in January 2011 ( P.L. 111-378 ).\nA continuing aspect of the issue of interest in a few locations is the scope of P.L. 111-378 and whether it requires the government to pay local stormwater fees retroactively. After the Bonneville Power Administration objected to paying retroactive stormwater fees imposed by two Washington localities following passage of the federal facility amendment, the matter ended up in federal court. The government took the position in the litigation that the legislative change amounted to a redefinition of \"service charges,\" instead of a clarification of Congress's original intent, and would only apply prospectively. In 2012, a federal district court rejected the government's position and held that the CWA amendment was merely a clarification of the statute and thus is entitled to retroactive effect. The federal government did not appeal this ruling. A similar case in Georgia was dismissed following a settlement agreement between the parties, but the settlement did not resolve lingering questions whether stormwater charges are fees for \"reasonable services provided\" or taxes, an issue of concern more broadly than just regarding government facilities.", "In 2006 EPA requested the National Research Council of the National Academy of Sciences (NRC) to conduct a review of the existing stormwater regulatory program. The resulting report, issued in 2009, called for major changes to EPA's stormwater control program that would focus on the flow volume of stormwater runoff instead of just its pollutant load. The committee observed that—\nstormwater discharges would ideally be regulated through direct controls on land use, strict limits on both the quantity and quality of stormwater runoff into surface waters, and rigorous monitoring of adjacent waterbodies to ensure that they are not degraded by stormwater discharge.... Presently, however, the regulation of stormwater is hampered by its association with a statute that focuses primarily on specific pollutants and ignores the volume of discharges.\nThe NRC report recommended that EPA adopt a watershed-based permitting system encompassing all discharges—stormwater and wastewater—that could affect waterways in a particular drainage basin, rather than individual permits that do not account for cumulative conditions from multiple sources in the same watershed. Under the proposed watershed permitting strategy, responsibility to implement watershed-based permits and control all types of municipal, industrial, and construction stormwater discharges would reside with MS4 permittees. The report criticized EPA's current approach, which leaves much discretion to regulated entities to set their own standards through stormwater management plans and to self-monitor. As a result, enforcement is difficult and variable, and information to assess the water quality benefits of the regulatory program is limited. The report also noted that adequate resources, including new levels of public funds, will likely be required to operate a more comprehensive and effective stormwater permitting program.\nSubsequently, EPA initiated information-gathering and public dialogue activities as a prelude to possible regulatory changes that would respond to the NRC's criticism of inconsistency in stormwater requirements nationally and embrace the report's recommendation to adequately control all sources of stormwater discharge that contribute to waterbody impairment. EPA proposed to collect data from MS4s, states, and industry entities involved in developing or redeveloping sites on the scope of the current regulatory program and management practices, as well as information on control, pollution prevention technologies, and BMPs applied to stormwater discharges from newly developed and redeveloped sites.\nIn response to the NRC report, EPA began work to develop a rule to revise the existing stormwater regulatory program. The rule also followed a 2010 settlement agreement between EPA and environmental litigants, which called for EPA to revise existing rules \"to expand the universe of regulated stormwater discharges and to control, at a minimum, stormwater discharges from newly developed and redeveloped sites.\" In the settlement, EPA committed to consider supplemental provisions as part of the national rule that would apply only to the Chesapeake Bay watershed, a region where municipal stormwater discharges are a significant cause of water quality impairment and are one of the only sources of pollutants with increasing loads to the Bay and its tributaries.\nIn early 2010 EPA held a series of listening sessions across the country as part of a process seeking public comments on potential considerations for regulatory changes. The agency also sent survey questionnaires to property owners and developers, municipal sewer system authorities, state regulators, and EPA regional offices to obtain their input. Some industry groups reportedly criticized possible expansion of the current program, saying that EPA's authority to regulate stormwater does not extend to regulation of post-construction discharges. Some states also said that EPA lacks the technical knowledge to regulate stormwater across the nation, while states with comprehensive regulations, such as Florida and Maryland, demonstrate that regulation is best done at the state and local level, because of locational differences in stormwater discharges. EPA officials noted that a number of states have developed their own stormwater management programs, particularly in the Northeast, where lawsuits have pushed regulators, and also in some high-precipitation states in the Northwest. A number of commenters urged EPA to ensure that performance standards designed to reduce storm runoff be flexible so that communities can create requirements appropriate to their stormwater needs. Cost is a key issue raised by some states and municipalities concerned about the possibility of mandatory retrofit requirements that would impose a significant economic burden on cities. Some state and local government representatives—while they concerned about details of a rule—believed that a national rule would provide needed uniformity and consistency in stormwater programs across the nation.\nDuring efforts to develop a national rule, EPA explored regulatory options that would strengthen the regulatory program by establishing specific post-construction requirements for stormwater discharges from new development and redevelopment, which currently are not regulated. While MS4s are required to address stormwater discharges from new development and redevelopment in their management plans, existing rules do not include specific management practices or standards to be implemented. Other options that EPA considered included expanding the area defined as MS4s to include rapidly developing areas, devising a single set of consistent regulations for all MS4s, and requiring MS4s to address stormwater discharges in areas of existing development through retrofit practices. EPA officials said that the rule would focus on stormwater discharges from developed, or post-construction, sites, such as subdivisions, roadways, industrial facilities, and commercial buildings or shopping centers, and to seek to ensure that even after development projects are completed, runoff levels from sites are equivalent to pre-construction hydrology. The proposal, referred to as the \"post-construction rule,\" likely would set a first-time stormwater retention performance standard to limit runoff that would otherwise enter an MS4 system. By retaining a portion of rainfall on-site, the discharge of pollutants for that volume is prevented from entering the sewer system. Requirements in the post-construction rule, once finalized, would be incorporated into MS4 permits as permits come up for renewal.\nThe stormwater rulemaking drew some interest from Members of Congress. In 2013, Republican members of the Senate Environment and Public Works Committee urged EPA to suspend work on the rulemaking until the agency could seek meaningful input from small businesses and provide a report to Congress on the necessity for new stormwater regulations.\nUnder the 2010 settlement with environmentalists, EPA was initially due to propose a national rule by September 2011 and complete the rule in 2014. Subsequently, the deadlines were renegotiated several times. Under the last deadline, EPA was to propose regulations by June 17, 2013, but EPA missed that deadline, and on June 18, the environmental plaintiffs notified the agency that it was in breach of the legal settlement. At that point, EPA and the plaintiffs had reached a legal impasse; EPA reportedly continued to work on the rule, while the environmental groups considered further legal action. Finalizing a rule with national application was said to be complicated by a number of analytic issues, particularly how to calculate costs and benefits of the proposal and how to incorporate flexibility, such as possibly including lengthy implementation plans for retrofit projects and allowing states with equivalent stormwater programs to regulate in lieu of EPA.\nIn mid-March 2014, EPA announced that it would defer action on the post-construction stormwater rule and instead will provide incentives, technical assistance, and other approaches for cities to address stormwater runoff themselves. In particular, the agency said that it will leverage existing requirements to strengthen municipal stormwater permits and will continue to promote green infrastructure as an integral part of stormwater management.\nAlthough EPA discontinued development of a national stormwater rule, the agency continues to pursue some of the ideas that the rule had been expected to incorporate, such as emphasizing on-site retention of stormwater at construction sites or requiring green infrastructure, when individual MS4 permits come up for renewal. These concepts are reflected, for example, in the MS4 permit for Washington DC, issued by EPA in 2013, and EPA's 2014 proposed MS4 general permit for Massachusetts; both were crafted by EPA, which is the NPDES permitting authority in DC and Massachusetts. In the majority of states, permitting authority has been delegated to states (see page 2). In those cases, environmental groups are reportedly pursuing a permit-by-permit approach of encouraging states to strengthen the terms of new and reissued MS4 permits." ], "depth": [ 0, 1, 2, 2, 3, 3, 1, 2, 2, 1 ], "alignment": [ "h0_title h1_title", "h0_full", "", "h0_title", "h0_full", "h0_full", "", "", "", "h0_full h1_full" ] }

{ "question": [ "How does the EPA control stormwater discharge?", "How are Phase I rules different from Phase II rules?", "Why have questions arisen about this program?", "What are some specific concerns regarding the program?", "Why did the National Research Council criticize the EPA's stormwater regulatory program?", "How did EPA respond to this criticism?", "How did the agency claim that the revised rule would work?", "Why was the rule postponed?", "How did the EPA decide to move ahead without a new rule?" ], "summary": [ "The Environmental Protection Agency (EPA) and states implement a federally mandated program for controlling stormwater discharges from industrial facilities and municipalities.", "Large cities and most industry sources are subject to rules issued in 1990 (Phase I rules), and EPA issued permit rules to cover smaller cities and other industrial sources and construction sites in 1999 (Phase II rules).", "Because of the large number of affected sources and deadline changes that led to confusion, numerous questions have arisen about this program.", "Impacts and costs of the program's requirements, especially on cities, are a continuing concern.", "In 2009 the National Research Council issued a report calling for major changes to strengthen EPA's stormwater regulatory program, which it criticized as being inconsistent nationally and failing to adequately control all sources of stormwater discharge that contribute to waterbody impairment.", "In response, EPA began efforts to expand regulations and strengthen the current program with a revised rule.", "Agency officials said that the new rule would focus on stormwater discharges from newly developed and redeveloped, or post-construction, sites, such as subdivisions, roadways, industrial facilities, and commercial buildings or shopping centers.", "The rule was originally due to be proposed in 2011, but EPA missed that and several subsequent deadlines, due to analytic problems associated with developing the rule.", "In 2014, the agency announced that it would defer action on a national rule and instead will provide incentives, technical assistance, and other approaches for cities to address stormwater runoff themselves." ], "parent_pair_index": [ -1, 0, 0, 2, -1, 0, 1, 1, 3 ], "summary_paragraph_index": [ 0, 0, 0, 0, 3, 3, 3, 3, 3 ] }

{ "title": [ "Background", "TSA Has Implemented 51 of 58 Recommendations Relating to the Acquisition of Security-Related Technology Aimed at Improving Agency Planning and Analysis", "TSA’s Implementation of GAO Recommendations Has Resulted in Financial Benefits and Other Programmatic and Process Improvements", "Financial benefits:", "Programmatic Improvements", "Process Improvements", "Agency Comments and Our Evaluation", "Appendix I: Characteristics and Status of the Transportation Security Administration’s Implementation of GAO Recommendations", "Product Number GAO-04-385", "Product Number GAO-04-385", "Product Number GAO-04-544", "Product Number GAO-04-544", "Product Number GAO-04-728", "Product Title", "Product Number GAO-05-356", "Product Number GAO-05-356", "Product Number GAO-05-356", "Product Title", "Product Title", "Product Title", "Product Number GAO-09-292", "Product Number GAO-10-128", "Product Number GAO-10-128", "Product Number GAO-10-128", "Product Number GAO-10-128", "Product Number GAO-11-740", "Product Number GAO-11-740", "Product Number GAO-13-239", "Product Number GAO-13-239", "Product Number GAO-14-357", "Product Title", "Appendix II: GAO Contacts and Staff Acknowledgments", "GAO Contact", "Staff Acknowledgments" ], "paragraphs": [ "Many of our reports and testimonies include recommendations that, if acted upon, may result in tangible benefits for the U.S. taxpayer by improving the federal government’s efficiency, effectiveness, and accountability. Implemented recommendations can result in financial or nonfinancial benefits for the federal government. An estimated financial benefit is based on actions taken in response to our recommendations, such as reducing government expenditures, increasing revenues, or reallocating funds to other areas. For example, in fiscal year 2015, our work resulted in $74.4 billion in financial benefits across the federal government. Other benefits that result from our work cannot be measured in dollar terms, and we refer to them as nonfinancial or other benefits. These benefits are linked to specific recommendations or other work that we completed over several years and could include improvements to agency programs, processes, and policies. During fiscal year 2015, we recorded a total of 1,286 other benefits government-wide that resulted from our work, including improved services to the public and government business operations.\nAs part of our responsibilities under generally accepted government auditing standards, we follow up on recommendations we have made and report their status to Congress. Agencies also have a responsibility to monitor and maintain accurate records on the status of our recommendations. After issuing a report, we follow up with reviewed agencies at least once a year to determine the extent to which our recommendations have been implemented and the benefits that have been realized. During this follow-up, we identify what additional actions, if any, would be needed to address our recommendations. A recommendation is considered implemented when actions have been taken that, consistent with our recommendation, address the issue or deficiency we identified and upon which the recommendation is based. Experience has shown that it takes time for some recommendations to be implemented. For this reason, we actively track each unaddressed (i.e., open) recommendation for 4 years and review them to determine whether implementation can be reasonably expected. The review includes consideration of alternative strategies the agency may have for implementing the recommendations. We will close the recommendation as not implemented if TSA has indicated that it was not taking action or we determined that it was unlikely that TSA would take action to close these recommendations.\nWe maintain a publicly available database with information on the current status of most open recommendations. The database allows searches by agency, congressional committee, or key words and is available at http://www.gao.gov/openrecs.html.", "TSA has implemented 51 of the 58 recommendations we made from October 1, 2003, through July 31, 2015, intended to improve TSA’s acquisition of security-related technology, and has not implemented the remaining 7 recommendations (see fig. 1).\nThe 58 recommendations relating to the acquisition of security-related technology fall into three general categories: actions requiring the agency to (1) develop a plan, process, protocol, or strategy; (2) implement a plan, program, policy, procedure, or best practice; and (3) conduct a test, study, or analysis. For example, in 2011 we recommended that TSA develop a process to communicate information to EDS vendors in a timely manner regarding EDS acquisition and to ensure that TSA takes a comprehensive and cost-effective approach to procuring and deploying EDS that meet the 2010 explosives detection requirements and any subsequent revisions. Separately, in 2008 we recommended that TSA fully incorporate best practices into developing Secure Flight life-cycle cost and schedule estimates and develop a plan for mitigating cost and schedule risks, among other things. In 2009, we recommended that TSA conduct a cost-benefit analysis to assist in prioritizing investments in new checkpoint screening technologies to help TSA take a comprehensive, risk-informed approach to procuring and deploying airport passenger screening technologies. As shown in figure 2, we identified 31 recommendations for the first category, 7 recommendations for the second category, and 20 recommendations for the third category.\nTSA has not implemented 7 recommendations we made from fiscal year 2003 through July 31, 2015. Four of the 7 recommendations have been closed, while 3 remain open. The 3 open recommendations are focused on improving AIT operations, while the 4 closed recommendations were related to establishing the effectiveness of canine screening, conducting technical assessments to strengthen airport perimeter security, and AIT operations. For example: In 2014, we recommended that TSA establish protocols to facilitate capturing operational data on secondary passenger screening at the checkpoint to determine the extent to which rates of false alarms for various AIT systems affect operational costs once Advanced Imaging Technology-Automated Target Recognition (AIT-ATR) systems are networked. TSA concurred with this recommendation. In its comments on our report, TSA stated that it would monitor, update, and report the results of its efforts to capture operational data and evaluate its associated impacts on operational costs. When contacted in November 2015 for an update on this recommendation, TSA officials stated that they have taken steps toward implementing this recommendation by evaluating the impact of false alarm rates on operational costs (such as staffing) during testing for new AIT systems. This recommendation remains open pending additional actions by TSA to collect secondary screening data on an ongoing basis, which could be used to obtain valuable insights on false alarm rates and the resulting operational costs. By fully implementing the recommendation, TSA could improve the overall performance of the AIT system and make more informed decisions about checkpoint screening.\nIn 2013, we recommended that TSA expand and complete testing, in conjunction with the DHS Science and Technology Directorate, to assess the effectiveness of passenger screening canines (PSC) and conventional canines in all areas of an airport deemed appropriate by TSA before deploying more passenger screening canine teams to help (a) determine whether PSCs are effective at screening passengers, and expenditures for PSC training are warranted and (b) inform decisions about the type of canine teams to deploy and their optimal locations in airports. TSA concurred with the recommendation and took some action, but did not fully address the recommendation. Specifically, in June 2014, TSA reported that it had assessed PSC teams deployed to 27 airports, cumulating in a total of 1,048 tests. On the basis of these tests, TSA determined that PSC teams are effective and should be deployed at the checkpoint queue. However, when contacted in December 2014, officials reported that they did not plan to expand or complete testing to compare the effectiveness PSCs with the effectiveness of conventional canine teams as we recommended, citing concerns about potential liability in using conventional canines that have not been evaluated for their suitability for screening passengers in an unfamiliar passenger screening environment and the related risks to the program. We disagreed and pointed out that conventional canines paired with handlers already work in proximity with passengers since they patrol airport terminals, including ticket counters and curbside areas. Given that TSA does not plan on taking further action on this program, we closed the recommendation as not implemented. However, we continue to believe that the recommendation has merit and should be fully implemented.", "Since fiscal year 2003, we have identified approximately $1.7 billion in financial benefits, largely representing funds that TSA used to support other programs and activities, based on implementation of our recommendations as well as findings from our related reports and testimonies on security-related technology acquisitions. We have also identified additional benefits, including programmatic and process improvements to TSA’s programs stemming from implementation of our recommendations and related work. The following are examples of the financial, programmatic, and process benefits we identified.", "In January 2012, we issued a report on TSA’s adherence to DHS acquisition policy and efforts to test the effectiveness of AIT. Among other things, we reported on the effectiveness of the systems and recommended that TSA brief Congress. Congressional response to a TSA briefing combined with our body of work on AIT resulted in TSA’s decision to reduce the number of planned AIT purchases amounting to approximately $1.4 billion.\nIn several reports and testimonies in fiscal year 2004, we reported on delays and challenges in TSA’s development of the Computer- Assisted Passenger Prescreening System II (CAPPS II). We found that TSA had not fulfilled statutory requirements concerning the development and operations of CAPPS II. For example, TSA had not determined the accuracy of the databases that would be used to prescreen passengers, and had not conducted tests that would stress the program and ensure system functionality. We made several recommendations relating to developing project plans, including schedules and estimated costs, conducting system testing; and developing a process by which passengers can get erroneous information corrected, among others. In part because of our initial and subsequent evaluations, and congressional oversight hearings, TSA reprogramed approximately $46 million in funding for CAPPS II to other TSA activities in fiscal years 2003 through 2005. TSA canceled CAPPS II development in August 2004 and, shortly after that, announced plans to develop a successor passenger prescreening program called Secure Flight. The projected program funding for the canceled CAPPS II program resulted in total programmatic savings of approximately $304 million.", "In April 2012, we found that TSA had established cost estimates for the EBSP to help identify total program cost, recapitalization cost, and potential savings resulting from installing optimal systems, but its processes for developing these estimates did not fully comply with best practices. We recommended that in order to strengthen the credibility, comprehensiveness, and reliability of TSA’s cost estimates and related savings estimates for EBSP, TSA should follow cost- estimating best practices. In response, TSA implemented a management directive that applies DHS guidance and best practices from the GAO Cost Estimating and Assessment Guide and updated its cost estimating best practices to include four characteristics of a high quality and reliable cost estimate—comprehensive, well- documented, accurate, and credible. By implementing this recommendation, TSA improved its ability to determine the cost of the program and plan for the resources required to develop and manage the EBSP.\nIn October 2009, we found that TSA had completed a strategic plan to guide research, development, and deployment of passenger checkpoint screening technologies; however, the plan was not risk- based. We recommended that TSA take a comprehensive, risk- informed approach to procuring and deploying technologies for airport passenger checkpoint screening. Specifically, we recommended that, to the extent feasible, TSA should complete operational tests and evaluations before deploying screening technologies to airport checkpoints. In response to our recommendation, in March 2010, TSA updated its Aviation Modal Risk Assessment, which included a comprehensive risk assessment of the potential for a terrorist attack and implemented a test and evaluation process for all of its technology procurements in accordance with DHS policy. TSA’s actions increased its ability to successfully procure and deploy passenger and checkpoint screening technologies.", "In 2011, we found that TSA did not effectively communicate in a timely manner with vendors competing for EDS procurement. To help ensure that TSA takes a comprehensive and cost-effective approach to procuring and deploying EDS, in July 2011 we recommended that TSA establish a process to communicate information to EDS vendors in a timely manner about TSA’s EDS acquisitions, including changes to the procurement schedule. In April 2012, TSA provided information on a number of actions it had taken to improve communication with EDS vendors, such as issuing 16 public notifications that contained projected schedules and program updates. In October 2012, TSA finalized its Explosives Detection System Competitive Procurement Qualification Program Communications Plan, which established a process for more timely communication with vendors competing for EDS procurements. In addition, TSA used a qualified products list in its EBSP acquisition plan that awarded contracts only to precertified vendors. By establishing a process to communicate with vendors in a timely manner, TSA was better positioned to avoid delays and procurement cost overruns.\nIn May 2004, we found that TSA’s Office of Acquisition was at an organizational level too low to effectively oversee the acquisition process, coordinate acquisition activities, and enforce acquisition policies effectively. The position of the office hindered its ability to help ensure that TSA follows acquisition processes that enable the agency to get the best value on goods and services. We recommended that TSA elevate the Office of Acquisition to an appropriate level within TSA to enable it to identify, analyze, prioritize, and coordinate agency- wide acquisition needs. In October 2004, TSA elevated its Office of Acquisition to report directly to the Deputy Administrator of TSA. The Office of Acquisition instituted an outreach program to provide acquisition expertise to program offices on each area of the acquisition life cycle. TSA also issued an Investment Review Process guide in January 2005 that outlines acquisition personnel roles, responsibilities, and procedures for conducting acquisition program reviews at each key decision point. By taking these actions, DHS and TSA were better positioned to make TSA’s acquisition process more efficient and improved TSA’s ability to implement its acquisition policies and procedures.", "We provided a draft of this report to DHS for review and comment. DHS did not provide formal comments but provided technical comments from TSA which we incorporated as appropriate.\nWe are sending copies of this report to the appropriate congressional committees and the Secretary of Homeland Security. In addition, the report is available at no charge on the GAO website at http://www.gao.gov.\nIf you or your staff have any questions about this report, please contact me at (202) 512-7141 or GroverJ@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix II.", "", "Recommendation To address the challenges associated with the development, implementation, and operation of the Computer Assisted Passenger Prescreening System (CAPPS II), the Secretary of Homeland Security should instruct the Administrator of the Transportation Security Administration (TSA) to develop plans identifying the specific functionality that will be delivered during each increment of CAPPS II, the specific milestones for delivering this functionality, and expected costs for each increment.\nTo address the challenges associated with the development, implementation, and operation of CAPPS II, the Secretary of Homeland Security should instruct the Administrator of TSA to use established plans to track development progress to ensure that promised functionality is being delivered on time and within established cost estimates.\nTo address the challenges associated with the development, implementation, and operation of CAPPS II, the Secretary of Homeland Security should instruct the Administrator of TSA to develop a schedule for critical security activities, including finalizing the security policy, the security risk assessment, and system certification and accreditation.", "Recommendation To address the challenges associated with the development, implementation, and operation of CAPPS II, the Secretary of Homeland Security should instruct the Administrator of TSA to develop a strategy for mitigating the high risk associated with system and database testing that ensures (1) accuracy testing of commercial and government databases is conducted prior to the database being used and (2) appropriate stress testing is conducted to demonstrate the system can meet peak load requirements.\nTo address the challenges associated with the development, implementation, and operation of CAPPS II, the Secretary of Homeland Security should instruct the Administrator of TSA to develop results-oriented performance goals and measures to evaluate the program’s effectiveness, including measures to assess performance of the system in generating reliable risk scores.\nTo help ensure that TSA receives the goods and services it needs at the best value to the government, the Secretary of Homeland Security should direct the Administrator of TSA to elevate the Office of Acquisition to an appropriate level within TSA to enable it to identify, analyze, prioritize, and coordinate agencywide acquisition needs.", "Recommendation To help ensure that TSA receives the goods and services it needs at the best value to the government, the Secretary of Homeland Security should direct the Administrator of TSA to develop an adequate system of internal controls, performance measures, and incentives to ensure that policies and processes for ensuring efficient and effective acquisitions are implemented appropriately.\nTo help ensure that TSA receives the goods and services it needs at the best value to the government, the Secretary of Homeland Security should direct the Administrator of TSA to direct the TSA Human Capital Office to do the following in coordination with key offices in the Department of Homeland Security: (1) assess TSA’s current acquisition workforce (as defined by the Department of Homeland Security) to determine the number, skills, and competencies of the workforce; (2) identify any gaps in the number, skills, and competencies of the current acquisition workforce; and (3) develop strategies to address any gaps identified, including plans to attract, retain, and train the workforce.\nThe Secretary of Homeland Security should ensure that its planned departmentwide knowledge management system provides TSA sufficient data and analytic capability to measure and analyze spending activities and performance— and thereby highlight opportunities to reduce costs and improve service levels.", "Recommendation The Secretary of Homeland Security should ensure that its planned departmentwide knowledge management system provides TSA sufficient data and analytic capability to support effective oversight of acquisitions.\nTo help ensure that TSA is able to articulate and justify future decisions on how best to proceed with security evaluations, fund and implement security improvements—including new security technologies—and implement additional measures to reduce the potential security risks posed by airport workers, the Secretary of Homeland Security should direct TSA’s Administrator to develop and provide Congress with a plan for meeting the requirements of the Aviation Transportation Security Act (ATSA).\nThe Secretary of Homeland Security should direct TSA’s Administrator to develop and provide Congress with a plan for meeting the requirements of ATSA by conducting assessments of technology, compile the results of these assessments as well as assessments conducted independently by airport operators, and communicate the integrated results of these assessments to airport operators.", "Recommendation The Secretary of Homeland Security should direct TSA’s Administrator to develop and provide Congress with a plan for meeting the requirements of ATSA by using the information resulting from the security evaluation and technology assessment efforts cited above as a basis for providing guidance and prioritizing funding to airports for enhancing the security of the commercial airport system as a whole.\nIn developing the comprehensive plan for installing in-line explosives detection systems (EDS) baggage screening systems, as directed by the fiscal year 2005 DHS Appropriation Act Conference Report, and in satisfying the requirements set forth in the Intelligence Reform and Terrorism Prevention Act of 2004, the Secretary of the Department of Homeland Security should direct the Administrator of TSA to systematically assess the costs and benefits of deploying in-line baggage screening systems at airports that do not yet have in- line systems installed. As part of this assessment, the Administrator should identify and prioritize the airports where the benefits—in terms of cost savings of baggage screening operations and improved security—of replacing stand- alone baggage screening systems with in-line systems are likely to exceed the costs of the systems, or the systems are needed to address security risks or related factors.", "Recommendation In developing the comprehensive plan for installing in-line EDS baggage screening systems, as directed by the fiscal year 2005 DHS Appropriation Act Conference Report, and in satisfying the requirements set forth in the Intelligence Reform and Terrorism Prevention Act of 2004, the Secretary of the Department of Homeland Security should direct the Administrator of TSA to systematically assess the costs and benefits of deploying in-line baggage screening systems at airports that do not yet have in- line systems installed. As part of this assessment, the Administrator should consider the projected availability and costs of baggage screening equipment being developed through research and development efforts.\nRecommendation In developing the comprehensive plan for installing in-line EDS baggage screening systems, as directed by the fiscal year 2005 DHS Appropriation Act Conference Report, and in satisfying the requirements set forth in the Intelligence Reform and Terrorism Prevention Act of 2004, the Secretary of the Department of Homeland Security should direct the Administrator of TSA to systematically assess the costs and benefits of deploying in-line baggage screening systems at airports that do not yet have in- line systems installed. As part of this assessment, the Administrator should estimate total funds needed to install in- line systems where appropriate, including the federal funds needed given different assumptions regarding the federal government and airport cost-shares for funding the in- line systems.\nRecommendation In developing the comprehensive plan for installing in-line EDS baggage screening systems, as directed by the fiscal year 2005 DHS Appropriation Act Conference Report, and in satisfying the requirements set forth in the Intelligence Reform and Terrorism Prevention Act of 2004, the Secretary of the Department of Homeland Security should direct the TSA Administrator to systematically assess the costs and benefits of deploying in-line baggage screening systems at airports that do not yet have in-line systems installed. As part of this assessment, the Administrator should work collaboratively with airport operators, who are expected to share the costs and benefits of in-line systems, to collect data and prepare the analyses needed to develop plans for installing in-line systems.\nSystematic Planning Needed to Optimize the Deployment of Checked Baggage Screening Systems assess the feasibility, expected benefits, and costs of replacing explosives trace detection (ETD) machines with stand- alone EDS machines for primary screening at those airports where in-line systems would not be either economically justified or justified for other reasons. In conducting this assessment, the Administrator should consider the projected availability and costs for screening equipment being developed through research and development efforts.", "Issue Date March 28, 2005 To help manage risks associated with Secure Flight’s continued development and implementation, and to assist TSA in developing a framework from which to support its efforts in addressing congressional areas of interest outlined in Public Law 108-334, the Secretary of the Department of Homeland Security should direct the Assistant Secretary of TSA, to finalize the system requirements document and the concept of operations, and develop detailed test plans to help ensure that all Secure Flight system functionality is properly tested and evaluated. These system documents should address all system functionality and include system stress test requirements.\nMarch 28, 2005 To help manage risks associated with Secure Flight’s continued development and implementation, and to assist TSA in developing a framework from which to support its efforts in addressing congressional areas of interest outlined in Public Law 108-334, the Secretary of the Department of Homeland Security should direct the Assistant Secretary of TSA to develop a plan for establishing connectivity among the air carriers, U.S. Customs and Border Protection, and TSA to help ensure the secure, effective, and timely transmission of data for use in Secure Flight operations.", "Issue Date March 28, 2005 To help manage risks associated with Secure Flight’s continued development and implementation, and to assist TSA in developing a framework from which to support its efforts in addressing congressional areas of interest outlined in Public Law 108-334, the Secretary of the Department of Homeland Security should direct the Assistant Secretary of TSA, to develop reliable life- cycle cost estimates and expenditure plans for Secure Flight—in accordance with guidance issued by the Office of Management and Budget— to provide program managers and oversight officials with information needed to make informed decisions regarding program development and resource allocations.\nMarch 28, 2005 To help manage risks associated with Secure Flight’s continued development and implementation, and to assist TSA in developing a framework from which to support its efforts in addressing congressional areas of interest outlined in Public Law 108-334, the Secretary of the Department of Homeland Security should direct the Assistant Secretary of TSA, to develop results- oriented performance goals and measures to evaluate the effectiveness of Secure Flight in achieving intended results in an operational environment— as outlined in the Government Performance and Results Act— including measures to assess associated impacts on aviation security.", "Issue Date March 28, 2005 To help manage risks associated with Secure Flight’s continued development and implementation, and to assist TSA in developing a framework from which to support its efforts in addressing congressional areas of interest outlined in Public Law 108-334, the Secretary of the Department of Homeland Security should direct the Assistant Secretary of TSA to, prior to achieving initial operational capability, finalize policies and issue associated documentation specifying how the Secure Flight program will protect personal privacy, including addressing how the program will comply with the requirements of the Privacy Act of 1974 and related legislation.\nMarch 28, 2005 To help manage risks associated with Secure Flight’s continued development and implementation, and to assist TSA in developing a framework from which to support its efforts in addressing congressional areas of interest outlined in Public Law 108-334, the Secretary of the Department of Homeland Security should direct the Assistant Secretary of TSA to, prior to achieving initial operational capability, finalize policies and procedures detailing the Secure Flight passenger redress process, including defining the appeal rights of passengers and their ability to access and correct personal data.", "Recommendation To help improve TSA’s management of EDS and ETD maintenance costs and strengthen oversight of contract performance, the Secretary of Homeland Security should instruct the Assistant Secretary of TSA to establish a timeline to complete its evaluation and close out the Boeing contract and report to congressional appropriations committees on its actions, including any necessary analysis, to address the Department of Homeland Security Office of Inspector General’s recommendation to recover any excessive fees awarded to Boeing Service Company.\nTo help improve TSA’s management of EDS and ETD maintenance costs and strengthen oversight of contract performance, the Secretary of Homeland Security should instruct the Assistant Secretary of TSA to establish a timeline for completing life-cycle cost models for EDS, which TSA recently began.", "Recommendation To help improve TSA’s management of EDS and ETD maintenance costs and strengthen oversight of contract performance, the Secretary of Homeland Security should instruct the Assistant Secretary of TSA to revise policies and procedures to require documentation of the monitoring of EDS and ETD maintenance contracts to provide reasonable assurance that contractor maintenance cost data and performance data are recorded and reported in accordance with TSA contractual requirements and self-reported contractor mean downtime data are valid, reliable, and justify the full payment of the contract amount.\nTo assist TSA in further strengthening the development and implementation of the Secure Flight program, the Secretary of Homeland Security should direct the Assistant Secretary of TSA to fully incorporate best practices into the development of Secure Flight life-cycle cost and schedule estimates, to include: (1) updating life-cycle cost and schedule estimates; (2) demonstrating that the Secure Flight schedule has the logic in place to identify the critical path, integrates lower level activities in a logical manner, and identifies the level of confidence in meeting the desired end date; and (3) developing and implementing a plan for managing and mitigating cost and schedule risks, including performing a schedule risk analysis and a cost and schedule risk assessment.", "Recommendation To assist TSA in further strengthening the development and implementation of the Secure Flight program, the Secretary of Homeland Security should direct the Assistant Secretary of TSA to fully implement the provisions in the program’s risk management plan to include developing an inventory of risks with prioritization and mitigation strategies, report the status of risks and progress to management, and maintain documentation of these efforts.\nTo assist TSA in further strengthening the development and implementation of the Secure Flight program, the Secretary of Homeland Security should direct the Assistant Secretary of TSA to finalize and approve Secure Flight’s end-to- end testing strategy, and incorporate end-to-end testing requirements in other relevant test plans, to include the test and evaluation master plan. The strategy and plans should contain provisions for: (1) testing that ensures that the interrelated systems that collectively support Secure Flight will interoperate as intended in an operational environment; and (2) defining and setting dates for key milestone activities and identifying who is responsible for completing each of those milestones and when.", "Recommendation To mitigate future risks of performance shortfalls and strengthen management of the Secure Flight program moving forward, the Secretary of Homeland Security should direct the Assistant Secretary of TSA to periodically assess the performance of the Secure Flight system’s matching capabilities and results to determine whether the system is accurately matching watch- listed individuals while minimizing the number of false positives—consistent with the goals of the program; document how this assessment will be conducted and how its results will be measured; and use these results to determine whether the system settings should be modified.\nOctober 7, 2009 To help ensure that DHS’s Science and Technology Directorate (S&T) and TSA take a comprehensive, risk-informed approach to the research, development, test and evaluation (RDT&E), procurement, and deployment of airport passenger checkpoint screening technologies, and to increase the likelihood of successful procurements and deployments of such technologies, in the restricted version of this report, we recommended that the Assistant Secretary for TSA should conduct a complete risk assessment, including threat, vulnerability, and consequence assessments, which would apply to the Passenger Screening Program (PSP).", "Category Conduct a test, study, or analysis and TSA take a comprehensive, risk-informed approach to the RDT&E, procurement, and deployment of airport passenger checkpoint screening technologies, and to increase the likelihood of successful procurements and deployments of such technologies, in the restricted version of this report, we recommended that the Assistant Secretary for TSA should develop cost-benefit analyses to assist in prioritizing investments in new checkpoint screening technologies.\nOctober 7, 2009 To help ensure that DHS’s S&T and TSA take a comprehensive, risk-informed approach to the RDT&E, procurement, and deployment of airport passenger checkpoint screening technologies, and to increase the likelihood of successful procurements and deployments of such technologies, in the restricted version of this report, we recommended that the Assistant Secretary for TSA should develop quantifiable performance measures to assess the extent to which investments in research, development, and deployment of checkpoint screening technologies achieve performance goals for enhancing security at airport passenger checkpoints.", "Category Conduct a test, study, or analysis and TSA take a comprehensive, risk-informed approach to the RDT&E, procurement, and deployment of airport passenger checkpoint screening technologies, and to increase the likelihood of successful procurements and deployments of such technologies, in the restricted version of this report, we recommended that the Assistant Secretary for TSA should, after conducting a complete risk assessment and completing cost-benefit analyses and quantifiable performance measures for the PSP, incorporate the results of these efforts into the PSP strategy as determined appropriate.\nOctober 7, 2009 To help ensure that DHS’s S&T and TSA take a comprehensive, risk-informed approach to the RDT&E, procurement, and deployment of airport passenger checkpoint screening technologies, and to increase the likelihood of successful procurements and deployments of such technologies, in the restricted version of this report, we recommended that the Assistant Secretary for TSA should, to the extent feasible, ensure that operational tests and evaluations have been successfully completed before deploying checkpoint screening technologies to airport checkpoints.", "Category Conduct a test, study, or analysis and TSA take a comprehensive, risk-informed approach to the RDT&E, procurement, and deployment of airport passenger checkpoint screening technologies, and to increase the likelihood of successful procurements and deployments of such technologies, in the restricted version of this report, we recommended that the Assistant Secretary for TSA should evaluate whether TSA’s current passenger screening procedures should be revised to require the use of appropriate screening procedures until it is determined that existing emerging technologies meet their functional requirements in an operational environment.\nOctober 7, 2009 To help ensure that DHS’s S&T and TSA take a comprehensive, risk-informed approach to the RDT&E, procurement, and deployment of airport passenger checkpoint screening technologies, and to increase the likelihood of successful procurements and deployments of such technologies, in the restricted version of this report, we recommended that the Assistant Secretary for TSA should, in the future, prior to testing or using all checkpoint screening technologies at airports, determine whether TSA’s passenger screening procedures should be revised to require the use of appropriate screening procedures until the performance of the technologies has been validated through successful testing and evaluation.", "Category Conduct a test, study, or analysis and TSA take a comprehensive, risk-informed approach to the RDT&E, procurement, and deployment of airport passenger checkpoint screening technologies, and to increase the likelihood of successful procurements and deployments of such technologies, in the restricted version of this report, we recommended that the Assistant Secretary for TSA should evaluate the benefits of the Explosives Trace Portals that are being used in airports, and compare the benefits to the costs to operate and maintain this technology to determine whether it is cost-effective to continue to use the machines in airports.\nTo help ensure that TSA takes a comprehensive and cost- effective approach to the procurement and deployment of EDSs that meet the 2010 EDS requirements and any subsequent revisions, the Assistant Secretary for TSA should develop a plan to ensure that screening devices or protocols are in place to resolve EDS alarms if EDSs are deployed that detect a broader set of explosives than existing ETD machines used to resolve EDS screening alarms.", "Recommendation To help ensure that TSA takes a comprehensive and cost- effective approach to the procurement and deployment of EDSs that meet the 2010 EDS requirements and any subsequent revisions, the Assistant Secretary for TSA should develop a plan to ensure that TSA has the explosives data needed for each of the planned phases of the 2010 EDS requirements before starting the procurement process for new EDSs or upgrades included in each applicable phase.\nTo help ensure that TSA takes a comprehensive and cost- effective approach to the procurement and deployment of EDSs that meet the 2010 EDS requirements and any subsequent revisions, the Assistant Secretary for TSA should establish a process to communicate information to EDS vendors in a timely manner regarding TSA’s EDS acquisition, including information such as changes to the schedule.\nTo help ensure that TSA takes a comprehensive and cost- effective approach to the procurement and deployment of EDSs that meet the 2010 EDS requirements and any subsequent revisions, the Assistant Secretary for TSA should develop and maintain an integrated master schedule for the entire Electronic Baggage Screening Program (EBSP) in accordance with the nine best practices identified by GAO for preparing a schedule.", "Recommendation To help ensure that TSA takes a comprehensive and cost- effective approach to the procurement and deployment of EDSs that meet the 2010 EDS requirements and any subsequent revisions, the Assistant Secretary for TSA should ensure that key elements of the program’s final cost estimate reflect critical issues, such as the potential cost impacts resulting from schedule slippage identified once an integrated master schedule for the Electronic Baggage Screening Program has been developed in accordance with the nine best practices identified by GAO for preparing a schedule.\nTo help ensure that TSA takes a comprehensive and cost- effective approach to the procurement and deployment of EDSs that meet the 2010 EDS requirements and any subsequent revisions, the Assistant Secretary for TSA should develop a plan to deploy EDSs that meet the most recent EDS explosives- detection requirements and ensure that new machines, as well as machines deployed in airports, will be operated at the levels established in those requirements. This plan should include the estimated costs for new machines and upgrading deployed machines, and the time frames for procuring and deploying new machines and upgrading deployed machines.\nIn order to strengthen the credibility, comprehensiveness, and reliability of TSA’s cost estimates and related savings estimates for the EBSP, the Administrator of TSA should ensure that its life cycle cost estimates conform to cost estimating best practices.", "Recommendation To help ensure TSA analyzes canine team data to identify program trends, and determines if PSC teams provide an added security benefit to the civil aviation system, and if so, deploys PSC teams to the highest-risk airports, we recommend that the Administrator of the Transportation Security Administration direct the Manager of the National Canine Program (NCP) to regularly analyze available data to identify program trends and areas that are working well and those in need of corrective action to guide program resources and activities. These analyses could include, but not be limited to, analyzing and documenting trends in proficiency training, canine utilization, results of short notice assessments (covert tests) and final canine responses, performance differences between law enforcement officer (LEO) and TSI canine teams, as well as an assessment of the optimum location and number of canine teams that should be deployed to secure the U.S. transportation system.", "Recommendation To help ensure TSA analyzes canine team data to identify program trends, and determines if passenger screening canine (PSC) teams provide an added security benefit to the civil aviation system, and if so, deploys PSC teams to the highest-risk airports, we recommend that the Administrator of TSA direct the Manager of the NCP to expand and complete testing, in conjunction with DHS S&T, to assess the effectiveness of PSCs and conventional canines in all airport areas deemed appropriate (i.e., in the sterile area, at the passenger checkpoint, and on the public side of the airport) prior to making additional PSC deployments to help (1) determine whether PSCs are effective at screening passengers, and resource expenditures for PSC training are warranted, and (2) inform decisions regarding the type of canine team to deploy and where to optimally deploy such teams within airports.", "Issue Date March 31, 2014 To help ensure that TSA improves Screening Officers’ (SO) performance on Advanced Imaging Technology systems equipped with Automated Targeted Recognition (AIT- ATR) and uses resources effectively, the Administrator of the Transportation Security Administration should establish protocols that facilitate the capturing of operational data on secondary screening of passengers at the checkpoint to determine the extent to which AIT-ATR system false alarm rates affect operational costs once AIT-ATR systems are networked together.\nMarch 31, 2014 To help ensure that TSA invests in screening technology that meets mission needs, the Administrator of TSA should measure system effectiveness based on the performance of the Advanced Imaging Technology 2 (AIT-2) technology and screening officers who operate the technology, while taking into account current processes and deployment strategies before procuring AIT-2 systems.\nMarch 31, 2014 To help ensure that TSA invests in screening technology that meets mission needs, the Administrator of TSA should use scientific evidence and information from DHS’s Science and Technology Directorate, and the national laboratories, as well as information and data provided by vendors to develop a realistic schedule with achievable milestones that outlines the technological advancements, estimated time, and resources needed to achieve TSA’s Tier IV end state before procuring AIT-2 systems.", "Recommendation To increase the likelihood of timely and successful acquisitions when enhancing advanced imaging technology (AIT) capabilities for airport passenger checkpoint screening, the Secretary of Homeland Security, in conjunction with the Administrator of TSA, should conduct a technical risk assessment to determine the extent to which AIT products need additional development to meet requirements. TSA should complete this assessment prior to award of production units and should seek an independent review from a knowledgeable party, such as the DHS Science and Technology Directorate.\nTo increase the likelihood of timely and successful acquisitions when enhancing AIT capabilities for airport passenger checkpoint screening, the Secretary of Homeland Security, in conjunction with the Administrator of TSA, should ensure that information from technical risk assessments is used to inform all future iterations of Transportation Security Administration’s roadmap for enhancing AIT capabilities.", "", "", "In addition to the contact named above, Glenn G. Davis (Assistant Director), Nima Patel Edwards (Analyst-In-Charge), Rodney Bacigalupo, Eric D. Hauswirth, Richard B. Hung, Thomas Lombardi, Luis E. Rodriguez, Tovah Rom, Carley Shinault, and Edith Sohna made key contributions to this report." ], "depth": [ 1, 1, 1, 2, 2, 2, 1, 1, 2, 2, 2, 2, 2, 2, 2, 2, 2, 2, 2, 2, 2, 2, 2, 2, 2, 2, 2, 2, 2, 2, 2, 1, 2, 2 ], "alignment": [ "", "h0_full h3_full h2_full h1_full", "", "", "", "", "h3_full", "h0_title h2_title h1_title h3_title", "", "", "", "", "", "", "", "", "", "", "", "", "", "h2_full", "h2_full", "h2_full", "h2_full", "h3_full h1_full", "h3_full h1_full", "", "", "h0_full h2_full", "", "", "", "" ] }

{ "question": [ "To what extent has TSA implemented GAO's recommendations?", "What were GAO's recommendations to TSA?", "What is one example of such a recommendation?", "What outstanding recommendations exist for TSA?", "How did GAO treat these outstanding recommendations?", "What was the nature of these closed recommendations?", "What is the purpose of the remaining open recommendations?", "How does GAO view these remaining open recommendations?", "What is TSA's role within DHS?", "What is GAO's relationship to TSA?", "What does this report address?", "How did GAO monitor its recommendations to TSA?", "What type of recommendations did GAO identify?", "How did TSA respond to these recommendations?", "How else did TSA contribute to this report?" ], "summary": [ "The Department of Homeland Security's (DHS) Transportation Security Administration (TSA) has implemented 51 of the 58 recommendations GAO made from October 1, 2003, through July 31, 2015, to improve TSA's acquisition of security-related technology.", "GAO's recommendations generally directed TSA to develop a plan; conduct an analysis; or implement a program, policy, or procedure.", "For example, in March 2014, GAO recommended that TSA establish protocols to capture operational data on secondary screening of passengers at the checkpoint, to help ensure screening officers' performance.", "TSA has not implemented 7 of the 58 recommendations.", "GAO closed 4 of the 7 recommendations because TSA stated that it would not take action or GAO determined that it was unlikely that TSA would take action.", "These recommendations were related to establishing the effectiveness of canine screening, conducting technical assessments to strengthen airport perimeter security and Advanced Imaging Technology.", "The remaining 3 open recommendations are focused on improving Advanced Imaging Technology operations.", "GAO continues to believe these recommendations are valid and should be fully addressed.", "Within DHS, TSA is the federal agency responsible for securing domestic transportation systems.", "The Transportation Security Acquisition Reform Act (TSARA) contains a provision for GAO to submit a report to Congress containing an assessment of TSA's implementation of GAO recommendations regarding the acquisition of security-related technology.", "This report addresses (1) the status of TSA's implementation of relevant GAO recommendations since 2003 and the characteristics of those recommendations and (2) benefits realized by TSA in implementing those recommendations.", "GAO determined the number and status of recommendations made to TSA from October 1, 2003, after TSA had become a part of the newly created DHS, through July 31, 2015, as well as the benefits derived from the recommendations TSA implemented, using an internal database that GAO maintains on the status of recommendations it makes.", "GAO specifically identified recommendations related to the acquisition of technology that helps TSA prevent or defend against threats to domestic transportation systems.", "TSA concurred with GAO's list of recommendations.", "TSA also provided technical comments on a draft of this report which GAO incorporated as appropriate. DHS did not provide formal comments." ], "parent_pair_index": [ -1, 0, 1, -1, 0, 1, 0, 3, -1, -1, 1, -1, 0, 1, 1 ], "summary_paragraph_index": [ 2, 2, 2, 3, 3, 3, 3, 3, 0, 0, 0, 1, 1, 1, 1 ] }

{ "title": [ "Background", "Achievement of Goals Is Mixed, and Cost Savings from the NBC Program Are Unclear", "Rental Rate Goals Met, but Unclear If Cost Savings Result from NBC Program", "GSA Recently Changed Goals for Use of Brokers", "Cost Savings from Using the NBC Program Are Unclear", "GSA Has Made Changes to the NBC Program, and Stakeholders Have Suggested Additional Actions That Can Improve the Program", "GSA’s Changes to the NBC Program Implementation", "All Brokers and Several GSA Regions Report That Changes to Performance Evaluation Are Needed", "All Brokers and Some GSA Regions Report Challenges with the Commission Structure", "Most GSA Regions Suggested More Flexibility in Using Brokers", "Brokers Suggested Earlier Involvement and Increased Access", "Conclusion", "Recommendation for Executive Action", "Agency Comments", "Appendix I: Objectives, Scope, and Methodology", "Appendix II: Comments from General Services Administration", "Appendix III: GAO Contact and Staff Acknowledgments", "GAO Contact", "Staff Acknowledgments" ], "paragraphs": [ "GSA increased its use of brokers in the years prior to beginning the NBC. Before 1997, all leasing acquisition work was performed in-house. However, downsizing initiatives in the 1990s reduced GSA’s in-house capacity to acquire leases, and in 1997 GSA began to sign contracts with private broker firms to assist with its leasing portfolio. From 1997 to 2003, GSA had multiple, separate regional contracts for broker services, and GSA paid brokers a fee from appropriated funds in exchange for a variety of lease acquisition and other services. By 2003, approximately 20 percent of the leasing work was being performed by brokers under the regional contracts, although the regional contracts were found to be administratively burdensome and inconsistent, because of variations in the contracts’ terms, conditions, and pricing structures. In 2003, GSA conducted a business analysis comparing the advantages, disadvantages, and costs of different types of contracting options on a national, zonal and local level.\nBased on this analysis, GSA concluded that the national contracts through the NBC program represented the best option available, and GSA awarded four contracts in October 2004, and contract performance began on April 1, 2005. GSA identified three expected savings from the NBC program: reduced rental rates, reduced administrative expenses and fees, and reduced personnel expenses. GSA officials believed that rental rates would be reduced as a result of a broker’s expert knowledge of the commercial real estate market, which would assist in negotiating lower rental rates. In addition, brokers agreed to forgo a portion of the commission they received—in the form of a commission credit reducing the government’s initial rental cost. GSA officials also stated that the national contract would reduce its administrative expenses because the previous regional contracts had differing terms, conditions, and pricing structures. In 2007, we recommended, among other things, that GSA quantify savings associated with reduced fees and administration expenses using the NBC. In response to our recommendation, GSA reported that it had identified cost savings as a result of moving from regional contracts to the NBC. Finally, GSA anticipated achieving further savings by hiring fewer realty specialists—the position responsible for handling leasing transactions—over time. GSA stated that, as a result of government downsizing, the number of in-house realty specialist staff had decreased from 811 in 1995 to 450 in 2003. GSA estimated that approximately 140 realty specialists were eligible to retire by the end of 2005, and that the agency would need to hire approximately 300 additional staff to handle the leasing workload. In our 2007 report, we found that, after implementing the NBC program, officials subsequently determined that there were additional tasks for realty specialist staff and no longer viewed the NBC program as a way to avoid hiring additional staff. According to GSA officials, in October 2012 they employed approximately 476 realty specialists.\nThe NBC program differed from the previous regional contracts in three major ways. First, the contracts are national contracts, which means that while the program is implemented and used at the regional level by GSA regional officials, all regions are subject to the same contract language and rules. Second, unlike the previous contracts, wherein brokers were paid for providing a variety of lease acquisition and other services to support GSA in acquiring leases, under the NBC program brokers are to perform the full lease acquisition, described in figure 1, as well as lease expansion or extension and market data collection. Third, under the NBC program, brokers are compensated through commissions paid by the lessor (the entity leasing space to GSA), and no payments are made directly by the government as was the case with the regional contracts. Although commission payments are factored by lessors into rental rates, these contracts for the NBC program were referred to by GSA as “no cost” contracts.\nGSA’s stated goals for the program are to provide consistent, high-quality service nationwide to federal agencies that rely on GSA for lease acquisition services, as well as leverage the expertise of private-sector brokers. GSA set two more specific goals that the agency uses to determine the effectiveness of the NBC program. First, GSA determined that brokers should be accountable for achieving rental rates in line with the overall GSA goal. For example, in 2012 the overall goal for the leasing portfolio was to have rental rates at 9.5 percent below market average. Secondly, GSA set yearly goals for using brokers to acquire leased space. For example in 2012, GSA set the goal of 55 percent of expiring leases to be handled by brokers and 45 percent handled by GSA in-house.", "", "GSA officials report that they are meeting their overall rental rate goals for the entire lease portfolio. As mentioned previously, GSA sets a yearly goal that overall rental rates for space leased from the private sector fall a certain percentage below the average industry-market rental rate. These rental rate goals do not differentiate between broker-negotiated leases and those done in-house. In fiscal year 2012, the goal was for rental rates to be 9.5 percent below market; GSA reported that its overall portfolio, which includes leases negotiated by both brokers and GSA staff, was on average 11.45 percent below market. From 2006 to date, GSA has, to varying degrees, reported that it exceeded its targets for paying lower than average rental rates. See figure 2 below. GSA headquarters officials have used this data as an indication of the NBC program’s success, because they say the data show that the use of brokers has not driven up the rental rates. The officials also noted that they consider this an indication that brokers are not driving up lease rates to obtain higher commissions.\nGSA is reportedly meeting its overall rental goals, but it is not clear that the NBC program results in rental rates lower than those negotiated by in- house staff. In 2012, GSA officials attempted to determine if brokers negotiated lower rental rates than in-house staff using data from fiscal years 2011 and 2012. GSA’s own analysis did not show that brokers were negotiating significantly lower rental rates, and in fact overall it showed that brokers were negotiating rental rates that were similar to in-house staff. Furthermore, GSA officials cautioned us that they found this available data insufficient to determine if brokers were negotiating lower rental rates than in-house staff. Officials stated that the market rate data they were using were not specific enough to provide the level of detail necessary to discern the potential difference between the rates. They said that the current market data do not take into account the unique circumstances for each individual lease, and how these circumstances affect the rental rate. For example, a lease for a law enforcement agency, with higher security requirements and unique types of space (e.g., a shooting range), may have to be negotiated in the higher end of the market rate. However, the market rate data GSA has does not consider these requirements, and therefore may underestimate the value of the rental rate negotiated. The converse is also true, and it is possible that the market rate data can overstate a rental rate negotiated for an office space with few special requirements. The officials said that this makes comparison of negotiated rental rates difficult because even if both of the example leases were in the same market, one rate may be overvalued while the other is undervalued based on its unique requirements. This limitation notwithstanding, officials told us they still believe it is probable that brokers are negotiating lower rates.\nIn April 2013, GSA began requiring regional officials to use different market rental-rate data, which they expect will allow them to better compare the rental rates achieved by brokers to market rates in the future. For all broker projects greater than 10,000 square feet, regional officials are to obtain an in-house research report at the beginning of the leasing process referred to as “Bullseye.” A Bullseye report is specifically tailored for each lease transaction and includes market information, analysis, and insight regarding the local submarket. The officials stated that the new reports would provide more specific data to gauge the effectiveness of the broker program by comparing negotiated rental rates to the average for the submarket rate at the time of lease award. According to GSA officials, this new reporting will improve their comparison of rental rates negotiated by brokers to market rental rates but will probably still not allow them to definitively determine whether brokers are negotiating better deals than in-house staff. Because this effort is relatively new, data were not available at the time of our review to conduct further analysis. GSA headquarters officials noted the only way to ideally compare one lease to another is to acquire space for similar agencies, in the same market at the same time. In previous attempts by GSA to perform comparison analysis, GSA determined there were not enough data points with these characteristics to draw a meaningful conclusion.", "GSA initially set goals under NBC to have brokers conduct a high percentage of its leases, but beginning in fiscal year 2013 began deemphasizing the importance of annual percentage goals for broker usage. GSA set yearly goals based on the number of leases in the portfolio they determined could be handled by brokers and originally anticipated that 80 percent of the leasing workload would be assigned to brokers by fiscal year 2009. GSA lowered its broker usage goals for fiscal years 2011 and 2012 from 80 percent to 55 percent, and reported that in fiscal year 2012 it used brokers for 33 percent, or 220, of its expiring leases. GSA officials told us that they began lowering usage goals after 2010 because more leases needed to be handled in-house for training purposes.\nGSA officials told us they did not meet their broker usage goal for a variety of reasons. First, there are some leases with sensitivities such as internal conflict within an agency or the space is for a high-profile public official that they prefer to handle in-house. Second, some work is purposefully kept in-house for training purposes and to maintain staff expertise. (This was also a reason the officials gave for why they began lowering usage goals in 2011.) Third, some GSA regional officials have not always found it advantageous to send leases to brokers because it can be time consuming. Specifically, officials from 6 of the 11 regions expressed concern that the NBC program is administratively burdensome and adds time to leasing procurement. Officials in one region stated that they essentially run “shadow procurements” for all NBC leases. That is, even though the broker is doing a significant amount of paperwork and finding lessors, the work completed by brokers must be closely monitored and reviewed to ensure that the process is in accordance with government standards. In addition, GSA officials are required to conduct performance evaluations at multiple points throughout the process, which officials told us is more time consuming than the evaluation process for in-house personnel.\nIn 2010, the GSA Office of the Inspector General (IG) reported that due to a number of steps unique to NBC projects, there was an average of 1.6 months added to the total time for the leasing process for the data in its sample. Representatives from one broker firm we spoke with told us that NBC leases can take longer because GSA personnel can be less responsive on a broker-negotiated lease than leases they are personally negotiating. They noted that there are many approval points that the broker cannot pass without approval from a GSA official and that significant time can elapse before GSA officials review the paperwork.\nIn fiscal year 2013, GSA deemphasized the importance of annual percentage goals for broker usage. Instead, GSA headquarters officials told us they reviewed each regional portfolio for fiscal year 2013 through fiscal year 2015 procurements and developed a list of leases that they determined should be sent to brokers. The list consists of leases that are viewed by the officials as having a “high to moderate value” and having the greatest potential for brokers to negotiate lower rental rates than in- house personnel. GSA officials stated that they believe NBC provides the greatest value with large complex leases in large metropolitan areas, where brokers have a strong commission incentive. According to GSA headquarters officials, these areas have the highest potential for cost savings if brokers are able to negotiate lower rental rates as a result of private-sector market knowledge and negotiation skills. The officials told us that, after they compiled the list, regional officials were given an opportunity to comment, resulting in some changes, and that the resulting list of leases is what GSA plans to have brokers handle. For example, regional officials said that they removed some of the leases on the list because they had already been sent to a broker or begun in-house, or as stated previously, officials wanted to keep some larger projects in-house for training and maintaining in-house expertise. According to GSA headquarters officials, they plan to move forward with these new goals. They noted that the focus is now on managing the workload and not on meeting a specified utilization number. GSA headquarters officials told us that they believe they are now using the NBC program for its intended purpose, i.e., workload management and driving savings by using broker expertise in more difficult markets and working the more complex, high- to-moderate value leases.", "The two goals GSA uses to evaluate the NBC program are not closely linked to the anticipated cost savings used to justify the program. GSA headquarters officials told us that when they attempted to determine if brokers were negotiating lower rates than in-house staff, they found that the data they had were insufficient for this purpose. The program has evolved over the years, and reduced rental rates from using brokers are the only expected savings that remain. However, GSA lacks data on whether using brokers results in cost savings. Furthermore, GSA officials stated that they do not believe the Bullseye data will necessarily allow for comparison of broker- and in-house-negotiated rental rates. Without data on the cost benefits of using brokers relative to using in-house staff, the value of the NBC program will continue to be unclear. Federal internal control standards state that a key factor in helping agencies achieve their missions better and program results is the use of appropriate internal controls. Among other things, agencies need to compare actual performance to planned or expected results, monitor performance measures, and collect operational and financial data to ensure that agencies are meeting their goals for effective and efficient use of resources. This is particularly important because as programs change, as the NBC program has, and agencies strive to improve operational processes, agencies would be better equipped to assess results by continually assessing and evaluating whether the control activities being used are effective and updated when necessary. By not having adequate data, GSA cannot assess the effectiveness of activities conducted under the NBC program or know if adjustments are needed to the program.", "", "According to GSA officials, they have made changes to the NBC program since the first contracts were signed in 2004. Based on experiences with the first contracts (NBC1), GSA made changes to the current contracts (NBC2) in three key areas, as described below.\nImplementation of Commission Cap: According to GSA officials, NBC2 brokers were required to submit caps on the amount of commission they would retain for any given transaction. Under NBC1, brokers were required to submit the percentage of any commission they received that they would give back to GSA in the form of a rent credit. In our 2007 report we found that allowing brokers to represent the government while negotiating their commissions creates an inherent conflict of interest between the brokers’ interest in promoting and negotiating higher commissions and their responsibility to effectively represent GSA’s interest in selecting properties that best meet the government’s needs, including its cost needs. Under NBC2, GSA believes this issue has been addressed, because the brokers have committed to a cap on the amount of commission the brokers retain. Using commissions paid by building owners to compensate brokers is typical in the commercial real estate industry. However, brokers could still have an incentive to seek government approval of a higher rent in order to increase the overall amount of their commission.\nChanges in Broker Performance Evaluations: According to GSA officials, GSA made two major changes to broker performance evaluations for NBC2. First, under NBC2, GSA reduced the number of mandatory broker performance evaluations from seven to four for each lease. In addition to receiving a final overall evaluation, brokers are now evaluated at the market-survey, lease-award, and post-award-services steps. GSA officials stated these changes were made to streamline the process and decrease the administrative burden on the in-house staff overseeing the brokers. Second, under NBC2, GSA awards tasks to brokers based on price and performance data. For NBC1 task orders were based on equitable distribution—i.e., brokers received equitable square-footage distributions in each of GSA’s 11 regions. Under both contracts, brokers are evaluated and scored on a scale from 1 to 5 on document quality, timeliness, cost control, business relations, and personnel technical quality. These evaluations are used to derive a score for each task that is compiled into a report and sent to GSA headquarters officials on a quarterly basis. GSA officials use these scores to determine a national- level rating for each broker. For NBC2, GSA regional officials determine which factors (document quality, timeliness, cost control, business relations, and personnel technical quality) are the most important for a lease and then use the national-level performance rating, along with cost, to determine which broker will be awarded a task order.\nEarlier Broker Involvement: According to GSA officials, under NBC2 GSA included the option of bringing brokers into the process earlier, at the requirements development process. “Requirements development” is the process by which GSA works with an agency to obtain the specific requirements for a lease—such as the amount of space needed and the preferred location—at the beginning of the leasing process. Under NBC1, the contract allowed for the broker to assist with requirements development, but GSA policy was to have in-house staff assist the agency. GSA officials stated that brokers could add value by being involved in requirements development because they can bring in market data information and other expertise, which can better inform GSA on how much space might be needed and options for where it can be located.\nGSA officials told us that they are considering additional changes as they plan for the third generation of contracts. According to the officials, they are reconsidering the structure and administration of the NBC program with the goal of improving its effectiveness. At the time of our review, we were told GSA was assessing potential changes using a range of tools, including those below:\nCollecting lessons learned, such as using brokers for new leases, which may provide better value, and working projects with short timelines in-house to allow for greater control over project timelines.\nIncorporating new approaches and strategies, such as examining alternatives to the current commission and rent structure and developing new methods for evaluating broker performance.\nCreating and gathering input via a dedicated members only discussion group for real estate stakeholders on the LinkedIn networking website.\nExploring the feasibility of conducting a pilot program prior to full contract launch.\nUsing the previously mentioned contractor review of the NBC program’s effectiveness and changes the officials and industry stakeholders thought would improve the program.\nGSA plans to issue a request for proposals in 2014, and to award new contracts in fiscal year 2015.", "Officials in 7 of the 11 GSA regions expressed dissatisfaction with the current broker performance-evaluation system. As mentioned previously, past performance is one of the factors regional officials use to select a broker. However, GSA regional officials noted some challenges associated with the process for evaluating broker performance. For example, GSA regional officials told us that under the current system, the same level and quality of work can receive very different ratings across regions. The officials noted that the ratings are largely at the discretion of regional officials and that the standards for scores are not necessarily applied uniformly. Regional officials suggested additional training or guidance for officials who do the ratings could help address these problems. GSA headquarters officials indicated that in addition to training, the changes to the internal structure used to support the contract that are being considered under NBC3 will help address these concerns. However, officials in four regions told us the broker performance- evaluation process worked well and allowed them to accurately represent each brokers’ performance. GSA headquarters officials said they are looking at ways to make the performance evaluation process more consistent. They noted that in a performance-based contract, they are required to evaluate the contractors’ performance and need regional support to ensure this practice is enforced. According to the headquarters officials, in some instances, milestones are evaluated months or up to a year after the completion date and that evaluations deemed “untimely” are discarded. Officials emphasized that in order to accurately reflect a contractor’s performance, the evaluations must be completed once all tasks associated with that milestone are completed.\nRepresentatives from all four national broker firms participating in the NBC program expressed dissatisfaction or concern with the broker performance-evaluation system. Representatives from one broker firm told us they believed the evaluations are subjective because the standards for numerical performance evaluation scores are ambiguous. For example, the same work could receive a rating of 3 in one region and a rating of 5 in another region, presenting a challenge when attempting to determine the better value to the government. Brokers from another firm said there needs to be greater consistency between regions on how they conduct broker evaluations. All four brokers also suggested that providing more detailed guidance for GSA officials who do the rating would make the ratings less subjective and more consistent across regions.\nGSA regional officials and brokers also suggested using region-specific broker performance-evaluation data to award tasks. Officials from 10 of 11 GSA regions told us that this change would help them award the task order to the broker that performed the best in the region. As officials in one region explained, the brokers’ national scores—which combine the scores from all regions—are not helpful, because these scores do not always reflect the performance of a specific broker that works well in a region. The officials in this region told us that, with 11 regions, the combined national score loses effectiveness, because brokers have different strengths and weaknesses in various markets. For illustrative purposes, in figure 3, we present actual data from a 2012 quarterly performance report to show how using national scores may result in assigning a task to a broker that does not perform as well in a specific region as the broker firm’s overall national performance score. In this region, officials conducted two evaluations and rated this broker firm as “marginal” in every category, while the overall national scores for the same broker firm are primarily “very good” and “exceptional,” except for cost control.\nIn the example shown in figure 3, if officials in this region identified “Timeliness” as the most important factor when awarding a task order, under the current contract, they would have to use the national scores to determine the broker with the best performance in timeliness. Thus, the task order could be awarded to this broker whose past performance was rated as marginal by regional officials. According to GSA headquarters officials, they are considering using regional past performance for task order selection. They noted that they would make this decision after they are confident that GSA staff are adequately trained and have a clear understanding of the contract requirements. Additionally, they said that they place a priority on making sure the contract is administered fairly and properly before they begin using regional past performance.\nOf the 10 regions where officials suggested using region-specific broker performance evaluation data to award tasks, officials in 3 regions suggested developing a hybrid approach for performance evaluation data, wherein they could have the option of combining national scores with region-specific scores and using the combined score to choose a broker. Officials in one region told us this would allow for assignments to be made based on work completed in that region which would help the officials make better decisions. Similarly, officials in another region told us they would prefer to use a combination of both the regional and national level scores because each region has different needs, and brokers have different strengths and weaknesses. GSA headquarters officials told us they are considering using regional performance evaluation scores, but want to determine if the performance evaluation processes are working properly before they make a change. These officials also stated that there is concern that if regions with less attractive portfolios (fewer and less valuable leases) are not factored into a national score used to determine assignments, brokers may have less incentive to perform well in smaller markets.\nRepresentatives from two broker firms suggested using region-specific broker-performance- evaluation data to award tasks. For example, one broker told us that since work is being distributed using the national average performance-evaluation scores, this overlooks the benefit that some regions may have developed strong working relationships not captured under a national score. They also noted that the way work is assigned does not seem to take into account “logical follow-on” or unique experience.", "GSA officials in three regions expressed concerns about the current commission structure and made suggestions for improvement. These regional officials were generally concerned that the commission-based system did not guarantee that brokers had an incentive to negotiate a lower rental rate for the government. Officials in one region told us that under the current system, brokers benefit from higher rental rates because their commission is a percentage of the total rental rate. They suggested that if commission rates were a specified amount instead of a variable percentage, GSA would be better assured that the broker was not trying to get a larger commission than is appropriate in that market. GSA headquarters officials told us that they are reexamining the commissions and are actively looking at alternatives to the current commission and rent structure.\nAll four brokers participating in the NBC program told us that the change to the commission structure GSA implemented in 2011 has decreased commissions and potentially could reduce the quality and quantity of brokers’ staff. In 2011, GSA modified the contracts to incorporate changes to the Federal Acquisition Regulation (FAR) as a result of the Duncan Hunter National Defense Authorization Act for Fiscal Year 2009 (Duncan Hunter Act). As explained by GSA, these changes require that every task order or group of task orders estimated to yield a commission in excess of $150,000 be sent to all brokers, who then have an opportunity to be awarded the task order. Brokers were unanimous in their concern that this requirement, which they call “re-bidding” or “re- competing,” would ultimately result in lower value for the government. They told us that their commissions or initial contract pricing were based on the assumption that the profitability of the larger leases (including those with commissions in excess of $150,000) would help offset the potential losses on smaller leases, which they say are generally not profitable to the brokers. The brokers also told us that although this may result in short-term savings for the government by encouraging broker bidding and reducing commissions, ultimately it is not financially sustainable for them. Two brokers provided examples in which decreased revenue negatively affected staffing. For example, one broker told us these requirements were forcing commissions lower and that they would eventually have to compensate by laying-off staff or hiring staff with less experience; and another broker told us that decreased revenues resulted in a loss of employees and difficulty replacing them. Representatives from 3 of the 4 broker firms stated the changes to the FAR did not require contract modifications. These brokers stated that in their opinion, the changes to the FAR do not apply to the NBC program and recommended that changes be made that reflect this.", "Officials in the majority of regional offices (8 of the 11) suggested that greater flexibility in applying the NBC program would allow them to make better use of the brokers. Currently, when a broker is awarded a task order, as we described previously, it is a full service lease acquisition, which means the broker handles the majority of the work for a task. Regional officials described a preferred “menu of services” that would allow them to use the brokers more selectively for the specific tasks where GSA wants assistance as opposed to working with the broker throughout the entire lease procurement. For example, regional officials told us this would allow officials to involve brokers at crucial points—such as by conducting market analysis—and then allow GSA to handle the other parts of the procurement process in-house. The officials said that this would benefit GSA, because it would allow GSA to harness the brokers’ market expertise, which, in their opinion, is how brokers add the most value. According to GSA headquarters officials, they are reviewing the contract on an on-going basis and making the changes that will offer greater flexibility. They said that they have enhanced the requirements development, allowing the broker to perform most of the duties associated with requirements development process and are removing unnecessary requirements that delay task-order issuance.", "The current NBC program allows for brokers to have only a limited role in working with the agency requesting space during the earliest part of a leasing procurement—the requirements development phase —but according to both GSA regional officials and brokers early broker involvement seldom occurs. In some cases, it does not occur because a region has a group dedicated to the requirements development phase, so the region uses in-house expertise. However, all four brokers suggested that earlier involvement in the procurement process would improve the program’s effectiveness by allowing the brokers to assist in determining space needs or identifying other means of cost savings. Brokers from one firm noted that they have considerable experience in reducing costs for private sector clients by helping them plan and implement space-saving arrangements, and that they could provide added benefit to GSA if they were involved earlier in the process. Brokers from another firm said that GSA and the agency requesting space will sometimes develop requirements that will result in higher costs, but that changes could result in significant savings. They said that they would like to start with a blank slate and help determine how to save money for multiple sets of circumstances, including broader space planning for a single agency, planning across agencies, multiple leases in the same area, or negotiating multiple leases at the same time in the same building.\nIn addition to earlier involvement in the leasing process, all four brokers participating in the NBC program suggested that allowing them increased access to agencies requesting space would expedite the process. Brokers indicated that the procurement process generally slows down when they have limited direct interaction with tenant agencies because the extra layer of communication can cause miscommunications. This situation can result in the broker’s trying to secure a lease with bad information, which can delay the process until the broker determines exactly what the agency wanted. Two brokers said that if they had more access to the agencies, the process would move more quickly and they would have better information on which to make decisions.", "GSA’s goals and metrics for evaluating the NBC program have not been linked to the cost savings in rental rates GSA anticipated when proposing the program. As a result, GSA does not have a means of evaluating and reporting on this aspect of the program and the value of the NBC program in terms of cost savings continue to be unclear. While GSA has taken steps to better assess how its rental rates compare to market rates, these changes will not necessarily be sufficient for determining the overall costs and benefits of the NBC program. Accordingly, GSA will continue to lack the data needed to assess whether the use of brokers’ results in the expected cost savings through overall rental rate reduction. Clarifying its goals for the program and linking them to cost savings would also serve as a way to be transparent to the Congress and other stakeholders about the purpose of the program and how GSA plans to monitor and achieve the program’s goals. Such transparency is especially important given that GSA is planning to seek a third generation of broker contracts in fiscal year 2015.", "To promote transparency and fully reflect the expectations GSA used to justify the NBC program, we recommend that the Administrator of GSA ensure the program’s goals are linked to cost savings achieved through the use of NBC brokers and develop and implement a means of evaluating and reporting results.", "We provided a draft of this report for review and comment to GSA. GSA concurred with the report’s recommendation and provided technical clarifications, which we incorporated as appropriate. GSA’s comments are discussed in more detail below. GSA’s letter is reprinted in appendix II.\nGSA stated that it will take action to implement the recommendation as well as address the challenges and suggested improvements noted in the report. GSA stated, with respect to the use of “shadow procurements” reported, that this practice was an extraordinary and unnecessary scrutiny of broker work that was limited to one GSA region and is not reflective of the NBC program in its totality. This point raised by GSA is reflected in the report, and the report does not imply that this was indicative of the program as a whole.\nAs agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Director of the Office of Management and Budget and the Administrator of General Services. In addition, the report will be available at no charge on GAO’s website at http://www.gao.gov.\nIf you or your staff have any questions, please contact me at (202) 512- 2834 or wised@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III.", "Our objectives were to examine (1) the General Services Administration’s (GSA) National Broker Contract (NBC) program goals and the extent to which they are being realized; and (2) the changes GSA has made to the program and what challenges and suggestions for improvement, if any, key stakeholders identified.\nTo identify the goals of the NBC program, we reviewed GSA’s 2003 analysis used to recommend the program as well as the subsequent goals and policies used to implement the program. From these sources and interviewing GSA officials, we identified expected savings and goals for the NBC program. The expected savings of the program include reducing rental rates for GSA leases of private sector space and lower administrative expenses as compared to the previous, mainly regionally based, contracts with private brokers. The goals that we identified for the project are for brokers to negotiate rental rates in line with overall GSA lease portfolio goals, and a yearly goal for using the broker program. We also conducted interviews with GSA headquarters officials managing the NBC program concerning the expected savings and goals of the program. To examine the extent to which benefits and goals have been realized we reviewed available GSA data and data analysis, GSA internal reports, GSA Office of Inspector General reports, and prior GAO work. We reviewed GSA broker data from the first year of the contract in 2005 through 2013. We analyzed GSA’s in-house and broker-negotiated rental rates, and discussed with GSA headquarters officials the methodology used and the limitations of their analysis and findings. In consultation with an economist and social science analyst at GAO, we determined that performing our own analysis would be limited by the same factors identified by GSA. We reviewed internal and external reports on the NBC program, which provided information about program outcomes. In addition, we obtained data from GSA on the NBC program including information on commissions and credits and on use of brokers. To determine the reliability of this data we reviewed relevant documentation including internally published reports, and we interviewed agency officials about their processes for reviewing the data and ensuring their accuracy. We found the broker-related leasing data generally reliable for the purposes of this report. We interviewed officials from all 11 GSA regions and representatives from all four broker firms currently on contract about the use and perceived benefits of the program. We asked officials to identify challenges and suggestions that could help improve the program. Therefore, we could not always determine whether these challenges or suggestions were applicable in other regions or with other broker firms unless other officials brought them to our attention. We also identified federal guidance on standards for internal controls—plans, methods, and procedures used to meet missions, goals, and objectives—that are key to helping agencies better achieve their missions and desired program results.\nTo identify stakeholder suggestions for improving the NBC program we conducted interviews with the major stakeholders of the program including: GSA headquarters officials, all 11 GSA regional office officials, and representatives from all four broker firms. Each of the stakeholders was asked to speak about the changes between the first and second broker contract, and whether they felt that benefits had resulted because of these changes, and what further improvements, if any, they would suggest for the program. We reviewed modifications GSA made to the contract in response to the Duncan Hunter National Defense Authorization Act for Fiscal Year 2009 and to the Federal Acquisition Regulation. We compared the first and second signed national broker- contract documentation, and analyzed the reasons for the changes between the two contracts. We reviewed the project plan for reviewing the NBC program and spoke with officials concerning their plans for making changes for the next generation of contracts. We also identified federal guidance on standards for internal controls—plans, methods, and procedures used to meet missions, goals, and objectives—that are key to helping agencies better achieve their missions and desired program results and assessed GSA’s efforts to set goals and objectives to achieve the desired results of the NBC program.\nWe conducted this performance audit from September 2012 to October 2013 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.", "", "", "", "In addition to the contact named above, the following individuals made important contributions to this report: David Sausville (Assistant Director), Kenneth Bombara, Lorraine Ettaro, Bert Japikse, Aaron Kaminsky, Josh Ormond, Amy Rosewarne, and Jade Winfree." ], "depth": [ 1, 1, 2, 2, 2, 1, 2, 2, 2, 2, 2, 1, 1, 1, 1, 1, 1, 2, 2 ], "alignment": [ "h2_full", "h0_title h2_title", "h0_full", "h0_full h2_full", "", "h3_title", "", "", "h3_full", "", "", "h0_full h1_full", "", "", "h3_full", "", "", "", "" ] }

{ "question": [ "What is the current status of the NBC program?", "Why do GSA officials believe that brokers should be able to obtain lower rental rates than in-house staff?", "How did these rates compare?", "How did GSA respond to this problem?", "What is the success of Bullseye?", "What other changes did GSA implement?", "How successful have GSA's goals for the NBC program been?", "What is the effect of this lack of data?", "How could GSA address these issues?", "Why are clear, linked goals especially important for GSA?", "What was GSA's expectation regarding leased space?", "How has GSA acquired leased space in the past?", "How did this contract impact GSA in 2012?", "Why was this report created?", "What is examined in this report?", "What did GAO review in the creation of this report?", "How else did GAO gather information for the report?" ], "summary": [ "While the General Services Administration (GSA) has used the National Broker Contract (NBC) program to assist with the agency's lease portfolio, it is unclear whether the program has resulted in the rental rate cost savings that GSA anticipated when proposing the program.", "GSA officials have stated that brokers should be able to obtain lower rental rates than in-house staff because brokers have greater market expertise and in addition are able to credit a portion of the broker's commission to the rental rate.", "In 2012, when GSA attempted to compare rental rates negotiated by brokers with those negotiated by in-house staff, the agency not only found little difference between the two, but also stated that the data were insufficient to conduct a meaningful comparison.", "In April 2013, GSA began requiring the use of a different market rent data report --\"Bullseye\"-- which includes market information, analysis, and insight regarding the local submarket.", "Officials said this new data would improve their ability to compare rental rates negotiated by brokers to market rental rates, but will likely not allow officials to determine whether brokers are negotiating better deals than in-house staff.", "Beginning in fiscal year 2013, GSA also deemphasized previous annual goals for broker use and began identifying and assigning leases to brokers based on where agency officials believe the brokers provide the greatest value.", "GSA's goals and metrics for evaluating the NBC program have not been linked to the anticipated cost savings in rental rates.", "As a result, GSA has no means of evaluating and reporting on this aspect of the program and the value of the NBC program in terms of cost savings continues to be unclear.", "Clarifying goals and linking them to cost savings would also serve as a way to be transparent with Congress and other stakeholders about the program's purpose and how GSA plans to monitor and achieve its objectives.", "Clear, linked goals are especially important given that GSA is planning to seek a third generation of broker contracts in 2015.", "For fiscal year 2013, GSA expected to lease approximately 197 million square feet at a cost of about $5.2 billion.", "Since 2005, GSA has acquired some leased space using its NBC program to enlist commercial real estate brokerage firms to negotiate with building owners on behalf of the government.", "In 2012, GSA relied on this contract to replace approximately 33 percent of its expiring leases.", "GAO was asked to review GSA's NBC program.", "This report examines (1) NBC's program goals and the extent to which they are being realized and (2) the changes GSA has made to the program and what challenges and suggestions for improvement, if any, key stakeholders identified.", "GAO reviewed NBC contract documentation, agency documents, relevant legislation and regulations, and available data on leasing tasks assigned to brokers.", "GAO interviewed officials from GSA headquarters, all 11 GSA regions, and representatives of all 4 brokers currently participating in the program." ], "parent_pair_index": [ -1, 0, 1, 2, 3, 3, -1, 0, 1, 2, -1, 0, 1, -1, 0, 0, 0 ], "summary_paragraph_index": [ 2, 2, 2, 2, 2, 2, 3, 3, 3, 3, 0, 0, 0, 1, 1, 1, 1 ] }

{ "title": [ "", "Background", "The Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA)", "Foreign Investment Data", "Origins of CFIUS", "Establishment of CFIUS", "The \"Exon-Florio\" Provision", "Treasury Department Regulations", "The \"Byrd Amendment\"", "Recent Legislative Reforms", "FIRRMA Legislation: Key Provisions", "CFIUS: Major Provisions", "National Security Reviews", "Informal Actions", "Formal Actions", "National Security Review", "National Security Investigation", "Presidential Determination", "Committee Membership", "Covered Transactions", "Critical Infrastructure / Critical Technologies", "Foreign Ownership Control", "Factors for Consideration", "Confidentiality Requirements", "Mitigation and Tracking", "Funding and Staff Requirements", "Congressional Oversight", "Recent CFIUS Reviews", "Issues for Congress" ], "paragraphs": [ "", "The Committee on Foreign Investment in the United States (CFIUS) is an interagency committee that serves the President in overseeing the national security implications of foreign direct investment (FDI) in the economy. Since its inception, CFIUS has operated at the nexus of shifting concepts of national security and major changes in technology, especially relative to various notions of national eco nomic security, and a changing global economic order that is marked in part by emerging economies such as China that are playing a more active role in the global economy. As a basic premise, the U.S. historical approach to international investment has aimed to establish an open and rules-based international economic system that is consistent across countries and in line with U.S. economic and national security interests. This policy also has fundamentally maintained that FDI has positive net benefits for the U.S. and global economy, except in certain cases in which national security concerns outweigh other considerations and for prudential reasons.\nRecently, some policymakers argued that certain foreign investment transactions, particularly by entities owned or controlled by a foreign government, investments with leading-edge or foundational technologies, or investments that may compromise personally identifiable information, are affecting U.S. national economic security. As a result, they supported greater CFIUS scrutiny of foreign investment transactions, including a mandatory approval process for some transactions. Some policymakers also argued that the CFIUS review process should have a more robust economic component, possibly even to the extent of an industrial policy-type approach that uses the CFIUS national security review process to protect and promote certain industrial sectors in the economy. Others argued, however, that the CFIUS review process should be expanded to include certain transactions that had not previously been reviewed, but that CFIUS' overall focus should remain fairly narrow.", "In 2018, Congress and the Trump Administration adopted the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), Subtitle A of Title XVII of P.L. 115-232 (Aug. 13, 2018), which became effective on November 11, 2018. The impetus for FIRRMA was based on concerns that ''the national security landscape has shifted in recent years, and so has the nature of the investments that pose the greatest potential risk to national security ....'' As a result, FIRRMA provided for some programs to become effective upon passage, while a pilot program was developed to address immediate concerns relative to other provisions and allow time for additional resources to be directed at developing a more permanent response in these areas. Interim rules for the pilot program developed by the Treasury Department cover an expanded scope of transactions subject to a review by CFIUS to include noncontrolling investments by foreign persons in U.S. firms involved in critical technologies. A second part of the pilot program implements FIRRMA's mandatory declarations provision for all transactions that fall within the specific scope of the pilot program. The pilot program is to end no later than March 5, 2020.\nUpon enactment, FIRRMA: (1) expanded the scope and jurisdiction of CFIUS by redefining such terms as \"covered transactions\" and \"critical technologies\"; (2) refined CFIUS procedures, including timing for reviews and investigations; and (3) required actions by CFIUS to address national security risks related to mitigation agreements, among other areas. Treasury's interim rules updated and amended existing regulations in order to implement certain provisions immediately. FIRRMA also required CFIUS to take certain actions within prescribed deadlines for various programs, reporting, and other plans.\nFIRRMA also broadened CFIUS' mandate by explicitly including for review certain real estate transactions in close proximity to a military installation or U.S. government facility or property of national security sensitivities. In addition, FIRRMA: provides for CFIUS to review any noncontrolling investment in U.S. businesses involved in critical technology, critical infrastructure, or collecting sensitive data on U.S. citizens; any change in foreign investor rights; transactions in which a foreign government has a direct or indirect substantial interest; and any transaction or arrangement designed to evade CFIUS. Through a \"sense of Congress\" provision in FIRRMA, CFIUS reviews potentially can discriminate among investors from certain countries that are determined to be a country of \"special concern\" (specified through additional regulations) that has a \"demonstrated or declared strategic goal of acquiring a type of critical technology or critical infrastructure that would affect U.S. leadership in areas related to national security.\"", "Information on international investment and production collected and published by the United Nations indicates that global annual inflows of FDI peaked in 2015, surpassing the previous record set in 2007, but has fallen since, as indicated in Figure 1 . Similarly, from 2012 through 2014, international flows of FDI fell below the levels reached prior to the 2008-2009 financial crisis, but revived in 2015. Between 2015 and 2017, FDI inflows fell by nearly $500 million to $1.4 billion, largely reflecting lower inflows to developed economies as a result of a 22% decline in cross-border merger and acquisition activity (M&As).\nFDI inflows to developing economies also declined, but at a slower rate than among flows to developed economies, while investment flows to economies in transition continued to increase at a steady pace. Other cross-border capital flows (portfolio investments and bank loans) continued at a strong pace in 2017, contrary to the trend in direct investment. Globally, the foreign affiliates of international firms employed 73 million people in 2017, as indicted in Table 1 . Globally, the stock, or cumulative amount, of FDI in 2017 totaled about $31 trillion. Other measures of international production, sales, assets, value-added production, and exports generally indicate higher nominal values in 2017 than in the previous year, providing some indication that global economic growth was recovering.\nAccording to the United Nations, the global FDI position in the United States, or the cumulative amount of inward foreign direct investment, was recorded at around $7.8 trillion in 2017, with the U.S. outward FDI position of about $7.9 trillion. The next closest country in investment position to the United States was Hong Kong with inward and outward investment positions of about one-fourth that of the United States. In comparison, the 28 counties comprising the European Union (EU) had an inward investment position of $9.1 trillion in 2017 and an outward position of $10.6 trillion.", "Established by an Executive Order of President Ford in 1975, CFIUS initially operated in relative obscurity. According to a Treasury Department memorandum, the Committee was established in order to \"dissuade Congress from enacting new restrictions\" on foreign investment, as a result of growing concerns over the rapid increase in investments by Organization of the Petroleum Exporting Countries (OPEC) countries in American portfolio assets (Treasury securities, corporate stocks and bonds), and to respond to concerns of some that much of the OPEC investments were being driven by political, rather than by economic, motives.\nThirty years later in 2006, public and congressional concerns about the proposed purchase of commercial port operations of the British-owned Peninsular and Oriental Steam Navigation Company (P&O) in six U.S. ports by Dubai Ports World (DP World) sparked a firestorm of criticism and congressional activity during the 109 th Congress concerning CFIUS and the manner in which it operated. As a result of the attention by the public and Congress, DP World officials decided to sell off the U.S. port operations to an American owner. On December 11, 2006, DP World officials announced that a unit of AIG Global Investment Group, a New York-based asset management company with large assets, but no experience in port operations, had acquired the U.S. port operations for an undisclosed amount.\nThe DP World transaction revealed that the September 11, 2001, terrorist attacks fundamentally altered the viewpoint of some Members of Congress regarding the role of foreign investment in the economy and the potential impact of such investment on U.S. national security. Some Members argued that this change in perspective required a reassessment of the role of foreign investment in the economy and of the implications of corporate ownership on activities that fall under the rubric of critical infrastructure. The emergence of state-owned enterprises as commercial economic actors has raised additional concerns about whose interests and whose objectives such firms are pursuing in their foreign investment activities.\nMore than 25 bills were introduced in the second session of the 109 th Congress that addressed various aspects of foreign investment following the proposed DP World transaction. In the first session of the 110 th Congress, Congress passed, and President Bush signed, the Foreign Investment and National Security Act of 2007 (FINSA) ( P.L. 110-49 ), which altered the CFIUS process in order to enable greater oversight by Congress and increased transparency and reporting by the Committee on its decisions. In addition, the act broadened the definition of national security and required greater scrutiny by CFIUS of certain types of foreign direct investment. Not all Members were satisfied with the law: some Members argued that the law remained deficient in reviewing investment by foreign governments through sovereign wealth funds (SWFs). Also left unresolved were issues concerning the role of foreign investment in the nation's overall security framework and the methods that are used to assess the impact of foreign investment on the nation's defense industrial base, critical infrastructure, and homeland security.", "President Ford's 1975 Executive Order established the basic structure of CFIUS, and directed that the \"representative\" of the Secretary of the Treasury be the chairman of the Committee. The Executive Order also stipulated that the Committee would have \"the primary continuing responsibility within the executive branch for monitoring the impact of foreign investment in the United States, both direct and portfolio, and for coordinating the implementation of United States policy on such investment.\" In particular, CFIUS was directed to (1) arrange for the preparation of analyses of trends and significant developments in foreign investment in the United States; (2) provide guidance on arrangements with foreign governments for advance consultations on prospective major foreign governmental investment in the United States; (3) review investment in the United States which, in the judgment of the Committee, might have major implications for U.S. national interests; and (4) consider proposals for new legislation or regulations relating to foreign investment as may appear necessary.\nPresident Ford's Executive Order also stipulated that information submitted \"in confidence shall not be publicly disclosed\" and that information submitted to CFIUS be used \"only for the purpose of carrying out the functions and activities\" of the order. In addition, the Secretary of Commerce was directed to perform a number of activities, including\n(1) Obtaining, consolidating, and analyzing information on foreign investment in the United States;\n(2) Improving the procedures for the collection and dissemination of information on such foreign investment;\n(3) Observing foreign investment in the United States;\n(4) Preparing reports and analyses of trends and of significant developments in appropriate categories of such investment;\n(5) Compiling data and preparing evaluation of significant transactions; and\n(6) Submitting to the Committee on Foreign Investment in the United States appropriate reports, analyses, data, and recommendations as to how information on foreign investment can be kept current.\nThe Executive Order, however, raised questions among various observers and government officials who doubted that federal agencies had the legal authority to collect the types of data that were required by the order. As a result, Congress and the President sought to clarify this issue, and in the following year President Ford signed the International Investment Survey Act of 1976. The act gave the President \"clear and unambiguous authority\" to collect information on \"international investment.\" In addition, the act authorized \"the collection and use of information on direct investments owned or controlled directly or indirectly by foreign governments or persons, and to provide analyses of such information to the Congress, the executive agencies, and the general public.\"\nBy 1980, some Members of Congress raised concerns that CFIUS was not fulfilling its mandate. Between 1975 and 1980, for instance, the Committee met only 10 times and seemed unable to decide whether it should respond to the political or the economic aspects of foreign direct investment in the United States. One critic of the Committee argued in a congressional hearing in 1979 that, \"the Committee has been reduced over the last four years to a body that only responds to the political aspects or the political questions that foreign investment in the United States poses and not with what we really want to know about foreign investments in the United States, that is: Is it good for the economy?\"\nFrom 1980 to 1987, CFIUS investigated a number of foreign investment transactions, mostly at the request of the Department of Defense. In 1983, for instance, a Japanese firm sought to acquire a U.S. specialty steel producer. The Department of Defense subsequently classified the metals produced by the firm because they were used in the production of military aircraft, which caused the Japanese firm to withdraw its offer. Another Japanese company attempted to acquire a U.S. firm in 1985 that manufactured specialized ball bearings for the military. The acquisition was completed after the Japanese firm agreed that production would be maintained in the United States. In a similar case in 1987, the Defense Department objected to a proposed acquisition of the computer division of a U.S. multinational company by a French firm because of classified work conducted by the computer division. The acquisition proceeded after the classified contracts were reassigned to the U.S. parent company.", "In 1988, amid concerns over foreign acquisition of certain types of U.S. firms, particularly by Japanese firms, Congress approved the Exon-Florio amendment to the Defense Production Act, which specified the basic review process of foreign investments. The statute granted the President the authority to block proposed or pending foreign \"mergers, acquisitions, or takeovers\" of \"persons engaged in interstate commerce in the United States\" that threatened to impair the national security. Congress directed, however, that the President could invoke this authority only after he had concluded that (1) other U.S. laws were inadequate or inappropriate to protect the national security; and (2) \"credible evidence\" existed that the foreign interest exercising control might take action that threatened to impair U.S. national security. This same standard was maintained in an update to the Exon-Florio provision in 2007, the Foreign Investment and National Security Act of 2007, and in FIRRMA.\nAfter three years of often contentious negotiations between Congress and the Reagan Administration, Congress passed and President Reagan signed the Omnibus Trade and Competitiveness Act of 1988. During consideration of the Exon-Florio proposal as an amendment to the omnibus trade bill, debate focused on three controversial issues: (1) what constitutes foreign control of a U.S. firm?; (2) how should national security be defined?; and (3) which types of economic activities should be targeted for a CFIUS review? Of these issues, the most controversial and far-reaching was the lack of a definition of national security. As originally drafted, the provision would have considered investments which affected the \"national security and essential commerce\" of the United States. The term \"essential commerce\" was the focus of intense debate between Congress and the Reagan Administration.\nThe Treasury Department, headed by Secretary James Baker, objected to the Exon-Florio amendment, and the Administration vetoed the first version of the omnibus trade legislation, in part due to its objections to the language in the measure regarding \"national security and essential commerce.\" The Reagan Administration argued that the language would broaden the definition of national security beyond the traditional concept of military/defense to one which included a strong economic component. Administration witnesses argued against this aspect of the proposal and eventually succeeded in prodding Congress to remove the term \"essential commerce\" from the measure and narrow substantially the factors the President must consider in his determination.\nThe final Exon-Florio provision was included as Section 5021 of the Omnibus Trade and Competitiveness Act of 1988. The provision originated in bills reported by the Commerce Committee in the Senate and the Energy and Commerce Committee in the House, but the measure was transferred to the Senate Banking Committee as a result of a dispute over jurisdictional responsibilities. Through Executive Order 12661, President Reagan implemented provisions of the Omnibus Trade Act. In the Executive Order, President Reagan delegated his authority to administer the Exon-Florio provision to CFIUS, particularly to conduct reviews, undertake investigations, and make recommendations, although the statute itself does not specifically mention CFIUS. As a result of President Reagan's action, CFIUS was transformed from an administrative body with limited authority to review and analyze data on foreign investment to an important component of U.S. foreign investment policy with a broad mandate and significant authority to advise the President on foreign investment transactions and to recommend that some transactions be suspended or blocked.\nIn 1990, President Bush directed the China National Aero-Technology Import and Export Corporation (CATIC) to divest its acquisition of MAMCO Manufacturing, a Seattle-based firm producing metal parts and assemblies for aircraft, because of concerns that CATIC might gain access to technology through MAMCO that it would otherwise have to obtain under an export license.\nPart of Congress's motivation in adopting the Exon-Florio provision apparently arose from concerns that foreign takeovers of U.S. firms could not be stopped unless the President declared a national emergency or regulators invoked federal antitrust, environmental, or securities laws. Through the Exon-Florio provision, Congress attempted to strengthen the President's hand in conducting foreign investment policy, while limiting its own role as a means of emphasizing that, as much as possible, the commercial nature of investment transactions should be free from political considerations. Congress also attempted to balance public concerns about the economic impact of certain types of foreign investment with the nation's long-standing international commitment to maintaining an open and receptive environment for foreign investment.\nFurthermore, Congress did not intend to have the Exon-Florio provision alter the generally open foreign investment climate of the country or to have it inhibit foreign direct investment in industries that could not be considered to be of national security interest. At the time, some analysts believed the provision could potentially widen the scope of industries that fell under the national security rubric. CFIUS, however, is not free to establish an independent approach to reviewing foreign investment transactions, but operates under the authority of the President and reflects his attitudes and policies. As a result, the discretion CFIUS uses to review and to investigate foreign investment cases reflects policy guidance from the President. Foreign investors also are constrained by legislation that bars foreign direct investment in such industries as maritime, aircraft, banking, resources, and power. Generally, these sectors were closed to foreign investors prior to passage of the Exon-Florio provision in order to prevent public services and public interest activities from falling under foreign control, primarily for national defense purposes.", "After extensive public comment, the Treasury Department issued its final regulations in November 1991 implementing the Exon-Florio provision. Although these procedures were amended through FINSA, they continued to serve as the basis for the Exon-Florio review and investigation until new regulations were released on November 21, 2008. These regulations created an essentially voluntary system of notification by the parties to an acquisition, and they allowed for notices of acquisitions by agencies that are members of CFIUS. Despite the voluntary nature of the notification, firms largely complied with the provision, because the regulations stipulate that foreign acquisitions that are governed by the Exon-Florio review process that do not notify the Committee remain subject indefinitely to possible divestment or other appropriate actions by the President. Under most circumstances, notice of a proposed acquisition that is given to the Committee by a third party, including shareholders, is not considered by the Committee to constitute an official notification. The regulations also indicated that notifications provided to the Committee would be considered confidential and the information would not be released by the Committee to the press or commented on publicly.", "In 1992, Congress amended the Exon-Florio statute through Section 837(a) of the National Defense Authorization Act for Fiscal Year 1993 ( P.L. 102-484 ). Known as the \"Byrd\" amendment after the amendment's sponsor, Senator Byrd, the provision requires CFIUS to investigate proposed mergers, acquisitions, or takeovers in cases where two criteria are met:\n(1) the acquirer is controlled by or acting on behalf of a foreign government; and\n(2) the acquisition results in control of a person engaged in interstate commerce in the United States that could affect the national security of the United States.\nThis amendment came under scrutiny by the 109 th Congress as a result of the DP World transaction. Many Members of Congress and others believed that this amendment required CFIUS to undertake a full 45-day investigation of the transaction because DP World was \"controlled by or acting on behalf of a foreign government.\" The DP World acquisition, however, exposed a sharp rift between what some Members apparently believed the amendment directed CFIUS to do and how the members of CFIUS interpreted the amendment. In particular, some Members of Congress apparently interpreted the amendment to direct CFIUS to conduct a mandatory 45-day investigation if the foreign firm involved in a transaction is owned or controlled by a foreign government.\nRepresentatives of CFIUS argued they interpreted the amendment to mean that a 45-day investigation was discretionary and not mandatory. In the case of the DP World acquisition, CFIUS representatives argued they had concluded as a result of an extensive review of the proposed acquisition prior to the case being formally filed with CFIUS and during the then-existing 30-day review that the DP World case did not warrant a full 45-day investigation. They conceded that the case met the first criterion under the Byrd amendment, because DP World was controlled by a foreign government, but that it did not meet the second part of the requirement, because CFIUS had concluded during the 30-day review that the transaction \"could not affect the national security.\"\nThe intense public and congressional reaction that arose from the proposed Dubai Ports World acquisition spurred the Bush Administration in late 2006 to make an important administrative change in the way CFIUS reviewed foreign investment transactions. CFIUS and President Bush approved the acquisition of Lucent Technologies, Inc. by the French-based Alcatel SA, which was completed on December 1, 2006. Before the transaction was approved by CFIUS, however, Alcatel-Lucent was required to agree to a national security arrangement, known as a Special Security Arrangement, or SSA, that restricts Alcatel's access to sensitive work done by Lucent's research arm, Bell Labs, and the communications infrastructure in the United States.\nThe most controversial feature of this arrangement was that it allowed CFIUS to reopen a review of a transaction and to overturn its approval at any time if CFIUS believed the companies \"materially fail to comply\" with the terms of the arrangement. This marked a significant change in the CFIUS process. Prior to this transaction, CFIUS reviews and investigations were portrayed and considered to be final. As a result, firms were willing to subject themselves voluntarily to a CFIUS review, because they believed that once an investment transaction was scrutinized and approved by the members of CFIUS the firms could be assured that the investment transaction would be exempt from any future reviews or actions. This administrative change, however, meant that a CFIUS determination may no longer be a final decision, and it added a new level of uncertainty to foreign investors seeking to acquire U.S. firms. A broad range of U.S. and international business groups objected to this change in the Bush Administration's policy.", "In the first session of the 110th Congress, Representative Maloney introduced H.R. 556 , the National Security Foreign Investment Reform and Strengthened Transparency Act of 2007, on January 18, 2007. The House Financial Services Committee approved it on February 13, 2007, with amendments, and the full House amended and approved it on February 28, 2007, by a vote of 423 to 0. On June 13, 2007, Senator Dodd introduced S1610, the Foreign Investment and National Security Act of 2007 (FINSA). On June 29, 2007, the Senate adopted S. 1610 in lieu of H.R. 556 by unanimous consent. On July 11, 2007, the House accepted the Senate's version of H.R. 556 by a vote of 370-45 and sent the measure to President Bush, who signed it on July 26, 2007. On January 23, 2008, President Bush issued Executive Order 13456 implementing the law.\nFINSA made a number of major changes, including:\nCodified the Committee on Foreign Investment in the United States (CFIUS), giving it statutory authority. Made CFIUS membership permanent and added the Secretary of Energy, the Director of National Intelligence (DNI), and Secretary of Labor as ex officio members with the DNI providing intelligence analysis; also granted authority to the President to add members on a case-by-case basis. Required the Secretary of the Treasury to designate an agency with lead responsibility for reviewing a covered transaction. Increased the number of factors the President could consider in making his determination. Required that an individual no lower than an Assistant Secretary level for each CFIUS member must certify to Congress that a reviewed transaction has no unresolved national security issues; for investigated transactions, the certification must be at the Secretary or Deputy Secretary level. Provided Congress with confidential briefings upon request on cleared transactions and annual classified and unclassified reports.", "During the 115 th Congress, many Members expressed concerns over China's growing investment in the United States, particularly in the technology sector. On November 8, 2017, Senators John Cornyn and Dianne Feinstein and Representative Robert Pittenger introduced companion measures in the Senate ( S. 2098 ) and the House ( H.R. 4311 ), respectively, identified as the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) to provide comprehensive revision of the CFIUS process. On May 22, 2018, the Senate Banking and House Financial Services Committees held their respective markup sessions and approved different versions of the legislation. The Senate version of FIRRMA was added as Subtitle A of Title 17 of the Senate version of the National Defense Authorization Act for Fiscal Year 2019 ( S. 2987 , incorporated into the Senate amendments to H.R. 5515 ), which passed the Senate on June 18, 2018. The House version of FIRRMA, H.R. 5841 was passed as a standalone bill under suspension vote on June 26, 2018. On August 13, 2018, President Trump signed FIRRMA, identified as P.L. 115-232 .\nSimilar to previous measures, FIRRMA grants the President the authority to block or suspend proposed or pending foreign \"mergers, acquisitions, or takeovers\" by or with any foreign person that could result in foreign control of any United States business, including such a merger, acquisition, or takeover carried out through a joint venture that threaten to impair the national security. Congress directed, however, that before this authority can be invoked the President must conclude that (1) other U.S. laws are inadequate or inappropriate to protect the national security; and (2) he/she must have \"credible evidence\" that the foreign interest exercising control might take action that threatens to impair the national security. According to CFIUS, it has interpreted this last provision to mean an investment that poses a risk to the national security. In assessing the national security risk, CFIUS looks at (1) the threat, which involves an assessment of the intent and capabilities of the acquirer; (2) the vulnerability, which involves an assessment of the aspects of the U.S. business that could impact national security; and (3) the potential national security consequences if the vulnerabilities were to be exploited.\nIn general, FIRRMA:\nBroaden s the scope of transactions under CFIUS ' purview by including for review real estate transactions in close proximity to a military installation or U.S. Government facility or property of national security sensitivities; any nonpassive investment in a critical industry or critical technologies; any change in foreign investor rights regarding a U.S. business; transactions in which a foreign government has a direct or indirect substantial interest; and any transaction or arrangement designed to evade CFIUS regulations. Mandates various deadlines , including: a report on Chinese investment in the United States, a plan for CFIUS members to recuse themselves in cases that pose a conflict of interest, an assessment of CFIUS resources and plans for additional staff and resources, a feasibility study of assessing a fee on transactions reviewed unofficially prior to submission of a written notification, and a report assessing the national security risks related to investments by state-owned or state-controlled entities in the manufacture or assembly of rolling stock or other assets used in freight rail, public transportation rail systems, or intercity passenger rail system in the United States. Allows CFI US to discriminate among foreign investors by country of origin in reviewing investment transactions by labeling some countries as \"a country of special concern\"—a country that has a demonstrated or declared strategic goal of acquiring a type of critical technology or critical infrastructure that would affect United States leadership in areas related to national security. Shift s the filing process for foreign firms from voluntary to mandatory in certain cases and provides for a two-track method for reviewing investment transactions, with some transactions requiring a declaration to CFIUS and receiving an expedited process, while transactions involving investors from countries of special concern would require a written notification of a proposed transaction and would receive greater scrutiny. Provide s for additional factors for consideration that CFIUS and the President may use to determine if a transaction threatens to impair U.S. national security, as well as formalizes CFIUS' use of risk-based analysis to assess the national security risks of a transaction by assessing the threat, vulnerabilities, and consequences to national security related to the transaction. Lengthen s most time periods for CFIUS reviews and investigations and for a national security analysis by the Director of National Intelligence. Provide s for more staff to ha ndle an expected increased work load and provide s for additional funding for CFIUS through a filing fee structure for firms involved in a transaction and a $20 million annual appropriation. Modif ies CFIUS' annual reporting requirements , including its annual classified report to specified Members of Congress and nonclassified reports to the public to provide for more information on foreign investment transactions. Mandate s separate reforms related to export controls , with requirements to establish an interagency process to identify so-called \"emerging and foundational technologies\"—such items are to also fall under CFIUS review of critical technologies—and establish controls on the export or transfer of such technologies.", "As indicated in Figure 2 below, the CFIUS foreign investment review process is comprised of an informal step and three formal steps: a Declaration or written notice; a National Security Review; and a National Security Investigation. Depending on the outcome of the reviews, CFIUS may forward a transaction to the President for a Presidential Determination. FIRRMA increases the allowable time for reviews and investigations: (1) 30 days to review a declaration or written notification to determine of the transaction involves a foreign person in which a foreign government has a substantial interest; (2) a 45-day national security review (from 30 days), including an expanded time limit for analysis by the Director of National Intelligence (from 20 to 30 days); (3) a 45-day national security investigation, with an option for a 15 day extension for \"extraordinary circumstances;\" and a 15-day Presidential determination (unchanged).\nNeither Congress nor the Administration has attempted to define the term \"national security.\" Treasury Department officials have indicated, however, that during a review or investigation each CFIUS member is expected to apply that definition of national security that is consistent with the representative agency's specific legislative mandate. The concept of national security was broadened by P.L. 110-49 to include, \"those issues relating to 'homeland security,' including its application to critical infrastructure.\" As presently construed, national security includes \"those issues relating to 'homeland security,' including its application to critical infrastructure,\" and \"critical technologies.\"\nFIRRMA broadens CFIUS' role by explicitly including for review certain real estate transactions in close proximity to a military installation or U.S. government facility or property of national security sensitivities; any noncontrolling investment in U.S. businesses involved in critical technology, critical infrastructure, or collecting sensitive data on U.S. citizens; any change in foreign investor rights; transactions in which a foreign government has a direct or indirect substantial interest; and any transaction or arrangement designed to evade CFIUS.\nWhile specific countries are not singled out, FIRRMA allows CFIUS to potentially discriminate among foreign investors by country of origin in reviewing certain investment transactions. Greater scrutiny could be directed on transactions tied to certain countries, pending specific criteria defined by regulations.\nFIRRMA provides a \"sense of Congress\" concerning six additional factors that CFIUS and the President may consider to determine if a proposed transaction threatens to impair U.S. national security. These include:\n1. Covered transactions that involve a country of \"special concern\" that has a demonstrated or declared strategic goal of acquiring a type of critical technology or critical infrastructure that would affect U.S. leadership in areas related to national security; 2. The potential effects of the cumulative control of, or pattern of recent transactions involving, any one type of critical infrastructure, energy asset, critical material, or critical technology by a foreign government or person; 3. Whether any foreign person engaged in a transaction has a history of complying with U.S. laws and regulations; 4. Control of U.S. industries and commercial activity that affect U.S. capability and capacity to meet the requirements of national security, including the availability of human resources, products, technology, materials, and other supplies and services; 5. The extent to which a transaction is likely to expose personally identifiable information, genetic information, or other sensitive data of U.S. citizens to access by a foreign government or person that may exploit that information to threaten national security; and 6. Whether a transaction is likely to exacerbate or create new cybersecurity vulnerabilities or is likely to result in a foreign government gaining a significant new capability to engage in malicious cyber-enabled activities.", "", "Over time, the three-step CFIUS process has evolved to include an informal stage of unspecified length of time that consists of an unofficial CFIUS determination prior to the formal filing with CFIUS. This type of informal review likely developed because it serves the interests of both CFIUS and the firms that are involved in an investment transaction. According to Treasury Department officials, this informal contact enabled \"CFIUS staff to identify potential issues before the review process formally begins.\" FIRMMA directed CFIUS to analyze the feasibility and potential impact of charging a fee for conducting such informal reviews.\nFirms that are party to an investment transaction apparently benefit from this informal review in a number of ways. For one, it allows firms additional time to work out any national security concerns privately with individual CFIUS members. Secondly, and perhaps more importantly, it provides a process for firms to avoid risking potential negative publicity that could arise if a transaction were blocked or otherwise labeled as impairing U.S. national security interests. For some firms, public knowledge of a CFIUS investigation has had a negative effect on the value of the firm's stock price.\nFor CFIUS members, the informal process is beneficial because it gives them as much time as they deem necessary to review a transaction without facing the time constraints that arise under the formal CFIUS review process. This informal review likely also gives CFIUS members added time to negotiate with firms involved in a transaction to restructure the transaction in ways that can address any potential security concerns or to develop other types of conditions that members feel are appropriate in order to remove security concerns.\nAccording to anecdotal evidence, some firms believe the CFIUS process is not market neutral, but adds to market uncertainty that can negatively affect a firm's stock price and lead to economic behavior by some firms that is not optimal for the economy as a whole. Such behavior might involve firms expending resources to avoid a CFIUS investigation, or terminating a transaction that potentially could improve the optimal performance of the economy to avoid a CFIUS investigation. While such anecdotal accounts generally are not a basis for developing public policy, they raise concerns about the possible impact a CFIUS review may have on financial markets and the potential costs of redefining the concept of national security relative to foreign investment.", "FIRRMA shifts the filing requirement for foreign firms from voluntary to mandatory in certain cases and provides a two-track method for reviewing transactions. Some firms are permitted to file a declaration with CFIUS and could receive an expedited review process, while transactions involving a foreign person in which a foreign government has, directly or indirectly, a substantial interest (to be defined by regulations, but not including stakes of less than 10% voting interest) would be required to file a written notification and receive greater scrutiny. Mandatory declarations may be subject to other criteria as defined by regulations.\nThe chief executive officer of any party to a merger, acquisition, or takeover must certify in writing that the information contained in a written notification to CFIUS fully complies with the CFIUS requirements and that the information is accurate and complete. This written notification would also include any mitigation agreement or condition that was part of a CFIUS approval.\nThe mandatory filing and review process (via a declaration) are required for foreign investments in certain U.S. businesses that produce, design, test, manufacture, fabricate, or develop one or more critical technologies in 27 specified industries. This requirement applies to critical technologies that are used either in connection with the U.S. business's activity in one or more of the industries specified under the pilot program, or designed by the U.S. business specifically for use in one or more of the specified industries. The shift also expands CFIUS reviews of transactions beyond those that give foreign investors a controlling interest to include investments in which foreign investors do not have a controlling interest in a U.S. firm as a result of the foreign investment. Specifically, such noncontrolling investments are covered, or subject to a review, if they would grant the foreign investor access to \"material nonpublic technical information\" in possession of the U.S. business; membership or observer rights on the board of directors; or any involvement in substantive decisionmaking regarding critical technology.\nPrior to this change, a controlling interest was determined to be at least 10% of the voting shares of a publicly traded company, or at least 10% of the total assets of a nonpublicly traded U.S. company. This shift was precipitated by concerns that investments in which foreign firms have a noncontrolling interest could nevertheless \"affect certain decisions made by, or obtain certain information from, a U.S. business with respect to the use, development, acquisition, or release of critical technology.\" New authorities granted by FIRRMA for CFIUS to review noncontrolling investments were not immediately effective upon passage of the Act, but were included as part of the Treasury Department's pilot program.\nThe Treasury Department's pilot program also includes provisions for declarations and written notices. The program indicates that declarations and written notices are distinguished according to three criteria: the length of the submission, the time for CFIUS' consideration of the submission, and the Committee's options for disposition of the submission. Declarations are described as short notices that do not exceed five pages. The parties to a transaction could voluntarily stipulate that a transaction is a covered transaction, whether the transaction could result in control of a U.S. business by a foreign person, and whether the transaction is a foreign-government controlled transaction. CFIUS would be required to respond within 30 days to the filing of a declaration, whereas CFIUS would have 45 days to respond to a written notification.\nCFIUS would also be required to respond in one of four ways to a declaration: (1) request that the parties file a written notice; (2) inform the parties that CFIUS cannot complete the review on the basis of the declaration and that they can file a notice to seek a written notification from the Committee that it has completed all the action relevant to the transaction; (3) initiate a unilateral review of the transaction through an agency notice; or (4) notify the parties that CFIUS has completed its action under the statute.\nAt any point during the CFIUS process, parties can withdraw and refile their notice, for instance, to allow additional time to discuss CFIUS's proposed resolution of outstanding issues. Under FINSA and FIRRMA, the President retains his authority as the only officer capable of suspending or prohibiting mergers, acquisitions, and takeovers, and the measures place additional requirements on firms that resubmitted a filing after previously withdrawing a filing before a full review was completed.", "After a transaction is filed with CFIUS and depending on an initial assessment, the transaction can be subject to a 45-day national security review. During a review, CFIUS members are required to consider the 12 factors mandated by Congress through FINSA and six new factors in FIRRMA that reflect the \"sense of Congress\" in assessing the impact of an investment. If during the 45-day review period all members conclude that the investment does not threaten to impair the national security, the review is terminated.\nDuring the 45-day review stage, the Director of National Intelligence (DNI), an ex officio member of CFIUS, is required to carry out a thorough analysis of \"any threat to the national security of the United States\" of any merger, acquisition, or takeover. This analysis is required to be completed \"within 30 days\" (modified by FIRRMA from 20 to 30 days) of the receipt of a notification by CFIUS. This analysis could include a request for information from the Department of the Treasury's Director of the Office of Foreign Assets Control and the Director of the Financial Crimes Enforcement Network. In addition, the Director of National Intelligence is required to seek and to incorporate the views of \"all affected or appropriate\" intelligence agencies. CFIUS also is required to review \"covered\" investment transactions in which the foreign entity is owned or controlled by a foreign government, but the law provides an exception to this requirement. If the Secretary of the Treasury and certain other specified officials determine that the transaction in question will not impair the national security, the investment is not subject to a formal review.", "If a national security review indicates that at least one of three conditions exists, the President, acting through CFIUS, is required to conduct a National Security Investigation and to take any \"necessary\" actions as part of an additional 45-day investigation, with a possible 15-day extension. The three conditions are: (1) CFIUS determines that the transaction threatens to impair the national security of the United States and that the threat has not been mitigated during or prior to a review of the transaction; (2) the foreign person is controlled by a foreign government; or (3) the transaction would result in the control of any critical infrastructure by a foreign person, the transaction could impair the national security, and such impairment has not been mitigated. At the conclusion of the investigation or 45-day review period, whichever comes first, the Committee can decide to offer no recommendation or it can recommend to the President that he/she suspend or prohibit the investment.\nDuring a review or an investigation, CFIUS and a designated lead agency have the authority to negotiate, impose, or enforce any agreement or condition with the parties to a transaction in order to mitigate any threat to U.S. national security. Such agreements are based on a \"risk-based analysis\" of the threat posed by the transaction. Also, if a notification of a transaction is withdrawn before any review or investigation by CFIUS is completed, the amended law grants the Committee the authority to take a number of actions. In particular, the Committee could develop (1) interim protections to address specific concerns about the transaction pending a resubmission of a notice by the parties; (2) specific time frames for resubmitting the notice; and (3) a process for tracking any actions taken by any parties to the transaction.", "As noted above, CFIUS authorities allow the President to block or suspend proposed or pending foreign \"mergers, acquisitions, or takeovers\" that threaten to impair the national security. The President, however, is under no obligation to follow the recommendation of the Committee to suspend or prohibit an investment. Congress directed that before this authority can be invoked (1) the President must conclude that other U.S. laws are inadequate or inappropriate to protect the national security; and (2) the President must have \"credible evidence\" that the foreign investment will impair the national security. As a result, if CFIUS determines, as was the case in the Dubai Ports transaction, that it does not have credible evidence that an investment will impair the national security, then it may argue that it is not required to undertake a full 45-day investigation, even if the foreign entity is owned or controlled by a foreign government. After considering the two conditions listed above (other laws are inadequate or inappropriate, and he has credible evidence that a foreign transaction will impair national security), the President is granted almost unlimited authority to take \" such action for such time as the President considers appropriate to suspend or prohibit any covered transaction that threatens to impair the national security of the United States .\" In addition, such determinations by the President are not subject to judicial review, although the process by which the disposition of a transaction is determined may be subject to judicial review to ensure that the constitutional rights of the parties involved are upheld, as was emphasized in the ruling by the U.S. District Court for the District of Columbia in the case of Ralls vs. the Committee on Foreign Investment in the United States .", "President Bush's January 23, 2008, Executive Order 13456 implementing FINSA made various changes to the law. The Committee consists of nine Cabinet members, including the Secretaries of State, the Treasury, Defense, Homeland Security, Commerce, and Energy; the Attorney General; the United States Trade Representative; and the Director of the Office of Science and Technology Policy. The Secretary of Labor and the Director of National Intelligence serve as ex officio members of the Committee. The Executive Order added five executive office members to CFIUS in order to \"observe and, as appropriate, participate in and report to the President:\" the Director of the Office of Management and Budget; the Chairman of the Council of Economic Advisors; the Assistant to the President for National Security Affairs; the Assistant to the President for Economic Policy; and the Assistant to the President for Homeland Security and Counterterrorism. The President can also appoint members on a temporary basis to the Committee as he determines.\nFIRRMA did not alter the membership of the Committee, but added two new positions within the Treasury Department. Both of the new positions are designated to be at the level of Assistant Secretary, with one of the positions an Assistant Secretary for Investment Security, whose primary responsibilities will be with CFIUS, under the direction of the Treasury Secretary.", "The statute requires CFIUS to review all \"covered\" foreign investment transactions to determine whether a transaction threatens to impair the national security, or the foreign entity is controlled by a foreign government, or it would result in control of any \"critical infrastructure that could impair the national security.\" A covered foreign investment transaction is defined as any merger, acquisition, or takeover \"that could result in foreign control of any United States business, including such a merger, acquisition, or takeover carried out through a joint venture.\" The term 'national security' is defined to include those issues relating to 'homeland security,' including its application to critical infrastructure and critical technologies. In addition, in reviewing a covered transaction, Congress directed that CFIUS and the President \"may\" consider the following:\nthe control of United States industries and commercial activity by foreign persons as it affects the capability and capacity of the United States to meet the requirements of national security, including the availability of human resources, products, technology, materials, and other supplies and services, and in considering ''the availability of human resources,'' should construe that term to include potential losses of such availability resulting from reductions in the employment of United States persons whose knowledge or skills are critical to national security, including the continued production in the United States of items that are likely to be acquired by the Department of Defense or other Federal departments or agencies for the advancement of the national security of the United States; and the extent to which a covered transaction is likely to expose, either directly or indirectly, personally identifiable information, genetic information, or other sensitive data of United States citizens to access by a foreign government or foreign person that may exploit that information in a manner that threatens national security .\nFIRRMA also expanded CFIUS reviews to include unaffiliated businesses that may be affected by a foreign investment transaction if the business: (1) owns, operates, manufactures, supplies, or services critical infrastructure; (2) produces, designs, tests, manufactures, fabricates, or develops one or more critical technologies; or (3) maintains or collects sensitive personal data of United States citizens that may be exploited in a manner that threatens national security. FIRRMA also amended the existing CFIUS statute by mandating certain changes be adopted through new regulations. Seven of 15 changes mandated through regulations concern the definition of a covered transaction and broadening the scope of a CFIUS review. No deadlines were specified for these regulatory changes. The regulatory changes mandated by FIRRMA include:\nDefinition of a foreign investment transaction .Real Estate. CFIUS can prescribe criteria for the definition of a covered transaction beyond those specified in the statute that include certain real estate transactions that are located in the United States. In order to qualify under this provision, the real estate must: be located within, or function as part of, an air or maritime port; be in \"close proximity\" to a U.S. military installation or another facility or property of the U.S. government that is sensitive for reasons relating to national security; reasonably provide the foreign person the ability to collect intelligence on activities being conducted at such an installation, facility, or property; or otherwise expose national security activities at such an installation, facility, or property to the risk of foreign surveillance. CFIUS is also directed to develop regulations concerning the definition of \"close proximity\" in describing real estate transactions subject to review. Unaffiliated business . CFIUS can promulgate regulations governing foreign investments in an unaffiliated U.S. business that: owns, operates, manufactures, supplies, or services critical infrastructure; produces, designs, tests, manufactures, fabricates, or develops one or more critical technologies; or maintains or collects sensitive personal data of U.S. citizens that may be exploited in a manner that threatens national security. Changes in investor rights and other structures . Covered transactions also entail any change in the rights that a foreign person has with respect to a U.S. business in which the foreign person has an investment if that change could result in foreign control of the U.S. business. It also includes any other transaction, transfer, agreement, or arrangement that is designed or intended to evade or circumvent the application of the statute, subject to regulations prescribed by CFIUS. Real estate exceptions . Changes by FIRRMA that broaden the scope of a CFIUS review of certain real estate transactions do not include reviews of single housing units or real estate in \"urbanized areas,\" subject to regulations by CFIUS in consultation with the Secretary of Defense. Material nonpublic technical information . CFIUS is directed to develop regulations concerning the term \"material nonpublic technical information,\" which is defined as \"information that provides knowledge, know-how, or understanding, not available in the public domain, of the design, location, or operation of critical infrastructure; or is not available in the public domain, and is necessary to design, fabricate, develop, test, produce, or manufacture critical technologies, including processes, techniques, or methods.\" Critical infrastructure . CFIUS is directed to prescribe regulations concerning investments in U.S. businesses that own, manufacture, supply, or service critical infrastructure that limit the designation to critical infrastructure that is likely to be of importance to U.S. national security (i.e., \"systems and assets, whether physical or virtual, so vital to the United States that the incapacity or destruction of such systems or assets would have a debilitating impact on national security\"). Indirect investment . CFIUS is directed to develop regulations concerning an indirect investment by a foreign person in a U.S. business and exceptions for \"extraordinary circumstances.\" CFIUS is also directed to develop regulations concerning waivers for an investment fund that does constitute control of investment decisions of the fund or decisions relating to entities in which the fund is invested. Foreign person . CFIUS is directed to define further the term \"foreign person\" by specifying criteria to limit the application of the term to investments by foreign persons that are in certain categories. The categories can consider how a foreign person is connected to a foreign country or foreign government, and whether the connection may affect U.S. national security. Substantial interest . Regarding covered transactions with foreign government interests, CFIUS is directed to define the term \"substantial interest.\" In defining the term, CFIUS is directed to consider the means by which a foreign government could influence the actions of a foreign person, including through board membership, ownership interest, or shareholder rights. An interest that is excluded under indirect investment or less than 10% is not considered a substantial interest. Other provisions required by regulation .Transfer of assets pursuant to bankruptcy . CFIUS is required to prescribe regulations for covered transactions that include any transaction that arises pursuant to a bankruptcy proceeding or other form of default on debt. Information required for a declaration . CFIUS is required to develop regulations concerning the type and extent of information parties to an investment transaction are required to provide when submitting a declaration that should not exceed five pages. CFIUS also is required to develop regulations specifying the types of transactions that are required to submit a mandatory declaration. Other declarations . CFIUS may develop regulations that require parties with respect to any investment transaction to submit a declaration. Cooperation with allies and partners. The CFIUS chairperson, in consultation with other members of the Committee, is directed to establish a formal process for exchanging information with governments of countries that are allies or partners of the United States to protect U.S. national security and that of the allies and partners. The process is required to be designed to facilitate the \"harmonization\" of trends in investment and technology that could pose risks to the national security of the United States and its allies and partners; provide for sharing information on specific technologies and entities acquiring technologies to ensure national security; and include consultation with representatives of allied and partner governments on a recurring basis. Additional compliance measures . CFIUS is required to develop methods for evaluating compliance with any mitigation agreement or condition entered into or agreed relative to an investment transaction that allows CFIUS to adequately ensure compliance without unnecessarily diverting resources from assessing new transactions. Filing fees . CFIUS is granted the authority to determine in regulations the amounts of fees and to collect fees on each covered foreign investment transaction for which a written notice was submitted to CFIUS; the amount of fees collected are limited to the costs of administering CFIUS's reviews. CFIUIS can also periodically reconsider and adjust the amount of the fees to ensure that the amount of fees does not exceed the costs of administering the program.\nSince the review process involves numerous federal government agencies with varying missions, CFIUS seeks consensus among the member agencies on every transaction. Any agency that has a different assessment of the national security risks posed by a transaction has the ability to push that assessment to a higher level within CFIUS and, ultimately, to the President. As a matter of practice, before CFIUS clears a transaction to proceed, each member agency confirms to Treasury, at politically accountable levels, that it has no unresolved national security concerns with the transaction. CFIUS is represented through the review process by Treasury and by one or more other agencies that Treasury designates as a lead agency based on the subject matter of the transaction. At the end of a review or investigation, CFIUS provides a written certification to Congress that it has no unresolved national security concerns. This certification is executed by Senate-confirmed officials at these agencies at either the Assistant Secretary or Deputy Secretary level, depending on the stage of the process at which the transaction is cleared.\nAccording to Treasury Department regulations, investment transactions that are not considered to be covered transactions and, therefore, not subject to a CFIUS review are those that are undertaken \"solely for the purpose of investment,\" or an investment in which the foreign investor has \"no intention of determining or directing the basic business decisions of the issuer.\" In addition, investments that are solely for investment purposes are defined as those (1) in which the transaction does not involve owning more than 10% of the voting securities of the firm; or (2) those investments that are undertaken directly by a bank, trust company, insurance company, investment company, pension fund, employee benefit plan, mutual fund, finance company, or brokerage company \"in the ordinary course of business for its own account.\"\nOther transactions not covered include (1) stock splits or a pro rata stock dividend that does not involve a change in control; (2) an acquisition of any part of an entity or of assets that do not constitute a U.S. business; (3) an acquisition of securities by a person acting as a securities underwriter, in the ordinary course of business and in the process of underwriting; and (4) an acquisition pursuant to a condition in a contract of insurance relating to fidelity, surety, or casualty obligations if the contract was made by an insurer in the ordinary course of business. In addition, Treasury regulations stipulate that the extension of a loan or a similar financing arrangement by a foreign person to a U.S. business will not be considered a covered transaction and will not be investigated, unless the loan conveys a right to the profits of the U.S. business or involves a transfer of management decisions.", "An element of the CFIUS process added by FINSA and reinforced by FIRRMA is the addition of \"critical industries\" and \"homeland security\" as broad categories of economic activity that could be subject to a CFIUS national security review, ostensibly broadening CFIUS's mandate. The precedent for this action was set in the Patriot Act of 2001 and the Homeland Security Act of 2002, which define critical industries and homeland security and assign responsibilities for those industries to various federal government agencies. FINSA references those two acts and borrows language from them on critical industries and homeland security. After the September 11 th terrorist attacks, Congress passed and President Bush signed the USA PATRIOT Act of 2001 (Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism). In this act, Congress provided for special support for \"critical industries,\" which it defined as\nsystems and assets, whether physical or virtual, so vital to the United States that the incapacity or destruction of such systems and assets would have a debilitating impact on security, national economic security, national public health or safety, or any combination of those matters.\nThis broad definition is enhanced to some degree by other provisions of the act, which identify certain sectors of the economy that are likely candidates for consideration as components of the national critical infrastructure. These sectors include telecommunications, energy, financial services, water, transportation sectors, and the \"cyber and physical infrastructure services critical to maintaining the national defense, continuity of government, economic prosperity, and quality of life in the United States.\" The following year, Congress adopted the language in the Patriot Act on critical infrastructure into The Homeland Security Act of 2002.\nIn addition, the Homeland Security Act added key resources to the list of critical infrastructure (CI/KR) and defined those resources as \"publicly or privately controlled resources essential to the minimal operations of the economy and government.\" Through a series of directives, the Department of Homeland Security identified 17 sectors of the economy as falling within the definition of critical infrastructure/key resources and assigned primary responsibility for those sectors to various federal departments and agencies, which are designated as Sector-Specific Agencies (SSAs). On March 3, 2008, Homeland Security Secretary Chertoff signed an internal DHS memo designating Critical Manufacturing as the 18 th sector on the CI/KR list.\nIn 2013, the list of critical industries was altered through a Presidential Policy Directive (PPD-21). The directive listed three \"strategic imperatives\" as drivers of the Federal approach to strengthening \"critical infrastructure security and resilience:\"\n1. Refine and clarify functional relationships across the Federal Government to advance the national unity of effort to strengthen critical infrastructure security and resilience; 2. Enable effective information exchange by identifying baseline data and systems requirements for the Federal Government; and 3. Implement an integration and analysis function to inform planning and operations decisions regarding critical infrastructure.\nThe directive assigns the main responsibility to the Department of Homeland Security for identifying critical industries and coordinating efforts among the various government agencies, among a number of responsibilities. The directive also assigns roles to other agencies and designated 16 sectors as critical to the U.S. infrastructure. The sectors are (1) chemical; (2) commercial facilities; (3) communications; (4) critical manufacturing; (5) dams; (6) defense industrial base; (7) emergency services; (8) energy; (9) financial services; (10) food and agriculture; (11) government facilities; (12) health care and public health; (13) information technology; (14) nuclear reactors, materials, and waste; (15) transportation systems; and (16) water and wastewater systems.\nFIRRMA added language on critical technologies, which are defined as:\nDefense articles or defense services included on the United States Munitions List set forth in the International Traffic in Arms Regulations under subchapter M of chapter I of title 22, Code of Federal Regulations. Items included on the Commerce Control List set forth in Supplement No. 1 to part 774 of the Export Administration Regulations under subchapter C of chapter VII of title 15, Code of Federal Regulations, and controlled— pursuant to multilateral regimes, including for reasons relating to national security, chemical and biological weapons proliferation, nuclear nonproliferation, or missile technology; for reasons relating to regional stability or surreptitious listening. Specially designed and prepared nuclear equipment, parts and components, materials, software, and technology covered by part 810 of title 10, Code of Federal Regulations (relating to assistance to foreign atomic energy activities). Nuclear facilities, equipment, and material covered by part 110 of title 10, Code of Federal Regulations (relating to export and import of nuclear equipment and material). Select agents and toxins covered by part 331 of title 7, Code of Federal Regulations, part 121 of title 9 of such Code, or part 73 of title 42 of such Code. Emerging and foundational technologies controlled pursuant to section 1758 of the Export Control Reform Act of 2018.", "The CFIUS statute itself does not provide a definition of the term \"control,\" but such a definition is included in the Treasury Department's regulations and enhanced through FIRRMA to include reviews of transactions that do not involve a controlling interest. According to those regulations, control is not defined as a numerical benchmark, but instead focuses on a functional definition of control, or a definition that is governed by the influence the level of ownership permits the foreign entity to affect certain decisions by the firm. According to the Treasury Department's regulations:\nThe term control means the power, direct or indirect, whether or not exercised, and whether or not exercised or exercisable through the ownership of a majority or a dominant minority of the total outstanding voting securities of an issuer, or by proxy voting, contractual arrangements or other means, to determine, direct or decide matters affecting an entity; in particular, but without limitation, to determine, direct, take, reach or cause decisions regarding:\n(1) The sale, lease, mortgage, pledge or other transfer of any or all of the principal assets of the entity, whether or not in the ordinary course of business;\n(2) The reorganization, merger, or dissolution of the entity;\n(3) The closing, relocation, or substantial alternation of the production operational, or research and development facilities of the entity;\n(4) Major expenditures or investments, issuances of equity or debt, or dividend payments by this entity, or approval of the operating budget of the entity;\n(5) The selection of new business lines or ventures that the entity will pursue;\n(6) The entry into termination or nonfulfillment by the entity of significant contracts;\n(7) The policies or procedures of the entity governing the treatment of nonpublic technical, financial, or other proprietary information of the entity;\n(8) The appointment or dismissal of officers or senior managers;\n(9) The appointment or dismissal of employees with access to sensitive technology or classified U.S. Government information; or\n(10) The amendment of the Articles of Incorporation, constituent agreement, or other organizational documents of the entity with respect to the matters described at paragraph (a) (1) through (9) of this section.\nTreasury Department regulations also provide some guidance to firms that are deciding whether they should notify CFIUS of a proposed or pending merger, acquisition, or takeover. The guidance states that proposed acquisitions that need to notify CFIUS are those that involve \"products or key technologies essential to the U.S. defense industrial base.\" This notice is not intended for firms that produce goods or services with no special relation to national security, especially toys and games, food products (separate from food production), hotels and restaurants, or legal services. CFIUS has indicated that in order to ensure an unimpeded inflow of foreign investment it would implement the statute \"only insofar as necessary to protect the national security,\" and \"in a manner fully consistent with the international obligations of the United States.\"\nFIRRMA defines the term control to mean: \"the power, direct or indirect, whether exercised or not exercised, to determine, direct, or decide important matters affecting an entity, subject to regulations prescribed by the Committee.\" Also, Congress added six additional factors through FIRRMA that CFIUS and the President \"may\" consider in reviewing investment transactions, including the fourth factor, as indicated in the section below on factors for consideration.", "The CFIUS statute includes a list of 12 factors the President must consider in deciding to block a foreign acquisition, although the President is not required to block a transaction based on these factors. Additionally, CFIUS members can consider the factors as part of their own review process to determine if a particular transaction threatens to impair the national security. This list includes the following elements:\n(1) domestic production needed for projected national defense requirements;\n(2) capability and capacity of domestic industries to meet national defense requirements, including the availability of human resources, products, technology, materials, and other supplies and services;\n(3) control of domestic industries and commercial activity by foreign citizens as it affects the capability and capacity of the U.S. to meet the requirements of national security;\n(4) potential effects of the transactions on the sales of military goods, equipment, or technology to a country that supports terrorism or proliferates missile technology or chemical and biological weapons; and transactions identified by the Secretary of Defense as \"posing a regional military threat\" to the interests of the United States;\n(5) potential effects of the transaction on U.S. technological leadership in areas affecting U.S. national security;\n(6) whether the transaction has a security-related impact on critical infrastructure in the United States;\n(7) potential effects on United States critical infrastructure, including major energy assets;\n(8) potential effects on United States critical technologies;\n(9) whether the transaction is a foreign government-controlled transaction;\n(10) in cases involving a government-controlled transaction, a review of (A) the adherence of the foreign country to nonproliferation control regimes, (B) the foreign country's record on cooperating in counter-terrorism efforts, (C) the potential for transshipment or diversion of technologies with military applications;\n(11) long-term projection of the United States requirements for sources of energy and other critical resources and materials; and\n(12) such other factors as the President or the Committee determine to be appropriate.\nFactors 6-12 were added through the FINSA Act potentially broadening the scope of CFIUS's reviews and investigations. As previously indicated, instead of adding new factors to this section of the statute, FIRRMA offered six new elements CFIUS and the President \"may\" consider as part of their deliberations through a sense of Congress provision. Previously, CFIUS had been directed by Treasury Department regulations to focus its activities primarily on investments that had an impact on U.S. national defense security. The additional factors, however, incorporate economic considerations into the CFIUS review process in a way that was specifically rejected when the original Exon-Florio amendment was adopted and refocuses CFIUS's reviews and investigations on considering the broader rubric of economic security, although the term is not specifically mentioned. In particular, CFIUS is required to consider the impact of an investment on critical infrastructure and critical technologies as factors for considering a recommendation to the President that a transaction be blocked or postponed. As previously indicated, critical infrastructure is defined in broad terms as \"any systems and assets, whether physical or cyber-based, so vital to the United States that the degradation or destruction of such systems or assets would have a debilitating impact on national security, including national economic security and national public health or safety.\"\nThe six factors added by FIRRMA through a sense of Congress that CFIUS and the President may consider in evaluating the national security implications of an investment are:\n1. a transaction involves a country of special concern that has a demonstrated or declared strategic goal of acquiring a type of critical technology or critical infrastructure that would affect United States leadership in areas related to national security; 2. the potential national security-related effects of the cumulative control of, or pattern of recent transactions involving, any one type of critical infrastructure, energy asset, critical material, or critical technology by a foreign government or foreign person; 3. whether any foreign person engaging in a covered transaction with a United States business has a history of complying with United States laws and regulations; 4. control of United States industries and commercial activity by foreign persons as it affects the capability and capacity of the United States to meet the requirements of national security, including the availability of human resources, products, technology, materials, and other supplies and services, and in considering ''the availability of human resources'', should construe that term to include potential losses of such availability resulting from reductions in the employment of United States persons whose knowledge or skills are critical to national security, including the continued production in the United States of items that are likely to be acquired by the Department of Defense or other Federal departments or agencies for the advancement of the national security of the United States ; 5. the extent to which a covered transaction is likely to expose, either directly or indirectly, personally identifiable information, genetic information, or other sensitive data of United States citizens to access by a foreign government or foreign person that may exploit that information in a manner that threatens national security; and 6. a transaction that is likely to have the effect of exacerbating or creating new cybersecurity vulnerabilities in the United States or is likely to result in a foreign government gaining a significant new capability to engage in malicious cyber-enabled activities against the United States, including such activities designed to affect the outcome of any election for Federal office. 52\nAs originally drafted, the Exon-Florio provision also would have applied to joint ventures and licensing agreements in addition to mergers, acquisitions, and takeovers. Joint ventures and licensing agreements subsequently were dropped from the proposal because the Reagan Administration and various industry groups argued at the time that such business practices were deemed to be beneficial arrangements for U.S. companies. In addition, they argued that any potential threat to national security could be addressed by the Export Administration Act and the Arms Control Export Act. FIRRMA added joint ventures as a matter for consideration during a CFIUS review or investigation.", "FINSA codified, and FIRRMA maintains, confidentiality requirements that are similar to those that appeared in the Exon-Florio amendment and Executive Order 11858 by stating that any information or documentary material filed under the provision may not be made public \"except as may be relevant to any administrative or judicial action or proceeding.\" The provision does state, however, that this confidentiality provision \"shall not be construed to prevent disclosure to either House of Congress or to any duly authorized committee or subcommittee of the Congress.\" The provision provides for the release of proprietary information \"which can be associated with a particular party\" to committees only with assurances that the information will remain confidential. Members of Congress and their staff members are accountable under current provisions of law governing the release of certain types of information. Current statute requires the President to provide a written report to the Secretary of the Senate and the Clerk of the House detailing his decision and his actions relevant to any transaction that was subject to a 45-day investigation.", "Since the implementation of the Exon-Florio provision in the 1980s, CFIUS had developed several informal practices that likely were not envisioned when the statute was drafted. In particular, members of CFIUS on occasion negotiated conditions with firms to mitigate or to remove business arrangements that raised national security concerns among the CFIUS members. Such agreements often were informal arrangements that had an uncertain basis in statute and had not been tested in court. These arrangements often were negotiated during the formal review period, or even during an informal process prior to the formal filing of a notice of an investment transaction.\nFINSA required CFIUS to designate a lead agency to negotiate, modify, monitor, and enforce agreements in order to mitigate any threat to national security. Such agreements are required to be based on a \"risk-based analysis\" of the threat posed by the transaction. CFIUS is also required to develop a method for evaluating the compliance of firms that have entered into a mitigation agreement or condition that was imposed as a requirement for approval of the investment transaction. Such measures, however, are required to be developed in such a way that they allow CFIUS to determine that compliance is taking place without also (1) \"unnecessarily diverting\" CFIUS resources from assessing any new covered transaction for which a written notice had been filed; and (2) placing \"unnecessary\" burdens on a party to an investment transaction.\nIf a notification of a transaction is withdrawn before any review or investigation by CFIUS is completed, CFIUS can take a number of actions, including (1) interim protections to address specific concerns about the transaction pending a resubmission of a notice by the parties; (2) specific time frames for resubmitting the notice; and (3) a process for tracking any actions taken by any party to the transaction. Also, any federal entity or entities that are involved in any mitigation agreement are to report to CFIUS if there is any modification that is made to any agreement or condition that had been imposed and to ensure that \"any significant\" modification is reported to the Director of National Intelligence and to any other federal department or agency that \"may have a material interest in such modification.\" Such reports are required to be filed with the Attorney General.\nFIRRMA further authorizes CFIUS to:\nconduct periodic reviews of mitigation agreements to determine if the agreements should be phased out or modified if a threat no longer requires mitigation; negotiate, enter into or impose, and enforce any agreement or condition with any party to an investment transaction during and after consideration of a transaction to mitigate any risk to the national security of the United States as a result of the transaction; and review periodically the appropriateness of an agreement or condition and terminate, phase out, or otherwise amend the agreement or condition if a threat no longer requires mitigation through the agreement or condition.\nIn agreeing to a mitigation agreement, CFIUS must determine that the agreement will resolve the national security concerns posed by the transaction, taking into consideration whether the agreement or condition is reasonably calculated to: be effective, verifiable, monitored, and enforceable.", "FIRRMA established a fund within Treasury and appropriates $20 million to CFIUS for each of fiscal years 2019 through 2023. FIRRMA also authorizes CFIUS to develop a fee schedule, determined through regulation, for each transaction, in addition to an expedited process for hiring additional staff. The fee is restricted to be 1% of the value of the transaction, or three hundred thousand dollars. In developing regulations, CFIUS is also required to consider the impact on small businesses, the expenses to CFIUS associated with conducting reviews, and the impact on foreign investment. Also, the total amount of fees collected are limited to not exceed the costs of administering the fees. FIRRMA also directs CFIUS to study the feasibility of establishing a fee or a fee structure to prioritize a response to informal notices prior to the submission of a formal written notice of an impending or proposed transaction.\nFIRRMA also requires the President to determine whether and to what extent the expansion of CFIUS' responsibilities as a result of the additional duties designated by FIRRMA requires additional resources. If additional resources are necessary, the President is required to make such a request in the Administration's annual budget.", "Both FINSA and FIRRMA increased the types and number of reports that CFIUS is required to send to certain specified Members of Congress. In particular, CFIUS is required to brief certain congressional leaders if they request such a briefing and to report annually to Congress on any reviews or investigations it has conducted during the prior year. CFIUS provides a classified report to Congress each year and a less extensive report for public release. Each report is required to include a list of all concluded reviews and investigations, information on the nature of the business activities of the parties involved in an investment transaction, information about the status of the review or investigation, and information on any transactions that were withdrawn from the process, any roll call votes by the Committee, any extension of time for any investigation, and any presidential decision or action. In the classified report, FIRRMA imposed new reporting requirements on CFIUS concerning:\nthe outcome of each review or investigation, including whether a mitigation agreement or condition was entered into and any action by the President; basic information concerning the parties involved; the nature of the business activities or products; statistics on compliance plans and cumulative and trend information on declarations and actions taken; methods used by the Committee to identify nonnotified and nondeclared transactions; a summary of the hiring practices and policies of the Committee; in cases where the Committee has recommended that the President suspend or prohibit a transaction because it threatens to impair the national security, CFIUS is required to notify Congress of the recommendation and, upon request, provide a classified briefing on the recommendation; not later than two years after enactment of FIRRMA, and every two years thereafter through 2026, the Secretary of Commerce is required to submit to Congress and CFIUS a report on foreign direct investment transactions made by entities of the People's Republic of China in the United States.\nIn addition, CFIUS is required to report on trend information on the numbers of filings, investigations, withdrawals, and presidential decisions or actions that were taken. The report must include cumulative information on the business sectors involved in filings and the countries from which the investments originated; information on the status of the investments of companies that withdrew notices and the types of security arrangements and conditions CFIUS used to mitigate national security concerns; the methods the Committee used to determine that firms were complying with mitigation agreements or conditions; and a detailed discussion of all perceived adverse effects of investment transactions on the national security or critical infrastructure of the United States.\nThe Secretary of the Treasury, in consultation with the Secretaries of State and Commerce, is directed by FINSA to conduct a study on investment in the United States, particularly in critical infrastructure and industries affecting national security, by (1) foreign governments, entities controlled by or acting on behalf of a foreign government, or persons of foreign countries which comply with any boycott of Israel; or (2) foreign governments, entities controlled by or acting on behalf of a foreign government, or persons of foreign countries which do not ban organizations designated by the Secretary of State as foreign terrorist organizations. In addition, CFIUS is required to provide an annual evaluation of any credible evidence of a coordinated strategy by one or more countries or companies to acquire U.S. companies involved in research, development, or production of critical technologies in which the United States is a leading producer. The report must include an evaluation of possible industrial espionage activities directed or directly assisted by foreign governments against private U.S. companies aimed at obtaining commercial secrets related to critical technologies.", "According to the annual report filed by CFIUS, CFIUS activity dropped sharply in 2009 as a result of tight credit markets and hesitation by banks to fund acquisitions and takeovers during the global financial crisis, but rebounded in 2010, as indicated in Table 2 . During the eight-year period 2008-2015 (the latest years for which such data are available), foreign investors sent 925 notices to CFIUS of plans to acquire, take over, or merge with a U.S. firm. In comparison, the Commerce Department reports there were over 1,800 foreign investment transactions in 2015, slightly less than half of which were acquisitions of existing U.S. firms. Acquisitions, however, accounted for 96% of the total annual value of foreign direct investments. Of the investment transactions notified during the 2008-2015 period, about 4% were withdrawn during the initial 30-day review; about 36% of the total notified transactions required a 45-day investigation. Also, of the transactions investigated, about 6% were withdrawn before a final determination was reached. As a result, of the 925 proposed investment transactions notified to CFIUS during this period, 822 transactions, or 89% of the transactions, were completed. As noted earlier in this report, but not in the 2017 CFIUS report, a presidential decision was made in six cases to date.\nThe CFIUS report indicates that 43% of foreign investment transactions notified to CFIUS from 2008 to 2015 were in the manufacturing sector. Investments in the finance, information, and services sectors accounted for another 31% of the total notified transactions, as indicated in Table 3 . Within the manufacturing sector, 43% of all investment transactions notified to CFIUS between 2013 and 2015 were in the computer and electronic products sectors, a share that rose to 49% in 2015. The next three sectors with the highest number of transactions were the transportation equipment sector, which was recorded at 12% in the 2013-2015 period and in 2015, the machinery sector, which fell from 13% in the 2013-2015 period to 12% in 2015, and the electrical equipment and computer sector, which fell from 11% of manufacturing transactions in 2013-2015 to 3% in 2015. Within the finance, information, and services sector, professional services accounted for 20% of transactions 2015, down from 37% recorded in the 2013-2015 period. Notified transactions in publishing (21%), telecommunications (17%), and real estate (10%) comprised the next most active sectors.\nTable 4 shows foreign investment transactions by the home country of the foreign investor and the industry composition of the investment transactions. According to data based on notices provided to CFIUS by foreign investors, Chinese investors were the most active in acquisitions, takeovers, or mergers during the 2013-2015 period, accounting for 19% of the total number of transactions. The United Kingdom and Canada join China as the top three countries of origin for investors providing notifications to CFIUS. For China and the UK, investment notifications were concentrated in the manufacturing, finance, information, and services sectors, although nearly one-fifth of Chinese transactions were in the mining, construction, and utilities sectors. The ranking of countries in Table 4 differs in a number of important ways from data published by the Bureau of Economic Analysis on the cumulative amount, or the total book value, of foreign direct investment in the United States, which places the United Kingdom, Japan, the Netherlands, Germany, Canada, and Switzerland as the most active countries of origin for foreign investment in the United States.\nTable 5 provides information on notified foreign investment transactions by in critical technology classified by types of foreign investment. According to CFIUS, the Committee reviewed 130 transactions in 2015 (126 transactions were reported by CFIUS for the data in Table 5 ) involving acquirers from 32 countries to determine if it could detect a coordinated strategy. Solo acquisitions accounted for 86% of the total number of transactions. According to CFIUS, the largest number of transactions in critical technology occurred in the Information Technology and the Aerospace & Defense sectors.\nThe CFIUS annual report also provides some general information on the total number of cases in which it applied legally binding mitigation measures. The report did not list any specific cases or measures, but it did indicate that CFIUS applied mitigation measures to 40 cases in the 2013-2015 period. According to the CFIUS report, in 2015 CFIUS agencies negotiated, and parties adopted, mitigation measures for 11 covered transactions. These mitigation measures have included a number of different approaches, including\nEnsuring that only authorized persons have access to certain technologies and information. Establishing a Corporate Security Committee and other mechanisms to ensure compliance with all required actions, including the appointment of a U.S. government-approved security officer or member of the board of directors and requirements for security policies, annual reports, and independent audits. Establishing guidelines and terms for handling existing or future U.S. government contracts, U.S. government customer information, and other sensitive information. Ensuring only U.S. citizens handle certain products and services, and ensuring that certain activities and products are located only in the United States. Notifying security officers or relevant U.S. government parties in advance of foreign national visits to the U.S. business for approval. Security protocols to ensure the integrity of goods or software sold to the U.S. Government. Notifying customers regarding the change of ownership. Assurances of continuity of supply for defined periods, and notification and consultation prior to taking certain business decisions, with certain rights in the event that the company decides to exit a business line. Established meetings to discuss business plans that might affect U.S. Government or national security considerations. Exclusion of certain sensitive assets from the transaction. Providing the U.S. Government with the right to review certain business decisions and object if they raise national security concerns.\nCFIUS also implemented procedures to evaluate and ensure that parties to an investment transaction remain in compliance with any risk mitigation measures that were adopted to gain approval of the investment. These procedures include the following:\nPeriodic reporting to U.S. Government agencies by the companies. On-site compliance reviews by U.S. Government agencies. Third party audits when provided for by the terms of the mitigation measures. Investigations and remedial actions if anomalies or breaches are discovered or suspected. Assigning staff responsibilities to monitor compliance. Designating tracking systems to monitor required reports. Instituting internal instructions and procedures to ensure that in-house expertise is drawn upon to analyze compliance with measures.", "The U.S. policy approach to international investment generally aimed to establish an open and rules-based system that is consistent across countries and in line with U.S. interests as the largest global foreign direct investor and largest recipient of foreign direct investment. In addition, U.S. foreign direct investment policy has been founded on the concept that the net benefits of such investment are positive and benefit both the United States and the foreign investor, except in certain circumstances concerning risks to national security and for prudential reasons. Even in these cases, however, the U.S. approach generally has been to limit any market distorting impact of the national security review process. Under the CFIUS statute, Congress set a legal standard for the President to meet before he could block or suspend investment transactions: no other laws apply, and he determines that there is \"credible evidence\" that the action does not simply affect national security, but that it \"threatens to impair the national security,\" or that it poses a risk to national security\nIn 2018, Congress and the Trump Administration amended the CFIUS statute through the Foreign Investment Risk Review Modernization Act (FIRRMA) to address a broader range of issues concerning foreign direct investment in the U.S. economy. In part, the motivation for the change in the CFIS statute reflects differing views of the role CFIUS should play in overseeing foreign investment transactions and the concept of national security, particularly as it relates to national economic interests. In some ways, current discussions regarding the role of CFIUS mirror previous debates over a working set of parameters that establish a functional definition of the national economic security implications of foreign direct investment and expose differing assessments of the economic impact of foreign investment on the U.S. economy and differing political and philosophical convictions.\nPrevious congressional efforts to amend the CFIUS statute were driven in large part by national security concerns related to a particular foreign investment transaction, such as the Dubai Ports transaction. More recently, concerns have arisen from a combination of issues, including (1) an increase in foreign investment activity by Chinese state-owned firms; (2) the perception that such investment is part of a government-coordinated approach that serves official strategic purposes, rather than purely commercial interests; and (3) that investments by Chinese firms are receiving government support through subsidized financing or other types of government support that give Chinese firms an \"unfair\" competitive advantage over other private investors.\nWhile Members of Congress and others have expressed concerns over investments by Chinese entities, the broader issue of the role of foreign investment in the economy and the interaction between foreign investment and national security predate the creation of CFIUS. Such concerns arguably are heightened by a changing global economic order that is marked by rising emerging economies such as China and India that are more active internationally and changing notions of national economic interests. Changes to CFIUIS through FIRRMA broaden CFIUS' mandate beyond the original narrow focus on the national security implications of individual investment transactions to a more comprehensive assessment of the impact of a combination of transactions. In addition, CFIUS is now required to analyze the impact of certain types of real estate transactions and the potential impact of foreign investment in start-up companies with potentially foundational technologies. These issues and others raise questions for Congress to consider, including:\nThrough FIRRMA, Congress expanded the role of CFIUS in protecting U.S. national security interests. What rubric should CFIUS use to weigh national security interests against economic interests, particularly at the state and local levels that seek foreign investment to support local jobs and tax revenues? The United States is the single largest recipient of foreign investment and the largest overseas direct investor in the world. How should Congress assess the role of CFIUS in protecting U.S. national security interests while supporting the stated policy of the United States to support international efforts to maintain policies that accommodate foreign direct investment? In any year, the level of foreign investment activity is driven in large part by broad economic fundamentals, including merger and acquisition (M&A) activity. As a result, CFIUS' activities could vary substantially from year to year, depending on forces outside its control. How should Congress evaluate CFIUS' activities given these circumstances? Congress has expressed its concerns through FIRRMA about foreign access to critical technologies through investments and acquisitions developed by U.S. firms. How can CFIUS satisfy congressional concerns about the potential loss of leading-edge technologies while avoiding potential conflicts that inhibit the development of new technologies by start-up firms? In response to FIRRMA, Treasury Department regulations identify 27 industries as critical industries for consideration by CFIUS and the President in deciding to block or suspend a foreign investment transaction. How should CFIUS weigh concerns over foreign investments concentrated in certain industries relative to capital needs and requirements in fast-growing industries that may rely on foreign funds in order to expand? What rubric is CFIUS using to determine how much foreign investment in an industry is considered too concentrated? Without providing a definition of national security, Congress has directed CFIUS to protect the United States against investments that threaten to impair the national security. What rubric should CFIUS use to evaluate the national security implications of such items as personally identifiable information?" ], "depth": [ 0, 1, 2, 2, 1, 1, 1, 2, 1, 1, 2, 1, 2, 3, 3, 3, 3, 3, 2, 2, 2, 2, 2, 2, 2, 2, 2, 1, 1 ], "alignment": [ "h0_title h2_title h1_title h3_title", "h0_full h2_full", "h0_full", "", "h0_full", "", "h3_full", "", "h0_full", "", "", "h1_title h3_title", "h1_title h3_title", "", "", "h3_full", "", "h1_full", "", "", "", "", "h1_full", "", "", "", "", "", "h3_full h2_full h1_full" ] }

{ "question": [ "What is the CFIUS?", "How did the September 11 terrorist attacks affect CFIUS?", "Why did the federal government enact FIRRMA?", "Why was FIRRMA important?", "Why have there been efforts to amend CFIUS?", "How do Members view CFIUS?", "How is the CFIUS process governed?", "How did the U.S. policy approach to international investment traditionally work?", "What is the current status of this approach?", "What concerns have been raised about CFIUS?", "How do recent changes affect CFIUS?", "Why are changes in U.S. foreign investment policy important worldwide?", "How have these changes affected transactions?", "How did President Obama block transactions?", "How has President Trump used his power to block transactions?", "Why might Congress want to conduct oversight hearings?" ], "summary": [ "The Committee on Foreign Investment in the United States (CFIUS) is an interagency body comprised of nine Cabinet members, two ex officio members, and other members as appointed by the President, that assists the President in reviewing the national security aspects of foreign direct investment in the U.S. economy.", "While the group often operated in relative obscurity, the perceived change in the nation's national security and economic concerns following the September 11, 2001, terrorist attacks and the proposed acquisition of commercial operations at six U.S. ports by Dubai Ports World in 2006 placed CFIUS's review procedures under intense scrutiny by Members of Congress and the public.", "In 2018, prompted by concerns over Chinese and other foreign investment in U.S. companies with advanced technology, Members of Congress and the Trump Administration enacted the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), which became effective on November 11, 2018.", "This measure marked the most comprehensive revision of the foreign investment review process under CFIUS since the previous revision in 2007, the Foreign Investment and National Security Act (FINSA).", "Generally, efforts to amend CFIUS have been spurred by a specific foreign investment transaction that raised national security concerns.", "Despite various changes to the CFIUS statute, some Members and others question the nature and scope of CFIUS reviews.", "The CFIUS process is governed by statute that sets a legal standard for the President to suspend or block a transaction if no other laws apply and if there is \"credible evidence\" that the transaction threatens to impair the national security, which is interpreted as transactions that pose a national security risk.", "The U.S. policy approach to international investment traditionally established and supported an open and rules-based trading system that is in line with U.S. economic and national security interests.", "Recent debate over CFIUS reflects long-standing concerns about the impact of foreign investment on the economy and the role of economics as a component of national security.", "Some Members question CFIUS's performance and the way the Committee reviews cases involving foreign governments, particularly with the emergence of state-owned enterprises, and acquisitions involving leading-edge or foundational technologies.", "Recent changes expand CFIUS's purview to include a broader focus on the economic implications of individual foreign investment transactions and the cumulative effect of foreign investment on certain sectors of the economy or by investors from individual countries.", "Changes in U.S. foreign investment policy have potentially large economy-wide implications, since the United States is the largest recipient and the largest overseas investor of foreign direct investment.", "To date, six investments have been blocked, although proposed transactions may have been withdrawn by the firms involved in lieu of having a transaction blocked.", "Pesident Obama used the FINSA authority in 2012 to block an American firm, Ralls Corporation, owned by Chinese nationals, from acquiring a U.S. wind farm energy firm located near a Department of Defense (DOD) facility and to block a Chinese investment firm in 2016 from acquiring Aixtron, a Germany-based firm with assets in the United States.", "In 2017, President Trump blocked the acquisition of Lattice Semiconductor Corp. by the Chinese investment firm Canyon Bridge Capital Partners; in 2018, he blocked the acquisition of Qualcomm by Broadcom; and in 2019, he directed Beijing Kunlun Co. to divest itself of Grindr LLC, an online dating site, over concerns of foreign access to personally identifiable information of U.S. citizens.", "Given the number of regulatory changes mandated by FIRRMA, Congress may well conduct oversight hearings to determine the status of the changes and their implications." ], "parent_pair_index": [ -1, 0, -1, 2, -1, 0, -1, -1, 0, 1, 1, -1, 0, 1, 1, 0 ], "summary_paragraph_index": [ 0, 0, 0, 0, 1, 1, 1, 2, 2, 2, 2, 3, 3, 3, 3, 3 ] }

{ "title": [ "Status of Major Defense Space Programs", "Ongoing Work Shows GPS Acquisitions Are Still High Risk", "Fragmented Space Leadership Exacerbates Acquisition Problems", "GAO Contacts", "Staff Acknowledgments", "Related GAO Products" ], "paragraphs": [ "DOD space systems support and provide a wide range of capabilities to a large number of users, including the military services, the intelligence community, civil agencies, and others. These capabilities include positioning, navigation, and timing; meteorology; missile warning; and secure communications, among others. Space systems can take a long time to develop and often consist of multiple components, including satellites, ground control stations, terminals, and user equipment. DOD satellite systems are also expensive to acquire. Unit costs for current DOD satellites can range from $500 million to over $3 billion. The ground systems can cost as much as $5.5 billion and the cost to launch a satellite can climb to well over $100 million.\nMany major DOD space programs have experienced significant cost and schedule increases. For instance, program costs for the Advanced Extremely High Frequency (AEHF) satellite program, a protected satellite communications system, had grown 118 percent since its first estimate as of our March 2017 review and its first satellite was launched over 3.5 years late. For the Space Based Infrared System (SBIRS), a missile warning satellite program, costs grew nearly 300 percent and the launch of the first satellite was delayed roughly 9 years. Both programs are now in the production phase where fewer problems tend to surface, and where there is typically less risk of cost and schedule growth. The only major satellite program with systems in the development phase is the Global Positioning System (GPS), which has seen an almost 4-year delay and unit cost growth of 9 percent due to technical issues.\nCost and schedule growth has also been a challenge for satellites and their ground systems. In fact, delays with ground systems have been so lengthy, that satellites sometimes spend years in orbit before key capabilities can be fully exploited. For example, as discussed below, the command and control system for GPS III satellites, known as the Next Generation Operational Control System, or OCX, is at least 5 years behind schedule. Because of these delays, the Air Force has had to start two separate back-up efforts to ensure the continuity of GPS capabilities and to make anti-jamming capabilities available via Military Code, or M- code, until OCX is delivered. Additionally, over 90 percent of the capabilities to be provided by Mobile User Objective System communications satellites—the first of which launched in 2012 and with five satellites now in orbit—are being underutilized because of problems with integrating the space, ground, and terminal segments and delays in fielding compatible user terminals. Figure 1 provides more details on the current status of DOD’s major space programs.\nCost and schedule growth in DOD’s space programs is sometimes driven by the inherent risks associated with developing complex space technology; however, over the past 8 years we have identified a number of other management and oversight problems that can worsen the situation. These include making overly optimistic cost and schedule estimates, pushing programs forward without sufficient knowledge about technology and design, and experiencing problems in overseeing and managing contractors, among others. Some of DOD’s programs in operation, such as SBIRS, were also exceedingly ambitious, which in turn increased technology, design, and engineering risks. While satellite programs have provided users with important and useful capabilities, their cost growth has significantly limited the department’s buying power—at a time when more resources may be needed to protect space systems and to recapitalize the space portfolio.\nOur work—which is largely based on best practices in the commercial sector—has recommended numerous actions that can be taken to address the problems we have identified.\nAs shown in table 1, our previous work on weapons acquisitions in general, and space programs in particular, identified best practices for developing complex systems, such as developing more realistic estimates and ensuring technologies can work as intended before moving them into more complicated phases of the acquisition process.\nIn 2016, we testified that DOD had implemented actions to address space acquisition problems, and most of its major space programs had transitioned into the production phase where fewer problems tend to occur. These range from improvements to cost estimating practices and development testing to improvements in oversight and leadership, such as the November 2010 addition of the Defense Space Council, designed to bring together senior leaders on important issues facing space. DOD had also started fewer new programs and even those were less ambitious than prior efforts, which helped to reduce the risk of cost and schedule growth. Given the problems we have identified in the GPS program, however, it is clear that more needs to be done to improve the management of space acquisitions.", "In 2015, we reported that the Air Force was experiencing significant difficulties developing the GPS ground system, OCX, and consistently overstated its progress to the Office of the Secretary of Defense (OSD). At the time of our 2015 work, the program needed $1.1 billion and 4 years more than planned to deliver OCX due to poor acquisition decisions and a slow recognition of development problems. The Air Force began OCX development in 2010 prior to completing preliminary development reviews in contrast with best acquisition practices. It accelerated OCX development in 2012 to meet optimistic GPS III satellite launch timeframes even as OCX development problems and costs grew, and then paused development in 2013 to address problems and resolve what it believed were root causes. After a rebaseline to the schedule in late 2015, further evidence that OCX still had unaddressed problems surfaced in 2016 when the Air Force informed Congress the OCX program had breached a Nunn-McCurdy unit cost threshold. We are continuing to monitor OCX’s progress and challenges to determine if it is on the right track as part of our ongoing GPS review.\nIn 2015, we also looked at the Air Force’s military GPS user equipment (MGUE) program to develop for the military services GPS receiver cards capable of receiving the M-code signal. M-code is a stronger and encrypted, military-specific GPS signal which can help users operate in jamming environments. We found that the Air Force had revised MGUE’s acquisition strategy several times. Even so, the military services were unlikely to have sufficient knowledge to make informed procurement decisions starting in fiscal year 2018, because operational testing that provides valuable information about MGUE performance would not be complete until fiscal year 2019.\nOn a positive note, at the time of our 2015 review, the current GPS constellation was proving to be much more reliable than the Air Force predicted when we last reported on it in 2010, giving the Air Force some relief in dealing with the delays with new GPS satellites. However, we found that OCX contingency plans were still necessary for sustaining the GPS constellation. We also found that initial M-code broadcast capability would not be available until the current ground system, the Operational Control System, or OCS, was modified in late-2019 at the earliest to make up for OCX delays. Full M-code capability—which includes both the ability to broadcast a signal via satellites and a ground system and user equipment to receive the signal—will take at least a decade once the services are able to deploy MGUE receivers in sufficient numbers.\nPreliminary results from our ongoing review of GPS shows that the satellites, ground systems, and user equipment are all still on a high risk path; though satellite delays are still somewhat mitigated by the longer than anticipated performance of older GPS satellites. More specifically, the first GPS satellite is planned for launch in March 2018, over 3 years before OCX Block 1 is scheduled to become operational. Block 1 is needed to command and control the current and new generation of GPS satellites, bring M-code into operations, and provide enhanced cybersecurity capabilities. In light of delays with OCX, the Air Force has spawned two additional development efforts—one to ensure continuity in the ability to process GPS satellite positioning, navigation, and timing signals (known as Contingency Operations or COps) and another to help mitigate the delay in the ability to process the M-code signal (known as M-Code Early Use or MCEU). However, these efforts will have limited capabilities. Moreover, more than 11 years after launching the first M- code capable satellites, DOD has yet to deliver M-code capable MGUE receivers. DOD will not have a full M-code capability until receivers are deployed on sufficient numbers of weapons platforms and munitions to support the warfighter, yet it is following a high risk path to deliver them. Based on our preliminary results, risks specific to each GPS segment are described below.\nSatellites: Since our 2015 report, the satellite program has encountered technical issues that have further delayed the first launch, which is almost 4 years later than the original estimate. Issues with failed and damaged capacitors have been a recent driver for the delays to the first satellite. Capacitors are components used to store and release electrical charges. According to program officials, each satellite has over 500 capacitors of the same design that experienced failures. The program discovered that a subcontractor had not qualified the capacitors for use in the GPS satellites and in response the program conducted qualification and reliability testing. However, the reliability testing was conducted using an incorrect circuit board, invalidating the test. The capacitor design was successfully qualified in December 2016. The Air Force decided to assume the risk of capacitor failure and proceed with the first satellite as- is, fitted with capacitors mostly from the questionable lot. The program replaced the suspect capacitors in the second and third satellites, the only other satellites that had the suspect parts.\nOCX: The contractor’s performance over the past year suggests a 2-year extended schedule approved in 2015 is insufficient. The contractor has experienced code growth and high defect rates, and is operating under significant schedule compression and concurrency, with minimal schedule reserve to account for acquisition risk. Moreover, the contractor’s current schedule estimates assume efficiencies from software engineering improvements, such as increased testing automation, that have not yet been demonstrated. These new processes have required the contractor to manage cultural changes. Additionally, the contractor almost doubled its staff to over 1,000 people to achieve the extension. According to Air Force officials, the 2-year extension will likely be extended by an additional 6 months.\nMGUE Receivers: In view of the importance of M-code to warfighting, statute generally prohibits DOD from obligating or expending funds for GPS user equipment after fiscal year 2017 unless that equipment is capable of receiving military code. In February 2017, the services submitted implementation plans that identified systems they want to upgrade with M-code, but these plans do not identify full resource needs. As a result, it is still unclear when M-code capable receivers will be fielded and at what cost. Though other weapon programs would normally have a production decision scheduled by this point in the development cycle, there is no scheduled production decision for the first increment of receivers and there are only tentative implementation plans as receiver cards are being verified by testing. Even after the MGUE program ends with limited operational testing on test articles on four initial weapons systems, the services may each have to conduct additional development both on those systems and any other systems. As a result of this uncertainty, the military services report that they have begun requesting waivers for the statutory requirement. In addition, in March 2016 the Army identified 25 functional gaps and technical issues that would hinder its ability to adopt MGUE technology. In September 2016, the Air Force responded with plans to address some of these functional gaps. However, Army officials are concerned that not all gaps have been addressed or will be addressed, which could impact its ability to field the receiver cards. Total development and procurement costs across all services remain unknown.", "We have reported over the years that DOD’s culture has generally been resistant to changes in space acquisition approaches and that fragmented responsibilities have made it difficult to coordinate and deliver interdependent systems. For example, in 2012 we found that although some improvements in leadership have been made, there was no single person or organization held accountable for balancing acquisition needs against wants, ensuring coordination among the many organizations involved with space systems acquisitions, and ensuring that resources are directed where they are most needed. In October 2015, DOD re- designated the Executive Agent for Space role as the Principal DOD Space Advisor (PDSA). In 2016 we determined it was too early to gauge whether the PDSA has sufficient authority to consolidate space leadership responsibilities.\nSome examples of leadership and coordination issues we have identified in our prior and ongoing work include: In a February 2012 report, we found that the National Polar-orbiting Operational Environmental Satellite System (NPOESS), which attempted to converge defense and civil environmental monitoring requirements and avoid duplication through a tri-agency program office, was canceled in 2010, in part, because there was no single authority in charge of resolving conflicts or setting priorities.\nIn a March 2016 report we found that, in assessing alternatives for future weather systems, DOD consulted with a wide range of DOD stakeholders in conducting the analysis of alternatives (AOA), but it did not effectively coordinate with the National Oceanic and Atmospheric Administration (NOAA) (on a case-by-case basis, NOAA represents DOD’s interests with international partners regarding space-based environmental monitoring data). NOAA was not involved in reviews of the AOA or regular discussions with AOA study leadership. Without NOAA’s input, the AOA study determined that the likelihood a critical gap would not be filled was low, based on historical trends. As a result, DOD did not fully assess solutions for cloud characterization and theater weather imagery data needs. As of August 2016, DOD was still assessing what to do about these gaps and the Air Force recently signed a memorandum of agreement with NOAA that enables a broad range of mutually beneficial support activities.\nIn our ongoing work on the Global Positioning System, Army officials have also observed that the lack of a central point of authority and accountability is hampering coordination on GPS user equipment. It is unclear who is in charge of coordinating and prioritizing fielding efforts or setting criteria for M-code waivers—be it the DOD Chief Information Officer, Under Secretary of Defense for Acquisition, Technology and Logistics (USD(AT&L)), or the Council on Oversight of the Department of Defense Positioning, Navigation and Timing Enterprise (PNT Oversight Council). This is significant because of the risk of duplicated efforts—and rising costs— between services; and the lack of leadership influences when and if services are pushed to procure M-code user equipment and thus realize DOD’s goals for anti-jamming GPS capabilities.\nIn a July 2016 report, expert space officials told us that because programs experience too much bureaucracy, it can take a minimum of 3 years to develop an acquisition strategy, issue a request for proposal, conduct source selection, and award a contract. By then, technologies and requirements can be obsolete. For example, one contractor told us that it took over a year for the Air Force to develop a request for proposal for a low-dollar, $2 million study. While USD(AT&L) officials emphasized that DOD’s acquisition policy is very tailorable and that programs can take advantage of its flexibility, Air Force officials said that this does not play out in practice. They told us that oversight entities are reluctant to waive or change steps out of fear they will be blamed later.\nIn a July 2016 report, we reported that space officials believe USD(AT&L) is the only real decision-making authority for space-related topics. Some senior officials report that this can have unexpected effects, such as the Under Secretary having to make broader space architecture decisions, which are larger issues that fall outside his responsibility. Officials noted that such decisions fall to the Under Secretary by default because there is no space-specific authority.\nIn Senate Report 114-49 accompanying S.1376, a bill for the National Defense Authorization Act for Fiscal Year 2016, the Senate Armed Services Committee included a provision for GAO to review the effectiveness of the current DOD space acquisition and oversight model and to evaluate what changes, if any, could be considered to improve the governance of space system acquisitions and operations. In 2016, we found that DOD space leadership responsibilities are fragmented among a number of organizations. We identified approximately 60 stakeholder organizations across DOD, the Executive Office of the President, the Intelligence Community, and civilian agencies. Of these, 8 organizations have space acquisition management responsibilities; 11 have oversight responsibilities; and 6 are involved in setting requirements for defense space programs.\nIn October 2015, the Deputy Secretary of Defense designated the Secretary of the Air Force as the Principal DOD Space Advisor (PDSA). The PDSA, supported by an advisory body called the Defense Space Council (DSC), is responsible for promoting a unified approach to space issues, including acquisitions; overseeing the entire DOD space portfolio, including all space policies, strategies, and plans across DOD; and serving as an independent advisor on all space matters to top DOD officials. PDSA officials stated that the PDSA role is expected to have new responsibilities that will help it effectively consolidate space leadership. Some of these responsibilities include reviewing all service budgets for conformity with national security space policy, and giving independent assessments and recommendations to top DOD officials when there is no DSC consensus. However, because the position is relatively new, it remains to be seen whether the PDSA will be effective in unifying space leadership and authority.\nThe organization of space acquisitions and oversight has been studied in depth over the last 20 years; however, DOD has not made some of the significant changes to space leadership that were recommended by the four most relevant studies that we identified in our July 2016 report. For example, these studies made recommendations such as combining the National Reconnaissance Office (NRO) and Air Force space acquisition functions into a unified organization or establishing an Under Secretary of Defense-level official with responsibility for planning and executing national security space programs. Some of the acquisition problems identified in past studies and GAO reports persist, such as insufficient program manager empowerment and excessive reviews, which contribute to inefficiencies. As we reported in July 2016, officials and experts we spoke with stated that the challenges are magnified in space programs because space technologies are frequently obsolete by the time they are deployed. The officials and experts also stated that DOD space acquisitions generally take too long due to fragmented leadership, a redundant oversight bureaucracy, and difficulty coordinating among numerous stakeholders. Many officials and experts stated that no one seems to be in charge of space acquisitions and many remain skeptical that the recently designated PDSA will have sufficient decision-making authority to address these concerns. However, others—including from the PDSA—stated a strong belief that the position will be able to effectively consolidate fragmented leadership responsibilities.\nIn conclusion, given the long-standing fragmentation in space leadership and consequent challenges faced by DOD in synchronizing its extensive space enterprise, other, more significant reform measures may deserve a closer look. Our past work has identified some suggested themes for reform that include: (1) streamlining reviews; (2) delegating more decision-making authority to lower levels; (3) increasing unity of national security space decisions between DOD and the NRO; (4) achieving lasting change that cannot be quickly undone and to allow time for the changes to work; and (5) providing sufficient acquisition, execution, and budget authority. Our work has also identified and examined several potential approaches to reforming DOD space acquisitions that were suggested and supported by DOD and expert officials. They include allowing time for the recent PDSA change to work; combining military space functions into one agency; combining Air Force and NRO space acquisition functions into a space acquisition agency; and creating a new military department for the space domain - a Space Force. Except for the first option, these would likely involve significant short-term disruption to DOD’s space organizational structure, roles, and responsibilities. Moreover, their consequences would extend far beyond the acquisition arena. Careful consideration of any such changes is therefore essential for helping to ensure a better track record of providing warfighters with the capabilities they need on time and within costs.\nChairman Fischer, Ranking Member Donnelly, and Members of the Subcommittee this concludes my statement. I am happy to answer any questions you have.", "For further information about this statement, please contact Cristina Chaplain at (202) 512-4841 or chaplainc@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement.", "Individuals who made key contributions to this statement include Rich Horiuchi, Assistant Director; Dr. Nabajyoti Barkakati, Chief Technologist; Erin Cohen; Emily Bond; Jill Lacey; Katherine Lenane; Kristin Van Wychen; Alyssa Weir; and Robin Wilson. Key contributors for the previous work on which this statement is based are listed in the products cited. Key contributors to related ongoing work include Dave Best, Assistant Director; Patrick Breiding; Erin Carson; and Jonathan Mulcare.", "Defense Acquisitions: Assessments of Selected Weapon Programs. GAO-17-333SP. Washington, D.C.: March 30, 2017.\nGlobal Positioning System: Observations on Quarterly Reports from the Air Force. GAO-17-162R. Washington, D.C.: October 17, 2016.\nDefense Space Acquisitions: Too Early to Determine if Recent Changes Will Resolve Persistent Fragmentation in Management and Oversight. GAO-16-592R. Washington, D.C.: July 27, 2016.\nDefense Weather Satellites: DOD Faces Acquisition Challenges for Addressing Capability Needs. GAO-16-769T. Washington, D.C.: July 7, 2016.\nDefense Weather Satellites: Analysis of Alternatives is Useful for Certain Capabilities, but Ineffective Coordination Limited Assessment of Two Critical Capabilities. GAO-16-252R. Washington, D.C.: March 10, 2016.\nSpace Acquisitions: Challenges Facing DOD as it Changes Approaches to Space Acquisitions. GAO-16-471T. Washington, D.C.: March 9, 2016.\nSpace Acquisitions: GAO Assessment of DOD Responsive Launch Report. GAO-16-156R. Washington, D.C.: October 29, 2015.\nSpace Situational Awareness: Status of Efforts and Planned Budgets. GAO-16-6R. Washington, D.C.: October 8, 2015.\nGPS: Actions Needed to Address Ground System Development Problems and User Equipment Production Readiness. GAO-15-657. Washington, D.C.: September 9, 2015.\nEvolved Expendable Launch Vehicle: The Air Force Needs to Adopt an Incremental Approach to Future Acquisition Planning to Enable Incorporation of Lessons Learned. GAO-15-623. Washington, D.C.: August 11, 2015.\nDefense Satellite Communications: DOD Needs Additional Information to Improve Procurements. GAO-15-459. Washington, D.C.: July 17, 2015.\nSpace Acquisitions: Some Programs Have Overcome Past Problems, but Challenges and Uncertainty Remain for the Future. GAO-15-492T. Washington, D.C.: April 29, 2015.\nSpace Acquisitions: Space Based Infrared System Could Benefit from Technology Insertion Planning. GAO-15-366. Washington, D.C.: April 2, 2015.\nDefense Acquisitions: Assessments of Selected Weapon Programs. GAO-15-342SP. Washington, D.C.: March 12, 2015.\nDefense Major Automated Information Systems: Cost and Schedule Commitments Need to Be Established Earlier. GAO-15-282. Washington, D.C.: February 26, 2015.\nDOD Space Systems: Additional Knowledge Would Better Support Decisions about Disaggregating Large Satellites. GAO-15-7. Washington, D.C.: October 30, 2014.\nSpace Acquisitions: Acquisition Management Continues to Improve but Challenges Persist for Current and Future Programs. GAO-14-382T. Washington, D.C.: March 12, 2014.\nU.S. Launch Enterprise: Acquisition Best Practices Can Benefit Future Efforts. GAO-14-776T. Washington, D.C.: July 16, 2014.\nEvolved Expendable Launch Vehicle: Introducing Competition into National Security Space Launch Acquisitions. GAO-14-259T. Washington, D.C.: March 5, 2014.\nThe Air Force’s Evolved Expendable Launch Vehicle Competitive Procurement. GAO-14-377R. Washington, D.C.: March 4, 2014. 2014 Annual Report: Additional Opportunities to Reduce Fragmentation, Overlap, and Duplication and Achieve Other Financial Benefits. GAO-14-343SP. Washington, D.C.: April 8, 2014.\nDefense Acquisitions: Assessments of Selected Weapon Programs. GAO-14-340SP. Washington, D.C.: March 31, 2014.\nSpace Acquisitions: Assessment of Overhead Persistent Infrared Technology Report. GAO-14-287R. Washington, D.C.: January 13, 2014.\nSpace: Defense and Civilian Agencies Request Significant Funding for Launch-Related Activities. GAO-13-802R. Washington, D.C.: September 9, 2013.\nGlobal Positioning System: A Comprehensive Assessment of Potential Options and Related Costs is Needed. GAO-13-729. Washington, D.C.: September 9, 2013.\nSpace Acquisitions: DOD Is Overcoming Long-Standing Problems, but Faces Challenges to Ensuring Its Investments are Optimized. GAO-13-508T. Washington, D.C.: April 24, 2013.\nLaunch Services New Entrant Certification Guide. GAO-13-317R. Washington, D.C.: February 7, 2013.\nSatellite Control: Long-Term Planning and Adoption of Commercial Practices Could Improve DOD’s Operations. GAO-13-315. Washington, D.C.: April 18, 2013.\nDefense Acquisitions: Assessments of Selected Weapon Programs. GAO-13-294SP. Washington, D.C.: March 28, 2013.\nEvolved Expendable Launch Vehicle: DOD Is Addressing Knowledge Gaps in Its New Acquisition Strategy. GAO-12-822. Washington, D.C.: July 26, 2012.\nSpace Acquisitions: DOD Faces Challenges in Fully Realizing Benefits of Satellite Acquisition Improvements. GAO-12-563T. Washington, D.C.: March 21, 2012.\nSpace Acquisitions: DOD Delivering New Generations of Satellites, but Space System Acquisition Challenges Remain. GAO-11-590T. Washington, D.C.: May 11, 2011.\nSpace Acquisitions: Development and Oversight Challenges in Delivering Improved Space Situational Awareness Capabilities. GAO-11-545. Washington, D.C.: May 27, 2011.\nSpace and Missile Defense Acquisitions: Periodic Assessment Needed to Correct Parts Quality Problems in Major Programs. GAO-11-404. Washington, D.C.: June 24, 2011.\nGlobal Positioning System: Challenges in Sustaining and Upgrading Capabilities Persist. GAO-10-636. Washington, D.C.: September 15, 2010.\nDefense Acquisitions: Challenges in Aligning Space System Components. GAO-10-55. Washington D.C.: October 29, 2009.\nThis is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately." ], "depth": [ 1, 1, 1, 1, 1, 1 ], "alignment": [ "h0_full h3_full h1_full", "h1_full", "h0_full h2_full", "", "", "h3_full" ] }

{ "question": [ "What is the status of DOD space programs?", "What are examples of this trend?", "What is the current status of these programs?", "How have satellite ground systems been affected by cost and schedule increases?", "What are the preliminary results of GAO's review of GPS?", "What is the current state of the first GPS satellite?", "How has the ground system developed?", "What are DOD's other challenges?", "Why are coordination and delivery of interdependent systems difficult for DOD?", "How effective have DOD's efforts to address this problem been?", "What is the current prognosis on DOD's trajectory?", "What is the nature of DOD's space programs?", "What are the fiscal implications of these programs?", "Why is it important that DOD manage system acquisitions carefully?" ], "summary": [ "Many major Department of Defense (DOD) space programs GAO reviewed have experienced cost and schedule increases.", "For example, costs for the Advanced Extremely High Frequency satellite program grew 118 percent and its first satellite was launched more than 3.5 years late. Costs for the Space Based Infrared System grew nearly 300 percent and its scheduled launch was delayed roughly 9 years.", "Both programs are now in the production phase during which fewer technical problems tend to surface.", "Satellite ground systems have also been challenged by cost and schedule growth. In fact, ground system delays have been so lengthy that satellites sometimes spend years in orbit before key capabilities can be fully utilized. The table below provides some examples of program status.", "GAO's preliminary results from an ongoing review of the Global Positioning System (GPS) show that the satellites, ground systems, and user equipment continue to be on a high-risk path.", "The launch of the first GPS satellite has been delayed almost 4 years because of technical problems.", "Additionally, development challenges for the satellite's ground system have resulted in delays so significant that the Air Force has started two other ground system efforts as workarounds to mitigate risk of delayed GPS capability.", "Additionally, it remains unclear how DOD will overcome a number of challenges that create high risk to the timely fielding of upgraded GPS user equipment for the warfighter.", "GAO has reported over the years that DOD's culture has generally been resistant to changes in space acquisition approaches and that fragmented responsibilities have made it difficult to coordinate and deliver interdependent systems.", "Although some changes in leadership have been made, such as providing the Secretary of the Air Force with additional space responsibilities, it is too early to gauge whether these changes are sufficient to provide leadership for balancing needs against wants, ensure coordination among the many organizations involved with space, and ensure that resources are directed where they are most needed.", "Given the long-standing fragmentation in space leadership and consequent challenges DOD faces in synchronizing its extensive space enterprise, discussions with DOD officials and experts indicate further-reaching changes, ranging from establishing a space acquisition agency to instituting a new military department for space, may deserve a closer look.", "DOD's space systems provide critical capabilities that support military and other government operations and can take a long time to develop, produce, and launch.", "These systems can also be expensive to acquire and field, amounting to billions of dollars each year.", "Given the time and resource demands of DOD's space systems and the need to ensure taxpayer dollars are used effectively, especially in light of today's constrained government budget environment, it is essential that DOD manage system acquisitions carefully and avoid repeating past problems." ], "parent_pair_index": [ -1, 0, 1, 0, -1, 0, 0, 0, -1, 0, 0, -1, 0, 0 ], "summary_paragraph_index": [ 3, 3, 3, 3, 4, 4, 4, 4, 5, 5, 5, 0, 0, 0 ] }

{ "title": [ "", "Political and Economic Situation", "Background", "Arias Administration", "Economic and Social Welfare Policies", "Foreign Policy", "2010 Elections", "Results", "Prospects for the Chinchilla Administration", "Environmental Leadership", "Environmental Policies", "Global Role", "Criticism", "U.S.-Costa Rican Relations", "U.S. Assistance", "Mérida Initiative & Central America Regional Security Initiative (CARSI)51", "International Military Education and Training", "Free Trade Agreement", "Ratification", "Implementation" ], "paragraphs": [ "Figure 1. Map of Costa RicaSource: Map Resources. Adapted by CRS Graphics.", "", "Costa Rica is a politically stable Central American country of 4.3 million people with a relatively well-developed economy. The country gained its independence from Spain in 1821 as a part of the Central American Union, and became a sovereign nation following the union's dissolution in 1838. Costa Rica has enjoyed continuous civilian democratic rule since the end of a 1948 civil war, the longest period of unbroken democracy in Latin America. The civil war led to the creation of a new constitution, the abolition of the military, and the foundation of one of the first welfare states in the region. Although Costa Rica pursued state-led development throughout much of the 20 th century, over the past several decades, it has implemented market-oriented economic policies designed to attract foreign direct investment (FDI), develop the country's export sector, and diversify what was once a predominantly agricultural economy. The World Bank now classifies Costa Rica as an upper-middle-income country with a 2008 per capita income of $6,060.\nPublic fatigue with politics has grown in recent years as a result of corruption scandals that have implicated three former presidents from the two traditional ruling parties: Rafael Angel Calderón (1990-1994) and Miguel Angel Rodríguez (1998-2002) of the center-right Social Christian Unity Party (PUSC) and José María Figueres (1994-1998) of the traditionally center-left National Liberation Party (PLN). This disillusionment has contributed to a rise in voter abstention, from just 19% in 1994 to 35% in 2006. It has also contributed to a fragmentation of Costa Rica's political party system. The PUSC has collapsed and newer parties—such as the conservative Libertarian Movement (ML) and the center-left Citizen Action Party (PAC)—have grown considerably.", "Oscar Arias, a former president (1986-1990) and Nobel-laureate, was elected president in February 2006. Arias won 41% of the vote to narrowly defeat his closest rival, the PAC's Ottón Solís, who had served as Minister for National Planning and Economic Policy during Arias' first administration. Throughout his term, President Arias has advanced so-called \"third-way\" policies, embracing his party's traditional support for social welfare programs while rejecting state-led development in favor of market-oriented economic policies. Arias also has pursued an active foreign policy. Although Arias' PLN is the largest of the nine parties represented in the unicameral National Assembly, it holds just 25 of the 57 seats, which has made cross-party alliances necessary to pass legislation.", "President Arias has maintained the market-friendly economic policies that Costa Rican administrations from both traditional governing parties have pursued since the 1980s. Between 2006 and 2008, economic growth averaged 6.5%, fueled in large part by export growth and increased investment. Export earnings grew over 36% between 2005 and 2008 to $9.7 billion while FDI grew over 134% to $2 billion during the same time period. Much of the FDI has been invested in high technology sectors, often located in free trade zones. High-tech products—such as integrated circuits and medical equipment—now account for 45% of Costa Rican exports. Arias also has pursued a number of free trade agreements (FTAs) during his current term. He won ratification of CAFTA-DR through a national referendum in 2007 and secured its implementation in January 2009 despite strong opposition from the PAC and labor unions. Additionally, he concluded an agreement with Panama, has completed FTA negotiations with China and Singapore, and is engaged in ongoing FTA talks with the European Union along with the other member nations of the Central American Integration System (SICA).\nArias has sought to complement Costa Rica's considerable economic growth with moderate social welfare programs. He has doubled welfare pensions, created new centers for primary healthcare services, and increased education funding. President Arias also introduced Avancemos , a conditional cash transfer program that provides monthly stipends to the families of 140,000 poor students as long as the children remain in school and receive annual medical care. Avancemos is modeled after successful social protection programs that have been implemented elsewhere in Latin America, such as Oportunidades in Mexico and Bolsa Familia in Brazil, and is designed to alleviate poverty in the near-term while fostering long-term reductions in the poverty rate through increased educational attainment. Costa Rica now invests the equivalent of 17.3% of its gross domestic product (GDP) in public health, education, and social welfare, the highest percentage of any nation in Central America and the fifth highest in all of Latin America. These social investments, combined with substantial economic growth, have provided Costa Rica's citizens with a relatively high standard of living. According to the United Nations' 2009 Human Development Report, Costa Rica has the highest level of human development in Central America with a life expectancy at birth of 79 years and an adult literacy rate of 96%.\nEconomic and social conditions have deteriorated recently, however, as a result of the global financial crisis and U.S. recession. The Costa Rican economy grew by just 2.6% in 2008 and experienced its first contraction in 27 years in 2009. GDP contracted by 1.3% as investment, export demand, and tourism declined. Likewise, the poverty rate climbed nearly two points over the course of 2008 and 2009 to 18.5%, and unemployment increased almost three points in 2009 alone to 7.8%. President Arias has sought to counter the economic downturn with a $2.5 billion (8% of GDP) economic stimulus and social protection plan known as Plan Escudo . Among other provisions, the plan recapitalizes state banks, provides support to small and medium-sized enterprises, increases labor flexibility, invests in infrastructure projects, provides grants to workers in the worst-affected sectors, and increases the number of students eligible for the Avancemos program. The majority of Plan Escudo is financed through new loans from international financial institutions. Analysts assert that Costa Rica's economy showed signs of recovery in late 2009, and expect the country to rebound in 2010 with GDP growth of 3.3%.", "President Arias has pursued an active foreign policy throughout his term. He established diplomatic ties with China in 2007, ending Costa Rica's 60-year relationship with Taiwan. Arias also established formal ties with the Palestinians, recognizing Palestine as an independent state in February 2008. Costa Rica had previously moved its embassy in Israel from Jerusalem to Tel Aviv. In March 2009, Arias reestablished diplomatic relations with Cuba, 48 years after Costa Rica suspended ties with the nation. Costa Rica was one of the last countries in Latin America to reestablish ties with Cuba.\nArias also has sought to reassume the leadership role that he held in Latin America during his first administration when he received the Nobel Peace Prize (1987) for his efforts to end the conflicts in Central America. Following the June 2009 ouster of Honduran President Manuel Zelaya, Arias offered to mediate between the parties involved. The so-called \"San José Accord\" that Arias proposed provided the framework for several rounds of negotiations to end the political crisis in Honduras, though it ultimately failed to restore Zelaya to office. Arias has seized on the Honduran crisis to reiterate his long-held belief that Latin America possesses a dangerous combination of powerful militaries and fragile democracies. He maintains that countries in the region should focus their resources on economic development and democratic institutions rather than military expenditures.", "", "Elections for the presidency and all 57 seats in the unicameral National Assembly were held in Costa Rica on February 7, 2010. Former Vice President and Minister of Justice Laura Chinchilla (2006-2008) of the ruling PLN was elected president with 46.9% of the vote, well above the 40% needed to avoid a second-round runoff. Chinchilla easily defeated her closest competitors Ottón Solís of the center-left PAC and Otto Guevara of the right-wing ML, who took 25.1% and 20.9% of the vote, respectively. In legislative elections, Chinchilla's PLN won a plurality with 23 seats. The PAC will be the principal opposition party with 12 seats, followed by the ML with 9 seats, the PUSC with 6 seats, and several smaller parties with a combined 7 seats.\nAccording to many analysts, Chinchilla benefitted the fragmentation of Costa Rica's political party system. They assert that Costa Ricans view the PLN as the country's only credible governing party due to the PUSC's effective collapse as a result of corruption scandals, the PAC's lack of direction after failing to block CAFTA-DR, and the ML's recent history outside the mainstream of Costa Rican politics. Consequently, Chinchilla won by over 20 points despite a considerable decline in public support for the Arias Administration and late polling that showed Guevara forcing Chinchilla into a close second-round runoff vote.", "Chinchilla is closely tied to President Arias' centrist faction of the PLN and is expected to largely continue the Arias Administration's policies. She will likely maintain Costa Rica's market-oriented economic policies, pushing for ratification of pending free trade agreements with China and Singapore, while strengthening the country's social welfare programs. Throughout much of the electoral campaign, Chinchilla focused on improving public security. Among other policies, she proposed increasing the size of the police force, improving protection and support for victims and witnesses, and increasing government security spending by as much as 50% (currently 0.6% of GDP). Moreover, analysts expect Chinchilla to implement policies designed to meet President Arias' goal of making Costa Rica carbon neutral by 2021 and take socially conservative stands on issues such as abortion, homosexual marriage, and church-state relations.\nCosta Rica's unicameral National Assembly will present Chinchilla with considerable challenges in implementing her policy agenda. Chinchilla's PLN will control just 23 of the 57 seats, making cross-party alliances necessary to pass any legislation. The PLN will likely form ad hoc alliances with varying parties dependent on the issue. Even if Chinchilla and the PLN are able to cobble together a working majority, however, a group of 10 members of the National Assembly may appeal the constitutionality of any bill to the Supreme Court and significantly slow legislative progress.", "Successive Costa Rican administrations have sought to address extensive deforestation and environmental degradation that resulted from decades of logging and agricultural expansion. The country's strong conservation system and innovative policies have done much to restore Costa Rica's environment and ecotourism has provided a significant source of economic growth. Costa Rica's efforts also have led many observers to recognize it as a world leader in environmental protection and have enabled the country to play an outsized role in the formulation of global environmental policies. Despite these accomplishments, some maintain that there are a number of environmental problems that must still be addressed by the country.", "Although observers have long admired the country's tropical forests, it is only relatively recently that Costa Rica has placed much emphasis on environmental protection. Approximately 75% of Costa Rican territory was forest covered in the 1940s, however, just 21% remained covered in 1987 as a result of logging and agricultural expansion. Alarmed at the pace of deforestation and the extent of environmental degradation, the Costa Rican government began implementing a variety of conservation programs. Among these programs is the National System of Conservation Areas (SINAC), which was founded in the 1960s but has been significantly expanded in recent decades. SINAC now provides formal protection for over 26% of Costa Rica's land and 16.5% of its waters.\nCosta Rica has built upon the success of SINAC with a number of innovative environmental protection policies. Since 1997, Costa Rica has imposed a 3.5% \"carbon tax\" on fossil fuels. A portion of the funds generated by the tax are directed to the so-called \"Payment for Environmental Services\" (PSA) program, which pays private property owners to practice sustainable development and forest conservation. Some 11% of Costa Rica's national territory is protected by the program. Costa Rica also imposes a tax on water pollution to penalize homes and businesses that dump sewage, agricultural chemicals, and other pollutants into waterways. In 2009, the government expected the water pollution tax to generate some $8 million, which was to be used to improve the water treatment system, monitor pollution, and promote environmentally-friendly practices. Moreover, Costa Rica generates 76% of its energy from hydro, geo-thermal, and wind power, and President Arias has opposed exploitation of the country's discovered oil reserves in order to maintain incentives to further develop alternative energies.\nThe country's environmental policies have been relatively successful, both in ecological and economic terms. Costa Rica has experienced a substantial increase in forest conservation and reforestation. Since 1997, the percentage of the nation covered by forest has expanded an average of 0.66% annually, and over 50% of Costa Rican territory now falls under forest cover. This has provided crucial habitat, as Costa Rica is home to a disproportionately high percentage of the earth's biological diversity with 5% of the planet's plant and animal species. Environmental protection has also been a significant source of economic growth for Costa Rica, which is now one of the world's premier destinations for ecotourism. More than one million people visit Costa Rica's environmental attractions each year, generating $1.1 billion in foreign exchange.", "Costa Rica's domestic success has allowed it to play an outsized role in formulating global environmental policies. In the lead up to the 2009 United Nations Climate Change Conference in Copenhagen, Denmark, President Arias asserted that developed nations, which \"achieved their development poisoning the environment,\" should be most responsible for reducing global greenhouse gasses. He proposed that such countries cut their carbon emissions by 45%. Arias also pushed for technological exchange, financial assistance for mitigation and adaptation programs, and \"debt-for-nature\" swaps. Nonetheless, Arias has asserted that developing nations must reduce their green house gas emissions as well. In 2008, Costa Rica announced its intention to become carbon-neutral by 2021, the first developing nation to make such a pledge. Additionally, Costa Rica has sought to export its successful environmental policies—such as the PSA program—to other developing nations.", "Despite its considerable achievements and global recognition, some observers assert there are still a number of environmental problems that Costa Rica must address. According to a recent SINAC study, Costa Rica lacks adequate protection for coastal and marine biological diversity. The study of 35 sites of ecological importance found that less than 10% of the areas examined are currently protected. Another recent study, conducted by the country's state universities with support from private and public institutions, highlighted a number of other environmental problems in Costa Rica, including continued water pollution, overexploitation of marine resources, and a notable decline in the rate of reforestation. The U.N. Ozone Secretariat has also highlighted environmental shortcomings in Costa Rica, noting that the country has led Latin America in per capita importation of ozone depleting substances since 2004.", "Relations between the United States and Costa Rica traditionally have been strong as a result of common commitments to democracy, free trade, and human rights. U.S. intervention in Central America during the 1980s, however, slightly strained the relationship. President Arias responded to the various conflicts in the region by crafting a peace plan during his first administration, which excluded the involvement of extra-regional powers. As a result of his efforts, Arias was awarded the Nobel Peace Prize in 1987. U.S. policy in Iraq also strained relations between Costa Rica and the United States. Although then President Pacheco (2002-2006) supported the U.S. invasion, Costa Rica's Constitutional Court ruled that listing the country as a member of the \"coalition of the willing\" violated the country's constitutionally mandated neutrality. President Arias has questioned the priorities of the United States for spending substantial funds in Iraq while allocating comparatively little to assist allies in Central America.\nCurrent relations between the United States and Costa Rica could be characterized as friendly. Costa Rica finally implemented CAFTA-DR in January 2009. The agreement will likely strengthen Costa-Rica's already significant trade relationship with the United States. Vice President Biden visited Costa Rica during his first trip to Central America, leading the Arias Administration to describe the meeting as \"a clear recognition of the trajectory of Costa Rica as the United States' strategic partner in the region.\" Additionally, President Arias criticized the anti-Americanism of some of his fellow Latin American leaders at the Fifth Summit of the Americas, and the United States strongly supported President Arias' role as mediator in the political crisis in Honduras.", "For more than a decade, Costa Rica has not been a large recipient of U.S. assistance as a result of its relatively high level of development; however, this is likely to change somewhat as a result of the \"Mérida Initiative\" and its successor program, the Central America Regional Security Initiative (CARSI). The Peace Corps has been operating in Costa Rica since 1963 and generally has been the largest source of U.S. assistance to the country since the U.S. Agency for International Development mission closed in 1996. In recent years, Costa Rica has also received U.S. assistance through the \"International Narcotics Control and Law Enforcement\" (INCLE), \"International Military Education and Training\" (IMET), and \"Foreign Military Financing\" (FMF) accounts. Costa Rica received $364,000 in regular U.S. assistance in FY2009 and is scheduled to receive an estimated $705,000 in FY2010. The Obama Administration has requested $750,000 for Costa Rica for FY2011.\nIn 2007, Costa Rica signed one of the largest ever debt-for-nature swaps with the U.S. government. Authorized by the Tropical Forest Conservation Act of 1998 ( P.L. 105-214 ), the agreement reduced Costa Rica's debt payments by $26 million over 16 years. In exchange, the Costa Rican Central Bank agreed to use the funds to support grants to non-governmental organizations and other groups committed to protecting and restoring the country's tropical forests. In order to fund the agreement, the U.S. government contributed $12.6 million and Conservation International and the Nature Conservancy contributed a combined donation of more than $2.5 million.", "Costa Rica historically has not experienced significant problems as a result of the regional drug trade, however, crime and violence have surged in recent years as Colombian and Mexican cartels have increased their operations throughout Central America. Costa Rica's murder rate nearly doubled between 2004 and 2008, from 6 per 100,000 to 11 per 100,000 residents. Although Costa Rica's murder rate remains significantly lower than those of the \"northern triangle\" countries of Guatemala, El Salvador, and Honduras, the surge in organized crime has presented the Costa Rican government with a considerable security challenge.\nIn October 2007, the United States and Mexico announced the Mérida Initiative, a multi-year proposal to provide U.S. assistance to Mexico and Central America aimed at combating drug trafficking and organized crime. Congress appropriated some $165 million for Central America under the Mérida Initiative—a portion of which was to go to Costa Rica—through the FY2008 Supplemental Appropriations Act ( P.L. 110-252 ) and the F2009 Omnibus Appropriations Act ( P.L. 111-8 ). The FY2010 Consolidated Appropriations Act ( P.L. 111-117 ) split Central America from the Mérida Initiative, and appropriated $83 million under a new Central America Regional Security Initiative (CARSI). The Obama Administration has requested $100 million for CARSI in FY2011.\nCosta Rica received an initial $1.1 million in Mérida/CARSI funds in June 2009, after Costa Rica and the United States signed a letter of agreement implementing the initiative. The initial funds were to be used to finance the Central American Fingerprint Exchange, improved policing and equipment, improved prison management, maritime interdiction support, border assistance and inspection equipment, and a number of regional training programs. President Arias has praised the security initiative as a \"step in the right direction,\" but maintains that the U.S. funding of the program in Central America—and Costa Rica in particular—is \"insufficient.\"", "Although Costa Rica has no military, it receives IMET assistance to train its public security forces. These funds have been used to improve the counterdrug, rule of law, and military operations capabilities of the Costa Rican Coast Guard and law enforcement services. Costa Rica was prohibited from receiving IMET assistance in FY2004, FY2005, and FY2006 as a result of its refusal to sign an Article 98 agreement exempting U.S. personnel from the jurisdiction of the International Criminal Court. In October 2006, President Bush waived FY2006 IMET restrictions for a number of countries—including Costa Rica—and signed the John Warner National Defense Authorization Act for Fiscal Year 2007 into law ( P.L. 109-364 ), a provision of which ended Article 98 sanctions on IMET funds. Costa Rica began receiving IMET funds again in FY2007.\nIn January 2009, Security Minister Janina del Vecchio revealed that Costa Rica would once again send police officers to the Western Hemisphere Institute for Security Cooperation (WHINSEC, formerly known as the School of the Americas) in Fort Benning, GA. The decision to resume training came just a year and a half after President Arias, following a meeting with opponents of WHINSEC, announced that Costa Rica would withdraw its students from the school. WHINSEC, which has trained tens of thousands of military and police personnel from throughout Latin America—including 2,600 Costa Ricans, has been criticized for the human rights abuses committed by some of its graduates. Supporters of the school maintain that WHINSEC emphasizes democratic values and respect for human rights, develops camaraderie between U.S. military officers and military and police personnel from other countries in the hemisphere, and is crucial to developing military partners capable of effective combined operations.\nA provision of the Omnibus Appropriations Act of 2009 ( P.L. 111-8 ) directs the Department of State to provide a report of the names, ranks, countries of origin, and years of attendance of all students and instructors at WHINSEC for fiscal years 2005, 2006, and 2007. The Latin American Military Training Review Act ( H.R. 2567 , McGovern), which was introduced in the House in May 2009, would suspend all operations at WHINSEC, establish a joint congressional task force to assess the types of training that are appropriate to provide Latin American militaries, and establish a commission to investigate activities at WHINSEC and its predecessor.", "In August 2004, the United States Trade Representative (USTR) and the trade ministers from the Dominican Republic, Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua signed the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR). CAFTA-DR liberalizes trade in goods, services, government procurement, intellectual property, and investment, immediately providing duty-free status to a number of commercial and farm goods while phasing out tariffs on other trade over five to twenty years. Prior to the agreement, the countries of Central America all had tariff-free access to the U.S. market on approximately three-quarters of their products through the Caribbean Basin Trade Partnership Act ( P.L. 106-200 , Title II). The CAFTA-DR agreement makes the arrangement permanent and reciprocal. Although CAFTA-DR is a regional agreement under which all parties are subject to the same obligations and commitments, each country defines its own market access schedule with the United States.", "Following the August 2004 signature of CAFTA-DR, the agreement had to be approved by the legislatures of all of the countries involved. In Costa Rica, a qualified congressional majority (38 of 57 legislators) was needed to ratify the agreement. Although Costa Rican leaders across the political spectrum support liberalized trade, there has been intense internal debate concerning the benefits of CAFTA-DR. While the Arias Administration was able to create a cross-party alliance of 38 deputies, the PAC opponents of the agreement were able to block ratification through various delaying tactics. In order to avoid missing the ratification deadline, President Arias asked the TSE for a binding referendum on CAFTA-DR.\nThe referendum was held in October 2007 and reflected the polarization of the issue among the Costa Rican electorate. Trade unions, students, a variety of social movements, and the PAC opposed the ratification of CAFTA-DR, while business groups and each of the other major political parties were in favor of the agreement. The referendum campaign was often contentious. Just two weeks before the vote, Arias' Second Vice President was forced to resign after authoring a memorandum recommending that the Administration link the anti-CAFTA-DR forces to Presidents Castro of Cuba and Chávez of Venezuela and play up the possible consequences of a failed referendum. Then, days before the referendum, Costa Rican media published statements by members of the Bush Administration saying it was unlikely that the United States would renegotiate the agreement or maintain the unilateral trade preferences Costa Rica received under the Caribbean Basin Initiative should the country vote against CAFTA-DR. In the end, 51.6% of Costa Ricans voted in favor of CAFTA-DR while 48.4% voted against the agreement. Referendum turnout was just over 60%, well above the 40% minimum necessary for it to be binding.", "After the approval of CAFTA-DR by referendum, the Costa Rican legislature still had to pass 13 laws in order to implement the agreement. These included a variety of intellectual property law reforms, an opening of the insurance and telecommunications sectors, reform of the criminal code, an anti-corruption law, and a law protecting agents of foreign firms. Costa Rica's consensus-seeking tradition and the ability of PAC legislators to challenge the constitutionality of the proposed legislation in the Constitutional Chamber slowed the implementation of CAFTA-DR significantly. As of the original February 2008 deadline for implementation, Costa Rica had only passed five of the necessary reforms. Then, prior to the extended deadline of October 2008, the Constitutional Chamber ruled that the intellectual property legislation was unconstitutional as a result of the Arias Administration's failure to meet with indigenous and tribal groups about the bill before sending it to the legislature. After obtaining a second extension, Costa Rica passed all of the necessary reforms and implemented CAFTA-DR on January 1, 2009.\nPrior to the implementation of CAFTA-DR, the United States was already Costa Rica's largest trading partner as the destination of about 36% of Costa Rican exports and the origin of about 38% of its imports. Despite the global financial crisis and U.S. recession, U.S. trade with Costa Rica increased by over 7% in 2009. U.S. exports to Costa Rica amounted to about $4.7 billion and U.S. imports from Costa Rica amounted to about $5.6 billion. Electrical and heavy machinery and oil accounted for the majority of the exports while machinery parts, medical instruments, and fruit accounted for the majority of the imports." ], "depth": [ 0, 1, 2, 2, 3, 3, 2, 3, 3, 1, 2, 2, 2, 1, 2, 3, 3, 2, 3, 3 ], "alignment": [ "h0_title h2_title h1_title", "h0_title h1_title", "h0_full", "h0_full", "h0_full", "", "h1_title", "h1_full", "h1_full", "", "", "", "", "h2_full", "h2_full", "h2_full", "h2_full", "", "", "" ] }

{ "question": [ "What is the present state of Costa Rica?", "What was the effect of Oscar Arias' presidency?", "How have Arias' accomplishments affected Costa Rica's citizens?", "What was the 2010 outlook for Costa Rica's economy?", "What was the outcome of the election on February 7, 2010?", "How did Chinchilla evoke Arias during her campaign?", "Why will Chinchilla need to form cross-party alliances?", "What is the relationship between the United States and Costa Rica?", "What is the state of commercial ties between the U.S. and Costa Rica?", "How has Congress addressed natural disasters in Costa Rica?", "What else did H.Res. 76 express?" ], "summary": [ "Costa Rica is a politically stable Central American nation with a relatively well-developed economy.", "Former president (1986-1990) and Nobel-laureate Oscar Arias of the historically center-left National Liberation Party was elected President in 2006. Throughout his term, Arias has advanced so-called \"third-way\" policies, embracing his party's traditional support for social welfare programs while rejecting state-led development in favor of market-oriented economic policies.", "Considerable economic growth and social protection programs have provided Costa Rica's citizens with a relatively high standard of living, however, conditions have deteriorated recently as a result of the global financial crisis and U.S. recession.", "Although Costa Rica's economy contracted and poverty increased in 2009, analysts believe President Arias' ambitious fiscal stimulus and social protection plan and improving global economic conditions should aid recovery in 2010.", "On February 7, 2010, former Vice President Laura Chinchilla (2006-2008) of the ruling National Liberation Party was elected president, easily defeating her competitors. Chinchilla, who is closely tied to President Arias and the centrist faction of her party, will be Costa Rica's first female president. Chinchilla and the new legislature are scheduled to take office in May 2010.", "Throughout the campaign, Chinchilla pledged to maintain the Arias Administration's economic and social welfare policies while improving public security.", "She will need to form cross-party alliances to implement her policy agenda, however, as her party will lack a majority in Costa Rica's unicameral National Assembly.", "The United States and Costa Rica have long enjoyed close relations as a result of the countries' shared commitments to strengthening democracy, improving human rights, and advancing free trade.", "The countries have also maintained strong commercial ties, which are likely to become even more extensive as a result of President Arias' efforts to secure ratification and implementation of CAFTA-DR.", "On April 28, 2009, the House of Representatives passed H.Res. 76 (Burton), which mourns the loss of life in Costa Rica and Guatemala that resulted from natural disasters that occurred in January 2009.", "The resolution also expresses the senses of the House, that the U.S. government should continue providing technical assistance relating to disaster preparedness to Central American governments." ], "parent_pair_index": [ -1, 0, 1, 0, -1, 0, 0, -1, 0, 0, 2 ], "summary_paragraph_index": [ 0, 0, 0, 0, 1, 1, 1, 3, 3, 3, 3 ] }

{ "title": [ "", "Legal Protections for Religious Exercise", "Free Exercise Clause", "Religious Freedom Restoration Act (RFRA)", "Religious Objections to Photo Identification Requirements", "Elements of Analysis of Religious Objections to Photo Requirements", "Sincerely Held Religious Beliefs", "Substantial Burdens on Religious Exercise", "Comparison of Individual Burden and Governmental Interest", "Judicial Considerations in State Driver's License Exemption Claims", "Sincerity of Religious Beliefs", "Nature of the Burden Imposed", "Strictness of the Underlying Religious Doctrine", "Availability of Other Exemptions or Alternative Methods of Identification", "Purpose of the Identification Photo", "Is an Exemption Required for Federal Identification Requirements?", "Lawsuits Challenging Photo Requirements Under Pre-Smith Strict Scrutiny", "Lawsuits Challenging Photo Requirements Post-9/11", "Considerations for Potential Exemptions to Federal Photo Requirements", "Potential Constitutional Implications of Photo Requirements in State Voter ID Laws" ], "paragraphs": [ "The recent trend in state laws requiring voters to present identification when casting their ballots has raised questions about the burdens imposed on individuals who do not have photo identification, including those who object to photographs based on religious beliefs. Proposed legislation in the 112 th Congress addresses state efforts to implement these requirements, including one bill that would prohibit states from requiring voter identification in federal elections. Photo identification has been a recurring issue in a number of contexts, and Congress recently has considered questions regarding whether photo ID can or should be required under the REAL ID Act of 2005. Intended to improve security for driver's licenses and personal identification cards, the REAL ID Act also requires, without exemption, that a digital photograph appear on each document. A number of religious beliefs may interfere with requirements for photo identification, leading to questions about whether a religious exemption to photograph requirements may be required to comport with the Free Exercise Clause of the First Amendment and the Religious Freedom Restoration Act of 1993 (RFRA).\nThis report will analyze the legal issues associated with religious exemptions to photo identification laws. Although no lawsuits appear to have challenged federal laws with photo requirements, state photo identification laws have been challenged for several decades. After discussing the legal requirements of the Free Exercise Clause and RFRA, the report will explain the elements of analysis necessary for legal challenges involving religious objections to photo requirements. The report will also analyze lawsuits that have challenged state photo requirements, including significant factors of consideration in such cases. Finally, the report will analyze what factors may be relevant in future decisions that may arise related to federal photo identification requirements as well as U.S. Supreme Court opinions related to religious objections to voter identification requirements.", "", "The First Amendment of the U.S. Constitution provides that \"Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof....\" These clauses are known respectively as the Establishment Clause and the Free Exercise Clause. Under the Free Exercise Clause, individuals are guaranteed the right to practice their religious beliefs without government interference. Historically, the U.S. Supreme Court applied a heightened standard of review to government actions that allegedly interfered with a person's free exercise of religion. Under that heightened standard, the government could not interfere with a person's religious exercise if it did not have a compelling governmental interest.\nIn 1990, the Court reinterpreted that standard in Employment Division, Department of Human Resources of Oregon v. Smith , holding that the compelling interest was not necessary for governmental interference with religious exercise in all circumstances. Since then, the Court has held that the Free Exercise Clause never \"relieve[s] an individual of the obligation to comply with a valid and neutral law of general applicability.\" Under this interpretation, the constitutional baseline of protection was lowered, meaning that laws that do not specifically target religion or do not allow for individualized assessments are not subject to heightened review under the Constitution. Rather, these laws of general applicability are required only to be rationally related to a legitimate government purpose, and this baseline of constitutional protection analysis is often referred to as rational basis review.", "Congress responded to the Court's holding in Smith by enacting RFRA, which statutorily reinstated the standard of protection of heightened scrutiny for government actions interfering with a person's free exercise of religion. When RFRA was originally enacted, it applied to federal, state, and local government actions, but the Supreme Court later ruled that its application to state and local governments was unconstitutional under principles of federalism. Therefore, RFRA now applies only to federal actions. RFRA provides that a statute or regulation of general applicability may lawfully burden a person's exercise of religion only if it (1) furthers a compelling governmental interest and (2) uses the least restrictive means to further that interest. This standard reflects the pre- Smith compelling interest requirement and is sometimes referred to as strict scrutiny analysis.\nIn 2006, the Supreme Court addressed the issue of whether religious exemptions were required from generally applicable laws under RFRA. In Gonzales v. O Centro Espirita Beneficente Uniao Do Vegetal , the Court held that the government must demonstrate a compelling interest to prohibit any exceptions for generally applicable laws to accommodate religious exercise. Specifically, the Court stated that the government must \"demonstrate a compelling interest in uniform application of a particular program by offering evidence that granting the requested religious accommodations would seriously compromise its ability to administer the program.\"\nAs a statutory enactment, rather than a constitutional standard, RFRA is not necessarily absolutely binding against all post-RFRA legislation. Rather, it is possible that future statutes may not be required to comply with RFRA. In other words, RFRA may be preempted by another federal law. Congress may amend RFRA's scope of application generally or may provide specific exemptions from RFRA in future legislation.", "Members of some religious groups may object to having their photograph taken as many identification laws require. The teachings of several religious groups may prohibit their members from being photographed in general or from revealing some parts of their body. For instance, some Christians, including some Amish, believe photographs violate the Ten Commandments. Members of other religious groups may believe that members must wear head coverings or veils for religious reasons. Identification laws that require individuals to be photographed or require individuals to be photographed without religious head covering may infringe upon these individuals' First Amendment right to exercise their religious beliefs freely, leading to potential legal challenges to determine whether the individuals' First Amendment right must be accommodated. The most common type of identification law to be challenged are state driver's license laws, but the legal issues may also apply in other cases with photograph requirements.", "In challenges to legal requirements that may infringe on an individual's religious exercise, courts generally consider three questions: (1) Is the individual's religious belief sincerely held?; (2) Would the legal requirement impose a substantial burden on the individual's religious exercise?; and (3) Is the burden sufficient to overcome the government's interest in applying the requirement without an exemption?", "In order for an individual's religious beliefs to be protected by the Free Exercise Clause, the beliefs must be sincerely held. An individual's beliefs are not required to conform with the beliefs of other members of his or her religious group, nor is the individual required to be a member of a religious group at all. Furthermore, the accuracy of an individual's religious belief need not be verified by factual findings. The U.S. Supreme Court has held that courts are not to judge the truth or falsity of religious beliefs. Instead, courts generally examine whether the individual applies the belief consistently in his or her own practices.", "Even if an individual's belief is sincerely held, the government action that allegedly infringes on that belief must impose a substantial burden on the individual's religious exercise. A substantial burden on religious exercise is one that puts \"substantial pressure on an adherent to modify his behavior and to violate his beliefs.\" The Supreme Court has required evidence that the legal requirement in question violates the individual's sincerely held belief. That is, if the legal requirement that the individual opposes does not actually interfere with the religious practice, the government may still require the individual to comply with the requirement. For example, a religious organization challenged the imposition of a sales tax on religious products that it sold, claiming the tax burdened the organization's religious exercise. The organization's religious doctrine did not include a belief that payment of taxes was forbidden, but rather claimed that the government was taking part of the money it raised as a part of its religious practice. The Supreme Court held that a sales tax applied generally to products distributed by religious and non-religious entities did not constitute a significant burden on religious exercise because the tax itself did not violate the religious entity's sincerely held beliefs. Therefore, in the case of a religious organization's objections to paying sales tax on products it sells, the organization would be substantially burdened by the tax if its sincerely held beliefs prohibited the payment of taxes, because the tax requirement forces the organization to act in violation of its beliefs. However, because the action being regulated by the government was not one that directly affected the organization's sincerely held beliefs, the Court held that the burden did not implicate the organization's religious exercise.", "Once a court has determined that a substantial burden has been imposed on a sincerely held belief, it must balance that burden on the individual's religious exercise with the governmental interest associated with it. That is, the right to religious exercise is not absolute. Burdens on religious exercise may be constitutionally permissible if the appropriate legal standard is met. The standard that this balance must meet is determined by the applicable law protecting religious exercise. For cases brought under the Free Exercise Clause of the U.S. Constitution, the governmental interest generally may be deemed to outweigh the burden on religious exercise if the governmental action is rationally related to a legitimate government purpose—the minimum constitutional standard of review sometimes referred to as rational basis review. For cases brought under the heightened statutory standard provided by RFRA, the governmental interest outweighs the burden on religious exercise if the government has a compelling interest that is achieved by the least restrictive means to meet that end—the strict scrutiny standard of review. Cases may also be brought under state constitutional or statutory provisions relating to free exercise, which may impose either of these standards.", "Over the past several decades, lawsuits challenging state photo identification laws, particularly driver's license photo requirements, have been filed in federal and state courts. The U.S. Supreme Court has never ruled on the issue of religious exemptions to photo identification requirements. One driver's license photo case, Jensen v. Quaring, made its way to the Court, but because one Justice did not participate in the case and the other Justices split evenly in the decision, the Court issued no opinion, resulting in the automatic affirmance of the decision of the Court of Appeals for the 8 th Circuit. The 8 th Circuit's decision required state officials to issue a driver's license without a photograph.\nA review of the decisions concerning whether exemptions are required for individuals with religious objections to photograph requirements for driver's licenses indicates a few common considerations by courts in such cases. Among the factors addressed by courts hearing such challenges were (1) the demonstration of the sincerity of the individual's religious belief; (2) the nature of the burden imposed by the photo requirement; (3) the strictness of the underlying religious doctrine; (4) whether the state offered exemptions to the photo requirement in other instances; and (5) the purpose of the identification card. The outcome of these cases also appears to have depended on the timing of the case, whether it was decided under the pre- Smith heightened constitutional standard or decided after the heightened security concerns existing after 9/11.", "Courts consistently address the sincerity of the beliefs that allegedly forbid individuals from complying with legal photo requirements. Without comparing the individual's beliefs to those of other members of the same religious sect or considering the veracity of the beliefs, courts examine the individual's beliefs to determine whether the belief is sincerely held or being used as a false claim to avoid compliance with governmental regulation.\nIn several cases challenging photograph requirements, courts have considered evidence that the individual consistently opposes photographs or revealing parts of the body. In cases where the individual challenging the photograph requirement does so because of a belief that photographs are prohibited by biblical teachings, several courts have noted that the individual does not display photographs, videos, or artwork at home and removes pictures from books and other products purchased from stores. The 8 th Circuit summarized its finding that the individual's belief was sincerely held, recognizing that the individual could\nsupport her interpretation of the Bible, based on her knowledge of several portions of the Old Testament. In addition, her behavior in every way conforms to the prohibition as she understands it.... Because [her] beliefs are based on a passage from scripture, receive some support from historical and biblical tradition, and play a central role in her daily life, they must be characterized as sincerely held religious beliefs.", "Courts have also considered the nature of the burden imposed by the photo requirement on the individual seeking exemption. If the individual relies heavily on the use of his or her driver's license in daily life, courts have recognized a significant burden imposed by the photograph requirement. For instance, courts have noted that individuals whose jobs require them to maintain a valid driver's license for transportation and specific job duties, such as a self-employed house painter who must transport supplies to various locations or a farm manager who must have access to the entire farm operation, face a severe burden if they do not comply with the photo requirement.", "Although courts generally avoid inquiries regarding the factual veracity of religious beliefs, at least one court has considered the strictness of the religious belief that the individual claimed would be violated by the photo requirement. In that case, a woman sought an exemption to a requirement that licensees' full face be photographed, without any covering including a veil that was part of her traditional Muslim headdress. A state court held that the woman's religion was not burdened by the full face photo requirement. The court, interpreting a state religious exercise protection statute, relied on the state supreme court's definition of a substantial burden as \"one that either compels the religious adherent to engage in conduct that his religion forbids or forbids him to engage in conduct that that his religion requires.\" Noting that expert testimony indicated that Islamic law permitted exceptions to its veiling requirements, the court held that the woman had not demonstrated the requisite substantial burden for photo identification cards. Because the state was willing to accommodate the woman's beliefs when taking the photograph (e.g., having a female photographer take the picture privately), the court held that the state had not placed an impermissible burden on the woman's religious exercise by requiring her to have a photo driver's license.", "One of the most common factors considered by courts in these cases is the existence of alternative methods of identification or other exemptions to the photo requirement. The 8 th Circuit noted that \"the state [Nebraska] already allows numerous exemptions to the photograph requirement,\" including \"learner's permits, school permits issued to farmers' children, farm machinery permits, special permits for those with restricted or minimal driving ability, or temporary licenses for individuals outside the state whose old licenses have expired.\" Because the state provided such a wide variety of exemptions, the court held that the state could not claim the requisite compelling state interest in denying an exemption based on religion.\nOther courts have used the same reasoning in other states that permitted exemptions. For example, a federal district court held that because Colorado issues special licenses without photographs in certain circumstances, the state violated an individual's religious exercise by not permitting a religious exemption. The Colorado Supreme Court had previously held that exemptions were not required because any exemption would undermine the central purpose of the photo requirement law. However, the U.S. Court of Appeals for the 10 th Circuit, when remanding the case to the district court, held that if the state issued some driver's licenses without photographs, the state interest found to be compelling by the Colorado Supreme Court would be undermined and an exemption based on religion would be required.\nSome courts have also been persuaded by the existence of alternative methods of identification. The Indiana Supreme Court held that while \"the state has a strong interest in insuring driver competency, the idea that the photograph requirement is necessary to that interest is patently absurd.\" The court held that \"there are other alternatives available ... which would satisfy this purpose without impinging on the rights\" of individuals with religious objections. The court stated that \"the statistics which are traditionally included on a driver's licenses, such as license number, height, weight, eye and hair color, have long proven adequate to enable the Bureau to fulfill its important duties.\"", "In cases challenging photo requirements for identification, the arguments to prohibit exemptions generally include (1) reliable and efficient identification by law enforcement officials; (2) facilitation of identification for private activities, for example, financial transactions or identity theft; and (3) prevention of administrative burdens on the state posed by applications for exemption. Courts have reached differing outcomes in cases involving these arguments, depending on the specific facts of the cases before them.\nThe 8 th Circuit, in a pre- Smith decision, did not agree that any of these arguments met the requisite compelling interest standard. The court noted that many individuals did not have photographs on their licenses or did not have licenses at all, undermining the first two arguments. The court also held that there was no evidence to show \"that allowing religious exemptions to the photograph requirement will jeopardize the state's interest in administrative efficiency.\"\nA California state appellate court, using a lower standard of review in a post- Smith decision for the federal Free Exercise claim, reached a different outcome in these arguments. The court held that no exemption was required for individual religious objections to the state's photograph requirement because the law \"is a neutral, generally applicable requirement that is rationally related to achieving the legitimate interests of promoting highway safety, discouraging fraud, and deterring identity theft.\" When the court applied strict scrutiny review under the state's constitutional free exercise protection provision, it reached the same outcome, permitting the state to refuse to grant an exemption to the photo requirement. The court explained that driving on the state's roads is a privilege rather than a right, and that the state's interest in enforcing traffic laws and ensuring public safety justified a policy prohibiting exemptions because \"unchallenged evidence showed that a driver's license photograph is the most reliable, accurate, and timely means of identifying persons while on the public roadways.\" The court also agreed with a Maryland state attorney general opinion that justified the photo requirement as a tool in protecting individuals against victimization.\nAlthough most challenges to photo requirements arise in the context of driver's license laws, some individuals have challenged photo requirements for other identification laws. For example, while the 8 th Circuit initially held that an exemption was required for a driver's license photo requirement, it later held that an exemption was not required for a law that mandated individuals charged with federal felonies be photographed. In such cases, the court held that the government had a compelling interest in having a photograph of defendants and parolees to aid in identifying and apprehending such individuals if necessary.", "Although photo identification requirements most often are enacted at the state level, federal identification requirements also exist. U.S. passports must include a photograph that displays \"a good likeness\" of the individual, and the U.S. Department of State does not permit exemption from this requirement based on religious objections. Additionally, Congress enacted the REAL ID Act of 2005, which contains a number of provisions relating to improved security for driver's licenses and personal identification cards, as well as instructions for states that do not comply with its provisions. The REAL ID Act requires, without exemption, that a digital photograph appear on each document.\nAlthough it is unclear because courts have not considered federal photo requirements under RFRA, it appears likely that a religious exemption would not be required under either the Free Exercise Clause or RFRA. Based on considerations of lawsuits involving state law requirements, it appears that the government could provide a strong argument that uniform application of a federal photo identification law would meet even RFRA's heightened standard requiring a compelling interest, depending on the purpose and actual application of the law. Again, Congress also has authority to exempt statutes from complying with RFRA, and may choose to do so if it believes a statute may not meet the strict scrutiny review that RFRA would otherwise require.", "Many of the lawsuits requiring exemptions for individuals with religious objections to photo requirements occurred prior to the U.S. Supreme Court's decision in Smith , which lowered the constitutional standard used to protect religious exercise for laws of general applicability. Before Smith , the government had to demonstrate a compelling interest in requiring photographs without exemptions for religious objectors. But after Smith , the government only needed to demonstrate that the generally applicable requirement was rationally related to a legitimate government purpose. The pre- Smith standard used to review the exemption cases was therefore much more difficult to meet, leading to numerous courts requiring the states to allow exemptions to photo requirements, particularly if other exemptions or alternatives were available.\nHowever, even under the strict scrutiny standard, courts have been willing to recognize photo identification as a compelling purpose under strict scrutiny, provided the photo requirement was applied uniformly and without exemption. Courts have also been more likely to find a compelling interest and hold that an exemption was not required in cases in which the identification was not specifically a license to drive, but rather identification for some other purpose (e.g., photo following arrest, photo for gun permit).", "In cases brought after Smith , photo requirements have generally been held to withstand rational basis review under constitutional Free Exercise claims, with courts finding that a mandatory photograph is rationally related to the legitimate governmental purpose of identification of citizens using its highways or engaging in commerce. The enactment of RFRA after Smith means that in addition to meeting the constitutional requirements for religious exercise, federal actions must also meet the statutory requirements for religious exercise. At this time, however, it appears that no lawsuits have challenged federal photo requirements under the statutory strict scrutiny standard provided by RFRA.\nBecause RFRA applies the standard that was used pre- Smith , it might appear that the pre- Smith cases would indicate the likely outcome of courts considering legal questions regarding federal photo requirements. However, the events of September 11, 2001, have resulted in heightened security standards and given new context to legal identification requirements. In post-9/11 cases, courts generally have not required exemptions for photo requirements in identification laws. Even in cases where exemptions were allowed prior to 9/11, courts have held that refusal of applications for exemption since then is permissible. One state appellate court held that a prohibition on exemptions for the photo requirement in state identification laws survived rational basis review under the federal Free Exercise Clause and strict scrutiny review under the relevant state constitutional protection for religious exercise. The court held that, as a result of public safety concerns, \"the DMV was justified in revoking a religious exemption that would provide a ready means for criminal offenders and potential terrorists to conceal their identities, obtain fraudulent driver's licenses, and frustrate airport security.\"", "Under the analysis used in photo identification cases, if a legal requirement for a photograph infringes on an individual's sincerely held religious beliefs, the government must prove that the individual's religious exercise is not substantially burdened by the requirement or that the state's interest outweighs the burden under the standard imposed by the relevant law under which the photo requirement is challenged. Particularly after 9/11, courts appear more likely to apply the photo requirement strictly, without exemption, if the government's compelling interest is directly related to security concerns. However, although the events of 9/11 have created heightened security concerns that have been used to justify a prohibition on exemptions to photo requirements in several cases, courts have not summarily dismissed the possibility of exemptions.\nAccordingly, it is important to remember that evidentiary concerns are very significant in this context. That is, these cases are very fact-specific and the outcome may depend on nuanced details of the individual's religious beliefs or the government's specific purposes. A federal district court required one individual to be photographed because it found that her religion permitted her to be photographed under certain circumstances and the woman did not provide evidence to refute those findings. The court held that the woman was not substantially burdened and never reached the question of whether the government's interest was justified under the relevant standard of review. Had the woman demonstrated a personal belief that conflicted with the official teachings of her religion, the court may have held otherwise.\nAnother important consideration in determining whether an exemption should be provided for federal photo identification laws is the uniformity of application of the photo requirement. Courts are more likely to require a religious exemption if other alternatives are available. Thus, if Congress includes, or courts require, other exemptions to the federal photo identification requirements, it is more likely that a religious exemption would also be required.\nIf Congress does provide an exemption based on religion to federal identification requirements, it is unlikely that such an exemption would be considered a violation of the Establishment Clause. The Establishment Clause prohibits preferential treatment of one religion over another or preferential treatment of religion generally over nonreligion. Some argue that providing some individuals an exemption from a legal requirement because of their religion provides special treatment based on religion, in violation of the Establishment Clause. However, the Supreme Court has upheld religious exemptions for government programs, where the exemptions were enacted to prevent government interference with religious exercise.", "In recent years, an increasing number of states have enacted voter identification laws, some of which have required individuals to show photo identification in order to cast a ballot in an election. So-called voter ID requirements have been very controversial amid claims that such requirements impose impermissible burdens on individuals' right to vote. The U.S. Supreme Court considered the constitutionality of Indiana's Voter ID law, and although a majority of Justices did not agree upon a rationale, the Court did uphold the law as constitutional on its face. The decision held that the case presented insufficient evidence to demonstrate that Indiana's requirement that voters present photo identification when voting in person imposed an unconstitutional burden as a general matter.\nHowever, two of the opinions issued in the case, one supporting the decision and one written in dissent, revealed that a majority of Justices questioned whether the requirements that the Indiana law would impose on voters with religious objections would withstand an \"as applied\" challenge. In other words, the Court definitively upheld the law when presented with a challenge to the general requirement that voters present identification, but in nonbinding comments included in some opinions, it appears probable that the Court may reach a different result if that law were challenged as it was applied to religious objectors. Such a challenge would involve a more substantial burden than that imposed on non-objectors, according to the opinions.\nIn the lead opinion, expressing the views of Chief Justice Roberts and Justices Stevens and Kennedy, Justice Stevens noted that in order to officially cast a ballot, voters with religious objections to photo ID must \"cast a provisional ballot that will be counted only if she executes an appropriate affidavit before the circuit court clerk within 10 days following the election.\" The opinion recognized that this imposed \"a somewhat heavier burden\" on these voters compared to the general electorate. The Justices noted that \"even assuming that the burden may not be justified as to a few voters,\" the law's application to that narrow class would not justify invalidating it entirely. The opinion critically commented that the burden imposed on religious objectors seemed unnecessary: \"It is, however, difficult to understand why the State should require voters with a faith-based objection to being photographed to cast provisional ballots subject to later verification in every election when the [State] is able to issue these citizens special licenses that enable them to drive without any photo identification.\"\nJustice Souter's dissenting opinion, joined by Justice Ginsburg, also questioned the permissibility of the burden imposed by Indiana on religious objectors. Noting that religious objectors have a less burdensome option for other forms of identification (i.e., driver's licenses), the opinion suggested that the two-step process for religious objectors to cast their vote (casting a provisional ballot and appearing in person before a county official within 10 days) was significantly more burdensome than necessary. Justice Souter explained that the exemption for driver's licenses required objectors to appear only once every four years and may be done at any of the numerous license branches, whereas the exemption for voter ID required objectors to appear for every election and could be done only at the county seat, which may be \"particularly onerous.\" Accordingly, \"nothing about the State's interest in fighting voter fraud justifies this requirement of a postelection trip to the county seat instead of some verification process at the polling places.\"\nCrawford is not binding precedent on the issue of the constitutionality of voter ID for religious objectors. Furthermore, it considered only Indiana's law, and it is notable that state laws requiring identification may vary significantly. Thus, the Court may resolve the question differently in a different case involving religious objections to photo requirements. It is important to note that these voter ID requirements are state government actions, and therefore not subject to RFRA's heightened standard of review. However, because the U.S. Constitution provides only a baseline of protection, it is possible that states may have imposed heightened review through their state constitutions or enacted separate statutory protections similar to RFRA." ], "depth": [ 0, 1, 2, 2, 1, 2, 3, 3, 3, 2, 3, 3, 3, 3, 3, 1, 2, 2, 2, 1 ], "alignment": [ "h0_title h2_title h1_title h3_title", "h1_title", "h1_full", "h1_full", "h2_title h1_title h3_title", "h2_full", "", "h2_full", "", "h3_full h1_title", "", "", "", "h1_full", "h3_full", "h0_full h3_full h1_full", "", "", "h0_full h3_full", "h0_full" ] }

{ "question": [ "Why have recent controversies arisen over photo identification and voting?", "How has Congress been actively involved in discussions surrounding these controversies?", "How has the possibility of a religious exemption been considered?", "What does the Free Exercise Clause grant to individuals?", "How does this clause work in practice?", "How might this impact photo requirements?", "What are other regulations regarding the restriction of religious exercise?", "Under RFRA, what must be done for a federal law burdening religion to get passed?", "What considerations do courts make when considering challenges to legal requirements that may infringe upon religious exercise?", "What kinds of claims do these rulings distinguish between?", "What will the report analyze?", "Besides discussing legal requirements of the Free Exercise Clause, what other legal challenges will the report discuss?", "To what extent have photo requirements been challenged in court?" ], "summary": [ "Recent controversies over state laws requiring voters to present identification when casting their ballots have raised questions about the burdens imposed on individuals who do not have photo identification, including those who object to photographs based on religious beliefs.", "The 112th Congress has introduced a number of bills directed at so-called voter ID requirements. Congress also has previously considered federal photo identification requirements, most recently in the REAL ID Act of 2005.", "A number of religious beliefs may conflict with requirements for photo identification, leading to questions about whether a religious exemption may be required to protect religious exercise.", "The Free Exercise Clause of the U.S. Constitution generally prohibits Congress from enacting laws that restrict the free exercise of religion, guaranteeing individuals the right to practice their religious beliefs without government interference.", "To comport with the Free Exercise Clause, any neutral law of general applicability (i.e., those that do not target religion or require individual assessments) must be rationally related to a legitimate government purpose.", "If a state law with a photo requirement meets this standard of review, an exemption based on religion is not necessary under the federal constitution. State laws requiring photo identification would be required to comport with the Free Exercise Clause, as well as with any applicable state provisions that may provide heightened standards of review.", "Federal laws burdening religious exercise must also comport with the Religious Freedom Restoration Act (RFRA), which provides a heightened level of review for such laws.", "Under RFRA, any federal law burdening religion generally must have a compelling governmental interest achieved by the least restrictive means possible. If the government can meet this standard of review, an exemption based on religion is not necessary under RFRA.", "Generally, courts considering challenges to legal requirements that may infringe upon religious exercise consider whether the religious belief is sincerely held; whether it is substantially burdened; and whether the government's interest in burdening the belief is sufficient under the applicable standard of review.", "These questions tend to distinguish sincere objections with actual burdens from so-called claims of convenience. In other words, courts look for evidence that the objector's religious exercise is in direct conflict with a particular requirement, rather than being used as an excuse to avoid compliance with a law with which the individual merely disagrees.", "This report will analyze the legal issues associated with religious exemptions to photo identification laws. The report will also analyze lawsuits that have challenged state photo requirements, including significant factors of consideration in such cases. Finally, the report will analyze what factors may be relevant in future decisions that may arise related to federal photo identification requirements and state voter identification requirements.", "After discussing the legal requirements of the Free Exercise Clause and RFRA, the report will explain the elements of analysis necessary for legal challenges involving religious objections to photo requirements.", "Although no lawsuits appear to have challenged federal laws with photo requirements, state photo identification laws have been challenged for several decades." ], "parent_pair_index": [ -1, 0, 0, -1, 0, 0, -1, 3, -1, 0, -1, 0, -1 ], "summary_paragraph_index": [ 0, 0, 0, 1, 1, 1, 1, 1, 2, 2, 3, 3, 3 ] }

{ "title": [ "Background", "Not All Selected Hospitals Tracked How They Used Revenues from Their Supplemental Payments, but Described Uses Included Uninsured Costs and Capital Purchases", "Selected Hospitals Receiving Large UPL Payments Did Not Track Specific Use of Revenues; Officials Described Non- Medicaid Uses Such As Uninsured Costs and Equipment Purchases", "Selected Hospitals Receiving Large Medicaid Demonstration Supplemental Payments Were Required to Track Spending and Allowed to Use Payments for Purposes Such As Uninsured Costs", "Three Selected States Made Supplemental Payments Based on Ability of Hospitals or Local Governments to Finance the Payments; Federal Written Guidance On Appropriate Basis for Such Payments Is Lacking", "Three of Four Selected States Largely Based Their Supplemental Payments on the Availability of Local Financing Rather Than on Medicaid Services Provided", "CMS Has Not Clearly or Broadly Communicated Written Guidance to Clarify Its Policy Regarding the Appropriate Distribution of Supplemental Payments", "Conclusions", "Recommendations for Executive Action", "Agency Comments", "Appendix I: Comments from the Department of Health and Human Services", "Appendix II: GAO Contact and Staff Acknowledgments", "GAO Contact", "Staff Acknowledgments", "Related GAO Products" ], "paragraphs": [ "Within broad federal requirements, each state administers and operates its Medicaid program in accordance with a Medicaid state plan, which must be approved by CMS. A state plan describes the groups of individuals to be covered; the methods for calculating payments to providers, including which types of providers are eligible to receive payments; and the categories of services covered. Federal law identifies broad categories of services that states must cover, such as inpatient hospital services, nursing facility services, and physician services, and also many categories of services that states can cover at their own option, such as home- and community-based long-term care services, physical therapy, or optometry. Any changes a state wishes to make in its Medicaid plan, such as establishing new Medicaid payments (including supplemental payments) to providers or changing methodologies for payment rates for services, must be submitted to CMS for review and approval as a state plan amendment. In reviewing state plan amendments to ensure that state provisions are consistent with federal Medicaid requirements, CMS reviews and approves payment methodologies and does not review actual payments for individual providers. CMS communicates Medicaid program requirements to states through federal regulations, a published State Medicaid Manual, standard letters issued to all state Medicaid directors, and technical guidance on particular topics.\nUnder federal Medicaid requirements, federal Medicaid matching funds are available for state payments made for Medicaid-covered services provided to Medicaid beneficiaries. While payments are not limited to the costs of providing services, payments made to a provider under a state plan must be economical and efficient and within the Medicaid UPL, which is the ceiling on the amount of federal matching funds a state can claim for certain services. The UPL is based on an estimate of what Medicare would have paid for comparable services. Because states’ regular Medicaid payments are often lower than what Medicare would pay for similar services, states are able to make UPL supplemental payments, and the federal government shares in the payments to the maximum amount allowed under the UPL (see figure 1).\nThe UPL is not a provider-specific limit but instead is applied on an aggregate basis for certain provider ownership types and categories of services. Each state must calculate a separate UPL for each combination of provider ownership type and category of service to determine the maximum amount of UPL payments that it can make for each ownership-service type combination. States may establish multiple UPL supplemental payment programs and hospitals may receive UPL supplemental payments from more than one of these programs. Approval to make new payments and apply other eligibility criteria is obtained through the state plan amendment process, which requires CMS review and approval. CMS’s review and approval role does not extend to reviewing the specific manner in which states distribute payments, including which individual providers receive payments, the amount of the payments, or how providers spend the payments they receive. Under the flexibility of the Medicaid UPL, some states have targeted UPL supplemental payments to a small number of hospitals within a particular category. For example, in 2012, we reported that a large share of UPL supplemental payments were concentrated on a small number of hospitals and in many cases resulted in Medicaid surpluses. We concluded that payments that greatly exceeded Medicaid costs raised questions about the purpose of the payments, including how they related to Medicaid services and if they are economical and efficient. In 2015, we reported that CMS lacked a policy and process to determine if payments to individual providers are economical and efficient, and we recommended that CMS develop criteria to assess payments to individual providers and develop a process to identify and review them. HHS agreed and reported that the agency is taking action to respond to our recommendation.\nStates may also administer parts of their Medicaid programs under the authority of section 1115 of the Social Security Act, which authorizes the Secretary to waive certain federal Medicaid requirements and allow costs that would not otherwise be eligible for federal matching funds for experimental, pilot, or demonstration projects that, in the Secretary’s judgment, are likely to assist in promoting Medicaid objectives. In recent years an increasing number of states have received permission from HHS to make supplemental payments under Medicaid demonstrations. Supplemental payments under a Medicaid demonstration are made according to the terms and conditions approved by HHS for the demonstration and may include reporting or other requirements that do not apply to UPL supplemental payments authorized under the Medicaid state plan.\nStates and the federal government share in the financing of Medicaid payments according to a formula established in law. States finance the nonfederal share of their Medicaid programs primarily with state funds, particularly state general funds appropriated to the state Medicaid agency. Within certain limits, however, states may also use other sources of funds—including funds from local government providers, such as county-owned or county-operated hospitals, or from local governments on behalf of government providers. For example, local government providers and local governments can provide Medicaid funding to the state via fund transfers, known as intergovernmental transfers. Federal law allows states to finance up to 60 percent of the nonfederal share from local government funds. This limit is applied in the aggregate—that is, across each state’s entire Medicaid program—and not for individual payments or categories of service. Under federal law, states cannot lower the amount, duration, scope, or quality of Medicaid services provided due to a lack of funds from local sources. We recently reported that states have increasingly relied on local governments to fund the nonfederal share of state Medicaid payments, particularly for supplemental payments.", "Selected hospitals that received large UPL supplemental payments under state plans in three of four selected states did not account specifically for the use of revenue from these payments in their financial systems, as they were not required to do so. But hospital officials described various uses of the revenue, such as defraying the costs of treating the uninsured and the costs of capital purchases. Selected hospitals that received large Medicaid payments in two of four selected states were required to track spending and allowed to use payments for purposes such as uninsured costs.", "Officials from all nine of our selected hospitals that received large UPL supplemental payments under state plans in three of the four states in our review reported that they did not track how they used the excess revenue from the UPL payments they received, nor were they required to do so. These surpluses reflect the amount that total Medicaid payments, which include regular Medicaid and supplemental payments, exceeded Medicaid costs and were significant for the selected hospitals. For example, in 2009, the Medicaid surpluses for the nine hospitals ranged from $400,000 to more than $77 million, with average Medicaid surpluses of about $39 million. Although supplemental payments to these hospitals amounted to tens or hundreds of millions annually and are generally paid on a lump sum, quarterly, or annual basis, officials told us that their financial systems do not separately identify the supplemental payment revenues or track the costs to which supplemental payments are applied. Rather, these officials said the UPL supplemental payments are treated as revenue along with other payments the hospital receives, and revenues are not segregated for specific purposes. Although hospitals did not track the UPL supplemental payment revenues, hospital officials were able to describe some of the general purposes for which the revenues, including the Medicaid surpluses resulting from the large payments, were used. Hospital officials described purposes such as defraying the costs of treating uninsured patients, contributing to specific capital purchases, and making general improvements to community access to care and services. Officials from several hospitals described more than one purpose for which the UPL supplemental payments and resulting Medicaid surpluses were used. (See table 1.)\nHospital officials from seven of nine selected hospitals in these three states said they used the revenues from the large UPL supplemental payments they received in part to cover the costs of providing services to uninsured patients. Federal Medicaid law explicitly authorizes one type of Medicaid supplemental payment—Medicaid DSH supplemental payments—for which states can claim federal matching funds for the costs of treating uninsured patients. The amount of federal funding each state may claim for DSH supplemental payments is limited by federal law, as each state is subject to a federal DSH allotment that establishes the maximum federal funding available for DSH payments. These limits, however, do not restrict hospitals from using available revenues to cover the costs of providing services to uninsured patients. While officials with the seven hospitals were unable to specify how much of their UPL supplemental payments, including their Medicaid surpluses, were used to cover the costs of uninsured patients, the amount of federal funds above the states’ federal DSH allotments that were available to the hospitals for spending on the uninsured could be significant. For example, for New Mexico, Oklahoma, and Texas, statewide Medicaid surpluses due to UPL supplemental payments exceeded $400 million in federal funds in 2009, which is significant compared to these states’ DSH allotments of just over $1 billion in the same year. In New Mexico and Oklahoma, the federal share of Medicaid surpluses due to UPL payments actually exceeded the states’ federal DSH allotments. (See table 2.)\nSeveral hospital officials described other uses of revenues from UPL supplemental payments, including funding general hospital operations and maintenance; capital projects, such as new facilities; and equipment purchases, such as new imaging equipment. Although hospital officials were able to describe multiple purposes for which they used revenues from Medicaid surpluses resulting from large UPL supplemental payments, they were unable to specify how much was used for each purpose they described. Examples of specific expenses cited by hospital officials include the following:\nA New Mexico hospital official described a variety of capital expenses for which revenues from UPL payments, in part, were used. Examples included constructing new medical office buildings, constructing a new cancer treatment center, opening a new health clinic, purchasing a new CT scanner, purchasing a new X-ray imaging system, and purchasing a new helicopter to transport patients. Although hospital officials could not estimate how much of the Medicaid surplus was devoted to capital investment, the surplus was significant compared to the amount of its capital investments. For example, in 2009 this hospital had a Medicaid surplus of about $16 million. The budget for its capital investments totaled $24.6 million that year. The hospital reported an overall profit exceeding $5 million each in 2009 and 2012.\nOfficials with a Texas hospital described the establishment of new outpatient clinics for both primary care and some specialty services, extension of clinic hours, and capital expenses as the types of services and projects that it would not have been able to provide or complete without the supplemental payments it received. Although hospital officials could not estimate how much of the Medicaid surplus was devoted to capital investment, the surplus was significant compared to its capital investments. For example, in 2009, this hospital had a Medicaid surplus of nearly $78 million. That same year the hospital spent $100 million for construction of a new patient tower that included new operating rooms, emergency rooms, examination rooms, isolation rooms, three floors of patient rooms, administration offices, and waiting rooms.", "Under Medicaid demonstrations, states were approved to make Medicaid supplemental payments to hospitals for costs and activities not otherwise covered under Medicaid to promote Medicaid objectives, and hospitals were required to track how they used these payments. Specifically, the two states in our review that operated under demonstrations, Florida and Texas, were authorized to make new types of supplemental payments to hospitals for hospitals’ uncompensated care costs associated with Medicaid-enrolled and uninsured patients, and Texas was also authorized to make incentive payments for broadly targeted improvements to hospitals’ health care delivery systems. Florida began its Medicaid demonstration in fiscal year 2006 and Texas began its demonstration in fiscal year 2012. When the states began making demonstration supplemental payments to hospitals, they ended the hospitals’ UPL supplemental payments, although they continued to make DSH payments.\nHospitals in both states receiving demonstration supplemental payments for uncompensated care costs were subject to certain payment limits and reporting requirements, and overall spending approved for uncompensated care costs was higher than the federal limits would have been without the demonstration. In addition, the terms of the demonstrations allowed the states to include costs not otherwise eligible for Medicaid reimbursement under the demonstration. The terms and conditions of the demonstrations established a facility-specific limit on hospital payments. In particular, hospitals could not receive more in payments than their actual uncompensated care costs, including new costs allowed under the demonstration. The Texas demonstration allowed hospitals to include uncompensated care costs beyond those that the state could have covered without the demonstration, including uncompensated costs for physician services, clinic services, and prescription drugs. Further, the Florida demonstration allowed hospitals to include uncompensated care costs for underinsured individuals with private insurance as well as for the cost of operating poison control centers, costs that the state could not have covered without the demonstration. Hospitals were required to report their estimated Medicaid and uninsured costs and payments to the state, using an approved methodology, as a condition of receiving payment, so that the amount of uncompensated care costs could be determined. Hospitals are subject to a verification of actual costs and payments when final data for the year become available, and any payments above costs are required to be returned to the state. The federal spending levels approved by HHS under demonstrations in Florida and Texas for 2012 allowed additional uncompensated care spending that was more than double the amount of each state’s DSH allotment—the statutory limit on the amount of federal funds a state may receive for hospital uncompensated care that would have applied had the demonstration not been approved.\nHospitals in Texas receiving incentive payments for health care delivery system improvements under that state’s Medicaid demonstration were required to develop an implementation plan and report their progress in meeting designated milestones. To receive the incentive payments, referred to as Delivery System Reform Incentive Payments (Incentive Payments), participating hospitals must develop a plan, subject to CMS and state approval, that identifies the specific projects that they plan to implement, from a menu of options, along with data-driven milestones that hospitals must reach in order to receive full payment. Incentive payments could be made for various projects, such as improving care for patients with certain conditions or increasing delivery system capacity. The terms and conditions of the demonstration included specific reporting requirements to track incentive payments—for example, reports to CMS that include both hospital-specific incentive payment amounts and summary information about the delivery system improvements the payments incentivized. A March 2015 report conducted for the Medicaid and CHIP Payment and Access Commission found that: comprehensive data was lacking to evaluate the outcomes from state spending on incentive payments, states have pursued incentive payment programs to preserve the federal matching funds from their UPL supplemental payment programs, and supplemental payment spending under demonstrations on incentive payments has exceeded prior levels of spending on UPL supplemental payments in some states.", "The bulk of supplemental payments in three of four selected states we reviewed were distributed to hospitals based on the availability of funding from hospital or local government contributions toward the nonfederal share of the payments, rather than the volume of services each hospital provided. We also identified instances in which actual payments to providers were contingent on the availability of such funding. However, CMS has not issued written guidance to articulate and broadly communicate its policy regarding the appropriate basis for states’ distribution of supplemental payments or regarding the practice of making payments contingent on the availability of local financing.", "Our review of state documentation shows that in three of four selected states—New Mexico, Texas, and Florida—the bulk of the supplemental payments to hospitals were made contingent on these hospitals or the relevant local governments providing funds to finance the nonfederal share of the payments the hospitals received, rather than Medicaid services they provided. Each of these states had multiple supplemental payment programs—that is, separate payments for different ownership types and categories of service—and the rules regarding which hospitals would receive payments and the amounts of the payments were established through a combination of Medicaid state plan provisions, state administrative code provisions, other state requirements, or, in the case of states operating under Medicaid demonstrations, through the funding protocols approved for the demonstration. Specifically: In New Mexico, the amount of a hospital’s UPL supplemental payment from two of the five supplemental payment programs in the state was determined by the amount of local government funds provided to finance the nonfederal share. The New Mexico state plan established that, to be eligible for the payments, hospitals must provide a “valid request” to the state Medicaid agency. To be valid, this request had to include a letter from the local government authority indicating its level of financial support, up to a maximum limit, which determined the amount of each hospital’s supplemental payment. The state plan section for New Mexico’s largest supplemental payment program stated that if the hospital does not submit a valid request, then the hospital is not eligible for a supplemental payment even if the hospital was otherwise eligible. In 2009, a total of about $207 million of the state’s supplemental payments was distributed based on the availability of local funding, and, in 2012, $233 million in supplemental payments was distributed based on these requirements. In contrast, the state distributed about $39 and $38 million in supplemental payments in 2009 and 2012 through three other supplemental payment programs for which the nonfederal share was funded by state revenue, according to state officials. These payment programs distributed payments based on measures related to the purpose of the payments, such as the number of medical residents.\nIn Texas, the state’s administrative code specified that payments from the state’s three largest UPL supplemental payment programs in 2009 were to be distributed based on the amount of local funding provided. Specifically, the Texas Administrative Code specified that for these supplemental payments the nonfederal share of the payments will be obtained through intergovernmental transfer of public funds and the amount of the payment to the hospital will be calculated in proportion to the amount of the funds transferred by the hospital to the state. In 2009, about $2.3 billion in supplemental payments was distributed under these three programs. The remaining $100 million in supplemental payments that year was distributed through two smaller, state-funded supplemental payment programs based in part on each hospital’s level of Medicaid services provided. In 2012, Texas made two types of supplemental payments under a Medicaid demonstration—uncompensated care payments and incentive payments for health care delivery system improvements—and the terms and conditions of the demonstration established that the nonfederal share for both types of payments would be financed by funds from local government hospitals or local governments, such as counties or hospital districts. The terms established that hospitals receiving payments for uncompensated care costs or incentive payments must be part of an organization called a Regional Healthcare Partnership, which is led by a public hospital or a local governmental entity that provides local funding of the nonfederal share. The local government hospitals or entities were required to submit a plan showing how much funding they could provide, with payment amounts determined by the amount of funds contributed for the nonfederal share.\nIn Florida, for most hospitals receiving supplemental payments under its demonstration in 2009 and 2012, supplemental payments were largely distributed based on the availability of funding for the nonfederal share from the local government hospitals or local governments on their behalf. The terms and conditions of the state’s Medicaid demonstration established that local government funding was an allowed source of funds for the nonfederal share of the supplemental payments but did not specify how hospitals’ payment amounts would be determined. Florida created a complex funding relationship between large public hospitals that funded the entire nonfederal portion of estimated payments (for all hospitals, including those that are not required to fund the nonfederal share) and other hospitals that might receive payments, according to state officials. Based on 2012 payment data provided by the state, we found that hospitals that provided intergovernmental transfers of funds for their nonfederal share received significantly more, on average, in total payments than hospitals that were not required to finance the payments. The hospitals providing intergovernmental transfers of funds received supplemental payments equal to the nonfederal share plus a small percentage of the federal share. The state used the remaining portion of the federal share to fund the nonfederal share of demonstration supplemental payments for other hospitals—usually smaller, private, or rural hospitals, according to state officials. These other payments were distributed to the hospitals based on factors other than the availability of local funding, such as Medicaid patient volume. In 2009, a total of about $712 million of the state’s supplemental payments was distributed based on the availability of local funding, and, in 2012, $823 million in supplemental payments was distributed based on these requirements. In contrast, the state distributed about $140 million and $96 million in supplemental payments in 2009 and 2012, respectively, to hospitals that were not required to provide the nonfederal share of the payments.\nIn contrast to these three states, the fourth state we reviewed, Oklahoma, did not base hospital payment amounts on the availability of local government funds to finance the nonfederal share, according to state officials. The state had multiple supplemental payment programs in which payments were based on hospitals’ Medicaid workload or other factors. According to state officials, state general funds were used to finance the nonfederal share for all but one of the state’s supplemental payment programs. For the remaining supplemental payment program, the nonfederal share was financed by revenue from a hospital provider tax, and each hospital’s supplemental payment was based on its relative Medicaid workload.\nIn the three states that based supplemental payments on the availability of local funds—Florida, New Mexico, and Texas—we found that over 90 percent of the total amount of supplemental payments in 2009 and 2012 was made based on the availability of local funds to finance the nonfederal share. Specifically, based on our review of state documents governing the distribution of supplemental payments, we found that in 2009, over $3.2 billion, or 92 percent of the total $3.5 billion in supplemental payments the three states made that year, was based on the contribution of local funds; in 2012, $4.9 billion, or 97 percent of the total $5.0 billion in supplemental payments, was based on the contribution of local funds. The amount and proportion of supplemental payments made by states that were distributed to hospitals based on the availability of local funds varied among the three states, although in each state the large majority of payments was distributed in this manner. (See table 3.)\nDistributing payments only to hospitals that are capable of financing the nonfederal share of the payment can result in payments that are not made to otherwise eligible hospitals that lack the ability to finance the expected nonfederal share of the payment, or to obtain local government support for such financing. Because most of the supplemental payments to hospitals in the three states were made to hospitals only if there was local funding to support the nonfederal share of the payment, some hospitals that would otherwise have been eligible for the payments did not receive them. We found examples in New Mexico and Texas of hospitals that did not receive a payment, or received a smaller payment, because the hospital or local government did not provide an intergovernmental transfer of funds, or provided a smaller contribution to the nonfederal share than expected. For example, several hospitals in New Mexico received no UPL supplemental payment, or smaller supplemental payments than usual, from the state in 2012 because of the inability of certain local counties to provide the nonfederal share. In Texas, there have been several hospitals each year that did not receive a payment, or received a partial payment, due to their lack of local funds to provide a contribution to the nonfederal share, according to Texas Medicaid officials. In 2009, when Texas was still making UPL supplemental payments to rural hospitals, there were 18 rural hospitals that were otherwise eligible for the payments but that did not receive a payment because, according to state officials, local funding was not provided for the nonfederal share. In 2012, after Texas converted its supplemental payments to a demonstration, there were 7 hospitals for which the state did not make a demonstration supplemental payment for uncompensated care because, according to state officials, these hospitals did not provide local funding for the nonfederal share.\nThis method of distributing payments may also result in payments that are not necessarily aligned with the level of hospitals’ low-income patient workloads, as measured by their hospitals’ patient volume or costs associated with serving low-income or uninsured individuals. In the case of demonstration supplemental payments for hospitals’ Medicaid and uninsured uncompensated care costs, some hospitals with large uncompensated costs associated with serving the Medicaid and low- income population received relatively little in demonstration supplemental payments for uncompensated care. Other hospitals with relatively low uncompensated care costs received large supplemental payments relative to those costs. Still others received uncompensated care payments under the Medicaid demonstration even though they had no uncompensated care costs before receiving the payment. For example: In 2012, one hospital in Florida had about $352 million in uncompensated care costs and received $384 million in demonstration supplemental payments for those costs, for which local funding of the nonfederal share was provided on the hospital’s behalf, in addition to $77 million in DSH payments. In contrast, another hospital with about $121 million in uncompensated care costs—which was the fourth-highest amount of uncompensated care costs among hospitals that year—had no local funding provided on its behalf and received no such payments.\nIn 2012, among Texas hospitals that had uncompensated Medicaid and uninsured costs and were eligible to receive a demonstration supplemental payment for uncompensated care, the extent to which the hospitals’ uncompensated care costs were covered by the payments varied widely based on the availability of local funding, from 0 percent for the 7 hospitals that were otherwise eligible but did not receive a payment, to more than 100 percent for 44 other hospitals, based on data provided by the state.", "CMS guidance regarding the basis on which states can distribute both demonstration and UPL supplemental payments is lacking. CMS has not issued written guidance articulating its policy regarding appropriate bases for making such payments to ensure they are linked to Medicaid purposes. While CMS has recently acted to curtail one state’s demonstration supplemental payments because the state based the payments on the availability of local financing, it has not taken steps to clarify and broadly communicate to all states guidance regarding appropriate payment distribution methodologies. Specifically, in April of 2015, CMS sent a letter to Florida raising concerns about the state’s demonstration supplemental payments, including concerns that the state’s supplemental payments were being distributed based on access to local government funds and not distributed based on services provided to Medicaid patients. In a May 2015 letter, CMS stated that it will work with the state to develop a distribution methodology for demonstration supplemental payments that more closely aligns with providers’ roles in serving the Medicaid population and in providing other uncompensated care authorized under the demonstration. Florida officials told us that CMS officials worked closely with the state to develop a distribution methodology that ensured the payments were not contingent on local financing and were made only for covered demonstration services, including raising regular payment rates for all hospitals and reducing the size of the supplemental payments that were targeted to those hospitals financing the nonfederal share.\nAccording to CMS officials, the May 2015 letter represents a developing national policy regarding demonstration supplemental payments—that is, that they should be based on the provision of services to Medicaid and uninsured individuals rather than on the availability of local funding. CMS stated that it had contacted affected states with demonstrations that include supplemental payments for uncompensated care to articulate the policy principles the agency would use when reviewing the states’ demonstrations for potential renewal. CMS also said it articulated the types of independently conducted impact analyses and information that a state would need to provide, as part of any request to renew the demonstration, in order for CMS to assess the role supplemental payments had in promoting Medicaid objectives. Apart from communicating directly with these states, CMS’s communication of its policy at a national level has consisted of posting the Florida letter on its website. CMS officials have not said whether they plan to issue guidance more broadly that would provide clarity around its policy and how it is applied for all states, including states that may be contemplating seeking demonstration authority for similar arrangements.\nFor UPL supplemental payments made under state Medicaid plans rather than demonstrations, CMS officials also told us that the agency has not issued guidance on how states should distribute these payments. Although CMS has not issued guidance to the states, CMS officials told us that, when approving state plan provisions, they expect states to include a Medicaid metric, such as Medicaid volume, in their supplemental payment distribution methodology. CMS officials told us the agency plans to issue a proposed rule later in the spring of 2016 to specify appropriate methodologies for state distribution of UPL supplemental payments to ensure the payments are consistent with economy and efficiency. Because the proposed rule was under development as of December 2015, details regarding the payment distribution methodologies that will be articulated in the rule were not available at the time of our review.\nCMS also lacks guidance regarding how states demonstrate that supplemental payments are not contingent on the availability of local financing. CMS officials told us that the agency interprets federal law and regulation as prohibiting states from making payments contingent on the availability of local funding. In particular, federal law requires a state plan to provide assurances that a lack of funds from local sources to finance the nonfederal share will not result in lowering the amount, duration, scope, or quality of Medicaid services provided under the plan in any part of the state. Officials told us that in reviewing state plan amendments, they require states to remove language that would make providers’ receipt of a payment contingent on local funding of the nonfederal share. However, as shown by our review, there are instances in which supplemental payments to providers under state plans are being made contingent on the availability of local financing, suggesting that states lack a common understanding of CMS’s interpretation of the law as prohibiting this practice. According to CMS officials, the agency has not issued written guidance articulating to states that payments should not be contingent on the availability of local funds. Officials said the agency instead instructs states to remove contingent financing language from their state plans. CMS officials stated that they would expect providers to alert them if payments are not sufficient to ensure access and providers have generally not done so.\nThe absence of written guidance to states is inconsistent with federal standards for internal control. Specifically, federal information and communications standards state that for an entity to run and control its operations, it must have relevant, reliable, and timely communications relating to internal as well as external events. Information is needed throughout the agency to achieve all of its objectives, and effective communication should occur in a broad sense, with information flowing down, across, and up the organization. In addition to internal communications, management should ensure there are adequate means of communicating with, and obtaining information from, external stakeholders who may have a significant impact on the agency achieving its goals. The lack of guidance may result in inconsistent application of CMS’s policy among states with overpayments to some providers and underpayments to others due to the unavailability of local funding.", "Under broad federal requirements, Medicaid payments are to be made for Medicaid-covered services delivered to Medicaid beneficiaries and should be economical and efficient and sufficient to ensure beneficiaries’ access to care. States are not required to limit their hospital payments to hospitals’ costs, and we have previously found that CMS lacks criteria to determine when payments to individual providers, such as hospitals, are economical and efficient. This review illustrates further concerns with CMS oversight, as states have made extremely large supplemental payments that resulted in total Medicaid payments well in excess of Medicaid costs and allowed for significant hospital spending on equipment, construction projects, and services not directly related to Medicaid. This can be partly attributed to the fact that CMS has not issued guidance to clearly articulate its policy for states on how they should be distributing supplemental payments or that payments should not be contingent on the availability of financing for the nonfederal share. As a result, CMS cannot ensure that states’ payments are based on the provision of Medicaid services or for demonstration purposes, and not based on the availability of provider and local government financing.\nLacking guidance from CMS, states have distributed supplemental payments to hospitals based on the availability of hospital and local government contributions and, in some cases, have reduced or not made payments to providers that were unable to provide the expected nonfederal share. The absence of CMS guidance around how to distribute Medicaid supplemental payments may be leading to inconsistent application among states and the distribution of supplemental payments that are counter to agency policies, resulting in some providers for which local financing was provided being overpaid while others for which local financing was not available being underpaid relative to the Medicaid services they provide.", "To promote consistency in the distribution of supplemental payments among states and with CMS policy, we recommend that the Administrator of CMS take the following two actions: (1) issue written guidance clarifying its policy that requires a link between the distribution of supplemental payments and the provision of Medicaid-covered services, and (2) issue written guidance clarifying its policy that payments should not be made contingent on the availability of local funding.", "We received written comments on a draft of this report from HHS, which are reprinted in appendix I. In its comments, HHS concurred with the first recommendation and agreed with our concerns regarding the second recommendation.\nHHS concurred with our recommendation to clarify in written guidance the agency’s current policy that supplemental payments support the provision of services to Medicaid and low-income uninsured individuals. HHS cited the rule it plans to propose in the spring of 2016 that would set forth additional requirements to ensure that supplemental payments are consistent with the statutory principles of economy, efficiency, and quality of care. HHS also noted that it has begun an effort to apply its demonstration supplemental payment policy principles to the approval of demonstrations that contain such payments for uncompensated care, which it has communicated to Florida and other affected states. CMS did not comment that it planned to more broadly communicate guidance regarding its policy to all states.\nIn responding to the second recommendation, HHS agreed that the issue of Medicaid supplemental payments being contingent on the availability of local funding is a concern. HHS also referenced its plans to issue a proposed rule in spring of 2016 and indicated that the rule will highlight the issue. Although HHS did not explicitly concur with the recommendation, HHS did state it is considering additional options to address the issue.\nWe encourage HHS, in light of our report findings and recommendations, to issue explicit guidance on these two issues.\nHHS also provided technical comments, which we incorporated as appropriate.\nAs agreed with your offices, unless you publicly announce the contents of the report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the Secretary of Health and Human Services and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov.\nIf you or your staffs have any questions about this report, please contact me at (202) 512-7114 or iritanik@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of the report. GAO staff who made key contributions to this report are listed in appendix II.", "", "", "", "In addition to the contact named above, Tim Bushfield, Assistant Director; Christine Davis; Iola D’Souza; Sandra George; Laurie Pachter; Ashley Nurhussein; and Perry Parsons made key contributions to this report.", "Medicaid Demonstrations: Approval Criteria and Documentation Need to Show How Spending Furthers Medicaid Objectives. GAO-15-239. Washington, D.C.: April 13, 2015.\nMedicaid: CMS Oversight of Provider Payments is Hampered by Limited Data and Unclear Policy. GAO-15-322. Washington, D.C.: April 10, 2015.\nMedicaid Financing: States Increased Reliance on Funds from Health Care Providers and Local Governments Warrants Improved CMS Data Collection. GAO-14-627. Washington, D.C.: July 29, 2014.\nMedicaid Demonstration Waivers: Approval Process Raises Cost Concerns and Lacks Transparency. GAO-13-348. Washington, D.C.: June 25, 2013.\nHigh-Risk Series: An Update. GAO-13-283. Washington, D.C.: February 2013.\nMedicaid: More Transparency of and Accountability for Supplemental Payments Are Needed. GAO-13-48. Washington, D.C.: November 26, 2012.\nMedicaid: States Made Multiple Program Changes, and Beneficiaries Generally Reported Access Comparable to Private Insurance. GAO-13-55. Washington, D.C.: November 15, 2012.\nMedicaid: States Reported Billions More in Supplemental Payments in Recent Years. GAO-12-694. Washington, D.C.: July 20, 2012.\nOpportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and Enhance Revenue. GAO-11-318SP. Washington, D.C.: March 1, 2011.\nHigh-Risk Series: An Update. GAO-11-278. Washington, D.C.: February 2011.\nMedicaid: Ongoing Federal Oversight of Payments to Offset Uncompensated Hospital Care Costs Is Warranted. GAO-10-69. Washington, D.C.: November 20, 2009.\nMedicaid: CMS Needs More Information on the Billions of Dollars Spent on Supplemental Payments. GAO-08-614. Washington, D.C.: May 30, 2008.\nMedicaid Financing: Long-standing Concerns about Inappropriate State Arrangements Support Need for Improved Federal Oversight. GAO-08-650T. Washington, D.C.: April 3, 2008.\nMedicaid Financing: Long-Standing Concerns about Inappropriate State Arrangements Support Need for Improved Federal Oversight. GAO-08-255T. Washington, D.C.: November 1, 2007.\nMedicaid Financing: Federal Oversight Initiative Is Consistent with Medicaid Payment Principles but Needs Greater Transparency. GAO-07-214. Washington, D.C.: March 30, 2007.\nMedicaid: Improved Federal Oversight of State Financing Schemes is Needed. GAO-04-228. Washington, D.C.: February 13, 2004." ], "depth": [ 1, 1, 2, 2, 1, 2, 2, 1, 1, 1, 1, 1, 2, 2, 1 ], "alignment": [ "h1_full", "h0_title h1_title", "h1_full", "h0_full", "h0_title h2_title h1_full", "h0_full h2_full", "", "", "", "", "", "", "", "", "h2_full" ] }

{ "question": [ "What were hospitals under GAO review subject to?", "What did the approved purposes include?", "What did GAO find about Medicaid payment surpluses?", "Why did these surpluses occur?", "Under what policy did states make these surpluses?", "What was GAO asked to examine?", "In the selected states, what did GAO review?", "In the making of this report, what information did GAO obtain and review?" ], "summary": [ "Hospitals in two selected states that GAO reviewed that were approved to make supplemental payments under Medicaid demonstrations were subject to certain tracking requirements to ensure payment revenues were used for approved demonstration purposes.", "Documentation for one state showed that approved uses of revenues included hospitals' uncompensated costs of serving underinsured or uninsured individuals and operating poison control centers. In the other state, which moved during the study timeframe from making supplemental payments under a traditional Medicaid program to under a demonstration, payments were allowed for purposes such as incentivizing health care delivery system improvements and for uncompensated costs for physician and clinic services, and drugs.", "In 2012, GAO reported that 505 hospitals received Medicaid payments that resulted in Medicaid payment surpluses—that is, payments that exceeded the costs of providing services—of about $2.7 billion.", "These surpluses were due in part to the lump-sum supplemental payments hospitals received that were above their regular payments for individual services.", "States made them under broad Medicaid payment authorities that allow federal matching on payments up to an upper payment limit or under Medicaid demonstrations. These types of supplemental payments are authorized, but not required, by law.", "GAO was asked to examine how hospitals used revenues from large supplemental payments and the states' basis for distributing the payments.", "For four selected states making large payments and 12 hospitals receiving them, GAO examined (1) how these hospitals used revenues from the payments and (2) the basis on which the states distributed the payments.", "GAO reviewed documents authorizing payments and interviewed hospital, state and federal officials. GAO also obtained payment data for 2009, the year hospitals were identified as having large payments, and for 2012, the most recent year available." ], "parent_pair_index": [ -1, 0, -1, 0, 0, -1, 0, 0 ], "summary_paragraph_index": [ 4, 4, 0, 0, 0, 1, 1, 1 ] }

{ "title": [ "Background", "FPS Does Not Currently Assess Risks at Federal Facilities, but Multiple Agencies Are Conducting Their Own Assessments", "FPS Is Not Completing Risk Assessments", "Multiple Federal Agencies Are Conducting Their Own Risk Assessments", "FPS Lacks Reliable FSA Data", "FPS Efforts to Develop a Risk Assessment Tool Are Evolving, but Challenges Remain", "FPS Has Developed an Interim Vulnerability Assessment Tool", "FPS Increased Its Use of Project Management Best Practices in Developing MIST", "Considered Alternatives", "Completed User Acceptance Testing", "MIST Has Limitations as an Assessment Tool", "FPS Faces Challenges in Overseeing Its Contract Guards", "No Comprehensive System to Oversee Contract Guard Workforce", "No Independent Verification of Contract Guard Information", "Conclusions", "Recommendations for Executive Action", "Agency Comments", "Appendix I: Scope and Methodology", "Appendix II: Comments from the Department of Homeland Security", "Appendix III: GAO Contact and Staff Acknowledgments", "GAO Contact", "Staff Acknowledgments" ], "paragraphs": [ "To achieve its facility protection mission, in fiscal year 2012, FPS has a budget of $1.3 billion; over 1,200 full-time employees; and about 12,500 contract security guards. Contract guards are responsible for controlling access to federal facilities, screening access areas to prevent the introduction of weapons and explosives, enforcing property rules and regulations, detecting and reporting criminal acts, and responding to emergency situations involving facility safety and security. FPS relies on the fees it is authorized to charge federal tenant agencies in GSA- For controlled facilities for its security services to fund its operations.example, FPS charges tenant agencies a basic security fee (currently $0.74 cents per square foot) to, among other things, conduct FSAs, monitor alarms and dispatch operations, and perform law enforcement activities.\nFPS’s FSA process generally entails: gathering and reviewing facility information; conducting and recording interviews with tenant agencies; assessing threats, vulnerabilities, and consequences to facilities, employees, and the public; and recommending countermeasures to federal tenant agencies.\nTo carry out this process, FPS’s long-term goal has been to develop a tool that aligns with DHS’s NIPP risk-management framework and Interagency Security Committee (ISC) standards. According to the NIPP, a risk assessment should assess threats, vulnerabilities, consequences, and recommend countermeasures, specifically:\nA threat assessment is the identification and evaluation of adverse events that can harm or damage an asset.\nA vulnerability assessment identifies weaknesses in physical structures, personal protection systems, processes, or other areas that may be exploited.\nA consequence assessment is the process of identifying or evaluating the potential or actual effects of an event, incident, or occurrence.\nAfter these three assessments are completed, the information is used to determine whether a facility’s risk is low, medium, or high. Additionally, the NIPP and ISC state that an agency’s risk assessment methodology should be credible (or complete) as able to assess the threat, vulnerability, and consequences of specific acts; reproducible as able to produce similar or identical results when applied by various security professionals; and defensible as able to provide sufficient justification for deviations from the ISC defined security baseline.\nIn addition, as part of its FSA process, FPS also uses the ISC’s Facility Security Level Determination for Federal Facilities to determine the facility security level (FSL). The ISC recommends that level I and II facilities be assessed every 5 years and level III and IV facilities every 3 years, and according to the ISC’s criteria:\nA level I facility may be 10,000 or fewer square feet, have fewer than 100 employees, provide administrative or direct service activities, and have little to no public contact.\nA level II facility may be 100,000 or fewer square feet, have 250 or fewer employees, be readily identifiable as a federal facility, and provide district or statewide services.\nA level III facility may be 250,000 or fewer square feet, have 750 or fewer employees, be an agency’s headquarters, and be located in an area of moderate crime.\nA level IV facility may exceed 250,000 square feet, have more than 750 employees, house national leadership, and be located in or near a popular tourist destination.\nSince 2000, FPS has used three different tools to assess federal facilities and the assessment has varied, as shown in table 1.", "", "In the absence of RAMP, FPS currently is not assessing risk at the over 9,000 federal facilities under the custody and control of GSA in a manner consistent with federal standards such as NIPP’s risk management framework, as FPS originally planned. As a result, FPS has accumulated a backlog of federal facilities that have not been assessed for several years. According to FPS data, more than 5,000 facilities were to be assessed in fiscal years 2010 through 2012. However, we were unable to determine the extent of the FSA backlog because we found FPS’s FSA data to be unreliable. Specifically, our analysis of FPS’s December 2011 assessment data showed that 9 percent—or nearly 800—of the approximately 9,000 facilities did not have a date for when the last FSA was completed. According to the NIPP, to be considered credible a risk assessment must specifically address the three components of risk: threat, vulnerability, and consequence. We have reported that timely and comprehensive risk assessments play a critical role in protecting federal facilities by helping decision makers identify and evaluate potential threats so that countermeasures can be implemented to help prevent or mitigate the facilities’ vulnerabilities.\nAlthough FPS is not currently assessing risk at federal facilities, FPS officials stated that the agency is taking steps to ensure federal facilities are safe. According to FPS officials, its inspectors monitor the security posture of federal facilities by responding to incidents, testing countermeasures, and conducting guard post inspections. In addition, since September 2011, FPS’s inspectors have been collecting information about federal facilities, such as location, purpose, agency contacts, and current countermeasures (e.g., perimeter security, access controls, and closed-circuit television systems). According to FPS officials, inspectors have collected information for more than 1,400 facilities that will be used as a starting point to complete FPS’s fiscal year 2012 assessments. However, FPS officials acknowledged that this is not a credible risk assessment that addresses threat, vulnerability, and consequence consistent with NIPP’s risk management framework. Moreover, several FPS inspectors told us that they received minimal training or guidance on how to collect this information and expressed concern that the facility information collected could become outdated by the time it is used to complete an FSA.", "We reported in February 2012 that multiple federal agencies have been expending additional resources to conduct their own risk assessments, in part because they have not been satisfied with FPS’s past assessments. These assessments are taking place even though according to FPS’s Chief Financial Officer, FPS received $236 million in basic security fees from federal agencies to conduct FSAs and other security services in fiscal year 2011. For example, an Internal Revenue Service (IRS) official said that IRS completed its own risk assessments based on concerns about risks unique to its mission for approximately 65 facilities that it also paid FPS to assess. A Federal Emergency Management Agency (FEMA) official stated that FEMA has assessed its own facilities for several years because of dissatisfaction with the facility security levels that FPS assigned to its facilities. Similarly, Environmental Protection Agency (EPA) officials said that EPA has conducted its own assessments based on concerns with the quality and thoroughness of FPS’s assessments. EPA officials noted that the agency’s assessments are conducted by teams of contractors and EPA employees, cost an estimated $6,000 each, and can take a few days to a week to complete. An official from the U.S. Army Corps of Engineers told us that it duplicates FPS’s assessments at some of its regional facilities because the agency follows U.S. Army force protection regulations, rather than FPS’s security requirements.\nGSA is also expending additional resources to assess risk. We reported in October 2010 that GSA officials did not always receive timely FPS risk assessments for facilities GSA considered leasing. GSA seeks to have these risk assessments completed before it takes possession of a property and leases it to tenant agencies. An inefficient risk assessment process for new lease projects can add costs for GSA and create problems for both GSA and tenant agencies. Therefore, GSA is updating a risk assessment tool that it began developing in 1998, but has not recently used, to better ensure that it has timely and comprehensive risk assessments. GSA officials told us that in the future they may use this tool for other physical security activities, such as conducting other types of risk assessments and determining security countermeasures for new facilities. However, as of June 2012, FPS has not coordinated with GSA and other federal agencies to reduce or prevent duplication of its assessments.", "In addition to not having a tool that allows it to conduct risk assessments, FPS does not have reliable FSA data, which has hampered the agency’s ability to manage its FSA program. For example, as mentioned previously, we found that 9 percent—or nearly 800—of the approximately 9,000 facilities in FPS’s dataset were missing a date for the completion of their last FSA, thus raising questions about whether facilities have been assessed as required.reliable and timely information regarding when inspectors provided FSA reports to tenant agencies. This information is important because federal tenant agencies rely on these reports to allocate funding for new countermeasures.\nAdditionally, we found that FPS does not have We also found that FPS’s reliance on its 11 regional offices to maintain FSA data has contributed to inconsistency among the regions. For example, each of the three regions we visited maintains FSA data in a different format. More specifically, each of the three regions collected similar information such as a facility’s identifier and address, but they differed in how they tracked FSAs. For example, one region tracked the dates an FSA was submitted, reviewed, and completed. Another region tracked only the date the FSA was completed. Separately, another region used multiple spreadsheets to track FSAs. These inconsistencies among the regions make it difficult to understand whether FPS can manage its FSA program nationwide.\nIn March 2012, DHS’s Inspector General (IG) also reported similar issues The IG found that FPS had not determined if any of the with FPS’s data.FSA data in RAMP were valid and thus needed to be preserved for future use. As a result, the IG stated that FPS risked incurring additional expenditures, including paying for the transfer of useless data or losing critical data, if it did not make a decision before June 2012, when its data maintenance contract expired. The IG recommended that FPS (1) identify the costs and benefits of two potential courses of action: maintaining the data in RAMP or transferring the data out of RAMP, and (2) review RAMP’s data to determine what was critical and what should be saved. FPS concurred with this recommendation and plans to take action.", "", "In September 2011, FPS signed an inter-agency agreement with Argonne National Laboratory for about $875,000 to develop MIST by June 30, According to FPS’s MIST documentation, MIST is an interim 2012.vulnerability assessment tool that FPS plans to use until it can develop a permanent solution to replace RAMP. According to FPS officials, among other things, MIST will enable the agency to begin aligning its FSA process with NIPP’s risk management framework and ISC standards. In addition, according to FPS’s MIST documentation, MIST will address key shortcomings identified with the RAMP development effort, including lack of inspector involvement, limited testing, and an inadequate training program.\nAccording to MIST project documents and FPS officials, among other things, MIST will also: allow FPS’s inspectors to review and document a facility’s security posture, current level of protection, and recommend countermeasures; provide FPS’s inspectors with a standardized way for gathering and recording facility data; and allow FPS to compare a facility’s existing countermeasures against the ISC countermeasure standards based on ISC’s predefined threats to federal facilities (e.g., blast-resistant windows for a level IV facility) to create the facility’s vulnerability report).\nIn addition, according to FPS officials, after completing the MIST vulnerability assessment, inspectors will use additional threat information gathered outside of MIST by FPS’s Threat Management Division and any local crime statistics to justify any deviation from the ISC-defined threat levels in generating a threat assessment report. FPS plans to issue the facility’s threat and vulnerability reports along with any countermeasure recommendations to the federal tenant agencies.\nFPS officials stated that MIST provides several potential improvements over its prior assessment tools: FSRM, RAMP, and the FSA calculator and template. For example, in contrast to FSRM, MIST will provide a more standardized and less subjective way of both collecting facility information and recommending countermeasures. Since MIST uses the ISC recommended countermeasures for defined threat scenarios for each facility security level, FPS officials believe that MIST will increase the likelihood that inspectors will produce credible FSAs. In contrast, the risk scores generated by RAMP and the FSA calculator and template were not linked to ISC standards. Unlike RAMP, MIST will use a limited amount of GSA facility data that can be edited by FPS inspectors where a correction is needed, according to FPS officials. The inability to edit data in RAMP was a contributing factor to its failure to produce credible FSAs.\nAccording to FPS officials, on March 30, 2012, Argonne National Laboratory delivered MIST to FPS on time and within budget. FPS began training inspectors on MIST and about how to use the threat information obtained outside MIST in May 2012 and expects to complete the training by the end of September 2012. According to FPS officials, inspectors will be able to use MIST once they have completed training and a supervisor has determined, based on professional judgment, that the inspector is capable of using MIST. At that time, an inspector will be able to use MIST to assess level I or II facilities. According to FPS officials, once these assessments are approved, FPS will subsequently determine which level III and IV facilities the inspector may assess with MIST.", "", "FPS officials said the agency completed an alternatives analysis prior to selecting MIST. We were not able to confirm this because FPS did not document its analysis. According to industry standards, documenting an alternatives analysis is important because it allows agency officials to: revisit decision rationale when changes occur, reduce the subjectivity of the decision making process, and, provide a higher probability of selecting a solution that meets multiple stakeholders’ demands.\nFPS officials mentioned two existing tools that were considered for an interim assessment tool: NPPD’s Office of Infrastructure Protection’s (IP) Infrastructure Survey Tool (IST) and DHS Science and Technology Directorate’s (S&T) Integrated Rapid Visual Screening of Buildings (IRVS) tool. FPS officials said they became aware of a security survey conducted by IP for the February 2011 Super Bowl at Cowboys Stadium in Arlington, Texas. Based on that survey, FPS reviewed the IST, which is used by IP to examine existing security countermeasures (which include physical and other protective measures) at critical infrastructure facilities, such as hydro-electric plants and commercial facilities, by comparing their existing countermeasures to those at similar facilities. According to IP officials, the IST does not calculate risk, estimate consequences, or recommend countermeasures. The IRVS is a risk assessment tool that assesses risk using threat, vulnerability, and consequence; that can be adapted to individual agency’s needs; and that, according to an S&T official, was available to FPS at no cost. However, the Director of FPS decided that because of timeliness concerns and the opportunity to better share information within NPPD, FPS would develop a modified version of the IST to assess federal facilities until FPS could develop an FSA tool to replace RAMP.\nIn contrast to RAMP, FPS better managed MIST’s requirements as we recommended in 2011. Specifically, FPS’s Director required that MIST be an FSA-exclusive tool and thus avoided changes in requirements that could have resulted in cost or schedule increases during development. Requirements serve as the basis for establishing agreement among users, developers, and customers and a shared understanding of the system being developed. Managing requirements entails managing the capabilities or conditions that a product is required to meet to satisfy an agreement or standard.\nHowever, FPS did not obtain GSA or federal tenant agencies’ input in developing MIST’s requirements. We have reported that leading organizations generally include customer needs when developing programs. information they need to make well-informed countermeasure decisions. FPS officials stated that they were considering getting feedback from GSA and federal tenant agencies.\nGAO, Geostationary Operational Environmental Satellites: Improvements Needed in Continuity Planning and Involvement of Key Users, GAO-10-799 (Washington, D.C.: Sept.1, 2010).", "In March 2012, FPS completed user acceptance testing of MIST with some of its inspectors and supervisors, as we recommended in 2011. User acceptance testing is conducted to ensure that a system meets contract requirements and performs satisfactorily for the user of the program—in this case, FPS’s inspector workforce and their supervisors. The results of each test event need to be captured and used to ensure that any problems discovered are disclosed and corrected. We reported in 2009 that comprehensive testing that is effectively planned and scheduled can provide the basis for identifying key tasks and requirements. Testing can also better ensure that a system meets those specified requirements and functions as intended in an operational environment.\nAccording to FPS officials, user feedback on MIST was positive from the user acceptance test, and MIST produced the necessary output for FPS’s FSA process. For example, the inspectors who were involved in the testing found the methodology understandable and credible and had no significant problems logging in and using MIST. FPS’s testing identified the following problems: wireless connectivity issues at the testing location resulting in dropped connections and some users with older software encountering problems loading MIST onto their computers. FPS officials stated that they are taking steps to address these issues, such as updating older software.", "FPS has yet to decide what tool, if any, will replace MIST, which is an interim vulnerability assessment tool. According to FPS officials, the agency plans to use MIST for at least the next 18 months. Consequently, until FPS decides what tool, if any, will replace MIST or RAMP, it will continue to lack the ability to assess risk at federal facilities in a manner consistent with NIPP, as we previously mentioned. We also found the following limitations with MIST: FPS did not design MIST to estimate consequence, a critical component of a risk assessment. Assessing consequence is important because it combines vulnerability and threat information to evaluate the potential effects of an adverse event on a federal facility. For example, consequence information is used to determine whether a terrorist attack on a federal facility may result in the loss of human lives, incur economic costs beyond rebuilding the facility, or have an adverse impact on national security. Three of the four risk assessment experts we spoke with generally agreed that a tool that does not estimate consequences does not allow an agency to fully assess the risks to a federal facility. As a result, while FPS may be able to identify a facility’s vulnerabilities to different threats using MIST, without consequence information, federal tenant agencies may not be able to make fully informed decisions on how to best allocate resources to protect facilities.\nBoth FPS and ISC officials stated that incorporating consequence information into an assessment tool is a complex task. FPS officials stated that they did not include consequence information in MIST’s design as it would have introduced a new component that was not part of the IST and would have taken more time to develop, validate and test, and that any changes in threats would necessitate corresponding changes to the estimated consequences. For example, if new threats to federal facilities were identified, FPS would have to modify MIST’s methodology to estimate the consequences and determine how those consequences could affect other previously identified threats. FPS officials do not know if this capability can be developed in the future, but they said that they are working with the ISC and S&T to explore the possibility. However, according to an S&T official, incorporating consequence is possible and S&T’s current IRVS tool does estimate consequences.\nFPS did not design MIST to compare risk or assessment results across federal facilities. Consequently, FPS does not have the ability to take a comprehensive approach to risk management across its portfolio of 9,000 facilities and recommending countermeasures to federal tenant agencies. Instead, FPS takes a facility-by-facility approach to risk management. Under this approach, FPS assumes that all facilities with the same security level have the same security risk, regardless of their location. However, level I facilities typically face less risk because they are generally small store-front operations with a low volume of public contact, such as a small post office or Social Security Administration Office. In comparison, a level IV facility has a high volume of public contact and may contain high-risk law enforcement and intelligence agencies. We reported in 2010 that FPS’s facility-by-facility approach to risk management provides limited assurance that the most critical risks at federal facilities across the country are being prioritized and mitigated. FPS recognized the importance of having such a comprehensive approach to its FSA program when it developed RAMP and FPS officials stated that they may develop this capability for the next version of MIST.\nFPS has not developed metrics to measure MIST’s performance, such as feedback surveys from tenant agencies. Measuring performance allows organizations to track progress toward their goals and gives managers critical information on which to base decisions for improving their programs. We and other federal agencies have maintained that adequate and reliable performance measures are a necessary component of effective management. should provide agency managers with timely, action-oriented information in a format conducive to helping them make decisions that improve program performance, including decisions to adjust policies and priorities. Without such metrics, FPS’s ability to improve MIST will be hampered. FPS officials stated that they are planning to develop performance measures for MIST, but did not give a time frame for when they will do so.\nGAO, Homeland Security: The Federal Protective Service Faces Several Challenges That Hamper its Ability to Protect Federal Facilities, GAO-08-683 (Washington, D.C.: June 11, 2008).", "", "FPS does not have a comprehensive and reliable system to oversee its approximately 12,500 contract guards. In addition to conducting FSAs, FPS developed RAMP as a comprehensive system to help oversee two aspects of its contract guard program: (1) verifying that guards are trained and certified to be on post in federal facilities and (2) conducting guard post inspections. However, FPS experienced difficulty with RAMP because the contract guard training and certification information in RAMP was not reliable.conduct post inspections. For example, FPS inspectors we interviewed stated they could not use RAMP to conduct post inspections because of difficulty connecting to RAMP’s servers in remote areas and recorded post inspections disappearing from RAMP’s record without explanation. Although we reported some of these challenges in 2011, FPS did not stop using RAMP for guard oversight until June 2012. Consequently, it is now more difficult for FPS to verify that guards on post are trained and certified and that inspectors are conducting guard post inspections as required.\nAdditionally, FPS faced challenges using RAMP to According to FPS officials, the agency decided to no longer use RAMP for these and other reasons, including the expiration of the RAMP operations and maintenance contract in June 2012 and FPS’s decision to migrate data from RAMP. In the absence of RAMP, in June 2012, FPS decided to deploy an interim method to enable inspectors to record post inspections. FPS officials said this capability is separate from MIST, does not include guard training and certification data, and will not have the ability to generate post inspection reports. In addition, FPS officials acknowledged that this method is not a comprehensive system for guard oversight.", "FPS does not independently verify the guard training and certification information provided by guard contractors. FPS currently requires its 33 guard contractors to maintain their own files containing guard training and certification information and began requiring them to submit a monthly report with this information to FPS’s regions in July 2011. To verify the guard companies’ reports, FPS conducts monthly audits. As part of its monthly audit process, FPS regional staff visits the contractor’s office to select 10 percent of the contractor’s guard files and check them against the reports guard companies send FPS each month.\nIn addition, in October 2011, FPS undertook a month-long audit of every guard file for its contracts across its 11 regions. Similar to the monthly audits, regional officials explained that the “100 percent audit” included a review of the approximately 12,500 guard files for FPS’s 110 contracts to verify that guards had up-to-date training and certification information.\nAccording to an FPS official, the audit was FPS’s first review of all of its contractors’ guard files and provided a baseline for future nationwide audits. FPS provided preliminary October 2011 data showing that 1,152 of the 12,274 guard files FPS reviewed at that time—9 percent—were deficient, meaning that they were missing one or more of the required certification document(s). However, FPS does not have a final report on the results of the nationwide audit that includes an explanation of why the files were deficient and whether deficiencies were resolved.\nA guard company may have more than one contract with FPS. contributed to a situation in which a contractor allegedly falsified training information for its guards. In addition, officials at one FPS region told us they maintain a list of the files that have been audited previously to avoid reviewing the same files, but FPS has no way of ensuring that the same guard files are not repeatedly reviewed during the monthly audits, while others are never reviewed. In the place of RAMP, FPS plans to continue using its administrative audit process and the monthly contractor-provided information to verify that qualified contract guards are standing post in federal facilities.", "FPS has taken some steps to improve its ability to assess risk at federal facilities but additional improvements are needed. Most notably, FPS has developed an interim vulnerability assessment tool that once implemented, may allow it to resume assessing federal facilities, which it has not done consistently for several years. However, FPS’s lack of progress in developing a risk assessment tool that meets federal physical security standards such as NIPP’s risk management framework is problematic for several reasons. First, FPS spent almost 4 years and $35 million dollars on RAMP and another $875,000 on MIST but still does not have a risk assessment tool that meets NIPP’s risk management framework that can calculate risk using threat, vulnerability, and consequence information. Second, without a risk assessment tool that can compare risks across its portfolio, FPS cannot provide assurance that the most critical risks at federal facilities are being prioritized and mitigated. Third, some federal agencies are expending additional resources to conduct their own risk assessments in addition to paying FPS to complete them. Fourth, federal tenant agencies do not have critical information needed to make risk-based decisions about how to upgrade the security of their facilities. Identifying ways to resolve these issues could greatly enhance FPS’s efforts to assess risk at federal facilities and reduce duplication of effort, among other things.\nWe recognize that MIST is an interim tool and is not yet fully implemented; however, it has limitations that could affect FPS’s ability to protect federal facilities and provide security services. FPS generally increased its use of our project management best practices, as we recommended, and we encourage it to continue to do so in any future development of a risk assessment tool. However, FPS has not improved the accuracy and reliability of its FSA and contract guard data as it agreed to do in response to our previous recommendation. Given that FPS is still experiencing difficulties managing its FSA data, we reiterate the importance of this prior recommendation and encourage FPS to take action to address it.\nFinally, FPS recently decided to not use RAMP to oversee its contract guards, but still does not have a comprehensive and reliable system to ensure that its approximately 12,500 contract guards have met training and certification requirements, and that FPS’s guard post inspections are occurring in accordance with the agency’s guidelines. That FPS cannot ensure that its 33 contractors are providing accurate information on its guards is also problematic. Without a comprehensive and reliable system for contract guard oversight, FPS is relying primarily on information provided by guard companies. These issues raise important questions regarding the overall effectiveness of FPS’s oversight of its contract guard workforce.", "Given the challenges that FPS faces in assessing risks to federal facilities and managing its contract guard workforce, we recommend that the Secretary of Homeland Security direct the Under Secretary of NPPD and the Director of FPS to take the following five actions: incorporate NIPP’s risk management framework—specifically in calculating risk to include threat, vulnerability, and consequence information—in any permanent risk assessment tool; coordinate with GSA and other federal tenant agencies to reduce any unnecessary duplication in security assessments of facilities under the custody and control of GSA; address MIST’s limitations (assessing consequence, comparing risk across federal facilities, and measuring performance) to better assess and mitigate risk at federal facilities until a permanent system is developed and implemented; develop and implement a new comprehensive and reliable system for contract guard oversight; and verify independently that FPS’s contract guards are current on all training and certification requirements.", "We provided a draft of this report to the Secretary of Homeland Security for review. DHS concurred with our recommendations and provided written comments that are reprinted in appendix II. DHS also provided technical comments that we incorporated where appropriate.\nWe are sending copies of this report to the Secretary of Homeland Security and the Director of the Federal Protective Service. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to relevant congressional committees. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff members have any questions concerning this report, please contact me at (202) 512-2834 or goldsteinm@gao.gov. Contact point for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff that made key contributions to this report is listed in appendix III.", "To examine the extent to which FPS is completing risk assessments without RAMP, we reviewed FPS’s current FSA procedures and data on completed and planned FSAs for fiscal years 2010 to 2012. Specifically, we reviewed FPS’s FSA data aggregated from its 11 regions to determine the extent of FPS’s FSA backlog. These data included the GSA facility identifier, address, city, state, zip code, FPS region, facility security level, date of the last FSA, and the date of the next scheduled FSA. However, we could not determine the extent of FPS’s FSA backlog because FPS’s data contained a number of missing and incorrect values that made it unreliable. We also visited 3 of FPS’s 11 regions and interviewed regional managers, area commanders, and inspectors about how they are completing FSAs in the absence of RAMP. We selected these 3 regions based on the number of federal facilities in the region and their facility security levels, the number of contract guards in the region, and geographic dispersion. Our work is not generalizable to all FPS regions. We also interviewed FPS headquarters officials to understand how the agency is currently conducting FSAs. During our visits to the selected 3 FPS regions, we spoke with officials from the General Services Administration, Department of Veterans Affairs, the Federal Highway Administration, Immigration and Customs Enforcement, and United States Citizenship and Immigration Services to obtain their perspectives on FPS’s assessment efforts. These agencies were selected because they are members of their facility security committees, which have responsibility for addressing security issues at their respective facilities and approving countermeasures recommended by FPS.\nTo determine the status of FPS’s efforts to develop an FSA tool, we reviewed FPS’s documents including: the interagency agreement, requirements plan, project plan, system test plan, and training plan for MIST. As applicable, we compared FPS’s efforts to develop an FSA tool to DHS’s National Infrastructure Protection Plan’s (NIPP) risk management framework and the Interagency Security Committee’s (ISC) standards, including the Physical Security Criteria for Federal Facilities and the Facility Security Level Determination for Federal Facilities. We examined FPS’s requirement and project documents to determine whether in developing MIST, FPS complied with selected GAO and industry project-management best practices, such as: conducting alternative analysis, managing requirements, and conducting user acceptance testing. These practices were selected because they are critical in developing information technology systems and we recommended in 2011 that FPS better manage its requirements and conduct user acceptance testing in developing future tools. We interviewed FPS headquarters and regional officials as well as inspectors, representatives from Argonne National Laboratory who are responsible for developing MIST, officials from NPPD’s Office of Infrastructure Protection, and four risk management experts. We selected our four risk assessment experts from a list of individuals who participated in the Comptroller General’s 2008 risk management forum. We interviewed these experts to discuss FPS’s efforts to assess risks to federal facilities and the benefits and challenges of a risk assessment.\nTo assess FPS’s effort to manage its contract guard workforce, we reviewed FPS’s guard oversight policies and procedures and RAMP’s September 30, 2011, post inspection data. During our visits to the selected three FPS regions, we interviewed FPS regional managers, area commanders, inspectors, three guard contractors, GSA, and other federal agencies about guard oversight. We also interviewed officials at FPS’s headquarters.\nWe conducted this performance audit from July 2011 through August 2012 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.", "", "", "", "In addition to the contact named above, Tammy Conquest, Assistant Director; Geoffrey Hamilton; Greg Hanna; Grant Mallie; Justin Reed; Amy Rosewarne; and Frank Taliaferro made key contributions to this report." ], "depth": [ 1, 1, 2, 2, 2, 1, 2, 2, 3, 3, 2, 1, 2, 2, 1, 1, 1, 1, 1, 1, 2, 2 ], "alignment": [ "h3_full", "h0_title", "h0_full", "h0_full", "h0_full", "h1_title", "", "", "", "", "h1_full", "h2_title h3_title", "h3_full h2_full", "h2_full", "h3_full h2_full h1_full", "h0_full", "", "h1_full", "", "", "", "" ] }

{ "question": [ "What the current status of FPS's effort to assess risks at federal facilities?", "Instead of conducting risk assessment, what have FPS's inspectors been doing?", "How has FPS fallen behind in their assessments?", "Why was GAO unable to determine the extent of FPS's FSA backlog?", "How have other agencies tried to help ensure that risk assessments are conducted?", "What is the scale of the payments that they already make?", "What is FPS's short-term solution for vulnerability assessment?", "What will MIST allow FPS to do?", "To what extent did the development of MIST follow best practices?", "What drawbacks does MIST have?", "Why was consequence information not included in MIST, according to FPS officials?", "What are the risks of eliding consequence information?", "What challenges does FPS continue to face?", "How is RAMP intended to help with this challenge?", "What shortcomings does RAMP have?", "Why is a comprehensive system necessary in FPS's efforts to oversee contract guards?", "Currently, how is FPS verifying guard certification?", "What concerns about this certification verification system remain?", "How has FPS chosen to change this system?", "What does FPS provide?", "What challenges did GAO find that FPS faces in providing these services?", "What was the outcome of RAMP?" ], "summary": [ "The Department of Homeland Security’s (DHS) Federal Protective Service (FPS) is not assessing risks at federal facilities in a manner consistent with standards such as the National Infrastructure Protection Plan’s (NIPP) risk management framework, as FPS originally planned. Beyond not having a reliable tool for conducting assessments, FPS continues to lack reliable data, which has hampered the agency’s ability to manage its FSA program.", "Instead of conducting risk assessments, since September 2011, FPS’s inspectors have collected information, such as the location, purpose, agency contacts, and current countermeasures (e.g., perimeter security, access controls, and closed-circuit television systems).", "This information notwithstanding, FPS has a backlog of federal facilities that have not been assessed for several years. According to FPS’s data, more than 5,000 facilities were to be assessed in fiscal years 2010 through 2012.", "However, GAO was unable to determine the extent of FPS’s facility security assessment (FSA) backlog because the data were unreliable.", "Multiple agencies have expended resources to conduct risk assessments, even though the agencies also already pay FPS for this service.", "FPS received $236 million in basic security fees from agencies to conduct FSAs and other security services in fiscal year 2011.", "FPS has an interim vulnerability assessment tool, referred to as the Modified Infrastructure Survey Tool (MIST), which it plans to use to assess federal facilities until it develops a longer-term solution.", "According to FPS, once implemented, MIST will allow it to resume assessing federal facilities’ vulnerabilities and recommend countermeasures—something FPS has not done consistently for several years.", "Furthermore, in developing MIST, FPS generally followed GAO’s project management best practices, such as conducting user acceptance testing.", "However, MIST has some limitations. Most notably, MIST does not estimate the consequences of an undesirable event occurring at a facility. Three of the four risk assessment experts GAO spoke with generally agreed that a tool that does not estimate consequences does not allow an agency to fully assess risks. MIST also was not designed to compare risks across federal facilities.", "FPS officials stated that they did not include consequence information in MIST because it was not part of the original design and thus requires more time to validate.", "Thus, FPS has limited assurance that critical risks at federal facilities are being prioritized and mitigated.", "FPS continues to face challenges in overseeing its approximately 12,500 contract guards.", "FPS developed the Risk Assessment and Management Program (RAMP) to help it oversee its contract guard workforce by (1) verifying that guards are trained and certified, and (2) conducting guard post inspections.", "However, FPS faced challenges using RAMP, such as verifying guard training and certification information, for either purpose and has recently determined that it would no longer use RAMP.", "Without a comprehensive system, it is more difficult for FPS to oversee its contract guard workforce.", "FPS is verifying guard certification and training information by conducting monthly audits of guard contractor training and certification information.", "However, FPS does not independently verify the contractor’s information.", "Additionally, according to FPS officials, FPS recently decided to deploy a new interim method to record post inspections to replace RAMP.", "FPS provides security and law enforcement services to over 9,000 federal facilities under the custody and control of the General Services Administration (GSA).", "GAO has reported that FPS faces challenges providing security services, particularly completing FSAs and managing its these challenges, FPS spent about $35 million and 4 years developing RAMP—essentially a risk assessment and contract guard oversight tool.", "However, RAMP ultimately could not be used because of system problems." ], "parent_pair_index": [ -1, 0, 0, 2, 0, 4, -1, 0, 0, 0, 3, 3, -1, 0, 0, -1, -1, 4, 4, -1, 0, 1 ], "summary_paragraph_index": [ 2, 2, 2, 2, 2, 2, 3, 3, 3, 3, 3, 3, 4, 4, 4, 4, 4, 4, 4, 0, 0, 0 ] }

{ "title": [ "Background", "Nuclear Fuel Production and Uranium Enrichment Technologies", "National Security and Other Uses for Enriched Uranium", "DOE Project Management", "Best Practices for Project Cost Estimating", "NNSA Is Taking or Plans to Take Four Actions to Extend Existing Inventories of Enriched Uranium to Address its Near-term Tritium Needs", "Book Storage of TVA LEU", "Obligation Exchanges of LEU", "Repurposed Excess Uranium (REU) Downblending", "Downblending Offering for Tritium (DBOT)", "NNSA’s Preliminary Plan to Analyze Options to Supply Enriched Uranium in the Long Term is Inconsistent with DOE Directives", "NNSA’s Domestic Uranium Mission Need Statement Can Be Interpreted to Fulfill Multiple Mission Needs, Making it Inconsistent with DOE Directives", "NNSA Has Identified Two Uranium Enrichment Technologies as Most Feasible for Reestablishing a Uranium Enrichment Capability, but Both Face Challenges", "NNSA’s Preliminary Cost Estimates for the Most Feasible Uranium Enrichment Technologies Are Limited in Scope and Do Not Fully Meet Best Practices", "NNSA’s Preliminary Cost Estimates for the Uranium Enrichment Technologies it Considers Most Feasible Are Limited in Scope, and One Is Premised on Invalid Assumptions", "NNSA’s Preliminary Cost Estimates for the Uranium Enrichment Technologies it Considers Most Feasible Do Not Fully Meet Best Practices for Reliable Estimates", "Conclusions", "Recommendations for Executive Action", "Agency Comments and Our Evaluation", "Appendix I: Objectives, Scope, and Methodology", "Appendix II: Other Options for Obtaining Enriched Uranium without Acquiring a New Uranium Enrichment Capability", "Revising Domestic Policy and International Agreements to Allow the Use of Foreign-Obligated Uranium and Technology for Producing Tritium", "Mutual Defense Agreement", "Downblending of HEU from the Strategic Reserve", "Reprocessing Spent U.S. Nuclear Fuel", "Appendix III: Other Uranium Enrichment Technologies", "Appendix IV: Centrus’ Centrifuge Development", "Appendix V: Comments from the Department of Energy / National Nuclear Security Administration", "Appendix VI: GAO Contact and Staff Acknowledgments", "GAO Contact", "Staff Acknowledgments" ], "paragraphs": [ "", "Uranium is a naturally occurring radioactive element that is enriched to fuel nuclear power plants and that can also be used to meet certain national security purposes. Natural uranium is comprised of approximately 99.3 percent of the uranium-238 isotope and 0.7 percent of the uranium-235 isotope—which undergoes fission to release energy. Uranium enrichment is the process of increasing the concentration of uranium-235 in a quantity of natural uranium to make LEU to fuel nuclear power plants, or to make HEU, which is used in nuclear weapons and as fuel by the U.S. Navy. Generally, to produce enriched uranium, uranium is extracted or mined from underground deposits, converted from a solid to a gas, enriched to increase its concentration of uranium-235, and then fabricated into fuel elements, such as rods for commercial nuclear reactors, appropriate for their ultimate use. These steps make up the nuclear fuel cycle (see fig. 1). After the fuel has been irradiated in a nuclear power reactor, it is considered “spent” nuclear fuel. Spent fuel can be chemically reprocessed, and the enriched uranium recycled for reuse. The United States used to reprocess spent nuclear fuel but has not done so since the mid-1970s, primarily to discourage other countries from pursuing reprocessing because of concerns over nuclear proliferation, as we have previously reported. Currently, in the United States, spent fuel is stored as waste.\nLEU can also be produced by downblending HEU to LEU. This involves mixing HEU with a “diluent” or other forms of uranium—such as natural uranium—to reduce the concentration of the uranium-235 isotope in the uranium and produce an overall lower level of enrichment.\nUntil 2013, uranium was enriched in the United States both for national security and commercial purposes. Beginning in the 1940s, DOE and its predecessor agencies provided uranium enrichment services—first for national security purposes and later for the emerging commercial nuclear power industry—using government-owned gaseous diffusion plants. In 1992, the U.S. government established the United States Enrichment Corporation (USEC) as a government corporation to take over operations of DOE’s enrichment facilities and to provide uranium enrichment services for the U.S. government and utilities that operate nuclear power plants. In 1998, the corporation was privatized under the USEC Privatization Act. From 1998 until 2013, DOE relied exclusively on USEC to obtain enrichment services for the production of LEU needed to produce tritium. In May 2013, USEC ceased enrichment at its last commercially active enrichment plant in Paducah, Kentucky, which it had leased from DOE since the time of USEC’s establishment. USEC has been the only company to enrich uranium with U.S. technology.\nGas centrifuge technology, rather than gaseous diffusion technology, is currently used around the world to enrich uranium. Gas centrifuges work by spinning uranium hexafluoride in a gas form inside a centrifuge rotor at an extremely high speed. The rotation creates a strong centrifugal force, which separates the lighter uranium-235 molecules from the heavier uranium-238 molecules. The enrichment achieved by a single gas centrifuge is not sufficient to achieve the desired assay, so a series of centrifuges are connected together in a configuration called a cascade. In the United States, URENCO—a European enrichment consortium— operates a gas centrifuge enrichment plant in New Mexico.\nThe obligations governing the use of foreign uranium enrichment technology and nuclear material in the United States are established under international agreements between the United States and foreign partners. These agreements generally impose certain terms and conditions on transfers of nuclear material and equipment, including, among other things, requiring peaceful use of the material and equipment. The agreements’ peaceful-use provisions generally state that material, equipment, and components subject to the agreements will not be used for any nuclear explosive device, for research on or development of any nuclear explosive device, or for any military purposes.", "This section discusses national security and other uses for enriched uranium, such as tritium production, highly enriched uranium, and high- assay low enriched uranium.\nTritium is a key isotope used in nuclear weapons. NNSA needs an assured source of tritium to maintain the capabilities of the nuclear stockpile and has called tritium a “pressing” defense need. However, tritium has a relatively short half-life of 12.3 years and decays at a rate of about 5.5 percent per year. It must be periodically replenished to maintain the designed capability of the weapons. Some tritium may be recycled from dismantled weapons, but the inventory must also be replenished through the production of new tritium.\nAt present, NNSA produces tritium through the use of one of TVA’s electricity-producing nuclear reactors fueled with unobligated LEU. Small quantities of tritium are the normal by-products of electricity-producing nuclear power plants, such as those owned and operated by TVA. To produce more tritium than usual and later collect it, specially designed targets—called tritium-producing burnable absorber rods (TPBAR)—are loaded with the unobligated LEU and irradiated in TVA’s Watts Bar 1 reactor. Irradiated TPBARs are unloaded during normal fuel reloading and shipped to NNSA’s Tritium Extraction Facility at the Savannah River Site in South Carolina. There the tritium is extracted and prepared for use in nuclear warheads and bombs (see fig. 2 for NNSA’s tritium production process).\nPrior to the use of TVA’s reactor, the United States used other government-owned reactors to produce tritium (see sidebar). In 1999, TVA signed an interagency agreement with DOE to produce tritium at its Watts Bar and Sequoyah commercial nuclear reactors. Since 2003, TVA has been producing tritium for NNSA at its Watts Bar 1 reactor. TVA does not have plans to use the Sequoyah reactors for tritium production in the near term, according to a TVA document.\nHistory of U.S. Tritium Production From 1954 until 1988, the United States produced the majority of its tritium using nuclear reactors at the Savannah River Site in South Carolina. Smaller amounts of tritium were also produced using nuclear reactors at the Department of Energy’s (DOE) Hanford Site in Washington. When the site’s last operating reactor—known as K Reactor—was shut down due to safety concerns in 1988, the United States lost its capability to produce tritium for the nuclear weapons stockpile.\nThe amount of tritium that NNSA needs changes based on national security requirements. In fiscal year 2015, NNSA conducted a review of the tritium inventory and anticipated future demand. At that time, NNSA determined that to meet future tritium demand a second TVA reactor would be required to irradiate TPBARs and produce additional tritium. Using a second TVA reactor would increase the amount of unobligated LEU needed for tritium production using this process, according to NNSA documents.\nNNSA also supplies HEU for national security and other missions. NNSA provides HEU to fuel reactors for the U.S. Navy’s aircraft carriers and submarines. NNSA recovers HEU from excess dismantled nuclear weapons. According to NNSA’s October 2015 plan, HEU from these sources will meet naval reactors’ demand through 2060. After this time, NNSA will need additional sources of HEU for naval nuclear reactors. To satisfy non-defense demands, NNSA also supplies HEU to, among other things, fuel research reactors for medical isotope production and other research applications.\nIn 1998, the Secretary of Energy announced that DOE would turn to commercial light water reactors as the sole means of meeting the future demand for tritium. From 1988 to 1998, DOE was able to meet its tritium requirements by harvesting and recycling it from dismantled nuclear warheads, as the United States decreased the size of its nuclear arsenal. However, because of tritium’s short half-life, DOE could not meet its long-term tritium needs in this manner indefinitely. Since 2003, the Tennessee Valley Authority (TVA) has been producing tritium for National Nuclear Security Administration (NNSA) at its Watts Bar 1 commercial nuclear power reactor.\nNNSA’s nonproliferation mission requires “high assay” LEU—meaning LEU enriched in the uranium-235 isotope to below 20 percent but above the standard 3 to 5 percent used in most commercial reactors—for research and isotope production reactor fuel. Since there are no commercial uranium enrichment facilities licensed to produce high-assay LEU, it must be produced by downblending HEU. According to NNSA documents, the HEU inventory allocated for research and isotope production reactors using high-assay LEU is projected to be exhausted by around 2030. After this time, a new supply of high-assay LEU for research and isotope production reactors will need to be identified.", "NNSA has initiated a process to determine a long-term solution for obtaining enriched uranium and tritium. DOE’s Order 413.3B, Program and Project Management for the Acquisition of Capital Assets, governs how NNSA acquires capital assets with total project costs greater than $50 million, which could include a new uranium enrichment capability or other new capability to produce tritium. The stated goal of the order is to deliver fully capable projects within the planned cost, schedule, and performance baseline.\nOrder 413.3B also establishes DOE’s critical decision (CD) process. This process divides the capital asset acquisition into five project phases that progress from a broad statement of mission need, to requirements that guide project execution, through design and construction, and concludes with an operational facility. Each phase ends with a major approval milestone—or “critical decision”—that marks the successful completion of that phase.\nA key activity during CD-0, the preconceptual design phase is the preparation of a mission need statement. A mission need statement identifies the capability gap between the current state of a program’s mission and the mission plan. DOE’s Order 413.3B provides direction for preparing a mission need statement, including that it be independent of a particular solution, and that it should not be defined by equipment, facility, technological solution, or physical end-item. This approach is to allow the agency the flexibility to explore a variety of approaches and not prematurely limit potential solutions.\nUnder Order 413.3B, an analysis and selection of alternatives—which builds off the mission need—should be conducted during the CD-1 phase, the conceptual design phase. In addition to the requirements of Order 413.3B, DOE has guidance for identifying, analyzing, and selecting alternatives that is found throughout the seven guides associated with the order. Conducting the analysis of alternatives is a key first step to help ensure that the selected alternative best meets the agency’s mission need and that this alternative is chosen on the basis of selection criteria, such as safety, cost, or schedule. Figure 3 illustrates when DOE conducts the analysis of alternatives as part of its project management process for capital asset projects.\nIn October 2016, NNSA approved a mission need statement for long-term capability to supply unobligated enriched uranium for tritium production and presented a preliminary set of options to meet that need. In December 2016, DOE approved CD-0 to begin the acquisition of such a capability. Consistent with direction in DOE Order 413.3B, NNSA has begun conducting an analysis of alternatives that is to identify the option that would best meet the mission need for a domestic uranium enrichment capability. In August 2017, DOE and NNSA officials stated that the analysis of alternatives will be completed by the end of 2019.\nAlso, under DOE Order 413.3B, DOE’s technology readiness levels (TRL) are incorporated into the CD process. TRLs are used by federal agencies and industry to assess the maturity of evolving technologies. TRLs are measured along a scale of 1 to 9, beginning with TRL 1 (or basic principles observed and reported) and ending with TRL 9 (or actual system operated over the full range of expected mission conditions). DOE guidance states that a TRL of 4—system or component validation at laboratory scale—is recommended for CD-1 (conceptual design process). Projects are encouraged to achieve a TRL of 7—full scale demonstration of a prototypical system in a relevant environment—prior to CD-3 (final design phase).", "In March 2009, we issued our cost guide to provide assistance to federal agencies with preparing cost estimates, among other things. Drawing from federal cost estimating organizations and industry, the cost guide describes best practices for ensuring development of high-quality—that is, reliable—cost estimates. A reliable cost estimate helps ensure that management is given the information it needs to make informed decisions. The cost guide identifies four characteristics of a reliable cost estimate: (1) comprehensive, (2) well documented, (3) accurate, and (4) credible. DOE’s Order 413.3B states, among other things, that its cost estimates shall be developed, maintained, and documented in a manner consistent with methods and best practices identified in our cost guide, DOE guidance, and applicable acquisition regulations and Office of Management and Budget guidance.\nOur cost guide can be used to evaluate the reliability of rough-order-of- magnitude estimates. Rough-order-of-magnitude estimates are typically used to support “what-if” analyses and are helpful in examining initial differences in alternatives to identify which are most feasible. However, the nature of a rough-order-of-magnitude estimate means that it is not as robust as a detailed, budget-quality, life-cycle estimate and, according to the guide, its results should not be considered or used with the same level of confidence. Further, the cost guide states that because this estimate is developed from limited data and in a short time, it should never be considered a budget-quality cost estimate.", "NNSA is taking or plans to take four actions to extend its existing inventories of unobligated enriched uranium to address its near-term need for tritium and has generally identified the costs, schedules, and risks for these actions. These actions would together extend the supply of unobligated LEU from 2027 until approximately 2038 to 2041, according to NNSA documents. NNSA first identified the actions to extend its unobligated LEU supply based on an analysis completed by the DOE Uranium Inventory Working Group, which was convened by NNSA in September 2014 to analyze the department’s uranium inventory and identify material and options to provide unobligated LEU for tritium production reactors. These actions were later presented in NNSA’s October 2015 plan.\nOf the four actions NNSA is taking or plans to take, two actions involve nuclear material accounting practices that help preserve supplies of unobligated LEU, and two of the actions involve downblending HEU. NNSA has generally identified the costs and schedules for these actions.\nSpecifically, NNSA estimated in its October 2015 plan that the total cost of the four actions would be approximately $1.1 billion from fiscal years 2016 through 2025 and would provide additional quantities of unobligated LEU for TVA to meet NNSA’s tritium needs through 2038 to 2041. Based on our review, the actual costs and schedules through October 2017 generally align with the estimates in NNSA’s October 2015 plan. NNSA and GAO have identified some risks associated with two of these actions. One of these risks has been resolved; NNSA is taking steps to mitigate another; while other risks, such as the uncertainty of future appropriations, are unresolved.\nThe following are the four actions, and their costs, schedules, and risks.", "Book storage is an industry-wide nuclear material accounting practice, where a nuclear material supplier—such as a uranium enrichment plant or nuclear fuel fabricator—can record in its accounts, or books, the amount of enriched uranium in its inventory belonging to a customer, such as a nuclear power plant operator, and hold that material for future delivery to the customer. TVA has entered into contracts with two nuclear fuel suppliers to conduct book storage to preserve unobligated LEU for TVA on behalf of NNSA. This practice effectively parks the unobligated LEU into a separate account so that the material is not inadvertently loaded into a non-tritium producing reactor. Book storage helps TVA preserve limited quantities of unobligated LEU for the future; it will eventually be used for tritium production at the Watts Bar reactor. According to agency officials, a key benefit of using book storage for LEU is that TVA does not have to physically store the material. According to these officials, book storage is significantly less expensive than paying to set up a physical storage facility.\nThe terms of TVA’s book storage contracts, including the parties involved, schedules, and values, are proprietary and business sensitive, according to TVA officials. Based on our analysis, the actual fees paid by TVA under its book storage contracts align with NNSA’s projected costs for book storage in its October 2015 plan. NNSA is reimbursing TVA for the book storage fees it is paying. According to NNSA, the obligations preserved from using book storage for unobligated LEU through these contracts extend the LEU fuel need date by 3 years. NNSA’s October 2015 plan did not identify any specific risks for these existing book storage contracts.", "Obligation exchanges are another industry-wide nuclear material accounting practice, which involves the transfer of obligations on nuclear material—such as LEU—between two entities without physically moving the material. Similar to book storage, TVA may conduct obligation exchanges on behalf of NNSA to increase the inventory of unobligated LEU available for tritium production. According to NNSA’s October 2015 plan, TVA may conduct additional obligation exchanges in the future on behalf of NNSA. According to NNSA and TVA officials, at least one future obligation exchange is anticipated but has not been scheduled. According to these officials, there are no specific costs associated with transferring the obligations on LEU between entities. In addition, if additional inventories of unobligated LEU are identified, NNSA officials told us they will encourage TVA to conduct additional obligation exchanges to preserve the material. NNSA’s October 2015 plan did not identify any specific risks for obligation exchanges.", "NNSA’s first downblending action involves downblending 10.4 metric tons of HEU that was previously declared excess to national security needs. NNSA initiated the 3-year REU program in 2015 and, according to NNSA officials, the last shipment of HEU for downblending is expected in December 2018. According to these officials, close-out and final operations of the contract will end in early 2019. The REU downblending is being performed through a contract between NNSA and WesDyne, which subcontracts with another company, Nuclear Fuel Services, according to DOE documents we reviewed and officials we interviewed.\nAccording to NNSA documents, NNSA is the sole customer for this downblending effort. The estimated costs for the REU downblending program are $373 million, according to NNSA’s October 2015 plan. According to NNSA and contractor officials, the fixed price of the contract is $333.8 million, and the invoiced costs for the REU downblending program through October 2017 are $141.4 million, which aligns with the terms of the contract. According to an NNSA official, NNSA is paying for the REU program through a combination of funds provided through annual appropriations and what the parties refer to as a “barter” arrangement, according to NNSA officials and documents. Under this arrangement, NNSA is compensating the downblending contractor by transferring title of the derived LEU to WesDyne, which will be retained as unobligated LEU and eventually sold to TVA for tritium production purposes. The REU downblending program will generate approximately five reactor reloads of unobligated fuel for TVA, and will likely be used in the early to mid-2030s, according to NNSA documents.\nRegarding the risks for the REU program, NNSA identified the uncertainty of whether NNSA would be able to continue to conduct barters of derived LEU to pay for downblending services. For example, the 2015 plan notes that, while such transactions had worked well for previous downblending campaigns, declining markets values for enriched uranium in recent years had reduced industry’s interest in being compensated for services with a portion of the derived LEU. In addition, NNSA officials identified a lawsuit challenging the legality of barters as a risk. This suit was dismissed in July 2016. As a result, this specific risk no longer affects the Department, and according to NNSA officials, the agency anticipates being able to continue compensating Nuclear Fuel Services with derived LEU for the duration of the REU program.", "NNSA’s second downblending action, which is planned to begin in 2019, will involve HEU mainly composed of undesirable scrap, primarily in the form of oxides, left over from uranium processing activities. NNSA estimates that the planned DBOT program will generate approximately 10 reloads of unobligated fuel for TVA, likely to be used in the mid-2030s. According to an NNSA document, the program is expected to run for a 6- year period from 2019 through 2025. However, the schedule for HEU downblending under the DBOT action has not yet been finalized. According to NNSA officials, as of January 2018 the agreement is still being negotiated, but NNSA officials told us they anticipate that TVA will manage Nuclear Fuel Services’ down-blending activities in support of the DBOT program as well as the resulting unobligated LEU and its associated flags. NNSA’s estimated costs for the DBOT downblending program are $770 million, according to NNSA’s October 2015 plan. NNSA plans to pay for the DBOT program solely with funds provided through annual appropriations. NNSA does not currently plan to transfer any LEU resulting from this downblending program as payment to the contractor and will instead keep all the LEU for future tritium production.\nThe DBOT program has not been initiated, so we could not assess whether the program’s actual costs and schedule align with the estimates in NNSA’s October 2015 plan. However, NNSA officials said they have confidence in the projected costs for the DBOT program since the estimates are based on previous downblending programs that NNSA has conducted over the past decade.\nNNSA identified two risks, and we identified one additional risk, facing the DBOT program. First, NNSA’s October 2015 plan identified the uncertainty of annual appropriations in the amount of $770 million to support this program. In addition, NNSA’s October 2015 plan identified a second risk associated with the availability of material for the DBOT program. The DBOT material will consist largely of scrap oxide left over from weapons production processes, some to be generated in future years. Because the schedules for those processes may change, the amounts of material available for DBOT and the dates when it will be available are subject to some uncertainty. Furthermore, we identified an additional risk to the DBOT program that is not addressed in NNSA’s October 2015 plan. Specifically, NNSA did not indicate which nuclear fuel cycle company would be used for the book storage of the LEU resulting from the DBOT program, and there is no guarantee that a company would be willing to engage in book storage for NNSA. A senior NNSA official stated that this detail will be worked out once the DBOT contract is finalized. NNSA and TVA officials noted that other fuel cycle facilities have previously been uninterested in conducting book storage for NNSA, so options may be limited. According to NNSA officials, if book storage was unavailable in the future, NNSA could pay for the physical storage of the LEU for the DBOT program. Since the costs of physically storing LEU for the DBOT program are not included in NNSA’s cost estimates, this could increase the overall costs of the program.", "NNSA’s preliminary plan—as outlined in its domestic uranium enrichment mission need statement—to analyze options for supplying enriched uranium in the long term is inconsistent with DOE directives. This is because the scope of the mission need statement can be interpreted to fulfill multiple mission needs, which is inconsistent with DOE directives that such a statement should be a clear and concise description of the gap between current capabilities and the mission need. Under either interpretation of the mission need statement, NNSA is not complying with these directives because it is showing preference toward a particular solution—building a new uranium enrichment capability—and the agency has not included other options for analysis. In the mission need statement, NNSA has preliminarily identified two uranium enrichment technologies as the most feasible options for reestablishing a uranium enrichment capability, but both face deployment challenges.", "NNSA’s preliminary plan—as outlined in its domestic uranium enrichment mission need statement—for analyzing options to supply enriched uranium in the long term is unclear because the scope of the mission need statement can be interpreted to fulfill more than one mission need, and this is inconsistent with DOE directives. Specifically, NNSA’s October 2016 mission need statement—developed by NNSA’s Office of Domestic Uranium Enrichment—identified two mission needs: (1) a need for enriched uranium for a range of national security and other missions, including LEU for tritium production, HEU for the U.S. Navy, and high- assay LEU for research needs; and (2) a specific need for tritium. Because the mission need is not clearly stated, it is not clear whether NNSA intends to identify a future source of enriched uranium that could meet a range of mission needs, or only meet the specific mission need for tritium. According to DOE guidance for the mission need statement, the mission need statement should be a clear and concise description of the gap between current capabilities and the mission need. A senior NNSA official acknowledged that the mission need statement was ambiguously written because there are a range of mission needs for enriched uranium, and the ultimate mission need that the analysis of alternatives process will meet is unclear. Under either interpretation of the intent of the mission need statement, the document does not fully comply with DOE directives. According to DOE Order 413.3B, the mission need should be independent of a particular solution and should not be defined by the equipment, facility, technological solution, or physical end-item. This approach allows the Office of Domestic Uranium Enrichment the flexibility to explore a variety of solutions and not limit potential solutions.\nUnder the first interpretation of NNSA’s mission need statement (which appears to be its preferred interpretation, according to NNSA documents), NNSA needs a future source of enriched uranium for a range of missions—initially LEU to produce tritium, but later also to produce high- assay LEU for research needs and HEU for the U.S. Navy. Specifically, the document states that if the United States decided to reestablish a domestic uranium enrichment capability, it “could meet several national security missions.” Further, it states that “future demand for additional enrichment assays and volumes should be considered in the selection of the enrichment capacity to meet national security needs.” This suggests that NNSA may be missing opportunities to consider options for providing additional enriched uranium that do not entail reestablishing a uranium enrichment plant.\nFor example, while the mission need statement discusses some policy options that would provide NNSA with a new source of enriched uranium without building a new enrichment capability, it excludes at least one policy option that was originally identified in NNSA’s October 2015 plan— reprocessing DOE-owned spent nuclear fuel to recover HEU (which could also be downblended to produce LEU). Reprocessing spent nuclear fuel could provide a significant quantity of enriched uranium without the need for a new enrichment capability. It is not clear why NNSA excluded this option from the mission need statement at this early point in the development of alternatives. See appendix II for a discussion of other options NNSA includes in its mission need statement that could provide NNSA with a new source of enriched uranium without building a new enrichment capability.\nUnder the second, narrower interpretation of the mission need statement, NNSA would need to obtain LEU solely to meet its mission need for tritium. However, contrary to DOE directives that a mission need statement be independent of a particular solution and not be defined by equipment, facility, technological solution, or physical end-item, NNSA is showing preference for a particular end-item—enriched uranium—to continue the tritium production mission. The mission need statement indicates a preference for using enriched uranium to continue the tritium production mission, as it only identifies options to obtain additional enriched uranium. This approach would exclude consideration of certain technology options, such as one that may have the potential to produce tritium without the need for enriched uranium. Specifically, during our review, we identified a technology capable of producing tritium that does not require enriched uranium and is being developed by Global Medical Isotope Systems (GMIS). This technology was not included in NNSA’s mission need statement as an option to help NNSA meet its tritium production requirements. An NNSA office separate from the Office of Domestic Uranium Enrichment—the Office of Nuclear Materials Integration—has funded the GMIS technology in a demonstration effort to determine whether it can produce tritium in sufficient quantities to support NNSA’s needs.\nThe GMIS technology is currently at a low TRL, and the tritium production estimates have not been independently verified, but a senior NNSA official and GMIS representatives told us that it produced “appreciable amounts of tritium” during the demonstration. However, another senior NNSA official stated that it would be more appropriate to consider the GMIS technology in a process being conducted by another NNSA office— the Tritium Sustainment Office—which is currently examining potential options to meet tritium needs in 2055 and beyond, when TVA’s Watts Bar reactors may no longer be operating. This official, however, told us that the program office has no plans to update its last technology evaluation from 2014, which did not include consideration of the GMIS technology. If the purpose of NNSA’s mission need statement is to meet tritium requirements, then NNSA may be missing the opportunity to assess a technology that could meet the mission need without the need for enriched uranium. Without revising the scope of the mission need statement to clarify which mission need it seeks to achieve and adjusting, as appropriate, the range of preliminary options being considered in the analysis of alternatives, NNSA may not consider all options that could satisfy its ultimate mission need.", "The mission need statement identifies six potential enrichment technology options for reestablishing an unobligated uranium enrichment capability. The technology selected could be used first to produce LEU to support the tritium production mission, and potentially later used to produce high- assay LEU for research needs and HEU for the U.S. Navy, according to NNSA documents. According to NNSA’s mission need statement, these six technologies were identified by a team of federal, national laboratory, and contractor experts in uranium enrichment technologies in December 2014, later presented in the October 2015 plan, and then included in the mission need statement.\nAmong the six technologies, four—restart of the Paducah Gaseous Diffusion Plant, electromagnetic isotope separation, atomic vapor laser isotope separation, and separation of isotopes by laser excitation—are unlikely to be feasible, according to NNSA documents (app. III provides additional information on these four enrichment technologies). Some of these technologies have produced enriched uranium in the past, but extraordinary technical or financial barriers, past research failures, or peaceful-use restrictions would likely preclude further consideration by NNSA, according to NNSA documents.\nAccording to NNSA documents, NNSA has preliminarily identified the two remaining uranium enrichment technologies as the most feasible options to supply unobligated LEU for tritium production: the AC100 (“large”) centrifuge and a “small” centrifuge design. However, both of these options face challenges to deployment.\nOf the identified options, the AC100, or large centrifuge, is the technology that is furthest along in development. Centrus Energy Corp.—the private company known as USEC Inc. prior to its bankruptcy in 2014—developed a large (about 40 feet tall) advanced centrifuge for uranium enrichment. From June 2012 through September 2015, DOE invested approximately $397 million to financially support a research, development, and demonstration program for the large centrifuge technology at Centrus’ demonstration facility—the American Centrifuge Plant—in Ohio (See fig. 4). However, in September 2015, DOE announced that it would not continue funding the demonstration plant in Ohio past the end of that month. According to a September 2015 DOE memorandum, the department had obtained the testing data it needed and determined that there was “minimal incremental value” in continuing demonstration operations. Centrus was unable to continue operation of the demonstration plant without further government support and, in February 2016, announced its intent to demobilize it. Appendix IV provides additional information on the development of Centrus’ AC100 large centrifuge technology.\nAccording to NNSA’s October 2015 report, at the conclusion of DOE’s support, Centrus had successfully demonstrated that the large centrifuge technology had achieved a TRL of 7 to 8—or the generally successful demonstration of a test facility. DOE has continued funding, at a lower level, Centrus’ further development of the large centrifuge technology at a test facility in Oak Ridge, Tennessee, through September 2018. The October 2016 mission need statement estimated that it would take 2 to 5 years to complete development of the technology. According to a senior DOE official, though DOE has discontinued the majority of its funding, the department has taken two actions to preserve the large centrifuge technology—preserving the intellectual property for this technology and hiring some former Centrus employees—to ensure that the technology can be deployed if it is selected in the analysis of alternatives.\nHowever, we identified several challenges that could complicate future efforts to deploy the large centrifuge technology—challenges related to the preservation of intellectual property, royalty costs for commercial deployment, and the weakening of Centrus’ U.S. supplier and knowledge base.\nIntellectual property. A senior DOE official stated that there were two issues with DOE’s Office of Nuclear Energy original preservation of the information. First, preservation of the schematics began before certain technical issues with the demonstration plant were discovered, and consequently, Centrus’ proposed resolution of those issues was not included in the documentation, according to DOE and NNSA officials. Second, a DOE official and Centrus representatives stated that DOE’s contract with Centrus did not specify how the schematics were to be preserved. Rather than preserving the schematics in an electronic engineering format, Centrus preserved them in a different format that will require them to be reconstructed in an engineering program, according to the DOE official. NNSA officials acknowledged there were issues with the 2014 preservation effort and stated that negotiations were under way to contract with Centrus for a second preservation effort that would include updated schematics in the correct format and the documentation on the proposed resolution of the technical issues.\nRoyalty costs. Although DOE owns the intellectual property, by agreement, Centrus is owed royalties if the large centrifuge technology is deployed for commercial purposes. According to a June 2002 agreement between DOE and USEC, these royalties would be capped at $665 million. In a January 2017 request for information from industry, NNSA expressed interest in obtaining enriched uranium through a federal government-private industry partnership. In January 2017, NNSA officials said that they were not sure how royalties might affect such a partnership. It is possible that if a private industry partner was only interested in producing enriched uranium for the government alongside a commercial operation, the royalties could discourage such a partnership, or that some of the costs might be passed on to the government. However, the royalties may be less than the cost of developing a new enrichment capability, so such an arrangement may also attract partners interested in entering the market but not in developing new technology.\nSupplier base. Centrus representatives told us that Centrus assembled an extensive domestic supplier base during the demonstration program to show that enrichment services could be unobligated. According to Centrus representatives and a Centrus document, the company had sourced components for the demonstration plant from over 900 different suppliers and manufacturers in 28 states, and that following its closure, many of these companies would go out of business or lose the capability to produce the necessary parts. As a result, if the large centrifuge option is selected, a domestic supplier base will have to be rebuilt, according to Centrus representatives. NNSA officials acknowledged that—as NNSA conducts the analysis of alternatives process—Centrus’ supplier and manufacturing base will continue to diminish.\nKnowledge base. Centrus representatives have raised concerns that the closure of the American Centrifuge Plant and associated layoffs of qualified workers may make it difficult to re-hire experienced centrifuge workers in the future. According to a cost estimate review prepared by a contractor for NNSA, the American Centrifuge Plant employed 370 full- time equivalent workers during the demonstration program. However, as of January 2017, it employed approximately 117 staff, according to a Centrus document. NNSA officials acknowledged that the loss of skilled workers is a concern and stated that, as a mitigating measure, ORNL has hired knowledgeable former Centrus personnel for further centrifuge research projects at ORNL.\nThe second most feasible option to supply unobligated LEU for tritium production is the design for a small centrifuge technology. NNSA is funding an experiment to develop a centrifuge design that it anticipates will be smaller (from 6 to 14 feet tall), simpler, and potentially less expensive to build and maintain than the large centrifuge, according to an NNSA document. The experiment began at ORNL in 2016 and is based on prior ORNL experience with centrifuges. According to NNSA and ORNL documents, the small centrifuge experiment will take 3.5 years to achieve a TRL of 3 to 4—successful validation at laboratory scale—and cost approximately $42 million for this validation effort. During our visit to ORNL in December 2016, laboratory representatives told us that prototypes had not yet been constructed and showed us their preliminary design work and initial construction of their facility. As of December 2017, the first prototype of three or four planned sizes had been built and tested, according to NNSA officials and ORNL representatives. Following completion of the experiment, the mission need statement estimates that it could take another 4 to 7 years to bring the technology to a TRL of 9 (ready to deploy).\nLike the large centrifuge technology, the small centrifuge technology faces challenges that could complicate its deployment. For example, according to NNSA officials and ORNL representatives, the small centrifuge experiment is on an aggressive testing schedule to demonstrate results and potential scalability to meet NNSA’s planned 2019 deadline to select a preferred alternative in the analysis of alternatives process. Further, according to NNSA officials and ORNL representatives, if the small centrifuge design is selected, ORNL would not build and operate the plant because it is focused on research and development. Instead, NNSA would have to identify and contract with another entity to license, transfer, and deploy the technology, according to NNSA officials and ORNL representatives. NNSA officials also stated that there will be challenges in establishing a U.S. manufacturing base of suppliers for the small centrifuge and associated equipment.", "Though the scope of the mission need statement is unclear, NNSA has prepared preliminary cost estimates for the two uranium technologies it considers most feasible: the large and small centrifuge. These estimates are limited in scope and the estimate for the large centrifuge was premised on assumptions that were no longer valid. In addition, even when assessed for a more limited scope—producing LEU for tritium—the cost estimates do not fully meet best practices for reliable estimates applicable to all cost estimates.", "Though the scope of the mission need statement is unclear, NNSA’s preliminary cost estimates for the two uranium technologies it considers most feasible—the large and small centrifuge—are limited in scope, and the estimate for the large centrifuge was premised on assumptions that were no longer valid. Specifically, the limited scope of the cost estimates mean that they do not reflect the full costs of building a uranium enrichment facility that could eventually provide the capacity to enrich enough uranium to meet multiple needs, not just tritium. As previously noted, NNSA identified two mission needs: (1) a need for enriched uranium for a range of national security and other missions, including LEU for tritium production, HEU for the U.S. Navy, and high-assay LEU for research needs; and (2) a specific need for tritium.\nAccording to DOE and NNSA documents and NNSA officials, NNSA appears to favor an incremental approach to reestablishing a domestic uranium enrichment capability. This incremental approach would start with the selection of an enrichment technology in an enrichment plant capable of meeting tritium production requirements but could be expanded to meet the other governmental enriched uranium needs over time, according to our review of NNSA documents. Best practices for cost estimating state that programs following such an approach should clearly define the characteristics of each increment of capability so that a rigorous life cycle cost estimate can be developed. In addition, we have recommended that agencies conducting incremental acquisitions consider establishing each increment of increased capability with its own cost and schedule baseline. However, the scope of NNSA’s cost estimates for the large and small centrifuges are limited only to an enrichment plant capable of meeting the tritium production requirements, according to DOE and NNSA documents. The cost estimates do not estimate the incremental costs of the additional enrichment capacity necessary to meet additional enriched uranium needs such as HEU. NNSA officials stated that the cost estimates were preliminary in nature and that they anticipate developing more in-depth cost estimates as NNSA progresses further in the analysis of alternatives process. By limiting the scope of the cost estimates to one mission need—LEU for tritium—and not addressing the additional costs to meet other enriched uranium mission needs, NNSA’s cost estimates may be underestimating the life cycle costs of the technology options under evaluation—which could lead the agency to select a less cost-effective technology option.\nWe also found that NNSA relied on a Centrus-provided scenario for the large centrifuge cost estimate that was premised on assumptions that were no longer valid, rather than using a scenario that more accurately reflected conditions at the demonstration plant at the time of the analysis. We found that the large centrifuge cost estimate had not been substantially updated since fall 2014. According to DOE documents, NNSA officials, and Centrus representatives, the estimate was originally prepared by Centrus in the fall of 2014, and NNSA and its contractor made minimal updates to this estimate in January 2015 and again in fall 2016. However, this meant that NNSA officials used a scenario that assumed conditions that were no longer accurate as of October 2016, the date of the mission need statement.\nThis scenario, for example, assumed that the demonstration plant would be left intact for 5 years—in a cold standby state—followed by a restart of operations. However, in February 2016, Centrus had already publicly announced that it would begin decontamination and decommissioning the demonstration plant in spring 2016. An alternate scenario—complete demobilization of the demonstration plant followed by a restart of operations after 10 years—may have more closely reflected conditions at the time. According to a December 2014 estimate provided by Centrus to DOE and NNSA, this scenario presented the most risk, as it meant that the site, staff, and supplier base would all have to be reconstituted after a significant break—which could be very difficult. According to this estimate, the cost of the alternate scenario would likely be $2.6 billion greater. NNSA officials stated that they had used the scenario that they thought best fit the conditions at the time, and Centrus officials agreed that cold standby was an appropriate scenario to use. However, by using the cold standby scenario rather than the demobilization scenario, NNSA appears to have underestimated the costs to build an enrichment facility by several billion dollars. A senior NNSA official noted that, for the large centrifuge, they intend to create a new estimate that does not rely on Centrus.", "Even when assessed for a more limited scope—producing LEU for tritium—NNSA’s preliminary cost estimates for the two uranium enrichment technology options that the agency considers to be the most feasible—the large and small centrifuge technologies—do not fully meet best practices for reliable cost estimates, including those for early stages of acquisition. Our cost guide—which presents best practices for cost estimates—states that high-quality, or reliable, cost estimates—including preliminary and rough-order-of-magnitude estimates—must meet four characteristics: they must be comprehensive, well-documented, accurate, and credible. DOE Order 413.3B states that cost estimates must be developed, maintained, and documented in a manner consistent with the methods and best practices identified in, among other things, our cost guide. Reliable cost estimates are crucial tools for decision makers, according to best practices. According to the cost guide best practices, cost estimates are considered reliable if each of the four characteristics is substantially or fully met. If any of the characteristics is not met, minimally met, or partially met, then the estimates cannot be considered to be reliable. Office of Management and Budget guidance notes the importance of reliable cost estimates at the early stages of project initiation, stating that early emphasis on cost estimating during the planning phase is critical to successful life cycle management—in short, determining whether benefits outweigh costs.\nNNSA’s mission need statement presented rough-order-of-magnitude cost estimates of $7.5 to $14 billion to build a national security enrichment plant using the large centrifuge technology, and an estimate of $3.8 to $8.3 billion to build such a plant using the small centrifuge technology. We found that the large centrifuge cost estimate only partially met the characteristics of being comprehensive and credible, and minimally met the characteristics of being well-documented and accurate. The small centrifuge cost estimate only partially met the characteristic of being comprehensive, and minimally met the characteristics of being well- documented, accurate, and credible. Because the large and small centrifuge cost estimates do not fully meet the best practices characteristics of reliable cost estimates, we concluded that they are not reliable. We shared our assessments with NNSA officials and a representative from an NNSA contractor and discussed the findings. We reviewed their comments and any additional information they provided and incorporated them to finalize our assessments. NNSA officials explained that the cost estimates are preliminary and are intended only to be rough-order-of-magnitude estimates since the process is only in the early stages and will be revised as the analysis of alternatives process moves forward. NNSA officials stated that they are aware of the limitations of the preliminary large and small centrifuge cost estimates. By developing reliable cost estimates consistent with best practices, NNSA will reasonably ensure that it has reliable information to make an informed decision about its options. The following is a summary of our assessments.\nComprehensive. Best practices state that—to be considered comprehensive—a cost estimate should include both government and contractor costs of the project over its full life cycle, from “cradle to grave.” This includes costs from the inception of the project through design, development, deployment, and operation and maintenance, to retirement of the project. A life cycle cost estimate can support budgetary decisions, key decision points, milestone reviews, and investment decisions. DOE Order 413.3B does not specifically require a life cycle cost estimate at CD-0. Nonetheless, according to best practices, having a complete life cycle cost estimate helps ensure that all costs are fully accounted for and that resources are efficiently allocated to support the project.\nWe found that the cost estimate to build a large centrifuge facility partially met the comprehensive characteristic because it included a high-level description of the work to be performed, and presented a brief summary description of the schedule, number of machines, and activities. However, the estimate was not a life cycle cost estimate because it excluded certain costs, such as retirement and close-out costs. In addition, other than noting a government oversight fee, the documentation does not specify whether the estimated costs are government or contractor costs. The estimate contains a 17 percent add-on, which an NNSA contractor told us accounts for DOE and contractor oversight costs, but the estimate does not specify how those costs are allocated.\nWe found that the cost estimate to build a small centrifuge facility also partially met the comprehensive characteristic. We found that the estimate included costs for manufacturing, design, testing of the centrifuges, and 11 years of operations but, similar to the large centrifuge facility estimate, did not include retirement and close-out costs.\nWell-documented. Best practices state that data are the foundation of every cost estimate and that the quality of the data affects an estimate’s overall credibility. Thus, the supporting documentation for an estimate should capture in writing the source data used, an assessment of the reliability of the data, and how the data were normalized to make them consistent with and comparable to other data used in the estimate. The documentation should describe in sufficient detail the calculations performed and the estimating methodology used to derive each project element’s cost such that any cost analyst could understand what was done and replicate it. Without good documentation, management may not be convinced that the estimate is credible; supporting data will not be available for creating a historical database; questions about the approach or data used to create the estimate cannot be answered; lessons learned and a history for tracking why costs changed cannot be recorded; and the scope of the analysis cannot be thoroughly defined.\nWe found that the cost estimate to build a large centrifuge facility minimally met this characteristic. NNSA’s contractor adjusted estimates previously provided by Centrus for inflation and added an estimate for DOE’s oversight and fees. The documentation does not provide any of the supporting cost data or include descriptions of adjustments or normalization made to the data. We found that the estimate’s supporting documentation does not provide a description of the specific calculations and presents methodologies in only broad terms. The documentation does not describe the steps taken to develop the estimates and does not provide enough information or supporting data to enable an analyst unfamiliar with the program to replicate the cost estimates. We were unable to trace the calculations to assess the accuracy and suitability of the methodology.\nSimilarly, we found the cost estimate to build a small centrifuge facility minimally met this characteristic. We found that the supporting documentation does not include information about the supporting data underlying the cost estimate. The sources of the data are not documented, and no information is included about how the data were normalized to make them comparable to other data used in the estimate. We found that it would be difficult to recreate this estimate because no supporting data or electronic cost models were documented.\nAccurate. According to best practices, a cost estimate should provide results that are unbiased; that is, the estimate should not be overly conservative or optimistic. An estimate is accurate when, among other things, it is based on an assessment of most likely costs, adjusted properly for inflation, and contains few, if any, mathematical mistakes. Best practices state that unless an estimate is based on an assessment of the most likely costs and reflects the degree of uncertainty given all of the risks considered, management will not be able to make good decisions. Not adequately addressing risk, especially risk that is outside the estimator’s control or that were never conceived to be possible, can result in point estimates that give decision makers no information about their likelihood of success or give them meaningless confidence intervals.\nWe found the cost estimate to build a large centrifuge facility minimally met this characteristic. We could not determine whether the estimate is unbiased because no risk and uncertainty analysis had been performed. Portions of the work breakdown structure’s elements are based on historical costs, but neither the historical data were provided, nor was there a thorough description of how those historical costs were adjusted or used. The contractor applied a 2 percent inflation factor but did not document the source of this factor; a representative of NNSA’s contractor stated that another DOE office recommended using that factor. We found no mathematical mistakes in the overall calculations, but the model was not available to evaluate the methodologies used.\nFor the small centrifuge, we found the cost estimate minimally met this characteristic. We found that no risk or uncertainty analysis had been performed. The estimate uses a 2.4 percent inflation factor, but there is no documentation about the origin of this factor. An independent cost review performed by DOE’s Office of Project Management Oversight and Assessments stated that this inflation factor was overly optimistic and recommended the use of a 4 percent factor. We did not detect any mathematical errors in the overall calculations, but the model was not available to evaluate the methodologies.\nCredible. The credible characteristic reflects the extent to which a cost estimate can be trusted, according to our cost guide. For example, to be considered credible, the cost estimate should include a sensitivity analysis that examines how changes to key assumptions, parameters, and inputs affect the estimate. This analysis helps ensure that a range of possible costs are identified, as well as risks and their effects that may affect those costs. In addition, major cost elements should be cross-checked by the estimator to validate the results, and an independent cost estimate should be conducted by an outside group. The absence of a sensitivity analysis increases the chance that decisions will be made without a clear understanding of the impacts on costs, and the estimate will lose credibility.\nThe cost estimate to build a large centrifuge facility partially meets this characteristic. NNSA presents several case studies rather than conducting a sensitivity analysis. These case studies only differ in one key assumption—schedule—but do not differ in any other major assumptions. The cost estimate documentation identified some major cost elements as cost drivers, but no cross-check information had been documented. DOE performed cross-checks in an independent cost review.\nThe cost estimate to build a small centrifuge facility minimally meets this characteristic. There is no evidence in the supporting documentation that a sensitivity analysis was completed. Some programmatic risks were identified in the documentation. No cross- check information had been documented. DOE performed an independent cost review which adjusted the project management cost to make it consistent with the large centrifuge project management cost estimate.\nRegarding the large centrifuge, an NNSA official said that the agency had requested the supporting documentation that formed the basis of the estimate Centrus prepared in 2014, but that Centrus did not provide the information, stating that it was proprietary. However, according to Centrus representatives, Centrus offered to provide updated cost estimates and supporting data—provided that they were appropriately protected—but NNSA declined the offer. According to an NNSA official, the agency has not made a renewed effort to obtain this information because Centrus is still a publicly-traded company that would like to commercialize the large centrifuge technology.\nRegarding the small centrifuge, an NNSA official told us that the agency did not have sufficient data to create a reliable preliminary cost estimate because the small centrifuge experiment is still in the preliminary design and development stages. In the absence of such data, ORNL based its estimate on its decades-long expertise and experience with centrifuges, as well as on the cost structure of the large centrifuge, according to NNSA documents. NNSA and DOE officials stated that they expect to have data by mid-2019 that would support a reliable cost estimate for inclusion in the analysis of alternatives process, which is expected to conclude in 2019. The officials said that they are still developing the technology and intend to create a new cost estimate.", "Tritium is a key isotope used in U.S. nuclear weapons, and the United States requires an ongoing supply of tritium to sustain the nuclear stockpile. Since 2013, the United States has not had a supplier of unobligated LEU, which under the current approach is necessary to power the TVA reactor that produces tritium. NNSA recognizes that its unobligated LEU inventory is finite and declining and has taken actions to extend existing supplies of unobligated LEU in the near term. These actions have effectively bought the agency some time while it initiates an analysis of alternatives process to develop a long-term solution.\nHowever, the scope of the mission need statement underpinning the analysis of alternatives is unclear because it can be interpreted to fulfill more than one mission, which is inconsistent with DOE directives that such a statement should be a clear and concise description of the gap between current capabilities and the mission need. The mission need statement is also inconsistent with the directives’ requirement that the mission need should be independent of a particular solution and not be defined by a technological solution or physical end-item. In addition, the mission need statement indicates a preference for using enriched uranium to continue the tritium production mission and excludes consideration of certain technology options, such as one that may have the potential to produce tritium without the need for enriched uranium. Without revising the scope of the mission need statement to clarify which mission need it seeks to achieve and adjusting, as appropriate, the range of options being considered in the analysis of alternatives, NNSA may not consider all options that could satisfy its ultimate mission need.\nFurther, the preliminary cost estimates developed by NNSA for the large centrifuge and small centrifuge technology options were limited in scope—sized for a capacity to enrich uranium only for tritium production—and do not reflect the full costs of building a uranium enrichment facility that could eventually meet a range of enriched uranium mission needs. By ensuring that the scope of the cost estimates address additional costs that align with other mission needs that the enrichment capability may be intended to fulfill, NNSA can select a more effective option. In addition, we found that the cost estimates produced for this more limited scope do not fully meet the best practice characteristics of reliable cost estimates. By developing reliable cost estimates consistent with best practices, NNSA will ensure that it has quality information to make an informed decision about which option to select.", "We are making the following two recommendations to NNSA: The NNSA Administrator should revise the scope of the mission need statement to clarify which mission need it seeks to achieve and, as appropriate, adjust the range of options considered in the analysis of alternatives process. (Recommendation 1)\nThe NNSA Administrator should—following clarification of the scope of the mission need statement—ensure that the agency’s cost estimates for whichever options it considers going forward are aligned with the scope of the mission need that the enrichment capability is intended to fulfill and that they are developed consistent with best practices. (Recommendation 2)", "We provided drafts of this report to NNSA, State, DOD, and TVA for review and comment. In written comments, which are summarized below and reproduced in appendix V, NNSA neither agreed nor disagreed with our recommendations. However, NNSA stated that it will take future actions consistent with our recommendations. NNSA also provided technical comments, which we considered and incorporated as appropriate. The State Department provided technical comments, which we incorporated as appropriate. The Department of Defense stated that it did not have any written or technical comments and TVA did not provide written or technical comments. We also provided a technical statement of facts to the following entities: Centrus, ConverDyn, GMIS, and URENCO. We received technical comments and incorporated them, as appropriate.\nIn its written comments, NNSA clarified that its mission need statement is written to support a range of requirements, the most urgent of which is LEU for tritium production. Further, NNSA stated that it will evaluate a broader range of options to meet its mission need during the analysis of alternatives process, which has begun and which NNSA has targeted for completion by December 2019. Because the analysis and selection of alternatives in the CD-1 phase builds off of the mission need statement, we believe NNSA’s clarification of its mission need statement is positive and will help result in an analysis of alternatives that does not limit potential solutions.\nNNSA also stated that it will produce higher fidelity cost estimates leading up to the CD-1 phase, which we agree is consistent with our recommendation. NNSA stated that the preliminary cost estimates it developed do not include the full life cycle cost of building an enrichment facility to meet the range of enriched uranium missions it has now clarified as its mission need, but it stated that such estimates are neither required nor cost beneficial at this early stage. As we noted, best practices—which can be used to evaluate preliminary cost estimates—recommend having complete life cycle cost estimates even at this early stage because they help ensure that all costs are considered to support decision-making and that resources are efficiently allocated to support the project. As NNSA develops its higher fidelity estimates, following cost estimating best practices—such as, by ensuring that the cost estimates for the alternatives being evaluated align with the broad range of uranium mission needs that those alternatives are intended to address, and that full life cycle cost estimates are developed for each option—would better position NNSA to select an option going forward.\nWe are sending copies of this report to the appropriate congressional committees, Secretary of Energy, Secretary of State, Secretary of Defense, Vice President for Government Relations of TVA, and other interested parties. In addition, this report will be available at no charge on the GAO website at http://www.gao.gov.\nIf you or your staff have any questions about this report, please contact me at (202) 512-3841 or at bawdena@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix VI.", "The objectives of our review were to assess (1) the actions the National Nuclear Security Administration (NNSA) is taking to extend its existing inventories of enriched uranium to address near-term tritium needs and the costs, schedules, and risks of those actions; (2) the extent to which NNSA’s plan to analyze options for supplying enriched uranium in the long term is consistent with Department of Energy (DOE) directives; and (3) NNSA’s preliminary cost estimates for long-term uranium enrichment technology options and the extent to which they meet best practices for reliable estimates.\nTo inform all three objectives, we analyzed NNSA planning documents, such as NNSA’s October 2015 Tritium and Enriched Uranium Management Plan Through 2060 and other documents from NNSA and DOE pertaining to the management of enriched uranium and tritium. We also interviewed officials from NNSA, DOE, the Department of Defense (DOD), the Department of State (State), the Tennessee Valley Authority (TVA) and representatives of companies participating in different stages of the nuclear fuel cycle. We conducted site visits to the Oak Ridge National Laboratory (ORNL), the Y-12 National Security Complex in Oak Ridge, Tennessee, and the American Centrifuge Plant, in Piketon, Ohio, to understand the technology and nonproliferation policy issues that affect the current inventory and future supply of unobligated enriched uranium.\nTo describe the actions NNSA is taking or plans to take to extend its existing inventories of enriched uranium to address near-term tritium needs and the costs, schedules, and risks of those actions, we reviewed and analyzed agency documents pertaining to NNSA’s estimates of the costs, schedules, and risks for the actions. Namely, we analyzed NNSA’s October 2015 Tritium and Enriched Uranium Management Plan Through 2060 and other NNSA strategies and implementation plans, including a 2014 Uranium Inventory Working Group assessment of near-term NNSA actions to extend the supply of unobligated LEU. We interviewed NNSA and TVA officials to validate the cost and schedule information for the action NNSA is taking to extend its LEU inventory. To compare the estimated costs to the actual costs for the actions NNSA is taking or plans to take to extend the unobligated LEU fuel supply for tritium production, we analyzed contracts between TVA and fuel cycle facilities for book storage and associated documentation. We then spoke with representatives from NNSA’s downblending contractor, and compared that information to the costs that had been invoiced through July 2017. To identify risks of the options that NNSA has identified, we reviewed NNSA documents and interviewed NNSA officials.\nTo assess the extent to which NNSA’s plan to analyze options for supplying enriched uranium in the long term is consistent with DOE directives, we reviewed DOE and NNSA documents including: documents associated with DOE’s critical decision process, such as the uranium enrichment mission need statement, project requirements, and the CD-0 approval memo; DOE memos on the department’s uranium management strategy; and an intellectual property transfer contract between DOE and the United States Enrichment Corporation (USEC). We compared these documents to DOE directives, including DOE Order 413.3B Program and Project Management for the Acquisition of Capital Assets and 413. 3-4A Technology Readiness Assessment Guide, and associated guidance, such as DOE 413.3-17 Mission Need Statement Guide.\nORNL and its subcontractor manage the contracts to develop and preserve the large centrifuge technology (AC100), and the contract to develop the small centrifuge technology; therefore, we also reviewed ORNL documents including a uranium enrichment production technology study, project management plans for the large and small centrifuge projects, and large centrifuge experiment test results.\nWe interviewed DOE officials and ORNL representatives regarding efforts to assess the feasibility of other technology options identified in NNSA’s October 2015 plan—large centrifuge, small centrifuge, Atomic Vapor Laser Isotope Separation (AVLIS), Electromagnetic Isotope Separation (EMIS), Separation of Isotopes by Laser Excitation (SILEX), and the Paducah Gaseous Diffusion Plant. We also reviewed documents and interviewed representatives from Centrus and Global Laser Enrichment (GLE)—a joint venture that developed SILEX—regarding the development of the large centrifuge, AVLIS, and SILEX technologies. In addition, we reviewed industry responses to NNSA’s request for information regarding proposals for meeting NNSA’s future enriched uranium needs. We also interviewed NNSA and DOE officials, and industry representatives, to learn about any recent alternative tritium production technology developments. We conducted a site visit to an isotope production facility in Henderson, Nevada, to observe a NNSA- funded demonstration project with Global Medical Isotope Systems that is currently testing an alternative tritium production technology. To review the feasibility of policy and other options that NNSA is evaluating, we analyzed NNSA planning documents, and interviewed officials from NNSA and State to determine the extent to which the costs, schedules, and risks for these options were known.\nTo examine NNSA’s preliminary cost estimates for long-term uranium enrichment technology options—the large and small centrifuges—and the extent to which they meet best practices for reliable estimates we compared these estimates to GAO’s Cost Estimating and Assessment Guide (cost guide), which is a compilation of best practices that federal cost estimating organizations and industry use to develop and maintain reliable cost estimates throughout the life of an acquisition program. According to the cost guide’s best practices, four characteristics make up reliable cost estimates—they are comprehensive, well-documented, accurate, and credible. To develop our assessments, we interviewed an NNSA official and a representative of an NNSA contractor who prepared the cost estimates about their methodologies and the findings that were used to support the cost estimates presented in NNSA’s mission need statement. We analyzed the cost estimating practices used by NNSA against the four characteristics of reliable cost estimates. We performed a summary analysis because NNSA’s cost estimates were at the rough- order-of-magnitude level. After conducting our initial analyses, we shared them with NNSA officials to provide them an opportunity to comment and identify reasons for observed shortfalls in cost estimating best practices. We took their comments and any additional information they provided and incorporated them to finalize our assessment. While rough-order-of- magnitude estimates should never be considered high-quality estimates, rough-order-of-magnitude estimates can be considered reliable by fully or substantially meeting industry best practices. For example, we have found that other rough-order-of-magnitude estimates substantially or fully met various characteristics of a reliable cost estimate, such as cost estimates prepared by the DOD and the U.S. Customs and Border Protection within the Department of Homeland Security. Moreover, DOE’s cost guidance states that, “regardless of purpose, classification, or technique,” the agency’s cost estimates should demonstrate quality sufficient for its intended use, be complete, and follow accepted standards such as our cost guide. DOE’s cost guidance also describes good cost estimates as including a full life-cycle cost estimate, among other things. These best practices should result in reliable and valid cost estimates that management can use for making informed decisions.\nWe conducted this performance audit from August 2016 to February 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.", "The National Nuclear Security Administration (NNSA) has identified other options for obtaining enriched uranium to evaluate in its analysis of alternatives process, but these options pose significant challenges and are likely to be eliminated during this process, according to NNSA and Department of State (State) officials. These options may require changes in policy and could have significant costs, risks, or technical challenges, according to NNSA and State officials. These options include revising domestic policy and international agreements to allow the use of foreign- obligated enriched uranium and technology for producing tritium; obtaining low enriched uranium (LEU) through the Mutual Defense Agreement between the United States and the United Kingdom; downblending highly enriched uranium (HEU) from the defense programs inventory; and reprocessing spent U.S. nuclear fuel. NNSA officials stated that they do not plan to pursue these options at this time.", "Over the years, questions have been raised as to whether using foreign- obligated material and technology to produce LEU, which produces tritium that can be harvested for weapons, when irradiated in a power reactor, constitutes a peaceful use. However, according to DOE, it has been the agency’s long-standing practice to use only unobligated material for tritium production. NNSA’s mission need statement includes the option to revise domestic policy and seek to renegotiate international agreements to allow foreign-obligated LEU—that is, LEU either sourced from foreign countries or produced using non-U.S. equipment or technology—for tritium production for nuclear weapons.\nSpecifically, NNSA discussed three variations of the option of using foreign-obligated LEU for tritium production for use in nuclear weapons:\nUsing obligated LEU from URENCO—a European enrichment consortium operating an enrichment plant in New Mexico. The LEU produced by URENCO is enriched using foreign technology and is subject to a peaceful use provision in an international agreement between the United States and Germany, the Netherlands, and the United Kingdom.\nLoading TVA reactor cores with a mix of unobligated and obligated LEU fuel proportional to the extent that the reactor core is used for tritium production for commercial electricity production.\nRenegotiating international agreements to allow the use of foreign technologies to produce LEU for tritium production.\nAccording to NNSA and State Department officials, longstanding U.S. policy will likely preclude the use of these options. A 1998 interagency review—led by DOE—considered the nonproliferation issues associated with establishing a new means for tritium production. The 1998 review concluded that DOE should exclusively use LEU that is unobligated by peaceful-use restrictions to preserve the “military/civilian dichotomy.” Since that time, NNSA has adhered to this policy and used only unobligated LEU for tritium production, as we reported in 2015. Various U.S. interagency policy committees—which provide national security policy analysis within the National Security Council—met several times between 2014 and 2016 to reexamine the policy and consider whether to allow obligated LEU to be used for tritium production for nuclear weapons. However, the committees concluded that this is not permissible either by the United States or partner countries under applicable international agreements. Revising the policy and agreements would have significant repercussions on U.S. nonproliferation policy as well as on international agreements, according to NNSA and State officials. In addition, according to the mission need statement, U.S. partners have repeatedly requested assurances that materials supplied to the United States not be used for tritium production.\nIn addition, NNSA and State officials stated that using only unobligated LEU for national security purposes supports U.S. nonproliferation policy goals by, for example, avoiding setting a precedent for other countries that may seek to use U.S. obligated LEU for military purposes. State officials stated that even using a mix of unobligated and obligated LEU fuel would still essentially be asking a foreign partner for the use of its material for tritium production for nuclear weapons. Revising policy to allow for the use of obligated LEU in tritium production could “blur the line” between using LEU for peaceful energy purposes and national security purposes, according to these officials.", "NNSA also considered obtaining LEU from the United Kingdom under our mutual defense agreement with that country. The agreement provides for the transfer of special nuclear material between the two countries. In 2014, the Senate Armed Services Committee directed DOE to evaluate whether it would be possible to obtain LEU for the purposes of tritium production from the United Kingdom under the mutual defense agreement. According to State officials, the mutual defense agreement does not preclude the United States from obtaining LEU directly from the United Kingdom for the purposes of tritium production. However, this option is not likely to be pursued by the federal government, according to NNSA officials. Aside from the mutual defense agreement, State officials said that they are not aware of any other such agreements that would potentially allow the United States to obtain tritium from another country.", "NNSA’s October 2015 plan identifies a Strategic Reserve of HEU maintained by NNSA as a potential source of HEU for downblending to obtain unobligated LEU for use in tritium production. The Strategic Reserve consists of HEU metal and HEU in nuclear weapon components that are held as a backup for weapons in the U.S. nuclear stockpile. According to the October 2015 plan, this option could provide unobligated LEU for tritium production for many years. However, the October 2015 plan states that changing the quantity of HEU held in the Strategic Reserve inventory would require presidential approval.\nNNSA officials indicated that the agency is assessing the costs and risks of this option. According to these officials, pursuing this option would involve significant costs and risks associated with lowering the material in the Strategic Reserve, as well as accelerating the dismantlement of nuclear weapons and the disassembly of their components. While this option is currently being assessed for costs and risks, NNSA officials noted that there is currently “no plan” to access material from the Strategic Reserve.\nFinally, the United States’ inventory of HEU is finite; the United States has not had a domestic capability to produce HEU since 1992 and instead meets national security needs using an inventory of HEU that was enriched prior to 1992. Using this inventory for HEU downblending would consume HEU that could be used to meet other national security missions, such as providing HEU fuel for the U.S. Navy’s propulsion reactors. Consequently, this option could accelerate the date when a new enrichment capability for HEU production would be needed.", "In its October 2015 plan, NNSA identified an option of reprocessing spent U.S. nuclear fuel to obtain unobligated HEU that could be downblended to LEU and used for tritium production. However, this option was not ultimately included in NNSA’s October 2016 mission need statement. This material is spent reactor fuel from the U.S. Navy and other sources, and represents a potentially significant source of unobligated LEU that could be used for tritium production. DOE maintains a large inventory of such fuel, which includes both aluminum-clad and non-aluminum clad fuel, such as zirconium-clad fuel. Most of the aluminum-clad fuel is stored at the Savannah River Site, in South Carolina, while most of the zirconium-clad fuel is stored at the Idaho National Laboratory.\nOptions for recovering HEU from either type of spent fuel are limited. The United States can only process and recover HEU from aluminum-clad spent nuclear fuel using the Savannah River Site’s H-Canyon facility, which is the only hardened nuclear chemical separations plant still in operation in the United States. There is a small amount of aluminum- clad fuel at the Idaho National Laboratory that would need to be shipped to the Savannah River Site. However, according to NNSA officials, it would be expensive to transport the material from the Idaho National Laboratory to the Savannah River Site, and the costs to operate H- Canyon to process the material would be high. Further, receipts of all nuclear material at H-Canyon have been halted by Savannah River Site’s management and operations contractor due to the facility’s degraded conditions and seismic risks. Even if H-Canyon were to resume operations, NNSA officials stated that processing aluminum-clad spent fuel would yield relatively small quantities of LEU usable for tritium production, as a considerable portion of the spent fuel is encumbered under a 1994 Presidential declaration. Therefore, NNSA officials reported that this is considered a long-term option due to the high costs and risks involved.\nDOE’s Office of Nuclear Energy is researching a process that could recover HEU from the zirconium-clad spent naval reactor fuel. In May 2017, Idaho National Laboratory completed a study examining the feasibility of processing a portion of its zirconium-clad spent fuel inventory through a new process called “ZIRCEX.” The report concluded that ZIRCEX showed promise; however, it also noted that pilot-scale testing was needed to prove that it can be used effectively at production scale. According to DOE officials, a pilot-scale demonstration is planned using ZIRCEX, with limited testing planned in fiscal year 2018. DOE officials told us the costs and schedules to implement a full-scale production plant using ZIRCEX to recover HEU from zirconium clad spent fuel are not known. Furthermore, additional processing and downblending would be needed to produce unobligated LEU. DOE considers recovering unobligated HEU for tritium production for use in nuclear weapons through the ZIRCEX process a long-term possibility that could be re- evaluated as the technology matures.", "In addition to the large and small centrifuges, four other enrichment options were presented in the National Nuclear Security Administration’s (NNSA) October 2015 plan and its October 2016 mission need statement. However, these options are unlikely to be pursued, according to NNSA documents. Some of these options have produced enriched uranium in the past, but extraordinary technical or financial barriers, past research failures, or peaceful use restrictions will likely preclude further consideration by NNSA, according to agency documents. These options include:\nRestart of the Paducah Gaseous Diffusion Plant (GDP). Gaseous diffusion was the first uranium enrichment technology used for both national security and commercial enriched uranium needs in the United States, and involves passing uranium hexafluoride in a gaseous form through a series of filters that is then cooled into a solid. The Paducah GDP produced low enriched uranium (LEU) from the mid-1950s until 2013. It was originally operated by the Department of Energy (DOE), but leased to the United States Enrichment Corporation (USEC) beginning in 1993. Gaseous diffusion facilities used very large amounts of electricity, making them costly to operate. According to DOE, by May 2012, it became clear that USEC was no longer in a financial position to continue enrichment activities at the Paducah GDP, and—through a series of transactions—DOE transferred enough material to keep it operating long enough to produce an additional 15-year supply of LEU for future tritium production. In May 2013, USEC ceased enrichment at the Paducah GDP citing the high costs of maintaining and operating an aging plant. In October 2014, the Paducah GDP was returned to DOE, and DOE is currently deactivating the plant in preparation for decontamination and decommissioning, while it continues to complete environmental cleanup that began in the late 1980s.\nIn April 2015, when NNSA produced a technical evaluation of uranium enrichment technology options, restarting the Paducah GDP was still a hypothetical possibility. At that time, NNSA estimated that the technology readiness level (TRL) for this option rated 7-8 on the TRL scale. Restarting the Paducah GDP was advantageous, according to NNSA, because of the facility’s high production rate. For example, according to DOE officials, if it had been operated for a relatively brief period of time after May 2013, a significant stockpile of unobligated LEU could have been produced to support tritium production for a number of years. Since 2015, the plant and equipment have significantly deteriorated, and restart of the Paducah GDP is no longer a feasible option, according to NNSA documents and Oak Ridge National Laboratory (ORNL) representatives. Due to degradation of the equipment, the expected rate of equipment failure, a lack of replacement parts, the dispersion of trained and qualified personnel, and ongoing decontamination and demolition activities, a major effort would be required to reconstitute the plant, according to NNSA’s 2015 technical evaluation and the 2015 plan. NNSA’s 2015 evaluation estimated that it would cost $425 million to $797 million to restart the plant, and between $554 million to $1 billion annually to operate it. In addition, even if the Paducah GDP were successfully restarted without major failures, the plant could likely operate at full capacity for only 1 to 3 years before incurring additional significant costs for repairs, and obtaining replacement parts for critical process equipment would be difficult. According to NNSA’s April 2015 evaluation, operating the Paducah GDP beyond 1 to 3 years would require major investments in the plant’s facilities and infrastructure.\nElectromagnetic Isotope Separation (EMIS). Electromagnetic isotope separation was used in the United States to enrich uranium for the Manhattan Project, but was abandoned in favor of the then- less-costly gaseous diffusion technology. Electromagnetic separation used magnetic and electronic forces to manipulate and separate charged isotopes. An updated EMIS machine has been developed by ORNL that was successful at the laboratory scale, and which had a TRL of 7, according to NNSA documents and ORNL representatives. However, when scaled to production levels, NNSA estimated that an enrichment facility using EMIS would require over 60,000 machines and cost approximately $150 billion to construct. Due to the exorbitant estimated costs, this option is unlikely to be pursued by NNSA, according to agency documents.\nAtomic Vapor Laser Isotope Separation (AVLIS). Lawrence Livermore National Laboratory and later, USEC, developed the AVLIS technology from 1973 through 1999. This technology relies on the phenomenon that different isotopes of uranium absorb laser light at different wavelengths. Because lasers can be finely tuned, the ability to separate the uranium-235 isotope from the uranium-238 isotope is potentially much greater than with gaseous diffusion or the gas centrifuge process. However, despite the federal government spending $1.7 billion on the technology, and USEC investing an additional $100 million, it was not successful at the pilot scale stage and USEC ended research and funding in 1999. According to NNSA’s October 2015 plan, AVLIS’ TRL was estimated to be 5-6. If development were restarted, AVLIS could reach a TRL of 9— ready to deploy—in 5 to 15 years, according to NNSA’s October 2015 plan. However, this would likely be too late to meet NNSA’s 2038 to 2041 need date for additional unobligated LEU, and there is no estimate for the cost of such a plant, according to agency documents. According to NNSA’s 2015 plan, there is no current effort to develop the AVLIS technology.\nSeparation of Isotopes by Laser Excitation (SILEX). Global Laser Enrichment (GLE)—a joint venture between General Electric, Hitachi, and Cameco—is developing this uranium enrichment technology that also uses lasers to separate isotopes. The technology is proprietary and was developed, in part, by an Australian company. In November 2016, DOE reached an agreement to sell its depleted uranium tails to GLE for re-enrichment to natural uranium. According to a senior SILEX official, GLE intends to build an enrichment plant by 2025 adjacent to the site of the former Paducah GDP to re-enrich these tails. However, we previously found that the SILEX agreement between the United States and Australia likely prohibits using LEU produced using GLE’s process for the subsequent production of tritium, and the executive branch has long interpreted it as such.", "The AC100 centrifuge (large centrifuge) design was developed by USEC Inc. (now Centrus), based off Department of Energy (DOE) centrifuge research that was terminated in the 1980s. Standing about 40 feet tall, its size means that it can produce more separative work units (SWU) per centrifuge than other centrifuge designs—making it the most advanced centrifuge design in the world, according to Centrus. In contrast to European and Japanese centrifuge designs, which are relatively small (2 to 4 meters long) and have separative work capacities in the range of 5 SWU per year to 100 SWU per year, the AC100 demonstrated a SWU production rate greater than 340 per year.\nWhen it leased a DOE site at Piketon, Ohio, for its American Centrifuge demonstration plant starting in 2004, USEC originally intended to build a 3.8 million SWU commercial uranium enrichment plant at that site with enough land nearby to expand the facility to meet total U.S. low enriched uranium (LEU) demand, including enough to meet national security needs. The planned facility would have included over 14,400 centrifuges in a facility covering over 2 million square feet. In 2010, and again in 2012, DOE and USEC signed cooperative agreements to share the cost of supporting a research, development, and demonstration program for the large centrifuge technology. DOE provided $280 million, or 80 percent of the investment in the program, with the remaining $70 million, or 20 percent, provided by USEC. With this support, USEC began operating a 120-machine commercial demonstration cascade in October 2013.\nIn the wake of significant adverse uranium market impacts resulting from the Fukushima Daiichi accident in Japan in 2011, and in light of difficulties in securing DOE loan guarantees for deploying a commercial plant, USEC declared bankruptcy in March 2014 and later emerged as Centrus. In April 2014, following the conclusion of the cooperative agreement, the Secretary of Energy stated that DOE’s Oak Ridge National Laboratory would place Centrus under contract to operate the demonstration plant and technology with a focus on meeting national security needs. In May 2014, Centrus entered into a contract with UT-Battelle—DOE’s contractor for Oak Ridge National Laboratory—to run a program to preserve and further advance the technology readiness of the AC100 technology. Also, since 2002, Centrus has maintained a lease on a smaller test research facility, K-1600, at Oak Ridge, Tennessee, from DOE. According to a DOE document, centrifuges can be assembled and balanced at K-1600, and the test facility allows verification of centrifuge operations beyond what was possible at the demonstration plant. The K-1600 facility is located near Centrus’ manufacturing hub, the American Centrifuge Technology & Manufacturing Center, also in Oak Ridge, Tennessee.\nBecause the May 2014 contract was set to expire in September 2015, Centrus and UT-Battelle began negotiating a new contract to support operations at the demonstration plant, the Technology and Manufacturing Center, and K-1600 in early 2015. UT-Battelle and Centrus agreed to an extension of research operations at K-1600 and the Technology and Manufacturing Center until September 2016 for $35 million annually. In addition, the Centrus lease of K-1600 was renewed until the end of calendar year 2017. However, the parties were unable to agree on further funding for the demonstration plant. On September 11, 2015, DOE announced that it would not fund the demonstration plant in Piketon, Ohio, after September 30 of that year. Centrus—unable to operate the demonstration plant without further government support—announced its intention to demobilize the plant in February 2016. Decontamination and decommissioning of the demonstration plant began in April 2016. As part of this work, Centrus is removing all of the equipment—including the centrifuges—from the demonstration plant, and will finish disposing of the machines at a secure government facility in October 2017, according to Centrus officials. However, according to DOE officials, DOE has preserved a number of the centrifuges and associated components at the Technology & Manufacturing Center. Centrus documents anticipate that the decontamination and decommissioning work will be substantially complete by the end of 2017. According to NNSA officials, Centrus has given verbal notice to DOE that it intends to terminate its American Centrifuge demonstration plant site lease in 2019.\nAn August 2015 DOE memo states that technical issues with the existing centrifuges, peaceful-use restrictions on key components and DOE’s acquisition timeline meant that there was limited value in continuing to support the demonstration cascade after 2015. Specifically, during operation of the demonstration cascade, two technical issues were identified that made the existing centrifuges undesirable for future use. Rehabilitation of the centrifuges would have been cost prohibitive, according to NNSA officials. In addition, key components of the existing machines were constructed using foreign-sourced materials, which were subject to peaceful-use restrictions. According to an August 2015 DOE memo, the second cooperative agreement with Centrus did not require that Centrus use unobligated materials, and Centrus initially assumed it would use those machines in a larger commercial plant and not for national security. Centrus representatives and DOE officials told us that the company had since identified U.S. suppliers or workarounds for these components. However, to be used in a national security facility, these components would need to be remanufactured using those suppliers, since not all components in the demonstration cascade were unobligated. Further, under NNSA’s timeline for a domestic uranium enrichment capability, it could take until 2027 to begin construction of a uranium enrichment plant. Thus, according to an August 2015 memo, DOE concluded that it would not be economical to keep the demonstration cascade operational, and that, after the passage of so much time, parts of the centrifuges and the balance of the plant would also need to be replaced during construction.", "", "", "", "In addition to the individual named above, Shelby S. Oakley, Director; William Hoehn, Assistant Director; Eric Bachhuber, Analyst in Charge; Julia Coulter; and Katrina Pekar-Carpenter made key contributions to this report. Also contributing to this report were Antoinette C. Capaccio, Jeff Cherwonik, Jennifer Echard, Robert S. Fletcher, Ellen Fried, Cindy Gilbert, Amanda K. Kolling, Jason Lee, Jennifer Leotta, Dan C. Royer, Anne Stevens, and Kiki Theodoropoulos." ], "depth": [ 1, 2, 2, 2, 2, 1, 2, 2, 2, 2, 1, 2, 1, 1, 2, 2, 1, 1, 1, 1, 1, 2, 2, 2, 2, 1, 1, 1, 1, 2, 2 ], "alignment": [ "h0_title", "h0_full", "", "", "", "h0_full", "", "", "", "", "h3_title h1_full", "h3_full h1_full", "", "h2_full", "h2_full", "h2_full", "h3_full h2_full h1_full", "h2_full h1_full", "", "h4_full h2_full", "h3_title", "h3_full", "", "", "", "", "", "", "", "", "" ] }

{ "question": [ "What plans does the NNSA have regarding LEU?", "What do these actions involve?", "What did NNSA and GAO determine about these actions?", "What steps are being taken to address these risks?", "What is the relationship between NNSA's uranium plan and DOE directives?", "In what way is NNSA showing preference to a particular solution?", "What mission needs can be met by the NNSA's current plan?", "What steps does NNSA need to take with regards to its mission need?", "What is the current status of NNSA's uranium projects?", "What are the shortcomings of these estimates?", "What characterizes NNSA's uranium project approach?", "What limitations exist with these estimates?", "Why were some of the costs excluded, according to NNSA officials?", "Why should NNSA work to develop reliable cost estimates?", "What is one NNSA mission need for enriched uranium?", "Why must the equipment used to produce the LEU be U.S. in origin?", "How have recent events complicated this process?", "Why did GAO assess NNSA's uranium plans?", "What does the report examine?", "How did GAO conduct its analysis?" ], "summary": [ "The National Nuclear Security Administration (NNSA), a separately organized agency within the Department of Energy (DOE), is taking or plans to take four actions to extend inventories of low-enriched uranium (LEU) that is unobligated, or carries no promises or peaceful use to foreign trade partners until about 2038 to 2041.", "Two of the actions involve preserving supplies of LEU, and the other two involve diluting highly enriched uranium (HEU) with lower enriched forms of uranium to produce LEU.", "GAO reviewed these actions and found the actual costs and schedules for those taken to date generally align with estimates. NNSA and GAO have identified risks associated with two of these actions.", "One of these risks has been resolved; NNSA is taking steps to mitigate another, while others, such as uncertainty of future appropriations, are unresolved.", "NNSA's preliminary plan for analyzing options to supply unobligated enriched uranium in the long term is inconsistent with DOE directives for the acquisition of capital assets, which state that the mission need statement should be a clear and concise description of the gap between current capabilities and the mission need. The DOE directives also state that mission need should be independent of and not defined by a particular solution.", "However, NNSA is showing preference toward a particular solution—building a new uranium enrichment capability—and the agency has not included other technology options for analysis.", "The scope of the mission need statement that NNSA has developed can be interpreted to meet two different mission needs: (1) a need for enriched uranium for multiple national security needs, including tritium, and (2) a specific need for enriched uranium to produce tritium.", "Without (1) revising the scope of the mission need statement to clarify the mission need it seeks to achieve and (2) adjusting the range of options it considers in the analysis of alternatives process, NNSA may not consider all options to satisfy its mission need.", "Although the scope of the mission need statement is unclear, NNSA has prepared preliminary cost estimates for the two uranium enrichment technology options—the large and small centrifuge—that the agency considers to be the most feasible.", "However, these estimates are limited in scope and do not fully meet best practices for reliable cost estimates.", "Based on GAO's review of NNSA documents, NNSA appears to favor an incremental approach to reestablishing an enrichment capability that could ultimately meet all national security needs for enriched uranium.", "The estimates' scope is limited, however, in that they reflect only the costs of the first increment—producing LEU for tritium—and do not reflect the full costs of building a uranium enrichment facility that could meet the range of enriched uranium needs. Specifically, how does NNSA's cost estimate differ from GAO's cost guide? Also, NNSA's estimates for the two options minimally or partially met best practice characteristics for reliable cost estimates even when assessed for the more limited mission scope. For example, the estimates excluded certain costs and did not describe the calculations used.", "NNSA officials said that the cost estimates are preliminary and will be revised.", "By developing reliable cost estimates that are aligned with the revised mission need statement and consistent with best practices, NNSA will reasonably ensure that it has reliable information to make a decision about which option to select.", "NNSA has several mission needs for enriched uranium, including providing LEU to fuel a nuclear reactor that produces tritium—a key isotope used in nuclear weapons.", "NNSA has a pressing defense need for unobligated LEU to fuel this reactor, meaning the uranium, technology and equipment used to produce the LEU, must be U.S. in origin.", "Because the United States lost its only source of unobligated LEU production in 2013, the supply is finite.", "A House Armed Services Committee report included a provision for GAO to assess NNSA's plans to manage tritium and enriched uranium.", "This report examines (1) the actions NNSA is taking to extend its existing LEU inventories to address near-term tritium needs; (2) the extent to which NNSA's plan to analyze long-term options for supplying enriched uranium is consistent with DOE directives; and (3) NNSA's preliminary cost estimates for long-term uranium enrichment technology options and the extent to which they meet best practices for reliable estimates.", "GAO analyzed NNSA plans on costs, schedules, and risks; compared them with its guide on best practices in cost estimating; and interviewed NNSA and other officials." ], "parent_pair_index": [ -1, 0, 1, 2, -1, 0, 0, 0, -1, 0, 0, 2, 3, 0, -1, 0, 0, -1, 0, 0 ], "summary_paragraph_index": [ 2, 2, 2, 2, 3, 3, 3, 3, 4, 4, 4, 4, 4, 4, 0, 0, 0, 1, 1, 1 ] }

{ "title": [ "", "Predicting Nominees' Future Decisions on the Court", "Judge Kavanaugh's Judicial Approach, Philosophy, and Influences", "The Craft of Judging", "Judicial Philosophy", "Judicial Influences", "Statutory Interpretation250", "General Theory", "Application and Interpretive Tools", "Severability", "Administrative Law354", "Justiciability Issues", "Statutory Review", "Discretionary and Factual Review", "Conclusion", "Business Law492", "Antitrust Law", "Labor Law", "Securities Law", "Conclusion", "Civil Rights629", "Statutory Civil Rights Law", "Voting Rights", "Conclusion", "Criminal Law and Procedure741", "Fourth Amendment", "Constitutional Issues in Criminal Sentencing", "Other Criminal Procedure Issues", "Substantive Criminal Law", "Cruel and Unusual Punishments Under the Eighth Amendment", "Conclusion", "Environmental Law814", "Standing to Sue in Environmental Cases", "Substantive Environmental Law", "Conclusion", "Federalism909", "Freedom of Religion941", "Establishment Clause", "Free Exercise Clause and RFRA", "Freedom of Speech1026", "Political Speech, Political Spending, and Speaker-Based Distinctions", "Free Speech and the Modern Communications Marketplace", "Commercial Speech and Commercial Disclosures", "Limits on First Amendment Protections", "Conclusion", "National Security1152", "Second Amendment1217", "Separation of Powers1256", "Judge Kavanaugh's General Theory of the Separation of Powers", "Judicial Role in Maintaining the Separation of Powers", "Presidential Execution of the Law", "Legislator and Presidential Immunity", "Executive Privilege", "Executive Compliance with a Subpoena", "Structural Design of Independent Agencies", "Substantive Due Process and Fundamental Rights1452", "Abortion Jurisprudence", "Substantive Due Process Cases Decided Under Glucksberg", "Conclusion", "Takings1536", "Appendix. Judge Kavanaugh by the Numbers" ], "paragraphs": [ "O n July 9, 2018, President Donald J. Trump announced the nomination of Judge Brett M. Kavanaugh of the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) to fill the vacancy on the Supreme Court of the United States caused by Justice Anthony M. Kennedy's retirement on July 31, 2018. Nominated by President George W. Bush to the D.C. Circuit, a court once described by President Franklin Roosevelt as \"the second most important court in the country,\" Judge Kavanaugh has served on the bench for more than twelve years. In his role as a Circuit Judge, the nominee has authored roughly three hundred opinions (including majority opinions, concurrences, and dissents) and adjudicated numerous high-profile cases concerning, among other things, the status of wartime detainees held by the United States at Guantanamo Bay, Cuba; the constitutionality of the current structure of the Consumer Financial Protection Bureau (CFPB); the validity of rules issued by the Environmental Protection Agency (EPA) under the Clean Air Act; and the legality of the Federal Communications Commission's (FCC's) net neutrality rule. Since joining the D.C. Circuit, Judge Kavanaugh has also taught courses on the separation of powers, national security law, and constitutional interpretation at Harvard Law School, Yale Law School, and the Georgetown University Law Center.\nPrior to his appointment to the federal bench in 2006, Judge Kavanaugh served in the George W. Bush White House, first as an associate and then senior associate counsel, before becoming an assistant and staff secretary to the President. Before his service in the Bush Administration, the nominee worked in private practice at the law firm of Kirkland & Ellis, LLP for three years and served in the Office of the Independent Counsel and the Office of the Solicitor General. Judge Kavanaugh began his legal career with three federal clerkships—two for judges on the federal courts of appeals and one for the jurist he is nominated to succeed, Justice Kennedy. Judge Kavanaugh is a graduate of Yale College and Yale Law School.\nThis report provides an overview of Judge Kavanaugh's jurisprudence and discusses how the Supreme Court might be affected if he were to succeed Justice Kennedy. In attempting to ascertain how Judge Kavanaugh could influence the High Court, however, it is important to note that, for various reasons, it is difficult to predict accurately a nominee's likely contributions to the Court based on his or her prior experience. A section of this report titled Predicting Nominees' Future Decisions on the Court provides a broad context and framework for evaluating how determinative a judge's prior record may be in predicting future votes on the Supreme Court.\nBecause Judge Kavanaugh would succeed Justice Kennedy on the High Court, the report then focuses on those areas of law where Justice Kennedy can be seen to have influenced the Court's approach, or provided a fifth and deciding vote, with a view toward how the nominee might approach those same issues. Justice Kennedy's retirement is likely to have significant implications for the Court, Congress, and the nation as a whole. Justice Kennedy, often described as the Roberts Court's median vote, was frequently at the center of legal debates on the High Court, casting decisive votes on issues ranging from the powers of the federal government vis-à-vis the states, to separation-of-powers disputes, to key civil liberties issues. Accordingly, a critical question now before the Senate as it considers providing its advice and consent to the President's nomination to the High Court is how Judge Kavanaugh may view the many legal issues in which Justice Kennedy's vote was often determinative.\nAs a result, the report begins by discussing two cross-cutting issues—the nominee's general judicial philosophy and his approach to statutory interpretation. It then addresses thirteen separate areas of law, arranged in alphabetical order, from \"administrative law\" to \"takings.\" Within each section, the report reviews whether and how Judge Kavanaugh has addressed particular issues in the opinions he authored. In some instances, the report also identifies other votes in which he participated (e.g., votes to join majority opinions authored by other D.C. Circuit judges, votes on whether the D.C. Circuit should grant en banc review to a decision of a three-judge panel, etc.). The report also analyzes, where relevant, Judge Kavanaugh's non-judicial work, including a number of speeches and academic articles, many of which address the role of the judiciary, separation of powers, and constitutional and statutory interpretation.\nWhile this report discusses many of Judge Kavanaugh's non-judicial writings, it does not address two types of written work. First, the report does not discuss anything written by the nominee in a representative capacity for another party, such as a brief submitted on behalf of a client to a court, as such materials may provide limited insight into the advocate's personal views on the law. For purposes of this report, this limitation also extends to writings related to Judge Kavanaugh's former government service, such as his work for the George W. Bush Administration, the Office of the Independent Counsel, and the Office of the Solicitor General. Second, the report does not discuss the nominee's writings that predate his graduation from law school, as such writings may be of limited import to gauging his educated views on the law.\nWhile the report discusses numerous cases and votes involving Judge Kavanaugh, it focuses particularly on cases in which the sitting panel was divided, as these cases arguably best showcase how he might approach a legal controversy whose resolution is a matter of dispute and is not necessarily clearly addressed by prior case law. In addition, the report highlights areas where the nominee has expressed views on the law that may contrast with those of some of his colleagues. To the extent that the nominee's votes in particular cases arguably reflect broader trends and tendencies in his decisionmaking that he might bring to the High Court, the report highlights such trends. Nonetheless, this report does not attempt to catalog every matter in which Judge Kavanaugh has participated during his service on the D.C. Circuit. A separate report, CRS Report R45269, Judicial Opinions of Judge Brett M. Kavanaugh , coordinated by [author name scrubbed], lists and briefly describes each opinion authored by the nominee during his tenure on the federal bench. Other CRS products discuss various issues related to the vacancy on the Court. For an overview of available products, see CRS Legal Sidebar LSB10160, Supreme Court Nomination: CRS Products , by [author name scrubbed].", "At least as a historical matter, attempting to predict how Supreme Court nominees may approach their work on the High Court is a task fraught with uncertainty. For example, Justice Felix Frankfurter, who had a reputation as a \"progressive\" legal scholar prior to his appointment to the Court in 1939, disappointed some early supporters by subsequently becoming a voice for judicial restraint and caution when the Court reviewed laws that restricted civil liberties during World War II and the early Cold War era. Similarly, Justice Harry Blackmun, who served on the Eighth Circuit for a little over a decade prior to his appointment to the Court in 1970, was originally considered by President Richard Nixon to be a \"strict constructionist\" in the sense that he viewed the judge's role as interpreting the law, rather than making new law. In the years that followed, however, Justice Blackmun authored the majority opinion in Roe v. Wade , which recognized a constitutional right to terminate a pregnancy. He was generally considered one of the more liberal voices on the Court when he retired in 1994.\nThe difficulty in attempting to predict how a nominee will approach the job of being a Justice remains even when the nominee has had a lengthy federal judicial career prior to nomination. Federal judges on the courts of appeals are bound by Supreme Court and circuit precedent and, therefore, are not normally in a position to espouse freely their views on particular legal issues in the context of their judicial opinions. Moreover, unlike the Supreme Court, which enjoys \"almost complete discretion\" in selecting its cases, the federal courts of appeals are required to hear many cases as a matter of law. As a result, the courts of appeals consider \"many routine cases in which the legal rules are uncontroverted.\" Because lower court judges are often bound by Supreme Court and circuit precedent, moreover, the vast majority of federal appellate opinions are unanimous. Perhaps indicative of the nature of federal appellate work, the vast majority of cases decided by three-judge panels of federal courts of appeals are decided without dissent.\nWhile the D.C. Circuit, where Judge Kavanaugh serves, witnesses more dissents on average than its sister circuits, the overwhelming majority of opinions issued by the nominee's court are unanimous. Accordingly, while Judge Kavanaugh's work on the D.C. Circuit may provide some insight into his general approach to particular legal issues, the bulk of the opinions that the nominee has authored or joined may not be particularly insightful with regard to his views on specific areas of law, or how he would approach these issues if he were a Supreme Court Justice. When a federal appellate judge takes the step to write separately, however, such an opinion need not accommodate the views of other colleagues, and can therefore provide unique insight into a circuit judge's judicial approach.\nEven in closely contested cases where concurring or dissenting opinions are filed, however, it still may be difficult to determine the preferences of the nominated judge if the nominee did not actually write an opinion in the case. The act of joining an opinion authored by another judge does not necessarily reflect full agreement with the underlying opinion. For example, in an effort to promote consensus on a court, some judges will decline to dissent unless the underlying issue is particularly contentious. As one commentator notes, \"the fact that a judge joins in a majority opinion may not be taken as indicating complete agreement. Rather, silent acquiescence may be understood to mean something more like 'I accept the outcome in this case, and I accept that the reasoning in the majority opinion reflects what a majority of my colleagues has agreed on.'\"\nUsing caution when interpreting a judge's vote isolated from a written opinion may be particularly important with votes on procedural matters. For example, a judge's vote to grant an extension of time for a party to submit a filing generally does not signal agreement with the substantive legal position proffered by that party. And while some observers have highlighted votes by Judge Kavanaugh in favor of having certain three-judge panel decisions reconsidered by the D.C. Circuit sitting en banc, these votes should be viewed with a degree of caution. A vote to rehear a case en banc could signal disagreement with the legal reasoning of the panel decision, and may suggest that a judge wants the entire court to have an opportunity to correct a perceived error by the panel. On the other hand, a vote to rehear a case en banc may be prompted by a judge's desire to resolve an intracircuit conflict between panel decisions, or may be indicative of the judge's view that the issue is of such importance as to merit consideration by the full court. Moreover, as one federal appellate judge noted in a dissent from a decision denying a petition for a rehearing en banc:\nMost of us vote against most such petitions . . . even when we think the panel decision is mistaken. We do so because federal courts of appeals decide cases in three judge panels. En banc review is extraordinary, and is generally reserved for conflicting precedent within the circuit which makes application of the law by district courts unduly difficult, and egregious errors in important cases.\nConsequently, a vote for or against rehearing a case en banc or on other procedural matters does not necessarily equate to an endorsement or repudiation of a particular legal position.\nFinally, it should be noted that, despite having served on the federal appellate bench for more than a decade, Judge Kavanaugh has said little about some areas of law because of the nature of the D.C. Circuit's docket and, as a consequence, it may be difficult to predict how he might rule on certain issues if he were elevated to the Supreme Court. Due to the D.C. Circuit's location in the nation's capital, and the number of statutes providing it with special or even exclusive jurisdiction to review certain agency actions, legal commentators generally agree that the D.C. Circuit's docket, relative to the dockets of other circuits, contains a greater percentage of nationally significant legal matters. For instance, the D.C. Circuit hears a large number of cases on administrative and environmental law matters. In contrast, cases at the D.C. Circuit rarely, if ever, involve \"hot-button\" social issues such as abortion, affirmative action, or the death penalty. Moreover, the D.C. Circuit docket has a lower percentage of cases involving criminal matters, prisoner petitions, or civil suits between private parties. As a result, this report focuses primarily on areas of law where Judge Kavanaugh has written extensively, and notes only in passing those areas where little can arguably be gleaned from his judicial record on account of his participation in few, if any, decisions directly addressing those particular areas of law.", "Notwithstanding the difficulty of predicting a nominee's future behavior, three overarching (and interrelated) considerations may inform an assessment of how a jurist is likely to approach the role of a Supreme Court Justice. First, the nominee's general approach to the craft of judging—a phrase that this report uses to refer to the process of how a judge approaches key aspects of the job, including writing legal opinions and resolving legal disputes on a multi-member court—may be an important consideration in predicting how a jurist would behave on the High Court. Second, the judge's overarching judicial philosophy, including how he evaluates legal questions as a substantive matter, is another central concern in gauging how a nominee may perform. Third, it may be helpful to reflect on a nominee's influences or judicial heroes, as those individuals may exhibit qualities that the nominee will aspire to emulate.\nOn all three fronts, there are a host of clues on how President Trump's latest nominee to the High Court views the proper role of a Supreme Court Justice. Indeed, Judge Kavanaugh is a well-known jurist with a robust record, composed of both judicial opinions and non-judicial writings, in which he has made his views on the law and the role of the judge fairly clear. This section begins by discussing how the nominee has approached the craft of judging, including by examining how he prepares for a case, his writing style, his approach to working with his colleagues on the D.C. Circuit, and how his opinions have fared at the Supreme Court. The section then turns to more substantive questions about Judge Kavanaugh's judicial philosophy, noting two key aspects that have undergirded how the nominee has resolved legal disputes in the cases before him on the appellate bench. Finally, this section notes the jurists that Judge Kavanaugh has identified as judicial role models, either because of their general approach to the craft of judging or for their judicial philosophy.", "After his nomination to the Supreme Court, commentators noted Judge Kavanaugh's \"reputation on both sides of the aisle as a solid and careful judge,\" highlighting his diligence throughout the process of authoring opinions for the D.C. Circuit. For instance, according to Time Magazine , the nominee requires his law clerks to create, even for routine cases, \"thick black binders\" \"filled with memos and briefs . . . [and] every law-review article\" that has been written on the relevant topic, resulting in \"binders stack[ing] up in the kitchenette in [Judge] Kavanaugh's chambers.\" In this vein, Judge Kavanaugh's colleague, Judge Laurence Silberman, called the nominee \"one of the most serious judges\" he \"ever encountered.\" Echoing these comments are anonymous evaluations in the Almanac of the Federal Judiciary from attorneys who practiced in front of the nominee, describing Judge Kavanaugh as \"extremely well prepared,\" \"careful[],\" and \"thorough\" in his approach.\nJudge Kavanaugh's Writing Style . On a technical level, Judge Kavanaugh's writing has been widely praised for its clarity, including by the President, who described the nominee as \"a brilliant jurist with a clear and effective writing style.\" And D.C. Circuit practitioners have likewise described Judge Kavanaugh's writing as \"well reasoned,\" \"thorough and clear,\" and \"meticulous.\" As one commentator remarked, Judge Kavanaugh has \"made a name for himself on the D.C. Circuit with clear, concise writing.\" It has also been observed that Judge Kavanaugh employs a number of mechanical techniques in crafting his judicial opinions, \"includ[ing] strong lead-in sentences, lists, summaries, pointed questions, informal expressions and lots of repetition.\" Such techniques are evident throughout his written opinions wherein the nominee frequently employs bulleted lists, mathematical expressions and logical sequences —quite unusual in judicial writing—and regularly parses out the various components of his analysis through the use of introductory ordinals (i.e., first, second, third). Judge Kavanaugh also seemingly attempts to enhance the accessibility of his opinions through the occasional witticism or colloquialism. For instance, in one dissent, he equated the majority's decision to grant a writ of mandamus requiring a district court to enter a temporary stay to using a \"chainsaw to carve your holiday turkey.\"\nOn a more substantive level, the nominee frequently includes an extensive discussion on the background and history of a given issue or topic, particularly in his dissenting opinions. Throughout his judicial and non-judicial writings, moreover, Judge Kavanaugh relies heavily on academic scholarship, citing law review articles, treatises, and other materials, perhaps reflective of the depth of research for which the nominee is renowned. The nominee has commented: \"I love looking at treatises, law review articles. The more I can read about how we got in this statute to where we are, in this constitutional provision and how it's been applied. So academic writing does matter to me.\" In a similar vein, he has advised his fellow jurists:\n[T]o be a good judge . . . we must keep learning. We do not know it all. . . . We have to constantly learn. We should draw from the law reviews and the treatises that professors have worked on for years to study a problem that we may have a couple of days to focus on. We should study the briefs and precedents carefully and challenge our instincts or prior inclinations. We are not the font of all wisdom.\nWorking on a Multi-member Court . Given Judge Kavanaugh's industrious approach toward legal research and writing, it may be unsurprising that the nominee has been incredibly prolific both on and off the bench, perhaps providing one indication of the quality of the nominee's work. With regard to judicial opinion writing, the nominee frequently writes separately to express his particular views on the law, authoring more separate opinions than any of his colleagues on the D.C. Circuit during the 12 years he served on the appellate bench. Moreover, as Table A-1 indicates, during the nominee's tenure on the D.C. Circuit, Judge Kavanaugh also authored separate opinions at a greater rate than his colleagues who served as active judges on that court during that entire time period.\nWhile a judge's rate of concurrence or dissent in the abstract may reveal very little about the judge's ideological approach to a particular area of law, Judge Kavanaugh's tendency to write separately is somewhat probative in understanding his broad views on judging. As a general matter, some legal observers characterize a judge who tends to write separately as being more concerned with \"getting the law right\" than with countervailing interests that might otherwise lead a judge to join fully the opinion for the court. In a 2016 speech, Judge Kavanaugh noted that, while he \"love[s] the idea of courts working together\" and trying to \"find common ground,\" he \"dissent[s] a fair amount\" and that \"dissent is good\" for a court.\nThe frequency with which Judge Kavanaugh has authored majority opinions for divided judicial panels may also support the view that consensus is not necessarily a driving force in the nominee's approach to opinion writing. As Table A-2 demonstrates, while not as pronounced as his own propensity to author concurring or dissenting opinions, Judge Kavanaugh's majority opinions have tended to draw more separate opinions (and dissents specifically) relative to the majority opinions of his colleagues the D.C. Circuit.\nJurists of various backgrounds have long debated the benefits and drawbacks of consensus on a multi-member court, and Judge Kavanaugh himself has claimed that a judge needs to \"balance\" various, competing interests when deciding whether to write separately. Regardless of the merits of that debate, the fact that the nominee tends to author separate opinions and prompts others to write separately may suggest that the nominee values independence and consistency in his judicial approach over consensus building, ideals the nominee has explicitly endorsed in his non-judicial writings. Moreover, Judge Kavanaugh's apparent propensity to eschew consensus in favor of candor may reflect his preference for clear rules in adjudication, as discussed in more detail below.\nThere may be limits to the lessons that can be drawn from the frequency in which the nominee writes separately from other colleagues on the bench or prompts others to write separately. The choice to write separately is one that stems from various factors, and may simply depend on the personality and preferences of an individual judge, or the nature of the dispute before the court. More broadly, while the data contained in Table A-1 and Table A-2 may indicate Judge Kavanaugh's willingness to depart from the views of his colleagues, legal commentators have broadly noted his \"very good reputation\" for promoting collegiality on the D.C. Circuit and for \"working with people across ideological lines.\" This reputation aligns with the nominee's public comments about how a judge should behave toward his colleagues. For instance, in a 2016 speech, Judge Kavanaugh described the \"proper demeanor\" for a judge as having empathy for one's colleagues, \"demonstrat[ing] civility,\" and not \"be[ing] a jerk.\" In his remarks during his Supreme Court nomination ceremony, Judge Kavanaugh described the seventeen other judges he worked with on the D.C. Circuit as \"colleague[s]\" and \"friend[s].\"\nWhile a judge's propensity to write on behalf of himself or a divided panel may suggest that the judge has idiosyncratic views on the law, Judge Kavanaugh's record on appeal to the Supreme Court appears to belie such a suggestion. As Table A-3 indicates, during the nominee's twelve years of service on the D.C. Circuit, the Supreme Court has reversed an opinion authored by Judge Kavanaugh only once, and reversed one additional opinion in which the nominee joined. Relative to his colleagues, the dearth of scrutiny by the Supreme Court of Judge Kavanaugh' s opinions is notable and could be a metric by which to gauge the nominee's work.\nPerhaps more telling of the strength of the nominee's record before the Court are several cases in which the Supreme Court adopted the reasoning in Judge Kavanaugh's opinions. As Table A-3 demonstrates, the Supreme Court has reversed a number of judgments from which the nominee dissented in the lower court. In at least five of these cases, the nominee's reasoning was adopted, at least in part, by the Supreme Court. Beyond the cases in which the Court directly reviewed a judgment in which Judge Kavanaugh authored a substantive opinion, in at least five other cases, the Supreme Court adopted, at least in part, reasoning from an earlier opinion of the nominee in a separate case (i.e., not the lower court opinion under review by the Supreme Court).\nMore broadly, the Supreme Court has cited Judge Kavanaugh's opinions more frequently than it has cited other judges. As noted in Table A-4 , the Supreme Court has cited the nominee's separate opinions (i.e., dissents and concurrences), either in a majority or an individual Justice's separate opinion, eight times during the nominee's tenure on the D.C. Circuit. As Table A-5 indicates, no other D.C. Circuit judge who served on active status for Judge Kavanaugh's entire tenure on that court was cited by the Supreme Court as much during this same time period. And, as Table A-6 demonstrates, the Supreme Court cited only one other federal appellate judge who served on active duty during Judge Kavanaugh's entire tenure on the D.C. Circuit—Judge Jeffrey Sutton of the Sixth Circuit—more frequently than the nominee.\nWhile there may be limits as to what can reasonably be discerned by the sheer number of times the Supreme Court cites a particular jurist's separate opinions, these quantitative data suggest that the nominee is an influential lower court judge, and one the Justices on the Supreme Court hold in some esteem. This assessment also finds support in qualitative assessments of Judge Kavanaugh by legal commentators, who have described the nominee as one who approaches the craft of judging with \"serious[ness]\" and \"commands wide and deep respect among scholars, lawyers and jurists.\"", "Turning to the question of judicial philosophy, while commentators have described Judge Kavanaugh's interpretative approach in various ways—including as \"conservative\" or \"pragmatic\" —the nominee's own writings have been fairly clear as to his judicial approach. Perhaps the best insights into Judge Kavanaugh's approach toward judging come from a speech he delivered in 2017 at Notre Dame Law School. Specifically, in themes that pervade both his judicial opinions and his non-judicial writing, Judge Kavanaugh focused on two central visions for adjudication in which he \"believe[s] very deeply\": (1) the \"rule of law as a law of rules\" and (2) the role of the judge as \"umpire.\"\nThe Rule of Law as a Law of Rules . Judge Kavanaugh's first vision for judging suggests that the nominee embraces a more formalist view of the law, favoring clarity to flexibility when rendering legal opinions. The phrase \"rule of law as a law of rules\" itself references Justice Antonin Scalia's famous speech from 1989 in which he argued for a more formalist approach that embraced clear rules and principles in lieu of balancing tests that, in the view of Justice Scalia, transformed the judge from a determiner of law to a finder of fact. Judge Kavanaugh has embraced legal formalism in a variety of contexts. For the nominee, critical questions for the judiciary include how \"can we make the rule of law more stable, and how can we increase confidence in judges as impartial arbiters of the rule of law\"? The answer to these questions for Judge Kavanaugh is to establish \"stable rules of the road\" for interpreting law \"ahead of time,\" thereby enhancing the legitimacy of the judiciary by \"prevent[ing] [courts] from allowing . . . personal feelings about a particular issue [to] dictate\" how a case is resolved. As a result, Judge Kavanaugh has maintained that judicial decisionmaking that is not grounded in clear rules \"threatens to undermine the stability of the law and the neutrality (actual and perceived) of the judiciary.\"\nWith respect to statutory interpretation, the nominee has criticized binaries in which the invocation of a particular interpretive rule depends on a threshold question about whether the text being interpreted is ambiguous or clear. Ambiguity is often the threshold inquiry for determining whether a court should, for example, employ legislative history as an interpretive aid or defer to an administrative agency's legal interpretation. For Judge Kavanaugh, questioning whether text is ambiguous is problematic because \"there is no objective or determinate way to figure out whether something is ambiguous.\" Because, in Judge Kavanaugh's view, \"judgments about clarity versus ambiguity turn on little more than a judge's instincts,\" such an approach to interpretation threatens judicial legitimacy, as \"it is hard for judges to ensure that they are separating their policy views from what the law requires of them.\" Instead, as discussed in more detail below, the nominee has argued that judges should \"stop\" using the \"ambiguity trigger\" in statutory interpretation and instead \"strive to find the best reading of the statute\" based on the text, context, and established rules of construction.\nJudge Kavanaugh's criticism of modern constitutional interpretation parallels his apprehensions about statutory interpretation, with the nominee expressing his broad concerns about \"vague and amorphous\" standards employed in constitutional interpretation, which he views as \"antithetical to impartial judging.\" One of the nominee's primary criticisms concerns the use of tiers of scrutiny, such as strict scrutiny or rational basis review, to evaluate whether government action is permissible. Central to the nominee's criticism of the tiers of scrutiny is their requirement that a judge make a determination about whether a governmental interest is sufficiently \"compelling\" or \"important,\" an inquiry that he views as lacking any objective measurement, and which puts the judge \"in the position of making judgment calls that inevitably seem rooted in policy, not law.\" In this vein, Judge Kavanaugh's critique of the tiers of scrutiny echoes similar criticisms by Justice Clarence Thomas, who observed in a 2016 dissent that the \"Constitution does not prescribe tiers of scrutiny,\" as well as Justice Scalia, who once described the tiers of scrutiny as adding an \"element of randomness\" to constitutional interpretation.\nWhile Judge Kavanaugh has been less specific as to how judges \"should square up to the problem\" of ambiguity in constitutional interpretation, his dissent in Heller v. District of Columbia (Heller II) suggests that he believes focusing on a constitutional provision's \"text, history, and tradition\" provides a more stable alternative. The \"key threshold question\" in Heller II concerned the constitutional test that a court should \"employ to assess\" whether a gun law comported with the Second Amendment. And while acknowledging that in its cases interpreting the Second Amendment, \"the [Supreme] Court never said something as succinct as 'Courts should not apply strict or intermediate scrutiny but should instead look to text, history, and tradition to define the scope of the right and assess gun bans and regulations,'\" Judge Kavanaugh concluded that the \"clear message\" to \"take away from the Court's holdings and reasoning\" is to eschew balancing tests \"in favor of categoricalism—with the categories defined by text, history, and tradition.\"\nAt the same time, there are limits to Judge Kavanaugh's formalism. As the nominee has acknowledged, \"there are areas of the law that sometimes entail discretion. And it is important to acknowledge that sometimes judges must exercise reasoned decision-making within a law that gives judges some discretion over the decision.\" Accordingly, Judge Kavanaugh has cautioned against a vision of judging that could be \"caricatured as being 'every case is simply mechanical and robotic for judges.'\" To the nominee, there are certain cases where \"[t]here is a body of precedent that helps inform\" a decision, but nonetheless the judge must exercise some degree of discretion in reaching a decision. Judge Kavanaugh identifies a number of questions that he believes require such discretion, including, among others: \"what is 'reasonable' under the Fourth Amendment?\"; \"[w]hat is a 'compelling government interest' under the Religious Freedom Restoration Act?\"; and \"what are 'unreasonable restraints of trade' for purposes of the Sherman Act.\" At the same time, the nominee has contended that ambiguity in the law exists in \"far fewer places than one would think,\" and, to the extent possible, judges should avoid \"injecting\" ambiguity into the heart of interpretation.\nJudge as Umpire . The second, and closely related, pillar of Judge Kavanaugh's judicial philosophy—an embrace of the role of the judge as \"umpire\"—derives from an analogy Chief Justice John Roberts used during his Supreme Court confirmation hearing wherein he likened a judge's job to that of an umpire in baseball. During that hearing, the future Chief Justice described the umpire and judge as having \"limited\" roles in that a good judge, like an umpire, does not \"make the rules,\" but instead \"applies\" them to ensure \"everybody plays by the rules.\" Judge Kavanaugh has discussed \"the notion of judges as umpires\" extensively in his non-judicial writings, highlighting his \"agree[ment] with that vision of the judiciary.\" According to the nominee:\nThe American rule of law . . . depends on neutral, impartial judges who say what the law is , not what the law should be. Judges are umpires, or at least should always strive to be umpires. In a perfect world, at least as I envision it, the outcomes of cases would not often vary based solely on the backgrounds, political affiliations, or policy views of judges.\nIn this vein, Judge Kavanaugh has defined \"a neutral, impartial judiciary\" as one \"that decides cases based on settled principles without regard to policy preferences or political allegiances or which party is on which side in a particular case.\" This vision of a neutral, impartial judiciary is echoed throughout the nominee's non-judicial writings and speeches, as well as in his written opinions and during his confirmation hearing in 2006 as a nominee to the D.C. Circuit. For instance, Judge Kavanaugh emphasized at that hearing his view that \"the worst moments in the Supreme Court's history have been moments of judicial activism . . . where the Court went outside its proper bounds . . . in interpreting clauses of the Constitution to impose its own policy views and to supplant the proper role of the legislative branch.\" As a result, the nominee has highlighted his belief \"in judicial restraint, recognizing the primary policymaking role of the legislative branch in our constitutional democracy.\"\nThese broad statements about the role of the judge as a neutral umpire may prompt the question as to how the nominee strives to achieve such neutrality. In accepting the nomination to the Supreme Court, Judge Kavanaugh articulated what he viewed as a \"straightforward\" means to ensure that a judge remains \"independent\" and \"interpret[s] the law\" but does \"not make the law.\" Specifically, Judge Kavanaugh stated that a judge must interpret the Constitution \"as written, informed by history and tradition and precedent.\" At a high level, this statement summarizes the three main aspects of the nominee's approach to ensuring that a judge remains an umpire, an approach that emphasizes (1) the primacy of the text of the law being interpreted, (2) an awareness of history and tradition, and (3) adherence to precedent. Each of these themes is examined below.\nTextualism. A foundational aspect of Judge Kavanaugh's judicial philosophy is his embrace of textualism, the doctrine that the words of a governing text are paramount to understanding the meaning of a law. As discussed in more detail below, Judge Kavanaugh has, like Justice Scalia, emphasized the \"centrality of the words of the statute\" and counseled against the use of certain \"substantive principles of interpretation\" that, in the nominee's view, pose risks to judges' roles as \"neutral, impartial umpires in certain statutory interpretation cases.\" Thus, Judge Kavanaugh has advised that \"[t]he judge's job is to interpret the law, not to make the law or make policy. So, read the words of the statute as written.\" In this vein, the nominee has described his embrace of textualism as intended to promote a neutral, impartial judiciary; in his words: \"This tenet—adhere to the text—is neutral as a matter of politics and policy. The statutory text may be pro-business or pro-labor, pro-development or pro-environment, pro-bank or pro-consumer. Regardless, judges should follow clear text where it leads.\"\nIn addition to figuring prominently in statutory interpretation, Judge Kavanaugh's textualist approach extends to constitutional interpretation. The nominee has remarked that the one factor that \"matters above all in constitutional interpretation and in understanding the grand sweep of constitutional jurisprudence . . . is the precise wording of the constitutional text. It's not the only factor, but it's the anchor, the magnet, the most important factor that directs and explains much of constitutional law . . . .\" Accordingly, Judge Kavanaugh has instructed that judges must \"[r]ead the text of the Constitution as written . . . . Don't make up new constitutional rights that are not in the Constitution. Don't shy away from enforcing constitutional rights that are in the text of the Constitution. Changing the Constitution is for the amendment process. Changing policy within constitutional bounds is for the legislatures.\"\nNonetheless, there are limits to Judge Kavanaugh's embrace of textualism. Specifically, the nominee has \"emphasize[d] that the text is not the end-all of statutory interpretation,\" and has remarked that \"on occasion the relevant constitutional or statutory provision may actually require the judge to consider policy and perform a common law-like function.\" Judge Kavanaugh suggests there are a variety of cases \"where the judicial inquiry requires determination of what is reasonable or appropriate,\" and these \"are less a matter of pure interpretation than of common law-like judging.\" Accordingly, while the nominee's writings demonstrate a clear subscription to textualism and a belief that \"[m]any cases come down to interpretation of the text of the Constitution, a statute, a rule, or a contract,\" he also seems to leave room for a recognition that \"not every case comes down to pure interpretation.\"\nHistory and Tradition. Beyond a reliance on a law's text to promote judicial neutrality, Judge Kavanaugh's judicial opinions are frequently guided by what he refers to as \"history and tradition.\" The nominee, however, has not embraced a narrow view as to what particular \"history\" and \"tradition\" can inform legal interpretation, including constitutional interpretation. While some commentators have labeled Judge Kavanaugh an originalist in the Scalia tradition, others have observed that the nominee does not appear to \"call himself an originalist, and his opinions on the appellate court suggest that he uses less originalist analysis than Justice Thomas or Justice Gorsuch.\" Indeed, in a 2017 speech, while suggesting that Justice Scalia's focus on \"history and tradition\" \"might\" be consistent with the vision of a judge as an impartial umpire, Judge Kavanaugh stated that he does not \"[a]t the moment . . . have a solution\" to his concerns about the indeterminacy of constitutional interpretation.\nIn contrast to Justice Neil M. Gorsuch, who as a judge on the Tenth Circuit openly endorsed constitutional interpretations that relied on the Constitution's \"original public meaning,\" Judge Kavanaugh has not been as explicit. In perhaps the nominee's closest embrace of originalism, Judge Kavanaugh contended in his dissenting opinion in Heller II that the \"post-ratification adoption or acceptance of laws that are inconsistent with the original meaning of the constitutional text obviously cannot overcome or alter that text.\" Notably, the dissent continued:\nThe Constitution is an enduring document, and its principles were designed to, and do, apply to modern conditions and developments. The constitutional principles do not change (absent amendment), but the relevant principles must be faithfully applied not only to circumstances as they existed in 1787, 1791, and 1868, for example, but also to modern situations that were unknown to the Constitution's Framers. To be sure, applying constitutional principles to novel modern conditions can be difficult and leave close questions at the margins. But that is hardly unique to the Second Amendment. It is an essential component of judicial decisionmaking under our enduring Constitution.\nNonetheless, in his Heller II dissent and elsewhere, Judge Kavanaugh, when discussing history and tradition to \"inform the interpretation of a constitutional provision,\" has looked to both pre- and post-ratification history and tradition. In a dissenting opinion in PHH Corp. v. CFPB , for instance, the nominee wrote that \"in separation of powers cases not resolved by the constitutional text alone, historical practice helps define the constitutional limits on the Legislative and Executive Branches.\" In PHH Corp. , the majority of the D.C. Circuit sitting en banc held that the CFPB's structure of governance was constitutional under Article II. Judge Kavanaugh disagreed, canvassing the nation's historical post-ratification experience with the structure of independent agencies, and concluding that \"the CFPB's departure from historical practice matters in this case because historical practice matters to separation of powers analysis.\"\nMore broadly, Judge Kavanaugh's non-judicial writings might be read to suggest he elevates a textualist approach over an originalist philosophy. For instance, the nominee has suggested:\nWhen we think about the Constitution and we focus on the specific words of the Constitution, we ought to not be seduced into thinking that it was perfect and that it remains perfect. The Framers did not think that the Constitution was perfect. And they knew, moreover, that it might need to be changed as times and circumstances and policy views changed.\nThe nominee has also cast some doubt on the reliability of some of the source materials frequently relied upon by originalists:\n[B]e careful about even The Federalist . . . That's not the authoritative interpretation of the words. You've got to be careful about some of the ratification debates. You've got to be careful about different people at the Convention itself. They had different views. So when there's compromise, all the more reason for me to stick as close as you can to what the text says.\nAt the same time, while seemingly \"not a dyed-in-the-wool originalist like Scalia,\" as one observer has put it, Judge \"Kavanaugh has relied on originalist principles.\" In several speeches, for example, the nominee has endorsed the originalist concept of the \"enduring constitution,\" albeit in connection with an overarching textualist approach to constitutional interpretation: \"For those of us who believe that the judges are confined to interpreting and applying the Constitution and laws as they are written and not as we might wish they were written, we . . . believe in a Constitution that lives and endures.\" And the notion of an enduring Constitution has figured in Judge Kavanaugh's written opinions for the D.C. Circuit. Beyond his dissent in Heller II , in his dissent in Free Enterprise Fund v. Public Company Accounting Oversight Board (PCAOB), for instance, Judge Kavanaugh stressed the importance of original meaning in conjunction with a textualist approach, asserting that \"it is always important in a case of this sort to begin with the constitutional text and the original understanding, which are essential to proper interpretation of our enduring Constitution.\"\nPrecedent. Judge Kavanaugh's vision of a neutral, impartial judiciary—composed of judges strictly applying stable rules of law—perhaps suggests how the nominee might view the doctrine of stare decisis and the role of precedent in deciding cases. During his confirmation hearing in 2006 as a nominee to the D.C. Circuit, Judge Kavanaugh stated: \"I believe very much . . . in following the Supreme Court precedent strictly and absolutely. . . . I think that is very important for the stability of our three-level system for lower courts to faithfully follow Supreme Court precedent . . . .\" Indeed, in his non-judicial writings, the nominee has emphasized the importance of stare decisis:\nWe operate in a system built on Supreme Court precedent. As lower court judges, we must adhere to absolute vertical stare decisis, meaning we follow what the Supreme Court says. And to be a good lower court judge, you must follow the Supreme Court precedent in letter and in spirit. We should not try to wriggle out of what the Supreme Court said, or to twist what the Supreme Court said, or to push the law in a particular direction . . . .\nThat Judge Kavanaugh's judicial philosophy incorporates adherence to precedent is also evident in his written opinions issued in a number of high-profile cases over the last decade. Recently, in Garza v. Hargan , for instance, the nominee dissented from the court's en banc order in a case involving whether an alien minor without lawful immigration status in federal custody may obtain an abortion. In so doing, Judge Kavanaugh emphasized that \"our job as lower court judges is to apply the precedents and principles articulated in Supreme Court decisions to the new situations.\" More generally, the nominee has warned that judges should follow Supreme Court cases both \"in letter and in spirit,\" and has stated that even where the governing precedent is controversial or has engendered \"vigorous dissents,\" the job of the lower court is not \"to re-litigate or trim or expand Supreme Court decisions,\" but to follow those decisions \"as closely and carefully and dispassionately as we can.\" In another dissenting opinion, Judge Kavanaugh more colorfully stated that lower courts must \"follow both the words and the music of Supreme Court opinions.\"\nNotwithstanding these broad statements about the role of precedent for lower courts , it is difficult to state with certainty how Judge Kavanaugh would apply the doctrine of stare decisis in a particular case if he were elevated to the Supreme Court due to the unique nature of that position relative to his current role. The nominee's previous judicial writings were from the perspective of a D.C. Circuit judge—one bound to follow Supreme Court precedent and able to override existing circuit precedent only with the concurrence of a majority of the en banc court. Stare decisis applies quite differently, however, when the Supreme Court reconsiders its own cases.\nNonetheless, Judge Kavanaugh's writings give some clues as to how he might approach the question of whether to overturn existing precedent. In one speech, the nominee stated that horizontal stare decisis—that is, the precedential effect that a court's own decisions have on that same court—\"has some flexibility.\" In another talk, Judge Kavanaugh doubted whether existing Supreme Court case law on stare decisis provided a principled, restraining test for when to overrule prior cases. Responding to a question as to whether there is a single standard a court could use to determine whether to overturn a prior decision, the nominee noted that it is \"hard to have a set formula for overruling that's going to work in all cases.\" Judge Kavanaugh described the Supreme Court's existing test as one that requires the Court to overrule when a case is \"really wrong and has really significant practical effects, and there hasn't been reliance interests of the kind you would have with a property or contract decision.\" Nevertheless, the nominee criticized this test, remarking that it does \"not really\" \"bind[ ],\" or \"tell[ ] you in advance with Justices of different stripes when\" to overrule a case. In line with his general judicial philosophy that tends to emphasize stability and clear rules from the judiciary, Judge Kavanaugh expressed concern that the current formula does not give \"much predictability or guidance.\"\nWhile the nominee has not further elaborated on his overarching theory for when to diverge from precedent, his general judicial philosophy, as noted, is based in part on the theory that judges should set clear rules in advance and then follow those rules. As Judge Kavanaugh has noted, \"[e]ven in those cases where there is discretion . . . [and] judges are assigned what may be described as common-law-like authority,\" they must still adhere to certain principles: \"we try to follow precedent and have a stable body of precedent\"; \"we try to write our decisions in reasoned and clear ways\"; \"we try to be consistent in how we go about deciding like cases alike\"; and \"we do so candidly.\" This emphasis on stability and predictability may suggest a reluctance to overturn well-established precedent.\nAt the same time, Judge Kavanaugh's opinions reveal that he is less likely to follow Supreme Court case law or prior D.C. Circuit decisions when he believes a prior case has been significantly undermined by subsequent factual developments or is inconsistent with prevailing doctrine. For example, in United States v. Burwell , Judge Kavanaugh argued in dissent that the D.C. Circuit should not have followed its prior opinion that had \"been undermined\" by a subsequent Supreme Court decision. And, as discussed in more detail below, in a series of cases the nominee has questioned the continuing viability of the Supreme Court's decision in Turner Broadcasting System, Inc. v. FCC , most recently and most directly in a concurring opinion in Agape Church, Inc. v. FCC . In Agape Church , Judge Kavanaugh maintained that the factual foundation for Turner —the monopolistic nature of the cable television market—had been altered since the case was written in 1994, and, therefore, \"the constitutional foundation . . . collapsed with it.\" The nominee suggested that future courts reviewing the constitutionality of the relevant provisions could reach a different result than the Supreme Court did in Turner , stating that stare decisis required courts to follow only the \"constitutional principles that undergird Turner ,\" and that applying those principles to the modern market would \"lead[] to an entirely different result.\" As a consequence, Judge Kavanaugh's Agape Church concurrence seems to express a belief that in certain circumstances, a court may depart from a prior decision's result so long as it remains true to its broader, underlying principles.\nFinally, it should be noted that the nominee has in several opinions criticized two Supreme Court decisions that declined to strike down statutes restricting the President's power to remove certain executive officers: Humphrey's Executor v. United States and Morrison v. Olson . While judges may be reluctant or unable to overrule prior cases, they frequently distinguish precedent with which they disagree from the disputes before them. As discussed below, Judge Kavanaugh has authored a number of opinions arguing that the courts should construe the scope of Humphrey's Executor and Morrison narrowly . Perhaps his most pointed remarks on Morrison came at an event in 2016 at the American Enterprise Institute: when asked whether he would give an example of \"a case that deserves to be overturned,\" the nominee volunteered \" Morrison v. Olson ,\" stating that the case had been \"effectively overruled, but [he] would put the final nail in.\" While this comment was made in off-the-cuff remarks, when viewed together with his judicial opinions, it suggests that Judge Kavanaugh disagrees with the reasoning of Morrison , and may consider the case sufficiently \"wrong\" that it should be reconsidered.", "Finally, it may be instructive to note some of Judge Kavanaugh's judicial influences or contemporaries whose approach to judging the nominee has praised, as these jurists may provide insight into who he might model his judicial approach after if he were to be elevated to the High Court. As is perhaps evident in the importance the nominee places on judicial formalism and the concept of the judge as a neutral umpire, Justice Scalia and Chief Justice Roberts are two of the nominee's judicial role models. With regard to Justice Scalia, Judge Kavanaugh has stated that \"Justice Scalia was and remains a judicial hero and role model to many throughout America,\" one who believed \"that federal judges are not common-law judges and should not be making policy-laden judgments.\" Of particular note, the nominee credits Justice Scalia with bringing \"about a massive and enduring change in statutory interpretation,\" one focused on \"the centrality of the words of the statute.\" And with regard to Chief Justice Roberts, Judge Kavanaugh has described him as \"lead[ing] the Court and the judiciary with [a] firm but humble touch.\"\nBut Justice Scalia and Chief Justice Roberts are not the only jurists Judge Kavanaugh has commented on when describing who has influenced his view of judging. The nominee has lauded several jurists with varying judicial philosophies, including former Chief Justice William Rehnquist, as well as Justices Robert Jackson, Byron White, and Elena Kagan. In a speech dedicated to Chief Justice Rehnquist, the nominee described him as his \"first judicial hero\" and stated that \"few justices in history have had as much impact as [Chief Justice] Rehnquist.\" The nominee remarked that as early as his law school days, he found frequent agreement with Chief Justice Rehnquist's opinions. Of particular significance to Judge Kavanaugh is the \"importance of [Chief Justice] Rehnquist to modern constitutional law.\" Judge Kavanaugh has attributed to Chief Justice Rehnquist many of the principles that inform the nominee's judicial philosophy. According to the nominee, \"[d]uring [Chief Justice] Rehnquist's tenure, the Supreme Court unquestionably changed and became more of an institution of law, where its power is to interpret and to apply the law as written, informed by historical practice, not by its own personal and policy predilections.\"\nAs to Justices Jackson and White, Judge Kavanaugh identified both as \"role models\" during his confirmation hearing in 2006 as a nominee to the D.C. Circuit. Specifically, Judge Kavanaugh pointed to Justice Jackson's concurring opinion in Youngstown Sheet & Tube Co. v. Sawyer , a landmark separation-of-powers case wherein Justice Jackson established a three-part framework for assessing executive wartime powers. The nominee described the framework as \"a work of genius . . . in terms of setting out the different categories of Presidential power and Congressional power in times of war and otherwise,\" and has cited it throughout his writings and speeches as influential on the nominee's view of the separation of powers. Judge Kavanaugh has also identified Justice Jackson as the \"role model for all executive branch lawyers turned judges,\" such as Judge Kavanaugh himself. As to Justice White, Judge Kavanaugh has written less about his influence, but approved of Justice White's \"approach to judging\" characterized by \"judicial restraint.\"\nFinally, Judge Kavanaugh has suggested an affinity with Justice Kagan based, in part, on their similar backgrounds in the executive branch. He has also cited Justice Kagan throughout his judicial and non-judicial writings, often alongside citations to Justice Scalia. While citations alone may not suggest more than respect for a colleague and agreement on discrete issues, as opposed to a wholesale endorsement of a jurist's judicial philosophy, at least one commentator has suggested that \"[t]he Kavanaugh-Kagan relationship may be one to watch in particular, should they serve together. As her offer—and his acceptance—to teach at Harvard suggests, both have seen advantage in detente.\"", "One cross-cutting issue foundational to understanding Judge Kavanaugh's jurisprudence is his theory of statutory interpretation. The nominee has been quite clear about his own views on this subject, actively engaging in ongoing debates within the legal community over the proper theories and tools to employ when interpreting statutes. Judge Kavanaugh is an avowed textualist—that is, a jurist who will generally favor a statute's text over its purpose when interpreting the law's meaning, only crediting statutory purpose to the extent that it is evident from the text. As the nominee remarked in a 2016 book review: \"The text of the law is the law.\" In this vein, Judge Kavanaugh has lauded Justice Scalia's textualist influence on the field of statutory interpretation —and has also praised Justice Kagan for her more textualist opinions.\nBecause of his commitment to textualism, Judge Kavanaugh's approach to statutory interpretation potentially differs from Justice Kennedy's, as the retiring Justice did not necessarily adhere to one single theory of statutory interpretation. In practice, though, the two jurists appear to have more in common than their general approaches toward reading statutes might suggest. Similar to Judge Kavanaugh, and many other judges, Justice Kennedy would \"begin with the text\" of a statute and would give that text's ordinary meaning significant weight. Moreover, Justice Kennedy, at times, disclaimed attempts to discover Congress's original intent as divorced from the text. But Justice Kennedy would also sometimes go beyond the disputed text to consider the statutory scheme as a whole, looking to its operation and the practical consequences of various interpretations. In one concurring opinion, Justice Kennedy said: \"Faced with a choice between two difficult readings of what all must admit is not optimal statutory text, the Court is correct to adopt the interpretation that makes the most sense.\" Though Judge Kavanaugh's textualist philosophy would on its face appear to be inconsistent with Justice Kennedy's more pragmatic approach, the nominee's opinions and other writings reveal that he also considers the legislative process and gives significant weight to the way a statute will be implemented. Accordingly, if confirmed, while Judge Kavanaugh could further tip the Court toward a more textualist approach to statutory interpretation, he might still invoke some of the more pragmatic considerations that Justice Kennedy sometimes relied on in his own analyses.\nThis section first outlines Judge Kavanaugh's general theory of statutory interpretation, as announced in his non-judicial writings and in his opinions. It then explores in more detail how the nominee has applied this theory to resolve specific cases, examining the interpretive tools the nominee has used to determine a statute's meaning. Finally, it describes the nominee's views on severability, a doctrine closely related to statutory interpretation that may arise when courts consider the constitutionality of a provision situated within a larger statutory scheme.", "Judge Kavanaugh's theory of statutory interpretation is based on his broader views about separation of powers. As discussed, the nominee has argued that the Constitution requires judges to adhere to a specific role: to serve as \"neutral, impartial . . . umpires\" who \"say what the law is, not what the law should be.\" In his view, focusing on a statute's text is the best way to fulfill this judicial role. Because it is \"Congress and the President—not the courts\" who \"together possess the authority and responsibility to legislate,\" he believes that \"clear statutes are to be followed.\" In one article, Judge Kavanaugh described his approach to \"determin[ing] the 'best reading' of a statutory text\" as follows:\nCourts should try to read statutes as ordinary users of the English language might read and understand them. That inquiry is informed by both the words of the statute and conventional understandings of how words are generally used by English speakers. Thus, the \"best reading\" of a statutory text depends on (1) the words themselves, (2) the context of the whole statute, and (3) any other . . . general rules by which we understand the English language.\nAs this statement suggests, like other textualists, Judge Kavanaugh favors text-based tools of statutory interpretation and generally eschews the use of legislative history. The nominee has argued on textualist grounds that judges should be cautious not only of legislative history, but of any interpretive tools that rely on ambiguity as a trigger for application. Judges frequently agree that a court should turn only to certain tools—like legislative history—if the statutory text is ambiguous. Judge Kavanaugh has raised concerns about this approach, arguing that it is difficult to determine whether a particular statute is ambiguous \"in a neutral, impartial, and predictable fashion.\" In line with his broader formalist views, he has expressed concern that the ambiguity determination \"turns on little more than a judge's instincts,\" making it \"harder for judges to ensure that they are separating their policy views from what the law requires of them.\" Accordingly, the nominee has called for judges to examine carefully their use of any doctrines that are dependent on an initial finding of ambiguity.", "Using his textualist philosophy to interpret a disputed statutory provision, Judge Kavanaugh often begins by looking to a word's \"plain meaning,\" asking how the term would be understood in \"common parlance.\" He sometimes relies on dictionaries as evidence of a word's ordinary meaning. The nominee also looks to the surrounding statutory text for interpretive context. Judge Kavanaugh's opinion in United States v. Papagno provides a clear example of this textualist approach. In that case, the D.C. Circuit was asked to interpret the Mandatory Victims Restitution Act (MVRA), which requires, in relevant part, that defendants reimburse victims of specified crimes for, among other things, \"necessary . . . expenses incurred during participation in the investigation or prosecution of the offense.\" The defendant in Papagno had stolen computer equipment from his employer, the Naval Research Laboratory (NRL). At issue was whether the MVRA encompassed the costs of an internal investigation conducted by the NRL, where that investigation \"was neither required nor requested by the criminal investigators or prosecutors,\" and the NRL stated that the investigation was conducted for its \"own purposes.\"\nWriting the majority opinion for a unanimous panel, Judge Kavanaugh concluded that the MVRA did not authorize restitution for the internal investigation. He relied on dictionary definitions, \"common parlance,\" and Supreme Court cases interpreting other federal statutes to decide that the NRL was not \"participat[ing] in the investigation or prosecution of the offense\" when it conducted the internal investigation. Judge Kavanaugh also reviewed the statutory context, situating the disputed provision of the MVRA within the \"landscape\" of other federal statutes governing restitution. He compared the disputed provision of the MVRA to a 2008 amendment of a different restitution statute, noting that in the other statute, Congress had \"authorized restitution for 'an amount equal to the value of the time reasonably spent by the victim in an attempt to remediate the intended or actual harm incurred by the victim from the offense.'\" In his view, this other statute would \"authorize the restitution\" that the NRL sought. He inferred that because \"Congress did not add similar language to\" the MVRA provision disputed in the case before the court, Congress did not intend to authorize such restitution in the MVRA.\nThus, Judge Kavanaugh's opinion in Papagno relied on quintessential textualist tools like ordinary meaning and statutory context to resolve the interpretive question. Notably, the nominee acknowledged in the opinion that \"several other courts of appeals have taken a broader view of the restitution provision,\" and ultimately, the courts of appeals in eight other circuits concluded that the MVRA did cover the costs of private investigations. This last term, the Supreme Court resolved the split in Lagos v. United States , ultimately adopting a more narrow view of the MVRA.\nJudge Kavanaugh sometimes invokes the canons of construction, which provide general presumptions about how courts should read statutes. There are two types of canons: semantic canons , which reflect the ways that people ordinarily use words, often mirroring ordinary rules of grammar; and substantive canons , which create presumptions favoring or disfavoring a particular substantive outcome. Textualists generally \"favor the use of canons, particularly the traditional linguistic canons.\" Judge Kavanaugh uses these canons, especially the semantic canons, but has called for some reforms in their use. Notably, he advocates the use of semantic canons only to the extent that they actually reflect the way people \"understand the English language,\" and, in line with his formalist views, has argued against both semantic and substantive canons that, in his view, cannot be applied in a consistent and principled way.\nFirst, Judge Kavanaugh has argued that judges should \"shed\" any semantic canons that do not actually \"reflect the meaning that people, including Members of Congress, ordinarily intend to communicate with their choice of words.\" For instance, the nominee has questioned the rule against surplusage, which states that courts should generally presume that each word and clause of a statute has a distinct, non-redundant meaning, noting that \"humans speak redundantly all the time, and it turns out that Congress may do so as well.\" Accordingly, in one dissenting opinion, Judge Kavanaugh concluded that the language of the disputed statute made \"redundancy . . . inevitable,\" arguing that the court should \"read the provisions according to their terms, recognizing that Congress often wants to make 'double sure'—a technique so common that it has spawned its own Latin canon, ex abundanti cautela .\" The nominee has also argued against using any semantic canons that \"require judges to make difficult policy judgments that they are ill-equipped to make.\"\nIn contrast to the semantic canons, Judge Kavanaugh has more broadly questioned the use of the substantive canons, arguing that canons should be eliminated if they are not justified by \"constitutional or quasi-constitutional values.\" But, for example, he has applied the presumption of mens rea—the presumption that crimes include a mental state requirement—noting that it \"embodies deeply rooted principles of law and justice that the Supreme Court has emphasized time and again.\" Based on his broader concerns about the use of any tools that are only invoked in the case of textual ambiguity, he has suggested that judges should not turn to the substantive canons until after they have sought \"the best reading of the statute by interpreting the words of the statute, taking account of the context of the whole statute, and applying the agreed-upon semantic canons.\"\nFor this reason, Judge Kavanaugh has, as discussed, argued that courts generally should not use legislative history to interpret statutes: \"the clarity versus ambiguity trigger for resorting to legislative history means that the decision whether to resort to legislative history is often indeterminate.\" Accordingly, he has declined to use legislative history to interpret a statute if the text is clear. The nominee has also echoed other textualist concerns regarding the use of legislative history. For example, in a dissenting opinion in Agri Processor Co. v. National Labor Relations Board , Judge Kavanaugh argued that the court should not rely on a committee report because it was \"in no way anchored in the text\" of the relevant statute. At issue in that case was whether \"undocumented aliens\" qualified as \"'employees' protected by the National Labor Relations Act [(NLRA)].\" Relying primarily on the statutory text and a substantive canon, the majority opinion concluded that the NLRA covered undocumented aliens. But the court also invoked legislative history to support its conclusion, in the form of two committee reports. Judge Kavanaugh rejected these committee reports, citing \"the usual cautions\":\nCommittee reports are highly manipulable, often unknown by most Members of Congress and by the President, and thus ordinarily unreliable as an expression of statutory \"intent.\" Committee reports are not passed by the House and Senate and presented to the President, as required by the Constitution in order to become law.\nUltimately, the nominee concluded that, because \"the term 'employee' in the NLRA must be interpreted in conjunction with the immigration laws,\" that term excluded \"an illegal immigrant worker.\"\nAlthough Judge Kavanaugh has expressed concern about doctrines that invite judges to rely on personal assessments of meaning, he has also acknowledged that in some circumstances it is unavoidable that a judge will have to \"consider policy and perform a common law-like function.\" In many cases, he relies on his own assessments of whether a particular interpretation aligns with \"common\" meaning or practice, adverting to his own understanding of what is \"common.\" In this regard, the nominee invokes more pragmatic concerns that could be seen as extra-textual, asking how a statutory scheme functions and whether a particular interpretation makes sense within that scheme. In one case, for instance, writing for a majority of the court, Judge Kavanaugh rejected a reading of a statute that would have \"tie[d] the system in knots and greatly hinder[ed] (if not prevent[ed]) the Department's exercise of any discretionary authority set forth by the regulations.\"\nTo take another example, dissenting in White Stallion Energy Center v. EPA , Judge Kavanaugh interpreted a statutory term by reference to \"common sense, common parlance, and common practice.\" In that case, the D.C. Circuit considered the EPA's decision to issue a rule governing emissions from electric utilities. The governing statute gave the EPA authority to issue \"appropriate and necessary\" regulations. The nominee argued that the EPA violated this statute when it \"exclude[d] consideration of costs in determining whether it [was] 'appropriate'\" to issue the regulation. To support this \"common sense\" understanding of the word \"appropriate,\" Judge Kavanaugh drew from a variety of sources, including statements from administrative law experts and past practices of the executive branch. The nominee also used legislative history to support his understanding of \"the congressional compromise\" that was embodied in the relevant statute.\nIn a similar vein, Judge Kavanaugh has invoked two different substantive canons that draw from general understandings about how Congress operates: the absurdity doctrine , which allows courts to depart from the text's plain meaning if it would produce an absurd result, and the \"elephants in mouseholes\" canon, which provides that courts should not presume that Congress \"alter[ed] the fundamental details of a regulatory scheme in vague terms or ancillary provisions.\" Scholars and judges have argued these two canons may be inconsistent with textualism because they are focused on congressional intent and because the trigger for application is unclear, meaning that these canons cannot be applied consistently. The nominee has himself characterized the absurdity doctrine as an \"off-ramp[ ] from the text\" and suggested that courts should be wary of employing the canon in a way that allows them to \"adopt what they conclude Congress meant rather than what Congress said .\" Nonetheless, Judge Kavanaugh has cited the canon against absurd results to support his decision in multiple cases. And he has frequently employed the relatively new \"elephants in mouseholes\" canon.", "Finally, in an issue that has prompted significant commentary on the nominee, Judge Kavanaugh has criticized the modern approach to severability, a doctrine that is closely related to statutory interpretation. When a court concludes that a particular statute violates the Constitution, it will generally declare that the statute is void and strike down the unconstitutional provision. If a law is only partially unconstitutional, a court sometimes has to decide which provisions to \"sever and excise as inconsistent with\" the Constitution. Courts generally attempt to retain as much of the statutory scheme as possible. Under some circumstances, however, the Supreme Court has recognized that \"it is not possible to separate that which is unconstitutional . . . from that which is not.\" In such a case, the statutory provision is inseverable, and the court will strike the whole statute. This issue may arise when courts are considering the constitutionality of one provision within a larger, and more complicated, statutory scheme—such as the Patient Protection and Affordable Care Act (ACA).\nTo determine whether an unconstitutional provision is severable, courts consider whether Congress would have enacted the constitutional provisions independently of the unconstitutional portions, asking whether the remaining provisions are capable \"of functioning independently.\" If \"Congress has explicitly provided for severance by including a severability clause in the statute,\" this creates a strong presumption in favor of severability. Recently, Justice Thomas called for the Court to reconsider the modern severability inquiry, arguing that it \"does not follow basic principles of statutory interpretation. Instead of requiring courts to determine what a statute means, the severability doctrine requires courts to make 'a nebulous inquiry into hypothetical congressional intent.'\" Judge Kavanaugh has expressed similar concerns. He has described severability principles as a \"mess\" and questioned how a court can know what Congress would have wanted, characterizing this inquiry as an \"inherently suspect exercise.\" The nominee suggested instead that \"courts might institute a new default rule: sever an offending provision from the statute to the narrowest extent possible unless Congress has indicated otherwise in the text of the statute.\"\nJudge Kavanaugh seemed to echo these concerns about the inquiry into congressional intent in his dissenting opinion in PHH Corp. v. CFPB . After concluding that the statutory provision providing the Director of the CFPB with for-cause protection for removal from office was unconstitutional, he asked whether the entire statute authorizing the CFPB must be struck down, or whether the for-cause removal protection was severable from the rest of the statute. The nominee described the usual severability inquiry requiring courts to \"speculate\" as to Congress's intent, but concluded that no such speculation was required in the case before the court because the relevant statute contained a severability clause providing that if any provision in the statute were found unconstitutional, \"the remainder . . . shall not be affected thereby.\" In Judge Kavanaugh's view, this express statutory provision controlled. It remains to be seen whether other Supreme Court Justices agree with Justice Thomas and Judge Kavanaugh's concerns about the severability doctrine, and so it is unclear whether the nominee's appointment to the Court would create a majority willing to reconsider the doctrine. In any event, the nominee's writings suggest that he takes a narrow view of a court's role in striking down unconstitutional legislation, (1) favoring severing unconstitutional provisions and striking down as little as possible and (2) giving conclusive effect to statutory provisions expressly providing either for severability or for inseverability.", "Administrative law is another critical area to consider when evaluating Judge Kavanaugh's judicial record, as the subject raises important questions about the scope of authority Congress has granted to federal agencies, as well as the Constitution's division of power among the three branches of government. While the jurist Judge Kavanaugh may replace, Justice Kennedy, was perhaps less influential in the area of administrative law than he was in other areas, he did often find himself as a decisive vote in important administrative law cases during the Roberts Court era. In the Supreme Court's most recent term, moreover, less than a week before announcing his retirement, Justice Kennedy authored an opinion in which he called for the Court to \"reconsider\" the doctrine of judicial deference to agency interpretations of their statutory authority under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc. Because Justice Kennedy previously provided the fifth vote to defer to an agency's statutory interpretation under Chevron several times, this move signals to some that the Court may be on the verge of recrafting foundational administrative law doctrines, depending on who replaces the recently retired Justice.\nGiven this context, it is notable that Judge Kavanaugh has a fairly robust record on administrative law matters. This is unsurprising, considering the D.C. Circuit's location in the nation's capital coupled with the composition of its docket, which is composed of a substantial number of administrative law cases as compared to its sister circuits, as a result of various statutes vesting the court with (sometimes exclusive) jurisdiction to hear challenges to agency actions. The nominee has accordingly ruled in numerous cases posing administrative law questions, including some in which the sitting panel was divided. In such cases, he authored a considerable number of concurring and dissenting opinions that articulate his understanding of the disputed legal issue.\nPerhaps most notably, Judge Kavanaugh wrote a number of separate opinions to explain his disagreement with other judges' views concerning the scope of a federal agency's statutory authority, reflecting a tendency to view agency attempts to expand their regulatory power with skepticism. In particular, echoing Justice Kennedy's recent concurrence, as well as similar opinions from other Justices, the nominee has signaled some discomfort with the Chevron framework, possibly indicating a willingness to cabin that doctrine to certain circumstances. To the extent his past opinions and scholarly work reflect how he would approach such matters if confirmed to the Supreme Court, he might be a vote to limit the circumstances in which courts defer under the Chevron doctrine to federal agencies. Before delving into the nominee's views on Chevron deference, however, this section first examines Judge Kavanaugh's writings on the threshold issue of when litigants may challenge agency actions in court. It then turns to the nominee's approach to agency interpretations of their statutory authority, including the Chevron framework, and concludes with an examination of the nominee's views with regard to discretionary and factual review of agency decisions.", "An important threshold issue in administrative law cases concerns whether an agency action is suitable for judicial review in a particular case. The nominee's views in this area contrast somewhat with that of one of his judicial heroes, Justice Scalia, who authored a number of opinions that interpreted Article III of the Constitution to prevent federal courts from hearing challenges to agency actions. In particular, Justice Scalia had relatively influential views on the constitutional requirements for individuals to establish standing to seek judicial relief from an Article III court, considering the standing doctrine to be an important limitation on the jurisdiction of federal courts and essential to preserving the broader principle of separation of powers. In contrast, while the nominee has certainly applied the Supreme Court's case law to dismiss a case on standing grounds, Judge Kavanaugh does not appear to take an especially restrictive view of standing under Article III, especially relative to his colleagues on the D.C. Circuit. In a number of cases that divided the D.C. Circuit, Judge Kavanaugh has departed from his colleagues to vote in favor of allowing individuals to challenge agency actions in court.\nIn particular, Judge Kavanaugh has often found that plaintiffs established standing to sue federal agencies under Article III, even when his colleagues ruled to dismiss the suit. For instance, in Morgan Drexen, Inc. v. CFPB , a corporation subject to a CFPB enforcement action and an attorney who contracted with that corporation by hiring it to perform paralegal services, brought suit in federal court challenging the agency's structure as unconstitutional. The D.C. Circuit majority panel ruled that the attorney did not have Article III standing to sue because she failed to establish an injury—an enforcement action against the corporation she contracts with was insufficient to satisfy this requirement. The nominee wrote a dissenting opinion, arguing that courts have \"a tendency to make standing law more complicated than it needs to be.\" To Judge Kavanaugh, because the CFPB was regulating a business that the attorney engaged in through the corporation, she had established Article III standing and her suit should not have been dismissed.\nSimilarly, in Grocery Manufacturers Ass' n v. EPA , discussed in more detail below, the majority panel ultimately denied a food group's petition to review an EPA decision because it lacked prudential standing. The majority found the food group was not within the \"zone of interests\" protected by the relevant statute, although one judge on the panel noted he would also have held that the food group lacked Article III standing. In that case, the EPA issued a waiver with regard to ethanol use for entities that competed with the food groups in the market for the purchase of corn, the effect of which would increase the price of corn for the food group. Judge Kavanaugh dissented, arguing, among other things, that under the D.C. Circuit's \"competitor standing cases,\" an entity does indeed have Article III standing to challenge agency regulations in situations where an agency regulates an entity's economic competitor in a manner that harms the entity's interests.\nLikewise, in Ege v. Department of Homeland Security , a plaintiff brought suit seeking removal of his name from the government's No-Fly List. The majority panel found the plaintiff lacked Article III standing because, while the court had statutory jurisdiction over the Transportation Security Administration (TSA), it did not possess jurisdiction to issue an order binding on the Terrorist Screening Center, the entity with responsibility for removing names from the List. Judge Kavanaugh wrote separately, arguing that the plaintiff established Article III standing and had followed the appeals process mandated by Congress and properly petitioned the D.C. Circuit for review of the TSA's final order. The nominee observed that the TSA, the agency that actually controls access to planes, conceded it would comply with a court order directing it to allow the plaintiff on a plane. For Judge Kavanaugh, this was sufficient to establish standing under Article III.\nBeyond constitutional standing issues, Judge Kavanaugh has written several opinions aiming to clarify what he considers the D.C. Circuit's muddled approach to prudential standing questions. For instance, as mentioned above, in Grocery Manufacturers Ass ' n v. EPA , the majority panel ultimately denied a food group's petition to review an EPA decision because it lacked prudential standing as it was not in the \"zone of interests\" protected by the relevant statute. In addition to his point concerning Article III standing, Judge Kavanaugh wrote separately to argue that the majority's conclusion that the zone of interests test is jurisdictional—meaning it concerns the power of a court to hear a case and requires the court to consider the issue even though the EPA did not raise it—was incorrect in light of recent Supreme Court decisions. According to the nominee, the zone of interests test simply asks whether a statute provides a cause of action to a party to bring suit. The following year, the Supreme Court in a unanimous decision favorably cited the nominee's opinion on this point.\nSimilarly, in White Stallion Energy Center v. EPA , also discussed in more detail below, the majority panel denied petitions challenging an EPA regulation that set emission standards for certain air pollutants emitted by electric steam generating units. With respect to one plaintiff, the majority panel found that, although the party established standing under Article III to bring its challenge in federal court, it nevertheless was not within the zone of interests protected by the Clean Air Act because it was challenging the EPA's failure to more stringently regulate its competitors. Judge Kavanaugh wrote separately to again note his concern with the D.C. Circuit's application of the \"zone of interests\" test, case law he described as \"in a state of disorder\" that \"needs to be cleaned up.\" The nominee noted that under the Supreme Court's zone of interests test, there is a \"presumption in favor of allowing suit . . . unless the [relevant] statute evinces discernible congressional intent to preclude review.\" Further, under Supreme Court precedent, plaintiffs challenging an agency's alleged failure to regulate sufficiently its competitors are \"presumptively within the zone of interests under the APA . . . absent discernible evidence of contrary congressional intent.\" Despite the Supreme Court's permissive application of the zone of interests test, Judge Kavanaugh noted, the D.C. Circuit has sometimes required evidence of an intent to benefit the plaintiff class within the relevant statute in order to fall with its zone of interests, essentially applying a presumption against allowing suit. Further, the nominee asserted, the D.C. Circuit at times barred competitors from suing as they were outside of the relevant statute's zone of interest, but at others permitted such suits \"without any apparent distinguishing principle.\" Judge Kavanaugh thus urged the court to reconsider carefully its \"crabbed approach to the zone of interests test\" and align its cases with Supreme Court precedent.", "Another critical area of administrative law to consider when evaluating Judge Kavanaugh is his approach to when a court must review an administrative agency's legal interpretations. Under the Administrative Procedure Act (APA), courts must set aside agency action that is \"not in accordance with law\" or that is \"in excess of statutory jurisdiction, authority, or limitations.\" Pursuant to the Supreme Court's framework from Chevron , courts generally apply a two-step analysis when reviewing an agency's interpretation of a statute it administers. At step one, a court must generally determine whether Congress \"has spoken to the precise question at issue.\" If so, courts must enforce the clear meaning of the statute, notwithstanding an agency's contrary interpretation. If a statute is silent or ambiguous on the matter, however, Chevron 's second step requires a court to defer to an agency's interpretation if it is reasonable. Under a related, but distinct doctrine, the Supreme Court's opinions in Auer v. Robbins and Bowles v. Seminole Rock & Sand Co . instruct courts generally to defer to an agency's interpretation of its own regulations as long as that reading is reasonable.\nApplying Chevron. In his writings on and off the court, Judge Kavanaugh has questioned broader readings of both Chevron and Auer . In his non-judicial writings, the nominee has argued that the Chevron doctrine establishes improper incentives for federal agencies, encouraging regulators to push the boundaries of their statutory authority and take actions unless they are \" clearly forbidden .\" Further, the nominee has noted that the mechanics of applying the Chevron framework are imprecise. Chevron requires courts to enforce the clear meaning of a statute at step one, and only to move to step two when a statute is \"ambiguous.\" To Judge Kavanaugh, however, the degree of clarity required in a statute to conclude that its terms are \"clear\" is uncertain, resulting in uneven application of this test by federal courts. For his part, Judge Kavanaugh has indicated that his threshold for finding ambiguity in a statute—thereby triggering deference under the Chevron framework—is likely higher compared to other judges.\nWhile Judge Kavanaugh has written opinions that apply the Chevron doctrine and defer at its second step to agencies' reasonable interpretations of statutory ambiguity, his separate opinions often reflected his larger concerns about the Chevron framework. For example, when the Chevron doctrine applies to an agency's interpretation of a statutory provision, Judge Kavanaugh may be more likely than other judges to find clarity, rather than ambiguity, in a statutory provision. The nominee wrote separately, for example, when the majority found a statute ambiguous and eligible for Chevron 's second step, while Judge Kavanaugh found the statute's meaning clear and would resolve the case at Chevron 's first step.\nFor instance, in Northeast Hospital Corp. v. Sebelius , a panel of the D.C. Circuit examined whether the Medicare statute authorized certain patients to receive benefits under separate provisions of the law. The majority opinion first applied the Chevron doctrine and held that the law did not \"clearly foreclose[]\" the agency's interpretation as Congress had \"left a statutory gap\" that the agency was entrusted to fill. The court ultimately rejected the agency's position, however, because the agency improperly applied its interpretation retroactively. Judge Kavanaugh wrote a concurring opinion to express disagreement with the majority opinion's finding of ambiguity. The nominee concluded that the statute was sufficiently clear and the agency's interpretation contradicted the law. He observed that while the legal questions in the case were \"embedded within a very complex legal scheme,\" the ultimate issue could be resolved by interpreting a specific provision of the law, not the entire Medicare statute. While it may take time and effort to determine the meaning of a statutory provision given a complex statutory backdrop, Judge Kavanaugh noted, that did not itself mean the statute was ambiguous. \"What matters,\" he continued, \"for the Chevron analysis is not how long it takes to climb the statutory mountain; what matters is whether the view is sufficiently clear at the top.\"\nUltimately, because of Judge Kavanaugh's apparent penchant for finding clarity in statutory terms, he is more likely to resolve a case at Chevron 's first step, rather than at step two. In other words, when reviewing a federal agency's interpretation of a statute it administers, to the extent that the nominee finds congressional intent clear in a statutory provision, he is more likely to independently analyze an agency's assertion of authority at Chevron 's first step, rather than find a statute ambiguous and potentially defer to an agency's reasonable interpretation at Chevron 's second step. In this vein, the nominee's methodology echoes the approach of a majority of the Supreme Court in Wisconsin Central Ltd. v. United States , a case last term where a five-Justice majority applied a more rigorous inquiry at Chevron's first step than the dissenters to find a statutory provision unambiguous.\nJudge Kavanaugh's approach to such issues might also reflect agreement with an underlying tension commentators have observed with Chevron 's second step; namely, that a court's task at step two essentially elides any distinction between questions of law and questions of policy. In other words, according to this view, when a court defers under Chevron 's second step, it sometimes upholds an agency's legal interpretation of a statutory term, but at other times it is effectively affirming a reasonable policy choice made within the limits of congressionally delegated authority. Judge Kavanaugh arguably aims to distinguish more clearly between questions of law, on which courts should, in his view, retain interpretive authority, and policy, in which agencies exercise broader discretion to reach decisions according to their respective statutory delegations.\nMajor Questions Doctrine. Perhaps in an effort to urge more clarity and certainty in statutory review cases, Judge Kavanaugh has stressed that agencies need clear authorization from Congress to pass regulations with major economic and political significance, a concept the Supreme Court first enunciated in FDA v. Brown & Williamson Tobacco Corp. For example, as explained in more detail below, in Coalition for Responsible Regulation, Inc. v. EPA , the nominee dissented from a denial of rehearing en banc, arguing that the EPA had exceeded its statutory authority in promulgating certain regulations to curb global warming. Judge Kavanaugh explained that the agency was faced with two competing interpretations of its authority under the Clean Air Act, the broader of which would create absurd results given other requirements in the statute. But rather than choose the narrow, more plausible interpretation of its power, the EPA nevertheless adopted the broader reading of its authority—which would impose permitting requirements on a far larger number of entities—and simply, in the nominee's view, \"re-wrote\" via regulation those aspects of the statute that triggered implausible results. Judge Kavanaugh rejected this reading of the statute, remarking that such an approach \"could significantly enhance the Executive Branch's power at the expense of Congress's.\" After noting several reasons why he thought the EPA's broad interpretation was not supported by the statute, the nominee observed that the EPA's proffered reading would significantly increase the number of entities subject to regulation, which, in turn, \"will impose enormous costs on\" businesses, homeowners, and the economy-at-large. Judge Kavanaugh argued that there was no indication that Congress intended such a \"dramatic expansion\" of the requirements of the statute, pointing to the Supreme Court's admonition in Brown & Williamson that when Congress intends to delegate authority to regulate matters with major \"economic and political significance,\" it does so clearly.\nAnother case emblematic of this approach is Judge Kavanaugh's dissenting opinion in SeaWorld of Florida, LLC v. Perez . This case concerned a citation issued by the Secretary of Labor to SeaWorld of Florida, LLC (SeaWorld) for violating the Occupational Safety and Health Act's (OSHA's) \"general duty\" clause, which requires employers to provide employees with a workplace free of \"recognized hazards\" that may cause death or serious physical harm. SeaWorld violated the statute, according to the Secretary, when it exposed animal trainers who conducted performances with killer whales to recognized hazards of injury or drowning. The D.C Circuit panel majority denied a petition for review of the citation, concluding that the agency's decision was not arbitrary and capricious, and that it was supported by substantial evidence.\nJudge Kavanaugh dissented, concluding that, under current law, the Department of Labor (DOL) was not authorized to regulate these activities. The nominee noted that the DOL is charged with ensuring that employers provide a reasonably safe workplace for their employees, and OSHA requires employers to provide employees with employment free from \"recognized hazards\" likely to cause death or physical harm. But, according to Judge Kavanaugh, the DOL had \"not traditionally tried to stretch its general authority under the Act\" to regulate the normal activities of participants in sports events or entertainment shows. Nonetheless, the nominee found, the Department here \"departed from tradition and stormed headlong into a new regulatory arena.\" Judge Kavanaugh explained that, under a prior decision from the Occupational Safety and Health Review Commission that binds the Department, hazards intrinsic to an industry's normal activities are not subject to penalties under OSHA because the alternative interpretation would potentially eliminate industries that are by nature dangerous. The DOL thus lacked, in the nominee's view, the authority to \"regulate the normal activities of participants in sports events or entertainment shows\" such as SeaWorld. Moreover, as he did in Coalition for Responsible Regulation , Judge Kavanaugh pointed to the Supreme Court's admonition in Brown & Williamson that when Congress delegates authority to regulate substantial areas of economic and political significance, it does so clearly. Thus, the nominee concluded, when passing OSHA Congress was well aware of the dangers of various popular sports and entertainment shows, and \"it is simply not plausible\" that Congress intended to authorize implicitly the Department, through the vague terms of OSHA, to regulate the sports and entertainment industry, including by eliminating familiar practices in those industries.\nPerhaps most prominently, Judge Kavanaugh returned to these considerations in a dissent from a denial of rehearing en banc in United States Telecom Ass ' n v. FCC , wherein he articulated a fairly stringent judicial framework for evaluating certain agency regulations that implicate so-called \"major questions.\" This case concerned the FCC's net neutrality rule, which reclassified broadband Internet service providers (ISPs) as offering a telecommunications service, rather than an information service, thereby subjecting them to common carrier regulation under the Communications Act of 1934. The panel majority, applying Chevron , concluded the FCC's regulation was a reasonable interpretation of an ambiguous statute and thus upheld the rule at Chevron 's second step. Judge Kavanaugh, however, concluded that the agency lacked authority to issue the regulations. Drawing on various Supreme Court cases establishing what he referred to as the \"major rules doctrine\" (or \"major questions doctrine\"), including Brown & Williamson , he argued that when courts review agency rules, \"two competing canons of statutory interpretation come into play.\" According to the nominee, on the one hand, the Chevron framework applies to \"ordinary rules\"; but, on the other, \"Congress must clearly authorize\" agencies to issue \"major agency rules of great economic and political significance.\" If Congress only \" ambiguously supplies authority for the major rule, the rule is unlawful.\" In other words, according to Judge Kavanaugh, while the Chevron doctrine permits agencies to issue ordinary rules based on statutory ambiguity, \"the major rules doctrine prevents an agency from relying on statutory ambiguity to issue major rules.\"\nWhile acknowledging that the Supreme Court had not established a bright-line rule distinguishing major rules from non-major ones, the FCC net neutrality rule, in Judge Kavanaugh's view, clearly qualified as a major rule for purposes of the major rules doctrine. The nominee based this conclusion on several factors that mirrored situations in which the Supreme Court previously found a rule to be \"major\": the agency was basing its authority on a \"long-extant statute\"; the net neutrality rule affected a vast number of companies and consumers by \"fundamentally transform[ing] the Internet,\" taking its control away from the people and giving it to the government; and the financial impact of the rule was \"staggering.\" Because Congress did not clearly authorize the FCC to promulgate the net neutrality rule, Judge Kavanaugh ultimately concluded it was invalid.\nJudge Kavanaugh's approach to the major questions doctrine seems notable in at least two ways. First, at least relative to his colleagues on the D.C. Circuit, the nominee appears to have a lower threshold when considering whether regulatory actions constitute \"major rules\" that require clear congressional authorization. To the extent that the nominee takes an expansive view of what regulations fall into the \"major rules doctrine\" rubric, his approach would flatly deny application of the Chevron framework to a number of agency rules. Accordingly, if confirmed to the Supreme Court, Judge Kavanaugh might be a vote to further cabin the reach of the Chevron framework in certain circumstances.\nSecond, in those cases that do raise the question whether a major rule is supported by statutory authority, his encapsulation of a \"major rules doctrine\" appears to also apply a more stringent analysis of whether an agency is authorized to promulgate a rule than the Supreme Court has in some of the cases the nominee cites for establishing the doctrine. For instance, in King v. Burwell , the Court initially decided that, due to its importance, the issue of whether the ACA established tax credits for states with a federal health care exchange was ineligible for the Chevron framework, but continued by simply independently examining the statute without a presumption either way. As Judge Kavanaugh explained in United States Telecom Ass ' n , the approach in King might be appropriate in typical, non-major-questions cases where Chevron does not apply, as the court \"simply determine[s] the better reading of [a] statute\" in order to determine if an agency's regulation is authorized. However, under the nominee's approach to major questions, a court places a \"thumb on the scale\" that requires clear statutory authorization to support a regulation, meaning that not only does Chevron not apply in such cases, but that the agency has a heavy burden to demonstrate that its underlying action is lawful.\nAuer Deference. Judge Kavanaugh's approach to the Chevron framework might also extend to other doctrines of deference to agency actions, such as Auer deference. In a 2016 speech, the nominee predicted that the dissenting opinion in Decker v. Northwest Environmental Defense Center , in which Justice Scalia objected to Auer deference because it violates separation of powers principles, will one day become the law. While Judge Kavanaugh does not appear to have made this argument in a judicial opinion, his approach to cases requiring review of an agency's interpretation of its own regulation appears somewhat analogous to his method in statutory review cases. In Howmet Corp. v. EPA , for instance, the D.C. Circuit panel's majority opinion upheld the EPA's interpretation of what constitutes \"spent material\" subject to its regulations, concluding that it was a reasonable interpretation of ambiguous language. Judge Kavanaugh wrote a dissenting opinion on the grounds that the EPA's proffered interpretation contradicted the text of its own regulation by expanding its reach. The nominee noted that agencies may not broadly interpret the scope of their own rules in order to \"create de facto a new regulation.\" In Judge Kavanaugh's view, that was precisely what the EPA did, expanding the definition of \"spent material\" in order to \"enlarge its regulatory authority\" beyond the terms of the regulation. The nominee thus concluded that the regulations were clear and declined to defer to the agency.", "In contrast to his views on Chevron and Auer deference, Judge Kavanaugh does not appear to have objections to the deferential approach applied by courts when conducting discretionary and factual review of agency decisions, another major area of administrative law under which courts will invalidate \"agency actions, findings, and conclusions found to be arbitrary, capricious, [or] an abuse of discretion.\" The nominee appears comfortable with upholding an agency's reasonable policy choice made within the scope of its own statutory authority, although he has invalidated agency decisions that he considered to be arbitrary and capricious. For instance, in American Radio Relay League, Inc. v. FCC , the D.C. Circuit examined a rule issued by the FCC concerning the use of electric power lines for broadband Internet access. The majority panel voted to remand the rule for further explanation because the agency had not sufficiently explained why it chose not to change the \"extrapolation factor\" used to measure the interference caused by broadband over power lines. Judge Kavanaugh wrote separately to dissent from this aspect of the panel's ruling, concluding that the agency's rule should be upheld as it had sufficiently explained its reasoning. The nominee noted that the FCC's choice of an extrapolation factor was \"a highly technical determination committed to the Commission's expertise and policy discretion,\" and the agency's explanation that the evidence was not sufficiently conclusive to merit a change was sufficient. Judge Kavanaugh also noted that lower courts have transformed the \"narrow\" scope of review that the Supreme Court has applied pursuant to the arbitrary and capricious test into a \"far more demanding test,\" with \"inherently unpredictable\" results for federal agencies. He reiterated that while courts must carefully police the boundaries of an agency's statutory authority, when Congress has delegated policymaking discretion to an agency, courts are not permitted to substitute their own judgment for that of the agency.\nJudge Kavanaugh has also written to signal disagreement with the judicial application of procedural requirements on federal agencies that are not expressly required by statute. In addition to remanding to the FCC to explain its reasoning regarding its rule concerning broadband access, the majority panel in American Radio also remanded the rule for the FCC to release redacted portions of internal staff studies relied on to issue the regulation. The nominee wrote separately to emphasize that, while the majority panel's decision was consistent with D.C. Circuit precedent—namely its 1973 decision in Portland Cement Ass ' n v. Ruckelshaus —that precedent was itself inconsistent with the text of the APA, which did not impose any such requirement on the rulemaking process. Further, Judge Kavanaugh noted that then-Justice Rehnquist's 1978 opinion for the Court in Vermont Yankee Nuclear Power Corp. v. Natural Resources Defense Council, Inc. required invalidatation of the D.C. Circuit's imposition of additional procedural requirements on agencies beyond those found in the APA generally, ruling that the APA established the maximum procedures Congress required for agency rulemaking. The D.C. Circuit's precedent from Portland Cement , Judge Kavanaugh argued, was thus inconsistent with the text of the APA and Vermont Yankee .", "Judge Kavanaugh's views on administrative law are a significant consideration for his nomination, as the Court may consider issues relating to Article III standing and deference to federal agencies under the Chevron and Auer frameworks in the near future. The nominee's scholarly writings and opinions in administrative law cases at the D.C. Circuit reveal several trends that may reflect how he would approach such matters if confirmed to the Supreme Court. The nominee has not articulated particularly stringent views on establishing standing under Article III to bring suit in federal court; likewise, Judge Kavanaugh appears comfortable with the relatively deferential review applied by courts when reviewing the discretionary decisions of an agency delegated to it by statute. At the same time, the nominee has voiced concern as to the deference accorded to agencies on questions of statutory and regulatory interpretation. Specifically, Judge Kavanaugh may be a vote to cabin the reach of Chevron deference by finding that regulations pose major questions; and even when applying the doctrine, Judge Kavanaugh may more frequently find clarity in statutory language, thus resolving disputes independently at Chevron 's first step, rather than deferring to reasonable agency interpretations at Chevron step two.", "Judge Kavanaugh is likely to represent a key vote in the Supreme Court's business law cases. Last term, the Roberts Court issued a number of business-related decisions in which Justice Kennedy sided with bare majorities of the Court to conclude, for example, that arbitration agreements providing for the individualized resolution of disputes between employers and employees must be enforced; that federal antitrust law does not prohibit contractual provisions barring merchants from expressing a preference that customers use certain credit cards; and that foreign corporations may not be sued under the Alien Tort Statute (ATS). Decisions like these have prompted a debate among legal commentators as to whether the Roberts Court can be fairly described as overly \"pro-business.\"\nRegardless of one's assessment of the Roberts Court's approach to business issues, Judge Kavanaugh would have the opportunity to influence the Court's business law jurisprudence if confirmed. However, Judge Kavanaugh's views on a range of business law issues—including class action litigation, the reach of the Federal Arbitration Act, and federal preemption of state tort law —remain unclear, as the nominee has no significant writings on these issues as the D.C. Circuit confronts \"relatively few explicit business cases.\"\nNonetheless, the nominee's rulings provide some clues as to how he might address business law issues if elevated to the Supreme Court. Many of Judge Kavanaugh's most important decisions, which are discussed in more detail elsewhere in this report, have had potentially significant implications for business regulation. In PHH Corp. v. CFPB , for example, the nominee dissented from a decision affirming the constitutionality of the CFPB's structure, reasoning that for-cause tenure protections for the CFPB's Director unconstitutionally infringed on the President's removal power in light of, among other things, the Director's \"enormous power over American businesses, American consumers, and the overall U.S. economy.\" And in Doe v. Exxon Mobil Corp. , Judge Kavanaugh dissented in part from a D.C. Circuit decision concerning corporate liability under the ATS, concluding that certain ATS claims against a corporation for its overseas conduct should be dismissed because, among other reasons, the executive branch had \"reasonably explained that adjudicating those ATS claims would harm U.S. foreign policy interests.\"\nWhether these opinions reflect Judge Kavanaugh's approach to business-related cases more generally is open to debate, as they arguably reflect broader concerns about the separation of powers and national security, rather than any specific views of business regulation. However, the nominee's decisions concerning matters of substantive business law—specifically, antitrust law, labor law, and securities law—offer some insight into his views of certain federal statutes that regulate key aspects of the nation's economy. In these decisions, Judge Kavanaugh has expressed skepticism toward broad views of administrative power over business entities, evinced hesitance to find that federal statutes establish rights and remedies that are not textually explicit, and adopted a narrower view of federal antitrust law than some of his colleagues. This section of the report discusses how the nominee might approach business law cases by examining his prominent decisions concerning antitrust law, labor law, and securities law.", "Among the cases the Supreme Court confronts, antitrust disputes are unique in affording economic analysis a central role in the Court's decisionmaking. As the Supreme Court has explained, \"[i]n antitrust, the federal courts . . . act more as common-law courts than in other areas governed by federal statute,\" as judicial interpretations of general statutory terms \"evolve to meet the dynamics of present economic conditions.\" A number of commentators have accordingly observed that the evolution of antitrust doctrine in the 20th century can be viewed largely as a story of the evolution of economic thought during that period. A judge's views on antitrust law can therefore offer insight into his broader approach to questions of federal economic regulation.\nWhile the Court has over the past forty years interpreted the antitrust laws as being principally concerned with maximizing economic efficiency, some commentators have argued for a return to an era in which courts considered other goals in antitrust cases—including promoting consumer choice and product diversity, ensuring open markets in which new businesses have a reasonable opportunity for entry, and limiting the political power of large firms. Although Judge Kavanaugh has not been involved in a large number of antitrust cases, he has authored two critical opinions in the field that suggest he is unlikely to be receptive to these attempts to reorient the Court's antitrust jurisprudence toward an emphasis on social and political goals beyond the maximization of economic efficiency, measured through short-term effects on prices and output.\nIn United States v. Anthem, Inc. , for example, Judge Kavanaugh dissented from a panel majority opinion affirming a permanent injunction blocking the merger of Anthem and Cigna, two of the nation's four largest health insurers. In that case, the federal government, along with eleven states and the District of Columbia, sought to enjoin the Anthem-Cigna merger under Section 7 of the Clayton Act on the grounds that it would substantially lessen competition in the market for the sale of health insurance to \"national accounts\"—that is, employers purchasing health insurance for more than 5,000 employees across more than one state. The U.S. District Court for the District of Columbia agreed with the plaintiffs and permanently enjoined the merger after concluding that its overall effect on the relevant market would be anticompetitive in light of the market share that the merged firm would possess, and a three-judge panel of the D.C. Circuit affirmed. Judge Kavanaugh, however, dissented from the panel's decision, arguing that the merger would likely generate efficiencies that would benefit the companies' customers. Specifically, Judge Kavanaugh concluded that because the merged company would have greater bargaining power, it would be able to negotiate lower rates with healthcare providers (e.g., hospitals and doctors) and pass savings along to its customers.\nIn his dissent, Judge Kavanaugh sharply criticized a portion of the majority opinion suggesting that \"it is not at all clear\" that efficiencies likely to result from a merger \"offer a viable legal defense to illegality under Section 7.\" While the D.C. Circuit majority ultimately assumed for purposes of the case that such efficiencies are relevant in assessing a merger's impact on competition, it also observed that the Supreme Court held in a 1967 decision that efficiencies are not relevant in Section 7 cases, and that the Court had neither explicitly nor implicitly overturned that decision. The nominee criticized this portion of the majority opinion as \"ahistorical drive-by dicta,\" reasoning that in the 1970s, the Court \"shifted away from the strict anti-merger approach [it] . . . had employed in the 1960s.\" Judge Kavanaugh concluded that under \"the modern approach\" to antitrust law reflected in subsequent Supreme Court decisions, courts \"must take account of the efficiencies and consumer benefits that would result from [mergers],\" and not limit their analysis to an assessment of how concentrated the relevant market would become as a result of a merger.\nJudge Kavanaugh also expressed his preference for \"the modern approach\" to antitrust law over the approach taken by the 1960s Court in his dissent in F ederal Trade Commission (FTC) v. Whole Foods Market . In that case, the FTC sought a preliminary injunction to block the merger of Whole Foods and another grocery store chain, Wild Oats. The key issue in the case was the scope of the relevant \"product market\" in which Whole Foods and Wild Oats competed. The scope of the product market in which a firm competes is often a critical question in merger cases, because mergers are less likely to harm competition in markets with many competitors than in markets with few competitors. In Whole Foods Market , the FTC contended that the relevant market involved what it called \"premium, natural, and organic supermarkets\" (PNOS)—that is, supermarkets that focus on high-quality perishables and specialty organic produce, target affluent and well-educated customers, and emphasize social and environmental responsibility. Because Whole Foods and Wild Oats were the only PNOS in eighteen cities, the FTC contended that the merger violated Section 7 because it would substantially decrease competition in the PNOS market in those cities. By contrast, Whole Foods argued that because it competed with a wide range of non-PNOS grocery stores, the relevant market for purposes of Section 7 was far broader than PNOS. Whole Foods contended that because the merged company would not possess a large share of the relevant market (which included non-PNOS grocery stores), the merger would not substantially lessen competition in that broader market.\nWhile the district court sided with Whole Foods and denied the FTC's motion for a preliminary injunction, the D.C. Circuit reversed that decision on appeal. Writing separately, Judge Janice Rogers Brown and Judge David S. Tatel both concluded that the district court erred. Relying in part on the Supreme Court's 1962 decision in Brown Shoe Co. v. United States , which identified seven non-exhaustive \"practical indicia\" to guide courts' market definition inquiry, Judge Brown concluded that the FTC had presented strong evidence showing that PNOS constituted a distinct \"submarket\" that catered to a \"core group\" of customers who would continue to shop at the merged firm over non-PNOS grocery stores even if the merged firm raised its prices. In an opinion concurring in the judgment, Judge Tatel likewise concluded that the district court erred by rejecting the FTC's evidence suggesting that PNOS constituted a distinct product market. The court accordingly remanded the case to the district court for a determination of whether the equities favored granting the FTC's motion for a preliminary injunction.\nIn his dissent, Judge Kavanaugh rejected his colleagues' market definition analysis, arguing that it \"call[ed] to mind the bad old days when mergers were viewed with suspicion regardless of their economic benefits.\" Judge Kavanaugh reasoned that because the FTC had not presented evidence showing that Whole Foods was able to set higher prices in areas where Wild Oats stores were absent, the district court correctly concluded that Whole Foods competed with a range of non-PNOS grocery stores. Echoing his broader views on the importance of formal rules, the nominee also noted his \"strong[ ]\" disagreement with what he described as his colleagues' effort to \"resuscitate[ ] the loose antitrust standards of Brown Shoe Co. v. United States .\" According to Judge Kavanaugh, Brown Shoe 's malleable \"practical indicia\" approach to market definition \"ha[d] not stood the test of time,\" and had been rightly abandoned in favor of more rigorous approaches that emphasize quantitative assessments of market concentration and price elasticities.\nWhile the evidence is limited, Judge Kavanaugh's general approach to antitrust law appears to be broadly similar to the approach reflected in Justice Kennedy's prominent antitrust opinions. Justice Kennedy's tenure on the Court included several rulings limiting the scope of the antitrust laws based in part on insights from what has been called the \"Chicago School\" of antitrust analysis—an approach to antitrust that heavily emphasizes the use of economic reasoning, rejects reliance on values other than economic efficiency, and is generally confident that markets are efficient and self-correcting even in the absence of government interventions aimed at addressing anti-competitive behavior. Notably, Justice Kennedy's key antitrust decisions and Judge Kavanaugh's antitrust dissents all cite Judge Robert Bork's seminal book The Antitrust Paradox in support of their analyses. The Antitrust Paradox , which criticized the Supreme Court's broad interpretations of the antitrust laws in the 1960s and its reliance on non-efficiency values in many antitrust cases, was instrumental in the development of the Chicago School of antitrust analysis and has been described as the scholarly work that has exerted the \"great[est] influence . . . on the direction of antitrust policy\" since the adoption of the Sherman Act in 1890.\nWhile the Chicago School's influence on antitrust law has recently attracted criticism from some commentators seeking to reinvigorate antitrust enforcement, Judge Kavanaugh's opinions suggest that, like Justice Kennedy, he is generally sympathetic to the School's core principles and likely to resist efforts to shift the Court's antitrust jurisprudence. Although the nominee may not alter the direction of the Court's antitrust decisions in light of this apparent similarity between his views and those of Justice Kennedy, his vote may be key in maintaining the Court's current balance in antitrust cases, the most recent of which divided the Court by a 5-4 margin.", "Judge Kavanaugh has been involved in a number of cases involving labor law, another area in which some commentators have argued that the Roberts Court has evinced \"pro-business\" tendencies. While many of these cases have involved discrete legal issues that do not lend themselves to generalizations about the nominee's business law jurisprudence, two themes emerge from his labor law decisions. First, although Judge Kavanaugh has not disagreed with his D.C. Circuit colleagues on the legal standards governing the review of decisions rendered by labor arbitrators, he has applied those standards in a more deferential fashion than some of his colleagues. Second, perhaps reflecting his broader textualist approach to statutory interpretation, Judge Kavanaugh has been hesitant to find that federal labor and workplace safety statutes provide legal rights and remedies that are not textually explicit.\nUnder the NLRA, the National Labor Relations Board (NLRB) has the authority to review labor arbitration proceedings in cases where such review is necessary to determine whether an employer committed an \"unfair labor practice.\" The NLRA affords the NLRB discretion over the extent to which it will defer to arbitration decisions, and the NLRB has adopted a standard pursuant to which it defers to such decisions as long as the arbitrator's decision is, in relevant part, not \"clearly repugnant\" to the NLRA. The NLRB has further explained that an arbitrator's decision is not \"clearly repugnant\" to the NLRA unless it is \"palpably wrong, i.e., unless the arbitrator's decision is not susceptible to an interpretation consistent with the [NLRA].\"\nIn Verizon New England Inc. v. NLRB , Judge Kavanaugh, writing for a divided court, applied these standards in reversing an NLRB order overturning an arbitration panel's decision. In that case, an arbitration panel determined that by waiving employees' rights to engage in \"picketing\" in its collective bargaining agreement with Verizon, a union had waived employees' rights to display pro-union signs in cars parked at Verizon facilities. The NLRB overturned the arbitration panel's decision, concluding that the union's waiver of the right to engage in \"picketing\" did not amount to waiver of the right to display pro-union signs in cars—a right protected by the NLRA in the absence of waiver. However, in an opinion by Judge Kavanaugh, the D.C. Circuit reversed the NLRB's decision. Over the dissent of Judge Sri Srinivasan, Judge Kavanaugh explained that under the deferential standard of review governing labor arbitration, the NLRB should have upheld the arbitrator's decision because it was not \"palpably wrong.\" Specifically, Judge Kavanaugh reasoned that the arbitration panel's decision was not \"palpably wrong\" because \"[n]o hard-and-fast definition of the term 'picketing' excludes the visible display of pro-union signs in employees' cars rather than in employees' hands, especially when the cars are lined up in the employer's parking lot and thus visible to passers-by in the same way as a picket line.\"\nJudge Kavanaugh similarly deferred to a labor arbitrator's decision in National Postal Mail Handlers Union v. American Postal Workers Union . In that case, two unions of postal workers disputed which union was entitled to perform certain work at a U.S. Postal Service facility under a 1979 Postal Service directive. One union brought the matter to arbitration and prevailed, prompting the other union to sue in federal court to overturn the arbitrator's decision. Over the dissent of Chief Judge David B. Sentelle, the nominee affirmed the arbitrator's decision that the dispute was arbitrable, explaining that although the arbitrator had incorrectly interpreted a 1992 agreement between the unions and the Postal Service governing the arbitration of disputes, the court was bound by Supreme Court precedent to affirm his decision as long as he was \"even arguably construing or applying the contract and acting within the scope of his authority.\" Because the arbitrator's interpretation of the 1992 agreement \"was not outside traditional juridical and interpretive bounds,\" Judge Kavanaugh concluded that the arbitrator was indeed \"arguably construing or applying the contract,\" even if his interpretation \"may have been badly mistaken.\"\nJudge Kavanaugh's labor law decisions also evince hesitance to find that federal labor and workplace safety statutes provide legal rights and remedies that are not textually explicit. For example, in International Union, Security, Police & Fire Professionals of America v. Faye , the nominee dissented from a D.C. Circuit decision holding that the Labor-Management Reporting and Disclosure Act (LMRDA) provides unions with an implied cause of action for breach of a fiduciary duty owed to them. In rejecting the court's conclusion that the LMRDA established such a cause of action, Judge Kavanaugh relied principally on the statute's text, which indicates that any \"member\" of a union may sue a union officer for breach of a fiduciary duty owed to their union. The nominee reasoned that because the statute by its terms created a cause of action only for union \"members,\" it did not also contain an implied cause of action for unions themselves. Judge Kavanaugh rejected the argument that Congress intended to create an implied cause of action for unions in the LMRDA based on the Act's requirement that union members bring lawsuits only after their union refused or failed to do so, reasoning that this provision in the Act referred to a union's refusal or failure to bring lawsuits under state law and not the LMRDA.\nSimilarly, in SeaWorld of Florida v. Perez , a decision mentioned above in the discussion on administrative law, Judge Kavanaugh dissented from a decision affirming the DOL's citation of SeaWorld for violating OSHA by exposing animal trainers to the hazards of drowning or injury when working with killer whales during performances. The decision concerned the scope of OSHA's \"General Duty Clause,\" which imposes a general duty on employers to \"furnish to each of his employees employment and a place of employment which are free from recognized hazards that are causing or are likely to cause death or serious physical harm to his employees.\" In dissent, Judge Kavanaugh reasoned that the DOL lacked the authority under the General Duty Clause to issue the citation because (1) DOL precedent provided that the Department lacked the authority to proscribe or penalize dangerous activities intrinsic to an industry, and (2) SeaWorld determined that close contact between trainers and whales was an important aspect of its shows and thus intrinsic to its business. Judge Kavanaugh also criticized what he characterized as the Department's \"irrational[ ] and arbitrar[y]\" distinction between close contact among trainers and whales and contact in other forms of sport and entertainment, such as football and NASCAR races, which the Department had denied it had the authority to regulate. The nominee reasoned that, despite the Department's claim that it lacked the authority to regulate such activities, the majority's decision affirming the citation would permit the Department \"to regulate sports and entertainment activities in a way that Congress could not conceivably have intended in 1970 when giving the agency general authority to ensure safer workplaces.\"\nIn the coming years, the Supreme Court is likely to confront a variety of important labor law cases. Given the close division evident in the Court's recent decisions in the field, it is likely that Judge Kavanaugh, if confirmed, would represent a critical vote in these cases. Whether the nominee's textualist approach to statutory interpretation or skepticism toward administrative authority would affect their ultimate disposition remains to be seen and would likely depend on the specific laws at issue in individual cases.", "Federal securities law is another significant area of business regulation that Judge Kavanaugh would likely be called upon to address if elevated to the Supreme Court. The federal securities laws impose a variety of disclosure and anti-fraud requirements on issuers and sellers of securities in order to promote the accurate pricing of securities and the efficient allocation of capital. Enforcement of the securities laws raises a variety of important questions, including issues concerning the substantive reach of individual securities law provisions and procedural issues involving the authority of administrative agencies and the certification of securities class actions. The Roberts Court has confronted a range of securities law issues, many of which Judge Kavanaugh has not addressed on the D.C. Circuit. However, the Court has also issued a series of opinions concerning one topic on which Judge Kavanaugh has expressed clear views: the scope of anti-fraud liability under Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and its corresponding rule.\nSection 10(b) of the Exchange Act makes it unlawful \"[t]o use or employ, in connection with the purchase or sale of any security . . . any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [Securities and Exchange Commission (SEC)] may prescribe.\" SEC Rule 10b-5, which implements Section 10(b), in turn makes it unlawful to, \"in connection with the purchase or sale of any security\": (1) \"employ any device, scheme, or artifice to defraud\"; (2) \"make any untrue statement of material fact or . . . omit to state a material fact necessary in order to make the statements made . . . not misleading\"; or (3) \"engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.\"\nIn 1994, the Supreme Court held in a 5-4 opinion by Justice Kennedy that private plaintiffs cannot bring Section 10(b) claims against persons who aid and abet Section 10(b) violations but do not themselves personally engage in the conduct prohibited by Section 10(b). Justice Kennedy reasoned that because Section 10(b) by its terms prohibits \"only the making of a material misstatement (or omission) or the commission of a manipulative act,\" private plaintiffs cannot sue those who merely aid and abet such conduct.\nThe Court expanded on this decision fourteen years later in Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc. , another Justice Kennedy opinion. In that case—which one commentator has described as \"easily the most controversial of the Roberts Court's securities decisions\" —the Court held by a 5-3 vote that a corporation's vendors and customers who had allegedly facilitated accounting fraud by preparing false documentation and backdated contracts for the corporation were not liable to the corporation's investors under Rule 10b-5 for participating in a \"scheme to defraud.\" The Court reasoned that the corporation's vendors and customers were not liable because the corporation's investors relied only upon the corporation's financial statements, and not on conduct by these \"secondary\" actors.\nFinally, in 2011, the Court held in Janus Capital Group v. First Derivative Traders by a 5-4 vote that an investment adviser who had helped an associated mutual fund prepare prospectuses containing false statements had not violated Rule 10b-5(b), which makes it unlawful to \" make any untrue statement of material fact\" in connection with the purchase or sale of a security. The Court concluded that the investment adviser had not violated Rule 10b-5(b) because it was not the \"maker\" of the relevant false statements. The Court explained that the \"maker\" of a statement within the meaning of Rule 10b-5(b) is \"the person or entity with ultimate authority over the statement, including its content and whether and how to communicate it,\" and that the investment adviser was not the \"maker\" of the statements because it did not have such authority.\nJudge Kavanaugh's dissent in Lorenzo v. SEC offers insight into his views on the scope of \"secondary\" liability under the federal securities laws. Lorenzo involved an investment banker the SEC charged with sending email messages to investors containing misrepresentations about key features of a securities offering. The SEC found that the banker violated three separate anti-fraud provisions of the federal securities laws by sending the emails: (1) Section 17(a)(1) of the Securities Act of 1933 (Securities Act), which makes it unlawful \"for any person in the offer or sale of any securities . . . to employ any device, scheme, or artifice to defraud\"; (2) Section 10(b) of the Exchange Act; and (3) Rule 10b-5.\nWhile a panel of the D.C. Circuit held that the banker was not the \"maker\" of the relevant statements and accordingly reversed the SEC's determination that he violated Rule 10b-5(b) based on Janus Capital Group , it affirmed the SEC's determination that the banker violated the other relevant anti-fraud provisions. The court rejected the banker's argument that he did not violate the remaining anti-fraud provisions because he was not the \"maker\" of the misleading statements, reasoning that the text of the remaining provisions did not require that a defendant \"make\" the misleading statements. Instead, the court concluded that the banker violated the remaining anti-fraud provisions by knowingly sending the misleading statements from his email account to prospective investors.\nJudge Kavanaugh authored a pointed dissent from the court's decision, offering two independent disagreements with the majority's reasoning. First, the nominee disagreed with the majority's conclusion that substantial evidence supported the SEC's determination that the banker sent the emails with the requisite intent to deceive, manipulate, or defraud. Judge Kavanaugh argued that while the administrative law judge (ALJ) who initially adjudicated the case had concluded that the banker acted with the required mental state (i.e., mens rea), the ALJ's factual findings—that the banker had not read the emails, which his boss drafted—did not support the ALJ's legal conclusion. In a passage that arguably reflects his broader approaches toward both administrative law and criminal law, Judge Kavanaugh argued that in reviewing the ALJ's decision, the SEC had \"[i]n a Houdini-like move, . . . rewrote the [ALJ's] factual findings to make [them] . . . correspond to the legal conclusion that [the banker] was guilty.\" Reasoning that the ALJ's legal conclusions did not heed \"bedrock mens rea principles\" that are \"essential to preserving individual liberty,\" Judge Kavanaugh concluded that the court should have examined whether the ALJ's factual findings supported those conclusions, rather than deferring to the SEC's creation of \"an alternative factual record.\"\nSecond, Judge Kavanaugh disagreed with the majority's conclusion that sending misstatements related to a sale of securities qualifies as a violation of the relevant anti-fraud provisions if the defendant was not a \"maker\" of the misstatements. The nominee argued that this interpretation of the anti-fraud provisions would allow the SEC \"to evade the important statutory distinction between primary liability and secondary (aiding and abetting) liability,\" because it would imply that those who aid and abet a misstatement are themselves primary violators engaged in a scheme to defraud. Noting that the Supreme Court had \"pushed back hard against the SEC's attempts to unilaterally rewrite the law\" and expand the scope of primary anti-fraud liability in Central Bank of Denver , Stoneridge Investment Partners , and Janus Capital Group , Judge Kavanaugh rejected the conclusion that the banker was liable for participating in a fraudulent scheme by forwarding the misstatements after receiving them from his boss.\nJudge Kavanaugh's Lorenzo dissent not only evinces a narrow view of the scope of secondary \"scheme\" liability under the anti-fraud provisions of the Securities Act and the Exchange Act—a view that seems to be consistent with that of Justice Kennedy—it also reflects skepticism concerning the legitimacy of judicial deference to SEC administrative adjudications. Notably, in June, the Supreme Court granted a petition for certiorari in Lorenzo on the question of \"whether a misstatement claim that does not meet the elements set forth in Janus [ Capital Group ] can be repackaged and pursued as a fraudulent scheme claim.\" While Judge Kavanaugh's view may accordingly be vindicated, he would likely be disqualified from participating in the case if confirmed.", "If confirmed, Judge Kavanaugh would likely have the opportunity to shape the Supreme Court's business-related decisions, as the Court has already granted certiorari to hear cases involving arbitration, products liability, federal preemption, class actions, and antitrust law during the October 2018 Term. While the nominee has not participated in cases involving the full range of business law issues that come before the Supreme Court, his decisions concerning antitrust law, labor law, and securities law offer some insight into his views on key aspects of federal economic regulation. Consistent with his general views on the separation of powers and statutory interpretation, Judge Kavanaugh has expressed skepticism toward broad views of the powers of administrative agencies to regulate businesses and evinced hesitance to find that federal statutes regulating economic activity establish rights and remedies that are not textually explicit. The nominee has also adopted a narrower view of federal merger regulation than some of his colleagues and, in the process, expressed a preference for modern approaches to antitrust law over the more flexible approach taken by the Court in the 1960s. Ultimately, this view of antitrust law, and Judge Kavanaugh's view of the scope of the anti-fraud provisions of the federal securities laws, suggest that the nominee's approach to business law matters may be quite similar to that of Justice Kennedy.", "Justice Kennedy was a critical vote in civil rights cases involving matters including voting rights, affirmative action, housing and employment discrimination, and sexual orientation discrimination. While Judge Kavanaugh, if confirmed to succeed Justice Kennedy, could be influential in shaping the Court's civil rights jurisprudence, the nominee's fairly limited record with respect to civil rights law makes it difficult to assess how he might vote on a broad range of civil rights matters.\nJudge Kavanaugh's approach to analyzing constitutional civil rights claims is particularly difficult to discern given his limited participation in cases involving equal protection challenges based on the Fifth or Fourteenth Amendments. For example, the nominee's only brush with the issue of affirmative action came in the form of a vote—without a written opinion—in favor of rehearing a panel decision that upheld an affirmative action program against a constitutional challenge raised by a non-minority plaintiff. The panel decision at issue rejected the plaintiff's arguments that a business development program denied him equal footing to compete with minority-owned businesses in violation of the Fifth Amendment. As noted above, however, a vote to rehear a case before the en banc court can be motivated by many factors beyond mere disagreement with the panel decision.\nThe nominee's most significant cases addressing civil rights matters have involved claims brought under Title VII of the Civil Rights Act of 1964 (Title VII), the Americans with Disabilities Act (ADA), and other employment discrimination statutes. Here, Judge Kavanaugh's record is still relatively limited, as the nominee has not addressed a number of issues that have divided the lower courts with respect to statutory civil rights law, such as whether and to what extent Title VII prohibits discrimination based on sexual orientation. Similarly, Judge Kavanaugh has written one decision, discussed below, assessing the legality of a voter identification law under the Voting Rights Act in a fact-intensive analysis that granted preclearance of that law on behalf of a unanimous three-judge panel. This section provides an overview of the limited civil rights cases that Judge Kavanaugh has adjudicated, beginning with statutory civil rights matters and concluding with his one voting rights case.", "With respect to statutory civil rights claims, a closer look at Judge Kavanaugh's authored opinions provides some noteworthy reference points. Of particular note are two concurrences in which he urged a legal position that would have altered circuit precedent with respect to certain Title VII racial discrimination claims, as well as several dissenting opinions involving federal employers that concerned a potential conflict between an antidiscrimination protection and another statute or countervailing interest, such as national security.\nFor example, in Ayissi-Etoh v. Fannie Mae , a Title VII case, Judge Kavanaugh concurred in the judgment in favor of the plaintiff, who had alleged, among other claims, a racially hostile work environment based on evidence that included the company's vice president allegedly shouting at the plaintiff \"to get out of my office nigger.\" The panel issued a per curiam decision holding that the evidence, in its totality, was sufficient to establish the plaintiff's claims. The nominee wrote separately to \"underscore an important point\"—that the alleged statement by the vice president to the plaintiff \" by itself would establish a hostile work environment for purposes of federal anti-discrimination laws.\" Judge Kavanaugh emphasized that a supervisor made this statement, and \"[n]o other word in the English language so powerfully or instantly calls to mind our country's long and brutal struggle to overcome racism and discrimination against African-Americans.\" While other federal courts of appeals have held that similar evidence supports a racially hostile work environment claim, the nominee's position would notably go further than such precedent by expressly creating a clear rule that a supervisor's one-time use of a particular racial slur can, as a matter of law, establish the Title VII violation.\nJudge Kavanaugh concurred in another Title VII race discrimination case, Ortiz-Diaz v. Department of Housing & Urban Development . At issue in Ortiz was whether the denial of a Latino employee's request for a lateral transfer was actionable under Title VII, where the denial was allegedly based on his race and national origin, but the transfer itself would have been to a position of the same pay and benefits. Ordinarily, such a transfer would not have constituted a Title VII violation under D.C. Circuit precedent because it did not effect a change in the terms, conditions, or privileges of the plaintiff's employment. In a reissued decision, however, the panel held that the transfer denial at issue could be a Title VII violation, as it would have removed the plaintiff from a race-biased supervisor, and offered potential career advancement. Thus, the panel concluded, the evidence created a triable issue that the transfer denial was based on the plaintiff's race. Concurring, Judge Kavanaugh stated that he was \"comfortable with the narrowing of our precedents\" so that some lateral transfers—rather than none—could be actionable under Title VII. Notably, he added that in a future case, the en banc court \"should go further\" by establishing that, as a rule, all discriminatory transfers and denials of transfers based on an employee's race \"plainly constitute[ ]\" discrimination in violation of Title VII. Here, as in Ortiz-Diaz , Judge Kavanaugh construed the protections afforded under Title VII more broadly than the interpretation taken by some other federal appellate courts.\nWhile Judge Kavanaugh has construed Title VII in a manner that has been favorable to some claims raised by plaintiffs, he has also ruled against plaintiffs on occasion. In particular, in the context of certain antidiscrimination claims raised against federal employers, the nominee has differed—at times markedly so—from some of his colleagues in finding that certain legal doctrines or governmental interests bar antidiscrimination claims from proceeding. In Rattigan v. Holder ( Rattigan I ), for example, and a subsequent decision issued after the panel granted rehearing of the case ( Rattigan II ), Judge Kavanaugh filed dissenting opinions disagreeing with the majority's decision to allow a plaintiff's Title VII retaliation claim to proceed. In Rattigan I and II , the plaintiff, a Federal Bureau of Investigation (FBI) agent based in Saudi Arabia, alleged that his supervisor retaliated against him for filing a race and national origin discrimination complaint by referring him to the FBI's Security Division for possible investigation into whether his security clearance should be withdrawn. Central to the disposition of that case—and the basis for disagreement between the majority opinion and Judge Kavanaugh's dissents in Rattigan I and II —was how to interpret and apply the Supreme Court's 1988 decision in Department of Navy v. Egan to an allegedly retaliatory referral.\nIn Egan , the Supreme Court addressed the \"narrow question\" of whether the Merit Systems Protection Board (MSPB) had statutory authority to review the basis for a security clearance decision, the denial of which resulted in the plaintiff's termination from a laborer's job at a Navy facility. Holding that the MSPB lacked such authority, the Court in Egan discussed the statutory text relating to MSPB review and procedures, emphasizing: (1) the President's authority as Commander in Chief in matters of national security and foreign affairs; (2) the broad discretion committed to executive branch agencies to protect classified information and determine access to it; and (3) the lack of expertise agencies like the MSPB have in matters of national security to review a security clearance decision.\nThe majority in Rattigan I —in a matter of \"first impression\" —held that the FBI's decisionmaking process and clearance decision were not reviewable under Egan , but that the plaintiff's retaliation claim could nonetheless proceed because he challenged his supervisor's referral as retaliatory, not the clearance decision itself. Concluding that the plaintiff's retaliation claim could possibly be adjudicated without reviewing the agency's security clearance process, the panel instructed the district court on remand to determine whether the plaintiff had presented sufficient evidence for this claim to proceed \"without running into Egan .\" That application of Egan, the majority stated, \"preserv[es] to the maximum extent possible Title VII's important protections against workplace discrimination and retaliation.\"\nWhile the majority viewed Egan as a \"narrow\" ruling cabined to the nonreviewability of the substance of the security clearance process and clearance decision, Judge Kavanaugh interpreted Egan more broadly to preclude categorically a court's review of any such referrals. Reading Egan as \"an insurmountable bar\" to the claim, the nominee criticized the majority for \"slicing and dicing\" the security clearance process in order to sustain the plaintiff's Title VII claim. In Judge Kavanaugh's view, the President's issuance of executive orders requiring employees to report their doubts as to another employee's continued eligibility to access classified information provided a \"powerful indication\" that those referrals fell within Egan 's bar to reviewability. While the nominee noted that he \"share[d] the majority's concern about deterring false or wrongful reports that in fact stem from a discriminatory motive,\" Judge Kavanaugh stated that \"there are a host of sanctions that deter\" behavior, such as that alleged by the plaintiff, citing Department of Justice (DOJ) regulations. In its subsequent panel decision in Rattigan II , the majority further narrowed the type of Title VII claims that could go forward in connection with a security referral to only claims alleging that the reporting individual knowingly made the referral based on false information. Judge Kavanaugh again dissented, stating that the majority's conclusion could not \"be squared\" with Egan because it would still allow courts to review security clearance decisions that, in his view, are unreviewable under that precedent.\nIn another dissent, Judge Kavanaugh took a similar approach when presented with the issue of whether privileges emanating from the Constitution's Speech or Debate Clause barred discrimination claims from proceeding against a congressional employer. In Howard v. Office of Chief Admin istrative Officer of the U.S. House of Representatives , a majority held that the Speech or Debate Clause did not require dismissal of the plaintiff's race discrimination claims brought pursuant to the Congressional Accountability Act because—based on the alleged facts specific to her claims—it was possible she could prove unlawful discrimination without necessarily inquiring into communications or legislative acts shielded by that Clause. The nominee, however, would have dismissed the claim as barred by the Clause, emphasizing the practical difficulty of challenging a congressional employer's personnel decisions without ultimately requiring it to produce evidence relating to legislative activities that the Clause protects from compelled disclosure. Describing the majority as \"[t]rying to thread the needle and avoid dismissal\" of the plaintiff's claims, Judge Kavanaugh stated that the majority's approach was \"inconsistent with Speech or Debate Clause principles\" and pointed to, as recourse for resolving allegations of discrimination, the availability of internal administrative procedures.\nMeanwhile, in Miller v. Clinton , the nominee, in dissent, construed general language in the Basic Authorities Act authorizing the State Department to contract with American workers in foreign locations \"without regard\" to \"statutory provisions\" concerning the \"performance of contracts and performance of work in the United States\" to shield the agency from a federal antidiscrimination lawsuit. In Miller , though it was uncontested that the State Department had fired an employee solely based on age (65), the agency argued that language in the Basic Authorities Act exempted it from complying with the antidiscrimination requirements of the Age Discrimination in Employment Act with respect to the plaintiff. The majority opinion rejected that argument, concluding the statute contained no express exemption to the Age Discrimination in Employment Act's broad proscription against discrimination based on age, contrasting the Basic Authorities Act to other instances in which Congress expressly authorized mandatory retirement clauses. The majority also expressed concern that accepting the State Department's argument would require reading the Basic Authorities Act to create exemptions to Title VII and the ADA, emphasizing its skepticism that Congress \"would have authorized the State Department to ignore statutory proscriptions against discrimination on the basis of age, disability, race, religion, or sex through the use of ambiguous language.\"\nJudge Kavanaugh dissented, stating that as a matter of statutory interpretation, the case was \"not a close call.\" The \"plain language\" of the Basic Authorities Act, as he viewed it, gave the State Department discretion to negotiate employment contracts without regard to statutes relating to the performance of work in the United States, and the Age Discrimination in Employment Act, in Judge Kavanaugh's view, was such a covered statute. Thus, he stated, \"[t]he statute is not remotely ambiguous or difficult to apply in this case.\" In response to the majority's concern over the consequences that could result from exempting the State Department from the Age Discrimination in Employment Act and other workplace discrimination statutes, the nominee pointed to antidiscrimination protections provided for under the First and Fifth Amendments of the Constitution, calling the majority's concerns a \"red herring\" in light of those constitutional protections. Moreover, Judge Kavanaugh further declared that even if he agreed with the majority's concerns with respect to exempting the agency from the Age Discrimination in Employment Act, it was not for the court to \"re-draw\" the lines of the statute as it might prefer. Rather, he stated, \"our job is to apply and enforce the law as it is written.\"\nAs a general matter, Judge Kavanaugh's positions in these statutory civil rights cases suggest that his decisions in this area of law are centrally animated by his broader judicial philosophy that embraces legal formalism, textualism and, in the case of claims involving federal employers, the separation of powers. For instance, the nominee appears to prefer the articulation and application of clear rules to govern his analyses of civil rights matters, such as those he urged in Ayissi-Etoh and Ortiz-Diaz (that would establish per se liability for race discrimination based on certain evidence) and Rattigan and Howard (that would bar certain discrimination claims altogether). Meanwhile, his dissents in Rattigan , Howard , and Miller could be read to indicate a reluctance to expose the executive or legislative branches to liability under antidiscrimination laws unless binding precedent or statutory language dictate otherwise. Nonetheless, as noted, the statutory civil rights cases in which the nominee has participated are relatively limited, making it difficult to arrive at firm conclusions as to how he might approach other civil rights matters that may arrive at the Court.", "In the voting rights context, Judge Kavanaugh, sitting by designation, authored one notable decision, South Carolina v. United States , on behalf of a unanimous three-judge panel of the U.S. District Court for the District of Columbia. South Carolina predated the Supreme Court's 2013 decision in Shelby County v. Holder , which invalidated Section 4(b) of the Voting Rights Act (VRA), a provision containing a coverage formula for determining which states were required to obtain \"preclearance\" of their proposed voting laws under Section 5 of the VRA —from the DOJ or a three-judge district court panel—before such laws could take effect. Though Shelby County rendered the VRA's Section 5 preclearance requirement inoperable, Section 5 was still in effect at the time of South Carolina .\nAt issue in South Carolina was whether that state's new voter identification (ID) law, Act R54, was valid under Section 5 of the VRA, which prohibits granting preclearance to state laws that either have the (1) \"purpose\" or the (2) \"effect\" of denying or abridging the right to vote on account of race. The DOJ previously denied prior approval of the South Carolina law, and the state sued to challenge that determination and seek a declaration that the law did not have the purpose or effect of denying or abridging the right to vote. Describing the VRA as \"among the most significant and effective pieces of legislation in American history,\" Judge Kavanaugh, writing for a unanimous panel, ultimately granted preclearance of Act R54 for the election following 2012 under Section 5. The nominee's determination turned significantly on the facts of the case, a specific feature of the law at issue, and the deference he afforded to the state's reasons for and interpretation of the law.\nSpecifically, R54, which generally required a voter to provide photo ID in order to vote in person, consisted of, as Judge Kavanaugh explained it, \"several important components.\" The first would have expanded the type of photo IDs that could be used to vote, while a second provision would have created a new type of photo voter ID card and DMV photo ID card that could be obtained for free. A third provision—critical to the disposition of the case—would have continued to allow voters to cast ballots without a photo ID, provided that the voter produce a non-photo voter registration card and, pursuant to the new law, complete an affidavit at the polling site stating the reason for not obtaining a photo ID. The DOJ denied preclearance in part because that affidavit requirement—mandating that the voter identify \"a reasonable impediment\" that prevented him or her from obtaining a photo ID—was ambiguous and unclear in its application.\nStarting the analysis by evaluating the potential discriminatory effects of R54, Judge Kavanaugh focused on this \"reasonable impediment\" provision. The nominee explained that as the litigation unfolded, South Carolina officials responsible for interpreting and implementing the law began to solidify and provide more information—\"often in real time\"—as to how they would apply the provision. Those officials, the nominee stated, \"have confirmed repeatedly\" that they would accept any reason asserted by the voter on the reasonable impediment affidavit, including reasons such as having to work, lacking transportation to the county office, and being unemployed and looking for work. Judge Kavanaugh concluded that this official interpretation of the \"reasonable impediment\" provision was definitive, and he repeatedly emphasized that the state's expansive interpretation of the provision was central to the court's preclearance of the law. Indeed, the nominee noted the court may not have precleared South Carolina's proposed law without confirmation of the state's broad interpretation of the reasonable impediment provision because the law without it \"could have discriminatory effects and impose material burdens on African-American voters, who in South Carolina disproportionately lack one of the R54-listed photo IDs\" and \"would have raised difficult questions under the strict effects test of Section 5.\" Judge Kavanaugh further advised that, if the state were to alter its interpretation of the reasonable impediment provision, it would have had to obtain preclearance of that change before applying it. The nominee thus concluded that R54 would not have discriminatory retrogressive effect within the meaning of Section 5 because, among other reasons, the state's broad interpretation of the \"reasonable impediment\" provision would mean that every voter who had a non-photo voter registration card under pre-existing law could still use that card to vote under the new law.\nSeparately, Judge Kavanaugh's opinion also concluded that the state did not have a discriminatory purpose in enacting R54. The nominee rejected the argument that the introduction of the law in proximity to the election of the country's first African-American President, among other evidence, was indicative of a discriminatory purpose. South Carolina justified the law on the grounds that it was necessary to deter voter fraud. Judge Kavanaugh concluded that such a purpose was legitimate and could not be deemed pretextual \"merely because of an absence of recorded incidents of in-person voter fraud in South Carolina.\" Pointing to the Supreme Court's 2008 decision in Crawford v. Marion County Election Board , the nominee stated that the Court had \"specifically recognized\" deterring voter fraud and enhancing public confidence in elections as legitimate interests, deeming \"those interests valid despite the fact that the 'record contain[ed] no evidence of any such fraud actually occurring in Indiana at any time in its history.'\" In addition, though the state legislature \"no doubt\" was aware that photo ID possession rates varied by race in the state, Judge Kavanaugh noted that the legislators, faced with those data, \"did not just plow ahead,\" but instead provided for the addition \"of the sweeping reasonable impediment provision,\" among other changes. While ongoing legislative action with the knowledge of racially disproportionate impact could be evidence of a law's discriminatory purpose, such facts and circumstances, the nominee concluded, were not present in South Carolina .\nIn another section of the opinion, Judge Kavanaugh also compared the features of R54 to other state voter ID laws that had been recently upheld or invalidated, stating that \"if those laws were to be placed on a spectrum of stringency, South Carolina's clearly would fall on the less stringent end.\" Two voter ID laws that had been precleared by the Justice Department—laws in Georgia and New Hampshire—were more restrictive than South Carolina's, in the nominee's view. Meanwhile, a Texas voter ID law, which had recently been denied preclearance by another three-judge panel, had \"stringent\" features distinguishable from the requirements of South Carolina's law. This comparison, Judge Kavanaugh stated, supported the panel's conclusion that R54 did not have discriminatory effects or purposes under Section 5.\nSet against the backdrop of more recent legal challenges to voter laws—a legal area that continues to evolve following the Supreme Court's Shelby County decision —Judge Kavanaugh's opinion in South Carolina does not necessarily appear to be an outlier, nor a ruling in conflict with other courts that have adjudicated voter ID disputes. In one recent challenge to a voter ID law in North Carolina, for example, the Fourth Circuit invalidated that state's law under Section 2 (not Section 5) of the VRA and the Equal Protection Clause of the 14th Amendment. The panel concluded that the law was enacted with discriminatory intent based on evidence, including that the state legislature analyzed data on voting mechanisms disproportionately used by African-American voters and then selectively introduced provisions to eliminate or reduce those very mechanisms, thereby \"target[ing] African Americans with almost surgical precision.\" Such legislative action was not presented in South Carolina . Meanwhile, in an ongoing legal challenge to a Wisconsin law requiring photo ID to vote, the Seventh Circuit stayed a district court's preliminary injunction that would have required the state to allow registered voters to cast a ballot with an affidavit that \"reasonable effort would not produce a photo ID,\" and would have prohibited officials from disputing any reason provided by the voter, similar to the provision in South Carolina . That litigation, brought pursuant to Section 2 of the VRA and the Equal Protection Clause of the 14th Amendment, is ongoing.", "The limited number of judicial opinions written by Judge Kavanaugh in the area of civil rights provides a correspondingly limited basis for drawing definitive conclusions about his judicial approach to these legal issues. South Carolina , the only voting rights decision in which the nominee participated, was itself a fact-bound determination that provides little insight into his judicial philosophy regarding voting rights cases generally. As discussed, the nominee's few opinions in statutory civil rights cases appears to be less of a product of his views on civil rights matters, and more a result of his general judicial philosophy. What is clear, nonetheless, is that Judge Kavanaugh, if confirmed, could be consequential in addressing civil rights questions that are likely to come before the Supreme Court on a range of areas in the foreseeable future. These include percolating and ongoing legal disputes relating to affirmative action in higher education and statutory civil rights protections based on sexual orientation or transgender status.", "Although Justice Kennedy may have exerted less influence over criminal law and procedure doctrine than other areas of the law, he did cast decisive votes in numerous criminal procedure cases. In particular, in cases implicating the Eighth Amendment's prohibition on cruel and unusual punishments, Justice Kennedy's voting record shaped much of recent Supreme Court doctrine. If confirmed, Judge Kavanaugh could therefore have a considerable impact on the Court's jurisprudence in this broad area of law. The nominee has written relatively little on criminal law and procedure, however, which makes it difficult to assess how he might influence the doctrine. The D.C. Circuit decides fewer criminal cases than other federal circuit courts. As a result, Judge Kavanaugh has written notable separate opinions on some areas of criminal law and procedure (e.g., Fourth Amendment search and seizure, the constitutional aspects of criminal sentencing, and substantive criminal law), but not others (e.g., cruel and unusual punishments under the Eighth Amendment, Fifth Amendment Miranda rights, and the Sixth Amendment right to counsel). Even on those issues that Judge Kavanaugh has addressed in multiple separate opinions—such as the Fourth Amendment—the record is too limited to support definitive conclusions about his judicial approach in such cases.\nThe limited set of Judge Kavanaugh's writings on criminal law and procedure that does exist, however, reveals discrete strains of strongly held views, rather than one overarching philosophy susceptible to summary as \"pro-defendant\" or \"pro-government.\" On Fourth Amendment issues, he has espoused a circumscribed view of the constitutional protection against unreasonable searches and seizures—arguably more circumscribed than that of Justice Kennedy, who himself generally (but not always) favored the government position in search and seizure cases. On constitutional sentencing issues, by contrast, Judge Kavanaugh has shown skepticism of advisory sentencing schemes that make use of facts not encompassed by the offense of conviction to increase a defendant's advisory sentencing range. On substantive criminal law, he has strenuously voiced the opinion, also favorable to criminal defendants, that courts generally must read mental state requirements into criminal law statutes that do not establish such requirements expressly. Accordingly, this section addresses these various aspects of Judge Kavanaugh's criminal law jurisprudence.", "In his separate opinions on the Fourth Amendment, Judge Kavanaugh has generally taken a more restrictive view than most of his D.C. Circuit colleagues on the reach of the constitutional right to be free of unreasonable searches and seizures. In Klayman v. Obama , for instance, he concluded that the National Security Agency's (NSA's) metadata collection program under Section 215 of the USA Patriot Act was \"entirely consistent with the Fourth Amendment.\" A majority of the D.C. Circuit appeared to agree that the program was constitutional: a three-judge panel decided without opinion to stay a preliminary injunction against the program, and no judge dissented from the denial of a petition for a rehearing en banc. But Judge Kavanaugh, in a brief opinion concurring in the denial of the en banc petition, which no other judge joined, concluded that the collection did not constitute a search under Supreme Court precedent and that the national security needs underlying the program rendered it reasonable in any event. Moreover, the opinion reached beyond the threshold search analysis that would have sufficed to uphold the metadata collection program to express the additional view that national security needs outweighed the privacy interests implicated by the program.\nJudge Kavanaugh has authored other notable separate opinions on Fourth Amendment issues. He dissented from a panel decision in National Federation of Federal Employees -IAM v. Vilsack , holding that a U.S. Forest Service policy of conducting random drug testing on employees who worked with at-risk youth violated the Fourth Amendment. Judge Kavanaugh concluded that the drug testing program was \"eminently sensible\" and therefore reasonable under the Fourth Amendment even in the absence of individualized suspicion of drug use. In another case, Judge Kavanaugh wrote a dissent from an en banc opinion, concluding that during a Terry stop—an investigatory stop premised on reasonable suspicion of criminal activity but made without probable cause—police may manipulate or unzip the suspect's outer clothing to facilitate identification by a witness.\nIn at least two Fourth Amendment cases— Wesby v. District of Columbia and United States v. Jones —the Supreme Court ultimately adopted an analysis substantially similar to that set forth in dissenting opinions by Judge Kavanaugh. In Wesby , Judge Kavanaugh sharply criticized a panel decision that affirmed a $1 million false arrest judgment against D.C. police officers who had arrested partygoers for trespassing in a vacant house. Judge Kavanaugh concluded that the panel decision contravened Supreme Court doctrine barring such damages liability unless police officers are \"plainly incompetent\" and \"knowingly violate\" the law. In particular, Judge Kavanaugh criticized the panel for failing to appreciate that police officers often must base arrest decisions on \"credibility assessments [made] on the spot, sometimes in difficult circumstances.\" The Supreme Court later reversed the panel decision, agreeing with Judge Kavanaugh's conclusions that the arrests were lawful and that, even if the arrests had not been lawful, the officers had not knowingly violated the partygoers' clearly established Fourth Amendment rights.\nIn Jones , Judge Kavanaugh's dissent from the denial of rehearing en banc endorsed the conclusion that the FBI's use of a GPS device without a warrant to track a suspect's vehicle for four weeks did not impinge upon the suspect's reasonable expectation of privacy. Specifically, Judge Kavanaugh joined a dissent by Chief Judge Sentelle that rejected the panel decision's aggregation or \"mosaic\" theory, pursuant to which a suspect may have a reasonable expectation of privacy in the totality of his public movements over a prolonged period even though he has no reasonable expectation of privacy in his location in public at any particular moment. Rejecting this theory, Chief Judge Sentelle (joined by Judge Kavanaugh and two other judges) concluded that \"[t]he sum of an infinite number of zero-value parts is also zero.\" But Judge Kavanaugh, in his own dissent, also argued that the FBI's act of installing the GPS device on the suspect's vehicle without a warrant may have constituted an impermissible physical invasion of a constitutionally protected space and violated the Fourth Amendment for that reason. In other words, even though Judge Kavanaugh did not think that the warrantless GPS tracking violated the Fourth Amendment on a reasonable expectation of privacy theory, he suggested (without reaching a definitive conclusion) that the warrantless installation of the device may have violated the Fourth Amendment on a property-based theory of Fourth Amendment interpretation. A majority of the Supreme Court ultimately followed the latter analytical approach, holding that the attachment of the device to the vehicle was a Fourth Amendment search because the FBI physically intruded upon the suspect's private property (his car) for an investigative purpose.\nJudge Kavanaugh's dissent in Jones may indicate that he, like Justice Kennedy and an apparent minority of other Justices, favors a predominately property-based approach to determining what constitutes a \"search\" under the Fourth Amendment. The distinction between such a property-based approach, on the one hand, and an approach that recognizes Fourth Amendment privacy interests even over materials in which an individual does not have property rights, on the other hand, may be significant to the Supreme Court's developing doctrine on law enforcement access to information generated by digital-age technologies.\nIn the 2018 case Carpenter v. United States , a five-Justice majority deviated from the property-based approach in holding that cell phone users have a reasonable expectation of privacy in the record of their physical movements contained in the historical cell phone location information maintained by their wireless carriers. The case broke new ground by holding that, at least in some circumstances, the Fourth Amendment protects sensitive information held by an individual's third-party service provider. Dissenting opinions by Justices Kennedy, Thomas, Alito, and Gorsuch all argued to varying degrees that cell phone users' lack of property interests in location information held by third parties undermined their assertion of Fourth Amendment interests in the information. Carpenter likely will generate substantial follow-on jurisprudence about its applicability to other types of sensitive information commonly held by third-party technology companies, such as IP addresses, browsing history, or biometric data.\nAlthough Judge Kavanaugh's Jones dissent suggests that he may favor the minority approach toward Fourth Amendment rights as being largely coterminous with property interests—a view that, if it were to gain the support of a majority of Justices, would tend to limit Carpenter 's eventual reach—Judge Kavanaugh's Jones dissent was relatively brief and may well have been influenced by Supreme Court precedent as it existed in 2012.\nIn at least one instance, Judge Kavanaugh has made remarks off the bench that echo the more circumscribed view of Fourth Amendment protections that emerges from his jurisprudence. In a 2017 speech at the American Enterprise Institute that generally praised the jurisprudence of Chief Justice Rehnquist, Judge Kavanaugh noted Chief Justice Rehnquist's view that the Fourth Amendment exclusionary rule \"was beyond the four corners of the Fourth Amendment's text and imposed tremendous costs on society.\" Judge Kavanaugh did not argue overtly for overruling the exclusionary rule, which he described as \"firmly entrenched in American law.\" He nonetheless posited that Chief Justice Rehnquist successfully led the Supreme Court in \"creat[ing] many needed exceptions to the exclusionary rule,\" including \"most notabl[y]\" the good faith exception to the exclusionary rule established in United States v. Leon . Judge Kavanaugh also highlighted a series of Rehnquist opinions that expanded the special needs doctrine, which allows some searches without probable cause or individualized suspicion if special needs \"beyond the normal need for law enforcement . . . make the warrant and probable cause requirement impracticable.\" These points from the 2017 speech resonate in Judge Kavanaugh's Fourth Amendment opinions, where he has (1) argued that the NSA metadata collection program and the U.S. Forest Service randomized drug testing policy were permissible as special needs searches, and (2) rejected challenges to the permissibility of certain law enforcement activity.", "In sentencing cases, Judge Kavanaugh has suggested that he considers it unfair for a court to increase a defendant's advisory sentencing guidelines range based on acquitted conduct or conduct falling outside the elements of the offense of conviction. Nonetheless, Judge Kavanaugh has acknowledged that this sentencing practice does not violate the Fifth or Sixth Amendment under current Supreme Court precedent and that it would \"require a significant revamp of criminal sentencing jurisprudence\" to hold to the contrary. His opinions do not make clear how he would rule on the constitutional question in the absence of controlling Supreme Court case law. Some passages seem to suggest (but not clearly or uniformly) that he interprets the Sixth Amendment jury trial right to prohibit judicial determination of \"key sentencing facts\" even under sentencing guidelines that are advisory rather than mandatory in nature.\nJudge Kavanaugh's opinions make clear that he disagrees with the consideration of acquitted or uncharged conduct at sentencing, and he has encouraged federal district judges to exercise their discretion in declining to rely on such conduct when imposing sentences. To the extent that Judge Kavanaugh would view the Constitution to require such a result, it would be in tension with how Justice Kennedy tended to view sentencing issues, as he generally voted with a minority of Justices who deferred to legislative judgments about proper sentencing considerations and rejected Sixth Amendment challenges to the use of judicial fact-finding to increase binding sentencing thresholds.", "Judge Kavanaugh has authored few separate opinions or non-judicial publications about other major areas of constitutional criminal procedure, such as the warnings prior to custodial interrogations required under Miranda v. Arizona or the right to counsel under the Sixth Amendment. While he has not participated in any meaningful cases addressing custodial interrogations, in his 2017 speech to the American Enterprise Institute, Judge Kavanaugh praised Chief Justice Rehnquist for his opinions limiting Miranda 's application, suggesting that the nominee may take a restrictive view of that case. On the Sixth Amendment right to counsel, Judge Kavanaugh took a more expansive view of the rights of criminal defendants in what appears to be his only significant opinion on the subject. Specifically, in United States v. Nwoye , over the dissent of Judge Sentelle, he wrote a majority opinion holding that an attorney's failure to present expert testimony about Battered Woman Syndrome to support the duress defense of a criminal defendant who had been abused by her co-conspirator boyfriend was prejudicial to her case and supported her claim of ineffective assistance of counsel.\nIn the few opinions he has written in criminal cases concerning the right to due process, Judge Kavanaugh has sided with the government position and concluded that challenged procedures do not violate due process. For example, in dissent in United States v. Martinez-Cruz , he concluded that it does not violate due process to assign the defendant the burden of proof \"when challenging the constitutionality of a prior conviction that is being used to enhance or determine the current sentence.\" Judge Kavanaugh criticized the panel majority, which held that the government must bear the burden in some circumstances to persuade the sentencing court that the prior conviction was valid, for \"carv[ing] out novel exceptions to the minimum burden of proof baseline\" under the Due Process Clause.\nIn two recent cases that produced divided panel decisions, Judge Kavanaugh authored opinions concluding that waivers of the right to appeal contained in guilty plea agreements were enforceable against criminal defendants despite flaws in the plea hearings. In rejecting the defendants' objections to enforcement of the appeal waivers, Judge Kavanaugh emphasized that such waivers play an important role in the efficient resolution of criminal cases. Justice Alito raised a somewhat similar point in a dissent last term (joined by Justices Kennedy and Thomas) in Class v. United States , where the majority held that a guilty plea does not \"by itself bar[] a federal criminal defendant from challenging the constitutionality of the statute of conviction on direct appeal.\" Justice Alito criticized the majority for making a \"muddle\" of the doctrine on the appellate consequences of guilty pleas, calling it \"critically important\" to the proper functioning of the criminal justice system that those consequences be clearly understood.", "Judge Kavanaugh has argued in multiple separate opinions that courts must prevent unjust criminal punishment by interpreting criminal statutes to require high levels of proof of the defendant's mens rea (i.e., intent). Perhaps the most notable of these opinions came in an en banc case concerning the mens rea presumption, a canon of statutory interpretation pursuant to which criminal statutes that do not contain an express mental state requirement are interpreted to require purpose or knowledge for each offense element. In United States v. Burwell , the en banc majority upheld a district court determination that a defendant convicted of robbery was subject to a mandatory consecutive 30-year sentence for using an automatic weapon to commit a robbery, even though the government had not been required to prove that the defendant knew that the weapon was automatic. Judge Kavanaugh argued in a lengthy dissent that the majority should have applied the mens rea presumption to interpret the relevant statute (which did not contain an express mens rea element) to require the government to prove that the defendant knew the weapon was automatic. In another case, Judge Kavanaugh suggested in a concurring opinion that a conviction for making false statements to federal officials under 18 U.S.C. § 1001 should require \"proof that the defendant knew his conduct was a crime,\" so as to mitigate the \"risk of abuse and injustice\" posed by prosecutions under the statute. Judge Kavanaugh's other opinions and publications have likewise stressed the \"critical importance of accurate instructions to the jury on mens rea requirements.\"", "Judge Kavanaugh does not appear to have authored an opinion in an Eighth Amendment case during his time on the D.C. Circuit. Nominated to replace a Justice who often cast decisive votes in Eighth Amendment cases, Judge Kavanaugh's judicial record reveals little about his views regarding the scope of the constitutional ban on cruel and unusual punishments or his views on related issues like the death penalty or conditions of confinement. His 2017 speech to the American Enterprise Institute contains a brief discussion of the Supreme Court's case law regarding the constitutionality of capital punishment. That brief discussion can reasonably be interpreted as praising Chief Justice Rehnquist for taking the position that the Supreme Court overstepped its judicial function in the 1972 case Furman v. Georgia , which imposed a moratorium on capital punishment, and for his role in the jurisprudence that began upholding many revised capital punishment statutes four years later. The nominee suggested that Chief Justice Rehnquist's approach to death penalty cases aligned with the Supreme Court's \"proper and limited role in the constitutional scheme.\" Questioning during the confirmation hearing may facilitate a better understanding of Judge Kavanaugh's views on Eighth Amendment issues.", "If confirmed, Judge Kavanaugh would join the Supreme Court at a significant moment for the future of its criminal procedure jurisprudence. Aspects of the Court's criminal procedure doctrine appear to be in the midst of transformation, while other aspects face potential reconsideration. Carpenter v. United States , decided last term, could prove to be a watershed precedent in the extension of Fourth Amendment protections to sensitive information held by third-party technology companies, but the decision's reach will depend on how the Court applies it in future cases. Next term, the Court is poised to reconsider the long-standing \"separate sovereign\" exception to the Fifth Amendment Double Jeopardy Clause, pursuant to which a state prosecution does not bar a subsequent federal prosecution for the same offense (and vice versa). The Court will also hear important Eighth Amendment cases next term, including two cases that concern the extent to which the prohibition on cruel and unusual punishments limits the execution of prisoners with mental or physical disabilities. From Judge Kavanaugh's record in Fourth Amendment cases, it seems likely that his views align with those of an apparent minority of Justices on the current Court that generally resists expanding Fourth Amendment protections beyond the scope of recognized property interests. His record offers limited insight, however, into his approach to other major issues of criminal law and procedure.", "Over the last decade the Supreme Court has been closely divided on various aspects of environmental law—that is, the broad range of laws that addresses human impacts on the natural environment. As was the case in other areas of law, the deciding vote in several important environmental law cases tended to be Justice Kennedy. As a consequence, Judge Kavanaugh, if elevated to the High Court to replace Justice Kennedy, could serve as a critical vote on such matters going forward.\nDuring his tenure on the D.C. Circuit, Judge Kavanaugh has authored opinions and participated in dozens of environmental cases. His opinions have addressed a wide range of environmental issues including climate change, air quality, water quality, nuclear energy and waste, chemical bans, endangered species, migratory birds, and other issues arising under federal environmental statutes. The nominee's record on environmental law is relatively robust, as a large volume of the D.C. Circuit's docket tends to be environmental law cases, in part, because several major environmental statutes require challenges to certain types of agency actions to be brought exclusively in that court. Often, environmental cases address the scope of agency authority under an environmental statute or the legality of a specific agency action. Environmental law statutes and cases can also prompt broader questions of administrative law, such as standing to sue and standards for judicial review. Accordingly, this section begins by discussing Judge Kavanaugh's record on environmental justiciability issues, before addressing the nominee's views on substantive aspects of environmental law.", "The outcome of an environmental case often depends on the court's resolution of threshold procedural issues, such as whether a plaintiff or petitioner has the right to bring a lawsuit in the first place. To proceed to the merits of a lawsuit, a plaintiff or petitioner will need to establish standing, a procedural threshold that has, at times, impeded environmental litigation. To establish standing under Article III of the Constitution, a plaintiff or petitioner must have suffered or will imminently suffer an injury-in-fact caused by the defendant or respondent and can be redressed by the court. Judge Kavanaugh has authored opinions in various cases that addressed whether a plaintiff or petitioner had the right to bring a lawsuit challenging an environmental regulation or federal agency action.\nAs noted in the discussion on his administrative law rulings, some of Judge Kavanaugh's opinions reflect a willingness to conclude that regulated entities such as business industry groups have standing to challenge environmental regulations based on alleged economic harm. For example, in 2012 case, Grocery Manufacturers Ass ' n v. EPA , Judge Kavanaugh dissented from the majority opinion that held that petroleum industry and food industry associations lacked standing to challenge the EPA's Clean Air Act waivers that allowed the sale of a specific corn-based ethanol biofuel because their claims of damages were too conjectural. In his dissent, Judge Kavanaugh argued that the food industry petitioners had standing to challenge the waiver because the demand for ethanol to produce the biofuel would increase prices for corn used in food products, demonstrating injury-in-fact and causation for Article III standing. Likewise, the petroleum industry petitioners had, in Judge Kavanaugh's view, standing because the waiver would cause its members to incur \"considerable\" economic costs to refine, sell, transport, or store the ethanol-based fuel.\nJudge Kavanaugh expressed similar views on the extent that economic harm may support Article III standing in the 2015 case, Energy Future Coalition v. EPA . Judge Kavanaugh found that petitioners that produced ethanol biofuel had standing to challenge the EPA's regulation that allows only \"commercially available\" fuels to be used to test emissions of new vehicles. The petitioners argued that the EPA's actions to limit test fuels to only \"commercially available\" fuels effectively prohibited the use of E30, a fuel containing 30% ethanol. In claiming that the biofuel producers lacked standing, the EPA argued that the biofuel producers were not harmed because the test fuel regulation was directed at vehicle manufacturers and not biofuel producers. In rejecting the EPA's arguments, Judge Kavanaugh concluded in his opinion for the panel that the EPA's \"direct regulatory impediment\" prevented the petitioners' ethanol product from being used as test fuel, qualifying as an injury-in-fact to support their standing to challenge the EPA's regulation. The nominee also determined that the petitioners demonstrated causation and redressability because the EPA's regulation denied the petitioners \"an opportunity to compete in the marketplace\" and removing the \"commercial available\" requirement would allow their products to be used as a test fuel.\nAmong his opinions related to environmental law, Judge Kavanaugh has seldom addressed the standing of public interest or nongovernmental organizations (NGOs), an issue at the heart of several of the Supreme Court's environmental standing cases. Some commentators have argued that, in at least non-environmental contexts, Judge Kavanaugh imposes a high bar for public interest groups to show \"harm\" from a government action to satisfy standing requirements. Even assuming this observation to be correct, it is unclear, however, if this perceived trend is apparent in the context of environmental litigation. For example, in Natural Resources Defense Council v. EPA , Judge Kavanaugh concluded that the environmental NGO-petitioner had standing to challenge the EPA's adoption of an affirmative defense that would limit civil penalties in a suit alleging air pollutant emissions violations because its members would suffer harm from higher emissions that could be prevented or alleviated by a ruling to vacate the defense. Nonetheless, the limited number of cases on standing in the environmental context makes it difficult to discern any broad tendencies of Judge Kavanaugh on the subject.", "In cases involving substantive review of federal agency action, Judge Kavanaugh has expressed broad skepticism when an agency interprets an environmental statute that would enlarge the scope of its authority, most notably in the climate change context. Near the beginning of the nominee's tenure on the D.C. Circuit, the Supreme Court issued its 2007 decision, Massachusetts v. EPA , which held in a 5-4 ruling that the agency had the authority under the Clean Air Act to regulate greenhouse gas (GHG) emissions to address climate change. Subsequently, the EPA's GHG regulations were subject to various challenges in the D.C. Circuit where Judge Kavanaugh, most often in separate opinions, expressed his views on the scope of the EPA's authority to address climate change.\nFor example, in his dissent from the court's refusal to rehear en banc the 2012 decision in Coalition for Responsible Regulation v. EPA , Judge Kavanaugh argued that the EPA \"exceeded its statutory authority\" in regulating GHGs, including carbon dioxide (CO 2 ), under the Clean Air Act's Prevention of Significant Deterioration (PSD) permitting program. In Coalition for Responsible Regulation , the three-judge panel of the D.C. Circuit upheld the EPA's \"tailoring\" rule that raised and \"tailored\" the statutory emissions thresholds to avoid the \"absurd result\" of subjecting numerous smaller sources to the PSD permitting program for the first time because of their GHG emissions. However, Judge Kavanaugh in dissent interpreted the EPA's authority more narrowly, grounding his views on the doctrine of separation of powers. He reasoned that the EPA's \"strange\" and broad interpretation of the term \"any air pollutant\" to include GHGs was \"legally impermissible\" because a more narrow interpretation would have avoided the \"absurd results\" that necessitated the EPA's tailoring rule to raise the statutory emissions threshold. In Judge Kavanaugh's view, the EPA's interpretation of the Clean Air Act would \"greatly\" expand its authority and serve as precedent for other agencies to \"adopt absurd or otherwise unreasonable interpretations of statutory provisions and then edit other statutory provisions to mitigate the unreasonableness.\" Judge Kavanaugh cautioned that \"undue deference or abdication to an agency carries its own systemic costs. If a court mistakenly allows an agency's transgression of statutory limits, then we green-light a significant shift of power from the Legislative Branch to the Executive Branch.\" In going \"well beyond what Congress authorized,\" the EPA's interpretation, in Judge Kavanaugh's opinion, threatened the \"bedrock underpinnings of our system of separation of powers.\"\nHis dissent in Coalition for Responsible Regulation v. EPA was one of several cases where Judge Kavanaugh invoked separation-of-powers principles in reviewing the EPA's authority to regulate GHGs to address climate change. In these cases, he acknowledged that climate change is an \"urgent,\" \"important,\" and \"pressing policy issue,\" but argued that the EPA must act within the statutory bounds set by Congress or judicial precedent in the agency's attempts to address climate change. For instance, the nominee issued a concurring opinion in a 2013 case, Center for Biological Diversity v. EPA , which vacated the EPA's rule postponing for three years the regulation of biogenic CO 2 sources—that is, sources whose emissions directly result from the combustion or decomposition of biologically based materials —from the Clean Air Act permitting programs. Judge Kavanaugh concurred that the rule should be vacated because the EPA lacked statutory authority to distinguish biogenic CO 2 from other forms of CO 2 for purposes of the Clean Air Act permitting programs even though the agency may have \"very good [policy] reasons\" to do so. Although the EPA's \"task of dealing with global warming is urgent and important at the national and international level,\" Judge Kavanaugh cautioned that \"[a]llowing an agency to substitute its own policy choices for Congress's policy choices in this manner would undermine core separation of powers principles.\" Bound by the earlier D.C. Circuit majority ruling in Coalition for Responsible Regulation , from which he had dissented, the nominee concluded that \"EPA has no such statutory discretion here. Under the statute as this Court has interpreted it, the EPA must regulate carbon dioxide\" under the Clean Air Act permitting programs and had no authority to delay regulating biogenic CO 2 .\nIn concurring with the majority to vacate the EPA's biogenic CO 2 deferral rule in Center for Biological Diversity , Judge Kavanaugh expressed his \"mixed feelings\" about this case because of the broader concerns he raised in his dissent in Coalition for Responsible Regulation —that is, that \"contrary to this Circuit's precedent, [the Clean Air Act] does not cover [CO 2 ], whether biogenic or not.\" The Supreme Court in 2014 validated some of his concerns when it reviewed the earlier case. In Utility Air Regulatory Group v. EPA , a 5-4 opinion authored by Justice Scalia, the Court relied in part on Judge Kavanaugh's dissent to hold that the Clean Air Act did not authorize the EPA to require stationary sources to obtain Clean Air Act permits solely based on GHG emissions.\nJudge Kavanaugh has also voiced concerns regarding the EPA's statutory authority to address climate change in more recent litigation. In 2016, Judge Kavanaugh sat on an en banc panel in the case challenging the Obama Administration's Clean Power Plan (CPP), which limits GHG emissions from existing power plants under the Clean Air Act. During the oral argument, Judge Kavanaugh suggested that the EPA overstepped its authority with a rule that is \"fundamentally transforming an industry,\" stating that \"[g]lobal warming isn't a blank check\" for the President to regulate GHG emissions. While sympathizing with \"the frustration with Congress\" in addressing climate change, he emphasized that \"under our system of separation of powers, . . . Congress is supposed to make the decision\" and is best tasked to devise a \"balanced\" and \"well-rounded\" policy approach to regulate GHG emissions from power plants. The D.C. Circuit has not issued a decision in the CPP litigation because the court continues to hold the case in abeyance while the EPA proposes to repeal the CPP or issue a replacement rule.\nOutside the climate change context, Judge Kavanaugh has likewise scrutinized federal agency efforts to interpret a statute that enlarges the scope of an agency's authority without clear congressional authorization. In EME Homer City Generation, L.P. v. EPA , Judge Kavanaugh wrote the majority decision in a 2012 case that challenged the EPA's rule requiring control of interstate transport of air pollution that impedes neighboring states from meeting air quality standards. Over the dissent of Judge Judith W. Rogers, Judge Kavanaugh's majority opinion concluded that the EPA's method to allocate emission reductions among upwind states that contribute to downwind air pollution had \"transgressed statutory boundaries.\" He claimed it was \"inconceivable\" that Congress intended the EPA to \"transform the narrow good neighbor provision into a 'broad and unusual authority'\" under the Clean Air Act. He stressed that \"'Congress could not have intended to delegate a decision of such economic and political significance to an agency in so cryptic a fashion.'\" In 2013, in Judge Kavanaugh's only majority decision to be reversed by the Supreme Court, Justice Ruth Bader Ginsburg, in a 6-2 ruling, held that Congress delegated authority to the EPA to fill the \"gap left open\" to determine how to allocate emission reduction requirements among neighboring upwind states. In comparing the case to Chevron U.S.A. Inc. v. National Resources Defense Council , the Court deferred to the EPA's allocation method as \"reasonable,\" \"permissible, workable, and equitable.\"\nIn his environmental cases challenging an agency's statutory interpretation, Judge Kavanaugh, in line with his textualist views, often determined that an agency's interpretation lacked support from the plain language of the statute. This approach obviated the need to address the extent to which judges should defer to an agency's interpretation of silent or ambiguous statutory language under the Chevron doctrine. As Judge Kavanaugh remarked in dissent in Sierra Club v. EPA , \"the plain meaning of the text controls; courts should not strain to find ambiguity in clarity; courts must ensure that agencies comply with the plain statutory text and not bypass Chevron step 1.\"\nThis analytical approach was illustrated in his 2017 majority opinion in Mexichem Fluor, Inc. v. EPA . There, the D.C. Circuit vacated part of a rule that would have prohibited manufacturers from using hydrofluorocarbons (HFCs), a class of GHGs, as substitutes for ozone-depleting substances (ODSs) that are commonly used in refrigerators and air conditioners. In a 2-1 decision written by Judge Kavanaugh, the majority held that the EPA's \"novel\" interpretation of the Clean Air Act was \"inconsistent\" with the plain statutory text and exceeded its statutory authority because Congress did not intend for the EPA to regulate non-ODSs that contribute to climate change under a statutory provision with a \"focus\" on ODSs. Similar to previous opinions he authored on the EPA's authority to regulate GHGs under the Clean Air Act, Judge Kavanaugh reiterated that \"Congress's failure to enact general climate change legislation does not authorize the EPA to act. Under the Constitution, congressional inaction does not license an agency to take matters into its own hands, even to solve a pressing policy issue such as climate change.\" He concluded that the EPA's \"strained reading\" of the statutory terms \"contravenes the statute and thus fails at Chevron step 1. And even if we reach Chevron step 2, the EPA's interpretation is unreasonable.\"\nThe reasonableness of the EPA's statutory interpretation was the focus of several of Judge Kavanaugh's dissents to cases that challenged the agency's exclusion of cost considerations under the Clean Air Act. In 2014, he dissented in part from the majority ruling in White Stallion Energy Center v. EPA , which upheld the EPA's decision to not consider cost when determining whether it is \"appropriate and necessary\" to regulate mercury emissions from power plants under the Clean Air Act. In his dissent, Judge Kavanaugh argued that it was \"unreasonable\" for the EPA to exclude consideration of costs because \"the key statutory term is 'appropriate'—the classic broad and all-encompassing term that naturally and traditionally includes consideration of all the relevant factors, health and safety benefits on the one hand and costs on the other.\" He explained:\nwhether one calls it an impermissible interpretation of the term 'appropriate' at Chevron step one, or an unreasonable interpretation or application of the term 'appropriate' at Chevron step two, or an unreasonable exercise of agency discretion under State Farm ,[ ] the key point is the same: It is entirely unreasonable for EPA to exclude consideration of costs in determining whether it is 'appropriate' to regulate electric utilities . . . .\nOn appeal, the Supreme Court in Michigan v. EPA reversed the D.C. Circuit's majority decision in a 5-4 opinion authored by Justice Scalia that quoted from Judge Kavanaugh's dissent. The Court held that the EPA's refusal to consider costs (including the cost of compliance) before deciding whether it was \"appropriate and necessary\" to regulate was unreasonable.\nSimilarly, in 2016, Judge Kavanaugh's dissent in Mingo Logan Coal Co. v. EPA criticized the agency for failing to account for cost and economic impacts in determining whether to revoke previously approved and permitted waste sites for mountain-surface mining operations. The EPA had revoked specific mining waste discharge sites that were approved four years prior in a Clean Water Act permit because new information led the EPA to conclude that the discharges would have an \"unacceptable adverse effect\" on water supplies and aquatic life. In dissent, Judge Kavanaugh argued that the EPA should have examined the cost of its actions because the term \"unacceptable\" was \"capacious and necessarily encompasses consideration of costs. Like the word 'appropriate' at issue in Michigan v. EPA , the words 'acceptable' and 'unacceptable' are commonly understood to necessitate a balancing of costs and benefits.\" In criticizing the agency's \"utterly one-sided analysis\" of the \"benefits to animals of revoking the permit,\" Judge Kavanaugh argued that the EPA failed to consider the costs to \"humans—coal miners, [] shareholders, local businesses\" resulting from revoking the previously approved and permitted discharge sites. Echoing his dissent in White Stallion Energy Center , he explained that \"whether EPA's interpretation . . . is analyzed under Chevron step one or Chevron step two or State Farm , the conclusion is the same: In order to act reasonably, the EPA must consider costs before exercising its [Clean Water Act] authority to veto or revoke a permit.\"\nIn environmental cases reviewing agencies' interpretations of their own regulations, Judge Kavanaugh has broadly expressed skepticism regarding the extent to which judges should defer to agencies' interpretations of their own environmental regulations. For example, Judge Kavanaugh issued a dissent in 2010's Howmet Corp. v. EPA , which challenged the EPA's interpretation of its Resource Conservation and Recovery Act (RCRA) regulations that a particular chemical was \"spent material\" after it had been used in an industrial cleaning process and transported to be reused by a different company. The majority decision held that the regulation in question was ambiguous and deferred to the agency's interpretation that the \"spent material\" was subject to RCRA. Kavanaugh disagreed, arguing that \"EPA's current interpretation is flatly inconsistent with the text of its 1985 regulations.\" He concluded that the EPA \"enlarge[d] its regulatory authority\" \"by distorting the terms of the 1985 [RCRA] regulations\" in \"seeking to expand the definition of 'spent material'.\"\nIn reviewing Judge Kavanaugh's significant body of environmental jurisprudence, most commentators note that Judge Kavanaugh tends to narrowly construe an agency's authority or sharply question an agency's statutory interpretation as a means to preserve the separation of powers among the three branches of government. Some commentary has maintained that his judicial approach would limit federal agencies' ability to regulate activities that would negatively impact the environment. However, Judge Kavanaugh's scrutiny of agency's actions has led him to uphold agency actions or side with environmental groups when he feels Congress has granted the agency discretion to do so. For example, in 2-1 opinion in American Trucking Ass'ns , Inc. v. EPA , Judge Kavanaugh upheld the EPA's approval of California's rule limiting emissions from in-use non-road engines under the Clean Air Act's \"expansive\" statutory language. But overall, his general formalist approach toward separation-of-power issues and his commitment to textualism have often led him to limit an agency's authority to address environmental concerns.", "Much of the debate over Judge Kavanaugh and environmental law is in the eye of the beholder. For example, some legal commentary has raised fears about what the nominee, if confirmed, may mean for environmental law, suggesting that the nominee would be skeptical of an agency's attempts to broaden its authority under existing environmental statutes to address new types of environmental concerns, such as climate change, that Congress may not have contemplated when the statutes were originally enacted. In contrast, other commentators have viewed the nominee's skepticism toward the authority of administrative agencies like the EPA as a blessing, arguing that Judge Kavanaugh, if confirmed, \"will help reverse the trend\" of \"federal overreach\" by \"ensuring that all branches of our government act within their constitutionally assigned roles.\" Regardless of the merits of this debate, there are limits to any predictions that can be made regarding what the latest nomination to the High Court would mean for environmental law. After all, although his jurisprudence provides a robust picture of his environmental views, Judge Kavanaugh, during his tenure on the D.C. Circuit, has not addressed a number of issues in environmental law that could arise if he were elevated to the Supreme Court.\nIf confirmed, Judge Kavanaugh could soon consider several potentially important environmental cases, including an Endangered Species Act (ESA) case that is scheduled for oral argument before the Supreme Court on October 1, 2018. In Weyerhaeuser Co. v. U.S. Fish and Wildlife Service , the Court is to address, among other things, whether the ESA prohibits the government from designating private land as \"unoccupied\" critical habitat essential for the conservation of the endangered dusky gopher frog based solely on the multiple uninhabited breeding sites on the land. Judge Kavanaugh has previously addressed the designation of private lands as critical habitat for the endangered San Diego fairy shrimp in the 2011 case, Otay Mesa Prop., L.P. v. Department of the Interior . Private property owners challenged the Fish and Wildlife Service's (FWS's) designation of the plaintiffs' property as \"occupied\" critical habitat under the ESA based on observing four fairy shrimp in a tire rut on a dirt road on the plaintiffs' property. In his opinion for the panel, Judge Kavanaugh concluded that a single observation of a species with no subsequent observations of the species four years later did not provide sufficient evidence that the area was \"occupied\" habitat for the fairy shrimp. He explained that the \"thin\" record could not support FWS's designation, \"even acknowledging the deference due to the agency's expertise.\" Although the Otay Mesa case concerned \"occupied\" habitat as opposed to the \"unoccupied\" habit at issue in Weyerhauser , Judge Kavanaugh's opinion suggests that he may view FWS's record with some skepticism. The Supreme Court's ruling in the Weyerhaeuser case could provide some key guidance and potential limits on FWS's authority to designate as critical habitat areas that are not actually occupied by the listed species.", "The past twenty-five years have witnessed what some commentators have described as a \"federalism revolution\" in the Supreme Court's jurisprudence —a \"revolution\" in which Justice Kennedy was a key participant. This shift in the Court's federalism case law began with the Rehnquist Court, which issued a series of significant opinions resuscitating the Court's role in policing limitations on federal power. Specifically, the Rehnquist Court issued opinions (1) restricting the scope of Congress's powers under the Commerce Clause, (2) reviving the Tenth Amendment as a limit on Congress's authority, and (3) expanding the scope of state sovereign immunity.\nThis \"federalism revolution\" has not ended with the Roberts Court, which has extended a number of the Rehnquist Court's federalism decisions. The Roberts Court's 2012 decision in National Federation of Independent Businesses ( NFIB ) v. Sebelius , which involved a constitutional challenge to the ACA, was perhaps its most notable federalism case. While the NFIB Court ultimately concluded that the ACA's \"individual mandate\"—which required individuals to maintain a minimum level of health insurance or pay a penalty—was a permissible exercise of Congress's taxing power, a majority of the Justices concluded that the mandate exceeded the scope of Congress's Commerce Clause authority because it compelled individuals to engage in commerce rather than regulating pre-existing commercial activity. Perhaps more importantly, the NFIB Court extended the Rehnquist Court's Tenth Amendment cases—which held that Congress may not coerce state and local governments into implementing federal regulatory programs—to strike down a provision of the ACA that granted the Secretary of Health and Human Services (HHS) the authority to withhold all Medicaid payments from states that did not participate in an expansion of Medicaid, marking the first time the Court invalidated a condition attached to federal spending as unconstitutionally coercive. Justice Kennedy was a key participant in this \"federalism revolution,\" authoring or joining nearly all of the Court's key decisions. Justice Kennedy's successor will accordingly play a critical role in shaping the Court's federalism jurisprudence.\nJudge Kavanaugh's record on the D.C. Circuit contains limited information about his views on the various federalism issues that have confronted the Supreme Court. The nominee has not authored or joined any significant opinions concerning the Tenth Amendment or state sovereign immunity. Judge Kavanaugh's most prominent federalism case, Seven-Sky v. Holder , involved a pre- NFIB Commerce Clause challenge to the ACA. In that case, Judge Kavanaugh ultimately declined to consider the merits of the case after concluding that the court lacked jurisdiction to hear the dispute.\nIn Seven-Sky , plaintiffs brought a constitutional challenge to the ACA's individual mandate, arguing that the mandate exceeded the scope of Congress's authority under the Commerce Clause. A majority of a three-judge D.C. Circuit panel upheld the mandate, concluding that it did not exceed the scope of Congress's power under the Commerce Clause because it addressed a national problem that had \"substantial effects\" on interstate commerce. However, Judge Kavanaugh dissented from the court's decision, concluding that the court lacked jurisdiction to decide the merits of the challenge because of the Anti-Injunction Act, which denies courts jurisdiction over pre-enforcement lawsuits challenging \"the assessment or collection of any tax.\" The nominee reasoned that although Congress had labeled the exaction imposed on individuals who failed to comply with the individual mandate a \"penalty\" and not a \"tax,\" the Anti-Injunction Act nevertheless deprived the court of jurisdiction because the ACA provided for the penalty to be assessed and collected \"in the same manner as taxes.\" The nominee concluded that, because the penalty could not be assessed and collected \"in the same manner as taxes\" unless the Anti-Injunction Act applied to the penalty in the same manner that it applied to \"taxes,\" the Act deprived the court of jurisdiction over the plaintiffs' pre-enforcement lawsuit challenging the penalty, just as it would deprive the court of jurisdiction over a pre-enforcement lawsuit challenging a tax.\nAlthough Judge Kavanaugh declined to take a position on whether the individual mandate was constitutional based on Congress's powers under the Commerce Clause, he noted in his dissent that the question was \"extremely difficult and rife with significant and potentially unforeseen implications for the Nation and the Judiciary\"—a consideration that he viewed as militating in favor of avoiding a \"premature\" decision on the issue. Judge Kavanaugh also argued that the importance of the constitutional questions presented by the case counseled in favor of proceeding cautiously. In developing this argument, he noted that the government's defense of the mandate as falling within Congress's Commerce Clause powers \"carrie[d] broad implications\" for the scope of those powers. Specifically, Judge Kavanaugh reasoned that under the government's view of the Commerce Clause, Congress could not only impose criminal penalties on individuals who failed to purchase health insurance, but also require that individuals purchase a range of other financial products, including retirement accounts, disaster insurance, and life insurance. While Judge Kavanaugh acknowledged that Congress's Commerce Clause authority may be effectively cabined by the political process, he concluded that such political checks did not \"absolve the Judiciary of its duty to safeguard the constitutional structure and individual liberty\" by policing the limits of federal power.\nAt the same time, Judge Kavanaugh argued that the court should be equally cautious about prematurely rejecting the government's defense of the mandate, noting that \"[s]triking down a federal law as beyond Congress's Commerce Clause authority is a rare, extraordinary, and momentous act for a federal court.\" The nominee also reasoned that, because the individual mandate marked \"a shift in how the Federal Government goes about furnishing a social safety net for those who are old, poor, sick, or disabled and need help\"—specifically, by providing such benefits via privatized social services and a mandatory-purchase requirement rather than a traditional \"tax-and-government-benefit\" program—courts \"should be very careful before interfering with the elected Branches' determination to update how the National Government provides such assistance.\" Finally, Judge Kavanaugh concluded that because Congress may respond to the constitutional challenges to the individual mandate by altering the ACA's language to provide that the mandate's penalty was in fact a \"tax\" (thus bringing the mandate within Congress's taxing power), or by eliminating the penalty altogether, the court should not strain to sidestep the Anti-Injunction Act and prematurely decide a difficult constitutional question.\nAlthough Judge Kavanaugh declined to address squarely the merits of the Commerce Clause question presented in Seven-Sky , he delivered a speech in 2017 on Chief Justice Rehnquist's legacy that offers some clues about his general views on the Commerce Clause. In the speech, the nominee voiced general agreement with the Rehnquist Court's Commerce Clause decisions, outlining Chief Justice Rehnquist's reasoning in Lopez and Morrison and describing those cases as \"critically important in putting the brakes on the Commerce Clause and in preventing Congress from assuming a general police power.\"\nAccordingly, there is a limited record from which to gauge Judge Kavanaugh's views on federalism issues. Because the nominee has not adjudicated or commented on subjects like state sovereign immunity or the Tenth Amendment's limitations on Congress's authority, it is difficult to draw firm conclusions about his views on those topics. However, Judge Kavanaugh has indicated general agreement with the Commerce Clause decisions that served as the vanguard of the \"federalism revolution\" of the Rehnquist and Roberts Courts, and has expressed support for the position that the judiciary has an \"important role\" in policing the boundaries of federal authority.", "If confirmed to the Supreme Court, Judge Kavanaugh could play a significant role in the Court's decisions concerning freedom of religion, an area of law encompassing the Constitution's Religion Clauses—the Free Exercise Clause and the Establishment Clause —as well as statutes like the Religious Freedom Restoration Act (RFRA). After all, Justice Kennedy, who the nominee may succeed, provided deciding votes and drafted the majority opinions in a number of significant cases concerning religious liberty. While serving on the D.C. Circuit, Judge Kavanaugh has authored or joined relatively few opinions on religious liberty. Nonetheless, three significant opinions he has written, along with his comments outside of the courtroom, suggest that Judge Kavanaugh's views on religious liberty are fairly similar to those of Justice Kennedy.", "Judge Kavanaugh's writings on religious freedom issues have most frequently concerned the Establishment Clause. One significant threshold issue in Establishment Clause cases is whether the plaintiffs can show that they have standing to bring their suit. The concept of standing ensures that federal courts hear only cases that qualify as \"cases\" or \"controversies\" under Article III of the Constitution, by requiring plaintiffs to demonstrate \"personal injury fairly traceable to the defendant's allegedly unlawful conduct and likely to be redressed by the requested relief.\"\nThe Supreme Court, however, sometimes appears to treat standing differently in the context of the Establishment Clause, allowing certain suits to proceed even where the injury alleged would not suffice to create standing to raise other types of legal challenges. In recent years, the Court has narrowed the scope of one of the primary cases that seemed to carve out a special Establishment Clause exception to ordinary standing principles. However, the Court has not repudiated this older case law, and, more broadly, the Court has continued to hear Establishment Clause challenges to religious displays on government property and prayers at government-sponsored events, notwithstanding the fact that, as some have argued, the plaintiffs' injuries in these cases—viewing a display or listening to a prayer—seem akin to the type of \"generalized grievance\" that generally would not qualify as a constitutionally sufficient injury for purposes of standing.\nJudge Kavanaugh has authored two significant opinions ruling on whether litigants have standing to raise Establishment Clause claims. First, the nominee rejected an Establishment Clause claim on standing grounds in In re Navy Chaplaincy . In that case, a group of Protestant Navy chaplains argued that the Navy had discriminated \"in favor of Catholic chaplains in certain aspects of its retirement system.\" Writing the majority opinion, Judge Kavanaugh held that the plaintiffs lacked standing because they had not demonstrated an injury-in-fact, where \"they themselves did not suffer employment discrimination on account of their religion.\" He rejected the claim—one that was accepted by Judge Rogers' dissent —that \"being subjected to the 'message' of religious preference conveyed by the Navy's allegedly preferential retirement program for Catholic chaplains\" created standing. In contrast to cases where the Supreme Court found that being subject to a religious message caused a cognizable injury—\"the religious display and prayer cases\"—in this case, the government was not \"actively and directly communicating a religious message through religious words or religious symbols.\" In Judge Kavanaugh's view, \"[w]hen plaintiffs are not themselves affected by a government action except through their abstract offense at the message allegedly conveyed by that action, they have not shown injury-in-fact to bring an Establishment Clause claim.\"\nBy contrast, in Newdow v. Roberts , Judge Kavanaugh concluded that a litigant had established standing under these religious display and prayer cases. The plaintiffs in Newdow argued that certain aspects of the presidential inaugural ceremony violated the Establishment Clause. Specifically, the plaintiffs challenged the prayers at the beginning of the ceremony and the use of the phrase \"so help me God\" in the presidential oath of office. A majority of the court rejected the suit on standing grounds.\nJudge Kavanaugh concurred in the judgment of the court, contending that while the plaintiffs had standing, their claims failed on the merits. First, the nominee concluded that the plaintiffs' allegations that they would \"witness . . . government-sponsored religious expression to which they object . . . suffice under the Supreme Court's precedents to demonstrate plaintiffs' concrete and particularized injury.\" He noted that in its cases involving \"government-sponsored religious display[s] or speech[es],\" the Court had not \"expressly\" addressed standing. \"But,\" in his view, \"the Supreme Court's consistent adjudication of religious display and speech cases over a span of decades suggests that the Court has thought it obvious that the plaintiffs in those matters had standing.\"\nJudge Kavanaugh disagreed with the majority's analysis of the \"causation and redressability elements of standing.\" In relevant part, the nominee noted that while it was \"theoretically possible that Congress or the President could completely change the nature of the Inaugural ceremonies before the next Inauguration,\" that was, in his view, unlikely. For this point, Judge Kavanaugh cited Lee v. Weisman , a Supreme Court opinion written by Justice Kennedy that considered the constitutionality of prayers at a public school graduation ceremony. The Supreme Court concluded in Lee that the case presented \"a live and justiciable controversy\" because one of the plaintiffs was a high school student and it appeared \"likely, if not certain, that an invocation and benediction will be conducted at her high school graduation.\" Judge Kavanaugh concluded that just as it was likely that \"the high school's next graduation prayer likely would resemble past graduation prayers,\" so was it likely that the \"next Inaugural ceremony likely will resemble past Inaugurals.\"\nBecause Judge Kavanaugh concluded that the plaintiffs had standing in Newdow , he went on to consider the merits of their claim, offering some insight into his substantive views on the Establishment Clause. Judge Kavanaugh paused at the outset to note the importance of the sincerely held beliefs on both sides of the issue, noting that the plaintiffs, \"as atheists,\" \"have no lesser rights or status as Americans or under the United States Constitution than Protestants, Jews, Mormons, Muslims, Hindus, Buddhists, Catholics, or members of any religious group.\" Nonetheless, the nominee stated that he would have held that the inaugural prayers and the use of the words \"so help me God\" in the presidential oath did not violate the Establishment Clause. Judge Kavanaugh noted that both the prayers and the oath were \"deeply rooted\" in \"history and tradition.\" His analysis invoked the Supreme Court's decision in Marsh v. Chambers , which upheld a state legislature's practice of opening its sessions with a prayer after noting that such a practice \"is deeply embedded in the history and tradition of this country.\" This emphasis on history and tradition would later be echoed in Justice Kennedy's opinion for the Court in Town of Greece v. Galloway , which similarly upheld prayers before a town's monthly board meetings.\nWhile acknowledging that Supreme Court precedent prohibits public prayers that amount to proselytization, Judge Kavanaugh did not believe that these cases necessarily prohibited sectarian prayers, which he defined as \"prayers associated only with particular faiths, or references to deities, persons, precepts, or words associated only with particular faiths.\" The nominee cited the following standard from the Tenth Circuit as \"instructive\": \"the kind of [ ] prayer that will run afoul of the Constitution is one that proselytizes a particular religious tenet or belief, or that aggressively advocates a specific religious creed, or that derogates another religious faith or doctrine.\" Ultimately, he held that the inaugural prayers' \"many references to God, Lord, and the like\" \"are considered non-sectarian for these purposes,\" and that the prayers' \"limited\" \"sectarian references\" did not impermissibly proselytize.\nJudge Kavanaugh's opinion in Newdow took place against the backdrop of considerable legal debate that has occurred over the past half century regarding the meaning of the Establishment Clause. For example, the Establishment Clause is often characterized as establishing \"a wall of separation between church and State\" —although the appropriateness of this characterization has long been contested. The Supreme Court does not always embrace a separationist view of the Establishment Clause, as suggested by its cases approving of certain government-sponsored religious practices due to their historical pedigree. Justice Kennedy, for his part, warned that the Court's statements about government neutrality toward religion should \"not give the impression of a formalism that does not exist.\" Instead, he argued that \"[g]overnment policies of accommodation, acknowledgment, and support for religion are an accepted part of our political and cultural heritage.\"\nIn his work off the court, Judge Kavanaugh has similarly questioned the \"wall\" metaphor, along with the related principle that the First Amendment \"requires the state to be a neutral in its relations with groups of religious believers and non-believers.\" In a speech discussing the influence of Chief Justice Rehnquist, Judge Kavanaugh stated that the Chief Justice had \"persuasively criticized the wall metaphor as 'based on bad history' and 'useless as a guide to judging.'\" In another speech, the nominee praised as \"well said\" the following statement from former Attorney General Ed Meese: \"[T]o have argued . . . that the [First Amendment] demands a strict neutrality between religion and irreligion would have struck the founding generation as bizarre. The purpose was to prohibit religious tyranny, not to undermine religion generally.\" Judge Kavanaugh's writings on and off the bench thus suggest that he, like Justice Kennedy, while not wholly unsympathetic to those who raise challenges under the Establishment Clause, would largely oppose a strict separationist view of the Clause.", "Judge Kavanaugh has not authored any notable opinions on the Free Exercise Clause, but he did write a significant dissenting opinion on RFRA: Priests for Life v. HHS . As background, RFRA provides that the federal government may not \"substantially burden a person's exercise of religion\" unless it demonstrates that its action \"is in furtherance of a compelling governmental interest\" and \"is the least restrictive means of furthering that compelling governmental interest.\" RFRA has become central to a number of controversies involving the ACA, most notably the Supreme Court's decision in Burwell v. Hobby Lobby Stores . In that case, three closely held corporations challenged the ACA's requirement that they provide their employees with health insurance covering certain contraceptive methods. The Supreme Court concluded that the mandate, as applied to these closely held corporations, violated RFRA. The Court explained that these companies \"sincerely believe[d] that providing the insurance coverage demanded\" was immoral because it had the \"effect of enabling or facilitating the commission of an immoral act by another,\" and it was not for the Court \"to say that their religious beliefs are mistaken or insubstantial.\" Because the regulatory scheme imposed \"an enormous\" penalty if the corporations chose not to comply with the contraceptive mandate, the Court held that it imposed a substantial burden on their beliefs. The Court further concluded that, assuming the government had demonstrated a compelling interest, the government had not shown that the mandate was the least restrictive means of achieving that interest.\nFollowing Hobby Lobby , in Priests for Life , a group of nonprofit organizations that were opposed on religious grounds to providing their employees with certain types of contraceptives again challenged the ACA's contraceptive requirement. The regulatory scheme allowed religious nonprofit organizations to opt out of this requirement by submitting certain documents to insurers to exclude contraception from the health insurance coverage they provided. Under this scheme, if employers opted out, insurers were required \"to offer separate coverage for contraceptive services directly to insured women.\" The plaintiffs argued that the opt-out procedure itself burdened their religious beliefs by triggering the substitution of alternative coverage that would provide contraceptives, thus \"facilitating contraceptive coverage.\" A three-judge panel of the D.C. Circuit rejected the plaintiffs' RFRA claim, concluding that the opt-out requirements did not impose a substantial burden on the challengers' religious exercise.\nThe plaintiffs sought en banc review of this decision, but the D.C. Circuit rejected their petition. In a dissent from the denial of the petition, Judge Kavanaugh opined that the plaintiffs \"should ultimately prevail on their RFRA claim, but not to the full extent that they seek.\" First, the nominee concluded that the plaintiffs demonstrated a substantial burden: \"When the Government forces someone to take an action contrary to his or her sincere religious belief (here, submitting the form) or else suffer a financial penalty (which here is huge), the Government has substantially burdened the individual's exercise of religion.\" In finding a substantial burden, Judge Kavanaugh relied heavily on Hobby Lobby . He accepted the plaintiffs' view that the opt-out procedure \"makes them complicit in facilitating contraception or abortion,\" burdening their religious beliefs. In his view, it was not the court's \"call to make,\" because in Hobby Lobby , the Supreme Court established that \"judges in RFRA cases may question only the sincerity of a plaintiff's religious belief, not the correctness or reasonableness of that religious belief.\"\nJudge Kavanaugh next concluded that the various opinions in Hobby Lobby \"strongly suggest[] that the Government has a compelling interest in facilitating access to contraception for the employees of these religious organizations.\" Although the majority opinion in Hobby Lobby avoided the issue, the nominee noted that Justice Kennedy and the four dissenting Justices had suggested that the government's interest was compelling—and he said that this conclusion was \"not difficult to comprehend,\" noting the \"significant social and economic costs\" that result from unintended pregnancies. Finally, the nominee decided that the opt-out requirements violated RFRA because they were not \"the Government's least restrictive means of furthering its interest in facilitating access to contraception for the organizations' employees.\" But this last conclusion was based on the fact that the government could require the organizations to submit a different, \"less restrictive notice\" that prior Supreme Court cases suggested \"should be good enough to satisfy the Government's interest.\" In this vein, this aspect of Judge Kavanaugh's Priests for Life dissent largely mirrored Justice Kennedy's approach in Hobby Lobby.\nThe plaintiffs in Priest for Life sought review in the Supreme Court. The Court granted their petition for certiorari, consolidating it with similar cases from other federal courts of appeal under the caption Zubik v. Burwell , but ultimately vacated the opinion of the D.C. Circuit without reaching the merits of the claim. After oral argument, the Court \"requested supplemental briefing from the parties addressing 'whether contraceptive coverage could be provided to petitioners' employees, through petitioners' insurance companies, without any such notice from petitioners.'\" Both parties \"confirm[ed] that such an option [was] feasible,\" and the Court remanded the combined cases to the lower courts to afford the parties \"an opportunity to arrive at an approach going forward that accommodates\" the positions of both sides. Some commentators speculated that the Court, which was then \"functioning with eight Justices, was having difficulty composing a majority in support of a definite decision on the legal questions.\" Zubik may suggest, therefore, that the Court is closely divided with respect to religious liberty issues, demonstrating that a new Justice could be influential on these matters as the Court considers whether to hear other cases on religious liberty in the near future.", "First Amendment cases, particularly those involving the freedom of speech, have featured prominently on the Roberts Court. In recent years, a majority of the Court has looked with increasing skepticism on laws or government actions that restrict political speech or commercial speech, compel speech either directly or through mandatory subsidization of private speech, or regulate speech based on its content. Justice Kennedy played a pivotal role in many of these cases, including by authoring the Court's 2010 opinion in Citizens United v. F ederal E lection C ommission ( FEC ), which invalidated a federal ban on certain corporate political expenditures. In addition, in his last term, Justice Kennedy joined five-member majorities to invalidate compulsory public-sector union agency fees and hold that a state's disclosure requirements for certain pregnancy centers were likely unconstitutional. However, he has also recognized limitations on the First Amendment's reach, particularly in the context of a government employee's speech on an employment matter.\nFor his part, Judge Kavanaugh has a relatively robust free speech record, having encountered several strands of First Amendment law as an appellate judge, and his opinions in these cases provide some limited insight into how he might approach free speech cases on the Court. Some of Judge Kavanaugh's cases required him to decide whether the reasoning undergirding a key First Amendment precedent applied to a new factual scenario. In other cases, Judge Kavanaugh offered alternative analytical frameworks to tackle First Amendment issues confronting lower courts, including on evolving areas of First Amendment law such as commercial speech regulations. This section of the report addresses Judge Kavanaugh's freedom-of-speech jurisprudence, beginning with his decisions on campaign finance law before turning to his opinions on the regulation of various types of media and commercial speech. The section concludes by noting where the nominee has recognized key limitations on the First Amendment's reach.", "As a circuit court judge, Judge Kavanaugh has witnessed the evolution of the Supreme Court's campaign finance jurisprudence and has applied several of its key decisions in this area in cases concerning political spending. Although these cases largely involved the application of binding Supreme Court precedent, some required the judge to reconcile what he viewed as potential incongruities in the law or to consider how the underlying First Amendment principles squared with the federal government's interests in preserving the integrity of the democratic process. Perhaps most notably, Judge Kavanaugh has openly endorsed the view—consistent with long-established Supreme Court precedent —that political spending represents speech and that limits on such speech deserve strict scrutiny under the First Amendment. During a 2016 event at the American Enterprise Institute, Judge Kavanaugh remarked that \"political speech is at the core of the First Amendment, and to make your voice heard, you need to raise money to be able to communicate to others in any kind of effective way.\"\nThe first notable case on political speech for which Judge Kavanaugh authored an opinion arose in 2009 in Emily ' s List v. FEC . That case, which preceded Citizen ' s United , was brought by a nonprofit group seeking to make both contributions to and expenditures in support of \"pro-choice Democratic women candidates,\" and involved a First Amendment challenge to FEC regulations that required \"covered non-profits [to] pay for a large percentage of election-related activities out of their hard-money accounts,\" which were \"capped at $5000 annually for individual contributors.\" Judge Kavanaugh authored the panel opinion in the case. He began by reviewing \"several overarching principles of relevance\" from the Supreme Court's First Amendment cases involving campaign finance laws: (1) that campaign contributions and expenditures are \"speech\" within the meaning of the First Amendment; (2) that \"equalization\"—or restricting the speech of some speakers \"so that others might have an equal voice or influence in the electoral process\"—is not a permissible basis for the government to restrict speech; (3) that the government has a strong interest in combating corruption and the appearance of corruption; (4) that based on that anti-corruption interest, the Court has allowed greater regulation of contributions to candidates or political parties than of expenditures by citizens and groups on electioneering activities such as advertisements, get-out-the-vote efforts, and voter registration drives; and (5) that the Court—at least up until that point—had been \"somewhat more tolerant of regulation of for-profit corporations and labor unions.\"\nJudge Kavanaugh analyzed the applicability of these First Amendment principles and holdings to EMILY's List, which sought to make both contributions and expenditures . He held that although limits on a nonprofit's direct contributions to federal candidates and parties are constitutional under relevant Supreme Court precedent, limits on their expenditures are not. In other words, Judge Kavanaugh concluded, nonprofits \"are entitled to make their expenditures . . . out of a soft-money or general treasury account that is not subject to source and amount limits.\" In so doing, the nominee distinguished the Supreme Court's decision in McConnell v. FEC , which had upheld statutory limits on soft-money contributions to and expenditures by political parties , reasoning that the anti-corruption justification for those limits did not apply in the case of nonprofits. He explained that if the different treatment under the First Amendment of political parties and nonprofits seemed \"incongruous,\" it was up to Congress to eliminate the \"asymmetry\" by raising or removing limits on contributions to political parties or candidates.\nElsewhere, Judge Kavanaugh has upheld restrictions on campaign spending. A year after Emily ' s List and two months after the Court's decision in Citizens United , in Republican National Committee (RNC) v. FEC , Judge Kavanaugh rejected the RNC's challenge to the statutory \"soft-money ban\" that prohibited it from raising and spending unlimited contributions to support state candidates, state parties' redistricting efforts, and various \"grassroots lobbying efforts.\" Writing on behalf of a three-judge district court panel, Judge Kavanaugh reasoned that McConnell , which had upheld the soft-money ban notwithstanding its applicability to state election activities, foreclosed the RNC's challenge. Unlike in Emily ' s List —which, as previously noted, concerned a nonprofit—Judge Kavanaugh found McConnell 's anti-corruption justification sufficiently applicable to the RNC. The nominee noted the law's differential treatment of outside groups versus candidates and political parties, but stated that \"the RNC's concern about this disparity\" is \"an argument for the Supreme Court or Congress.\"\nThe following year, in Bluman v. FEC , Judge Kavanaugh—once again on behalf of a three-judge district court panel—rejected a First Amendment challenge to a statute barring political contributions by foreign nationals temporarily living in the United States. In doing so, Judge Kavanaugh cited the U.S. government's compelling interest in \"limiting the participation of foreign citizens in activities of American democratic self-government, and in thereby preventing foreign influence over the U.S. political process.\" He noted, however, that the court's holding addressed only political contributions and certain expenditures by foreign nationals, not their right to engage in \" issue advocacy and speaking out on issues of public policy,\" and that its decision \"should not be read to support such bans.\"\nAs noted, Judge Kavanaugh has publicly endorsed the view that political spending is a form of political speech, which suggests that, if confirmed, he may be an unlikely vote to walk back the First Amendment lines that the Court has drawn to date in order to allow the government greater leeway to regulate political contributions and expenditures. If anything, Judge Kavanaugh has seemed to voice some discomfort at certain aspects of the scope and nature of government regulation in this area, particularly with respect to how the law still treats certain speakers differently in the campaign finance realm (e.g., political candidates and parties versus outside groups). His view that the consideration of whether to level the field for these speakers is one for Congress or the Supreme Court raises the question of what position the nominee would take if elevated to the Court.", "While stressing the importance of historical context in some First Amendment cases, Judge Kavanaugh has looked to more recent developments when evaluating the constitutionality of telecommunications and Internet regulations, citing the significance of a speaker's \"market power\" under the Supreme Court's \"landmark decisions\" in Turner Broadcasting I and Turner Broadcasting II —both authored by Justice Kennedy.\nIn Turner Broadcasting I , the Court considered whether the so-called \"must-carry provisions\" in a 1992 law that \"require[d] cable television systems to devote a portion of their channels to the transmission of local broadcast television stations\" violated the First Amendment. In his opinion for the Court, Justice Kennedy reasoned that the First Amendment protects cable programmers and operators, who \"engage in and transmit speech,\" and that the must-carry provisions regulate speech by \"reduc[ing] the number of channels over which cable operators exercise unfettered control\" and \"render[ing] it more difficult for cable programmers to compete for carriage on the limited channels remaining.\" Reviewing the must-carry provisions under \"the intermediate level of scrutiny applicable to content-neutral restrictions that impose an incidental burden on speech,\" Justice Kennedy reasoned that the must-carry provisions were \"justified by special characteristics of the cable medium: the bottleneck monopoly power exercised by cable operators and the dangers this power pose[d] to the viability of broadcast television.\" However, the Court remanded the case for additional fact-finding to determine whether the provisions burdened more speech than necessary to address the threat Congress perceived to broadcast television. Three years later, following remand, the case again reached the Court in Turner Broadcasting II , where Justice Kennedy's majority opinion concluded that the must-carry provisions \"do not burden substantially more speech than necessary to further [Congress's] interests,\" and therefore, did not violate the First Amendment.\nThirteen years later, a D.C. Circuit panel that included Judge Kavanaugh considered the applicability of the Turner Broadcasting cases in Cablevision Systems Corp. v. FCC . In that case, two cable companies challenged an FCC decision to temporarily extend a statutory \"exclusivity provision\" barring exclusive contracts between \"multichannel video programming distributors\" such as cable operators and cable-affiliated programming networks. Two members of the panel rejected the companies' First Amendment argument, in large part based on the D.C. Circuit's 1996 decision in Time Warner Entertainment Co. v. FCC , which relied on Turner Broadcasting to uphold the underlying exclusivity statute against a similar First Amendment challenge.\nJudge Kavanaugh dissented, reasoning that the Turner Broadcasting and Time Warner courts had upheld restrictions on the \"editorial and speech rights of cable operators and programmers . . . only because of the 'bottleneck monopoly power exercised by cable operators.'\" In Judge Kavanaugh's view, the relevant market had \"changed dramatically\" since \"those mid-1990s cases\" to the point where cable operators \"no longer possess bottleneck monopoly power.\" In particular, Judge Kavanaugh noted the range of video programming options available to consumers, not only through traditional cable networks, but also through cell phone companies and the Internet. The legal import of all these developments, Judge Kavanaugh concluded, is that \"the FCC's exclusivity ban . . . is no longer necessary to further competition—and no longer satisfies the intermediate scrutiny standard set forth by the Supreme Court for content-neutral restrictions on editorial and speech rights.\" Judge Kavanaugh reasoned that in addition to the lack of market power to justify the restriction, the exclusivity rule raised special First Amendment concerns because it did not regulate evenhandedly, applying to cable operators like Cablevision but not \"similarly situated video programming distributors and video programming networks\" like DIRECTV, DISH, Verizon, or AT&T.\nOf potential significance, Judge Kavanaugh proceeded to \"offer a few additional observations\" about the First Amendment's applicability in the telecommunications sphere; among the various points raised in this section of the opinion, Judge Kavanaugh reasoned that Congress and regulatory agencies have more leeway to adjust to the \"realities of a changing market\" in \"ordinary economic regulation cases,\" such as those involving \"energy, labor relations, the environment, or securities transactions.\" In contrast, he posited, the First Amendment requires \"a more 'laissez-faire' [regulatory] regime\" when the restriction concerns \"communication markets.\" Judge Kavanaugh further reasoned that the First Amendment may permit the government to regulate in a content-neutral manner in a noncompetitive market, but \"when a market is competitive, direct interference with First Amendment free speech rights in the name of competition is typically unnecessary and constitutionally inappropriate.\"\nJudge Kavanaugh offered similar observations in another case involving the FCC's \"Viewability Rule,\" which \"requir[ed] 'hybrid' cable companies—that is, those that provide both analog and digital cable service—to 'downconvert' from digital to analog broadcast signals from must-carry stations for subscribers with analog television sets.\" The FCC had allowed the Viewability Rule to lapse and replaced it with a new rule, in part because of constitutional concerns. Judge Kavanaugh, in a concurring opinion, reasoned that the FCC \"was right to perceive a serious First Amendment problem with the Viewability Rule,\" echoing many of the arguments he made in Cablevision regarding the \"dramatically changed marketplace\" against which the Court must evaluate the constitutionality of the \"broader must-carry regime.\" In Judge Kavanaugh's view, \"cable regulations adopted in the era of Cheers and The Cosby Show are ill-suited to a marketplace populated by Homeland and House of Cards \"; furthermore, \"[b]ecause cable operators no longer wield market power,\" Judge Kavanaugh reasoned that \"the Government can no more tell a cable operator today which video programming networks it must carry than it can tell a bookstore what books to sell or tell a newspaper what columnists to publish.\"\nThe significance of market power also featured prominently in Judge Kavanaugh's dissent from an en banc circuit decision not to review a panel order upholding the FCC's 2015 net neutrality rule. The rule prohibited ISPs from blocking or throttling (i.e., slowing down) legal content and from agreeing to favor the delivery of certain content for a fee or to benefit an affiliated entity. Judge Kavanaugh described the rule as \"one of the most consequential regulations ever issued by any executive or independent agency in the history of the United States.\" In Judge Kavanaugh's view, the rule \"transform[ed] the Internet by imposing common-carrier obligations on [ISPs] and thereby prohibiting [them] from exercising editorial control over the content they transmit to consumers.\" He reasoned that imposing such obligations on ISPs without demonstrating that they possess \"market power\" violates the First Amendment under the Turner Broadcasting cases. While acknowledging that the net neutrality rule pertained to ISPs, not cable television operators, Judge Kavanaugh reasoned that these businesses \"perform the same kind of functions,\" suggesting, by way of example, that \"[d]eciding whether and how to transmit ESPN and deciding whether and how to transmit ESPN.com are not meaningfully different for First Amendment purposes.\" Judge Kavanaugh also rejected the FCC's attempt to distinguish ISPs from cable television operators on the basis that ISPs do not exercise editorial control, reasoning that even if ISPs \"have not been aggressively exercising their editorial discretion,\" they do not forfeit their right to do so.\nIn view of the foregoing opinions, Judge Kavanaugh, if confirmed, could be a key voice on the Supreme Court as it continues to refine the contours of First Amendment law in the Internet age. Judge Kavanaugh's opinions suggest that he believes that, barring some sort of market irregularity, the First Amendment should apply with the same rigor to restrictions on Internet speakers and content providers as to other purveyors of speech in the communications industry, and that technological developments and increased competition could lessen the need for government regulation in the communications marketplace.", "Some First Amendment contexts implicate more than one of the Supreme Court's tests for evaluating the constitutionality of a speech regulation. In these circumstances, the court may not reach agreement on the governing doctrine, and, as Judge Kavanaugh has argued, the outcome of the case may depend on which test the court applies and the factors that the court considers in applying it. Debates over the appropriate First Amendment test to apply have often arisen in the context of commercial speech and commercial disclosures.\nIn its 1980 decision in Central Hudson Gas & Electric Corp. v. Public Service Commission of New York , the Supreme Court developed an \"intermediate\" standard of scrutiny for evaluating commercial regulations that implicate speech. This test requires the government to articulate more than a rational basis for its regulatory decision, but does not necessitate that the law be the \"least restrictive means\" of achieving the government's interest (a key feature of strict scrutiny). However, since Central Hudson , the Court has, at times, departed from using the test articulated in the 1980 decision, with some members of the Court going so far as to question the basis for treating commercial speech differently from core political speech, which receives strict scrutiny—at least in certain circumstances. The debate over the proper test for evaluating commercial speech restrictions also calls into question the scope of doctrines created for purposes of evaluating commercial disclosure requirements, which some courts have likened to rational basis review. In American Meat Institute v. Department of Agriculture , Judge Kavanaugh offered a path to reconciling the Court's current tests for commercial speech and commercial disclosures.\nIn American Meat Institute , the full circuit considered the constitutionality of a federal regulation requiring the disclosure of certain country-of-origin information for meat products. As a threshold matter, the court considered which of two First Amendment standards developed by the Supreme Court applied to the regulation. The first standard was the \"general test for commercial speech restrictions\" set forth in Central Hudson : whether the regulation directly advances a substantial governmental interest and is narrowly drawn to achieve that end. The second standard involved the Court's decision in Zauderer v. Office of Disciplinary Counsel , which concerned government-mandated disclosures aimed at preventing consumer deception. Under the Zauderer standard, a \"purely factual and uncontroversial\" disclosure requirement comports with the First Amendment when it is \"reasonably related to the [government's] interest in preventing deception of consumers.\" The en banc court in American Meat Institute interpreted Zauderer to apply outside the context of consumer deception and concluded that the country-of-origin labeling requirements passed muster under Zauderer .\nAlthough he agreed with the majority's conclusion that the First Amendment does not bar the country-of-origin labeling requirements, Judge Kavanaugh wrote separately to explain how the \"two basic Central Hudson requirements apply to this case.\" With respect to Central Hudson 's first prong requiring a substantial governmental interest, Judge Kavanaugh reasoned that the need to prevent consumer deception and to ensure consumer health or safety are \"historical\" and \"traditional\" interests justifying commercial disclosures. However, Judge Kavanaugh reasoned that the \"the Government cannot advance a traditional anti-deception, health, or safety interest in this case because a country-of-origin disclosure requirement obviously does not serve those interests.\" Moreover, Judge Kavanaugh found that the interest that the government had asserted —providing consumers with information—was insufficient for First Amendment purposes. Nevertheless, Judge Kavanaugh reasoned that \"country-of-origin labeling is justified by the Government's historically rooted interest in supporting American manufacturers, farmers, and ranchers as they compete with foreign\" counterparts.\nJudge Kavanaugh then concluded that the labeling requirement satisfied Central Hudson 's second prong \"concern[ing] the fit between the disclosure requirement and the Government's interest.\" In doing so, he characterized the debate over the Central Hudson versus Zauderer tests as presenting a \"false choice,\" reasoning that \" Zauderer is best read simply as an application of Central Hudson , not a different test altogether.\" Under Judge Kavanaugh's interpretation, \" Zauderer tells us what Central Hudson 's [second prong] means in the context of compelled commercial disclosures: The disclosure must be purely factual, uncontroversial, not unduly burdensome, and reasonably related to the Government's interest.\"\nJudge Kavanaugh's concurrence in American Meat Institute is potentially notable in several respects. First, while rejecting the view that the public's right to know in and of itself can justify compelled commercial disclosures, Judge Kavanaugh seemed to implicitly accept that cases like Zauderer may justify government-compelled disclosure for reasons other than preventing consumer deception —which is an open question for the Supreme Court. He did note, however, that \"the compelled disclosure must be a disclosure about the product or service in question to be justified under Central Hudson and Zauderer \"—a qualification that the Supreme Court recently confirmed, at least with respect to Zauderer 's application, in NIFLA v. Becerra . Second, Judge Kavanaugh interpreted the Supreme Court's precedents to require a substantial governmental interest, even under Zauderer . In doing so, he looked to \"history and tradition\" to discern what interests outside the context of preventing consumer deception might be \"substantial.\" This approach raises a question as to whether Judge Kavanaugh, if confirmed, would invalidate compelled disclosures that lack a \"historical pedigree.\" Finally, Judge Kavanaugh seemed to interpret Zauderer 's test to be as rigorous as Central Hudson 's intermediate scrutiny standard, notwithstanding contrary views of Zauderer from other courts. Although the foregoing observations could be viewed simply as the judge's attempts to interpret and reconcile existing Supreme Court precedent, they could also signal his potential alignment with the wing of the Court that has advocated for a more rigorous form of review for commercial speech and compelled speech.", "Like Justice Kennedy, Judge Kavanaugh's view of the First Amendment's protection of free speech is not unbounded. In cases where the challenged governmental action implicated national security or concerned government speech or a regulation directed at conduct, Judge Kavanaugh upheld the government's action.\nal Bahlul v. United States involved a First Amendment challenge by an assistant to Osama bin Laden who complained that \"he was unconstitutionally prosecuted [by a U.S. military commission] for his political speech,\" which included his production of \"propaganda videos for al Qaeda.\" In an opinion concurring in part and dissenting in part from the judgment, Judge Kavanaugh reasoned that the government based the appellant's conspiracy conviction on the appellant's conduct, not his speech, but that in any event, appellant \"had no First Amendment rights as a non-U.S. citizen in Afghanistan when he led bin Laden's media operation.\" Judge Kavanaugh further reasoned that even if the First Amendment did apply to the appellant's production of videos in Afghanistan, it did not protect the videos described in the appellant's indictment because they were aimed at inciting imminent lawless action and thus unprotected speech under relevant Supreme Court precedent. He noted that the Supreme Court has been even less willing to recognize protections for such speech when the government seeks to prevent imminent harms as a matter of international affairs and national security. Invoking the words of Justice Jackson, Judge Kavanaugh stated that the Constitution \"is not a suicide pact.\"\nIn Bryant v. Gates , a former civilian employee with the military sought to publish in Department of Defense (DOD) newspapers distributed on military installations a series of advertisements soliciting readers to \"blow the whistle\" on alleged military cover-ups. The military denied his requests on the basis of a DOD rule prohibiting the newspapers from including partisan discussions and political commentary. The former employee challenged the rule and the DOD's application of the rule to his proposed advertisements on First Amendment grounds. Applying the test for non-public forums, the court concluded that the restriction on political advertising was reasonable \"on its face and as applied to [the advertisements in question].\" Although Judge Kavanaugh joined the court's opinion, he authored a separate concurrence \"lest this precedent be misinterpreted.\" In Judge Kavanaugh's view, the \"government speech\" doctrine—rather than a public forum analysis—best applied to speech restrictions concerning the DOD newspapers. Pursuant to that doctrine, he explained, because the publication constitutes the government's own speech, the military \"may exercise viewpoint-based editorial control in running [it],\" and could reject not only political advertisements as a category, but also political advertisements conveying a particular message that the military opposes.\nJudge Kavanaugh also suggested an alternative analytical approach in a case involving a First Amendment challenge to a D.C. law prohibiting the defacement of public and private property. The panel rejected an anti-abortion protester's argument that the law unconstitutionally prohibited him from writing messages in sidewalk chalk on the street in front of the White House. Although Judge Kavanaugh agreed with the majority's analysis and resolution of the First Amendment issue under the public forum doctrine, he authored a separate concurrence \"simply because [he did] not want the fog of First Amendment doctrine to make this case seem harder than it is.\" In his view, \"[n]o one has a First Amendment right to deface government property.\"", "Although by no means unfailing indicators of how Judge Kavanaugh will approach future cases, some broad observations emerge from his free speech jurisprudence. First, Judge Kavanaugh has generally recognized political spending as a form of protected speech and has noted where the Court's election law jurisprudence has resulted in speaker-based distinctions, raising questions as to whether he would maintain those dividing lines. Second, Judge Kavanaugh has applied bedrock First Amendment principles to new forms of media and appears to have viewed regulations of the communications industry—where speech is the product offering—as particularly suspect under the First Amendment. Third, in a case concerning \"country-of-origin\" labeling requirements, Judge Kavanaugh staked a middle ground in the ongoing debate over the proper test to apply to commercial disclosures. Fourth, like Justice Kennedy, Judge Kavanaugh has recognized limitations on the First Amendment's reach. In particular, he has upheld government actions in cases that he deemed to involve unprotected speech or government speech.", "Because of the unique docket at the D.C. Circuit, which has exclusive jurisdiction over certain matters related to military commissions and law of war detention, Judge Kavanaugh has authored or joined a large body of opinions related to national security. Like the themes echoed in several of Justice Kennedy's opinions, the nominee has frequently argued for courts to defer to the authority of the political branches on national security matters. To Judge Kavanaugh, this deference arises from concerns that the judicial branch lacks the institutional competency to address national security and foreign policy debates in the absence of a statutory directive. At the same time, the nominee's deference has limits, as he holds the view that deference is not warranted when a governing statute or constitutional provision calls for a judicial role. Judge Kavanaugh appears less likely than Justice Kennedy to look to international law principles to inform his interpretation of a particular statute or constitutional provision in the absence of an express directive to do so. In addition to his judicial rulings on national security matters, Judge Kavanaugh's non-judicial writings express a special interest in analyzing the constitutional limits on the Executive's power to take the United States to war abroad without congressional authorization, a matter that has not received significant attention from the Supreme Court in the modern era.\nParallels between Justice Kennedy's and Judge Kavanaugh's deference to the political branches are evident in their approach to cases concerning implied constitutional causes of action in the national security realm. In his opinion for the Supreme Court in Ziglar v. Abbasi , Justice Kennedy reasoned that judicial recognition of an implied cause of action—allowing certain individuals who had been detained in the aftermath of the September 11, 2001 attacks to sue the government for monetary damages—would raise separation-of-powers concerns by requiring \"judicial inquiry into the national-security realm.\" In Meshal v. Higgenbotham , Judge Kavanaugh similarly declined to recognize an implied constitutional cause of action for monetary damages arising out of the alleged torture and detention of an American citizen during U.S. anti-terrorism operations in Africa. In a passage echoing Ziglar , the nominee wrote in an opinion concurring in dismissal of the suit that it is Congress, not the judicial branch, that \"decides whether to recognize a cause of action against U.S. officials for torts they allegedly committed abroad in connection with the war against al Qaeda and other radical Islamic terrorist organizations.\"\nJudge Kavanaugh has been vocally deferential to the political branches when evaluating national security-related matters that he considered to concern policy choices rather than legal disputes. In al Bahlul v. United States —an en banc case concerning the scope of military commissions' jurisdiction—three dissenting judges argued that the government did not demonstrate that military exigency required the United States to try a defendant in a military commission, rather than in a court convened pursuant to the judicial authority established under Article III. Judge Kavanaugh responded, stating that the dissenting judges had \"no business\" evaluating military exigency because they had \"no relevant expertise on the question of wartime strategy.\" The nominee has also opined that courts should not second-guess the judgment of the executive branch in other national security-related matters, such as security clearance decisions or when evaluating how a foreign country is likely to treat a U.S. detainee slated for transfer overseas. Similarly, in a dissenting opinion in an Alien Tort Statute suit against Exxon Mobil involving the Indonesian army, Judge Kavanaugh argued, among other reasons, that because the Department of State submitted a letter explaining that the case could adversely affect U.S. foreign relations and joint terrorism efforts, the suit should be dismissed.\nKlayman v. Obama serves as another example that Judge Kavanaugh may be deferential to national security concerns when evaluating challenges to government action. In an opinion concurring in the denial of rehearing en banc, Judge Kavanaugh wrote that the intelligence community's \"bulk collection of telephony metadata serves a critically important special need—preventing terrorist attacks on the United States.\" In Judge Kavanaugh's view, this national security need outweighed competing privacy concerns. And, in a passage echoing his deference toward the political branches, the nominee concluded that those with concerns about the metadata program should focus their efforts on Congress and the Executive.\nBut Judge Kavanaugh also has expressed the view that federal courts should play a role in some national security-related cases, particularly when the Executive purports to possess the power to deviate from a statutory or express constitutional restriction. \"[P]residents must and do follow the statutes regulating the war effort[,]\" Judge Kavanaugh wrote in 2016 article in the Marquette Lawyer . And, the nominee noted in the same article, that \"in cases where someone has standing—a detainee, a torture victim, [or] someone who has been surveilled—the courts will be involved in policing the executive's use of wartime authority.\" Although federal courts should not create new rules to regulate the Executive's war powers, Judge Kavanaugh similarly wrote in a 2014 law review article, courts also should not \"relax the constitutional principles or statutes that regulate the executive,\" even during the high stakes of military conflict. For example, in a 2016 speech following the death of Justice Scalia, Judge Kavanaugh expressed support for Justice Scalia's dissenting opinion in Hamdi v. Rumsf el d , which argued that courts should strictly enforce the Suspension Clause in cases challenging military detention of American citizens.\nThe case of El-Shifa Pharmaceutical Industries Co. v. United States may illustrate how Judge Kavanaugh's views expressed outside the courtroom concerning the role of the judicial branch in national security cases apply in practice. In El-Shifa , Judge Kavanaugh disagreed with the en banc D.C. Circuit's reliance on the political question doctrine as a basis to dismiss claims against the United States arising from the 1998 U.S. bombing of a Sudanese pharmaceutical factory believed to be associated with Al-Qaeda. While Judge Kavanaugh concluded that the case should be dismissed for failure to state an actionable claim, he argued that the court's reliance on the political question doctrine amounted to de facto approval of the Executive's assertion of military authority in a case in which it was the court's responsibility to address the substance of the claims. Presaging the Supreme Court's later ruling in Zivotofsky v. Clinton , Judge Kavanaugh reasoned that the political question doctrine does not require federal courts to decline to resolve a case \"simply because the dispute involves or would affect national security or foreign relations.\" Accordingly, as a jurisdictional matter, Judge Kavanaugh appears skeptical of the view that courts do not have a role in cases solely based on the fact that the dispute raises national security concerns.\nOne of Judge Kavanaugh's most comprehensive bodies of national security-related jurisprudence, and one that may provide contrast between him and the jurist he may succeed, concerns the detention of enemy belligerents. Whereas Justice Kennedy was instrumental in the Supreme Court's ruling that the constitutional writ of habeas extended to foreign nationals held at Guantanamo Bay, Judge Kavanaugh ruled against detainees in a number of cases concerning the evidentiary rules that apply when adjudicating such habeas cases. Judge Kavanaugh frequently authored or joined panel opinions that concluded the government had presented sufficient evidence that a Guantanamo detainee was \"part of\" Al-Qaeda and its associated forces, and therefore subject to military detention. In Ali v. Obama , for example, Judge Kavanaugh's opinion for the court explained that the standard of proof to uphold military detention may be less rigorous than the standard in criminal prosecutions because—even in \"a long war with no end in sight\"—military detention \"comes to an end with the end of hostilities.\"\nOne issue in which Justice Kennedy and Judge Kavanaugh appear likely to diverge is the extent that international law may inform judicial decisionmaking. In 2004, Justice Kennedy joined a four-Justice plurality concluding that \"longstanding law-of-war principles\" that arise under international law informed the interpretation of the phrase \"necessary and appropriate force\" in the 2001 Authorization for the Use of Military Force (2001 AUMF) . And in a concurring opinion in Hamdan v. Rumsfeld , Justice Kennedy wrote that, under the Uniform Code of Military Justice, Common Article 3 of the 1949 Geneva Conventions was \"applicable to our Nation's armed conflict with al Qaeda in Afghanistan and, as a result, to the use of a military commission.\" Justice Kennedy also occasionally considered international law in his opinions outside the national security context.\nJudge Kavanaugh, by contrast, at times has been critical of arguments that international legal principles should influence judicial analysis in the absence of a clear statutory reference. In a 2010 concurring opinion in Al-Bihani v. Obama , Judge Kavanaugh expressed the view that the 2001 AUMF did not incorporate judicially enforceable international law limits on the President's wartime authority. \"Many international-law norms are vague, contested or still evolving[,]\" Judge Kavanaugh wrote in Al-Bihani . While federal courts historically have construed federal statutes to avoid conflicts with international law, Judge Kavanaugh argued that constitutional principles and 20th century judicial developments make such a rule of construction inappropriate in some cases. Judge Kavanaugh expressed similar views in his 2016 concurring opinion in a l Bahlul where he stated that federal courts are not \"roving enforcers of international law[,]\" and they are not permitted to \"smuggle international law into the U.S. Constitution and then wield it as a club against Congress and the President in wartime.\"\nAt the same time, Judge Kavanaugh has not been exclusively critical of international law. In his 2016 a l Bahlul opinion, he described international law as \"important\" and stated that \"the political branches have good reason to adhere\" to it. Moreover, when governing statutes or regulations expressly incorporated international law into U.S. domestic law, Judge Kavanaugh interpreted and enforced international legal principles. For example, Judge Kavanaugh joined an opinion concluding that an applicable U.S. Army Regulation incorporated international legal protections afforded to medical personnel on the battlefield —although the court ultimately concluded that those protections did not apply under the facts of the case. And in a 2012 decision, Judge Kavanaugh analyzed whether international law recognized certain criminal offenses for which a defendant was convicted in a military commission because, in that case, Congress \" explicitly incorporated international norms into domestic U.S. law.\"\nFinally, in several academic publications, Judge Kavanaugh explored what he believes to be one of the most important questions in American constitutional law: whether the president has the power to take the United States into war overseas without congressional authorization. Judge Kavanaugh described the Constitution's war-making power as shared between the legislative and executive branches. In the realm of congressional power, according to Judge Kavanaugh, the legislative branch has broad authority to control whether the United States wages war and to regulate some aspects of how the Executive conducts military operations, such as surveillance, detention, interrogation, and military commissions. In the field of executive power, Judge Kavanaugh noted that Article II makes the President Commander in Chief of the Armed Forces. But, according to the nominee, it is difficult to determine the extent to which the President's war powers are \"exclusive and preclusive\"—meaning they cannot be regulated by Congress. Other than the power to command troops on the battlefield during a congressionally authorized war, Judge Kavanaugh has stated that the scope of the President's preclusive war powers are unsettled —although he did suggest in dicta that a statute regulating the President's \"short-term bombing of foreign targets in the Nation's self-defense\" may not survive constitutional scrutiny. Ultimately, Judge Kavanaugh appears to believe that constitutional questions concerning war and national security will continue to be the subject of \"heated debate,\" and that all three branches of government will play a role in resolving them.", "The Roberts Court has been closely divided when interpreting the Second Amendment, and Justice Kennedy's replacement will likely play an important role going forward in shaping the jurisprudence governing the scope of the Second Amendment's right to keep and bear arms. Justice Kennedy provided key deciding votes in the two landmark Second Amendment rulings of the Roberts Court. First, in 2008, he joined the five-Justice majority in District of Columbia v. Heller ( Heller I ), which held for the first time that the Second Amendment protects an individual's right to possess a firearm. Then in 2010, he joined another 5-4 majority in McDonald v. City of Chicago , which held that the Second Amendment is applicable to the states via the Fourteenth Amendment. Neither Heller I nor McDonald purported to define the full scope of the right protected by the Second Amendment, although the Court cautioned that \"the right secured by the Second Amendment is not unlimited.\" And the Court has issued virtually no opinions meaningfully interpreting the Second Amendment since McDonald . Accordingly, in the wake of Heller I , the various federal circuit courts have examined the contours of the Second Amendment with little guidance from the High Court, requiring the lower courts to identify the appropriate standard of review for federal and state firearm restrictions. And Judge Kavanaugh undertook this task a year after McDonald was decided in Heller II , in which he authored a notable dissent construing and applying Heller I differently from the prevailing method that other federal district and circuit courts use.\nHeller II assessed whether the District of Columbia's Firearms Registration Amendment Act (FRA) comported with the Second Amendment. In particular, Heller II evaluated three of the FRA's provisions: (1) its firearm registration requirement; (2) its prohibition on the possession of certain semi-automatic rifles that fell within the FRA's definition of \"assault weapons\"; and (3) its prohibition on the possession of large-capacity magazines with a capacity for more than ten rounds of ammunition. In a 2-1 ruling over Judge Kavanaugh's dissent, the D.C. Circuit largely upheld the challenged FRA provisions. The majority began by applying the two-step framework that has been employed by nearly all federal circuit courts that have considered Second Amendment challenges post- Heller I , first asking whether the provisions implicate a right protected by the Second Amendment, and, if so, second, analyzing the provisions under the appropriate level of judicial scrutiny (e.g., rational basis review, intermediate scrutiny, or strict scrutiny). Ultimately, the D.C. Circuit generally upheld the challenged requirements. While remanding the case to review several specific registration requirements, the court concluded that the general requirement that a gun be registered with the government fell within the category of \"longstanding prohibitions\" on the possession and use of firearms that the Supreme Court considered to be \"presumptively lawful regulatory measures\" that do not garner Second Amendment protection. Further, the court concluded that the ban on semi-automatic rifles and large-capacity magazines withstood intermediate scrutiny and, thus, were lawful because the government had shown a reasonable fit between the prohibitions and its interests in protecting police officers and controlling crime.\nIn his dissent, Judge Kavanaugh wrote at length about the meaning and import of the High Court's decision in Heller I , opining that:\nHeller , while enormously significant jurisprudentially, was not revolutionary in terms of its immediate real-world effects on American gun regulation. Indeed, Heller largely preserved the status quo of gun regulation in the United States. Heller established that traditional and common gun laws in the United States remain constitutionally permissible. The Supreme Court simply pushed back against an outlier local law—D.C's handgun ban—that went far beyond the traditional line of gun regulation.\nAnd, in Judge Kavanaugh's view, the FRA—like the District of Columbia's handgun ban that came before it—is an \"outlier\" and thus unconstitutional under Heller I . He reasoned that the FRA provisions are outliers because they are not common or traditional firearm laws: \"As with D.C.'s handgun ban [struck down in Heller I ], . . . holding these D.C. laws unconstitutional would not lead to nationwide tumult. Rather, such a holding would maintain the balance historically and traditionally struck in the United States between public safety and the individual right to keep arms . . . .\"\nNotably, unlike the Heller II majority and several other federal circuit courts, Judge Kavanaugh proposed, in line with his general skepticism of balancing tests, that firearm laws should be evaluated not according to a particular level of scrutiny but, rather, \"based on the Second Amendment's text, history, and tradition (as well as by appropriate analogues thereto when dealing with modern weapons and new circumstances).\" While the nominee acknowledged that Heller I did not direct lower courts as to the appropriate analytical framework for analyzing Second Amendment claims, he concluded that \"look[ing] to text, history, and tradition to define the scope of the right and assess gun bans and regulations\" is the \"clear message\" from Heller I because the Supreme Court had gauged firearms laws according to \"historical tradition,\" including whether a measure is \"longstanding\" or regulates weapons that \"citizens typically possess\" and that are \"in common use.\" Further, he contended that the Heller I majority rejected \"judicial interest balancing,\" which, in his view, includes strict or intermediate scrutiny, to assess whether a government restriction on firearms is permissible.\nApplying this analysis in his Heller II dissent, Judge Kavanaugh would have invalidated two of the three challenged FRA provisions. With respect to the FRA's gun registration law, the nominee maintained that the \"fundamental problem\" with the law was that—in contrast to gun licensing and recordkeeping laws—gun registration requirements were \"not 'longstanding,'\" in that registration of lawfully possessed guns \"has not been traditionally required in the United States and, indeed, remains highly unusual today.\" In arguing for striking down the District of Columbia's ban on semi-automatic rifles that fell within the FRA's definition of \"assault weapons,\" the nominee maintained that semi-automatic rifles are \"traditionally and widely accepted as lawful possessions.\" And with respect to the FRA's prohibition on the possession of large-capacity magazines, the nominee would have remanded the case to the lower court to determine whether large-capacity magazines have traditionally been banned and are not in common use.\nAs the nominee's writings on the Second Amendment reveal, adding Judge Kavanaugh to the Supreme Court's bench could shape the way that Second Amendment claims are evaluated, which, in turn, could potentially affect the legality of firearm legislation at the federal, state, and local levels. For instance, were the Supreme Court to adopt Judge Kavanaugh's history and tradition test for evaluating the scope of the Second Amendment—an approach that differs from the prevailing two-step approach adopted by nearly all federal circuit courts —it is possible that renewed challenges will be raised to some firearms laws that were upheld under the previous two-step approach. That said, it is still possible that a court would reach the same result regarding a firearm law's permissibility under Judge Kavanaugh's suggested methodology as under the earlier approach. Moreover, as the nominee noted in Heller II , government bodies may have more flexibility under his proposed method of analysis than under the strict scrutiny test used at times by some circuit courts because \"history and tradition show that a variety of gun regulations have co-existed with the Second Amendment right and are consistent with that right, as the Court said in Heller [I] .\"\nJudge Kavanaugh's disagreement with how the lower courts have generally interpreted the Second Amendment has prompted some commentators to argue that the nominee would necessarily vote in favor of granting a petition for certiorari in a case involving the Second Amendment. While the decision to grant certiorari generally does not hinge on a Justice's mere agreement or disagreement with a lower court's opinion, it is certainly possible that a new Justice could result in changes to the Court's docket, including with respect to Second Amendment cases. Since Heller I , the Supreme Court has reviewed two Second Amendment challenges: first, two years after Heller I in McDonald v. City of Chicago , and then six years after that in Caetano v. Massachusetts .\nIn Caetano , the Court, without ordering merits briefing or oral argument, issued a short per curiam opinion vacating the decision of the Massachusetts Supreme Court that had upheld a state law prohibiting the possession of stun guns. However, the two-page Caetano opinion principally opined that the state court opinion directly conflicted with Heller I , without engaging in a comprehensive analysis and offering little clarification on the Court's Second Amendment jurisprudence. Since Caetano , the Supreme Court has not granted a petition for certiorari in any Second Amendment matter. During this period, though, Justices Thomas and Gorsuch have dissented from the denial of certiorari in cases raising Second Amendment claims. Because only four Justices are needed for the Court to grant certiorari, and with a number of potentially important Second Amendment cases percolating in the lower courts, Judge Kavanaugh, if confirmed, could play an important role in deciding whether the Supreme Court adds another Second Amendment case to its docket.", "Separation of powers—that is, the law governing the allocation of power among the three branches of the federal government—is perhaps the most critical area of law in understanding Judge Kavanaugh's jurisprudence. Indeed, the nominee views the doctrine of separation of powers as fundamental to every aspect of adjudication, having noted that, from his perspective, \"every case is a separation of powers case.\" Separation of powers was also an important issue for the Justice whom Judge Kavanaugh may succeed, Justice Kennedy. Like most of his fellow Justices, Justice Kennedy viewed the separation of powers as a fundamental aspect of the American constitutional system. Nonetheless, Justice Kennedy did not adopt one particular approach in separation-of-powers cases. As he was on so many other issues, Justice Kennedy was seen as a centrist of separation of powers, embracing in different cases both functional and formal analyses when providing the deciding vote in the Court's most recent decisions on the Constitution's allocation of powers among the federal branches.\nLike Justice Kennedy, Judge Kavanaugh views the separation of powers as \"not simply [a] matter[] of etiquette or architecture,\" but as an essential and foundational aspect of the American constitutional system that serves primarily to protect the public from governmental abuse. His general approach is arguably formalist, placing significant emphasis on the text and history of those provisions of the Constitution that establish the \"blueprint\" for the fundamental design of the federal government and readily implementing the boundaries that he interprets to flow from those provisions. As such, Judge Kavanaugh stresses both the importance of the separation of powers itself and the necessity of the judiciary's role in enforcing the Framers' clear structural choices.\nPerhaps because of the significance he attaches to the doctrine, for Judge Kavanaugh, the separation of powers is the lens through which he approaches a wide variety of controversies, including cases relating to standing, administrative law, appropriations law, national security law, war powers, and others. Many of these aspects of Judge Kavanaugh's jurisprudence are addressed in other parts of this report and will not be discussed here. Instead, this section focuses on his general theory of the domestic separation of powers and how it shapes his views on specific topics such as the judiciary's role in checking violations of the doctrine; the President's obligation to comply with and enforce the law; legislative and executive immunity; executive privilege; requiring the President to comply with a subpoena; and the structural design of administrative agencies.", "As opposed to Justice Kennedy, who did not necessarily adhere to a uniform approach in separation-of-powers cases, Judge Kavanaugh appears to have a distinct doctrinal approach to implementing and enforcing the Constitution's balance of power between Congress, the courts, and the President. While some commentators have described Judge Kavanaugh's general separation-of-powers theory as one that is generally predisposed to a strong Executive, especially in cases that pit the executive branch against the legislative branch, it is does not appear that a desire for a powerful Executive necessarily drives the nominee's views. To be sure, Judge Kavanaugh has acknowledged that his views of the separation of powers, and executive power specifically, have been informed by his various experiences as an executive branch lawyer. And there are certainly areas, discussed in more detail below, in which Judge Kavanaugh has written separately to articulate a position that favors executive power, at times at the expense of congressional authority. In other instances, however, Judge Kavanaugh has written separately in order to express a position that would tend to favor Congress, at times at the expense of executive power.\nInstead of being solely guided by a preference toward the power of a particular branch, Judge Kavanaugh's views on the separation of powers appear to be more complex and nuanced. The nominee's opinions suggest a basic mode of interpretation in separation-of-powers cases that focuses primarily on the constitutional text and its original understanding. If the text is ambiguous, as it is in most aspects of the separation of powers, Judge Kavanaugh regularly turns to historical practice to inform the meaning of the Constitution's structural provisions. Because of this \"history-focused approach,\" Judge Kavanaugh has generally viewed laws and actions that have few or no historical analogues as suspect.\nBeyond this initial interpretive framework, there appears to be a trio of conceptual principles that not only influence, but define Judge Kavanaugh's approach to the separation of powers: liberty, accountability, and governmental effectiveness. As discussed in more detail below, these three principles have consistently acted as a frame for his analyses and guided him in his ultimate conclusion in separation-of-powers cases.\nLiberty. Judge Kavanaugh's enforcement of separation-of-powers boundaries does not appear to be grounded in preserving a specific allocation of authority among the branches. Instead, his emphasis on policing transgressions from the constitutional scheme is a product of his concern over the protection of individual rights. The Framers made specific structural choices out of fear that an accumulation of power in any single branch would pose a threat to individual freedoms through governmental abuse. Accordingly, the starting and ending point of Judge Kavanaugh's view of separation-of-powers analysis is consistently focused on enforcing the structural provisions of the Constitution in order to protect individual liberty. Moreover, he has described \"the liberty protected by the separation of powers\" as \"primarily freedom from government oppression, in particular from the effects of legislation that would unfairly prohibit or mandate certain action by individual citizens, backed by punishment.\" As a result of his focus on coercive action, his separation-of-powers concerns are most acute in cases involving governmental imposition and enforcement of law or regulations upon private entities.\nAccountability. Liberty, in Judge Kavanaugh's view, goes hand in hand with accountability. \"Our constitutional structure is premised,\" Judge Kavanaugh has written, \"on the notion that . . . unaccountable power is inconsistent with individual liberty.\" This accountability rationale is most apparent in Judge Kavanaugh's discussion of the executive branch structure, where the Constitution ensures, in the nominee's view, that the executive power be wielded by the President, and the President alone, because he is accountable to the voters. This accountability-rationale forms the foundation for Judge Kavanaugh's conclusion that the President must be able to supervise and direct those subordinate officials who exercise executive power. As a result, the nominee has viewed laws that seek to excessively insulate a government official from presidential control as a threat to democratic accountability and inconsistent with the structural separation of powers. For instance, he concluded that a \"single-Director independent agency,\" such as the CFPB, lies \"outside\" of constitutional norms in part because such an agency head \"is not elected by the people and is . . . not remotely comparable to the President in terms of accountability.\"\nEffectiveness. Judge Kavanaugh's view of the separation of powers does not necessarily appear to seek to preserve liberty and ensure accountability at the expense of a workable government. Instead, Judge Kavanaugh has reasoned that the Constitution's structural provisions were intended to preserve \"effective\" government. For example, the Founders choice of a single, unitary head of the Executive was intended, in the nominee's view, to \"enhance[] efficiency and energy in the administration of the government.\" The legislative branch, on the other hand, was intended, according to Judge Kavanaugh, to be effective, but not necessarily efficient, as the legislative process was \"designed to be difficult\" in order to \"protect individual liberty and guard against the whim of majority rule.\" For example, it is the principle of effectiveness that appears to animate Judge Kavanaugh's view that legal immunity for government officials protects effectiveness by limiting the distractions of litigation.", "Judge Kavanaugh's opinions and academic writings appear to support a robust role for judges in enforcing the separation of powers. As noted elsewhere in this report, Judge Kavanaugh has suggested that judges should, and indeed are required as part of their judicial duty, to take an active role in interpreting statutory delegations of authority to federal agencies, rather than deferring to the agency's view. That conception of the role of the judge extends to enforcing the structural separation of powers, where the nominee has said that deferring to Congress's or the President's views of the Constitution would be to \"abdicate to the political branches\" a \"constitutional responsibility assigned to the judiciary.\" Judge Kavanaugh's view of the judiciary's role in the separation of powers is reflected in his concurring opinion in El-Shifa Pharmaceutical Industries v. United States . The en banc majority opinion in El-Shifa affirmed a district court opinion holding that the political question doctrine barred a claim under the Federal Tort Claims Act by a Sudanese pharmaceutical company whose plant had been destroyed by an American missile strike. Judge Kavanaugh wrote separately to establish his position that the political question doctrine has never, and should not be, applied to avoid judicial review when the claim is for violation of a statute, rather than violation of the Constitution. In reaching that decision, Judge Kavanaugh relied on the practical effect of an extension of the political question doctrine to statutes that regulate executive conduct, noting that dismissal in such cases would amount to an implicit holding \"that the statute intrudes impermissibly on the Executive's prerogatives.\" Such an approach, he wrote, would \"systematically favor the Executive branch over the Legislative Branch.\" Instead, Judge Kavanaugh concluded that such \"[w]eighty\" separation-of-powers questions \"must be confronted directly through careful analysis of Article II—not answered by backdoor use of the political question doctrine, which may sub silentio expand executive power in an indirect, haphazard, and unprincipled manner.\"\nJudge Kavanaugh's separate opinion in Sissel v. HHS is instructive for both his general approach to the separation of powers and his views on the judicial role in enforcing the doctrine. In Sissel , Judge Kavanaugh dissented from a denial of rehearing en banc in a case asserting that certain ACA provisions requiring individuals lacking health insurance coverage to pay a penalty were grounded in an amendment introduced in the Senate and therefore violated the Origination Clause, which provides that \"All Bills for raising revenue shall originate in the House of Representatives.\" The panel opinion concluded that whether a law is subject to the Origination Clause depends on the primary purpose of that bill. According to the panel, the ACA was not a revenue raising bill because its purpose was to \"spur conduct, not to raise revenue\" and, therefore, did not have to originate in the House. Judge Kavanaugh agreed with the panel's ultimate holding that the law did not violate the Origination Clause, but not its rationale. In an analysis that reflects his traditional separation-of-powers analysis—namely a focus on text, history, and personal liberty—Judge Kavanaugh instead concluded that the ACA was, in fact, a revenue raising bill that originated in the House. While it was true that the Senate had replaced the original House language, Judge Kavanaugh reasoned that such Senate alterations to House language were \"permissible\" under the Clause's text and history. Judge Kavanaugh took exception to the panel's purpose-focused, functionalist approach, arguing that it threatened the efficacy of a constitutional provision that was an \"integral part of the Framers' blueprint for protecting people from excessive federal taxation.\" The Framers, Judge Kavanaugh argued, had deliberately divided power among the House and Senate, much as they had divided power among the branches, in order to \"avoid the dangers of concentrated power and thereby protect individual liberty.\" By providing the House with the \"exclusive\" power to originate tax bills, the Framers adopted a structural safeguard designed to protect against the \"dangers inherent in the power to tax.\" The panel decision, Judge Kavanaugh opined, had adopted a mode of reasoning that would \"blow\" open a \"giant new exemption from the Origination Clause\" that would functionally eliminate the judiciary's role in policing adherence to that Clause. In justifying judicial intervention, Judge Kavanaugh wrote that \"the Judiciary has long played a critical role in preserving the structural compromises and choices embedded in the constitutional text.\" That role is the same whether a court is asked to enforce structural separation among the branches, or wholly within a branch. \"It is not acceptable,\" argued Judge Kavanaugh, \"for courts to outsource preservation of the constitutional structure to the political branches.\"", "The opinion that perhaps sheds some of the greatest light on Judge Kavanaugh's view of the scope of executive power vis-à-vis Congress is an opinion involving appropriations for nuclear waste disposal. In a portion of a 2013 ruling, In re Aiken County , Judge Kavanaugh staked out a position on a relatively unsettled area of the law: namely, the nature of the obligation the Take Care Clause imposes on the executive branch to follow and enforce federal law. The Take Care Clause, and its relationship to the President's general Article II powers, has been the subject of significant legal debate. Judge Kavanaugh's position in that case, which is generally consistent with the position expressed by the executive branch, would appear to provide the President with some, but not complete flexibility in how he approaches the execution of federal statutes.\nIn re Aiken County concerned whether the Nuclear Regulatory Commission (NRC) was required to act on the Department of Energy's license application for a nuclear waste depository at Yucca Mountain, despite the fact that adequate appropriations were not available to complete that review. Writing for the court, Judge Kavanaugh determined that the NRC had a statutory obligation to review the license, could not simply disregard the law, and, therefore, must expend available, if insufficient, funds on that task. However, having found that the NRC's inaction violated the agency's general obligation to comply with the law, Judge Kavanaugh nevertheless addressed a pair of tangential constitutional principles that—when applicable—could permit the executive branch to \"decline to act in the face of a clear statute.\" His opinion acknowledged at the outset that neither principle applied to the case at hand, and indeed a concurring judge found the discussion to be \"unnecessary.\" Judge Kavanaugh nevertheless proceeded to address what he viewed as \"settled, bedrock principles of constitutional law.\"\nFirst, Judge Kavanaugh addressed the President's authority to disregard a statutory provision the President views as unconstitutional. While each branch may independently interpret the Constitution, and Presidents have long claimed the authority to disregard laws they determine to be unconstitutional, the Supreme Court has not established clear principles to govern whether the President may unilaterally declare that a statute may be disregarded. Judge Kavanaugh's opinion concluded that the President has such authority, writing that \"[i]f the President has a constitutional objection to a statutory mandate or prohibition, the President may decline to follow the law unless and until a final Court order dictates otherwise.\" Consistent with his history-focused approach to the separation of powers, Judge Kavanaugh claimed that Presidents have \"routinely exercise[d]\" such a power. The President may, he reasoned, implement a determination of unconstitutionality by directing his subordinates not to follow the law \"unless and until a final Court decision in a justiciable case says that a statutory mandate or prohibition on the executive branch is constitutional.\" This view would appear to set a default position that favors the President's determinations over the constitutionality of a law over those of Congress, given that the President's determination controls until an explicit court ruling rejects that position. It could be taken to imply that even when existing Supreme Court precedent suggests a conclusion that runs counter to the President's determination, the President may still be authorized to disregard a law he views as unconstitutional until a court directly rules on his claim. Because, by not implementing a law, a President may make it less likely that a \"case or controversy\" will arise upon which a court could ultimately rule, this view of nonenforcement may necessarily enhance the executive's constitutional views.\nSecond, Judge Kavanaugh addressed the \"very controversial\" topic of prosecutorial discretion. The doctrine of prosecutorial discretion provides the President and executive branch officials with leeway in deciding when, and at times whether, to enforce federal laws that place obligations on the general public. Kavanaugh's Aiken County opinion views this discretion as arising from the President's authority under Article II, and perhaps primarily, from the power to pardon. His opinion articulated broad presidential discretion in determining whether to initiate the enforcement of specific laws, noting that enforcement decisions can be based \"on the President's own constitutional concerns about a law or because of policy objections to the law, among other reasons.\" Judge Kavanaugh's view on prosecutorial discretion appears to have also been informed by his fidelity to individual liberty principles. \"One of the greatest unilateral powers a president possesses,\" wrote Judge Kavanaugh, \"is the power to protect individual liberty by essentially under-enforcing federal statutes regulating prior behavior… .\"\nJudge Kavanaugh maintained, however, that prosecutorial discretion has its limits, especially with regard to laws that do not require the executive branch to enforce legal mandates on the public. The doctrine does not, for example, \"encompass the discretion not to follow a law imposing a mandate or prohibition on the Executive Branch,\" for example a statutory requirement that an agency issue a rule or administer a program. Such mandates, as a general rule, must be followed unless, in Judge Kavanaugh's view, the President has a constitutional objection.\nJudge Kavanaugh's views on prosecutorial discretion appear to have evolved between his 2013 Aiken County opinion and a 2016 article in the Marquette Lawyer . In discussing prosecutorial discretion in 2015, he again relied on the scope of the pardon power as informative, questioning \"What sense does it make to force the executive to prosecute someone, only then to be able to turn around and pardon everyone?\" However, he went on to evidently backtrack from his 2013 statement that the President's discretion in the enforcement of law was a \"settled, bedrock principle of constitutional law\" and instead described experiences over recent years as showing that the appropriate scope of prosecutorial discretion \"is far from settled, either legally or politically.\" He then wrote:\nI will admit that I used to think that I had a good answer to this issue of prosecutorial discretion: that the president's power of prosecutorial discretion was broad and matched the power to pardon. But I will confess that I'm not certain about the entire issue as I sit here today. And I know I'm not alone in my uncertainty.\nAs such, it would appear that Judge Kavanaugh's views on the scope of the President's power of prosecutorial discretion may not be fully settled.", "Judge Kavanaugh's views on maintaining an effective government, both in the legislative and executive branches, appear to have informed his views on when Members of Congress and the President may be subject to civil and criminal litigation. Congress's immunity stems from the Speech or Debate Clause, which provides that \"for any Speech or Debate in either House\" a Member \"shall not be questioned in any other Place.\" The Speech or Debate Clause has generally been interpreted as providing Members with both civil and criminal immunity for \"legislative acts.\" The Supreme Court has described the privilege as being essential to the separation of powers as it ensures that Members have \"wide freedom of speech, debate, and deliberation without intimidation or threats from the Executive Branch.\" Presidential immunity, on the other hand, is not explicitly provided for in the Constitution. Instead, it has been asserted by some to be implicit in Article II and consistent with the separation of powers. For example, the DOJ Office of Legal Counsel has previously concluded that the criminal indictment or prosecution of a sitting President would \"impermissibly interfere with the President's ability to carry out his constitutionally assigned functions.\" That conclusion was based on a variety of factors, including the \"burdens\" and \"stigma\" that would be associated with criminal proceedings against a President. While the Supreme Court has previously held that a sitting President enjoys immunity from civil claims for damages predicated on an official act, but is not immune while in office from civil suits for unofficial misconduct, it has not addressed the question of whether a sitting President can be investigated, indicted, or prosecuted for criminal wrongdoing.\nLegislative Immunity. Judge Kavanaugh has twice written separately in order to offer a broader conception of legislative immunity under the Speech or Debate Clause than supported by existing D.C. Circuit precedent. In In re Grand Jury Subpoena , the panel held that the Clause prevents a Member from being required to respond to a grand jury subpoena relating to testimony the Member provided during a disciplinary investigation by a congressional ethics committee, so long as that testimony related to official conduct. Judge Kavanaugh filed a concurring opinion in which he articulated his concerns that the panel, and previous D.C. Circuit precedent, had effectively \"watered down\" Speech or Debate Clause protections for Members by drawing an ambiguous distinction between statements relating to official and personal conduct. The nominee maintained that any statement made by a Member \"to a congressional ethics committee is speech in an official congressional proceeding and thus falls within the protection of the clause.\" In so doing, Judge Kavanaugh relied principally on the plain text of the Speech or Debate Clause, writing that the panel opinion \"does not square with the text of the Constitution, which gives absolute protection to 'any speech' by a Member in an official congressional proceeding.\"\nJudge Kavanaugh has also stressed that the Clause protects not only legislative independence from the executive branch, but also from the courts in the form of court ordered disclosures. For example, in Howard v. Office of the Chief Administrative Officer of the House of Representatives , Judge Kavanaugh dissented from a holding that the Speech or Debate Clause did not prevent a congressional employee from pursuing an employment discrimination claim against a congressional office under the Congressional Accountability Act, even when the congressional employer asserts that the reason for the employee's termination or demotion related to \"legislative activity.\" Under the majority's reasoning in Howard , an employee may still proceed with his or her claim and attempt to prove that the employer's stated reason was actually pretext by \"using evidence that does not implicate protected legislative matters.\" Judge Kavanaugh disagreed, again adopting a broader view of the protections afforded by the Speech or Debate Clause by reasoning that the majority's holding would \"necessarily [] require congressional employers to either produce evidence of legislative activities or risk liability.\" The Speech or Debate Clause, he articulated, prevents Members and congressional employers from being \"put to this kind of choice by an Article III federal court.\"\nPresidential Immunity . Judge Kavanaugh has not heard any case or written any opinion on the extent to which the Constitution provides a sitting President with immunity from criminal investigation, indictment, or prosecution. He has however, addressed the topic in his academic writings, where he has acknowledged that his views on the topic are informed by his unique personal experiences both investigating a President in Independent Counsel Kenneth Starr's office and advising a President as a White House attorney. Two academic articles—one published in 1998 and the other from 2009—suggest that Judge Kavanaugh believes that a sitting President should, as a policy matter, be accorded both civil and criminal immunity by Congress, and perhaps, that the criminal prosecution of a sitting President is prohibited by the Constitution.\nThe more recent publication, a 2009 Minnesota Law Review article, made a series of legislative proposals to create a \"more effective and efficient federal government.\" One of those proposals recommended that Congress enact a law providing that all civil suits, criminal prosecutions, and criminal investigations involving a sitting President be deferred until the President has left office. His rationale for the proposal was based principally on governmental effectiveness. \"The indictment and trial of a sitting President\" Judge Kavanaugh asserted, \"would cripple the federal government, rendering it unable to function with credibility.\" Judge Kavanaugh also noted the unwanted burdens and distractions associated with mere investigations of the President, writing that the \"lesser burdens of a criminal investigation—including preparing for questioning by criminal investigators—are time-consuming and distracting.\" Importantly, the article does not address the legal question of what protections may be afforded the President by the Constitution directly, but only notes that \"even in the absence of congressionally conferred immunity, a serious constitutional question exists regarding whether a President can be criminally indicted and tried while in office.\"\nJudge Kavanaugh's 1998 article in the Georgetown Law Journal provided a more robust discussion of the nominee's constitutional views on the question of presidential immunity—at least as they existed at that time and in the context of an independent counsel investigation. Like his 2009 piece, the 1998 article was framed in the context of a series of legislative proposals, one of which would have provided that Congress enact a statute establishing that a sitting President not be \"subject to indictment.\" In considering the question of presidential immunity, Judge Kavanaugh again opined that a \"serious question exists as to whether the Constitution permits the indictment of a sitting President.\" However, his subsequent analysis may suggest that he believed indictment of a sitting President to be constitutionally impermissible on the grounds that the appropriate constitutional remedy for serious presidential misconduct, as guided by history and original understanding, is investigation, impeachment, and removal by Congress, and only then prosecution. The Framers, he argued, warned against the \"ill wisdom of entrusting the power to judge the President of the United States to a single person or body such as an independent counsel.\" Instead, Judge Kavanaugh wrote that the original intent of the Framers and \"the Constitution itself seem[] to dictate . . . that congressional investigation must take place in lieu of criminal investigation when the President is the subject of investigation, and that criminal prosecution can occur only after the President has left office.\" Although he framed his discussion as \"what should happen,\" and never explicitly stated that the Constitution outright forbids indictment of the President, Judge Kavanaugh nevertheless seemed to suggest, in the context of discussing this legislative proposal, that \"[i]f Congress declines to investigate, or to impeach and remove the President, there can be no criminal prosecution of the President at least until his term of office expires.\" This conclusion would not, however, mean that the President or other executive branch officials are \"above the law\" or otherwise not subject to federal criminal provisions. Instead, Judge Kavanaugh's envisioned immunity applies only to the President—and only temporarily—as a President would generally be subject to prosecution for wrongdoing after being removed from office.", "Related to the question of whether the President may be indicted is the role executive privilege—that is, the constitutionally based privilege that protects executive communications that relate to presidential decisionmaking—may play in an investigation of the President or executive branch officials. The Supreme Court has only rarely addressed executive privilege, but its clearest explanation of the doctrine came in the unanimous opinion issued in United States v. Nixon . That case involved President Nixon's assertion that executive privilege protected him from complying with a criminal trial subpoena—issued at the request of the Watergate Special Prosecutor—for electronic recordings of conversations he had in the Oval Office with White House advisers. The Court rejected both President Nixon's threshold argument, that the Court lacked jurisdiction over what he viewed to be essentially an \"intra-branch dispute\" between the President and a subordinate executive branch official, and his substantive argument that the Constitution accorded the President an absolute privilege from compliance with a subpoena. In rebuffing the President, the Nixon opinion recognized executive privilege as an implied constitutional principle, holding that the \"privilege of confidentiality of presidential communications\" is \"fundamental to the operation of Government and inextricably rooted in the separation of powers.\" However, the Court determined that the President's \"generalized interest\" in the confidentiality of his communications was outweighed by the \"demonstrated, specific need for evidence in a pending criminal trial\" and ordered the tapes turned over to the district court for in camera review. The Court suggested two caveats to its holding. First, it acknowledged that the \"degree of deference\" accorded to a President's executive privilege claim may be higher when the privilege claim relates to \"military or diplomatic secrets.\" And second, the Court clarified that \"we are not here concerned with the balance between the President's generalized interest in confidentiality . . . and congressional demands for information.\"\nJudge Kavanaugh has expressed mixed views on the Nixon decision. During a 1999 roundtable discussion, Judge Kavanaugh expressed some skepticism as to Nixon 's rejection of the threshold issue of justiciability, suggesting that \"maybe Nixon was wrongly decided—heresy though it is to say.\" The nominee's concern with the Nixon holding appears to have been based on his views of the separation of powers and the President's authority to control both executive branch information and subordinate executive branch officials, a view more fully articulated in Judge Kavanaugh's opinions on agency structure and the presidential removal power discussed below. As the future nominee explained:\nNixon took away the power of the president to control information in the executive branch by holding that the courts had power and jurisdiction to order the president to disclose information in response to a subpoena sought by a subordinate executive branch official. That was a huge step with implications to this day that most people do not appreciate sufficiently. … Maybe the tension of the time led to an erroneous decision.\nIn that same discussion, Judge Kavanaugh later stated: \"Should United States v. Nixon be overruled on the ground that the case was a nonjusticiable intrabranch dispute? Maybe so.\" Legal commentators have debated the significance of these apparently off-the-cuff remarks, with some arguing that the statement was simply rhetoric used to underscore inconsistencies with a fellow panelist's arguments, while others interpreted the statement as a \"radical critique of Nixon. \"\nMore recently however, Judge Kavanaugh has characterized Nixon as one of \"the most significant cases in which the Judiciary stood up to the President\" and one of the \"greatest moments in American judicial history.\" Additionally, in his 1998 article, in which he engaged in a significant discussion of Watergate and the Nixon case, he never questioned the Court's holding, instead acknowledging that Nixon had \"essentially defined the boundaries of executive privilege.\"\nIn some ways, Judge Kavanaugh's view of Nixon is less favorable to presidential power than others who have viewed the 1974 decision as requiring an ad hoc balancing test in all cases. For example, the 1998 article reflected Judge Kavanaugh's interpretation of Nixon as establishing a strict, bright-line rule that \"the courts may not enforce a President's [executive] privilege claim (other than one based on national security) in response to a grand jury subpoena or criminal trial subpoena.\" In line with his broader views on judicial balancing tests, Judge Kavanaugh rejected the assertion that Nixon required the courts to balance, on a case-by-case basis, the President's interest in confidentiality against the need for evidence in a particular criminal investigation or prosecution. So long as the basic requirements of relevance (with respect to a grand jury subpoena) or relevance and admissibility (with respect to a trial subpoena) are met, any claim of executive privilege not based on national security or foreign affairs must, in Judge Kavanaugh's view, fail under the principles recognized in Nixon . However, Judge Kavanaugh observed that a President could act outside the courts to protect confidential information by asserting his control over executive law enforcement in order to prevent a judicial dispute over presidential communications from ever getting to the Court. \"To do so,\" wrote Judge Kavanaugh, \"a President must order the federal prosecutor not to seek the information and must fire the prosecutor if he refuses (as President Nixon fired [special prosecutor] Archibald Cox).\" Such an action would \"focus substantial public attention\" on the President and force him to take \"political responsibility for his privilege claim,\" suggesting that the nominee's view of the role of executive privilege would impose significant costs on the President if he wished to shield his communications from a criminal investigation.\nWhile there is inadequate evidence to determine precisely how Judge Kavanaugh views the Nixon opinion, in light of the nominee's apparent acceptance of Nixon ' s delineation of executive privilege, it is possible that Judge Kavanaugh's statement that \"maybe Nixon was wrongly decided,\" to the extent that the comment was intended to provide a substantive legal opinion, related primarily to the justiciability question of whether the Court should have mediated a dispute between the President and another executive branch official. A hesitancy to have a court give effect to a subordinate executive branch official's imposition on the President would appear to be consistent with Judge Kavanaugh's general view that executive officials should be accountable to, and under the supervision and control of the President, as well as his view that it should be Congress—and not the courts or an independent prosecutor—that provides the initial remedy to presidential misconduct.\nJudge Kavanaugh further opined on the underlying justiciability issues that were at play in Nixon in a 2009 concurring opinion he filed in another case involving a dispute between two executive branch agencies, SEC v. Federal Labor Relations Authority . In his opinion, Judge Kavanaugh articulated the general proposition that \"judicial resolution of intra-Executive disputes is questionable under both Article II and Article III.\" Article II is violated, Judge Kavanaugh asserted, because such an internal dispute should be resolved by the President in the exercise of his executive powers, while Article III is violated because executive branch agencies are not sufficiently \"adverse\" so as to create the type of \"case or controversy\" that is necessary for Article III jurisdiction. However, Judge Kavanaugh—citing to, among other cases, Nixon— acknowledged that Supreme Court and lower court precedent have established that courts may hear an intra-branch dispute when one party to the case is an independent agency. In that scenario, \"an independent agency can [] be sufficiently adverse to a traditional executive agency to create a justiciable case\" because \"Presidents cannot (or at least do not) fully control independent agencies.\" Independent agencies, as Judge Kavanaugh described them, are \"agencies whose heads cannot be removed by the President except for cause and that therefore typically operate with some (undefined) degree of substantive autonomy from the President.\" As a result, Judge Kavanaugh's concurrence appeared to view existing precedent to allow for the adjudication of disputes involving agencies that have been afforded independence under a statute. At the same time, it is unclear whether the nominee would consider it appropriate for a court to resolve an executive branch dispute with an entity that has \"substantive autonomy from the President,\" but is not directly endowed with statutory independence.", "Judge Kavanaugh's conception of presidential immunity and executive privilege may also give rise to questions about his views on whether the President may be made to comply with a subpoena for testimony in a criminal proceeding. While the courts will not \"proceed against the [P]resident as against an ordinary individual,\" it is clear under existing jurisprudence that the President is nonetheless not immune from all compulsory judicial process. In Nixon , the Court established that a President may be ordered to comply with a judicial subpoena for documents in a criminal matter, but the opinion did not address compelled testimony . Similarly, in Clinton v. Jones , the Court held that the President is not immune from civil suits for damages arising from unofficial acts, but avoided the question of compelled presidential testimony , noting only that the case did not require the Court \"to confront the question whether a court may compel the attendance of the President at any specific time or place.\" Instead the Court assumed that \"the testimony of the President, both for discovery and for use at trial, may be taken at the White House at a time that will accommodate his busy schedule, and that, if a trial is held, there would be no necessity for the President to attend in person, though he could elect to do so.\" The executive branch, on the other hand, has taken a clear position on compelled presidential testimony, concluding that \"sitting Presidents are not required to testify in person at criminal trials.\"\nJudge Kavanaugh has written little on the precise question of whether a President can be compelled to provide testimony in a criminal proceeding. As previously noted, his 2009 article suggested that as a policy matter, Congress should provide the sitting President with immunity from \"[e]ven the lesser burdens\" of \"depositions or questioning in civil litigation or criminal investigations.\" And although arguably concluding that the Constitution does not permit indictment or prosecution of the President, his 1998 article did not explicitly extend that constitutional analysis to presidential testimony at the investigative stage. However, Judge Kavanaugh's general separation-of-powers views may raise some question of whether he would be willing to enforce a subpoena requiring the President to testify. First, assuming that the subpoena is issued by another executive branch official, the dispute raises questions on how the nominee views the justiciability holding in Nixon . And second, Judge Kavanaugh's academic writings on immunity—in which he has expressed concern over the \"burdens\" and \"distractions\" of litigation and investigations involving the President —may suggest some sympathy toward the historical executive branch argument that compelling the President's \"personal attendance\" would infringe upon the President's ability to carry out his \"official functions.\"", "One area of the Court's separation-of-powers jurisprudence where Judge Kavanaugh's views have already proven quite influential concerns Congress's authority to provide officers and agencies with independence from the President through the use of removal restrictions and other statutory aspects of agency design. Judge Kavanaugh has played a significant role in what appears to be an ongoing revitalization of the judiciary's recognition of the President's removal power, and the corollary principle that the President, in order to maintain accountability within the executive branch, must maintain some degree of effective supervision and control over subordinate executive officers. This recognition, Judge Kavanaugh asserts, does not necessarily expand the scope of executive power, but instead only ensures that what executive power exists is exercised by the President.\nSome historical context is necessary to understand Judge Kavanaugh's positions in this area. Although not explicitly provided for in the Constitution, the President's authority to remove subordinate executive branch officials has historically played a central role in the President's ability to carry out his Article II powers. Removal, the Supreme Court has reasoned, is a \"powerful tool for control\" because \"[o]nce an officer is appointed, it is only the authority that can remove him . . . that he must fear and . . . obey.\" The precise scope of the removal power, however, as well as Congress's authority to restrict that power through statute in order to insulate an agency or individual official from presidential influence, has been the subject of several Supreme Court opinions. In the 1926 decision of Myers v. United States , the Court invalidated a law that required Senate consent for the removal of certain executive officials, holding that the Constitution conferred the removal power \"exclusive[ly]\" to the President so as to ensure he maintained \"general administrative control of those executing the laws.\" However, the Court limited the breadth of Myers in the 1935 case Humphrey ' s Executor v. United States , holding that Congress could limit the President's authority to remove members of independent agencies engaged in \"quasi-judicial or quasi-legislative\" functions by requiring that such officials may only be removed for \"inefficiency, neglect of duty, or malfeasance in office.\" The use of these \"for-cause\" removal protections to insulate an agency official from the President's control was again upheld in 1988 in Morrison v. Olson , but this time as applied to the Independent Counsel, a single independent official with limited tenure and relatively narrow jurisdiction, rather than a member of an independent commission.\nJudge Kavanaugh entered the judicial fray regarding the President's removal power with an influential dissent in the 2008 case Free Enterprise Fund v. PCAOB . In Free Enterprise Fund , the D.C. Circuit panel majority upheld provisions of the Sarbanes-Oxley Act of 2002, which had created a new PCAOB and insulated its members from presidential control through dual layers of \"for-cause\" removal protections. Board members could be removed only \"for cause\" by the Securities and Exchange Commission (SEC), who in turn, could themselves be removed by the President, but only for cause. Thus, the President had no direct ability to order the removal of Board members. The panel majority upheld the law, relying primarily on Humphrey ' s Executor and Morrison and their approval of Congress's use of \"for-cause\" removal restrictions, while holding that the structure did \"not strip the President of sufficient power to influence the Board and thus [did] not contravene separation of powers.\"\nJudge Kavanaugh dissented, calling the imposition of dual layers of for-cause removal protections between the President and Board members inconsistent with the original understanding of Article II and historical practice. The Framers, Judge Kavanaugh reasoned, established a unitary head of the executive branch to ensure accountability \"by making one person responsible for all decisions made by and in the Executive Branch.\" The structure of the PCAOB, on the other hand, unduly limited the President's ability to exercise that control, resulting in a \"fragmented, inefficient, and unaccountable Executive Branch\" that the President could not \"fully direct and supervise.\" With regard to historical practice, Judge Kavanaugh described the dual layers of removal protections as \"uniquely structured,\" \"novel,\" lacking any \"historical analogues,\" and \"a previously unheard-of restriction on and attenuation of the President's authority over executive officers\"\nJudge Kavanaugh also argued that because the Sarbanes-Oxley Act \"completely\" stripped the President of any direct removal authority over the members of the PCAOB, upholding that structure would require an impermissible extension of Humphrey ' s Executor and Morrison . His reasoning was likely informed by his general position \"that Humphrey ' s [ Executor ] and Morrison authorize a significant intrusion on the President's Article II authority to exercise the executive power and take care that the laws be faithfully executed.\" Viewing those rulings as narrow exceptions to the general rule of Myers , Judge Kavanaugh argued the two cases represent the \"outermost constitutional limits of permissible congressional restrictions on the President's removal power.\" Finally, Judge Kavanaugh warned that upholding this law would \"green-light Congress to create a host of similar entities,\" which would \"splinter executive power to a degree not previously permitted.\"\nOn appeal, the Supreme Court in a 5-4 ruling authored by Chief Justice Roberts embraced Judge Kavanaugh's dissent, and invalidated the PCAOB's structure. Citing Judge Kavanaugh's dissent, the Court's decision invalidated the \"novel\" dual for-cause removal scheme on the grounds that it \"impaired\" the President's \"ability to execute the laws . . . by holding his subordinates accountable for their conduct.\"\nJudge Kavanaugh's general skepticism of unique structural schemes that attempt to insulate executive branch officials from presidential control was again evident in PHH Corporation v. C FPB . PHH involved a challenge to the structural design of the CFPB, an independent agency headed not by a multi-member commission, but by a single Director. Judge Kavanaugh issued two substantially similar opinions in the case, both concluding—much like his earlier dissenting opinion in Free Enterprise Fund —that the novel scheme violated the separation of powers and the President's powers under Article II. His first opinion represented an initial panel majority striking down the CFPB's current structure. That decision, however, was vacated when the D.C. Circuit granted en banc review. Upon review, Judge Kavanaugh reaffirmed his views, however this time dissenting from the en banc majority opinion that concluded the CFPB's structure was constitutionally permissible under Humphrey ' s Executor and Morrison .\nJudge Kavanaugh's PHH opinions focused on three primary factors, all of which relate directly to his established approach to separation of powers. First, he emphasized the novelty of the CFPB's structure—most independent agencies are headed by multiple members, rather than a single director. \"Never before,\" wrote Judge Kavanaugh, \"has an independent agency exercising substantial executive authority been headed by just one person.\" In his view, this departure from historical practice indicated a potentially serious constitutional defect. Second, Judge Kavanaugh concluded that the concentration of power in a single, unaccountable Director posed a serious threat to liberty. While other independent agency heads may have removal protections, Judge Kavanaugh argued that the multi-member structure demands consensus and acts as a check on the whims of an independent, individual agency head. Third, Judge Kavanaugh argued that removal protections for a unitary agency head diminished the President's Article II power to control the executive branch beyond what has been judicially approved for multi-member independent agencies. In multi-member commissions with statutory removal protections, the President may at least appoint and remove the chair of the agency, ensuring some influence over the agency's direction. With the CFPB, however, Judge Kavanaugh noted that the President may not alter the head of the agency until the end of the five-year term, which means, at least in some cases, the President might not ever be permitted to align the agency with his own policy goals.\nPerhaps one of the most important questions arising from Judge Kavanaugh's opinions in Free Enterprise Fund and PHH is what they suggest about his views on the constitutional permissibility of more traditional independent agencies, for example, those that operate with only one layer of for-cause protections and in the form of a multi-member commission. Judge Kavanaugh has previously signaled his discomfort with traditional independent agencies, questioning both their general effectiveness and their underlying legal foundations. For example, in PHH , Judge Kavanaugh noted that Humphrey ' s Executor was \"inconsistent\" with Myers , has \"received significant criticism,\" and is \"in tension with\" the Supreme Court's holding in Free Enterprise Fund . On Morrison , Judge Kavanaugh has written that \"the independent counsel experiment ended with nearly universal consensus that the experiment had been a mistake and that Justice Scalia had been right back in 1988 to view the independent counsel system as an unconstitutional departure from historical practice and a serious threat to individual liberty.\" Moreover, the very notion of a subordinate executive branch official operating with independence from the President appears to at least arguably be inconsistent with Judge Kavanaugh's interpretation of the President's constitutional authority to supervise and control \" all decisions made by and in the Executive Branch.\" However, he has not expressly called for overturning Humphrey ' s Executor , nor for the invalidation of all independent agencies. The nominee has explicitly stated that \" Humphrey ' s Executor is an entrenched Supreme Court precedent, protected by stare decisis.\" Ultimately, it is clear that Judge Kavanaugh has concerns about the Court's holdings in Humphrey ' s Executor and Morrison . However, there is some question whether, if confirmed to the Supreme Court, he would view the cases as establishing the \"outermost\" limits of a constitutional framework that he would be willing to work within, or, whether, if provided with the opportunity, he would be a vote to overturn Humphrey ' s Executor , Morrison , or both. If confirmed, a Justice Kavanaugh would likely be presented with the opportunity to present his views, as additional questions of Congress's authority to insulate executive branch officials and agencies from presidential control are likely to come before the court in the near future.", "In Obergefell v. Hodges , the Justice that Judge Kavanaugh might succeed, Justice Kennedy, wrote that the \"identification and protection of fundamental rights is an enduring part of the judicial duty to interpret the Constitution.\" Many fundamental rights that the Court has identified as warranting constitutional protection stem from the Fifth and Fourteenth Amendments, which prohibit the federal government and the states from depriving any person of \"life, liberty, or property, without due process of law.\" The Court has interpreted these Amendments not only to accord procedural protections against such deprivations, but also to contain a substantive component that prohibits the government from infringing certain fundamental rights unless the government's law or action is narrowly tailored to serve a compelling state interest. These fundamental rights include \"most of the rights enumerated in the Bill of Rights,\" as well as additional, unenumerated rights that the Court has recognized over the years, such as the right to marry or the right to privacy in making certain intimate decisions.\nJustice Kennedy's legacy on the bench is closely tied to the issue of substantive due process, having authored or joined the controlling opinions in a number of closely divided cases recognizing unenumerated rights. These cases include his joint opinion in Planned Parent hood of Southeastern Pennsylvania v. Casey , which reaffirmed Roe v. Wade 's recognition of a woman's right to an abortion before fetal viability; his opinion for the Court in Lawrence v. Texas , which recognized the right of consenting adults to engage in private, sexual conduct without governmental interference; and his opinion for the Court in Obergefell , which recognized the right of same-sex couples to marry. However, Justice Kennedy has also declined to recognize due process protections in other cases, such as when he joined the Court's refusal to recognize a fundamental right to physician-assisted suicide in Washington v. Glucksberg .\nJustice Kennedy's central role in the development of the Court's substantive due process jurisprudence has cast Judge Kavanaugh's decisions in this area and the nominee's broader judicial philosophy on the subject into the spotlight. In particular, commentators have focused on Judge Kavanaugh's opinions in a case that reached the Supreme Court involving an unaccompanied alien minor who sought an abortion while in U.S. immigration custody, and the judge's scholarly commentary on the Glucksberg decision. These sources and certain other opinions and commentary by Judge Kavanaugh provide very limited insight into his approach to analyzing substantive due process questions, and are unlikely to serve as reliable predictors of the outcome in any given case. Of the relatively few substantive due process cases that Judge Kavanaugh encountered during his tenure on the D.C. Circuit, he authored opinions in only a handful of those cases, some of which presented unique factual and procedural scenarios or directly implicated controlling Supreme Court precedent. Nevertheless, his apparent endorsement of an approach to due process grounded in history and tradition suggests that if confirmed, Judge Kavanaugh may deploy a more narrow view of substantive due process than Justice Kennedy in defining the contours of future rights and protections. This section begins by discussing the nominee's sole opinion on the right to an abortion, before turning to his other writings and comments on substantive due process.", "Perhaps more than any other issue, considerable attention has been given to how Judge Kavanaugh might adjudicate cases concerning abortion. As previously noted, Justice Kennedy co-wrote the Court's 1992 opinion in Planned Parenthood of Southeastern Pennsylvania v. Casey , which, by a vote of five Justices, reaffirmed \"the essential holding of Roe v. Wade \" recognizing: (1) a woman's right, as a matter of substantive due process, to choose to have an abortion before fetal viability and to obtain it without undue interference from the government; (2) a state's power to restrict abortions after viability with exceptions in circumstances where the pregnant woman's life or health is in danger; and (3) a state's legitimate interests throughout the course of a pregnancy in protecting the woman's health and the fetus's life. In a separate portion of the Casey opinion authored and adopted by only three Justices—Justices Kennedy, O'Connor, and Souter—the Court replaced Roe 's \"rigid trimester framework\" for evaluating abortion regulations with an \"undue burden standard\" under which a law is invalid \"if its purpose or effect is to place a substantial obstacle in the path of a woman seeking an abortion before the fetus attains viability.\" The Court has applied these principles and standards from Casey in subsequent cases.\nTwenty-five years after Casey , in Garza v. Hargan , Judge Kavanaugh was asked to consider on an emergency basis how—if at all—to apply Casey 's undue burden standard in a case involving an unaccompanied alien minor (referred to in court opinions as Jane Doe or J.D.) who entered the United States illegally and sought to terminate her pregnancy while living under U.S. custody. J.D., through her guardian ad litem, challenged the government's refusal to transport her or allow her to be transported to obtain state-mandated pre-abortion counseling and the abortion procedure itself. On October 18, 2017, the U.S. District Court for the District of Columbia issued a temporary restraining order (TRO), requiring the government to transport J.D., or to make her available for transport, \"promptly and without delay to the abortion provider closest to J.D.'s [detention] shelter in order to obtain the [pre-abortion] counseling required by state law on October 19, 2017, and to obtain the abortion procedure on October 20, 2017 and/or October 21, 2017.\" The TRO further restrained the government, for a period of fourteen days, from \"interfering with or obstructing J.D.'s access to abortion counseling or an abortion.\"\nThe government immediately appealed the district court's ruling, arguing that it was not imposing an undue burden on J.D.'s purported right to an abortion under Casey , because (1) the government did not prohibit J.D. from obtaining an abortion, but rather refused to \"facilitate\" the abortion; (2) J.D. was free to leave the United States and return to her home country; and (3) J.D. could obtain an abortion in the United States after the government has transferred custody of J.D. to an immigration sponsor. On October 20, 2017, the assigned panel composed of Judge Kavanaugh, Judge Karen L. Henderson, and Judge Patricia Millett issued a non-precedential, per curiam (i.e., unsigned) order from which Judge Millett dissented. The order vacated the TRO insofar as it required the government to release J.D. for purposes of obtaining pre-abortion counseling or an abortion. The order also expressed apparent agreement with the government's third argument that transferring J.D. to an immigration sponsor would \"not unduly burden the minor's right under Supreme Court precedent to an abortion\"—at least so long as \"the process of securing a sponsor to whom the minor is released occurs expeditiously.\" The order authorized the district court to allow the government eleven days (i.e., until October 31, 2017) to secure a sponsor for J.D. and to release her into the sponsor's custody, noting the government's agreement that, upon release, J.D. then would be \"lawfully able, if she chooses, to obtain an abortion on her own pursuant to the relevant state law.\" In the event the government did not meet its deadline, the order permitted the district court to \"re-enter\" a TRO \"or other appropriate order.\" The order concluded by noting that the government had \"assumed, for purposes of this case, that J.D.—an unlawful immigrant who apparently was detained shortly after unlawfully crossing the border into the United States—possesses a constitutional right to obtain an abortion in the United States.\"\nIn her dissenting statement, Judge Millett addressed all three of the government's arguments. She rejected the view that merely releasing J.D. for the abortion procedure would constitute facilitating an abortion, as well as the government's position that J.D. could leave the country, reasoning that conditioning J.D.'s right to an abortion on voluntary departure imposed an undue burden because it would require J.D. to relinquish her legal claims to stay in the United States. While acknowledging the government's \"understandable\" desire to find J.D. a sponsor, she argued that the sponsorship process could proceed simultaneously with the abortion and \"is not a reason for forcing J.D. to continue the pregnancy.\" Judge Millett posited that further delay would make it more difficult for J.D. to find a local abortion provider and increase the health risks associated with the abortion procedure.\nFollowing the panel's order, on October 24, 2017, the full circuit granted J.D.'s petition for rehearing en banc, reinstated the district court's TRO, and denied the government's motion to stay the TRO pending appeal \"substantially for the reasons set forth\" in Judge Millett's dissenting statement. The en banc court then remanded the case to the district court to revise the dates for the government's compliance with the TRO (which had already passed). Three judges—Judges Henderson, Kavanaugh, and Thomas B. Griffith—dissented from the en banc order. Writing for herself, Judge Henderson argued that the en banc court should have addressed the \"antecedent\" question of whether J.D., as a minor detained after attempting to enter the United States unlawfully, had a constitutional right to an abortion, which she ultimately answered in the negative.\nJudge Kavanaugh, in a dissent which Judges Henderson and Griffith also joined, did not opine on whether J.D. had a constitutional right to obtain an abortion in the United States, noting that \"[a]ll parties have assumed [such a right] for purposes of this case.\" Nor did he discuss the merits of the government's arguments about facilitating abortion or J.D.'s ability to leave the country. Instead, he argued a more narrow point: that the panel decision, rendered in emergency proceedings, \"prudently accommodated the competing interests of the parties\" by providing the government with a limited time period in which to find a sponsor for J.D. In Judge Kavanaugh's view, the panel order fully comported with the Supreme Court's abortion cases, which \"repeatedly\" recognized the government's \"permissible interests in favoring fetal life, protecting the best interests of the minor, and not facilitating abortion, so long as the Government does not impose an undue burden on the abortion decision.\" First, Judge Kavanaugh found it \"reasonable for the United States to think that transfer to a sponsor would be better than forcing the minor to make the decision [to continue or terminate her pregnancy] in an isolated detention camp with no support network available.\" Second, he argued that requiring the government to complete the sponsorship process expeditiously imposed no undue burden, reasoning that \"[t]he Supreme Court has repeatedly upheld a wide variety of abortion regulations that entail some delay in the abortion but that serve permissible Government purposes,\" including \"parental consent laws, parental notice laws, informed consent laws, and waiting periods, among other regulations.\" Although he acknowledged that \"many Americans—including many Justices and judges—disagree with one or another aspect of the Supreme Court's abortion jurisprudence,\" the nominee explained that \"[a]s a lower court, our job is to follow the law as it is, not as we might wish it to be\" and argued that the \"three-judge panel here did that to the best of its ability, holding true to the balance struck by the Supreme Court.\" Judge Kavanaugh viewed the en banc court's decision, in contrast, as \"a radical extension of the Supreme Court's abortion jurisprudence\" amounting to \"a new right for unlawful immigrant minors in U.S. Government detention to obtain immediate abortion on demand.\"\nOn June 4, 2018, the Supreme Court unanimously vacated the D.C. Circuit's en banc order, because J.D. had obtained an abortion before the case reached the Supreme Court, thus rendering her claim for injunctive relief moot.", "Apart from his dissent in Garza , Judge Kavanaugh has authored at least two other potentially notable substantive due process opinions. These cases involved the threshold question of how to determine whether an unenumerated right is fundamental and thus protected under the substantive component of the Due Process Clauses, an issue the Court has debated in recent years. Under the standards set forth in 1997 in Washington v. Glucksberg , in order for a right to be fundamental, it must be \"deeply rooted in this Nation's history and tradition.\" However, in 2015, in Obergefell v. Hodges , the Court indicated that the process of identifying and protecting fundamental rights is not susceptible to one formula and that \"[h]istory and tradition guide and discipline this inquiry but do not set its outer boundaries.\"\nIn Doe v. District of Columbia , Judge Kavanaugh considered a pre- Obergefell due process challenge to a 2003 District of Columbia policy authorizing surgeries under certain circumstances for intellectually disabled persons in the District's care. The plaintiffs, representing a class of \"intellectually disabled persons who live in District of Columbia facilities and receive medical services from the District of Columbia,\" argued that the 2003 policy violated the procedural due process rights of the class members because it did not require the D.C. agency responsible for their medical care to consider their wishes in the process of deciding whether to authorize surgery. They also raised a substantive due process claim, presumably based on what the district court called their \"liberty interest to accept or refuse medical treatment.\" With respect to the procedural due process claim, Judge Kavanaugh wrote that \"accepting the wishes of patients who lack (and have always lacked) the mental capacity to make medical decisions does not make logical sense and would cause erroneous medical decisions—with harmful or even deadly consequences to intellectually disabled persons.\"\nWhile expressing skepticism as to whether the plaintiffs' \"complaint about procedures used by [the agency] can be properly shoehorned into a substantive due process claim,\" Judge Kavanaugh proceeded to reject that argument as well. Quoting Glucksberg , Judge Kavanaugh reasoned that the \"plaintiffs have not shown that consideration of the wishes of a never-competent patient is 'deeply rooted in this Nation's history and tradition' and 'implicit in the concept of ordered liberty,' such that 'neither liberty nor justice would exist if [the asserted right] were sacrificed.'\" Although he emphasized the plaintiffs' lack of evidence to support the historical foundations for recognizing a right to consultation under the circumstances, Judge Kavanaugh added an observation regarding the current legislative environment in which the plaintiffs advanced their due process arguments. Specifically, he remarked that \"the breadth of plaintiffs' constitutional claims is extraordinary because no state of which we are aware applies the rule suggested by plaintiffs,\" intimating the unlikelihood that \"all states' laws and practices\" regarding medical treatment for intellectually disabled persons who have never attained competence are unconstitutional.\nIn another case that predated Obergefell, Judge Kavanaugh applied the Glucksberg decision again in Empresa Cubana Exportadora de Alimentos y Productos Varios v. Department of the Treasury . The case concerned a 1998 law that modified an exception to a Cuban asset regulation that had allowed a company called Cubaexport to register and renew the trademark HAVANA CLUB with the U.S. Patent and Trademark Office. The 1998 law prohibited Cubaexport from renewing its trademark when it came due for renewal in 2006. Cubaexport argued, inter alia, that the 1998 law violated the substantive due process doctrine. Writing for two members of a three-judge panel, Judge Kavanaugh rejected Cubaexport's \"inflated conception of substantive due process,\" and cited Glucksberg for the proposition that \"[u]nless legislation infringes a fundamental right, judicial scrutiny under the substantive due process doctrine is highly deferential.\" The nominee concluded that the case did not involve a fundamental right—which Cubaexport apparently did not contest—so the court needed to consider only whether the legislation, including its retroactive application to Cubaexport's previously registered trademark, was rationally related to a legitimate government interest. Judge Kavanaugh held that the 1998 law \"easily satisfied\" that standard because it was \"rationally related to the legitimate government goals of isolating Cuba's Communist government and hastening a transition to democracy in Cuba.\" In addition, \"any unfairness\" resulting from retroactive application of the renewal bar to previously registered trademarks was \"mitigated—indeed eliminated—by the fact that [the government] has clearly warned that exceptions from trademarks were revocable at any time.\"\nPerhaps the most pointed remarks Judge Kavanaugh has made on substantive due process came in a 2017 lecture at the American Enterprise Institute, where Judge Kavanaugh offered some limited commentary on the Glucksberg decision and its place in substantive due process jurisprudence. He began by noting that the Glucksberg opinion reflected the view of its author, Chief Justice Rehnquist, that \"unenumerated rights\"—that is, those not specifically listed in the Bill of Rights—\"could be recognized by the courts only if the asserted right was rooted in the nation's history and tradition.\" Judge Kavanaugh then remarked that \"even a first-year law student could tell you that the Glucksberg approach to unenumerated rights was not consistent with the [earlier] approach of the abortion cases such as Roe v. Wade in 1973—as well as the 1992 decision reaffirming Roe , known as Planned Parenthood v. Casey .\" Judge Kavanaugh did not explicitly question the legal reasoning underpinning the Roe and Casey decisions—though he noted that Chief Justice Rehnquist's views may not have prevailed in Casey due to stare decisis, the judicial doctrine, discussed in more detail above, that emphasizes the importance of adhering to precedent. However, his remarks do suggest that Judge Kavanaugh views the Court's pre- Glucksberg due process decisions as part of a \"general tide of freewheeling judicial creation of unenumerated rights that were not rooted in the nation's history and tradition.\" In this regard, Judge Kavanaugh sees Glucksberg as \"an important precedent, limiting the Court's role in the realm of social policy and helping to ensure that the Court operates more as a court of law and less as an institution of social policy.\"\nJudge Kavanaugh's statements about Glucksberg and judicial restraint echo remarks he made the year before concerning the recognition of unenumerated rights:\nI don't think . . . there's some new font [of authority] for courts to go around . . . and create a bunch of new rights that we think ourselves are important. I think we need to stick to what the Supreme Court has articulated is the test for unenumerated rights, which is deeply rooted in history and tradition. Otherwise, courts really will become politicians or political policymaking bodies.", "Commentators have questioned whether Judge Kavanaugh's judicial philosophy and practice in the realm of substantive due process may translate into a decision that dramatically reshapes the Court's abortion jurisprudence. The dearth of abortion cases in Judge Kavanaugh's judicial portfolio, as well as the unique posture of the Garza case—in particular, the emergency nature of the proceedings, the government's choice to assume that J.D. could avail herself of constitutional protections, and the narrow issue on which Judge Kavanaugh wrote—provide little basis to discern the nominee's position on whether Roe or Casey was wrongly decided. Even if Judge Kavanaugh would have decided Roe or Casey differently as a matter of first impression, any assessment of his willingness to overrule these decisions if nominated to the Court would need to include an evaluation of the judge's position on the role of stare decisis, including which of the stare decisis factors Judge Kavanaugh might weigh more heavily in assessing whether to uphold or overrule a constitutional decision.\nNonetheless, the nominee has been skeptical of a court discovering new rights within the substantive component of the Due Process Clauses. While he may not have foreclosed Justice Kennedy's vision in Obergefell of a court guided by history and tradition but open to \"new insight[s]\" into the meaning of liberty, Judge Kavanaugh appears to share Chief Justice Rehnquist's more circumscribed approach to defining the contours of due process rights and protections. More so than Judge Kavanaugh's opinions applying Glucksberg— which could be viewed more narrowly as adherence to binding precedent—the Judge's statements during his 2017 lecture on Chief Justice Rehnquist, combined with his overarching judicial philosophy, suggest that the nominee might endorse Glucksberg 's emphasis on consulting history and tradition before extending constitutional protections to an asserted right. As a result, it appears that Judge Kavanaugh likely views substantive due process more skeptically than the Justice he may succeed.", "Relative to Justice Kennedy, who, during his tenure on the Supreme Court, cast several significant votes in eminent domain cases that decided whether and when federal and state governments may take private property for public use, Judge Kavanaugh does not appear to have significantly addressed the merits of a takings claim in a judicial opinion. This is unsurprising, as the D.C. Circuit does not hear many takings claims because the Tucker Act vests the U.S. Court of Federal Claims (CFC) with jurisdiction over such claims when the plaintiff seeks more than $10,000 in compensation from the federal government. With limited exceptions, the CFC's jurisdiction over such claims is exclusive, and appeals from the CFC are to the Federal Circuit, not the D.C. Circuit. While the Fifth Amendment applies to the District of Columbia, there are few takings cases that have arisen against the District during Judge Kavanaugh's time on the court. Of the takings cases that he adjudicated, Judge Kavanaugh has either joined the majority opinion or summarily disposed of the takings issues. As a result, there is currently an insufficient basis to evaluate Judge Kavanaugh's views regarding the scope of the Takings Clause or the extent to which the Takings Clause protects private property rights. Nonetheless, with takings cases presently pending before the Supreme Court, Judge Kavanaugh, if confirmed, will likely have the opportunity to consider the issue. Accordingly, questions concerning his views on the issue could be explored in a confirmation hearing.", "" ], "depth": [ 0, 1, 1, 2, 2, 2, 1, 2, 2, 2, 1, 2, 2, 2, 2, 1, 2, 2, 2, 2, 1, 2, 2, 2, 1, 2, 2, 2, 2, 2, 2, 1, 2, 2, 2, 1, 1, 2, 2, 1, 2, 2, 2, 2, 2, 1, 1, 1, 2, 2, 2, 2, 2, 2, 2, 1, 2, 2, 2, 1, 2 ], "alignment": [ "h0_title h2_title h4_title h3_title h1_title", "h0_full h3_full", "h3_full h1_title h4_title h0_title", "h0_full h4_full h1_full", "h3_full", "h3_full h1_full", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "h4_full h2_full", "", "", "", "h4_full", "", "", "", "", "", "", "h0_full", "", "", "", "", "h1_full", "", "", "", "", "", "", "", "", "h0_full h2_full", "", "h3_full", "", "", "", "", "", "", "", "", "", "", "", "", "" ] }

{ "question": [ "How did the composition of the Supreme Court change in 2018?", "How was Kavanaugh initially nominated to the D.C. Circuit?", "As a Circuit Judge, what were some high-profile cases where he adjudicated?", "What educational involvements has Kavanaugh had since joining the D.C. circuit?", "What positions in the White House did Judge Kavanaugh hold before his appointment to the federal branch?", "Before his service in the Bush Administration, what work did he do?", "What is Judge Kavanaugh's educational background?", "Why is Judge Kavanaugh's nomination significant?", "In what ways was Justice Kennedy seen as the centrist justice?", "Given Justice Kennedy's oft-determinative vote, what must the Senate consider as it thinks about the President's nomination of Judge Kavanaugh?", "What is one method to gauge how the Supreme Court might be affected by Judge Kavanaugh's appointment?", "What are the risks and benefits of this method?", "What is Judge Kavanaugh's judicial philosophy?", "What do these principles reveal about his legal views?", "On what issues are Judge Kavanaugh's views less well-known?", "What information does this report provide?", "Why is considering Justice Kennedy's past decisions on the High Court critical to keep in mind when considering Judge Kavanaugh's potential appointment?", "What comparisons between Justice Kennedy and Judge Kavanaugh can be found in the report?" ], "summary": [ "On July 9, 2018, President Donald J. Trump announced the nomination of Judge Brett M. Kavanaugh of the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) to fill retiring Justice Anthony M. Kennedy's seat on the Supreme Court of the United States.", "Nominated to the D.C. Circuit by President George W. Bush, Judge Kavanaugh has served on that court for more than twelve years.", "In his role as a Circuit Judge, the nominee has authored roughly three hundred opinions (including majority opinions, concurrences, and dissents) and adjudicated numerous high-profile cases concerning, among other things, the status of wartime detainees held by the United States at Guantanamo Bay, Cuba; the constitutionality of the current structure of the Consumer Financial Protection Bureau; the validity of rules issued by the Environmental Protection Agency under the Clean Air Act; and the legality of the Federal Communications Commission's net neutrality rule.", "Since joining the D.C. Circuit, Judge Kavanaugh has also taught courses on the separation of powers, national security law, and constitutional interpretation at Harvard Law School, Yale Law School, and the Georgetown University Law Center.", "Prior to his appointment to the federal bench in 2006, Judge Kavanaugh served in the George W. Bush White House, first as associate and then senior associate counsel, before becoming assistant and staff secretary to the President.", "Before his service in the Bush Administration, the nominee worked in private practice at the law firm of Kirkland & Ellis, LLP for three years and served in the Office of the Independent Counsel and the Office of the Solicitor General. Judge Kavanaugh began his legal career with three federal clerkships—two for judges on the federal courts of appeals and one for the jurist he is nominated to succeed, Justice Kennedy.", "Judge Kavanaugh is a graduate of Yale College and Yale Law School.", "Judge Kavanaugh's nomination to the High Court is particularly significant as he would be replacing Justice Kennedy, who was widely recognized as the Roberts Court's median vote.", "Justice Kennedy was often at the center of legal debates on the Supreme Court, casting decisive votes on issues ranging from the powers of the federal government vis-à-vis the states, to separation-of-powers disputes, to key civil liberties issues.", "Accordingly, a critical question now before the Senate as it considers providing its advice and consent to the President's nomination to the High Court is how Judge Kavanaugh may view the many legal issues in which Justice Kennedy's vote was often determinative.", "In this vein, understanding Judge Kavanaugh's views on the law is one method to gauge how the Supreme Court might be affected by his appointment.", "In attempting to ascertain how Judge Kavanaugh could influence the High Court, however, it is important to note at the onset that, for various reasons, it often is difficult to predict accurately a nominee's likely contributions to the Court based on his or her prior experience. That said, the nominee is a well-known jurist with a robust record, composed of both judicial opinions and non-judicial writings, in which he has made his views on the law and the role of the judge fairly clear.", "Central to the nominee's judicial philosophy is the concept of judicial formalism and a belief that the \"rule of law\" must be governed by a \"law of rules.\" In addition, Judge Kavanaugh has endorsed the concept of the judge as a neutral \"umpire.\" In order to achieve this vision of neutrality, the nominee's legal writings have emphasized (1) the primacy of the text of the law being interpreted, (2) an awareness of history and tradition, and (3) adherence to precedent.", "Applying these principles, Judge Kavanaugh's views on several discrete legal issues are readily apparent, including administrative law, environmental law, freedom of speech, national security, the Second Amendment, and separation of powers.", "At the same time, perhaps because of the nature of the D.C. Circuit's docket, less is known about the nominee's views on other legal issues, including business law, civil rights, substantive due process, and takings law.", "This report provides an overview of Judge Kavanaugh's jurisprudence and discusses his potential impact on the Court if he were to be confirmed to succeed Justice Kennedy.", "In particular, the report focuses upon those areas of law where Justice Kennedy can be seen to have influenced the High Court's approach to certain issues or served as a fifth and deciding vote on the Court, with a view toward how Judge Kavanaugh might approach these same issues if he were to be elevated to the High Court.", "Of particular note, the report includes an Appendix with several tables that summarize the nominee's rate of authoring concurring and dissenting opinions relative to his colleagues on the D.C. Circuit, and how Judge Kavanaugh's opinions as an appellate judge have fared upon review by the Supreme Court." ], "parent_pair_index": [ -1, 0, 1, 1, -1, 0, 0, -1, 0, 1, -1, 0, 0, 2, 2, -1, 0, 1 ], "summary_paragraph_index": [ 0, 0, 0, 0, 1, 1, 1, 2, 2, 2, 3, 3, 3, 3, 3, 4, 4, 4 ] }

{ "title": [ "Background", "Evolution of Airports", "Financing Airports", "Five Key Factors That Facilitate Airport- Centric Development", "Funding Sources", "Development in the Region", "Stakeholder Collaboration", "Concluding Observations", "Agency Comments", "Appendix I: Examples of International Airport-Centric Development", "Appendix II: Profiles of U.S. Airport Regions", "Appendix III: Objective, Scope, and Methodology", "Appendix IV: GAO Contact and Staff Acknowledgments", "GAO Contact", "Staff Acknowledgments", "Bibliography" ], "paragraphs": [ "", "The United States has approximately 500 airports served by scheduled airlines. Airports have long served as places for planes to take off and land, consisting of runways, control towers, terminals and other facilities that directly served airlines’ passengers and cargo. Airlines play a key role in the functioning of airport systems because they make decisions about which airports to serve and how frequently to provide service. Airlines may consider a number of factors in making these decisions, such as the presence of regional businesses and residents who are potential customers, the market share that can be obtained, the effects on their service network, and the service provided by competing carriers.\nOver the last three decades some airports began providing a greater range of passenger and business services and increasing their concessions to increase their revenue stream. Airport operators began to view airports as a destination as well as a place from which to take off and land. By the early 2000s, many airports focused on upscale concessions, such as exclusive restaurants and designer boutiques, and other premium services, such as rental car facilities and parking facilities linked to the airport, to help maximize revenue generation.\nJohn Kasarda, an airport and development expert, along with other researchers, noted these changes occurring at airports, both nationally and internationally, and began researching commercial development on airport property—referred to as the airport city—more than 15 years ago. According to Kasarda and other researchers, development on the airport spills over to the surrounding region and results in a new urban growth form with the airport at its center. (See app. IV for a selected bibliography.) According to Kasarda, this new urban growth form, for which he coined the phrase, “aerotropolis,” is similar to the growth of the traditional metropolis, in which the central city is linked to the suburbs through a surface transportation system.\nStudies on growth around airports have found that businesses that require or benefit from air transport seek locations near the airport, extending as far as 20 miles. Regional corporate headquarters, information and communications technology complexes, retail, hotel and entertainment centers, manufacturing facilities, trade representative offices, big-box retail stores, health, wellness, and fitness centers, conference centers, and residential developments, for example, are increasingly being established near airports as a part of airport-centric development. Researchers have noted that plans for such development involve arrangements for targeted development to facilitate the efficient flow of surface traffic, attract complementary businesses, and mitigate environmental contaminants usually associated with airports to increase the speed at which airport-centric development occurs. Researchers have also noted that the benefits from the development on the airport property reach far beyond the airport into the surrounding region, which can, in turn, reciprocally benefit the airport.\nGlobally, aviation and airport systems vary and, in practice, the approaches to airport-centric development have varied. In several European countries and in the United States, airports were established decades ago and commercial development around most of those airports evolved in a piecemeal or ad-hoc way, without centralized planning or the cooperative efforts of airport operators, local and regional planners, and business developers. In the United States, the last large airports serving scheduled airlines that have been newly constructed on previously undeveloped land were the Denver (1995) and Dallas/Fort Worth (1974) International Airports. Operators at airports like Hong Kong and Incheon in South Korea are beginning to incorporate elements of commercial development at their airports and some operators have introduced policies or incentives to encourage targeted airport-dependent land use and development at and around the airports. In countries in which the aviation and airport systems are much newer, such as China and the United Arab Emirates, officials are employing a centralized planning and cooperative approach to rapidly expand commercial development on and around airports.", "Airport operators at domestic airports with scheduled airline service rely on revenue from two types of activities: aeronautical and nonaeronautical. Aeronautical activities at an airport occur on the airfield or in the terminal areas where airlines operate. For purposes of this report, revenue generated from aeronautical activities includes fees airports charge airlines to operate within the airport and other fees paid or collected by aircraft operators, including Passenger Facility Charges (PFCs), and Airport Improvement Program (AIP) grants.\nThe Passenger Facility Charge (PFC) was introduced in 1990, Omnibus Reconciliation Act of 1990. Pub.L. No. 101-508, § 9110, 104 Stat. 1388, codified as amended at 49 U.S.C. § 40117. financed through taxes on aviation fuel and passenger airline tickets. Airports may also receive capital funds through state and local sources in addition to federal funds.\nAirport operators may also borrow the funds needed to finance capital projects through municipal bond markets. Airport revenue, including PFCs, may be used to pay debt service on bonds issued for eligible projects. Because funds from bonds are issued based on projected airport revenue, they are not considered by FAA to be a separate source of airport revenue.\nNonaeronautical activities include food and beverage, retail concessions, and parking, automobile rentals, and rent on land and non-terminal facilities, such as manufacturing, warehousing, and freight forwarding. Nonaeronautical revenue may be used to reduce payments by airlines and may also be used to maintain and improve commercial services. (See fig. 2.) At some airports, terminals used by specific airlines are also financed and built through agreements between the airlines and the airports.\nSome airport operators are pursuing public-private partnerships (P3s) to finance their commercial development efforts, outside of their financial agreements with airlines. P3s are negotiated contractual agreements between public entities, such as an airport, and a private entity such as a contractor or developer. P3 contractual arrangements can allow developers to build and operate a facility and then transfer the facility to the airport, although there are various types of P3 arrangements. Under one of these types of arrangements, the private developer provides all or part of the financing and intends to capture its development or management fees. This type of P3 arrangement can provide the airport with the most leverage for commercial development.", "Based on our research, we found that officials from airports and jurisdictions considered the following factors when pursuing airport-centric development: (1) development at the airport, (2) air and surface connectivity, (3) funding sources for development, (4) development in the region, and (5) collaboration among stakeholders. (See fig. 3.) “Development at the airport” refers to existing infrastructure already in place and the actions of airport operators to enhance the viability of their airport by focusing on commercial activities to increase airports’ aeronautical and nonaeronautical revenue. “Air and surface connectivity” includes the routes taken by passengers or cargo to and from the airport to and from other destinations that may be enhanced by highway, rail, and port construction and additional airline routes. “Funding sources for development” include the funding for airport- centric developments as well as airport operations. “Development in the region” involves leveraging existing regional assets, expanding existing assets, or attracting new employment opportunities and business activity. “Collaboration among stakeholders” refers to the various actions that stakeholders can take to reach the goals and objectives that may further airport-centric development.\nAn airport’s ability to generate revenue and contribute to the regional economy depends on its ability to attract airline service, passengers, and cargo shipments. Airport operators’ development efforts occur on airport property and involve: (1) providing services that directly support airline operations; (2) providing an expanded number and type of services within the airport terminals for passengers and visitors from the region; and (3) developing services for passengers and businesses, including airlines, on airport property but outside of the terminal areas.\nOfficials at most of the airports in our review believed that their ability to attract and retain airlines was necessary to spur airport development. In particular, airline operators pay for their use of airport services ranging from the use of runways and cargo facilities, to the use of gates and ticket counters. Revenue from airlines for these services constitutes an important component of total airport revenue. In an effort to attract airlines and generate additional revenue, most airport operators we interviewed are expanding the number and type of services they offer, and some offer financial incentives. For example, some airport operators have begun offering services such as catering, maintenance, and warehousing that airlines or other third parties previously provided. Miami International Airport officials said that they waive landing fees for international and low cost carriers for the first 2 years in which the airlines schedule flights to Miami—forgoing some current airport operational revenue to help increase future airline operations while capturing more nonaeronautical revenue.\nAs airport operators seek to attract revenue from passengers and visitors, they are renovating their terminals or improving their physical designs to improve the flow of people to the shops, concessions, and gates. The operators are also increasing the number and quality of retail and services—such as wine bars, massage spas, health care clinics, and high fashion shops—offered to passengers and, in some cases, visitors from the local area. (See fig. 4.) For example, the Miami International Airport was named one of the top 10 U.S. airports for dining and one of the world’s top 10 airports for retail shopping. The new $1.7 billion Tom Bradley International Terminal at Los Angeles International Airport is to contain 140,000 square feet for premier dining, retail shopping, and airline club lounges. Also, the Atlanta City Council approved a $3-billion concession contract for 126 food and beverage locations at 24 retail locations at the Hartsfield-Jackson Atlanta International Airport.\nAirport officials we spoke with in Miami and Los Angeles International Airports have cited the importance of passengers who arrive at or depart from their airports for the regional economy rather than those passengers connecting to other flights. Tourism is an important draw to each of these regions, and airport officials have improved airport facilities to more efficiently process and admit international visitors and tourists through security and immigration and customs checkpoints. Airport officials at these airports said that Customs and Border Protection (CBP) staffing can be insufficient at peak travel times and were concerned that international travelers might avoid their airports because of screening delays. These officials also believe that improvements to their airports could increase the rate of passenger and cargo processing if a sufficient number of CBP agents were available to staff inspection booths at peak travel times. However, many U.S. airports lack the space to expand their security facilities, and therefore, may need to identify innovative approaches to overcoming screening delays.\nMany airport operators are also developing airport property outside the terminal area to attract businesses and to use available land to generate revenue. Some have organized their management structures to include development or real estate offices to coordinate with airport management, developers, and public agencies. They are establishing commercial services and activities, such as hotels, parking facilities, and logistics parks, or leasing land for short-and medium-term use until it is needed in the future.\nMost airport officials we spoke with said that the amount of available land on the airport property was a factor in their ability to attract commercial activities to the airport. Officials varied in the type and extent of commercial activities or land uses they were pursuing. Airport officials from Hartsfield-Jackson Atlanta International Airport, Baltimore/Washington International Thurgood Marshall Airport, Los Angeles International Airport, and Miami International Airport said that the amount of land they had available limited their development options on airport property. According to officials in Miami, state law enabled the Florida Department of Transportation and airport officials to obtain land adjacent to the airport property for the development of an intermodal transportation center. This center contains the rental car facility and connections to the Metrorail and TriRail commuter rail systems that service Miami and nearby cities. Airport officials at Indianapolis International Airport partnered with a community college to develop a worker-training program in logistics and distribution at the airport to meet an anticipated growing need for this skill. Officials at Lambert-St. Louis International Airport would like to develop cargo services, including warehouses and cold storage facilities, to attract cargo operations that could generate revenue at the airport. Their goal is to use cargo revenue to lower the cost of passenger flights in an attempt to increase passenger traffic. In addition, airports with land not being used for operation have found ways to generate revenue through temporary or short-term leases of airport property while also reserving the land for future aeronautical needs. We found that Indianapolis and Denver International Airports plan to develop solar energy farms on airport property; Denver International Airport produces more solar energy than any other airport with scheduled airline service in the United States. Officials at Dallas/Fort Worth International Airport have leased a portion of the airport property for oil extraction. See figure 5 for examples of such airport land use and development.\nIn two localities, airport and regional officials indicated that activities in the region were contributing to the commercial viability of the airport. Regional officials told us that, in part, because of the U.S. automotive industry’s presence in Detroit, several of the leading Asian automobile manufacturers have established research and development facilities in the Detroit metropolitan area. In addition, these officials said that a vibrant Asian community, the availability of highly skilled engineering workforce, and access to institutions of higher education offering degrees relevant to their careers attracted Asian automobile industry researchers. According to regional officials, these activities have increased the traffic at Detroit Metropolitan Wayne County Airport.\nOfficials from Miami International Airport and the region discussed the symbiotic relationship between Miami International Airport and the Port of Miami. According to an official, the Port of Miami is the busiest cruise port in the world with over 4 million passengers annually. Of these passengers, 60 percent arrived in Miami through Miami International Airport. The construction of rail connections between the port, downtown area, and airport is expected to facilitate connectivity. These officials noted that the expansion of the Panama Canal to accommodate larger ships in 2014 will benefit Miami because large ships can use the Port of Miami and is to help to promote trade with Asia. If this expected growth in cargo operations occurs, then, according to port officials, the Miami region will benefit and, in turn, contribute to the growth of Miami International Airport by expanding its potential passenger and cargo markets.\nMost stakeholders we spoke with believe that a region’s ability to connect to a variety of domestic and international locations by air is key to attracting businesses, tourists, and cargo to the region. Airport and regional officials sought to increase the number and frequency of flights to a variety of locations by establishing new relationships with foreign airports and business groups and offering incentives to airlines for additional destinations by the airlines. For example, airport and regional officials in Atlanta and Paris have begun cooperating on ways to promote their airport areas for business exchanges. Similarly, Miami International Airport officials visited and reciprocally hosted South African business groups to encourage business development and the flow of passengers and cargo between their respective regions. In July 2012, airport operators at the Memphis International Airport began a $1 million incentive program to attract new, non-stop domestic and international routes.\nDespite efforts by airports to maintain good air connectivity to many locations, it is airlines that make decisions about what routes to fly. Most airport officials noted that the airlines’ decisions to change or eliminate routes can sometimes negatively affect the region’s level of air connectivity. In recent years, the General Mitchell International Airport in Milwaukee experienced a period of growth followed by a decline because of airline business decisions. According to the airport operator, the presence of three low-cost carriers increased the number of flight offerings, but the subsequent merger of two of those airlines and relocation of the third resulted in fewer flights. Similarly, officials in Memphis were concerned about potential loss of air services after a major airline announced plans to decrease its passenger services at Memphis International Airport in response to low demand making the route uneconomical for the airline. Among our selection of airports, international connectivity varied. For example, as of February 2013, 33 airlines served Dulles International Airport, offering direct flights to more than 40 destinations in Canada, Mexico, the Caribbean, and parts of Europe, South America, Asia, Africa, and the Middle East. By comparison, direct flights from General Mitchell International Airport in Milwaukee were limited to destinations in the United States, Mexico, and the Caribbean. Because cargo may be transported below the passenger decks of airplanes, a decline in international passenger flight offerings may affect a region’s potential to directly provide cargo access to international markets for those businesses that rely on air services.\nIn addition to air connectivity, officials we spoke with discussed the need to improve the connectivity of their surface transportation system to attract businesses, especially those that handle time-sensitive or high- value goods such as perishable items or electronic components. These officials cited the importance of identifying and marketing the various transportation modes of a particular region. For example, as mentioned, officials at the Port of Miami estimated that 60 percent of its cruise ship passengers arrive by air. This, they said, highlights the importance of an efficient connection between the airport and the seaport for moving tourists to and from cruise ships. Miami International Airport officials also highlighted the importance of an airport to highway connections for importing and distributing perishable items, including flowers and produce, from Latin America. They noted that many trucks transport cargo from the airport to the federal highway system daily, helping to distribute perishable food and produce imports to the United States. These officials also said that a viaduct dedicated to truck traffic was being built to stem a projected loss of $1 billion in revenue by 2015 because of congestion on the roads between the cargo area inside the airport and the warehouses and freight forwarders in the nearby city of Doral. At Indianapolis International Airport, officials cited the region’s rail and highway connectivity and the presence of FedEx facilities as important infrastructure to support a growing logistics, freight-forwarding, and distribution industry. Airport officials and other regional stakeholders in Memphis market its “Four Rs”—road, river, rail, and runway—to appeal to businesses that may rely on intermodal transportation. Figure 6 illustrates intermodal transportation systems and surface transportation connectivity.\nWith access to multiple modes of transport, businesses can determine shipping routes and methods that are cost-effective and meet customer requirements. (See table 1 for examples of multimodal transportation at airports.) FedEx, for example, determines which mode is the most cost effective based on fuel prices, distance traveled, and time of travel and selects the mode to use. Stakeholders in the Memphis region also noted that the airport’s geographic location provides companies with timely access to major U.S. markets and many places around the world. According to a FedEx official, their ability to reach two-thirds of the U.S. population within 12 hours and most international locations overnight was a key factor in locating in Memphis.\nMany stakeholders told us that a region cannot fully benefit from an efficiently run airport if the surface transportation needed to access the airport is congested. Surface congestion can increase costs, contribute to system inefficiencies, and delay on-time freight delivery. These stakeholders also considered ways to increase public transportation options to relieve congestion from roads while providing alternate transportation options to travelers and airport workers. Most regions in our review offer local bus services to their airports and many also offer local rail services, or plan to offer new rail connections between the airport and the central business district, downtown, for example, in Miami, Washington, D.C., Los Angeles, and Denver. Alternatively, a well- integrated surface transportation network can provide the basis for an efficient logistics and distribution services within a region. Many experts we spoke to agreed that intermodal networks consisting of highways, rail capabilities, or waterways, linked to the airport may facilitate airport- centric development by improving mobility and allowing more people and cargo to access the airport.\nSome experts we spoke with, as well as literature sources,advancements in high speed rail and the potential for code sharing across modes of transportation as a way to free up additional capacity at the airport in some congested regions of the country and extend the region served by an airport. Under a code sharing arrangement, integrated air- rail ticketing would allow a passenger to use both modes of travel through one purchase transaction. Some experts believe that high speed rail development could help contribute to the commercial development of airports. California is considering options as it develops its high-speed rail capabilities, with one potential plan to link San Diego through Los Angeles to Sacramento and San Francisco and airport officials in Miami told us that they believed a high speed rail link between Miami and Orlando would increase the number of passengers at Miami International Airport. Other experts, however, believe that high-speed rail could divert demand from air transport and reduce the need for commercial development at airports, especially if high speed rail is not directly linked to airports. Currently, roads and light rail affect airport development more than high speed rail.", "Transportation improvements for airport-centric development may entail large capital-intensive projects that generally require pooling money from different sources. Federal funds are often sought, but airport and regional officials also seek other sources of funds for their development efforts, particularly intermodal funding and public-private partnership funding. The failure to obtain adequate funding can prevent or inhibit the growth of these airport-centric projects. Officials from the City and County of St. Louis and the State of Missouri were unable to obtain the funding they needed for airport-centric development after airport and the private sector representatives formed the Midwest-China Hub Commission in 2008. After establishing a freight and commercial logistics facility at the airport, the commission sought to attract regularly scheduled freight service to Asia and Latin America and obtain foreign direct investment. Members of the commission visited China, established an office in Beijing, and hosted visitors from China. A Chinese cargo airline began scheduled flights to St. Louis in 2011; however, its operations were not sustainable without financial assistance, according to airport officials at Lambert-St. Louis International Airport. Stakeholders sought to obtain $480 million in state funding to: (1) subsidize the cost of initially flying goods out of the St. Louis region to China (2) provide tax breaks to companies engaging in foreign trade at the airport, and (3) subsidize the cost of constructing millions of square feet of warehouse and factory space in locations across the region. The commission was unable to obtain state funding and is delaying their airport-centric development efforts while it seeks funding from other sources.\nAccording to an April, 2011, evaluation of the Global TransPark logistics the TransPark received airport-centric effort in Kinston, North Carolina,a total of $248 million in funding from local, state, federal, and private sources—far short of the estimated $733 million total cost of the complex. Evaluators found that the TransPark Authority was unable to repay a $25 million loan that had been made in 1993, because operations at the TransPark did not generate sufficient funds to repay the loan. The balance of the loan—$39.9 million because of interest accrual as of February 2011—is to be repaid by the state of North Carolina. One expert attributed the Global TransPark’s failure to attract sufficient business activities to recover costs in a timely manner to an original project design that was too optimistic and the financial risks surrounding large-scale projects.\nAs shown in table 2, the federal government has a number of programs designed to support regional transportation infrastructure development, which some regions have leveraged as part of their airport-centric development efforts.\nAlthough federal sources of funding—such as those identified above— can sometimes be used to develop intermodal capabilities at U.S. airports, the primary planning and development responsibilities for these efforts rest with state and local government agencies. State and locally generated money—such as state transportation trust funds, dedicated sales taxes, and highway tolls—have been used to match federal funds. For example, contributions from the Commonwealth of Virginia, the Metropolitan Washington Airports Authority, Fairfax and Loudoun Counties, and toll revenues from the Dulles Toll Road will be used to pay for the Washington Metropolitan Area Transit Authority Metrorail connection to Dulles International Airport. A “transportation improvement district” was also established to help fund the Metrorail extension from downtown Washington, D.C. to the airport. States may also have their own credit assistance programs. For example, Florida used funds from its credit assistance bank to provide loans to help develop the Miami Intermodal Center at the Miami International Airport. The Miami Intermodal Center has levied a customer facility charge on car rentals to pay for its consolidated rental car facility.\nSome airport operators and an expert with whom we spoke said that FAA’s grant assurances and obligations—that is, requirements on the use of federally administered funds—can limit the airport operator’s ability to fund certain types of intermodal projects. For example, airport operators may use PFCs or AIP grants to fund rail access at airports, if the project is owned by the airport, located on airport property, and used exclusively by airport passengers and employees. PFCs may be used to fund related activities when they are a necessary part of an eligible access road or facility. This requirement on the use of PFCs exists to avoid revenue diversion-the use of airport revenue for other than airport purposes. According to an expert we spoke with, the failure to meet these conditions may preclude an airport from using such funding to connect with a transit line that connects communities on each side to the airport because FAA would require that riders on the transit line begin or end their journey at the airport, rather than bypassing the airport.\nThere are also federal restrictions on the development and sale of airport- owned land and the use of revenues generated from an airport’s land because of the grant assurances an airport accepts as a condition of receiving federal land or funds. Other funding sources on which airport operators generally rely to improve or commercially develop their airports, such as state grants and bonds, also involve various assurances.\nA public-private partnership (P3) for airport-centric development usually refers to a contractual agreement formed between a public airport and private sector developers for the developers to renovate or construct and operate or manage an airport’s facilities on airport land. Some airport operators view public-private partnership arrangements to commercially develop airports as an alternative or supplementary funding source to funds that may be limited by federal restrictions or grant assurances. The particular arrangements of public-private partnerships vary considerably, but developers may finance, design, build, operate, and maintain an enterprise (including charging fees) for a specific time period, after which ownership of the enterprise reverts back to the airport in most P3 arrangements.\nThe Port Authority of New York and New Jersey partnered with the private sector for the $1.2-billion expansion of Terminal 4 at John F. Kennedy International Airport, which when it opened in 2001, represented the largest P3 of its kind at a North American airport. In October 2012, the Port Authority issued a request for qualifications for a P3 to replace LaGuardia’s main terminal in addition to new roads and taxiways with anticipated construction beginning in 2014. debt already incurred to renovate the airport’s terminals. We have previously reported on the benefits and trade-offs of P3s and have expressed concern about how the public interest is protected in these projects. The most recent surface transportation reauthorization, MAP- 21, requires the Secretary of Transportation to develop standardized P3 agreements, identify best practices, and provide technical assistance to P3 project sponsors.\nDenver International Airport illustrates another possible type of public- private funding, although a type that is likely to be of limited use to most U.S. airports. Denver International Airport, as part of the Denver Department of Aviation, receives funds from the sale and development of Denver’s previous airport, Stapleton. This land is being zoned as mixed- use and being developed primarily as residential communities. To develop the Stapleton site, a private non-profit corporation established by the city of Denver and the Denver Urban Renewal Authority, had to re- grade the site to provide adequate storm water drainage; install water, sewer, and other utility lines; develop roads and interchanges; plan and develop parks and trails; preserve wetlands; and install community facilities, such as fire stations, a recreation center, a branch library, and schools.", "Most local government and private sector officials with whom we spoke promoted their region’s existing assets and proximity to the airport to attract or expand businesses that benefit from air connectivity. Officials identified a variety of mechanisms to attract businesses, such as (1) linking airport development to commercial activities in the region, (2) identifying and leveraging unique cultural aspects of the region and promoting tourism or the general quality of life offered by the area, (3) developing industry clusters,incentives to attract businesses to the region. and (4) designing policies and providing Local government officials at many localities indicated that activities on airport grounds contributed to development in the region around the airport. Officials at Hartsfield-Jackson Atlanta International Airport told us that based on a 2009 economic impact study of the airport; they expected a new international terminal to increase airport operations and attract businesses and create jobs in the region surrounding the airport. These airport officials noted that regional stakeholders have already established two new hotels, an office building, and the Georgia International Convention Center on property near the airport. The Mayor of Denver has said that development at the Denver International Airport has the potential to spur commercial development in the Denver region for decades, including development along a planned commuter rail corridor that connects the airport with downtown Denver. The Regional Transportation DistrictAirport; airport officials are planning to build the terminal station and, in conjunction with the city of Denver, one or two additional stations to encourage development in the resulting corridor between the city of Denver and the airport. is building electrified commuter rail to Denver International Cargo service airports can also contribute to regional development. For example, Alliance Global Logistics Hub, an industrial cargo airport near Dallas/Fort Worth International Airport, developed in 1982, has attracted more than $7 billion in investments and 290 corporate residents, including 50 companies listed on the Fortune 500, Global 500 or Forbes’ Top List of Private Firms. Although the North Carolina Global TransPark in Kinston, North Carolina, has not attracted the initial investment or new jobs initially envisioned, some development has taken place. The TransPark has, as of February 2013, attracted 13 tenants. One of the tenants received a Job Development Incentive Grant from the North Carolina Department of Commerce, and is expected to employ more than 1,000 workers by 2014. An official representing the TransPark said that new developments like the TransPark take time to fully install supporting transportation infrastructure and utilities to attract tenants, but hopes that additional companies will locate at the TransPark.\nOfficials at Los Angeles and Miami International Airports cited cultural ties to other regions of the world and tourism as important drivers of passengers and cargo traffic. For example, airport officials in Los Angeles said that the city has large Korean and Iranian populations, and Miami airport officials spoke of the city’s close cultural ties with Latin America. Officials in Los Angeles said that the large population of Asians in the Los Angeles region has reinforced strong cultural ties to Asian countries and has helped to support trade with these countries. Similarly, officials in Miami said that tourists from Latin America and the Caribbean visit Miami, in part, because of the cultural familiarity, the access to world-class tourist attractions and cruise ships, and the shopping options that may be unavailable in their countries of origin. In both locations, the regional aspects helped to attract visitors who use the airport and spend money in the region. Officials in Memphis said that some of their development efforts, such as developing Elvis Presley Boulevard and the potential redevelopment of downtown Memphis, are intended to increase tourism and attract more passenger flights to the area. They also noted that by drawing visitors to the region, the airport would generate additional revenue and airlines might offer more flights to the region.\nIn some regions, local officials told us that they were trying to attract complementary businesses to form industry clusters that might benefit from the availability of a skilled and interchangeable, or transferrable, workforce. For example, officials in Miami have been fostering growth in the region’s banking, insurance and legal services, by promoting its multicultural and multilingual workforce and its direct air connectivity to Latin America and the Caribbean. Stakeholders involved with business development in the Baltimore region expected that the influx of military jobs at Fort Meade would result in the growth of defense contracting jobs in the region. These officials anticipate that defense contracting jobs will, in turn, lead to additional growth in the region. For example, one regional stakeholder noted that the growing number of government consultants rely heavily on air transportation and area hotels. Executives at a private corporation in Detroit told us that they are trying to attract compatible businesses that could leverage the region’s strength in research and development in automobile electronics.\nMost local officials we spoke with have implemented state, regional, or local tax-based incentives and land use policies to attract businesses and developers to their regions. For example, airport officials in Indiana, Maryland, Missouri, North Carolina, Texas, and Virginia have applied to the U.S. Department of Commerce for foreign trade zone designation at and around their airports to support tax-free manufacturing. Stakeholders in Detroit leveraged state-approved tax incentives to attract businesses that rely on the airport for commerce to a 60,000 acre area around the Detroit Metropolitan Wayne County and Willow Run Airports. Local planning officials have affected particular land uses near airports through planning policies, including policies related to noise, environmental quality (air, water, wetland, species protection), and zoning restrictions. This can help with airport-centric development because it prioritizes limited developable land for uses that are compatible with airport operations and compliant with local, state, and federal requirements. At the Hartsfield- Jackson Atlanta International Airport, a private developer cleaned up an abandoned industrial site east of the airport and sold a portion of the land to the City of Atlanta for the airport’s use and sold another portion to a high-end auto manufacturer. The auto manufacturer expressed interest in purchasing more land from the developer to attract another high-end auto manufacturer to develop and share a track on the site to attract prospective buyers to fly into the region to test drive cars.\nAirport officials in three of the regions in our study said they have considered the potential to utilize one airport primarily for passengers with a nearby airport for cargo; however, those officials also identified potential challenges to splitting passenger and cargo operations. For example, officials from Los Angeles International Airport told us that it would be inefficient to move their cargo operations to nearby Ontario Airport in the Los Angeles region because much of the cargo passing through their airport travels in the lower deck of passenger planes. Officials at Detroit Metropolitan Wayne County Airport said they use nearby Willow Run industrial airport for air cargo to complement passenger and cargo services offered at Detroit Metropolitan Wayne County Airport, but cited limitations in the airport’s runway length and condition. An official at Alliance Global Logistics Hub, on the other hand, said that the passenger services offered at nearby Dallas/Fort Worth International Airport complemented the cargo-only services offered at Alliance Global Logistics Hub because Dallas/Fort Worth International Airport offers passenger services most major cities in the United States, Mexico and Canada within 4 hours.\nWhile the economic viability of all-cargo operations at Ontario and Willow Run Airports is not yet known, we have previously identified regional airport planning as one approach to constrained capacity. Some metropolitan planning organizations (MPO) conduct regional airport planning as a part of their activities. In 2010, we found metropolitan- planning organizations that conduct regional airport planning have no authority to determine the priorities of airport improvement projects in their regions; MPOs do have authority over surface transportation projects. As a result, the regional airport plans that MPOs produce have little direct influence over airport capital investment and other decisions.Support and funding of regional airports depend on the FAA’s assessment of the project. Thus, GAO recommended that FAA develop a review process for regional airport system planning. According to FAA officials, FAA agreed to review its Airport System Planning guidance and revise or clarify it, if necessary, although the agency believed it current guidance was adequate.", "Airport-centric development efforts in the regions we studied span multiple jurisdictions and involve stakeholders from the airport, the private sector, and the government sector. Based on our review of literature, our previous work,visited, collaboration among various stakeholders can help achieve specific goals. Consultation with residents near the airport and with city officials representing the interest of their constituents is an important step in the airport-centric development process. Without collaboration or agreement among stakeholders, development plans may be difficult to implement. Los Angeles International Airport officials, for example, would like to further expand the airport’s northern airfield to address safety and efficiency issues related to aircraft operations (including accommodating and discussions with stakeholders in the regions we larger aircraft); however, given the proximity of the airport to residential areas and community opposition to potential noise issues, there has been little public or political support for the airport’s expansion. As our previous work has shown early and continuous community involvement is critical to efficient and timely project implementation. For example, some airport operators are using AIP funds for long-term environmental planning; continuously self-monitoring their environmental footprints to help prepare for and address environmental issues; and soliciting community concerns to anticipate and address environmental issues. In addition, several FAA processes have been established to help airports address environmental concerns such as a streamlined environmental review process for airport projects where expansion is critical for handling the growth of air traffic.\nIn the future, as airports like Los Angeles International Airport learn to better manage their environmental impacts, airports may be better able to garner community support for airport expansion.\nThe stakeholders we spoke with gave examples of the ways in which they collaborated with other stakeholders, such as establishing new groups to promote airport-centric development. Regional stakeholders in Baltimore, Detroit, Indianapolis, Memphis, Milwaukee, and St. Louis formed multilateral committees including stakeholders representing the airport, the public sector, and the private sector. While these committees all had a general focus on airport-centric development, they focused on different aspects of airport-centric development and functioned in different ways, for example:\nThe BWI Partnership is a business-development advocacy group, representing the airport and approximately 200 developers, hotels, law firms, banks, and local government members, and focused on supporting business development and efficient transportation in the airport region.\nThe Detroit Region Aerotropolis Development Corporation (ADC) is a public-private economic development agency that works to attract businesses that rely on air cargo and passenger services. It is comprised of and funded by stakeholders representing seven local communities, two counties, and the airport. The Next Michigan Development Act,jurisdictional cooperation among local entities and allows them to create tax incentive zones targeted at businesses in the transportation and logistics sectors. According to the ADC the act contains a clause to prevent job displacement from another region of the State of Michigan. a state incentive program, encourages inter-\nAirport officials led airport-centric development efforts at and around the Indianapolis International Airport. In their early planning stages, airport officials invited representatives from nine neighboring jurisdictions, including the City of Indianapolis, to sign a nonbinding memorandum of understanding to explore potential targeted airport- centric development opportunities, based on land availability and existing assets and infrastructure, such as warehouses, and rail connections that might be utilized to support airport-centric development; the officials increased the number of stakeholders with whom to collaborate by expanding the area of consideration, from a 5- mile radius to an 8-mile radius; and they began monthly stakeholder meetings. Airport officials also partnered with a local community college to establish a supply-chain logistics and freight-forwarding technical school on airport property to meet the anticipated demand for skilled workers in this trade.\nIn 2006, the Greater Memphis Chambers of Commerce created the Memphis Aerotropolis Steering Committee, comprised of public and private sector stakeholders, to coordinate development efforts in selected targeted development areas surrounding the airport. This group has established various work groups to focus on gateways and beautification, marketing and branding, corridor business development, and access and transportation. The City of Memphis was awarded $1.26 million from the U.S. Department of Housing and Urban Development to partner with the Greater Memphis Chamber of Commerce, the University of Memphis, and Shelby County to develop a master plan for airport-centered economic development efforts. The federal funds were matched with $900,000 in local funds and in-kind services.\nThe Airport Gateway Business Association (AGBA) was created in 2005 to provide leadership in planning, promoting, and developing the vitality of the area around the General Mitchell International Airport in Milwaukee, marketed as the “Gateway to Milwaukee.” Funding is provided through an Airport Gateway Business Improvement District, managed by AGBA, and stakeholders represent the State of Wisconsin, the City and the County of Milwaukee, the Milwaukee 7 (seven counties united around an agenda to grow, expand and attract world-class businesses and talent), Visit Milwaukee, and the General Mitchell International Airport.\nOfficials representing customs brokers and freight forwarders in Miami indicated the importance of collaboration between stakeholders. That is, the industry depends on well-established relationships between those responsible for importing and inspecting cargo and those routing it to its final destinations. Infrastructure is also necessary, including refrigerated storage, fumigation facilities, and information technology systems. Another official, representing floral importers of Florida, said that the established infrastructure and relationships needed to support a supply chain are not easy to replicate and help to ensure that Miami International Airport does not lose its position to another airport as the primary gateway for most of the flowers imported into the United States. Officials at Lambert-St. Louis International Airport also explained that freight forwarders serve as “gatekeepers,” determining what route freight takes to get from its origin to its destination.", "Based on our review of studies and discussion with regional stakeholders, we have developed an organizational framework that describes 5 factors—development at the airport, air and surface connectivity, funding mechanisms for development, development in the region, and stakeholder collaboration—to consider when approaching airport-centric development. We could not determine if each of these factors are needed or if one factor could be substituted for another. However, consideration of these factors may be helpful as government officials and private-sector developers develop their plans and analyses when considering undertaking airport-centric development or projects supporting airport- centric development. Some countries enjoy the concurrent green field development of airports, the regions, and the facilities that comprise airport-centric development. In the United States, however, where there are many long-established airports, most airport-centric development is implemented through a series of targeted projects and activities to build upon what already exists. The success of these projects or activities does not ensure the success of an entire airport-centric development. Similarly, the presence of an economically viable airport in an economically successful region does not necessarily mean that targeted airport-centric development efforts were responsible for success.", "We provided a draft of this report to the Federal Aviation Administration (FAA), the Department of Commerce (DOC), the Department of Housing and Urban Development (HUD), the Environmental Protection Agency (EPA), and representatives from the Airports Council International (ACI), Airlines for America (A4A), the Cargo Airline Association (CAA), and academic experts for review and comment. We invited airport and regional stakeholders to comment on the portions of this report draft that pertained to them. FAA, HUD, and EPA provided technical comments on the various programs under their purview that we incorporated as appropriate. ACI, A4A, CAA, and the academic experts, generally, agreed with the approach and information in the draft. One expert indicated that an evaluative approach would have been more useful for policymakers. Some stakeholders provided technical information that we incorporated as appropriate.\nWe are sending copies of this report to the Secretary of Transportation, the appropriate congressional committees, and others. In addition, the report is available at no charge on the GAO website at http://www.gao.gov.\nIf you or your staff members have any questions about this report, please contact me at (202) 512-2834 or dillinghamg@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix V.", "Airport-centric development is occurring in many countries of the world, including the U.S. According to Kasarda, for example, Asia is second to North America (21 versus 40) in the number of airport-centric developments; Europe has 20 airport-centric developments. Globally, Kasarda identified 35 airport cities and 56 aerotropolises (see table 3). Some countries with developing economies, including China, India, South Korea, and the UAE, are building new airports in conjunction with planned cities on the airport property, called “airport cities,” and beyond airport property (“aerotropolises”) to provide services for travelers and shippers.", "Appendix II: Profiles of U.S. Airport Regions According to a regional business journal, the Maryland Board of Public Works approved and awarded a $10 million design contract to design a new connection between two of the airport’s terminals. Airport officials said that the expansion , which will allow passengers to pass through security checkpoints to access shops and restaurants at the airport’s A, B, and C terminals without passing through any further checkpoints, is expected to cost about $100 million to complete. (Sernovitz, Daniel J., “BWI Airport awarded $10 million for terminal expansion,” Baltimore Business Journal, Baltimore, MD: April 12, 2011), accessed November 14, 2011, http://www.bizjournals.com/baltimore/print-edition/2011/08/12/bwi-airport-awarded-10-million.html.).\nAccording to the BWI Business Partnership website, the Partnership is a business development and transportation advocacy organization with nearly 175 business and government agency members representing local and regional businesses, and local, state and federal government agencies. customs tariffs until the goods leave the zone and are formally entered into U.S. Customs Territory. Merchandise that is shipped to foreign countries from FTZs is exempt from duty payments. This provision is especially useful to firms that import components in order to manufacture finished products for export.", "This report describes the factors that our research and airport operators, government officials, developers, and other stakeholders identified as key considerations for airport-centric development. Specifically, this study describes the activities of stakeholders who are engaged airport-centric development and the motivations and beliefs of those stakeholders with respect to their efforts.\nTo determine the key characteristics of airport centric development, in the United States and internationally, we first conducted a bibliographic search of relevant articles and books cited in the following data-bases. (See table 18.)\nWe supplemented the citations we obtained from this search with those from the bibliographies of other studies we had obtained, and recommendations from experts we interviewed. After screening the abstracts of these studies for relevance, we collected information from these studies for further analysis. To supplement the information obtained from our literature review, we spoke with federal officials at the Department of Transportation and its Federal Aviation Administration; the Economic Development and International Trade Administrations within the Department of Commerce; and the Environmental Protection Agency. We also spoke with experts in transportation, trade, logistics, and community development about airport-centric development issues.\nTo obtain information about airport-centric activities, we selected a purposeful sample of airports based on the number of passengers and amount of cargo served; expert recommendations; and geographical representation. This selection procedure yielded of the following 12 scheduled airline and 2 industrial airports for closer study (see fig. 7).\nFrom this purposeful sample of 14 airports, we selected 7 sites to visit to understand the activities and perceptions of stakeholders; we conducted telephone interviews with representative of and stakeholders involved with the other 7 airports. See table 19.\nTo obtain a full range of relevant stakeholder perspectives on the airport- centric development efforts, we interviewed airport officials; executives from businesses located adjacent or near to airports; representatives of real estate development organizations; local and regional economic development specialists, and federal, state, and local government officials. We attempted to identify critics of airport-centric development in each airport region, but we were generally unable to identify critics.\nWe conducted our interviews using a semi-structured approach that allowed our interviewees to respond to provide the information that was most relevant for their airport and region in each of several broad areas. These areas included: challenges interviewees had experienced in their development efforts; ways they had or might address those challenges; the likely success of their development efforts; factors that might facilitate or hinder development; any lessons learned or advice the interviewees identified for others interested in such development efforts; their assessment of the impact of the considerations for their initiative; and illustrative examples of how their development efforts had proceeded.\nThis approach permitted stakeholders at each site to tailor information based on their own experiences, but does not allow for generalizations about how the considerations may impact on the progress of all airport- centric developments or whether such development should be considered at any given locality. To understand the level of development planned and efforts underway, we also reviewed available plans related to the airport- centric development efforts including project plans and airport master plans.\nBased on our literature review and the interviews we conducted with experts, agency officials, and stakeholders, we identified the following factors considered by stakeholders at selected U.S. airports and regions when pursuing airport-centric development: 1) development at the airport, 2) air and surface connectivity, 3) funding sources for development, (4) development in the region, and (5) collaboration among stakeholders. In this report, we use these 5 factors to discuss how these considerations generally relate to airport-centric developments and provide our observations about how particular localities applied these considerations.\nThroughout the report we use the indefinite quantifiers, “some”, “many”, and “most” to inform the reader of the approximate quantity of stakeholder or interviewee type within the regions where we interviewed that agreed with the particular statement or idea, without actually stating the specific number of those in agreement in each case. To determine when to use each indefinite quantifier, we split the total of each type of stakeholder group into thirds, so that “some” would refer to more than one but fewer than or equal to one-third of the group; “many” would refer to more than one-third but fewer than or equal to two-thirds of the group; and, “most” would refer to more than two-thirds of the group but not the full group. The corresponding numeric range of values for each stakeholder group can be found in the table below. For example, most of the airport representatives would refer to between 10 and 13 (of the total 14).", "", "", "In addition to the contact named above, Maria Edelstein, Assistant Director; Amy Abramowitz; Leia Dickerson; John Healey; William King; Kirsten Lauber; and Richard Scott, Ph.D made key contributions to this report.", "Appold, Stephen J., and John D. Kasarda. “The appropriate scale of US airport retail activities.” Journal of Air Transport Management, vol. 12, no. 6 (2006): 277-287.\nBogue, Donald Joseph, and Ernest Watson Burgess. Contributions to urban sociology. Chicago: University of Chicago Press, 1964.\nButton, K., “Air Transportation Infrastructure in Developing Countries: Privitization and Deregulation,” In Aviation Infrastructure Performance: A Study in Comparative Political Economy, edited by Clifford Winston and Gines de Rus, 193-221. Washington, D.C.: Brookings Institution Press, 2008.\nChaudhuri, Sumana, “Impact of Privatization on Performance of Airport Infrastructure Projects in India: A Preliminary Study.” International Journal of Aviation Management, vol.1, no.1&2 (2011): 40-57.\nConway, H.M. The Airport City: Development Concepts for the 21st Century, Revised Edition, Atlanta, GA: Conway Publications, Inc., 1980.\nFreestone, Robert. \"Planning, Sustainability and Airport-Led Urban Development.\" International Planning Studies, vol.14, no. 2 (2009).\nGreis, Noel P., and John D. Kasarda. “Enterprise Logistics in the Information Era.” California Management Review, vol. 39, no. 4 (1997) 55-78.\nIshutkina, M.A. and R. John Hansman, “Analysis of Interaction between Air Transportation and Economic Activity (Cambridge, MA: International Center for Air Transportation, MIT, 2008).\nKasarda, John D. “Airport cities & the aerotropolis: New planning models.” Airport Innovation, (2007): 106-110.\nKasarda, John D. “Airport Cities.” Urban Land, April (2009): 56-60.\nKasarda, John D. “Airport-Related Industrial Development.” Urban Land, June (1996): 54-55.\nKasarda, John D. “Asia’s emerging airport cities.” International Airport Review, vol. 10, no. 2 (2004): 63-66.\nKasarda, John D. “Shopping in the airport city and aerotropolis.” Research Review, vol. 15, no. 2 (2008): 50-56.\nKasarda, John D. “The aerotropolis and global competitiveness.” Diplomatic Courier, December (2011): 16-19.\nKasarda, John D. “The Global TransPark: Logistical Infrastructure for Industrial Advantage.”Reprint Urban Land, (1998).\nKasarda, John D. “The Rise of the Aerotropolis.” Next American City, Spring 2006. Accessed June 24, 2011.\nKasarda, John D. “Time-Based Competition & Industrial Location in the Fast Century.” Real Estate Issues, (1998/99) 24-29.\nKasarda, John D. and Greg Lindsay. Aerotropolis: The Way We’ll Live Next, 1st edition. New York, NY: Farrar, Straus and Giroux, 2011.\nKasarda, John D., “The Evolution of Airport Cities and the Aerotropolis,” Chapter 1 in Airport Cities: The Evolution (London: Insight Media, 2008).\nKasarda, John D., and David L. Sullivan. “Air Cargo, Liberalization, and Economic Development.” Annals of Air and Space Law, vol. XXXI (May 2006).\nKasarda, John D., and Jonathan Green. “Air cargo as an economic development engine: A note on opportunities and constraints.” Journal of Air Transport Management, vol. 11, no. 6 (2005): 459-462.\nKasarda, John D., and Greg Lindsay, Aerotropolis: The Way We’ll Live Next, (New York, NY: Farrar, Straus and Giroux, 2011).\nMorrison, Stephen A. and Clifford Winston, ”Delayed: U.S. Aviation Infrastructure Policy at A Crossroads,” In Aviation Infrastructure Performance: A Study in Comparative Political Economy, edited by Clifford Winston and Gines de Rus, 7-35. Washington, D.C.: Brookings Institution Press, 2008.\nOliver Clark and John D. Kasarda, editors, Global Airport Cities (Twickenham, London: Insight Media, 2010).\nPeneda, Mauro José Aguiar; Vasco Domingos Reis, Maria do Rosário M.R. Macário. \"Critical Factors for Development of Airport Cities.\" Transportation Research Record: Journal of the Transportation Research Board, no. 2214 (2011): 1-9.\nSheffi, Yossi, Logistics Clusters: Delivering Value and Driving Growth, Boston, MA: MIT Press, 2012.\nStock, Gregory N.; Noel P. Greis, and John D. Kasarda. “Logistics, strategy and structure: A conceptual framework.” International Journal of Operations & Production Management, vol. 18, no. 1 (1998): 37-52.\nVastag, Gyula; John D. Kasarda, and Tonya Boone. “Logistical Support for Manufacturing Agility in Global Markets.” International Journal of Operations & Production Management, vol. 14, no. 11 (1994): 73-85.\nVespermann, Jan; Andreas Wald. \"Long-term perspectives of intermodal integration at airports.\" Journal of airport management, vol.4, no. 3 (2010): 252-264.\nYeung, J.H.Y., Waiman Cheung, Michael Ka-yiu Fung, Xiande Zhao, and Min Zhang, “The Air Cargo and Express Industry in Hong Kong: Economic Contribution and Competitiveness.” International Journal of Shipping and Transport Logistics, vol. 2, no.3 (2010): 321-345." ], "depth": [ 1, 2, 2, 1, 2, 2, 2, 1, 1, 1, 1, 1, 1, 2, 2, 1 ], "alignment": [ "h3_title", "h3_full", "", "h0_full h3_full h2_title h1_title", "h0_full h1_full", "", "h2_full h1_full", "h2_full", "h4_full", "", "", "h3_full h4_full", "", "", "", "" ] }

{ "question": [ "Connecting a region of the U.S. to other domestic and international destinations is important for what reason?", "What other connectivity concerns are at play?", "What system does Washington DC have connecting its airport to the city?", "What is generally required for transportation improvements for airport-centric developments to occur?", "What are some federal governmental programs that help these developments come to fruition?", "How is state money often used in conjunction with federal funds?", "How is Memphis an example of state money and federal funds working in conjunction?", "From what other source can projects find funding?", "Why is collaboration among stakeholders so important?", "Without collaboration, what difficulties can arise?", "How are multilateral committees key in this collaboration process?", "What did the GAO examine?", "What is included in the GAO's report?", "Why are some airport operators exploring opportunities to develop regions surrounding the airports?", "How did GAO identify factors that facilitate airport-centric development?", "Besides airport officials, what stakeholders did GAO interview?", "How did the GAO select airports for in-depth study?", "What are the limitations of the report?", "What other groups helped in the creation of the report?" ], "summary": [ "Most stakeholders GAO spoke with noted that a region's ability to connect to a variety of domestic and international destinations by air is important in attracting businesses, tourists, and cargo to the region.", "In addition to air connectivity, the routes taken by passengers or cargo to and from the airport may be enhanced by efficient highway, rail, and port connections.", "One example is the Metrorail extension, which will connect Dulles International Airport with downtown Washington DC.", "Transportation improvements for airport-centric development may entail large capital-intensive projects that generally require pooling money from different sources.", "The federal government has a number of programs, such as grants from the Economic Development Administration, designed to support regional transportation-infrastructure development.", "State and locally generated money--such as state transportation trust funds, dedicated sales taxes, and highway tolls--have been used to match federal funds.", "Stakeholders in Memphis, for example, were awarded a $1.26 million grant from the Department of Housing and Urban Development, matched with $900,000 in local funds and in-kind services, to develop a master plan for their airport-centric development efforts.", "The private sector may also provide funding through a public-private partnership agreement.", "Collaboration among various stakeholders can help achieve specific airport-centric goals.", "Consultation with residents near the airport and with committee composed of representatives from the airport and the public and private sectors is important; the lack of such consultation can make it difficult to implement development plans.", "GAO found that multilateral committees representing airport, public-sector, and private-sector groups had been established to promote airport-centric development.", "GAO was asked to examine airport-centric development and the activities of airport operators and regional stakeholders to facilitate such development.", "This report describes the factors considered and actions taken by airport operators, government officials, developers, and others to facilitate airport-centric development.", "In an effort to increase airports' efficiency in moving passengers and cargo while bolstering the economies of regions surrounding airports, some airport operators, government officials, and business owners are exploring opportunities to strategically develop airports and the regions around them.", "To do this work, GAO identified five factors that facilitate airport-centric development from relevant literature, interviews with experts, and observations at selected U.S. airports and their surrounding regions.", "GAO examined these factors by reviewing relevant documents and interviewing stakeholders, including airport officials, business owners, representatives of development organizations, and federal, state, and local government officials.", "GAO selected 14 airports for more in-depth study. These airports were selected based on annual passenger enplanements and cargo amounts, and experts' recommendations.", "The findings from these 14 airports cannot be generalized but provide insights that may be of interest to stakeholders in other regions. GAO is not making recommendations in this report.", "The Department of Transportation, the Federal Aviation Administration, and others provided technical comments, which were incorporated as appropriate." ], "parent_pair_index": [ -1, 0, 1, -1, 0, 0, 2, 0, -1, 0, 0, -1, 0, 0, -1, 0, 0, 0, 0 ], "summary_paragraph_index": [ 4, 4, 4, 5, 5, 5, 5, 5, 7, 7, 7, 0, 0, 0, 1, 1, 1, 1, 1 ] }

{ "title": [ "", "Introduction", "Overview of Key Similarities and Differences", "Summary Comparison of CCS Provisions", "National Strategy", "H.R. 2454", "S. 1733", "Regulations for Geologic Sequestration Sites", "H.R. 2454", "S. 1733", "Studies and Reports", "H.R. 2454", "S. 1733", "Summary of Regulatory and Reporting Requirements", "Carbon Capture and Sequestration Demonstration and Early Deployment Program", "H.R. 2454", "S. 1733", "Performance Standards for Coal-Fueled Power Plants", "H.R. 2454", "S. 1733", "Commercial Deployment of Carbon Capture and Sequestration Technologies", "H.R. 2454", "Limitations", "S. 1733", "Limitations", "Chairman's Mark" ], "paragraphs": [ "", "This report summarizes and compares provisions for carbon capture and sequestration (CCS) contained in H.R. 2454 and S. 1733 , the two leading cap-and-trade bills aimed at reducing U.S. emissions of greenhouse gases. CCS receives considerable attention in both bills because of its potential for substantially reducing carbon dioxide (CO 2 ) emissions from stationary sources, such as coal-fired power plants, cement plants, and oil refineries, while allowing those industrial sources to continue to operate even in a carbon-constrained environment. The goal of reduced emissions and continued operations is particularly important for the coal industry: coal-fired power plants generate approximately half of all the electricity in the United States, and are responsible for over 40% of U.S. CO 2 emissions from fossil fuels. Many observers consider CCS to be an integral component of a comprehensive strategy to reduce greenhouse gas emissions without creating a near-term disruption of the U.S. energy sector.\nCurrently, no coal-fired power plants, cement plants, oil refineries, or other large industrial sources of CO 2 in the United States are capturing and sequestering large quantities of CO 2 solely for the purpose of greenhouse gas mitigation. The CCS provisions in H.R. 2454 and S. 1733 are likely intended to spur commercial deployment of CCS at a scale that would greatly surpass the degree of deployment in the absence of additional federal incentives and requirements. Without these incentives, some analyses have projected that low emission allowance prices combined with high costs for installing CCS systems would preclude most additional CCS deployment.\nMany questions remain, however, about the possible consequences of accelerated CCS development: financial, legal, regulatory, infrastructure, environmental, and public acceptance. Both bills attempt to some degree to address these questions, largely in parallel and similar fashion, albeit with some important differences. Table 1 provides a snapshot comparison of the parallel sections in H.R. 2454 and S. 1733 , and the body of the report summarizes and discusses each section in sequence.", "The CCS provisions in H.R. 2454 and S. 1733 are very similar (some sections are identical), and both bills appear to share the goal of fostering the commercial development and deployment of CCS projects as an important component of mitigating greenhouse gas emissions. S. 1733 even specifies—which H.R. 2454 does not—that Congress finds it is in the public interest to achieve widespread commercial deployment of CCS in the United States and throughout Asia before January 1, 2030.\nBoth bills would require the Environmental Protection Agency (EPA) to regulate geologic sequestration of CO 2 under both the Safe Drinking Water Act and the Clean Air Act, and would also require that the EPA Administrator establish a coordinated certification and permitting process for geological sequestration sites. Recognizing that these statutes do not provide for comprehensive management of geologic sequestration issues (such as long-term liability and pore space ownership), the House and Senate bills would direct the EPA Administrator to establish a task force to examine broadly the federal and state legal framework for geologic sequestration sites and activities, and to report to Congress within 18 months.\nBoth bills would create two separate programs that would provide financial incentives to develop and deploy commercial-scale CCS. The \"wires charge\" program, which is nearly identical in both bills and very similar to H.R. 1689 , the Carbon Capture and Storage Early Deployment Act introduced by Representative Boucher, would create an annual funding stream of approximately $1 billion to be awarded by a private corporation to eligible projects. The allocation of development and deployment grants and contracts would be largely independent of federal control, once the corporation is established, leaving the program to the discretion of the electricity generating industry for the most part.\nThe second program would distribute emission allowances from the cap-and-trade portions of both bills to qualifying electric generating plants and industrial facilities. Although the programs in the two bills are similar in construct and scale, S. 1733 would award allowances to the first 20 gigawatts (Gw) of electricity generation that employs CCS technology via a formula that provides a significant financial incentive, as much as $106 per ton of CO 2 captured for 90% capture efficiency. In contrast, H.R. 2454 would award only the first 6 Gw via the same formula, and then employ a reverse auction scheme to allocate the rest, up to a total of 72 Gw. Arguably the reverse auction process would provide an allowance price closer to its true market value, and thus reflect how the market values CCS versus other emissions reduction options, such as fuel-switching, offsets, and others. If so, then S. 1733 hedges in favor of CCS as a preferred technology by allocating allowances to a substantially larger proportion of electricity generating capacity in the first phase of the program, at bonus allowance values that could be significantly higher than their average market value.\nBoth the \"wires charge\" program and the emission allowance scheme focus on the CO 2 capture stage of CCS and generally presume that the technical and regulatory requirements for the transportation and sequestration stages would be in place by the time capture technology is installed and operational. Three nearly identical sections in H.R. 2454 and S. 1733 attempt to address those requirements, through amendments to the Clean Air Act and Safe Drinking Water Act, as well as through studies and reports to construct a national strategy for CCS and identify gaps and barriers that could require additional legislation. Despite these provisions, it is not yet clear whether all of the challenges to transportation and sequestration aspects of CCS can or will be met in concert with the technological and financial challenges of building capture technology that works at large power plants and other industrial sources of CO 2 . The promise of CCS in some part depends on the promulgation of a CCS regulatory structure, a sufficient transportation capacity, resolution of liability concerns about long-term CO 2 storage, and public acceptance of CCS, as well as other requirements prior to or in conjunction with the deployment of capture technology at large commercial facilities. Given these present uncertainties, how well the provisions in H.R. 2454 and S. 1733 would advance widespread deployment of CCS still remains an open question.", "", "", "Title I, § 111, of H.R. 2454 would require the Administrator of the Environmental Protection Agency (EPA) to submit to Congress, within one year of enactment, a report detailing a unified national strategy for addressing the key legal and regulatory barriers to deployment of commercial-scale carbon capture and sequestration. The report is to identify barriers and gaps that could be addressed using existing federal authority and those that would require new federal legislation, as well as barriers and gaps that would be best addressed at the state, tribal, or regional level. Additionally, the report is to include regulatory, legislative, or other recommendations to address the gaps and barriers.", "Division A, subsections 121(a) and (b) contain the same provisions as § 111 of H.R. 2454 , calling for development of a national strategy and related report to Congress. The Senate bill includes an additional provision, subsection 121(c), which states that Congress finds that it is in the public interest that commercial-scale CCS achieve wide deployment in the United States and throughout Asia before 2030.", "", "Section 112 of the House bill would require the EPA Administrator to promulgate regulations to manage the geologic sequestration of CO 2 under both the Clean Air Act (CAA) and the Safe Drinking Water Act (SDWA).\nSection 112(a) would amend Title VIII of CAA, adding a new § 813 to require the EPA Administrator to establish a coordinated certification and permitting process for geologic sequestration sites, taking into account all relevant statutory authorities. This provision would direct the Administrator to reduce redundancy with SDWA requirements (including the current rulemaking for geologic sequestration wells) and, to the extent practical, reduce the regulatory burden imposed on certified sequestration entities and implementing authorities.\nWithin two years of enactment, the Administrator would be required to promulgate CAA regulations to protect human health and the environment by minimizing the risk of atmospheric release of carbon dioxide injected for geologic sequestration. The scope of the regulations would include enhanced oil and gas recovery combined with geologic sequestration. The regulations would have to include a process to obtain certification for geologic sequestration; requirements for monitoring, record keeping, and reporting for injected and escaped emissions (taking into account any requirements under § 713 regarding a greenhouse gas registry); and requirements for public participation.\nSection 112(a) further would require that, within two years of promulgation of the regulations and every three years thereafter, the EPA Administrator report to the House Committee on Energy and Commerce and the Senate Committee on Environment and Public Works on geologic sequestration in the United States and elsewhere in North America. The report would include data on injection and any emissions to the atmosphere, an evaluation of active and closed sequestration sites, and an evaluation of the performance of federal environmental regulations and programs for sequestration as well as recommendations for their improvement.\nThis provision broadens the scope of geologic sequestration regulatory authority beyond protecting ground water under SDWA, to protecting against atmospheric releases of CO 2 under the CAA. Currently, EPA's proposed geologic sequestration rulemaking is limited to establishing requirements related to the protection of underground sources of drinking water under SDWA's underground injection control provisions (42 U.S.C. 300h et seq. ).\nH.R. 2454 , § 112(b), would amend SDWA by adding a new § 1421(e) to require regulation of geologic sequestration wells. This subsection would direct the EPA Administrator to promulgate, within one year of enactment, regulations for the development, operation, and closure of CO 2 sequestration wells. The regulations would include financial responsibility requirements for emergency and remedial response, well plugging, site closure, and post-injection care. The Safe Drinking Water Act currently does not include explicit financial responsibility provisions, thus limiting EPA's ability to address this issue in its proposed rule.\nThe section of SDWA that the bill would amend, § 1421, directs the EPA Administrator to promulgate regulations for state underground injection control programs. Thus, H.R. 2454 envisions that EPA would delegate primary oversight and enforcement authority for geologic sequestration wells to interested and qualified states.", "Division A, §122, contains the same provisions.", "", "Section 113(a) would direct the EPA Administrator to establish, within six months, a task force to conduct a study examining the legal framework for geologic sequestration sites. The bill specifies a range of experts, public and private sector representatives, and other participants to be included on the task force. The study would evaluate (1) existing federal environmental statutes, state environmental statutes, and state common law that would apply to CO 2 storage sites; (2) existing state and federal laws that apply to harm and damage to public health or the environment at closed sites where CO 2 injection has been used for enhanced oil and gas recovery; (3) the statutory framework, implementation issues, and financial implications for various liability models regarding closed sequestration sites; (4) private sector mechanisms that may be available to manage risks from closed sites; and (5) subsurface mineral rights, water rights, and property rights issues associated with geologic sequestration. EPA would be required to report to Congress within 18 months of enactment.\nSection 113(b) would direct the EPA Administrator to establish a task force to conduct a study examining how, and under what circumstances, the environmental statutes for which EPA has responsibility would apply to CO 2 injection and geologic sequestration activities. EPA would be required to report to Congress within 12 months of enactment.", "Division A, § 123, contains the same provisions for studies and reports.", "Table 2 identifies the schedules for completing reports and regulations required in the above provisions.", "", "Section 114 of H.R. 2454 allows for the creation of a Carbon Storage Research Corporation that would establish and administer a program to accelerate the commercial availability of CO 2 capture and storage technologies and methods by awarding grants, contracts, and financial assistance to electric utilities, academic institutions, and other eligible entities.\nThe section would establish the corporation by a referendum among \"qualified industry organizations,\" which would include the Edison Electric Institute, the American Public Power Association, the National Rural Electric Cooperative Association, their successors, or a group of owners or operators of distribution utilities delivering fossil fuel-based electricity who collectively represent at least 20% of the volume of all fossil fuel-based electricity delivered by distribution utilities to U.S. consumers. Voting rights would be based on the quantity of fossil fuel-based electricity delivered to the consumer in the previous year or other representative period. The corporation would be established if persons representing two-thirds of the total quantity of fuel-based electricity delivered to retail consumers vote for approval. However, if 40% or more of state regulatory authorities submit written notices of opposition to the creation of the corporation, it would not be established.\nIf established, the corporation would award grants, contracts, and assistance to support commercial-scale demonstration of carbon capture or storage technology projects that encompass coal and other fossil fuels, and are suitable for either new or retrofitted plants. The corporation would seek to support at least five commercial-scale demonstration projects over the lifetime of the corporation. Pilot-scale and other small-scale projects would not be eligible under the program.\nUnder § 114, several entities would be eligible to receive grants, contracts, or assistance from the corporation: distribution utilities, electric utilities and other private entities, academic institutions, national laboratories, federal research agencies, state and tribal research agencies, nonprofit organizations, or a consortium of two or more eligible entities. In addition, § 114 would favor \"early movers\" by providing, in the form of grants, 50% of the funds raised to electric utilities that had already committed resources to deploy large-scale electricity generation units integrated with CCS. The section would provide grant funds to defray costs already incurred for at least five \"early movers.\"\nThe corporation would raise funding for its program by collecting an assessment on distribution utilities for all fossil fuel-based electricity delivered to retail customers. The assessments would reflect the relative CO 2 emission rates of different fossil fuels used to generate electricity, as shown in Table 3 .\nThe corporation would be authorized to adjust the assessments so that they generate not less than $1.0 billion and not more than $1.1 billion per year. The authority to collect assessments would be authorized for a 10-year period, beginning six months after enactment. The corporation would dissolve 15 years after enactment unless extended by Congress. If assessments are collected as specified in the legislation, the corporation would accumulate approximately $10 billion to be awarded over 15 years.\nSection 114 allows for cost recovery. The legislation would allow a distribution utility whose transmission, delivery, or sale of electric energy are subject to any form of rate regulation the opportunity to recover the full amount of \"the prudently incurred costs\" associated with complying with § 114, consistent with state or federal laws.\nSection 114 also allows for ratepayer rebates. If the corporation does not disburse or dedicate at least 75% of the funds in a calendar year due to absence of qualified projects or similar circumstances, then the corporation must reimburse the balance to the distribution utilities. In this case, the regulatory authority that gave its approval for cost recovery could also order rebates to ratepayers from the reimbursed pool of funds.\nSection 114 also provides specific provisions for the Electric Reliability Council of Texas (ERCOT), so that the program can work for ERCOT as well as for other regions of the country.\nWithin five years, the Comptroller General of the United States must prepare an analysis and report to Congress assessing the corporation's activities, including project selection and methods of disbursement of assessed fees, impacts on the prospects for commercialization of carbon capture and storage technologies, and adequacy of funding.", "Division A, § 125, of S. 1733 is very similar to § 114 of H.R. 2454 with a few exceptions. Under both bills, the corporation to be established would operate as a division or affiliate of the Electric Power Research Institute (EPRI), and be managed by a board consisting of no more than 15 members drawn from the following groups:\ninvestor-owned utilities; utilities owned by a state agency, municipality, or Indian tribe; rural electric cooperatives; fossil fuel producers; nonprofit environmental organizations; independent generators or wholesale power providers; and consumer groups.\nS. 1733 adds two additional groups to the board that were not included in H.R. 2454 : (1) the National Energy Technology Laboratory of the Department of Energy, and (2) the Environmental Protection Agency.\nThe entities eligible to receive grants, contracts, or assistance under the program are identical for both bills; however, S. 1733 also requires that projects shall meet the eligibility requirements of § 780(b) of the Clean Air Act. Section 780 would be an amendment to Title VII of the Clean Air Act, added under S. 1733 , and would provide for the commercial deployment of carbon capture and sequestration technologies. Apart from these relatively minor differences, this \"wires charge\" program created under S. 1733 and H.R. 2454 would be nearly identical.\nOne possible advantage of the program, if enacted, would be the creation of a consistent funding stream—exempt from the annual appropriations process—for development of CCS technology over 10 years. In contrast, funding for CCS technology from DOE, which is subject to appropriations, has changed significantly over the past decade or more. It has increased from approximately $1 million in FY1997 to $581 million in FY2009. Further, the American Recovery and Reinvestment Act (ARRA, P.L. 111-5 ) allocated $3.4 billion to CCS to be committed by the end of FY2010, a dramatic increase over current funding levels. Concerns could be raised over the relative effectiveness of a sharp but short-lived increase in funding—provided by ARRA, for example—versus a consistent stream of funding over a longer time period, for the purposes of technology development.", "", "Title I, §116, of H.R. 2454 would amend Title VIII of the Clean Air Act by adding performance standards for CO 2 removal for new coal-fired power plants. Plants covered by this section include those that have a permit issued under CAA Title V to derive at least 30% of their annual heat input from coal, petroleum coke, or any combination of these fuels. The performance standards are as follows:\nA covered unit that is \"initially permitted\" on or after January 1, 2020, shall reduce carbon dioxide emissions by 65%. The 65% reduction would result in a level of emissions roughly equivalent to the CO 2 released by a natural gas-fired plant of modern design (a \"combined cycle\" plant) using no carbon controls. However, to achieve a 65% reduction (or the 50% reduction for older plants; see immediately below) a coal plant would have to install carbon removal technology. A covered unit that is initially permitted after January 1, 2009, and before January 1, 2020, must achieve a 50% reduction in CO 2 emissions by a compliance date that will be determined by future developments. Specifically, the compliance date will be the earliest of (1) four years after the date in which the equivalent of 4 gigawatts (Gw) of generating capacity with commercial CCS technology are operating in the United States and sequestering at least 12 million tons of CO 2 annually (equivalent to roughly eight medium-sized coal plants); or (2) January 1, 2025 (which can be extended by the EPA Administrator by up to 18 months on a case-by-case basis). Not later than 2025 and at five-year intervals thereafter, the Administrator is to review the standards for new covered units under this section and shall reduce the maximum CO 2 emission rate for new covered units to a rate that reflects the degree of emission limitation achievable through the application of the best system of emission reduction that the Administrator determines has been adequately demonstrated. The Administrator is also to publish biennial reports on the amount of capacity with commercial CCS technology in the United States.\nThe use of the term \"initially permitted\" is important in the implementation of this section. A new power plant that has received a permit that is still subject to administrative or legal review is considered to be \"initially permitted.\" If a proposed new coal plant has been \"initially permitted\" prior to January 1, 2009, it will not fall under the requirements of this section to eventually install carbon controls.", "Division A, Section 124, of S. 1733 contains a nearly identical provision. Probably the most important change relates to units that are initially permitted after January 1, 2009, and before January 1, 2020. In H.R. 2454 , this class of plants must achieve a 50% reduction in carbon dioxide emissions by a compliance date that can be triggered by market developments, but normally is no later than January 1, 2025. In S. 1733 this date is January 1, 2020.\nAs noted above, the compliance deadline date can be earlier than 2020 if certain market developments occur. In H.R. 2454 these criteria include installation of the equivalent of at least 4 Gw of generating capacity with carbon capture and sequestration equipment. In the chairman's mark of S. 1733 this is put at 10 Gw, but the breakdown of the target between power plants and industrial plants still adds to 4 Gw. The chairman's mark also clarifies that in determining whether the target has been met, only the treated capacity of retrofitted power plants should be counted toward the target.", "", "Section 115 of H.R. 2454 would amend Title VII of the Clean Air Act (and create § 786) to require that not later than two years after the date of enactment, the EPA Administrator is to promulgate regulations providing for the distribution of emission allowances to support the commercial deployment of carbon capture and sequestration technologies in both electric power generation and industrial operations. Eligibility for emission allowances requires an owner or operator to implement carbon capture and sequestration technology at:\nan electric generating unit that has a nameplate capacity of 200 megawatts or more, and derives at least 50% of its annual fuel input from coal, petroleum coke, or any combination of these two fuels, and which will achieve at least a 50% reduction in carbon dioxide emissions annually produced by the unit; and an industrial source that, absent carbon capture and sequestration, would emit more than 50,000 tons per year of CO 2 , and upon implementation will achieve at least a 50% reduction in annual CO 2 emissions from an emission point.\nEligibility for emission allowances requires that the owner or operator geologically sequester captured CO 2 or convert it to a stable form that can be safely and permanently sequestered.\nSection 115 would distribute emission allowances to electric generating units in two phases. Phase I applies to the first 6 Gw of electric generating units, measured in cumulative generating capacity of such units. Under Phase I, eligible projects would receive allowances equal to the number of tons of carbon dioxide captured and sequestered, multiplied by a bonus allowance value, divided by the average fair market value of an emission allowance in the prior year. The Administrator would establish a bonus allowance value for each rate of carbon capture and sequestration—compared to how much would otherwise be emitted—from a minimum of $50 per ton for a 50% rate to a maximum of $90 per ton for an 85% rate. This section provides an incentive for \"early movers.\" Under Phase I distribution to electric generating units, the bonus allowance value is increased by $10—of the otherwise applicable bonus value—if the generating unit achieves a 50% capture rate before January 1, 2017.\nAllowances would be distributed under Phase II after the 6 Gw threshold is achieved. Phase II would distribute emission allowances by reverse auction. At each reverse auction, the EPA Administrator would select bids from eligible projects—each bid submitted would include the total quantity of CO 2 to be sequestered over 10 years and the desired CO 2 sequestration incentive per ton—and begin with the project proposing the lowest level of CO 2 incentive per ton.\nIf the Administrator determines that reverse auctions are not efficient or cost-effective for deploying commercial-scale capture and sequestration technologies, the Administrator may prescribe an alternative distribution method. In an alternative distribution method, the Administrator would divide emission allowances into multiple \"tranches,\" each supporting the deployment of a specified quantity of cumulative electric generating capacity utilizing CCS technology. Each tranche would support no more than 6 Gw of electric generating capacity, and would be distributed on a first-come, first-serve basis. For each tranche, the Administrator would establish a sliding scale that would provide higher bonus allowance values for projects achieving higher rates of capture and sequestration. For each successive tranche, the Administrator would establish a bonus allowance value that is lower than the rate established for the previous tranche.", "Under both Phase I and Phase II, the EPA Administrator would reduce or adjust the bonus allowance values for projects that sequester CO 2 in geological formations for the purposes of enhanced hydrocarbon recovery. By reducing the bonus allowance value for these projects, the Administrator would take into account the lower net costs for an enhanced hydrocarbon recovery project. The lower net costs would presumably result from income to the project provided via sale of the recovered hydrocarbons.\nSection 115 of H.R. 2454 also contains several provisions that limit the number of allowances and the total cumulative electric generating capacity eligible for allowances. Under § 115, no more than 72 Gw of total cumulative generating capacity may receive allowances, including industrial applications measured under an equivalent metric determined by the EPA Administrator. In addition, a qualifying project, either an electricity generating plant or industrial facility, would be eligible to receive allowances only for the first 10 years of operation. H.R. 2454 also limits the total percentage of emission allowances made available under the bill for CCS to 1.75% for years 2014 through 2017, 4.75% for years 2018 through 2019, and 5% for years 2020 through 2050. These annual allocation percentages are established in § 782(f) of the Clean Air Act, as amended by H.R. 2454 .\nSection 115 would allocate the bulk of emission allowances to electricity generating units and limit the amount of emission allowances available to industrial sources. The Administrator would not distribute more than 15% of the allocated allowances under § 782(f) to eligible industrial sources. The allowances may be distributed to eligible industrial sources using a reverse auction method or an incentive schedule, similar to the Phase II methods described for electric generating units. Industrial facilities are specifically excluded if they produce a liquid transportation fuel from a solid fossil-based feedstock, such as coal.", "Under Subtitle B of Division B of S. 1733 , § 111 allows for the disposition of emission allowances for the global warming pollution reduction program. Similar to § 115 of H.R. 2454 , this section of S. 1733 would amend Title VII of the Clean Air Act and add § 780 (equivalent to § 786 created in H.R. 2454 ), which would distribute emission allowances to electricity generating plants and industrial facilities to foster the deployment of CCS technologies. The goal, scope, and structure of the program in Division B, § 111, of S. 1733 are very similar to those of the program created under § 115 of H.R. 2454 , with several important distinctions.\nAs with H.R. 2454 , S. 1733 would distribute allowances for the first 72 Gw of total cumulative generating capacity to employ CCS, including industrial applications, and would distribute them as a similar percentage of the total pool of available allowances: 1.75% for years 2014 through 2017, 4.75% for years 2018 through 2019, and 5% for years 2020 through 2050. S. 1733 would also distribute allowances in two phases; however, it would distribute allowances to the first 20 Gw of generating capacity in Phase I, instead of 6 Gw as proposed in Phase I of H.R. 2454 .\nPhase I of S. 1733 would distribute allowances in two 10-Gw tranches according to the same formula described in H.R. 2454 :\nFirst tranche—10 Gw for eligible projects achieving 50% or more reduction in CO 2 emissions through the use of CCS technology, with bonus allowance values ranging from $50 per ton for 50% capture to $96 per ton for 90% capture (versus $90 per ton for 85% capture in H.R. 2454 ). Second tranche—10 Gw for eligible projects achieving 50% or more reduction in CO 2 emissions with a maximum bonus allowance value of $85 per ton for 90% capture.\nSimilar to H.R. 2454 , \"early mover\" projects would receive an additional $10 per ton if they commenced operations by January 1, 2017, which would apply to all 20 Gw of Phase I in S. 1733 . In contrast, the \"early mover\" bonus would apply to only 6 Gw in H.R. 2454 .\nAs in H.R. 2454 , allowances would be distributed under Phase II by reverse auction. In S. 1733 , similar to H.R. 2454 , the EPA Administrator may establish reverse auctions for no more than five different project categories, defined based on (1) coal type, (2) capture technology, (3) geological formation type, (4) new versus retrofit, and (5) other factors or any combination of categories 1-4. In S. 1733 , the Administrator would establish a separate reverse auction, to be held annually, for projects at industrial sources. Industrial sources would not be allowed to participate in other auctions. A requirement to segregate industrial sources from electricity generating sources is not specified in H.R. 2454 .\nIn parallel to H.R. 2454 , the Administrator may prescribe an alternative distribution method under S. 1733 if it is determined that reverse auctions are not efficient or cost-effective. Under both H.R. 2454 and S. 1733 , the Administrator would divide the emission allowances into a series of multiple tranches, each supporting the deployment of a specific quantity of cumulative electricity generating capacity. Under S. 1733 , each tranche would support 10 Gw of generation capacity. In contrast, under H.R. 2454 each tranche would support 6 Gw.", "As with H.R. 2454 , no more than 15% of the total emission allowances allocated for CCS in S. 1733 would be distributed to eligible industrial sources in any vintage year. In addition, S. 1733 prohibits the distribution of allowances to industrial sources under the first tranche of Phase 1 (i.e., the first 10 gigawatts of generating capacity), but does allow industrial projects to receive allowances under the second tranche of Phase I and thereafter. Under H.R. 2454 , projects at industrial sources would be eligible to receive allowances in Phase II, after the allowances for the first 6 gigawatts of generating capacity have been distributed.\nS. 1733 also contains a provision for certification of qualifying projects that is not included in H.R. 2454 . Under S. 1733 , qualifying projects that are eligible to receive allowances under either Phase I (the first 20 Gw) or the alternative distribution method of Phase II may request a certification from the EPA Administrator that the project is eligible to receive emission allowances. A project that successfully bids under the reverse auction method of Phase II does not have an option; it would be required to request a certification from the Administrator. The process of obtaining a certification is apparently a more formal requirement for eligibility that leads to a reservation of a portion of emission allowances allocated for the deployment of CCS technology.\nIn addition to applying for a certification, a qualifying project would need to document several items in order for the Administrator to make a determination of eligibility:\ntechnical information regarding CCS technology to be used, coal type, geological formation type, and other relevant design criteria; the annual CO 2 reductions projected for the first 10 years of commercial operation; and a demonstration by the owner and operator that they are committed to constructing and operating the project along a timeline of reasonable capture and sequestration milestones.\nIn addition to documenting this information, the qualifying project must demonstrate its commitment to the project by taking at least one of three qualifying actions :\nexecution of a commitment by lenders or other appropriate entities to finance the project; commitment of the owner or operator to execute a surety bond; or an authorization by a state regulatory authority to allow cost recovery from the retail customers for the costs of the project.\nFor projects that elect not to request certification (Phase I or alternative distribution projects under Phase II are not required to, although they may), the Administrator would make a separate determination of whether the project satisfies eligibility requirements. That determination would occur at a time when the emission allowances are actually distributed. As with H.R. 2454 , emission allowances under S. 1733 would be distributed on an annual basis, based on the total tons of CO 2 the project actually captures and sequesters in each of the first 10 years of operation. Although emission allowances may be reserved in advance, based on the issuance of a certification or other determination of eligibility, they would not be actually distributed until after the CO 2 has been already captured and sequestered.", "On October 23, 2009, Senator Boxer released the chairman's mark to S. 1733 , which contained a new provision to the emission allowance distribution program for CCS. The new provision would allow for advanced distribution of allowances under Phase I of the program, thus providing an opportunity for fossil fuel fired electricity plants and industrial facilities to receive allowances before the plants have actually captured and sequestered any CO 2 . This approach differs from the allowance distribution scheme in H.R. 2454 and S. 1733 (as introduced), which would distribute emission allowances based on the total tons of CO 2 actually captured and sequestered. Similar to H.R. 2454 and S. 1733 (as introduced), the chairman's mark would require that plants have at least a 50% capture rate before they would qualify for allowances.\nUnder the new provision, 70% of the number of emission allowances reserved under the first tranche of Phase I would be eligible for advanced distribution, and 50% of the second tranche would also be eligible. The amount of allowances eligible for advanced distribution would total 12 Gw of the 20 Gw of generating capacity, or 60% of the total, available under Phase I of S. 1733 . By comparison, H.R. 2454 would provide only half that amount (6 Gw) in total for Phase I, and would require that the plants have commenced operations and actually be capturing CO 2 before receiving any allowances. The provision in the chairman's mark of S. 1733 could be seen as an additional incentive to \"early movers\" to build CCS-ready facilities or retrofit existing plants. The requirements for when to provide the advanced distribution are somewhat vague, however, allowing the EPA Administrator discretion to pick a time prior to the plant's operational phase that would \"ensure expeditious deployment\" of CCS technology.\nSome may view the new provision as providing access to emission allowances before the plant owner or operator has made an iron-clad commitment to building and operating a CCS unit. In part, the chairman's mark addresses that concern by specifying that advanced allowances would be limited to only cover costs for retrofitting an existing plant for CCS and to cover the difference in costs between building a new electric generating unit with CCS versus a new plant without CCS. The bill assigns responsibility for the necessary cost estimates—for both the retrofit and the new plant costs—to the organization requesting the advanced appropriations. The advanced allowances would be distributed using the cost estimates provided by the requesting organization.\nIn addition, certification would be required for a plant to receive advanced allowances. As one of the criteria for obtaining certification, the chairman's mark adds an additional qualifying action to the list of qualifying actions in S. 1733 that would demonstrate a commitment to construct and operate a CCS project: an authorization from a state legislature to allow cost recovery for the CCS project. Thus, a project could receive authorization either from a state regulatory authority for cost recovery, or from a state legislature, as one necessary step to obtaining certification.\nThe advanced allowance scheme provides a new incentive for power plants and industrial facilities to make a commitment to building CCS that is not present in H.R. 2454 or in S. 1733 (as introduced). It is likely to accelerate early deployment of CCS by making up to 12 Gw eligible for advanced allowances, compared to H.R. 2454 , which provides for only 6 Gw in Phase I. How much more electricity generating capacity will employ CCS as a result of the advanced allowance provision is difficult to predict, and would depend, in part, on other factors such as the ratio of the value of bonus allowances established in legislation versus the market price of allowances. The long-term deployment of CCS would also depend on how well the hoped-for \"learning-by-doing\" gains in efficiency and knowledge accrue from demonstration projects and the experience gained through early deployment at a commercial scale." ], "depth": [ 0, 1, 1, 1, 2, 3, 3, 2, 3, 3, 2, 3, 3, 2, 2, 3, 3, 2, 3, 3, 2, 3, 4, 3, 4, 2 ], "alignment": [ "h0_title h1_title", "", "h0_full", "h0_title h1_title", "h0_title", "h0_full", "", "h0_title", "h0_full", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "h1_full" ] }

{ "question": [ "In what ways are H.R. 2454 and S. 1733 similar?", "What strategy do the bills employ?", "How could such a strategy be implemented?", "What changes do the bills make to the CAA and SDWA?", "How would the amended law change regulations?", "How would a chairman's mark change S. 1733?", "How would these changes differ from H.R 2454 and S. 1733?", "What would H.R. 2454 and S. 1733 dictate about emission allowances?" ], "summary": [ "The carbon capture and sequestration (CCS) provisions in H.R. 2454 and S. 1733 are similar (some sections are identical), and both bills appear to share the goal of fostering the commercial development and deployment of CCS projects as an important component of mitigating greenhouse gas emissions.", "The bills call for a unified national strategy for addressing the key legal and regulatory barriers to deployment of commercial-scale CCS.", "A required report detailing a national strategy would identify barriers and gaps that could be addressed using existing federal authority and those that would require legislation, as well as those that would be best addressed at the state, tribal, or regional level.", "Both bills would also amend the Clean Air Act (CAA) and Safe Drinking Water Act (SDWA) to require that the EPA Administrator establish a coordinated certification and permitting process for geologic sequestration sites, taking into account all relevant statutory authorities.", "The amended law would require regulation of geologic sequestration wells, and promulgation of regulations to protect human health and the environment by minimizing the risk of atmospheric release of carbon dioxide injected for geologic sequestration.", "A chairman's mark to S. 1733, introduced on October 23, 2009, would add an additional incentive for early deployment of CCS by allowing advanced distribution of emission allowances for CCS.", "In contrast to H.R. 2454 and S. 1733 (as introduced), the chairman's mark would award allowances before the plant has actually captured any CO2.", "In contrast, H.R. 2454 and S. 1733 (as introduced) would only distribute emission allowances based on the total tons of CO2 already captured and sequestered." ], "parent_pair_index": [ -1, 0, 1, -1, 3, -1, 0, 1 ], "summary_paragraph_index": [ 0, 0, 0, 0, 0, 4, 4, 4 ] }

{ "title": [ "", "Introduction", "The Great Lakes Basin", "Physical Characteristics of the Ecosystem", "Oil and Gas Production in the Great Lakes", "Oil and Gas Resources20", "Potential Consequences of Drilling", "Economic Consequences", "Environmental Consequences", "Potential Ecosystem Effects", "Acute Impacts", "Chronic Impacts", "Other Ecosystem Impacts", "Directional Drilling", "Oil Spills in the Great Lakes", "Legal Issues Associated with Drilling in the Great Lakes", "State Control", "Existing State Regulation", "Legal Implications of a Federal Drilling Ban", "Conclusion" ], "paragraphs": [ "", "The debate over how to regulate offshore oil and gas drilling in the United States has generated public and congressional interest, especially in the context of the Gulf oil spill. Much discussion has centered on existing and potential drilling operations along the Outer Continental Shelf. The debate has also reached specific regions within the United States, including the Great Lakes. The question of whether to allow oil and gas drilling under the Great Lakes has been contested within states bordering the Great Lakes and in Congress. Some opposed to drilling under the Great Lakes are concerned about the potential environmental, economic, and public health consequences of drilling. They contend that drilling will raise the risks of oil spills, hazardous gas leaks, and pollution that may harm lakeside residents and the Great Lakes ecosystem. Proponents of drilling contend that the risks of oil spills and other accidents are extremely low due to new technologies, that drilling would not be environmentally harmful, and that it would lead to the generation of revenues, additional employment, and expanded domestic energy supplies.\nObtaining permits for drilling under the Great Lakes has largely been banned by various state and federal laws. A Great Lakes-wide ban may have initially been driven by the signing of a \"statement of principle against oil drilling in the Great Lakes\" by eight Great Lakes governors in 1985. All states viewed this non-binding agreement as prohibiting drilling for natural gas and oil in the lakes and, with the exception of Michigan, as prohibiting directional drilling. Various states have enacted permanent or temporary bans against drilling.\nThe federal government became involved in banning drilling in the Great Lakes when the Congress enacted a temporary ban on the federal and state issuance of permits for drilling under the Great Lakes in 2001 ( P.L. 107-66 ; Title V, §503), extended it in 2003 , and then again through 2007. Some also proposed a permanent ban against drilling in or under the Great Lakes. A permanent ban on issuing federal or state permits for new directional, slant, or offshore drilling in or under the Great Lakes was included in the Energy Policy Act of 2005 ( P.L. 109-58 ). Section 386 specifically states that \"no federal or state permit or lease shall be issued for new oil and gas slant, directional, or offshore drilling in or under one or more of the Great Lakes.\"\nThe U.S. ban on drilling in the Great Lakes has generated controversy. Some contend that the decision of whether to drill in the Great Lakes should be made by each state bordering the lakes. They view a federal ban on drilling in the Great Lakes as a violation of states' rights and suggest that a federal ban constitutes a \"taking.\" Some proponents of the ban contend that state laws are not uniform in permanently banning drilling in the lakes. Indeed, as described later in this report, some Great Lakes states have enacted permanent bans on providing new oil and gas drilling permits in state waters, other states have no bans, and some are considering permanent bans in pending legislation.\nSome in Congress have expressed concern over Canadian offshore drilling operations in Lake Erie. The impact of a major spill or blowout could be harmful to the ecosystem and difficult to remediate. Offshore and directional drilling for gas under the Canadian Great Lakes is allowed by the Canadian government and by Ontario, the only province that borders the Great Lakes. Directional drilling for oil is allowed under the Canadian Great Lakes; however, offshore drilling for oil is prohibited. Canadian directional drilling operations have not gone under U.S. waters of the Great Lakes.\nThis report provides background information on the history of drilling in the Great Lakes, current production statistics (where available) for U.S. and Canadian wells, and a summary of some environmental and economic issues related to drilling. A review of state laws regarding drilling in the Great Lakes and a discussion of state drilling laws and the implications of a federal ban on drilling also are given.", "The Great Lakes basin is shared by eight U.S. states (Illinois, Indiana, Michigan, Minnesota, New York, Ohio, Pennsylvania, and Wisconsin) and two Canadian provinces (Ontario and Quebec). The basin is generally considered to be composed of the Great Lakes, connecting channels, tributaries, and groundwater that drain through the international section of the St. Lawrence River. (See Figure 1 ) The Great Lakes watershed contains the largest volume of fresh surface water in the world and covers approximately 300,000 square miles. The Great Lakes themselves contain an estimated six quadrillion gallons of water. This constitutes nearly 90% of the surface freshwater supplies of the United States and 20% of the surface freshwater supplies of the world. The Great Lakes region plays a role in the daily lives of millions of people and the economies of two nations. The Great Lakes states and Canadian provinces are home to more than one-tenth of the population of the United States and one-quarter of the population of Canada. An estimated 40 million people rely on the Great Lakes Basin to provide jobs, drinking water, and recreation, among other things.", "Since the Great Lakes cover a wide area, physical characteristics such as topography, soils, and climate vary considerably. Characteristics of water flow also vary across the lakes. Water levels in the Great Lakes vary according to the season. These changes are based primarily on precipitation and runoff to the Lakes. Levels are low in the winter, when much of the precipitation is in the form of snow or ice, and high in the early summer, when runoff increases.\nThe Great Lakes ecosystem has been altered substantially in the last two centuries. In the last several decades, agricultural, urban, and industrial development have degraded water quality in the Great Lakes, posing threats to wildlife populations, human health, and the Great Lakes ecosystem. Development has also led to changes in terrestrial and aquatic habitats, the introduction of non-native species, the contamination of sediments, and the listing of more than 50 threatened and endangered species. To counter this trend, the federal governments of the United States and Canada, as well as provincial and state governments in the Great Lakes basin, have implemented numerous restoration activities.", "No offshore oil and gas drilling in the Great Lakes has occurred in U.S. waters. Several states have attempted to drill onshore for oil and gas under the Great Lakes, but operating wells exist only in Michigan.\nInterest in modern oil and gas drilling in the Great Lakes is thought to have begun in the mid-1950s, although some cite that Lake Erie's first offshore gas well was drilled in 1913. Oil development in the mid-1950s was encouraged in the state of Ohio. The Ohio General Assembly provided the policy framework to allow for the extraction of oil and gas from under Lake Erie, and leasing and production procedures were established by the Ohio Department of Natural Resources. However, opposition to drilling in Lake Erie began in 1957 because of environmental concerns, and the program was abandoned by 1968. No offshore or onshore wells were drilled in Lake Erie in Ohio state waters afterwards, and several temporary bans were placed on all types of drilling under Lake Erie in Ohio, the latest one in 2003.\nIn Pennsylvania, there has been no history of oil or gas production under Lake Erie; two onshore exploratory wells were drilled in 1957 but no commercial deposits were found. In Michigan, since 1979, 13 onshore wells under the Great Lakes have been drilled; six were reported dry, and seven are still in production (one oil well and six natural gas wells). Five producing wells are under Lake Michigan and two wells are under Lake Huron. All producers in Michigan are employing directional drilling technology, which originates on land and drills underneath the lakes. In Michigan, no onshore or offshore drilling can take place under the Great Lakes, except by those who obtained leases and commenced drilling prior to April 5, 2002. Prior to that date, state law authorized removal of oil and gas under the Great Lakes if directional drilling was employed. Other Great Lakes states including Illinois, Indiana, Minnesota, New York, and Wisconsin have no history of significant oil and gas drilling under the Great Lakes.\nIn Canada, 2,200 wells have been drilled in Lake Erie, of which 550 are producing. Canada began modern commercial production of natural gas in Lake Erie in the 1960s. (See Figure 2 .) This came after decades of exploration activity that began as early as 1913. Offshore gas wells are permitted in the Canadian Great Lakes, but offshore oil wells are prohibited. If a gas well shows evidence of oil, it must be closed and plugged, according to Canadian regulations. Directional oil and gas drilling is allowed under the Canadian Great Lakes, and has been extensively done in Lake Erie. In Lake Erie, annual natural gas extraction rose to 15.2 billion cubic feet (bcf) in 1985 and has since declined to about 10 bcf in 2000. Oil production through directional drilling into Lake Erie has developed in Ontario. There are 100 wells to date at an average depth of 2,800ft and 2.2 miles horizontal offset (i.e., drill location to target reservoir).\nTable 1 provides statistics on U.S. oil and natural gas production in the Great Lakes, all of it in Michigan state waters. Oil and gas production under the Great Lakes in Michigan has been variable over the past few years. The average annual production of natural gas under the Great Lakes in Michigan from 2000 to 2009 has been approximately 1.1 billion cubic feet (bcf), whereas oil production averaged 660 barrels annually over the same period with no production from the years 2005 to 2007. This annual average represents approximately 0.005% of national production of natural gas.", "Modern-day estimates of oil and gas resources under U.S. portions of the Great Lakes have been created by the U.S. Geological Survey for 2005. The quantity of undiscovered, technically recoverable oil and gas resources for the U.S. portions of the Great Lakes includes a mean value of 312 million barrels of oil, a mean value of 5.2 trillion cubic feet of natural gas, and a mean value of 122 million barrels of natural gas liquids. The range of these estimated values is high and is tabulated according to the percent chance of an amount recovered. (See Table 2 . )\nThe USGS report on estimated resources also broke down estimates by lake and states within the Great Lakes. (See Tables 3 and 4 .) Lake Huron and Lake Michigan have the greatest amount of estimated oil resources, whereas Lake Erie has the largest amount of estimated natural gas resources. In Canada, the Ontario Ministry of Natural Resources estimates that about 195 million barrels of oil and 1.1 tcf of gas remain under Canada's portion of Lake Erie. Estimates for oil and gas resources under the Canadian portions of other lakes were not available.\nA breakdown of oil and gas estimated resources by Great Lakes state reveals that Michigan has the greatest amount of estimated oil resources under the Great Lakes. Indeed, some have reported that if a ban against drilling under the Great Lakes in Michigan did not exist, 20 to 30 new wells could be drilled in Michigan. Natural gas estimated resources are highest for Michigan and Ohio, with a majority of the estimated resources in Lake Erie.", "There are several potential consequences associated with oil and gas drilling in or near large waterbodies such as the Great Lakes. Possible negative effects include oil spills, discharge of contaminated drilling fluids, and effects of the \"footprint\" of the drilling infrastructure. Possible positive effects include increased revenues for the region and state, increased employment, and greater domestic energy production. Under §503 of the Energy and Water Appropriations Act (EWA) of 2002 ( P.L. 107-66 ), the U.S. Army Corps of Engineers was directed to conduct a study of the potential environmental effects of oil and gas drilling activity in the Great Lakes. This report was completed in 2005 and contains a detailed discussion of the potential environmental effects of drilling under the Great Lakes.\nThis section will provide an overview of some of the potential consequences of drilling under the Great Lakes and provide data, where available, on unintended oil and gas releases into the Great Lakes.", "Drilling under the Great Lakes can have both benefits and costs for local, regional, and state economies. Exploration for oil and gas deposits may yield economic benefits, such as jobs and revenue for the owner. If deposits are not found and drilling is not fully implemented, these benefits may be short-term. If deposits are significant, and drilling commences and expands, local and state governments would also benefit from revenues generated from permits, leases, and taxes on the quantity of oil and gas sold. In some Great Lakes states, revenues from oil and gas leases potentially benefit the environment. For example, in Michigan, some revenues from leasing rights to drill under the Great Lakes would go to the Michigan Department of Natural Resources Trust to purchase and protect environmentally sensitive areas. Depending on their scope and number, drilling operations would also generate employment. According to the U.S. Bureau of Labor Statistics, there was a national average of 5.7 jobs generated per $1.0 million of sales by oil and gas producers in 2002.\nPotential economic costs from drilling under the Great Lakes may stem from drilling infrastructure and oil and gas releases. The presence of infrastructure may lower tourism and recreational opportunities, harm the Great Lakes ecosystem, affect scenic vistas, and lower property values. If spills occur in areas near or within the lakes, economic costs could come from clean-up, lower water quality and environmental mitigation, lost recreational and tourism opportunities, and reduced development.", "The potential environmental consequences of oil and gas drilling have been the primary driver in opposition to oil and gas drilling under the Great Lakes. During the process of drilling, environmental problems can occur through leaks, spills, and blowouts, among other things. A leak or spill can occur from a pipeline rupture, containment failure, or from a drilling mud pit. A blowout occurs when a drill reaches a formation with unusually high pressure, and results in the explosive discharge of the well's contents. Spills and leaks can also occur during transport. In addition, drilling wastes or byproducts—such as drilling muds or cuttings, drilling fluids, and produced waters —can potentially harm the environment if released into streams or onto vegetation.\nThis section identifies potential effects related to oil spills and operational releases. In addition, this section discusses directional drilling, an activity that could have environmental consequences.", "Depending on timing and location, a relatively minor oil spill can cause significant harm to individual organisms and entire populations. Oil spills can cause impacts over a range of time scales, from days to years, or even decades for certain spills. These are described below.", "Depending on the toxicity and concentration of an oil spill, acute exposure to oil spills can kill various organisms and cause the following debilitating effects:\nreduced reproduction, altered development, impaired feeding mechanisms, and weakened immunity against disease.\nThese potential acute effects to individual organisms and marine ecosystems have been confirmed by laboratory studies and well-studied spills, such as the Exxon Valdez .\nBirds, marine mammals, bottom-dwelling and intertidal species, and organisms in their developmental stages—e.g., fish eggs and larvae—are particularly vulnerable to oil spills. Wildlife are affected by direct exposure to floating oil, polluted waters, contaminated prey, or depleted food resources.", "Impacts to fish and wildlife and their habitat can also occur through chronic, low-level exposure from persistent contaminants in the ecosystem. Chronic exposure typically occurs from continuous oil releases—leaking pipelines, non-point sources (e.g., urban runoff), and production discharges, such as drilling fluids and produced waters. Some have expressed concern over the long-term effects of buried drilling wastes and injected production water on ecosystems. Drilling wastes are generally buried onshore and in some cases produced water is injected in drill holes for storage. Both substances contain a variety of toxic chemicals that could be hazardous to the ecosystem.\nAlthough spills are normally associated with acute impacts, some oil spills have also demonstrated chronic exposure and effects. There is increasing evidence that chronic, low-level exposures to oil contaminants can significantly affect the survival and reproductive success of marine birds and mammals. However, because of the complexity of factors, including a longer time period and presence of other pollutants, determining the precise effects on species and ecosystems due to chronic oil exposure in a particular locale is difficult for scientists. As a result, studies involving chronic effects are often met with debate and some controversy.", "Discharge of oil can also lead to changes in coastline and aquatic habitat. In aquatic habitats, spills or toxic discharges may degrade water quality, lower dissolved oxygen, contaminate sediments, and alter aquatic vegetation. Water flow influences the potential impact of spills. In areas where there is a high flow of water (e.g., rivers), impacts will be less (but potentially more widespread) than in areas where water flow is minimal, such as in wetlands. In low-flow areas, spills can persist longer and damage vegetation and other organisms that use these habitats. In the Great Lakes, water flow is variable and therefore spills can have different impacts. For instance, water that enters Lake Superior takes approximately 182 years to be completely replaced. This could be considered a low-flow area compared to Lake Erie and Lake Ontario, which take approximately three and six years, respectively, to replace water. Toxins from spills in the Great Lakes can settle into sediments and persist for many years.", "The type of drilling operation is a factor when assessing its potential environmental consequences. For example, in Michigan, there has been a debate over the potential environmental effects of directional drilling. Directional drilling is considered to have less potential hazard than offshore drilling due primarily to its location onshore. (See Figure 3 )\nDirectional drilling beneath the Great Lakes in Michigan, for example, targets the Niagaran Reefs formation, which is four to five thousand feet below ground. There is an impermeable geologic barrier between the hydrocarbon deposits and the lake. According to an evaluation of the potential environmental impacts of directional drilling, there is little risk of contaminating the Great Lakes through spills at the reservoir and well. However, the study states that there is a potential risk associated with leaks at the wellhead, which would be located onshore. This study also recommended that directional drilling under the Great Lakes be done at least 1,500 feet from the shoreline, and prohibited in sensitive natural areas.\nDirectional drilling would likely mitigate the risk of spills into the Great Lakes. However, it is uncertain how much of the fossil fuel resources can be extracted with current directional drilling technology.", "The potential for oil spills in the Great Lakes would increase, if policymakers decided to allow offshore oil exploration and production operations in the region. As discussed above, relatively minimal drilling has occurred for U.S. oil and gas resources under the Great Lakes. According to insurance statistics, there were no oil or gas spills associated with the 13 onshore wells that directionally drilled under the Great Lakes before the ban was imposed in 2005.\nCanada has been actively drilling, particularly in Lake Erie, since the 1920s. According to a source cited in the Corps study, there has been one reported oil spill directly attributed to a drilling operation in the Canadian Great Lakes since 1959 and no reported oil releases from subsurface formations into overlying waters. Compared to spill rates from oil extraction and production operations in U.S. waters, the Canadian spill figures are noteworthy. However, as mentioned above, Canada only allows directional drilling, thus making a spill into the Great Lakes more unlikely than offshore well locations.\nOffshore oil exploration and production in the Great Lakes would increase the risk of oil spills in the region. The risk of oil well blowouts is relatively low, although not impossible, as proven by the British Petroleum blowout in the Gulf of Mexico in 2010. Advances in drilling technology have led to decreases in spills and releases, and lower footprints for drilling rigs, according to some industry advocates. Three-dimensional seismic imaging technology, for example, allows explorers to identify areas where commercial quantities of oil and gas may have accumulated. This technology provides a greater rate of success in finding oil and gas deposits and therefore could reduce the number of exploratory wells used to tap deposits. In some drilling operations, slimhole drilling is employed. Slimhole drilling is defined as drilling the smallest hole size to meet production objectives in the most cost-effective manner. This method decreases waste volumes and takes up as much as 75% less surface area than traditional wells. Other innovations include modular rigs which lower the footprint of drilling, as well as pipeline sensors that monitor for pipeline corrosion or wall defects.\nRegardless of these advancements, offshore drilling would yield some level of risk from an oil well blowout. In addition, offshore oil production in the Great Lakes would necessitate increased oil transportation, which would increase the potential for oil spills in the region. Directional drilling would likely mitigate the risk of spills into the Great Lakes.", "Congress has the authority to regulate the use of the Great Lakes, including the development of oil and gas, under the Commerce Clause of the Constitution. The repercussions of congressional action, however, depend to some extent upon the characterization of the regulated resource. If the body of water constituting the Great Lakes and its underlying resources are state-owned, some forms of federal regulation could amount to a taking. If these resources are federal property, a taking would not occur.", "Eight states border the Great Lakes: Illinois, Indiana, Michigan, Minnesota, Ohio, Pennsylvania, New York, and Wisconsin. It appears that, in accordance with federal law, these states own those Great Lakes' beds and resources within their respective boundaries. Longstanding Supreme Court precedent indicates that individual states hold title to the submerged lands beneath the waters within their boundaries that were navigable at the time the state entered the Union. The determination as to whether a given body constitutes navigable waters is made by application of a test developed under federal law. That test states that waters are navigable when they are \"used, or are susceptible of being used, in their ordinary condition, as highways for commerce, over which trade and travel are or may be conducted in the customary modes of trade and travel on water.\" That the Great Lakes would satisfy this test appears certain. Thus, under the common law approach, states would hold title to some U.S. portions of the Great Lakes.\nThis approach is confirmed by the federal Submerged Lands Act (SLA). The SLA declares that states are vested with title to both the lands beneath the navigable waters within their boundaries and to the natural resources within those lands and waters. The act makes clear that a state's boundaries include its boundaries in the Great Lakes as they existed at the time the state became a member of the Union. Thus, under both common law and the SLA, a state may claim ownership of Great Lakes oil and gas to the extent its boundaries encompass a portion of the Great Lakes bed containing such minerals.\nFinally, while the courts do not appear to have directly addressed ownership of the Great Lakes as to each contiguous state, the U.S. Supreme Court has ruled that the state of Illinois is entitled to the portions of Lake Michigan within its boundaries. As the other Great Lakes states contain portions of the Great Lakes within their respective boundaries and as they are empowered to \"manage, administer, lease, develop, and use\" these submerged lands under the SLA, it would appear that each Great Lakes state has title to the Great Lakes oil and gas resources within its boundaries and the authority to regulate their development, assuming that other federal law does not limit state authority. As stated above, the recently enacted Energy Policy Act of 2005 does contain a provision limiting state authority to authorize oil and gas drilling, potentially implicating the Takings Clause of the Fifth Amendment.", "Prior to the enactment of federal laws banning permits for Great Lakes drilling, states could claim significant authority over oil and gas-related activities in the Great Lakes. States chose to exercise this authority in a variety of manners. State laws that are inconsistent with the federal ban now in effect are preempted by federal law; however, to the extent that it does not conflict with federal law, state regulation may still remain viable. Further, if the existing federal ban is repealed, state regulation would again become applicable. Each state's existing laws are briefly summarized below.\nIllinois statutes indicate that its portion of the bed of Lake Michigan is under the jurisdiction of the Department of Natural Resources. Under state law, structures may be permitted within the waters of the state, and the Department of Natural Resources may also enter into an agreement with the permit holder to authorize oil and gas development. Further, Illinois's process for leasing state-owned lands for mineral development would not appear to exclude lake bottoms from its application, although where the state owns 100% of the mineral interest, no leasing may occur on:\n(1) lands where threatened or endangered species occur, as determined pursuant to the federal Endangered Species Act or the Illinois Endangered Species Protection Act, (2) Illinois Natural Area Inventory sites, (3) nature preserves dedicated under the Illinois Natural Areas Preservation Act, (4) lands containing a wild and scenic river as designated under the Wild and Scenic River Area Act, (5) lands registered under the Register of Land and Water Reserves under Part 4010 of Title 17 of the Illinois Administrative Code, and (6) lands on which federal or State laws or regulations prohibit the surface extraction or production facility activity.\nIndiana law does not expressly address drilling in the Great Lakes, although it would appear that the Indiana Department of Natural Resources has the authority to permit and lease the beds of lakes for oil and gas development.\nMichigan law vests the Department of Natural Resources with responsibility for leasing all state owned mineral resources. Recent changes to state law prohibit future leasing of Great Lakes oil and gas. Further, no drilling can take place, except by those who obtained leases and commenced drilling prior to April 5, 2002. Prior to that date, state law authorized removal of oil and gas under the Great Lakes if drilling operations originated from locations above and inland of the ordinary high water mark and were performed pursuant to a lease.\nMinnesota does not appear to have an express ban on Great Lakes oil and gas drilling. Its laws authorize issuing leases for minerals and petroleum on state lands, including the beds of any waters belonging to the state.\nOhio law stipulates that its director of natural resources, with the approval of the director of environmental protection, the attorney general, and the governor, \"may issue permits and make leases to parties making application for permission to take and remove sand, gravel, stone, and other minerals or substances from and under the bed of Lake Erie, as he determines to be best for the state.\" The governor of the state has issued an executive order banning oil and gas drilling, although it could be altered or repealed by a subsequent executive order at any time.\nPennsylvania law allows for drilling in the Great Lakes at the discretion of the Department of Conservation and Natural Resources. The law empowers the Department to \"make and execute contracts or leases ... for the mining or removal of ... oil and gas beneath those waters of Lake Erie owned by the Commonwealth ... whenever it shall appear to the satisfaction of the department that it would be for the best interests of this Commonwealth to make such disposition of those minerals ...\"\nNew York statutes specifically prohibit issuing either oil or gas leases in the lands under the waters of Lake Ontario or along its shoreline. Similarly, oil leases are prohibited for the lands under the waters of Lake Erie, although gas leases are not prohibited.\nUnder Wisconsin law, oil and gas drilling operations are prohibited if they extend beneath the beds of the Great Lakes or bays or harbors that are adjacent to the Great Lakes. State law previously authorized directional drilling under certain circumstances, but the law's amendment would appear to indicate that such authority has been removed.", "As described above, absent federal law to the contrary, states have the authority to regulate the use of Great Lakes resources within their territory and have instituted a variety of approaches for dealing with oil and gas drilling within their respective boundaries. Still, the federal government does have certain authorities at its disposal to regulate the use of Great Lakes resources as well, which it has exercised by banning new leases and permits related to Great Lakes oil and gas development. Congress has broad authority under the Commerce Clause of the Constitution to regulate both the navigable waters and oil and gas development. While Congress likely possesses the authority to regulate or ban oil and gas drilling in or under the Great Lakes, such action might also constitute a \"taking\" of private property for which just compensation would be required. The legal analysis a court would likely undertake in determining whether a taking has occurred is described below.\nA preliminary issue is whether the federal ban on oil and gas leasing or permitting would be covered by federal navigational servitude. As stated in the SLA, a state's title to the navigable waters is subject to the navigational servitude, meaning that the property interest held by the state is subject to a dominant federal right to act in the interests of navigation. Thus, under its Commerce Clause authority, when Congress regulates waters for their navigability, a property right is not taken within the meaning of the Fifth Amendment, and no compensation is due. The exact limits of the navigational servitude and whether the regulation or banning of drilling in or under the Great Lakes is sufficiently related to navigability are unclear. The U.S. Court of Appeals for the Fifth Circuit has held that when regulating the navigable waters, the navigational servitude applies despite a regulatory purpose that is unrelated to navigation. Under this broad interpretation, the current ban on oil and gas leasing or permitting in or under the Great Lakes may not constitute a taking. However, the Court of Appeals for the Federal Circuit, as well as the Supreme Court, has held that the navigational servitude applies only when the government has \"bona fide navigational grounds ...\" for its regulation. It is arguable that a drilling ban could be based on navigational grounds. For example, the Army Corps of Engineers has claimed that it has regulatory authority over both directional and vertical drilling in the navigable waters under the Rivers and Harbors Act, which authorizes the Corps to permit obstructions to navigability. As the case law varies among the courts that have examined the issue and as it is not immediately clear whether a ban on drilling would fall under the navigational servitude, it is unclear whether this doctrine would prevent a taking from occurring.\nAssuming the navigational servitude would not preclude a Fifth Amendment taking, additional analysis becomes necessary. A taking can occur in a variety of manners and a ban on leasing or permitting, and thus potential drilling, like other forms of government regulation, could arguably constitute a taking. Generally, for a court to find a regulatory taking, the regulation must result in a sufficient impairment of property interests. The extent and nature of regulation necessary to establish a taking under these circumstances is, however, debatable. As stated in the Supreme Court's Penn Central decision, these determinations are generally to be made on a case-by-case basis focused on analysis of several particularly significant factors, namely the nature of the government action, the economic impact of that action, and the \"extent to which the regulation has interfered with distinct investment-backed expectations ....\" In addition, it would appear that, generally, the economic impact and interference with investment-backed expectations must be severe for regulation to constitute a taking.\nTakings analysis in this particular context is complicated by the numerous entities with existing property rights in Great Lakes oil and gas resources: the current leaseholders, who may or may not be presently engaged in drilling; and the states themselves. A person who acquired a lease prior to the enactment of the federal ban has obtained a right, as expressed in the lease, that is considered property for Fifth Amendment purposes. Assuming that the navigational servitude does not preclude a taking, a total ban on drilling , which would effectively render an oil and gas lease valueless, might constitute a taking as, in general, the more narrow the property right held, the easier it is to prove that a taking has occurred.\nHowever, the federal ban currently in place does not appear to affect leases or permits issued prior to the enactment of the 2005 Energy Policy Act. Thus, leaseholders with permits in place that are now or might soon begin operating would not appear to have been subjected to a taking of any property interest. Still, it is arguable that permit renewal might now be banned by federal law. Further, permits necessary for oil and gas development would likely not be issued to current leaseholders who had not obtained permits prior to the ban. In these situations, the leaseholders may be able to successfully argue that their property interests, as expressed in the lease, have been rendered valueless and thus been subjected to a taking. Whether this is the case, however, would depend on the facts specific to each of the leases.\nWhether the current federal ban on lease or permit issuance constitutes a taking of the state's property right appears more complex. The states are seen to hold title to portions of the Great Lakes, the lakebed, and the minerals underlying the lakebed. It is also arguable that the federal ban on future leasing effectively renders any oil and gas accumulations valueless, unless oil and gas can be extracted by a non-lease arrangement (e.g., contracting). Thus, if a court were to define the relevant property interest for purposes of a takings analysis as the oil and gas estate alone, it might conclude that a taking would occur by virtue of a leasing ban. However, this analysis may be complicated by the application of the whole parcel rule. The whole parcel rule, as explained by the Supreme Court in Penn Central , states that \" taking jurisprudence does not divide a single parcel into discrete segments and attempt to determine whether rights in a particular segment have been entirely abrogated.\" Thus, in that case, regulation affecting only a portion of the plaintiff's property, leaving the rest unaffected, did not constitute a taking. It is thus arguable that a 'taking' of the mineral interest does not result in a Fifth Amendment taking because the whole parcel, the totality of a state's rights in the Great Lakes, remains otherwise unaffected. While the whole parcel rule is backed by considerable precedent, courts have been willing to sever certain property interests for takings analysis purposes, and among those interests is the subsurface mineral estate. Most recently, in Tahoe-Sierra Preservation Council , the U.S. Supreme Court has indicated that it rejects conceptual severance of property rights, although this case did not address severance of the mineral estate. Thus it remains unclear whether a taking of state property would be found as a result of the current oil and gas leasing ban.\nFinally, there is another possible argument for concluding that any ban on leasing, permitting, or drilling in or under the Great Lakes is not a taking, based on the Supreme Court's holding in Lucas v. South Carolina Coastal Commission . Under Lucas , a taking does not occur, even if the total value of property is eradicated by government regulation, if the regulation could have been imposed under the background principles of property and nuisance law existing when the property was acquired. It is arguable that drilling in or under the Great Lakes could result in pollution or damage that could be regulated as a nuisance under common law. Several Great Lakes states have addressed the issue, albeit in different contexts from the present scenario, as to whether oil and gas drilling constitutes a nuisance. These cases would seem to indicate that oil and gas drilling is not a nuisance per se, but that the right circumstances could result in a finding that drilling constitutes a nuisance. Thus, it may follow that the ban on leasing or permitting activities could constitute regulation of a nuisance and that no taking has occurred; however, whether a nuisance would exist in this case would appear to depend on the specific issues a drilling ban is intended to address.", "Oil and gas drilling under the Great Lakes is opposed by many who contend that the potential environmental risks associated with drilling do not justify the potential economic gain. Proponents of drilling, however, contend that risks associated with drilling are not high due to advances in drilling technology and safety, and that drilling would provide jobs and income for the states where it is done. Congress has weighed in on these issues and enacted a permanent ban on the issuance of new federal or state leases or permits for oil and gas drilling in or under the Great Lakes. This ban would only affect drilling in U.S.-controlled waters of the Great Lakes and would not affect Canadian production." ], "depth": [ 0, 1, 2, 3, 1, 2, 1, 2, 2, 3, 4, 4, 4, 3, 2, 1, 2, 2, 2, 1 ], "alignment": [ "h0_title h2_title h1_title", "h0_full h2_full h1_full", "", "", "", "", "h0_full", "", "", "", "", "", "", "", "", "h2_title", "", "", "h2_full", "h0_full" ] }

{ "question": [ "What parties are interested in drilling in the Great Lakes?", "What concerns does drilling under the Great Lakes raise?", "Why do some people support oil and gas drilling?", "How did the Energy Policy Act of 2005 affect the issuing of permits for drilling operations?", "Before this act, how did Congress handle the issuing of permits for drilling under the Great Lakes?", "How did states handle drilling in or under the Great Lakes?", "How do Canada's laws differ from the United States' with regards to Great Lakes drilling?", "What authority do states have over Great Lakes resources?", "What is Congress' role in the question of Great Lakes drilling?", "What argument do critics present towards Congress' authority over the Great Lakes?" ], "summary": [ "Drilling for oil and gas in or under the Great Lakes has generated interest among Great Lakes stakeholders, states, and Congress.", "Some opposed to drilling are concerned about the potential environmental, economic, and public health consequences. They contend that drilling will raise the risks of oil spills, hazardous gas leaks, and pollution that may harm lakeside residents and the Great Lakes ecosystem.", "Proponents of oil and gas drilling contend that drilling will increase local and regional tax revenues and employment, increase domestic energy production, and not be an environmental problem because of new technologies that lower the risks of oil spills and other accidents.", "Issuing federal or state permits for new drilling operations under the U.S. portions of the Great Lakes was banned in the Energy Policy Act of 2005 (P.L. 109-58, §386). Specifically, the provision enacts a permanent ban on the issuance of federal or state permits for new directional, slant, or offshore drilling in or under the Great Lakes.", "Congress had enacted a temporary ban on any new federal and state permits for drilling under the Great Lakes in 2001 (P.L. 107-66; Title V, §503) and extended it to 2007.", "This temporary ban was in addition to several state bans on drilling in or under the Great Lakes.", "In contrast to U.S. law, Canadian law permits onshore gas and oil drilling under the Great Lakes, and offshore gas drilling in the Great Lakes.", "Some contend that the decision of whether to ban drilling is a state responsibility. The states have the authority to regulate the use of Great Lakes resources within their territory and have instituted a variety of approaches for dealing with oil and gas drilling.", "Yet Congress has broad authority to regulate both the navigable waters and oil and gas development.", "Some critics of federal action to prohibit drilling say that while Congress may have the authority to regulate or ban oil and gas drilling in or under the Great Lakes, such action might also constitute a \"taking\" of property for which just compensation would be required." ], "parent_pair_index": [ -1, 0, 0, -1, 0, 0, 0, -1, -1, 1 ], "summary_paragraph_index": [ 0, 0, 0, 1, 1, 1, 1, 2, 2, 2 ] }

{ "title": [ "Background", "SSA Made $1.29 Billion in Benefit Payments That Were Potentially Improper as of January 2013, Mostly as a Result of Work Activity during the 5-Month Waiting Period", "SSA Made $1.29 Billion in DI Benefit Payments That Were Potentially Improper", "Work Activity during the Waiting Period Indicates SSA Made $920 Million in Benefit Payments That Were Potentially Improper", "Work Activity beyond the Trial Work Period Indicates SSA Made $368 Million in Benefit Payments That Were Potentially Improper", "SSA Is Assessing Opportunities to Better Identify Potential Improper Payments, but Existing Controls Allow Potentially Disqualifying Work Activity to Remain Undetected", "SSA Is Assessing Opportunities to Improve the Timeliness of DI Program-Integrity Efforts, but It Is Too Early to Assess What Effect These Initiatives May Have on DI Overpayments", "SSA Can Improve Its Ability to Detect Potentially Disqualifying Work Activity", "Conclusions", "Recommendation for Executive Action", "Agency Comments and Our Evaluation", "Appendix I: Debt Owed to SSA from Overpayment of DI Benefits Is Increasing", "Appendix II: Objectives, Scope, and Methodology", "The NDNH Database", "Limitations to Using NDNH Data to Determine SGA", "Wait Period Overpayments", "Wait Period Overpayment Examples", "Trial Work Period Overpayments", "Trial Work Period Overpayment Examples", "Data Reliability Assessments", "Appendix III: Monthly Earnings That Indicate a Trial Work Period or Substantial Gainful Activity", "Appendix IV: Comments from the Social Security Administration" ], "paragraphs": [ "The DI program was established in 1956 to provide monthly cash benefits to individuals unable to work because of severe long-term disability. Cash benefits are payable monthly, as long as the worker remains eligible for benefits, until the worker reaches full retirement age or dies. In fiscal year 2011, more than 10 million beneficiaries received DI benefits exceeding $128 billion, and the program’s average monthly benefit was about $926.\n42 U.S.C. § 423 and 20 C.F.R. § 404.1572. deceased, retired, or considered eligible for disability benefits, meaning one disability beneficiary can generate multiple monthly disability payments for dependents.\nTo help ensure that SSA does not pay benefits to persons who do not have long-term disabilities, a DI program statute requires individuals to serve a 5-month waiting period prior to receiving DI benefits. The waiting period begins in the first full month in which the individual has been under a disability and continues for the next 4 consecutive months.determinable impairment that prevents the individual from earning SGA- level wages throughout a period of 5 consecutive calendar months. As shown in figure 1, if an individual has substantial earnings from work during any month of the waiting period, the individual is considered to be not disabled and therefore ineligible for DI benefits, and any DI payments SSA makes are potentially improper.", "", "On the basis of our analysis of SSA data on individuals who were DI beneficiaries as of December 2010 and earnings data from the NDNH, we estimate that SSA made $1.29 billion in DI benefit payments that were potentially improper to about 36,000 individuals as of January 2013. Our estimate for the amount of payments that were potentially improper has a margin of error of plus or minus $352 million, meaning the actual amount of payments that were potentially improper could be as low as $936 million and as high as $1.64 billion with a 95 percent level of confidence.Our estimate for the number of individuals has a margin of error of plus or minus 7,000 individuals, meaning the actual number of individuals to whom SSA made payments that were potentially improper could be as low as 29,000 and as high as 43,000 with a 95 percent level of confidence. As shown in figure 3, the estimated 36,000 DI beneficiaries receiving potential overpayments represent about 0.4 percent of all primary DI beneficiaries at that time. Our analysis identifies individuals who received DI benefits that were potentially improper due to work activity performed (1) during the 5-month waiting period, or (2) beyond the 9-month trial work period and the grace period.\nIt is important to note that it is not possible to determine from data analysis alone the extent to which SSA made improper disability benefit payments to these individuals. To adequately assess an individual’s work status, a detailed evaluation of all the facts and circumstances must be conducted for each beneficiary. This evaluation would include contacting the beneficiary and the beneficiary’s employer to gather information on certain impairment-related work expenses, such as transportation costs and attendant care services, which are not considered in our analysis. On the basis of this additional information, SSA can determine whether the individual is entitled to continue to receive disability benefits or have such payments suspended. As described below, SSA had identified and established overpayments for some of the individuals we reviewed at the time of our audit. However, SSA had not identified potentially disqualifying work activity for other individuals we reviewed at the time of our audit.", "We estimate that SSA made payments that were potentially improper to about 21,000 individuals who were DI beneficiaries in 2010 and who had substantial earnings from work during the 5-month waiting period, resulting in potential overpayments of $920 million as of January 2013. Our estimate for the amount of payments that were potentially improper due to work activity during the waiting period has a margin of error of plus or minus $348 million, meaning the actual amount of payments that were potentially improper due to work activity during the waiting period could be as low as $571 million and as high as $1.27 billion with a 95 percent Our estimate for the number of individuals has a level of confidence.margin of error of plus or minus 7,000 individuals, meaning the actual number of individuals to whom SSA made payments that were potentially improper could be as low as 14,000 and as high as 28,000 with a 95 percent level of confidence. The exact number of individuals who received improper disability payments and the exact amount of improper payments made to those individuals cannot be determined without detailed case investigations by SSA. See appendix II for more information on the statistical estimations of overpayments for these populations.\nSpecifically, these three beneficiaries were randomly selected from those in our sample with SGA-level earnings during the waiting period and additional SGA-level earnings after the waiting period that were earned within 1 year of their alleged disability onset date. According to SSA policy, when a beneficiary returns to work less than 1 year after onset it may indicate the 12-month duration requirement for disability was not met and thus the beneficiary’s disability claim must be denied. these examples cannot be projected to the population of individuals receiving potential DI benefit overpayments.\nAs mentioned earlier, individuals are required to serve a 5-month waiting period prior to receiving DI benefits to ensure that SSA does not pay benefits to persons who do not have long-term disabilities. Specifically, substantial earnings from work during the 5-month waiting period may indicate that individuals are not considered disabled and therefore are not entitled to DI benefits. Thus, if SSA discovers substantial earnings from work during the waiting period prior to adjudicating the disability claim, SSA will deny the disability claim. SSA may also reopen previously awarded disability claims by revising the decision to a denial of benefits after providing due process rights. Additionally, SSA’s policies allow it the option of considering a later disability-onset date rather than denying the disability claim if it discovers the SGA-level work activity after the SGA subsequently stops. According to SSA guidance, an unsuccessful work attempt during the waiting period will not preclude a finding of disability.\nWaiting Period Example 1: Beneficiary Did Not Report All Earnings, SSA’s Enforcement Operation Did Not Generate Alert, and SSA Applied Trial Work Period Rather than Waiting Period Program Rules—Potential Overpayment of $90,000 The beneficiary filed for benefits in November 2009 while he had substantial earnings from working as a physician. He had substantial earnings from work in all 5 months of the waiting period, as much as $22,000 monthly, and continued to have substantial earnings from work in the month he started receiving benefits.\nAs mentioned, SSA’s policies allow it the option of considering a later disability-onset date rather than denying the disability claim when it discovers SGA-level earnings during the waiting period. According to this SSA guidance, work activity of 6 months or less can be considered an “unsuccessful work attempt” during the waiting period, and will not preclude a finding of disability. During his initial claims interview, the beneficiary told SSA that he worked for only 2 months during the waiting period, a period short enough to be considered an unsuccessful work attempt.\nHowever, SSA did not verify the beneficiary’s wages with his employer and approved the individual for benefits beginning in January 2010. In contrast, the wages we confirmed with the beneficiary’s employer indicate that the beneficiary had earnings continuously above the SGA level for every month of the year that he applied for and was approved for benefits, including all 5 months of the waiting period. Further, because these earnings were continuously above the SGA level for more than 6 months, SSA policy indicates that his work activity cannot be considered an unsuccessful work attempt. As such, this individual’s work activity indicates that he was not disabled, and therefore was ineligible for benefits.\nAdditionally, SSA’s enforcement operation did not generate an alert for his work activity during the waiting-period months in 2009 because his first benefit payment was in January 2010. According to SSA officials, the enforcement operation will only generate an earnings alert for a year in which a beneficiary receives a payment. In this example, because DI benefit payments began in 2010, and the waiting period was during the year prior to the first payment, no earnings alert was generated.\nIn 2011, SSA initiated a work-related continuing disability review (CDR) as a result of an earnings alert for work activity after the waiting period. As mentioned, SSA conducts CDRs to determine if beneficiaries are working above the SGA level. However, during the CDR, SSA program staff did not request and verify wages from the beneficiary’s employer, nor did staff apply program rules regarding work activity during the waiting period. Instead, the CDR considered the work activity under the trial work period rules and determined that benefits should continue. Because the beneficiary’s impairment did not prevent him from earning SGA-level wages during the waiting period and his SGA continued after the waiting period, SSA policies indicate that SSA should have denied the individual benefits when his case was adjudicated, or reopened the determination after adjudication and revised the claim to a denial of benefits, which would have resulted in an overpayment of all benefits previously paid. As such, we estimate that SSA made $90,000 in cash benefit payments that were potentially improper to this individual over a period more than 3 years. As of May 2013, SSA had not detected or assessed any overpayments for the beneficiary and continued to pay monthly DI benefits of about $2,500. SSA officials told us they plan to conduct follow-up work on this case on the basis of the information we provided.\nWaiting Period Example 2: Beneficiary Did Not Report Earnings and SSA’s Enforcement Operation Did Not Generate Alert—Potential Overpayment of $21,000 The beneficiary began work in August 2009 and continued to work through January 2010, the month that SSA began making DI benefit payments due to mental disorders. The beneficiary had substantial earnings from work during 3 months of her waiting period and continued to have SGA-level earnings during the month she started receiving benefits, but she did not report any wages to SSA as required by program regulations. No enforcement operation earnings alert was generated for her work activity during the waiting period because her waiting period occurred in 2009, but her first benefit payment was not until January 2010. Additionally, no enforcement operation earnings alert was generated for her earnings in 2010 because, SSA officials told us, her earnings were too low to generate an alert.and continued to pay monthly DI benefits as of May 2013. We identified about $21,000 in benefit payments that were potentially improper through our analysis of the beneficiary’s wage records. SSA officials told us they plan to conduct follow-up work on this case.\nSSA had not assessed any overpayments for the beneficiary Waiting Period Example 3: SSA Did Not Follow Its Program Rules—Potential Overpayment of $25,000 The beneficiary began working in October 2004 and remained employed through at least June 2012. SSA approved the beneficiary for DI benefits starting in December 2009 for a malignant tumor. The beneficiary had substantial earnings from work during her waiting period as well as SGA-level earnings in 9 months of the first 12 months that SSA determined her impairment prevented her from having substantial earnings from work. When the beneficiary eventually self-reported earnings in 2011, SSA initiated a CDR that discovered substantial earnings from work during the waiting period. However, SSA staff did not consider this work in accordance with its own policies, and the CDR resulted in a determination that DI benefits should continue. Specifically, according to SSA, the discovery of SGA-level wages during the waiting period should have prompted SSA staff to initiate processes for determining whether benefits should have originally been denied or if the onset date should be changed to the date the SGA-level work stopped, but the SSA staff did not do so. On the basis of this individual’s substantial earnings from work during the waiting period, the revised disability determination may have resulted in a revised disability denial or revised date of disability onset. SSA ceased providing DI benefits to the beneficiary in April 2013 when the beneficiary died. Although SSA never assessed overpayments for the beneficiary, we identified about $25,000 in cash benefit payments that were potentially improper through our analysis of the beneficiary’s wage records. Because the beneficiary died, her estate, or the beneficiaries of her estate, would be responsible for repaying the overpayment. SSA officials told us they plan to conduct follow-up work on this case.", "We estimate that SSA made potential overpayments to 15,500 individuals who were DI beneficiaries in 2010 and who worked beyond their trial work period, resulting in potential overpayments of $368 million as of January 2013. Our estimate for the amount of payments that were potentially improper due to work activity beyond the trial work period has a margin of error of plus or minus $62 million, meaning the actual amount of payments that were potentially improper due to work activity beyond the trial work period could be as low as $306 million and as high as $430 million, with a 95 percent level of confidence. Our estimate for the number of individuals has a margin of error of plus or minus 1,500 individuals, meaning the actual number of individuals to whom SSA made payments that were potentially improper could be as low as 14,000 and as high as 17,000, with a 95 percent level of confidence. The exact number of individuals who received improper SSA disability payments cannot be determined without detailed case investigations by SSA. See appendix II for more information on the statistical estimations of overpayments for these populations.\nIn addition to our statistical sample, we reviewed detailed DI case-file information for a nongeneralizable selection of three beneficiaries from among those in our sample that we identified to have potential overpayments for at least 36 months (3 years) due to work activity beyond their trial work period. Our case file reviews for these three beneficiaries confirmed instances in which SSA made overpayments to beneficiaries with substantial earnings from work, as discussed later in this report. SSA officials told us they plan to conduct follow-up work on these cases on the basis of the information we provided during this review. Because we selected a small number of individuals for further review, these examples cannot be projected to the population of individuals receiving potential DI benefit overpayments.\nAs previously discussed, federal statutes and SSA regulations allow DI beneficiaries to work for a limited time without affecting their benefits. However, after completing the 9-month trial work period and entering the reentitlement period, beneficiaries who have substantial earnings from work beyond the 3-month grace period are generally no longer entitled to benefits. If SSA does not stop their benefits in a timely manner, SSA may overpay beneficiaries who are not entitled to benefits due to their work activity.\nTrial Work Period Example 1: No Increased Scrutiny for Known Rule Violator— Overpayment of $57,000 The individual filed for DI benefits on the basis of personality disorders and affective disorders in July 2006, and SSA approved his claim the following day. The day after he was approved for benefits, the beneficiary began working. At no point did the beneficiary report the new wages from his employment, as required by SSA regulations. SSA’s enforcement operation generated earnings alerts each year from 2008-2011, but SSA did not initiate a CDR until April 2011. Agency officials told us that SSA does not have any policies that dictate time limits for initiating a CDR on the basis of an earnings alert, nor stipulating that a CDR must be initiated if earnings alerts are generated for several consecutive years. As a result of the CDR in 2011, SSA suspended the beneficiary’s DI benefits in December 2011 and subsequently assessed an overpayment of more than $57,000 due to his work activity. SSA officials were unable to explain why a CDR was not performed until 2011, though they stated that limited resources and competing workloads may be factors that contributed to the timeliness with which the CDRs were initiated.\nA month after SSA assessed the overpayment, while he continued to have substantial earnings from working for the same employer, the beneficiary applied to have his benefits reinstated, and fraudulently affirmed that he did not have substantial earnings from work. We found no evidence in SSA’s files that SSA had contacted the beneficiary’s employer to confirm his statement before approving his benefits. Thus, even though SSA had information documenting that the individual did not report earnings before, the agency approved the application and continued to pay DI benefits as of May 2013. Because the individual had SGA-level wages for the entire year prior to his application for reinstatement and for at least 2 months after SSA approved him for reinstated benefits, the cash benefit payments SSA made after reinstating this individual were potentially improper, though SSA had not established an overpayment for this work activity as of April 2013. To recover the prior outstanding overpayment, SSA is withholding $75 per month from the current monthly DI benefits that SSA may be improperly paying to the beneficiary. At $75 per month, it would take 63 years for SSA to recover the $57,000 overpayment, at which time the beneficiary would be well over 100 years old.basis of the information we provided.\nSSA officials told us they plan to conduct follow-up work on this case on the Trial Work Period Example 2: Earnings Alerts Did Not Result in Review for 5 Years—Overpayment of $74,000 SSA approved the beneficiary for DI benefits in April 1998 for mental disorders. The beneficiary began working in October 2005 and remained employed as of August 2012. After he reported his earnings in October 2005, SSA completed a CDR and found that the beneficiary was within his trial work period. From 2007 to 2011, SSA’s enforcement operation generated earnings alerts for the beneficiary. Despite knowing the beneficiary began working in 2005 and receiving 5 additional years of earnings alerts, SSA did not perform another CDR until December 2011. SSA officials were unable to explain why a second CDR was not performed for more than 5 years when it had previously identified that the beneficiary had partially completed a trial work period. However, SSA officials told us that resource constraints may have delayed this CDR. As a result of the 2011 CDR, SSA assessed over $56,000 in overpayments and ceased providing benefits to the beneficiary in June 2012. SSA also assessed a total of over $18,000 in additional overpayments for the beneficiary’s two child dependents. SSA approved a repayment plan of $200 per month for the $74,000 in overpayments. SSA officials told us they plan to conduct follow-up work on this case.\nTrial Work Period Example 3: Known Work Activity Not Monitored—Overpayment of $25,000 SSA approved the beneficiary for DI benefits starting in June 2005 for mental disorders. The beneficiary began working in November 2007 and remained employed through at least August 2012. In May 2008, he provided SSA pay stubs for 2 months of earnings, which showed that he was not earning substantial wages. SSA’s enforcement operation generated earnings alerts in 2008 and 2009, and SSA completed a CDR in 2010 in which the agency determined that benefits should continue because he had not yet completed his trial work period. In the month following the completion of the CDR, SSA contacted the beneficiary to inform him that he had completed his trial work period. Despite knowing that the beneficiary had completed his trial work period, SSA did not complete a subsequent CDR for more than 2 years. SSA officials told us that resource constraints may have contributed to the delay in initiating a subsequent CDR. As a result of the CDR performed 2 years later, SSA assessed overpayments of $25,000 due to work activity and stopped paying benefits. As of April 2013, the beneficiary had not made any payments toward his overpayment debt. SSA officials told us they plan to conduct follow-up work on this case.", "", "We identified instances in which the timeliness of SSA’s process for identifying disqualifying work activity allowed DI overpayments to remain undetected and accrue; however, SSA is assessing opportunities to obtain more-timely earnings information and improve its work CDR process. Specifically, in the course of this review, we identified instances in which SSA did not obtain timely earnings information and did not act promptly when it did receive earnings alerts, which led to significant cash benefit overpayments. This is consistent with our prior work that found DI overpayments for beneficiaries who return to work may accrue over time because SSA lacks timely data on beneficiaries’ earnings and does not act promptly when it receives earnings alerts from its enforcement operation. During this review, SSA officials told us that limited resources and competing workloads may have constrained the agency’s ability to act promptly when it received earnings alerts or self-reported earnings for beneficiaries from our nongeneralizable examples described above. We also reported in April 2013 that budget decisions and the way SSA prioritizes competing demands, such as processing initial claims, contribute to challenges SSA faces in maintaining the integrity of the disability program.\nIn 2004, we reported that SSA’s lack of timely earnings data on beneficiaries’ earnings and work activity impeded its ability to prevent and detect earnings-related overpayments. To enhance SSA’s ability to detect and prevent overpayments in the DI program, we recommended that SSA use more-timely earnings information in the NDNH in conducting program-integrity operations. Although SSA uses the NDNH to perform oversight of the SSI program, it does not use the NDNH to conduct oversight of the DI program. In 2009, SSA conducted a cost-effectiveness study on use of the NDNH, which estimated its return on investment would be about $1.40 for every $1 spent, or a 40 percent rate of return; however, SSA concluded in its 2009 study that this expected return on investment was low, and noted that a match with the NDNH would generate a large number of CDR alerts needing development that were not of high quality. In July 2011, we reported that due to overly pessimistic assumptions in SSA’s cost-effectiveness study, it is likely that the actual savings that result from SSA’s use of the NDNH could be much higher. Further, it is not clear whether this cost-benefit analysis accounted for improper payments that would be prevented by identifying work activity during the 5-month waiting period. Thus, the real return on investment could be understated. SSA agreed with our assessment and in January 2013 said that it is currently reevaluating the cost- effectiveness of using the NDNH for DI program-integrity initiatives and expects the cost-benefit analysis to be completed in the fourth quarter of fiscal year 2013.\nSSA officials also stated that the agency has made improvements to its CDR process, but we were unable to determine how they might reduce improper payments due to beneficiaries’ work activity because these initiatives were still being tested at the time of our review. For example, in 2010 SSA began a pilot to use what the agency refers to as a predictive model to prioritize enforcement operation earnings alerts, working cases likely to incur large work-related overpayments first. SSA officials told us the agency is planning to implement the model nationally in June 2013. Additionally, in response to a recommendation we made in a prior report, in 2012 SSA began testing a new process to use its model to identify and delay benefit increases for beneficiaries with pending work CDRs.Because these initiatives were still being tested at the time of our review, we were unable to determine how they might reduce improper payments due to beneficiaries’ work activity. As such, it is too early to assess what effect these initiatives may have on the prevalence and size of DI overpayments.", "We found that a limitation of SSA’s enforcement operation allows individuals with substantial earnings from work during the waiting period to be approved for DI benefits and allows resulting DI benefit payments that were potentially improper to remain undetected by SSA. Specifically, we found that SSA’s enforcement operation will not generate an alert for earnings during the waiting period if the earnings occur in a year when the beneficiary does not receive a benefit payment. For example, if a beneficiary receives her or his first benefit payment in January 2013, the enforcement operation will not generate an earnings alert for wages earned during the waiting-period months occurring in the prior year, which would be from August to December 2012. As a result, for any beneficiary whose first month of entitlement is January to May, the enforcement operation does not generate an earnings alert for at least 1 month of the waiting period. In two of the three examples we randomly selected from our sample of beneficiaries with work activity during the waiting period, SSA’s enforcement operation did not generate alerts for SGA-level earnings during the waiting period because their waiting periods occurred in the year prior to their first benefit payment. These individuals were approved for benefits despite disqualifying work activity, and SSA had not detected any overpayments for these individuals at the time of our audit. For the third beneficiary we reviewed, SSA’s enforcement operation generated an alert for earnings during the waiting period because the individual also received benefit payments in that year. However, this alert was generated more than 1 year after the work activity during the waiting period occurred, and in the resulting work CDR, SSA did not apply its own waiting period program rules to the work activity. Specifically, SSA approved the individual for benefits despite disqualifying work activity and did not detect and establish overpayments for this work activity when it later became aware of the work activity.\nStandards for Internal Control in the Federal Government states that internal controls should generally be designed to assure that ongoing monitoring occurs in the course of normal operations. SSA officials acknowledged that the systemic limitation to their enforcement operation allows potentially disqualifying work activity to remain undetected, but SSA expressed concern that modifying its existing enforcement operation may be costly. However, SSA has not assessed either the costs of such a modification or the additional program savings it might realize should such a change be implemented. Such an analysis would assist SSA in making an informed decision regarding the costs and benefits of modifying its existing enforcement operation. To the extent that such an analysis determines modifying its existing enforcement operation is cost effective and feasible, establishing a mechanism to identify work activity performed during all months of the waiting period, including those that occur in a year when beneficiaries were not paid, may help provide SSA greater assurance that DI beneficiaries are eligible to receive benefits.", "The DI program provides an important safety net for disabled beneficiaries. However, during a time of growing concerns about the solvency of the DI trust fund, it is important that SSA take every opportunity to ensure that only eligible beneficiaries receive payments under this program and that additional actions are taken to improve the financial status of the program. Without reliable and timely earnings information on the work activity of individuals applying for DI benefits, SSA risks making overpayments to individuals whose work activity indicates they are not disabled and therefore ineligible for disability benefits. While we cannot generalize the examples we found, SSA’s inability to identify work activity during the waiting period may result in overpayments to beneficiaries who are ineligible for benefits. Assessing the costs and savings associated with establishing a mechanism to identify work activity during all months of the waiting period would help SSA to determine whether establishing such a mechanism would be cost- effective and feasible. To the extent that it is determined to be cost- effective and feasible, implementing a mechanism to identify work activity performed during all months of the waiting period, including those that occur in a year when benefits were not paid, may help provide SSA greater assurance that DI beneficiaries are eligible to receive benefits.", "To improve SSA’s ability to detect and prevent potential DI cash benefit overpayments due to work activity during the 5-month waiting period, we recommend that the Commissioner of Social Security take the following action: assess the costs and feasibility of establishing a mechanism to detect potentially disqualifying earnings during all months of the waiting period, including those months of earnings that the agency’s enforcement operation does not currently detect and implement this mechanism, to the extent that an analysis determines it is cost- effective and feasible.", "We provided a draft of this report to the Office of the Commissioner of SSA. In its written comments, SSA concurred with our recommendation and stated that it would conduct the recommended analysis. In addition, SSA expressed some concerns about our methodology for estimating potential improper payments due to beneficiaries’ work activity, which are summarized below. The agency also provided general and technical comments, which have been incorporated into the report, as appropriate. SSA’s comments are reproduced in full in appendix IV.\nIn commenting on our recommendation to assess the costs and feasibility of establishing a mechanism to detect potentially disqualifying earnings during all months of the waiting period and to implement the mechanism, to the extent that it is cost-effective and feasible, SSA requested the data we gathered as part of this study to help the agency assess the costs and feasibility of establishing such a mechanism. At SSA’s request, we will provide SSA the population of individuals with earnings during the 5- month waiting period that we identified from our match of 2010 NDNH earnings data and SSA’s 2010 DI program data. During the course of this audit, we also provided SSA with the SSNs of the individuals in our two random samples. These data would allow SSA to perform the recommended analysis using the NDNH wage data, which we obtained from SSA. We note that SSA’s assessment would benefit from using the most-recently available wage data, such as 2013 data that are directly available to SSA from the NDNH.\nIn addition to this data request, SSA raised several concerns about our methodology and asserted that our inability to replicate the process it uses to make SGA determinations may lead to substantial overstatement of our estimate of potentially improper payments. First, SSA noted that our review does not consider program features, such as unsuccessful work attempts and Impairment Related Work Expenses (IRWE), or whether the work involved subsidies or special conditions. As mentioned in the report, SSA’s process for determining SGA and its policies for determining whether individuals remain entitled to benefits despite potentially disqualifying work activity involve a consideration of all the facts and circumstances surrounding a case, including medical data that doctors and hospitals are not required to share with GAO for purposes of this audit. As such, our objective was to estimate the extent to which individuals received DI benefit payments that were potentially improper due to their work activity. To do this, we used wage data to identify two populations of individuals with earnings beyond program limits; we then drew a random, generalizable sample of individuals from each population and compared wage information from their employers to DI program information from SSA to develop estimates of potential overpayments in each population. Because our analysis of potential overpayments is limited to earnings data from the NDNH and DI payments from SSA, potential overpayments for each sample are estimated. Thus, we continue to believe that the methodology we applied using the data we were able to access led us to valid estimates of potentially improper payments due to beneficiaries’ work activity.\nSecond, SSA noted that we assume that every payment made after the 5- month waiting period is likely to be an improper payment instead of reestablishing the disability onset date, as its policy allows in some instances. However, our method of calculating potential overpayments is consistent with current DI program policies and interviews with SSA officials who stated that individuals who perform substantial gainful activity during the waiting period are not disabled and therefore not entitled to benefits; thus, all DI payments made to those individuals are potentially improper payments. Further, determining which individuals in our samples, if any, should have their onset date reestablished despite disqualifying work activity in the waiting period was not reasonably possible because making such a determination would involve a consideration of medical data that doctors and hospitals were not required to share with GAO for purposes of this audit.\nThird, SSA stated that payment for medical leave may have been included in some of the payroll data we used for our analysis and suggested that this may have led to a substantial overstatement of estimated improper payments. However, our calculation of earned income excludes material payments for medical leave, as described in detail in appendix II. Thus, we do not expect that these payments or the other concerns SSA raises in its letter led to a substantial overstatement of potential overpayments, as SSA suggested.\nFinally, SSA noted that improving payment accuracy is critical to preserving the public's trust in the DI program and that available resources may affect SSA’s ability to increase its payment accuracy. We recognize SSA’s ongoing efforts to improve the program and that federal resources are currently constrained. However, without making changes to its existing processes for identifying beneficiaries’ work activity, to the extent that the benefits exceed the costs, SSA may remain unable to detect work activity in a timely manner, and SSA may continue to make improper payments to individuals whose work activity indicates they are not entitled to benefits.\nAs agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Commissioner of Social Security and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov.\nIf you or your staff have questions about this report, please contact me at (202) 512-6722 or lords@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report.", "As shown in figure 4 below, in fiscal year 2010, the total amount owed to the Social Security Administration (SSA) for Disability Insurance (DI) overpayments was $5.4 billion. This debt has increased through fiscal year 2012, as individuals owed over $6 billion in overpayments of DI benefits.", "This report (1) estimates the extent to which individuals received disability insurance (DI) benefit payments that were potentially improper due to work activity performed during the 5-month waiting period or beyond the 9-month trial work period; and (2) assesses the extent to which the Social Security Administration’s (SSA) enforcement operation detects potentially disqualifying work activity during the waiting period. The exact number of individuals who received improper disability payments and the exact amount of improper payments made to those individuals cannot be determined without detailed case investigations by SSA. Thus, we refer to “benefit payments that were potentially improper” and “potential overpayments” throughout this report. As part of this work, we also provide examples of beneficiaries with work activity during the waiting period or beyond the trial work period to help illustrate the circumstances under which SSA made DI payments that were potentially improper to beneficiaries. We plan to assess the extent to which the National Directory of New Hires (NDNH) indicates potential overpayments in SSA’s Supplemental Security Income (SSI) program in future work, which will be available this year.\nTo determine the extent to which the NDNH provides evidence that individuals received DI benefit payments that were potentially improper due to work activity, we matched the NDNH quarterly wage data with our extract of SSA’s Master Beneficiary Record (MBR) as of December 2010. To ensure the best quality matches, we matched only against Social Security Numbers (SSN) that the NDNH categorizes as “verified” through Thus, we did not the SSA’s Enumeration Verification System process.match against SSNs that the NDNH categorizes as “unverified” or “non- verifiable.” The match process identified two populations with potential overpayments due to work activity. The first population consisted of individuals who received potential overpayments due to substantial gainful activity (SGA) level earnings during the 5-month waiting period. The details of this match are described in the section below titled “Wait Period Overpayments.” The second overpayment population consisted of individuals who received potential overpayments due to SGA-level earnings beyond the trial work period.described in the section below titled “Trial Work Period Overpayments.”", "Sections 452(a)(9) and 453(a)(1) of the Social Security Act required the Secretary of Health and Human Services to establish and maintain the Federal Parent Locator Service, which includes the NDNH database.The NDNH database contains employment data on newly hired employees (W4), quarterly wage (QW) data on individual employees, and unemployment insurance (UI) data. The federal Office of Child Support Enforcement (OCSE) matches case information from state child support enforcement agencies against the NDNH and returns information on the case to the appropriate state or states. NDNH data are deleted after 24 months, as required by Section 453(i) of the Social Security Act. The data reported to OCSE for the NDNH come from several sources. Employers report W4 data to the State Directories of New Hires, which then report them to OCSE. UI data originate with the State Workforce Agencies, which then send data to the State Directories of New Hires, which send data to OCSE. The quarterly wage data are reported by employers to the State Workforce Agencies for their state, which in turn reports them to the State Directories of New Hires (sometimes colocated with the State Workforce Agencies), which then reports the information to OCSE. Federal agency W4 and QW data are reported directly to OCSE.", "The timing and nature of NDNH earnings data we received present limitations to the data’s capacity to identify SGA in accordance with SSA’s complex program rules. First, the quarterly wage amounts on the NDNH represent 3 months of earnings; however, the statute for evaluating SGA- level earnings requires SSA to use monthly earnings amounts. To facilitate our analysis, we calculated monthly earnings for each month in a quarter by dividing the quarterly wage amount in the NDNH by 3. For example, if the NDNH reported quarterly earnings of $3,000 in the first quarter of 2010, we calculated the monthly earnings to be $1,000 for January, February, and March of 2010. This monthly computed earnings amount could differ from the actual monthly earnings. For instance, using the previous example, the actual monthly earnings in January 2010 could be $3,000, and actual earnings in February or March could be $0. Second, when SSA evaluates earnings to determine SGA for DI beneficiaries, SSA counts earnings when they are earned, not paid; however, amounts of earnings on the NDNH for a particular quarter could be paid in that quarter, but earned in prior quarters. In addition to these timing limitations, the NDNH quarterly earnings data may contain payments not related to work activity, such as paid time off, long-term disability payments, or posttermination compensation; however, SSA’s assessment of SGA generally involves doing significant physical or mental activities, rather than receiving payments not related to work.\nTo account for these limitations, we drew a simple random sample from each of the potential overpayment populations and contacted the employers that reported the earnings to determine the exact timing, amount, and nature of the earnings for the beneficiaries in our sample. With these simple random samples, each member of the study populations had a nonzero probability of being included, and that probability could be computed for any member. Each sample element was subsequently weighted in the analysis to account statistically for all the members of the population, including those who were not selected. Additional details on our sample work are described in the “Wait Period Overpayments” and “Trial Work Period Overpayments” sections below.\nAs mentioned, it is impossible to determine from reported earnings alone the extent to which SSA made improper disability benefit payments to these individuals. To adequately assess an individual’s work status, a detailed evaluation of all the facts and circumstances should be conducted for all cases. This evaluation may necessitate contacting the beneficiary, the beneficiary’s employer, and the beneficiaries’ physician to evaluate the nature of the work performed. This evaluation may also consider certain impairment-related work expenses, which were not considered in our analysis. On the basis of this comprehensive evaluation of all facts and circumstances surrounding a case, SSA can determine whether the individual is entitled to continue to receive disability payments or have such payments suspended.", "Our analysis of the NDNH match file identified individuals who were in current pay status in the DI program as of December 2010 and had computed monthly earnings that exceeded the corresponding monthly SGA threshold for any of the 5 months prior to the individual’s DI date of We included individuals who received potential entitlement to disability.overpayments due to work activity during the waiting period on the basis of the following criteria: 1. monthly computed earnings were greater than the corresponding SGA threshold during any month of the individual’s 5-month waiting period, and 2. DI payment records on the MBR showed that DI benefits were paid to the individual during any of the 36 months for which we had DI payment data from the MBR.\nThus, to be included in our Wait Period overpayment population, individuals had to be in current pay status as of December 2010 and have at least 1 month of potential overpayments as defined by the criteria above. Our analysis determined there were 83,179 individuals meeting these potential-overpayment criteria. Because SGA-level earnings during the waiting period would result in a denial of eligibility for DI benefits, we considered all the benefits paid to the individual as potential overpayments.\nNext, we drew a simple random sample of 133 individuals from the Wait Period overpayment population and contacted the employers to verify the timing and nature of the wages paid to the individuals. We received completed requests from employers for 98 individuals for a response rate of 75 percent. Nonresponses included sample items whose employers we could not locate, employers who were no longer in business, and employers who refused to cooperate with our requests. We asked employers who provided earnings data to identify payments that were not related to work activity, such as paid time off, extended sick leave, or posttermination compensation. Many employers provided payroll reports indicating hours and payments by payment category, such as total payments for hours in regular work, hours in overtime work, and hours of vacation time.\nUsing the earnings data employers provided, we calculated monthly earned income for each sample item and identified whether the beneficiaries’ monthly earned income exceeded SGA during any of the 5 months of their waiting period. Because employers use different payroll cycles and provided different levels of detail in their responses, we adhered to the following guidelines to standardize our calculation of monthly earned income: 1. In consideration of SSA guidance regarding the timing of payments, we calculated monthly earned income according to the period in which payments were earned rather than when they were paid. However, if an employer’s payroll reports indicated only the dates when payments were issued, we calculated monthly earned income according to those dates. 2. In consideration of SSA guidance regarding the nature of payments, our calculation of monthly earned income excludes payments not related to work activity, such as payments for paid time off, vacation pay, and extended sick leave, if those payments covered the entire pay period, as defined by the employer. Thus, payments not related to work activity that were episodic, such as sick pay or vacation pay received during a pay period when the individual also performed work, are included in our calculation of monthly earned income.\nWe then obtained additional DI program data on the MBR to estimate total program overpayments to-date for our sample items. Because we followed a probability procedure based on random selections, our sample is only one of a large number of samples that we might have drawn. Since each sample could have provided different estimates, we express our confidence in the precision of our particular sample’s results as a 95 percent confidence interval.", "To provide examples of the circumstances under which SSA made potential overpayments to individuals with work activity during the 5- month waiting period, we randomly selected three beneficiaries from our waiting period sample who were among those that met the following criteria: 1. the individual’s employer reported that the individual received SGA- level earnings during the 5-month waiting period, and 2. the individual’s employer reported additional SGA-level earnings that were earned after the waiting period and within 1 year of their date of disability onset.\nAccording to statutes and SSA regulations, when individuals have SGA- level work activity during the waiting period, this normally means they will be considered not disabled and therefore not eligible for benefits. For these three individuals, we obtained detailed DI case-file information from SSA to determine the facts and circumstances surrounding their potential overpayments. Because we selected a small number of individuals for further investigation, the results cannot be projected to the population of individuals receiving DI overpayments due to SGA in the 5-month waiting period.", "Our analysis of the NDNH match file identified individuals who were in current pay status in the DI program as of December 2010 and who had SGA-level earnings after the completion of their trial work period (TWP) and 3 grace period months. We determined a month to be a TWP month if the monthly computed earnings after the date of entitlement was greater than the TWP threshold. After we identified 9 TWP months, we identified 3 grace period months where monthly computed earnings were greater than the corresponding SGA threshold. Next, we identified potential overpayment months that met the following criteria: 1. monthly computed earnings after the 3 month grace period were greater than the corresponding SGA threshold, 2. DI payment records on the MBR showed that DI benefits were both due and paid for that month.\nThus, to be included in our TWP overpayment population, beneficiaries had to be in current pay status as of December 2010 and have at least 1 month of potential overpayments as defined by the criteria above. Our analysis determined there were 19,208 individuals that met these overpayment criteria.\nOur analysis accounts for the higher SGA amounts for individuals whose disability is blindness. The monthly earnings amounts that demonstrate SGA are described in greater detail in app. III.\nSSA may hold payments to beneficiaries for a month under certain circumstances, such as when a payment address is in question. In these instances, the MBR may indicate benefits due, but not paid for that month. months may not be included in our TWP overpayment population. For example, if NDNH earnings data indicated the beneficiary completed all 9 TWP months and 3 grace period months from October 2009 to September 2010 (i.e., 12 months), but the next month of SGA-level earnings occurred in October 2010, which is outside our 15-month time frame, the beneficiary was not included in our TWP overpayment population. Figure 5 below illustrates the 15 months from July 2009 to September 2010 for which our analysis captured both DI payment records on the MBR and earnings data on the NDNH. Second, because our calculation of potential overpayment months includes only months where DI payment records on the MBR showed that DI benefits were both due and paid for that month, our TWP overpayment population does not include individuals whose only months of SGA beyond the TWP occurred in months where benefits were due, but not paid. Similarly, our TWP overpayment population does not include individuals whose only months of SGA beyond the TWP occurred in months where benefits were paid, but not due.\nNext, we drew a simple random sample of 130 individuals from the TWP overpayment population and contacted the employers to verify the wages paid to the individuals. We completed requests from employers for 98 individuals for a response rate of 76 percent. Nonresponses included sample items whose employers we could not locate, employers who were no longer in business, and employers who refused to cooperate with our requests. We asked employers who provided earnings data to identify payments that were not related to work activity, such as paid time off, extended sick leave, or posttermination compensation. Many employers provided payroll reports indicating hours and payments by payment category, such as total payments for hours in regular work, hours in overtime work, and hours of vacation time.\nUsing the earnings data employers provided, we calculated monthly earned income for each sample item and identified whether the beneficiaries’ monthly earned income exceeded SGA during any month of the extended period of eligibility. Because employers use different payroll cycles and provided different levels of detail in their responses, we adhered to the following guidelines to standardize our calculation of monthly earned income: 1. In consideration of SSA guidance regarding the timing of payments, we calculated monthly earned income according to the period in which payments were earned rather than when they were paid. However, if an employer’s payroll reports indicated only the dates when payments were issued, we calculated monthly earned income according to those dates. 2. In consideration of SSA guidance regarding the nature of payments, our calculation of monthly earned income excludes payments not related to work activity, such as payments for paid time off, vacation pay, and extended sick leave, if those payments covered the entire pay period, as defined by the employer. Thus, payments not related to work activity that were episodic, such as sick pay or vacation pay received during a pay period when the individual also performed work, are included in our calculation of monthly earned income.\nWe then obtained additional DI program data on the MBR to estimate total program overpayments to-date for our sample items. Because we followed a probability procedure based on random selections, our sample is only one of a large number of samples that we might have drawn. Since each sample could have provided different estimates, we express our confidence in the precision of our particular sample’s results as a 95 percent confidence interval.", "To provide examples of the circumstances under which SSA made potential overpayments to individuals with work activity beyond their trial work period, we randomly selected three beneficiaries from our trial work period sample who were among those beneficiaries receiving potential overpayments for at least 36 months (3 years). For these three individuals, we obtained detailed DI case-file information from SSA to determine the facts and circumstances surrounding their potential overpayments. Because we selected a small number of individuals for further investigation, the results cannot be projected to the population of individuals receiving DI overpayments due to SGA beyond the trial work period.", "To determine the reliability of the SSA disability records and NDNH quarterly wage records, we reviewed documentation related to these databases and interviewed officials responsible for compiling and maintaining relevant DI and NDNH data. In addition, we performed electronic testing to determine the validity of specific data elements in the databases that we used to perform our work. We also reviewed detailed wage data from employers and DI program data from SSA for the statistical samples of individuals selected as described above to confirm that quarterly wage data from the NDNH indicated payments that were potentially improper from the DI program. On the basis of our discussions with agency officials and our own testing, we concluded that the data elements used for this report were sufficiently reliable for our purposes.\nTo assess the extent to which SSA’s enforcement operation detects potentially disqualifying work activity during the waiting period, we interviewed officials from SSA regarding the agency’s internal controls for detecting and preventing overpayments due to work activity. We interviewed agency officials from SSA’s policy offices to confirm our interpretations of SSA regulations and policies regarding work activity during the waiting period and beyond the trial work period. We also interviewed officials from SSA’s operations offices to confirm the actions SSA took while reviewing the work activity for our nongeneralizable examples. We also examined SSA’s mechanisms to detect potentially disqualifying work activity and compared them with Standards for Internal Control in the Federal Government.\nWe conducted this performance audit from April 2012 to July 2013 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our objectives.", "To be eligible for disability benefits, a person must be unable to engage in substantial gainful activity (SGA). A person who is earning more than a certain monthly amount (net of impairment-related work expenses) is ordinarily considered to be engaging in SGA. During a trial work period, a beneficiary receiving Social Security disability benefits may test her or his ability to work and still be considered disabled. The Social Security Administration (SSA) does not consider services performed during the trial work period as showing that the disability has ended until services have been performed in at least 9 months (not necessarily consecutive) in a rolling 60-month period and 1 additional month, at an SGA-level, after the trial work period has ended. Table 1 shows the amount of monthly earnings that trigger a trial work period month for calendar years 2001– 2012.\nThe amount of monthly earnings considered as SGA depends on whether a person’s disability is for blindness or some other condition. The Social Security Act specifies a higher SGA amount for statutorily blind individuals and a lower SGA amount for nonblind individuals. Both SGA amounts generally change with changes in the national average wage index. Table 2 shows the amount of monthly earnings that ordinarily demonstrate SGA for calendar years 2001–2012.", "" ], "depth": [ 1, 1, 2, 2, 2, 1, 2, 2, 1, 1, 1, 1, 1, 2, 3, 2, 2, 2, 2, 2, 1, 1 ], "alignment": [ "h0_full", "h0_title h2_title h1_title", "h0_full", "h0_full", "h0_full h2_full h1_full", "h1_title", "", "h1_full", "", "h1_full", "h0_full h2_full h1_full", "h0_full", "h0_full h2_full", "", "", "", "", "", "h2_full", "", "", "" ] }

{ "question": [ "What did GAO determine about SSA overpayments?", "To what extent can the exact number of individuals be determined?", "How did GAO make its estimate?", "What differences are there between the two populations of individuals that GAO looked at to estimate overpayments?", "What did SSA determine about its own overpayments?", "How well does SSA's enforcement operation work?", "What specific cases did GAO identify?", "How did SSA respond to GAO's report?", "Why is it important that SSA improve its processes?", "What was GAO asked to study?", "What does GAO examine in this report?", "What kinds of individuals did GAO include in their samples?" ], "summary": [ "On the basis of analyzing Social Security Administration (SSA) data on individuals who were Disability Insurance (DI) beneficiaries as of December 2010 and earnings data from the National Directory of New Hires (NDNH), GAO estimates that SSA made $1.29 billion in potential cash benefit overpayments to about 36,000 individuals as of January 2013.", "The exact number of individuals who received improper disability payments and the exact amount of improper payments made to those individuals cannot be determined without detailed case investigations by SSA. These DI beneficiaries represent an estimated 0.4 percent of all primary DI beneficiaries as of December 2010.", "GAO estimated DI program overpayments on the basis of work activity performed by two populations of individuals.", "The first population received potential overpayments due to work activity during the DI program's mandatory 5-month waiting period--a statutory program requirement to help ensure that SSA does not pay benefits to individuals who do not have long-term disabilities. Prior to receiving benefits, individuals must complete a 5-month waiting period, in which the individual cannot exceed a certain level of earnings, known as substantial gainful activity, during any month in order to be eligible for DI benefits. Earnings that exceed program limits during the waiting period indicate that individuals might not have long-term disabilities. The second population received potential overpayments due to work activity beyond the program's trial work period--the trial work period consists of up to 9 months in which a DI beneficiary may return to work without affecting her or his benefits. However, beneficiaries whose earnings consistently exceed program limits after completing a trial work period are generally no longer entitled to benefits.", "Using a different methodology that includes additional causes of overpayments not considered in GAO's analysis, SSA estimated its DI overpayments in fiscal year 2011 were $1.62 billion, or 1.27 percent of all DI benefits in that fiscal year.", "SSA uses its enforcement operation to generate alerts for potentially disqualifying earnings, but the agency's enforcement operation does not generate alerts for earnings that occur in all months of the waiting period, which allows potentially disqualifying work activity to remain undetected. Specifically, GAO found that SSA's enforcement operation will not generate an alert for earnings during the waiting period if the earnings occur in a year when the beneficiary does not receive a benefit payment.", "For example, in two of the nongeneralizable case studies GAO reviewed, SSA's enforcement operation did not generate an alert for potentially disqualifying work activity during the waiting period because these individuals' waiting periods occurred in the year prior to their first benefit payment. GAO obtained earnings records from these individuals' employers that show they worked continually both during and after their waiting periods at a level of work that would normally result in a denial of benefits. GAO also reviewed information for individuals who worked beyond their trial work period and found that SSA had identified and established overpayments for these individuals.", "SSA officials stated that modifying its enforcement operation could be costly, but the agency has not assessed the costs of doing so.", "To the extent that it is cost-effective and feasible, establishing a mechanism to detect earnings during all months of the waiting period would strengthen SSA's enforcement operation.", "GAO was asked to study potential DI overpayments.", "GAO examined the extent to which (1) the NDNH indicates that individuals received potential DI overpayments; and (2) SSA's enforcement operation detects potentially disqualifying work activity during the waiting period.", "GAO drew random, generalizable samples of individuals from those whose earnings on the NDNH were beyond program limits and compared wages from their employers to DI program data to identify potential overpayments. To illustrate the circumstances in which SSA made potential DI overpayments, GAO reviewed case files for a nongeneralizable selection of six individuals--three who worked during their waiting period, and three who received potential overpayments for at least 3 years." ], "parent_pair_index": [ -1, 0, 0, 2, -1, -1, 0, 0, 2, -1, -1, 1 ], "summary_paragraph_index": [ 2, 2, 2, 2, 2, 3, 3, 3, 3, 1, 1, 1 ] }

{ "title": [ "Background", "Timeline and Goal of Pioneer ACO Model", "Pioneer ACO Model Participation Requirements", "CMS’s Oversight and Evaluation Responsibilities", "Beneficiary Alignment and Medicare Expenditures in the Pioneer ACO Model", "Pioneer ACO Model Payment Arrangements", "Methodology to Determine ACOs’ Shared Savings, Losses, and Final Payment", "Fewer Than Half of the Pioneer ACOs Earned Shared Savings, and Scores Increased for Two- Thirds of the Quality Measures", "Fewer Than Half of Pioneer ACOs Earned Shared Savings in First and Second Years, and the Pioneer ACO Model Produced Net Shared Savings", "ACOs Had Significantly Higher Quality Scores in the Second Year for Two- Thirds of the Quality Measures", "CMS Oversees Beneficiary Service Use and Quality, and Has Reported Some of Its Evaluation Findings Publicly", "CMS Oversees Pioneer ACOs by Monitoring Beneficiary Service Use and Quality of Care, and Investigates Complaints about Them", "CMS Has Reported Evaluation Findings Publicly for the Pioneer ACO Model on Medicare Service Use and Expenditures and ACO Characteristics", "Agency Comments", "Appendix I: Quality Scores for Pioneer Accountable Care Organizations (ACO) in 2012 and 2013", "Appendix II: Comments from the Department of Health and Human Services", "Appendix III: GAO Contact and Staff Acknowledgments", "GAO Contact", "Staff Acknowledgments" ], "paragraphs": [ "", "The Pioneer ACO Model’s overall goal is to improve the delivery of Medicare services by reducing expenditures while preserving or enhancing the quality of care for patients. Beginning in 2012, CMS contracted with ACOs for a 3-year period and subsequently offered a 2-year contract extension to ACOs that completed the first three years.The ACOs are expected to meet the goal of the model, in part, by coordinating the care they provide to Medicare beneficiaries and engaging beneficiaries in their own care. CMS designed the model for organizations with experience in providing coordinated care to beneficiaries at a lower cost to Medicare. Another goal of the Pioneer ACO Model is to help inform potential future changes to the agency’s permanent ACO program, the Medicare Shared Savings Program (MSSP), which began about 3 months after the Pioneer ACO Model. MSSP ACOs share less financial risk with CMS than Pioneer ACOs, as many are not responsible for paying CMS for any losses that they may generate during their contract period.", "CMS established eligibility requirements for participation in the Pioneer ACO Model through the request for applications and the contract between CMS and Pioneer ACOs. The requirements include the following:\nOrganizational structure. ACOs must be structured to allow the organization to partner with groups of providers including ACO professionals such as physicians or physician assistants, to accept joint responsibility for the cost and quality-of-care outcomes for a specified group of patients. For example, ACOs may be structured as ACO professionals in a group practice or as partnerships between ACO professionals and hospitals.\nCare improvement plan. ACOs must implement a care improvement plan, as they described in their applications. These plans include a range of care strategies such as providing remote patient monitoring to beneficiaries with chronic illnesses and engaging beneficiaries through shared decision making.\nBeneficiary protections. ACOs must ensure that their providers and suppliers make all Medicare-covered services available to beneficiaries and that they do not inhibit beneficiaries’ freedom of choice to obtain health services from providers or suppliers not participating in the model. The ACOs annually provide CMS with a list of the providers and suppliers that have elected to participate as Pioneer providers or suppliers.\nQuality performance standards. ACOs must completely and accurately report quality data annually to CMS for 33 measures that address four quality domains. The four domains are (1) patient experiences of care, (2) care coordination and patient safety, (3) preventive health care, and (4) disease management for at-risk populations, such as beneficiaries with diabetes. ACOs must also meet performance standards for quality. In the first year (2012), CMS defined the quality performance standard as completely and accurately reporting all of the quality measures, regardless of the ACO’s scores on the measures. Beginning in 2013, CMS required that ACOs score a minimum level for at least 70 percent of the quality measures within each of the four quality domains. CMS determined a minimum performance level for each quality measure, based on performance benchmarks.quality apply to all participating ACOs.", "CMS’s oversight and evaluation responsibilities are broadly defined in the contract between CMS and the Pioneer ACOs and in regulation. CMS is responsible for monitoring beneficiary service use and investigating any unusual service use patterns to assess, for example, whether ACOs may be compromising beneficiary care. CMS is also responsible for monitoring whether ACOs may be avoiding at-risk beneficiaries. CMS may use a range of methods to conduct this monitoring, including analyzing beneficiary and provider complaints, and may investigate patterns suggesting that an ACO has avoided at-risk beneficiaries. In addition, CMS’s oversight role includes monitoring ACOs’ compliance with the quality performance standards. CMMI’s Seamless Care Models Group is responsible for carrying out the agency’s oversight responsibilities for the model.\nCMS is responsible for conducting an evaluation of the model’s financial and quality performance results and making the evaluation findings available to the public in a timely manner. conduct the evaluation and has chosen to focus the evaluation on eight research areas, based on a conceptual model outlining the pathways in which various factors can affect ACO performance results. The eight research areas are (1) Medicare service use and expenditures, (2) unintended consequences of ACOs, (3) beneficiary access to care, (4) ACOs’ care coordination activities, (5) quality of care, (6) health care markets served by ACOs, (7) ACO characteristics, and (8) ACO attrition.\nSee 42 U.S.C. § 1315a(b)(4). The law does not specify a timeline for making these findings available to the public. Under this provision, CMS is responsible for evaluating models to test innovative payment and service delivery, such as the Pioneer ACO Model. Taking into account the evaluation findings, the Secretary of Health and Human Services may expand the duration and scope of the Pioneer ACO Model.", "Medicare beneficiaries are assigned by CMS to Pioneer ACOs based on their prior use of primary care services. CMS refers to this as “alignment.” ACOs are responsible for the annual expenditures of their aligned beneficiaries. CMS determines through an analysis of Medicare claims data which beneficiaries have received the plurality of their primary care services from primary care providers affiliated with an ACO in the prior three years. The ACO’s financial performance is based on the annual expenditures of its aligned beneficiaries for services covered by Medicare Parts A and B, which include hospital stays, outpatient services, physician visits, and skilled nursing facility (SNF) stays. To assess financial performance, CMS includes the expenditures for services provided by the ACO as well as by non-ACO Medicare providers since aligned beneficiaries may continue to obtain services from providers that are not affiliated with the ACO.", "Pioneer ACOs chose one of five payment arrangements with CMS that specified the type of risk sharing and the sharing rates, that is, the percentage of savings or losses that the ACO shared with CMS. The type of risk sharing is one- or two-sided. Under one-sided risk sharing, the ACO may receive a payment from CMS if it generates a minimum amount of savings but does not owe CMS a payment if it generates losses. In comparison, an ACO owes CMS a payment if it generates a minimum amount of losses under two-sided risk sharing, and is eligible to receive a payment from CMS if it produces savings. Four of the five arrangements required two-sided risk sharing in the first and second years; the other arrangement allowed for one-sided risk sharing, but only in the first year. Half of the ACOs (16 of 32) that participated in the first year selected the arrangement with one-sided risk sharing in the first year, and half (16 of 32) selected arrangements with two-sided risk sharing. The sharing rate specifies the maximum amount of savings that the ACO can share with CMS and the maximum amount of losses that the ACO may share with CMS. The sharing rates increase from the first to the second year in each of the payment arrangements. (See table 1.)", "CMS determines whether each Pioneer ACO has generated savings, losses, or neither by comparing the actual expenditures for their aligned beneficiaries for each year against their spending benchmarks. Each ACO’s spending benchmark is based on the baseline expenditures for the ACO’s aligned beneficiaries. Specifically, the spending benchmark incorporates each ACO’s actual expenditures for their aligned beneficiaries from 2009 to 2011 and the Medicare national growth rate. CMS subtracts the ACO’s expenditures for each year from the ACO’s spending benchmark, and if the ACO’s expenditures are lower than the benchmark by at least a minimum amount, the ACO has produced shared savings. In contrast, if the ACO’s expenditures exceed the benchmark by at least a minimum amount, the ACO has generated shared losses.\nCMS calculates a dollar amount for each ACO’s final annual payment if the ACO generates shared savings or losses. To perform this calculation, CMS multiplies the amount of shared savings or losses by the ACO’s final sharing rate. For shared savings, CMS calculates the final sharing rate by multiplying the ACO’s sharing rate by its total quality score. As a result, ACOs with higher total quality scores will have higher final sharing rates for savings and thus, will receive a higher portion of any shared savings. To calculate the final sharing rate for losses, CMS first adds 40 percent to the ACO’s sharing rate and then subtracts the product of the sharing rate and the ACO’s total quality score. quality scores will have lower final sharing rates for losses and thus, will owe CMS a lower portion of any shared losses. The total quality score is calculated with the 33 quality measures that the ACOs report to CMS each year. ACOs earn from 0 to 2 points for each measure, depending on their level of performance relative to the performance benchmarks CMS established. The total quality score is a percentage of the maximum number of points that an ACO can earn for the measures combined. The maximum total quality score is 100 percent. As an example of a final sharing rate for an ACO with savings, an ACO with a sharing rate of 50 percent and a quality score of 80 percent would have a final sharing rate of 40 percent (0.50 x 0.80 = 0.40). In this example, CMS would pay the ACO an amount equal to 40 percent of the shared savings it generated. (See fig. 1.)\nCMS applies a ceiling to this calculation equal to the sharing rate established in the ACO’s payment arrangement.", "Fewer than half of the ACOs that participated in the Pioneer ACO Model in the first two years earned shared savings in each year, although the ACOs overall produced net shared savings. The 23 ACOs that participated in the model both years had significantly higher quality scores in the second year than in the first year for 67 percent of the quality measures that they reported to CMS.", "Fewer than half of the ACOs that participated in the Pioneer ACO Model in 2012 and 2013—the first two years of the model—earned savings that were shared with CMS. Of the 32 ACOs that participated in 2012, 13 (about 41 percent) produced about $139 million in total shared savings. Of the 23 ACOs that participated in 2013, 11 (48 percent) produced about $121 million in total shared savings. The amount of shared savings that the 13 ACOs produced in 2012 ($139 million) and the amount the 11 ACOs produced in 2013 ($121 million) each represent about 4 percent of the total expenditures for the ACOs that produced shared savings in each year. The average amount of shared savings that the ACOs produced each year was about $11 million (per ACO with shared savings). CMS provided payments to these ACOs for about 56 percent of the total shared savings each year. For example, in 2012, CMS paid 13 ACOs $77 million of the $139 million that they produced in shared savings. The average payment amount that CMS made to ACOs that produced shared savings was about $6 million in each year.\nOne of the 32 Pioneer ACOs (3 percent) that participated in the first year produced losses that were shared with CMS, and 6 of the 23 participating ACOs (26 percent) produced shared losses in the second year. The total amount of shared losses that the ACO produced in 2012 was $5.1 million, and in 2013 the 6 ACOs produced about $23 million in total shared losses. On average, ACOs with shared losses in 2013 produced $3.8 million each in shared losses, with a range from $2.2 million to $6.3 million. In 2013, ACOs with shared losses paid or are expected to pay CMS about $11 million, an amount equal to about 48 percent of the $23 million in shared losses that they produced. The remaining ACOs did not produce shared savings or shared losses in either year. Eighteen of the 32 ACOs (56 percent) did not produce shared savings or losses in 2012.losses in 2013. (See table 2.)", "The 23 ACOs that participated in the Pioneer ACO Model in both 2012 and 2013 had significantly higher quality scores in the second year than in the first year for two-thirds of the quality measures (22 of the 33, or 67 percent) that they reported to CMS. We observed significantly higher scores for measures in each of the four quality domains: (1) patient experiences of care; (2) care coordination and patient safety; (3) preventive health care; and (4) disease management for at-risk populations. ACOs demonstrated the most improvement in the disease management for at-risk populations’ domain. That is, we found that the ACOs had higher scores in 2013 than in 2012 for 83 percent of the measures (10 of the 12) in this domain. For example, ACOs increased the percentage of beneficiaries with a diagnosis of hypertension whose blood pressure was adequately controlled, from about 65 percent in 2012 to 74 percent in 2013. We observed no significant differences between ACOs’ scores in 2012 and 2013 for 10 of the 33 quality measures (30 percent), but we found a statistically significant decline in quality for one measure. Specifically, the rate of hospital admissions for beneficiaries with congestive heart failure was higher in 2013 than in 2012. Table 3 shows the average quality scores in 2012 and 2013 and the quality measures for which we observed significant differences in scores from 2012 to 2013. (See app. I for a summary of the distribution of quality scores in 2012 and 2013.)", "CMS oversees Pioneer ACOs by monitoring the service use of their aligned beneficiaries and the quality of care provided by the ACOs, and by investigating provider and beneficiary complaints about ACOs. As provided for by law, CMS has reported its evaluation findings publicly for the first year of the Pioneer ACO Model in 2013, and these findings addressed two of the eight research areas that CMS established for the evaluation.", "CMS oversees Pioneer ACOs by monitoring the service use of their aligned beneficiaries, pursuant to the contract between CMS and ACOs and CMS regulation. CMS monitors beneficiaries’ use of services quarterly by reviewing the expenditure and utilization reports that a CMS contractor produces for each ACO, according to CMS officials. The reports include the baseline expenditures for each ACO and expenditures by the type of services that the ACO’s aligned beneficiaries have received, such as physician and SNF services. As of February 2015, CMS officials indicated that they had examined two reports about potentially discrepant trends in beneficiaries’ use of services. In one case, an ACO raised a concern with CMS that its negative financial performance in the first year did not reflect the actual service use of its aligned beneficiaries. CMS investigated the service use for the beneficiaries aligned to this ACO and observed a sharp increase in expenditures during one time period. CMS officials consulted with the agency’s Office of the Actuary to further investigate this trend and determined that a national claims processing error had occurred, but that the correction had not been implemented properly in the affected ACO’s geographic region. CMS officials and its contractors corrected the error, and determined that the error did not affect other ACOs in the region. In the second case, an ACO stated that the service use data included in an expenditure and utilization report for the first year of the model could be inaccurate. The ACO believed the data were inaccurate because the service use in the report was higher than the service use of aligned beneficiaries as tracked by the ACO. CMS officials investigated expenditures over time and by service type for the ACO’s beneficiaries, compared its expenditures to state and national populations, and determined that the ACO’s beneficiaries had a significant increase in SNF service use. The analysis the ACO had presented to CMS included inpatient service use but not SNF use, according to CMS officials.\nCMS also oversees Pioneer ACOs by monitoring their compliance with the model’s quality performance standards, consistent with the contract between CMS and the ACOs and CMS regulation. CMS officials review the annual quality reports that a CMS contractor produces for each ACO, according to agency officials. The quality reports include information about the ACO’s performance for each of the 33 quality measures and state whether the ACO achieved the minimum performance standard in each of the four quality domains. CMS determined that one ACO did not meet the quality performance standards in the second year of the model, because it did not meet the minimum standard in the care coordination and patient safety domain. The ACO achieved a score of 40 percent for this quality domain instead of the required minimum score of 70 percent. As a result, CMS required the ACO to submit a corrective action plan to CMS. The plan, provided to CMS in October 2014, outlines steps the ACO will take to ensure future compliance with the quality standards, according to CMS officials. CMS and the ACO discussed and reviewed the submitted corrective action plan in November 2014. CMS officials told us they also review the performance levels for the quality measures to assess whether ACOs may have compromised beneficiary care. That is, they compare the ACOs’ scores to the benchmarks for each of the individual quality measures to evaluate the ACOs’ performance. For example, each ACO scored over 80 out of 100 in 2013 for the measure reflecting access to specialists—such as surgeons and cardiologists. Further, each ACO’s quality score fell into the two highest performance levels, according to CMS’s benchmarks.\nCMS also investigates complaints about Pioneer ACOs that the agency receives from Medicare beneficiaries and providers as part of its monitoring efforts. As of February 2015, CMS officials indicated that it had completed or had begun investigating three complaints. CMS has completed its investigation of a provider complaint that it received from the Department of Health and Human Services’ Office of Inspector General in March 2014. In this case, according to CMS officials, a provider alleged that an ACO was inhibiting beneficiaries’ choice of home health providers. CMS officials spoke with the ACO in June 2014 and determined that the complaint was unsubstantiated. CMS made this determination after the ACO demonstrated that it had comprehensive procedures in place to avoid restricting beneficiaries’ choice of home health providers. CMS is currently investigating two other complaints, one from a beneficiary and the other from a provider. In the first case, CMS received a beneficiary complaint in August 2014 in which the beneficiary alleged that an ACO stinted on care and provided inadequate medical care. CMS officials stated that they are coordinating with representatives from a CMS regional Quality Improvement Organization and CMS’s Center for Program Integrity to investigate this complaint, including conducting a full medical chart review. In the second case, CMS is investigating a provider complaint from a SNF alleging that an ACO had placed undue pressure on the SNF to participate in the ACO. CMS officials met with the trade association that submitted the complaint on behalf of the SNF in September 2014, and a CMS contractor has initiated discussions with other SNFs that are affiliated with the ACO under investigation. Through these discussions, CMS officials indicated that they plan to determine whether the ACO misrepresented any information about the Pioneer ACO Model. CMS officials told us that they occasionally receive general queries related to Pioneer ACOs from their regional offices and have asked staff in the regional offices to investigate the queries.\nBased on its monitoring efforts, CMS has no substantiated evidence suggesting that beneficiary care has been compromised, as of February 2015. For example, CMS has not determined that ACOs have stinted on the care that they provide to beneficiaries or have avoided providing care to at-risk beneficiaries.", "As provided for by law, CMS has reported its evaluation findings publicly for the first year of the Pioneer ACO Model. The reported findings addressed two of the eight research areas that CMS established for the evaluation—Medicare service use and expenditures and ACO characteristics. CMS issued a public report in November 2013 that included findings related to these two research areas. For example, CMS reported that none of the ACO characteristics it tested, such as organization type, was significantly related to an ACO’s ability to reduce expenditures in the first year of the model, and that most of the ACOs that reduced expenditures had higher Medicare expenditures than their comparison groups prior to the start of the Pioneer ACO Model. CMS planned to issue the report in the summer of 2013, and intended to include results for more of the research areas, according to agency officials. However, the release of the report was delayed until November 2013 because of delays in securing the CMS contractor’s access to Medicare claims data. The delay also limited the scope of the findings for which CMS could report, according to CMS officials, and these data access issues have since been resolved.\nIn 2015, CMS also plans to report additional findings for the first year of the model. For example, CMS plans to report findings related to quality of care. beneficiaries, (2) access to care, (3) beneficiary quality of care, (4) health care markets, and (5) ACO characteristics. CMS officials added that although they have not made such findings public, they have shared preliminary second year findings internally for five of the eight research areas and their analysis is ongoing for the other three research areas. (See table 4.)", "The Department of Health and Human Services (HHS) reviewed a draft of this report and provided written comments, which are reprinted in appendix II. In its comments HHS emphasized the Pioneer ACO Model’s goal to reduce Medicare costs while providing beneficiaries better care through greater care coordination. HHS also provided technical comments, which we incorporated as appropriate.\nAs agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Secretary of Health and Human Services and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov.\nIf you or your staff have any questions about this report, please contact me at (202) 512-7114 or KingK@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III.", "This appendix presents information on the distribution of scores for the 33 quality measures that 23 Pioneer ACOs reported to CMS in 2012 and 2013. (See table 5.) We used the Wilcoxon signed-rank test, a nonparametric test, to analyze the differences in ACOs’ quality scores from 2012 to 2013. The signed-rank test determines whether the differences between the median scores for the 2 years are statistically significant.", "", "", "", "In addition to the contact named above, Martin T. Gahart, Assistant Director; Yesook Merrill, Assistant Director; George Bogart; Pamela Dooley; Toni Harrison; and Roseanne Price made key contributions to this report." ], "depth": [ 1, 2, 2, 2, 2, 2, 2, 1, 2, 2, 1, 2, 2, 1, 1, 1, 1, 2, 2 ], "alignment": [ "h0_title h2_title h3_title", "h0_full h2_full", "h0_full", "h3_full", "h2_full", "", "h0_full h3_full", "h2_title", "", "h2_full", "h1_title h3_title", "h3_full h1_full", "h1_full", "", "", "", "", "", "" ] }

{ "question": [ "What is the purpose of accountable care organizations?", "How was the model pioneered?", "How does this model work?", "How are ACOs overseen?", "What body oversees ACOs?", "What issues has CMS found?", "What action did CMS take after finding out that one ACO did not meet quality performance standards?", "What was the nature of CMS' first report on ACOs?", "Why were ACOs established in Medicare?", "Why was the Pioneer ACO Model established?", "How does this model reward ACOs?", "How successful was the model in drawing ACOs to join?", "What results did GAO analyze from CMS?", "Into what categories did this data fall?", "What else did GAO review about CMS?" ], "summary": [ "Health care providers and suppliers voluntarily form accountable care organizations (ACO) to provide coordinated care to patients with the goal of reducing spending while improving quality.", "Within the Centers for Medicare & Medicaid Services (CMS), the Center for Medicare & Medicaid Innovation (CMMI) began testing the Pioneer ACO Model in 2012.", "Under this model, ACOs can earn additional Medicare payments if they generate savings, which are shared with CMS, but must pay CMS a penalty if their spending is higher than expected.", "ACOs must report quality data to CMS annually and meet quality performance standards.", "CMS oversees the use of Medicare services by beneficiaries receiving their care from ACOs and the quality of care that ACOs provide, consistent with the contract between CMS and ACOs and CMS regulation, and has reported publicly on findings from its evaluation of the model. CMS reviews reports on each ACO's service use, expenditures, and quality performance and investigates complaints about ACOs.", "As of February 2015, CMS officials said the agency had investigated two potentially discrepant trends in service use.", "CMS determined that one ACO did not meet the quality performance standards in 2013, and, as a result, CMS is requiring it to implement an action plan to ensure future compliance.", "CMS reported publicly on its evaluation findings, as provided for by law, in 2013. CMS included in this initial report findings related to Medicare service use and expenditures and ACO characteristics—two of the eight research areas that it established for the evaluation. CMS officials told GAO that the agency has shared preliminary findings within CMS for five of the six remaining areas and that it plans to report publicly on additional findings in 2015.", "ACOs were established in Medicare to provide incentives to physicians and other health care providers to better coordinate care for beneficiaries across care settings such as doctors' offices, hospitals, and skilled nursing facilities.", "The Pioneer ACO Model was established as a result of the Patient Protection and Affordable Care Act of 2010 creating CMMI in CMS to test new models of service delivery in Medicare.", "Under the model, CMS rewards ACOs that lower their growth in health care spending while meeting performance standards for quality of care.", "Thirty-two ACOs joined the model in 2012, the first year.", "To do this work, GAO analyzed data from CMS on the financial and quality results for each ACO for 2012 and 2013 (the first two years of the model).", "GAO analyzed ACOs' expenditures, spending benchmarks, the amount of shared savings and losses, and payment amounts for shared savings or losses.", "GAO also reviewed relevant laws, regulations, and documents describing CMS's oversight and evaluation role and interviewed CMS officials about the agency's oversight and evaluation activities." ], "parent_pair_index": [ -1, 0, 1, 0, -1, 0, 1, 0, -1, -1, 1, 1, -1, 0, -1 ], "summary_paragraph_index": [ 3, 3, 3, 3, 9, 9, 9, 9, 0, 0, 0, 0, 2, 2, 2 ] }

{ "title": [ "", "Introduction", "Background on Iran's Nuclear Program5", "IAEA Safeguards", "Declared Iranian Nuclear Facilities19", "The \"Joint Plan of Action\" (JPA)", "Nuclear Program Provisions under the JPA28", "\"Right to Enrichment\"", "Sanctions Easing Under the JPA", "The Joint Comprehensive Plan of Action (JCPOA)", "Timeline for Implementing the JCPOA", "Major Nuclear Provisions of the JCPOA", "Enrichment Program", "Arak Reactor", "Other Provisions", "Verification", "International Cooperation", "Nuclear Weapons Research and Development", "Resolving Questions of Past Nuclear Weapons-Related Research", "Iranian Compliance with the JCPOA Nuclear Requirements", "Sanctions Relief under the JCPOA and Reimposition", "Formal Congressional Review and Oversight105", "Ongoing Oversight under INARA", "U.S. Implementation of and Exit from the JCPOA", "The JCPOA in the Trump Administration", "U.S. Exit from the JCPOA", "Reaction to the U.S. Exit", "Iranian Reaction", "Efforts to Preserve the Accord" ], "paragraphs": [ "", "Multilateral negotiations regarding Iran's nuclear program date back to 2003 after the International Atomic Energy Agency (IAEA) reported on the existence of clandestine nuclear facilities at Natanz. In October of that year, Iran concluded an agreement with France, Germany, and the United Kingdom under which Iran temporarily suspended aspects of its nuclear program, including enrichment of uranium, and signed an Additional Protocol to its IAEA safeguards agreement, but also asserted its right to develop nuclear technology. In January 2006, Tehran announced that it would resume research and development on its centrifuges at Natanz. After that time, Iran held multiple rounds of talks with China, France, Germany, Russia, the United Kingdom, and the United States (collectively known as the P5+1).\nThe U.N. Security Council meanwhile adopted several resolutions, the most recent and sweeping of which (Resolution 1929) was adopted in June 2010. These resolutions required Iran to cooperate fully with an ongoing IAEA investigation of its nuclear activities, suspend its uranium enrichment program, suspend its construction of a heavy water reactor and related projects, and ratify the Additional Protocol to its IAEA safeguards agreement. Resolution 1929 also required Tehran to refrain from \"any activity related to ballistic missiles capable of delivering nuclear weapons\" and to comply with a modified provision (called code 3.1) of Iran's subsidiary arrangement to its IAEA safeguards agreement. The resolutions also imposed sanctions on Iran.\nDiplomacy bore fruit after the June 2013 election of Iranian President Hassan Rouhani with the achievement, on November 24, 2013, of an interim nuclear accord—the Joint Plan of Action (JPA; referred to in international documents as JPOA). The JPA set out an approach toward reaching a long-term comprehensive solution to international concerns regarding Iran's nuclear program. The two sides began implementing the JPA on January 20, 2014. The P5+1 and Iran reached a framework of a Joint Comprehensive Plan of Action (JCPOA) on April 2, 2015, and the JCPOA was finalized on July 14, 2015. With the JPA remaining in effect until the JCPOA entered into implementation, the IAEA certified on January 16, 2016, that Iran had completed its required JCPOA nuclear-related tasks for Implementation Day. The United States, the U.N., and the EU ceased application of most sanctions that day. Since Implementation Day, the agency has \"verified and monitored Iran's implementation of its [JCPOA] nuclear-related commitments.\"\nOn November 11, 2013, coinciding with concluding the JPA, Iran and the IAEA signed a joint statement that included a \"Framework for Cooperation\" to \"strengthen their cooperation and dialogue aimed at ensuring the exclusively peaceful nature of Iran's nuclear programme through the resolution of all outstanding issues that have not already been resolved by the IAEA.\" The agency had long sought to resolve some outstanding questions regarding Tehran's nuclear program, some of which concern possible Iranian research on nuclear weapons development. Amano issued the IAEA's \"Final Assessment on Past and Present Outstanding Issues Regarding Iran's Nuclear Programme\" on December 2, 2015.", "Iran has nuclear programs that could potentially provide Tehran with the capability to produce both weapons-grade highly enriched uranium (HEU) and plutonium—the two types of fissile material used in nuclear weapons. (In addition to the production of weapons-grade nuclear material, a nuclear weapons program requires other key elements, such as warhead design and reliable delivery systems [see Appendix B ].) Statements from the U.S. intelligence community indicate that Iran has the technological and industrial capacity to produce nuclear weapons at some point, but the U.S. government assesses that Tehran has not mastered all of the necessary technologies for building a nuclear weapon.\nA November 2007 National Intelligence Estimate assessed that Iran \"halted its nuclear weapons program\" in 2003, but the estimate and subsequent statements by the intelligence community also assessed that Tehran was keeping open the \"option\" to develop nuclear weapons. Then-Under Secretary of State for Political Affairs Wendy Sherman explained during an October 3, 2013, Senate Foreign Relations Committee hearing that Iran would need as much as one year to produce a nuclear weapon if the government made the decision to do so. Tehran would have needed two to three months of this time to produce enough weapons-grade HEU for a nuclear weapon. Iran's implementation of the JCPOA lengthened the latter timeline to one year, according to February 9, 2016, congressional testimony from then-Director of National Intelligence James Clapper. (See \" Major Nuclear Provisions of the JCPOA .\")\nU.S. officials argue that the IAEA and/or U.S. intelligence would likely detect an Iranian attempt to produce weapons-grade HEU with either its safeguarded facilities or clandestine facilities . Regarding the former, Clapper testified that the JCPOA has\nenhanced the transparency of Iran's nuclear activities ... [a]s a result, the international community is well postured to quickly detect changes to Iran's declared nuclear facilities designed to shorten the time Iran would need to produce fissile material.\nT he intelligence community assesses that Iran is more likely to use clandestine facilities to produce weapons -grade HEU, Director Clapper stated in a March 2015 interview. U.S. officials have express ed confidence i n the ability of U.S. intelligence to detect Iranian covert nuclear facilities and have indicated that Iran currently does not appear to have any nuclear facilities of which the United States is unaware.", "The IAEA's ability to inspect and monitor nuclear facilities in, as well as to obtain information from, a particular country pursuant to that government's comprehensive safeguards agreement has been limited to facilities and activities that have been declared by the government. Additional Protocols to IAEA comprehensive safeguards agreements increase the agency's ability to investigate undeclared nuclear facilities and activities by increasing the IAEA's authority to inspect certain nuclear-related facilities and demand information from member states. Iran signed such a protocol in December 2003 and agreed to implement the agreement pending ratification. However, following the 2005 breakdown of limited agreements with the European countries to suspend uranium enrichment, Tehran stopped adhering to its Additional Protocol in 2006. Subsidiary arrangements to IAEA safeguards agreements describe the \"technical and administrative procedures for specifying how the provisions laid down in a safeguards agreement are to be applied.\" Code 3.1 of Iran's subsidiary arrangement to its IAEA safeguards agreement requires Tehran to provide design information for new nuclear facilities \"as soon as the decision to construct, or to authorize construction, of such a facility has been taken, whichever is earlier.\"", "Iran did not build any new nuclear facilities or expand the existing facilities since the JPA went into effect in January 2014. Iran operates a Russian-built nuclear power reactor, for which Russia is providing fuel until 2021. The JCPOA focuses on Iran's enrichment program and its heavy water reactor due to their potential for nuclear weapons material production.\nIran has two gas centrifuge enrichment facilities: the Natanz Fuel Enrichment Plant and the Natanz Pilot Fuel Enrichment Plant. Gas centrifuges enrich uranium by spinning uranium hexafluoride gas at high speeds to increase the concentration of the uranium-235 isotope. Such centrifuges can produce low-enriched uranium (LEU), which can be used for fuel in nuclear power reactors or research reactors, and weapons-grade highly enriched uranium (HEU). LEU used in nuclear power reactors typically contains less than 5% uranium-235; research reactor fuel can be made using 20% uranium-235; HEU used in nuclear weapons typically contains about 90% uranium-235. Tehran argues that it is enriching uranium for use as fuel in nuclear power reactors and nuclear research reactors.\nNatanz Commercial-Scale Fuel Enrichment Plant . In this facility, Iran is using first-generation centrifuges, called IR-1 centrifuges, to produce LEU containing up to 5% uranium-235. As of November 2013, Iran had installed about 15,400 of these centrifuges, approximately 8,800 of which are enriching uranium. Iran had also installed about 1,000 centrifuges with a greater enrichment efficiency, called IR-2m centrifuges, in the facility, but they are not enriching uranium. Natanz Pilot Fuel Enrichment Plant . Iran had been using IR-1 centrifuges in this facility to produce LEU containing approximately 20% uranium-235 until halting this work pursuant to the JPA. Tehran's production of LEU enriched to the 20% level has caused concern because such production requires approximately 90% of the effort necessary to produce weapons-grade HEU, which, as noted, contains approximately 90% uranium-235. Iran is testing other centrifuge models in this facility under IAEA supervision, but such work was monitored by the IAEA, even before the JPA (see below) limited this testing.\nIran has been constructing a nuclear reactor moderated by heavy water at Arak, a type of reactor that produces spent fuel containing plutonium that is better suited for nuclear weapons than plutonium produced by light water-moderated reactors. Tehran has asserted that the reactor is intended to produce radioisotopes for medical use and to replace the Tehran Research Reactor. Heavy water production requires a separate production plant, which Iran possesses. Prior to JCPOA implementation, the Arak reactor, if it had been completed, could have produced enough plutonium for between one and two nuclear weapons per year. However, plutonium must be separated from the used fuel—a procedure called \"reprocessing.\" Iran has always maintained that it would not engage in reprocessing. Prior to the JPA, Tehran notified the IAEA that it had produced enough heavy water to commission the reactor.", "The JPA, also widely known as the JPOA, essentially froze most aspects of Iran's nuclear program to allow time to negotiate the JCPOA. When the JPA went into effect in January 2014, Iran had enough uranium hexafluoride containing up to 5% uranium-235, which, if further enriched, would have yielded enough weapons-grade HEU for as many as eight nuclear weapons. The total amount of Iranian LEU containing 20% uranium-235 would, if it had been further enriched, have been sufficient for a nuclear weapon. After the JPA went into effect, Iran either converted much of that material for use as fuel in a research reactor located in Tehran (called the Tehran Research Reactor), or prepared it for that purpose. Iran diluted the rest of that stockpile so that it contained no more than 5% uranium-235. Tehran's uranium conversion facility is not set up to reconvert the reactor fuel to uranium hexafluoride. According to a November 14, 2013, IAEA report, Iran had generally stopped expanding its enrichment and heavy water reactor programs during the negotiations leading up to the JPA.", "Under the JPA, Iran agreed to refrain from \"any further advances of its activities\" at the Natanz commercial-scale facility, Fordow facility, and Arak reactor. Tehran was also required to provide the IAEA with additional information about its nuclear program, as well as access to some nuclear-related facilities to which Iran's IAEA safeguards agreement does not require access. The JPA required Iran:\nCentrifuge Limits . To refrain from feeding uranium hexafluoride into its installed centrifuges that were not previously enriching uranium, to replace existing centrifuges only with \"centrifuges of the same type,\" and to produce centrifuges only to replace damaged centrifuges. Tehran was also required to refrain from installing additional centrifuges at the Natanz facility. Iran was permitted to use its previously operating centrifuges in the Natanz commercial facility and the Fordow facility to produce enriched uranium containing as much as 5% uranium-235. Level of Enrichment Limits . To only enrich uranium up to 5% uranium-235. Tehran was also to dilute half of its stockpile of uranium hexafluoride containing 20% uranium-235 to no more than 5% uranium-235. The rest of the uranium hexafluoride containing 20% uranium-235 was to be converted to uranium oxide for use as fuel for the Tehran Research Reactor. Iran also agreed to refrain from building a line in its uranium conversion facility for reconverting the uranium oxide back to uranium hexafluoride. LEU Stockpile Limits . To, in effect, freeze the amount of stocks of enriched uranium hexafluoride containing up to 5% uranium-235. Centrifuge R&D . To continue its \"current enrichment R&D Practices\" under IAEA safeguards, \"which are not designed for accumulation of the enriched uranium.\" This provision prohibited Tehran from producing enriched uranium hexafluoride containing more than 5% uranium-235. Additional Monitoring . The JPA provided for additional IAEA monitoring of the enrichment facilities by allowing IAEA inspectors to access video records from those facilities on a daily basis. Previously, inspectors did not access such records daily (and the video is not streamed in real time to the agency). Arak Reactor . Iran pledged to refrain from commissioning the reactor, transferring fuel or heavy water to the reactor site, testing and producing additional reactor fuel, and installing remaining reactor components. Tehran was permitted to continue some construction at the reactor site and to produce some reactor components off-site. Iran also agreed to refrain from reprocessing spent nuclear material and building a reprocessing facility. Additional Pledges/ Information . The JPA reiterated previous Iranian statements \"reaffirm[ing] that under no circumstances will Iran ever seek or develop any nuclear weapons.\" In addition, Iran was to provide the IAEA with other information, such as plans for future nuclear facilities, even though Iran was already required to provide some of this information by code 3.1 of Iran's subsidiary arrangement to its IAEA safeguards agreement. Iran also provided IAEA inspectors with \"managed access\" to its centrifuge assembly workshops, centrifuge rotor production workshops, centrifuge storage facilities, and uranium mines and mills.", "The JPA acknowledged that Iran's right to the peaceful use of nuclear energy under the nuclear Non-Proliferation Treaty (NPT) would be part of a comprehensive solution, but shied away from stating that uranium enrichment is part of this right. The JPA stipulated that an enrichment program in Iran would have defined limits and transparency measures. The Obama Administration applied to Iran its interpretation that the NPT does not contain an explicit right to enrichment. A senior Administration official explained on November 24, 2013, that \"the United States has not recognized a right to enrich for the Iranian government, nor do we intend to. The document does not say anything about recognizing a right to enrich uranium.\"", "The JPA provided for some modest sanctions relief for Iran. Its provisions, which remained in force until \"Implementation Day\" (January 16, 2016), included the following:\nAccess to Hard Currency . Iran was able to repatriate $700 million per month in hard currency from oil sales, and to access an additional $65 million per month of its foreign exchange reserves for tuition for Iranian students abroad. Oil Exports Capped . Iran's oil exports were required to remain at their December 2013 level of about 1.1 million barrels per day (mbd). Resumption of Trade in Selected Sectors. International sanctions were suspended on Iran's sales of petrochemicals, trading in gold and other precious metals, and transactions involving Iran's auto production sector.", "The JPA stated that a JCPOA would include a \"mutually defined [Iranian] enrichment programme with practical limits and transparency measures to ensure the peaceful nature of the programme.\" Specifically, Iran and the P5+1 would, in a JCPOA, reach agreement on permanent, comprehensive sanctions relief in exchange for restrictions—\"for a period to be agreed upon\"—on the \"scope and level\" of Iran's enrichment activities, the capacity and location of Iranian enrichment facilities, and the size and composition of Tehran's enriched uranium stocks.\nP5+1-Iran negotiations on a comprehensive settlement began in February 2014 but did not meet July 20 or November 24 deadlines in 2014. On November 24, 2014, Iran and the P5+1 announced their intent to finalize a detailed agreement by June 30, 2015, after first attempting to reach an overarching framework and roadmap for the agreement within four months. The framework accord was agreed on April 2, 2015, in Lausanne, Switzerland. The parties strived to meet the June 30 deadline because the Iran Nuclear Agreement Review Act ( P.L. 114-17 ) mandated a 30-day congressional review period for an agreement completed by that date. However, the JCPOA was not finalized until July 14, 2015; the failure to meet the June 30 deadline triggered a 60-day review period under that act. The provisions of the JPA remained in effect until the JCPOA was formally \"adopted,\" as discussed below.", "The JCPOA outlines steps, as follows:\nFinalization Day: July 14, 2015. Iran and the P5+1 countries, along with the High Representative of the European Union for Foreign Affairs and Security Policy (Frederica Mogherini), endorsed the JCPOA. A U.N. Security Council Resolution to endorse the JCPOA was submitted for adoption. Adoption Day /New U.N. Security Council Resolution . The JCPOA formally came into effect 90 days after endorsement of JCPOA by U.N. Security Council, (or earlier by mutual consent). Resolution 2231 was adopted for that purpose on July 20, 2015, placing Adoption Day at October 18, 2015. The Administration asserted that the 90-day time frame allowed for review of the JCPOA by the U.S. Congress and by any legislature of any party to the JCPOA. On Adoption Day, the United States issued the provisional presidential waivers required to implement U.S. sanctions relief, with the waivers to take effect on Implementation Day. Implementation Day. This day was defined in the JCPOA as the day the IAEA verified that Iran has completed the several stipulated nuclear related measures (e.g., reducing centrifuges, removing the core of the Arak reactor) and the United States, the U.N., and the EU cease application of specific sanctions (see text below). The U.N. Security Council terminated the provisions of its resolutions on Iran: 1696 (2006), 1737 (2006), 1747 (2007), 1803 (2008), 1835 (2008), 1929 (2010), and 2224 (2015); and Resolution 2231 became the sole operative U.N. Security Council resolution on Iran's nuclear program. Implementation Day was declared on January 16, 2016, after the IAEA made the required certification of Iran's completion of the stipulated tasks. Transition Day. Represents initial stages of Iran's emergence from U.N. Security Council scrutiny. Transition Day is eight years from Adoption Day (October 18, 2023)—or upon \"Broader Conclusion\" report from the IAEA Director General to the IAEA Board of Governors and U.N. Security Council—whichever is earlier. As of Transition Day, additional EU entities are to be removed from sanctions, the United States is required to remove from designation specified additional Iranian entities subjected to sanctions, and the Administration is required to seek legislative termination of sanctions that were suspended on Implementation Day. UNSCR Termination Day . Ten years from Adoption Day (October 18, 2025). Provisions and measures imposed in U.N. Security Council Resolution endorsing JCPOA would terminate and the Security Council would not be involved in the Iran nuclear issue. However, the JCPOA itself and its remaining provisions do not terminate on this day: the accord states that, following successful implementation of the final steps of the JCPOA, Iran's nuclear program \"will be treated in the same manner as that of any non-nuclear weapon state party to the NPT.\" Iran's IAEA safeguards obligations, as well as some JCPOA obligations, last for an indefinite duration. Potential nuclear-related exports to Iran remain subject to the Nuclear Suppliers Group's export guidelines.\nResolution 2231 also ended the role of the U.N. panel of experts, which Resolution 1929 had created to work with a committee (established in Resolution 1737) that monitored states' compliance with the resolutions discussed above. The Security Council decided on January 16, 2016, to \"select on an annual basis one member to serve as its facilitator\" for implementing certain provisions of Resolution 2231, including Security Council approval of various Iranian exports and imports described in Annex B of the resolution.", "The JCPOA places constraints on Iran's enrichment and heavy water reactor programs and includes monitoring provisions designed to detect Iranian efforts to produce nuclear weapons using either declared or covert facilities. The nuclear-related provisions of the agreement, according to U.S. officials, extend the amount of time that Iran would need to produce enough weapons-grade HEU for one nuclear weapon to a minimum of one year, for a duration of at least 10 years. In addition to the restrictions on activities related to fissile material production, the JCPOA indefinitely prohibits Iranian \"activities which could contribute to the design and development of a nuclear explosive device,\" including research and diagnostic activities. An IAEA report on January 16, 2016, certified that Iran had met the requirements for Implementation Day stipulated below.", "The JCPOA limits Iran's enrichment of uranium for fixed durations. The agreement required the IAEA to certify that Iran had completed most of the tasks described below in order for Tehran to qualify for Implementation Day sanctions relief. According to the JCPOA, expiration of the JCPOA enrichment restrictions will be \"followed by gradual evolution, at a reasonable pace\" of Iran's enrichment program. Iran has submitted an \"enrichment R&D plan\" to the IAEA as part of Tehran's initial declaration for its Additional Protocol. (See \" Verification \" section below.) Iranian adherence to that plan is a JCPOA requirement.\nCentrifuge L imitation (10 years) . For 10 years, Tehran is to use no more than 5,060 IR-1 centrifuges to enrich uranium, and to install only IR-1 centrifuges in the facility. All excess centrifuges are to be used only as replacements for operating centrifuges and equipment. Level of E nrichment L imitation (15 years) . For at least 15 years, Iran is to refrain from producing enriched uranium containing more than 3.67% uranium-235. Facility L imitation (15 years) . For 15 years, Iran is to enrich uranium only at the Natanz commercial facility and is not to build any new enrichment facilities. LEU S tockpile L imitation (15 years) . For 15 years, Iran is to maintain its LEU stockpile at no more than 300 kilograms of LEU containing 3.67% uranium-235. Tehran's three options for disposing of the remaining portion of its LEU stockpile were (1) diluting the material so that it contains the same levels of uranium-235 found in natural uranium; (2) selling the LEU to another country; or (3) selling it to an IAEA-established international LEU bank. Iran's LEU containing between 5% and 20% uranium-235 is to be \"fabricated into fuel plates for the Tehran Research Reactor or transferred, based on a commercial transaction, outside of Iran or diluted\" so that it contains a maximum of 3.67% uranium-235. Iran is to export LEU that cannot be fabricated into fuel for the Tehran Research Reactor or dilute that LEU to at most 3.67% uranium-235. On December 28, 2015, Iran shipped out LEU to Russia to reduce its stockpile to the required levels. All fuel plates for the Tehran Research Reactor were irradiated, according to the January 2016 IAEA report. The JCPOA-established Joint Commission has deemed some enriched uranium in Iran as \"unrecoverable\"—and therefore not counted against the JCPOA limits on Iran's enriched uranium stockpiles. Such exempted material includes LEU contained in low-level solid waste and LEU containing as much as 3.67% uranium-235 in low-level liquid and sludge waste \"provided that Iran does not build or operate any facility or part of a facility capable of recovering\" this material for 15 years. Tehran will store this waste under IAEA safeguards. The commission has similarly deemed enriched uranium containing 20% uranium-235 described as \"laboratory contamination.\" The commission announced on January 10, 2017, that it had approved an Iranian plan to flush enriched uranium from the process lines of an Iranian facility designed to produce uranium dioxide powder from LEU containing up to 5% uranium-235. Iran had approximately 100 kilograms of this material when Tehran and the P5+1 agreed to the JCPOA. Any LEU remaining after Iran completes the specified process, which the government started on January 31, 2017, will be deemed \"unrecoverable\" and will not count against the 300 kilogram limit described above. Fordow C onversion (15 years) . For 15 years, Iran is to maintain no more than 1,044 IR-1 centrifuges at the Fordow enrichment facility. Iran is not to conduct uranium enrichment or related research and development (R&D) there and the facility will not contain any nuclear material. Iran agreed to convert Fordow into \"a nuclear, physics, and technology centre.\" 348 of the IR-1 centrifuges may be used to produce stable isotopes for medical and industrial uses. Cen trifuge P roduction (8, 10 years) . With regard to centrifuge manufacturing, Iran for 10 years is to use the excess IR-1 centrifuges from the Natanz and Fordow facilities \"for the replacement of failed or damaged machines.\" Tehran may resume producing IR-1 centrifuges if its stock of replacement centrifuges \"falls to 500 or below.\" After 8 years, Iran will be permitted to begin to manufacture 2 types of advanced centrifuges; after 10 years, Iran will be permitted to produce complete versions of those centrifuges and store them under IAEA monitoring \"until they are needed for final assembly.\" Centrifuge R& D (10 years ) . For 10 years, Iran is to refrain from pursuing R&D on any technologies other than gas centrifuge enrichment.", "The JCPOA commits Iran to redesign and rebuild the Arak reactor based on a design agreed to by the P5+1 so that it will not produce weapons-grade plutonium. Iran is to export the spent fuel from this reactor and all other nuclear reactors. The JCPOA also requires Tehran to render the Arak reactor's original core inoperable; the IAEA report of January 16, 2016, said that Iran had met this requirement. Tehran is managing an international project to redesign and construct the replacement reactor; P5+1 participants established a working group \"to support and facilitate the redesigning and rebuilding of the reactor.\" The group was to \"conclude an official document\" before Implementation Day which would \"define the responsibilities\" assumed by the P5+1 participants. China's Atomic Energy Authority and the U.S. Department of Energy \"affirmed their readiness to convene and co-chair\" the working group, according to an October 18, 2015, joint statement from China, Iran, and the United States, which added that the three parties \"intend to work together to conclude expeditiously\" the document described above. The parties issued the document on November 22, 2015. The United States is no longer participating in the project and the United Kingdom has taken the U.S. role.\nChinese and Iranian companies signed the first consultancy services contract\" for this project on April 23, 2017, and the \"conceptual redesigning\" of the reactor was completed thereafter, according to an April 2018 official Iranian news report.\nThe JCPOA prohibits Iran from reprocessing spent reactor fuel, except to produce \"radio-isotopes for medical and peaceful industrial purposes.\" The JCPOA text states that Iran \"does not intend\" to engage in reprocessing after the 15-year period expires. Furthermore, Tehran has also committed to refrain from accumulating heavy water \"beyond Iran's needs\"; Iran is to \"sell any remaining heavy water on the international market for 15 years.\" The JCPOA requires Iran to refrain from building heavy water-moderated reactors for 15 years, and Iran pledges to refrain from constructing any such reactors indefinitely.\nIran's stock of heavy water has exceeded 130 metric tons on 2 occasions since the JCPOA began implementation. On February 17, 2016, the IAEA verified that Tehran's heavy water stock had exceeded 130 metric tons; on November 8, 2016, the IAEA verified that Iran's stock of heavy water had again exceeded the JCPOA limit. Iran resolved the issue on both occasions by exporting the excess heavy water. Tehran has sent this material to Russia and the United States, shipping at least some of it via Oman. Iran told the IAEA on June 18, 2017, letter that it had transferred 19.1 metric tons of heavy water to a destination outside the country. According to an April 2018 report covering 2017, \"[m]ost Iranian excess heavy water has been sold and delivered to international buyers; the remainder is awaiting sale and is stored in a location outside Iran, under IAEA seal, though it remains Iranian property.\" The IAEA verified on May 6, 2018, that Iran had 120.3 metric tons of heavy water.", "", "The IAEA monitors Iranian compliance with the JCPOA provisions concerning its enrichment program and the Arak program, as well as dual-use nuclear weapon-related activities. To do so, the agency has increased the number of its inspectors in Iran and begun using more-advanced modern verification technologies, such as the Online Enrichment Monitor. Iran pledged to allow a \"long-term IAEA presence in Iran\" and \"has agreed to implement\" the Additional Protocol to its safeguards agreement. Iran is also to implement the modified code 3.1 of the subsidiary arrangements to its IAEA safeguards agreement. According to IAEA reports, the government has taken these steps since it began implementing the JCPOA in January 2016. Iran submitted its declarations pursuant to its Additional Protocol in July 2016. It is worth noting that Iran's IAEA safeguards obligations last for an indefinite duration. Potential nuclear-related exports to Iran would remain subject to the Nuclear Suppliers Group's (NSG) export guidelines. The April 2018 State Department report noted that \"Tehran's adherence\" to its JCPOA commitments \"will hinder its ability to produce a nuclear weapon even after the time-bound provisions of the deal expire, helping to ensure that its nuclear program remains exclusively peaceful in nature.\"\nThe JCPOA also describes other monitoring and inspections. For 15 years, the IAEA will monitor the stored Iranian centrifuges and related infrastructure. During this time, Iran will also permit the IAEA \"daily access\" to \"relevant buildings\" at the Natanz facilities. For 20 years, Tehran will allow the agency to verify Iran's inventory of certain centrifuge components and the manufacturing facilities for such components. Additionally, Iran is to allow the IAEA to monitor the country's uranium mills for 25 years and to monitor Iran's plant for producing heavy water. As noted, Amano also reported that, since Implementation Day, the IAEA \"verified and monitored Iran's implementation of its nuclear-related commitments under the JCPOA.\"\nIAEA Director-General Yukiya Amano told reporters on July 14, 2015, that the agency's workload would increase under the JCPOA. On August 25, 2015, the IAEA Board of Governors authorized Amano \"to undertake the verification and monitoring\" of Iran's nuclear-related JCPOA commitments \"subject to the availability of funds and consistent with our standard safeguards practices.\" The IAEA has integrated these costs into its regular budget.\nThe Obama Administration argued that these provisions will prevent Iran from developing a nuclear weapon covertly. Then-Secretary of State John Kerry explained in a September 2, 2015, speech that Iran \"would have to come up with a complete ... and completely secret nuclear supply chain,\" adding that \"our intelligence community and our Energy Department ... both agree Iran could never get away with such a deception.\"\nThe JCPOA and U.N. Security Council Resolution 2231 contain a variety of reporting provisions for the IAEA. For example, the resolution requests the agency's Director General\nto provide regular updates to the IAEA Board of Governors and, as appropriate, in parallel to the Security Council on Iran's implementation of its commitments under the JCPOA and also to report to the IAEA Board of Governors and in parallel to the Security Council at any time if the Director General has reasonable grounds to believe there is an issue of concern directly affecting fulfillment of JCPOA commitments.\nIt is worth noting that, although the IAEA reports findings of its inspection and monitoring activities and the JCPOA-established Joint Commission monitors the parties' implementation of the agreement, compliance determinations are national decisions.\nAccess to Undeclared Sites . The JCPOA describes arrangements for the IAEA to gain access to Iranian sites other than those Tehran declares to the agency \"if the IAEA has concerns regarding undeclared nuclear materials or activities, or activities inconsistent with\" the JCPOA. If the IAEA has such concerns at one of these sites, the agency \"will provide Iran the basis for such concerns and request clarification.\" The IAEA could request access to the site if Iran's explanation did not provide sufficient clarification, and Tehran may respond by proposing alternative means of resolving the IAEA's concerns. If such means did not resolve the IAEA's concerns or the two sides did not \"reach satisfactory arrangements ... within 14 days of the IAEA's original request for access,\" Iran \"would resolve the IAEA's concerns through necessary means agreed between Iran and the IAEA.\" Tehran would make such a decision \"in consultation with the members of the Joint Commission\" established by the JCPOA. If the two sides cannot reach agreement, the commission \"would advise on the necessary means to resolve the IAEA's concerns\" if at least a majority of commission members agreed to do so. The Joint Commission would have seven days to reach a decision, and Iran is required to implement the necessary means within three additional days. ( The total time for the stipulated procedures would be 24 days. )\nThe JCPOA contains several provisions that address Iranian concerns that IAEA inspectors may try to obtain information unrelated to the country's nuclear program. For example, the IAEA may only request access to the types of facilities described above \"for the sole reason to verify the absence of undeclared nuclear materials and activities or activities inconsistent with the JCPOA.\" In addition, the agency would provide Iran with written reasons for access and \"make available relevant information.\"\nProcurement Channel. The JCPOA established a \"procurement channel\" for Iran's nuclear program. The Joint Commission established by the JCPOA is to monitor and approve transfers made via the channel for 10 years. The agreement requires Iran to provide the IAEA with \"access to the locations of intended use of all items, materials, equipment, goods and technology\" listed in the NSG's \"Guidelines for Nuclear Transfers.\" Moreover, Tehran is to permit exporting governments to \"verify the end-use of all items, materials, equipment, goods and technology\" listed in the NSG's \"Guidelines for Transfers of Nuclear-Related Dual-Use Equipment, Materials, Software, and Related Technology.\"\nIAEA officials will have access to information about and may participate in meetings regarding such transfers when they are proposed. According to a June 2016 GAO report, IAEA officials asserted that \"there is additional work to be done in informing exporting countries of their obligations and standardizing the data that the countries would report to IAEA so that they are usable to the agency.\"\nAccording to a December 8, 2017, report by U.N. Secretary-General António Guterres, the Security Council had received 37 nuclear-related export proposals since Implementation Day; the council approved 24 of those proposals and disapproved three. Five proposals were withdrawn by the submitting states and three were under review.\nBroader Conclusion . The JCPOA also indicates that the IAEA will pursue drawing a \"Broader Conclusion that all nuclear material in Iran remains in peaceful activities.\" According to the IAEA, the agency can draw such a conclusion for states with comprehensive safeguards agreements and additional protocols in force. According to the IAEA,\nThe conclusion of the absence of undeclared nuclear material and activities is drawn when the activities performed under an additional protocol have been completed, when relevant questions and inconsistencies have been addressed, and when no indications have been found by the IAEA that, in its judgement, would constitute a safeguards concern.\nThe average time for the IAEA to draw the broader conclusion for states with complex nuclear programs has been five to seven years. Former IAEA Deputy Director General Heinonen wrote that \"it has taken up to five years for the IAEA to reach a 'broader conclusion' for other countries with large nuclear programs that are in good standing under the Non-Proliferation Treaty.\" Amano explained on March 20, 2017, that \"I cannot tell how many years it will take\" to draw such a conclusion for Iran, adding that \"it depends very much on the level of cooperation from Iran.\" In October 2017, Amano stated that the process is \"likely to take many years,\" and there are no recent public indications that the IAEA is close to issuing that conclusion.", "The JCPOA discusses a variety of nuclear projects in Iran that would include other countries. These include the Arak reactor project; research at the Fordow facility; other nuclear reactor projects; nuclear medicine; nuclear safety; and the supply of nuclear fuel. This latter form of cooperation is presumably designed to obviate the need for Iran to produce its own nuclear fuel. Some, but not necessarily all, of the P5+1 countries, will participate in these projects. The JCPOA also envisions forms of technical cooperation between Iran and the IAEA. The Obama Administration argued that international nuclear cooperation would provide additional transparency into Iran's nuclear program.\nThe United States does not have a civil nuclear cooperation agreement with Iran, and U.S. sanctions laws prohibit the United States from engaging in most forms of nuclear cooperation with Iran. Section 129b.(1) of the Atomic Energy Act (AEA) of 1954, as amended, forbids the export of \"nuclear materials and equipment or sensitive nuclear technology\" to any country designated as a state sponsor of terrorism. Section 129b.(3) allows the President to waive this provision. Section 57b.(2) of the AEA allows for limited forms of nuclear cooperation related to the \"development or production of any special nuclear material outside of the United States\" without a nuclear cooperation agreement if that activity has been authorized by the Secretary of Energy following a determination that it \"will not be inimical to the interest of the United States.\"", "In addition to addressing Iran's ability to produce fissile material, the JCPOA contains other provisions intended to render Iran unable to produce a nuclear weapon. For example, the agreement indefinitely prohibits specific activities \"which could contribute to the design and development of a nuclear explosive device.\" Neither Iran's comprehensive safeguards agreement nor its additional protocol explicitly prohibit these activities. As noted, the U.S. government assesses that Tehran has not mastered all of the necessary technologies for building a nuclear weapon. In addition, for 15 years Iran is to refrain from \"producing or acquiring plutonium or uranium metals or their alloys\" and \"conducting R&D on plutonium or uranium (or their alloys) metallurgy, or casting, forming, or machining plutonium or uranium metal.\" Producing uranium or plutonium metals is a key step in producing nuclear weapons.", "The IAEA has concluded its investigation of the outstanding issues concerning Iran's nuclear program. According to IAEA reports, the agency has evidence that Iran may have conducted work relevant to nuclear weapons, such as research about a nuclear payload for missiles. U.N. Security Council resolutions required Iran to resolve these questions by providing full information to the IAEA, and the agency has held regular talks with Iran to chart a path forward. But past reports from Amano to the agency's Board of Governors said that, although the IAEA could verify that there was no diversion of nuclear material from Iran's declared nuclear facilities, it could not conclude that no nuclear weapons-related activity was taking place in the country.\nAccording to the JCPOA, Tehran would \"complete\" a series of steps set out in an Iran-IAEA \"Roadmap for Clarification of Past and Present Outstanding Issues.\" According to Amano, this road map set out \"a process, under the November 2013 Framework for Cooperation, to enable the Agency, with the cooperation of Iran, to make an assessment of issues relating to possible military dimensions to Iran's nuclear programme.\" \"All the activities contained in the road-map were implemented in accordance with the agreed schedule,\" according to a December 2, 2015, report from Amano.\nOn December 2, 2015, in advance of the December 15 deadline in the road map, Amano presented the stipulated report, as a final assessment on all past and present outstanding [Iranian nuclear] issues described in a November 2011 report. It indicated that the information provided by Iran did not allow the IAEA to resolve some outstanding issues and also casts doubt on some of the information's accuracy. Nevertheless, the report assesses that \"before the end of 2003, an organizational structure was in place in Iran suitable for the coordination of a range of activities relevant to the development of a nuclear explosive device.\" Iran conducted \"a range of activities relevant to the development of a nuclear explosive device ... prior to the end of 2003 as a coordinated effort,\" the report says, adding that \"some [nuclear weapons-related] activities took place after 2003,\" but \"were not part of a coordinated effort.\" The report concludes that \"these activities did not advance beyond feasibility and scientific studies, and the acquisition of certain relevant technical competencies and capabilities\" and notes that the IAEA \"has no credible indications of activities in Iran relevant to the development of a nuclear explosive device after 2009.\" Amano told the IAEA board on December 15 that, although \"it was not possible for the Agency to reconstruct all the details of activities conducted by Iran in the past, we were able to clarify enough elements to provide an assessment of the whole picture.\" The IAEA reiterated this conclusion on May 1, 2018, following Israeli Prime Minister Benjamin Netanyahu's disclosure of documents concerning Iran's past nuclear weapons program, though the agency did not comment on the documents specifically. On June 5, 2018, Nicole Shampaine, the Chargé d'Affaires at the U.S. Mission to International Organizations in Vienna, stated that Israeli Prime Minister Benjamin Netanyahu's April 2018 disclosure of documents concerning Iran's past nuclear weapons program \"further reaffirms\" the IAEA's December 2015 conclusion that Iran had conducted such research in the past. In accordance with the road map, Iran presented, in writing, its \"comprehensive assessment to the IAEA\" on Amano's report, on January 7, 2016. The document apparently acknowledges Iranian \"scientific studies of dual-use technologies\" for \"peaceful civilian or conventional military uses.\" But the statement reiterated previous Iranian claims that the country has done no work on nuclear weapons and that some of the evidence underlying the agency's concerns is inauthentic.\nVirtual Closure of the Issue. The JCPOA states that, following Amano's report, the P5+1 \"in their capacity as members of the [IAEA] Board of Governors, will submit a resolution to the Board of Governors for taking necessary action, with a view to closing the issue.\" The board adopted a resolution on December 15 which closed \"the Board's consideration\" of the \"outstanding issues regarding Iran's nuclear programme.\"\nThe Board is no longer focused on Iran's compliance with past Security Council resolutions and past issues concerning Iran's safeguards agreement, but is instead focused on JCPOA implementation and verification and monitoring in Iran in light of Security Council Resolution 2231. The resolution requests the Director General to issue quarterly reports to the board regarding Iran's \"implementation of its relevant commitments under the JCPOA for the full duration of those commitments.\" The Director General is also to report to the Board of Governors and the Security Council \"at any time if the Director General has reasonable grounds to believe there is an issue of concern\" regarding Tehran's compliance with its JCPOA or safeguards obligations. It is worth noting that the IAEA will not be able to draw the \"Broader Conclusion that all nuclear material in Iran remains in peaceful activities\" without addressing these issues. The April 2018 State Department report notes that closing the agenda item concerning Iran's past military-related nuclear activities \"does not preclude the IAEA from investigating if there is reason to believe Iran is pursuing any covert nuclear activities, including nuclear weapons work.\"\nIssue Significance. The significance of resolving these issues for ensuring that Iran's current program is for purely peaceful purposes is unclear. Former IAEA Deputy Director General Olli Heinonen argued during a July 2014 Senate hearing that gaining full understanding of Iran's past suspected nuclear weapons program is important for determining that Iran is not reconstituting that program and also for determining the probability that Iran will use a future centrifuge program to produce nuclear weapons. However, in April 2015, Jofi Joseph, a former Obama Administration official whose portfolio included the Iran nuclear issue, commented\nSome argue that it will be very difficult to identify future covert Iranian nuclear weapons efforts without a detailed understanding of what happened before. I'm not so sure. It is not clear if the individuals involved with the previous [nuclear weapons program] would be the ones tapped again for a future covert program or whether a clear understanding of their previous actions would help identify future efforts.\nFormer State Department official Robert Einhorn argued that\nIt is sometimes argued that full Iranian disclosure is essential to designing an effective JCPOA monitoring system. But the provisions of an agreement that could be most effective in monitoring small-scale weaponization activities would be more intrusive than any sovereign state would be willing to accept (e.g., keeping close track of all scientists with the necessary expertise, on-site verification of all equipment in the country that could be used in nuclear weapons design and diagnostics). With or without full knowledge of past Iranian activities, it would have been nearly impossible to reach agreement on such intrusive arrangements.\nEinhorn also explained that\nthe United States already has considerable knowledge of past Iranian nuclear weapons work. And in any event, in calculating how much time it would have to thwart an Iranian breakout, the United States would have to make the conservative assumption that Iran had made substantial headway in weaponization and would not require much time to proceed from the production of fissile material to the fabrication of a weapon. It is unlikely that anything the Iranians might say about past weaponization efforts would affect U.S. planning to stop an Iranian breakout, especially because whatever they said would hardly be taken at face value.", "Regarding Iranian compliance with the JCPOA, the Iran Nuclear Agreement Review Act of 2015 (INARA, P.L. 114-17 ) requires the President to \"determine whether the President is able to certify\" that Iran\n\"is transparently, verifiably, and fully implementing the agreement, including all related technical or additional agreements\"; \"has not committed a material breach\" of the agreement or cured any material breaches that Iran has committed; and \"has not taken any action, including covert activities, that could significantly advance its nuclear weapons program.\"\nThen-Secretary of State Rex Tillerson issued this certification on July 17, 2017. , All official reports and statements from the United Nations, European Union, the IAEA, and the P5+1 indicate that Iran has complied with the JCPOA. The most recent report from IAEA Director General Amano states that the IAEA has continued verification and monitoring of the restrictions described in Section T of the JCPOA, which prohibits a number of nuclear weapons-related activities. Secretary of State Michael Pompeo stated during an April 12, 2018, Senate Foreign Relations Committee hearing that he had seen no evidence of Iranian noncompliance with the agreement. High Representative of the European Union for Foreign Affairs and Security Policy Mogherini stated on April 16 that \"Iran is fully compliant with its nuclear commitments.\"\nThe agreement, as noted, describes arrangements for agency inspectors to gain access to Iranian sites, including military sites, other than those that Tehran has declared to the agency, \"if the IAEA has concerns regarding undeclared nuclear materials or activities, or activities inconsistent with\" the JCPOA. The agreement also provides for alternative means to clarify the matter. The IAEA has not reported whether it has requested access to any Iranian military facilities, but the agency has a number of methods other than inspections, such as analyzing open source information and receiving intelligence briefings from governments, to monitor Iranian compliance with these and other JCPOA commitments. According to the April 2018 State Department report,\n[t]he IAEA continues to exercise its full authorities in pursuing any new safeguards-relevant or JCPOA-related information in Iran, including any new concerns regarding weaponization should they arise, through implementation of Iran's Safeguards Agreement, Additional Protocol, and the enhanced transparency and verification measures contained in the JCPOA.\nIn a June 4, 2018, statement to the IAEA board Amano noted that the IAEA has been able to access \"all the sites and locations in Iran which\" agency inspectors \"needed to visit.\"", "Under the JCPOA, the overwhelming bulk of sanctions relief occurred at Implementation Day. The U.S. sanctions laws waived and executive orders revoked are discussed in detail in CRS Report RS20871, Iran Sanctions , by Kenneth Katzman, which also analyzes the reimposition of all U.S. sanctions that were suspended or revoked, in accordance with President Trump's May 8, 2018, announcement of the U.S. withdrawal from the JCPOA.\nIran remains subject to its obligations pursuant to the JCPOA and Resolution 2231. A \"snap back\" mechanism was incorporated into the JCPOA to account for the possibility that Iran might not satisfactorily resolve a P5+1 inquiry about possible JCPOA noncompliance. According to the JCPOA, the United States (or any veto-wielding member of the U.N. Security Council) would be able to block a U.N. Security Council resolution that would continue the lifting of U.N. sanctions despite Iran's refusal to resolve the dispute. In that case, \"... the provisions of the old U.N. Security Council resolutions would be reimposed, unless the U.N. Security Council decides otherwise.\" These provisions are included in U.N. Security Council Resolution 2231. The wording implies that the Council has the option to reimpose some, but not all, sanctions that existed prior to the JCPOA. The total time for this \" dispute resolution\" mechanism — between the time of the complaint of Iranian non compliance and the reimposition of U.N. sanctions — is 65 days.\nThe other P5+1 states are able to invoke this mechanism, if they choose. But whether the United States may do so is unclear because the resolution provides that only a \"JCPOA participant state\" may bring a noncompliance finding to the Security Council; U.S. officials have stated that the United States is no longer participating in the agreement.", "Legislation providing for U.S. congressional review was enacted as the Iran Nuclear Agreement Review Act of 2015 (INARA, P.L. 114-17 ). Because the agreement was reached after July 10, the congressional review period was 60 days from the date of submission to Congress, which is to be within 5 days of finalization of the accord. The transmission of all required materials, according to the Administration, took place on July 19, 2015. No statutory sanctions could be waived during the review period, which concluded on September 17.\nJoint resolutions of disapproval were introduced in each chamber: H.J.Res. 64 in the House, and S.Amdt. 2640 to H.J.Res. 61 in the Senate. However, the House acted on three bills: H.R. 3461 to approve the deal was voted down 162-269. Another bill, H.Res. 411 , asserting that the President did not comply with P.L. 114-17 because the IAEA-Iran agreements were not submitted to Congress, passed the House 245-186. A third bill, H.R. 3460 , denying the President the ability to waive any sanctions laws until January 2017, passed 247-186. None of the bills was taken up by the Senate. In that body, several cloture motions on the disapproval resolution ( H.J.Res. 61 ) were defeated and the review process under P.L. 114-17 ended on September 17, 2015, with no resolution either approving or disapproving the JCPOA being enacted.\nIranian Parliamentary Review. In August 2015, the Iranian Majles (parliament) set up a 15-person committee to review the JCPOA. The committee asserted that the JCPOA had \"flaws,\" but stopped well short of saying it should not be adopted. Acting just before the deadline for Adoption Day, the Majles formally voted to approve the agreement, and Council of Guardians concurred. On October 21, 2015, Supreme Leader Khamene'i formally accepting the Majles and Council of Guardians decisions, while stressing stipulations, reservations, and distrust of the U.S. intent to fully implement its JCPOA commitments.", "INARA provides for Administration reporting to Congress under several scenarios and at differing intervals:\nMaterial Breach Report . INARA requires that the President report to Congress any information relating to a potentially significant Iranian breach of the JCPOA, within 10 days of receiving information on such a possible breach. Within 30 calendar days after submitting such a report, the Administration is to make a determination whether there has been a material breach of the JCPOA by Iran. This reporting requirement is largely mooted by the U.S. exit from the JCPOA. Compliance Certification . Under INARA, the Administration is required to certify, within 90 days or less of the end of the INARA congressional review period (first report by December 16, 2015), and each 90 days thereafter, that Iran is fulfilling its commitments under the JCPOA. If the President does not make the required certification of Iranian compliance, or reports a material breach by Iran, Congress \"may\" initiate within 60 days \"expedited consideration\" of legislation that would reimpose any Iran sanctions that the President had suspended through use of waiver or other authority. As is any legislation, such \"snap back\" sanctions legislation would be subject to potential presidential veto. This certification requirement is mooted by the U.S. exit from the JCPOA. Semi-Annual Report . INARA requires an Administration report every 180 days on Iran's nuclear program and Iran's compliance with the agreement during the period covered in the report. The report is also to include whether Iranian banks are involved in terrorism financing; Iran's ballistic missile advances; and whether Iran continues to support terrorism. (First report was due by March 12, 2016.) It is unclear whether this reporting requirement remains active in light of the U.S. exit from the JCPOA.", "The Obama Administration and the IAEA asserted that they put in place measures to vigorously enforce the terms of the agreement. On September 17, 2015, then-Secretary of State Kerry announced the appointment of Ambassador Stephen Mull as Lead Coordinator for Iran Nuclear Implementation, leading an interagency effort to ensure that the nuclear steps Iran committed to in the JCPOA are fully implemented and verified. Deputy Secretary of State John Sullivan indicated during a July 17, 2017, hearing that Mull's position was \"under review.\" The position no longer exists; its functions are now handled by the State Department's Bureau of International Security and Nonproliferation.", "During the 2016 presidential campaign, Donald Trump was a vocal critic of the agreement. At times, he pledged to seek to renegotiate it, to strictly enforce its terms on Iran, or to abrogate it outright. The JCPOA does not contain a provision for any party to end the agreement; nevertheless, the President could decide to stop implementing some or all of the U.S. commitments in the deal, but doing so leaves open the possibility for the agreement to be implemented by the remaining parties, including Iran.\nThroughout some of its first year, the Trump Administration indicated support for the agreement. On February 10, 2017, following meetings with the Administration focused on the JCPOA, the EU High Representative for Foreign Policy, Frederica Mogherini, stated that Administration officials \"reassured\" her that the Administration intended to fully implement the JCPOA.\nHowever, by the beginning of 2018, U.S. officials expressed increasing hostility toward the JCPOA.\nThen-Secretary of State Rex Tillerson told reporters on April 19, 2017, that the Administration will \"review completely the JCPOA itself.\" Asserting that \"Iran's nuclear ambitions are a grave risk to international peace and security,\" Tillerson argued that the \"JCPOA fails to achieve the objective of a non-nuclear Iran; it only delays their goal of becoming a nuclear state.\" Asked whether the United States should stop fulfilling its JCPOA commitments, Tillerson replied, \"[w]e just don't see that that's a prudent way to be dealing with Iran, certainly not in the context of all of their other disruptive activities.\" Trump Administration officials argued that Iran may pursue nuclear weapons in the future. Trump Administration officials stated on July 17, 2017, that the Administration is \"trying to take stronger steps to interpret the agreement more stringently against Iran\" because the \"existing restrictions on the JCPOA were, in our view, inadequately enforced.\" The February 2018 Nuclear Posture Review asserts that \"Iran's development of increasingly long-range ballistic missile capabilities, and its aggressive strategy and activities to destabilize neighboring governments, raises questions about its long-term commitment to foregoing nuclear weapons capability.\"\nPresident Trump announced on October 13, 2017, that the Administration had completed the Iran policy review described above. With respect to the JCPOA, Trump announced that the Administration would not issue an INARA-specified compliance certification, and that he would direct his Administration to \"work closely with Congress and our allies to address the deal's many serious flaws so that the Iranian regime can never threaten the world with nuclear weapons.\" Secretary Tillerson did not address Iranian compliance, but he wrote in a letter to Congress the same day that he was \"unable to certify\" that \"continued suspension of [U.S.] sanctions\" is \"appropriate and proportionate to the specific and verifiable measures taken by Iran with respect to terminating its illicit nuclear program.\" The withholding of the certification under INARA permitted Congress to act on legislation, under expedited procedures, reimposing those sanctions that were suspended. Congress did not take such action.\nOn January 12, 2018, President Trump stated that \"the United States will not again waive sanctions\" pursuant to the JCPOA absent \"our European allies' agreement to fix the terrible flaws of the Iran nuclear deal.\" In this statement, Trump also demanded new congressional legislation concerning the JCPOA. A senior Administration official explained the same day that Trump \"hopes to see an amendment to the Iran Nuclear Agreement Review Act\" which must\n\"demand that Iran allow timely, sufficient and immediate inspections at all sites that are requested by international inspectors from the IAEA\"; \"ensure\" that Iran does not become capable of producing enough fissile material for a nuclear weapon in less than one year; allow the United States for an indefinite period of time to reimpose U.S. nuclear sanctions if Iran does not comply with these new criteria; and \"state explicitly ... that we view Iran's long-range missile programs and nuclear weapons as inseparable and that Iran's development and testing of missiles should be subject to severe sanctions.\"\nCongress has not acted on such legislation.\nA senior Administration official stated on January 12 that the Trump Administration would \"work with our European partners on some kind of follow-on agreement\" to the JCPOA to address Iran's ballistic missile program, the JCPOA restrictions containing expiration dates, and improved inspections of Iran's nuclear program. U.S. officials subsequently met several times with their counterparts from France, Germany, and the United Kingdom to discuss Trump's demands, but the two sides did not reach agreement on a path forward that was sufficient to satisfy President Trump's demands.", "On May 8, President Trump, noting that the two sides had been unable to reach an agreement, announced that the United States would no longer participate in the JCPOA and would reimpose sanctions that had been suspended pursuant to the JCPOA. President Trump ordered Secretary of State Pompeo to \"take all appropriate steps to cease the participation of the United States in the JCPOA,\" and, along with Secretary of the Treasury Steven Mnuchin, immediately \"begin taking steps to reimpose all United States sanctions lifted or waived in connection\" with the agreement. The United States has notified the other P5+1 states that the United States will no longer attend meetings of the joint commission, the working group concerning the Arak reactor, and the procurement working group.\nSecretary Pompeo detailed a new U.S. approach with respect to Iran during a May 21, 2018, speech as applying \"unprecedented financial pressure on the Iranian regime,\" working \"with the Department of Defense and our regional allies to deter Iranian aggression,\" and advocating \"tirelessly for the Iranian people.\" He asserted that, in exchange for \"major changes\" in Iran's behavior, the United States is \"prepared to end the principal components of every one of our sanctions against the regime ..., re-establish full diplomatic and commercial relationships with Iran ..., [a]nd support the modernization and reintegration of the Iranian economy into the international economic system.\"\nPompeo listed a number of essential elements for any new agreement:\n\"First, Iran must declare to the IAEA a full account of the prior military dimensions of its nuclear program, and permanently and verifiably abandon such work in perpetuity. Second, Iran must stop enrichment and never pursue plutonium reprocessing. This includes closing its heavy water reactor. Third, Iran must also provide the IAEA with unqualified access to all sites throughout the entire country. Iran must end its proliferation of ballistic missiles and halt further launching or development of nuclear-capable missile systems. Iran must release all U.S. citizens, as well as citizens of our partners and allies, each of them detained on spurious charges. Iran must end support to Middle East terrorist groups, including Lebanese Hizballah, Hamas, and the Palestinian Islamic Jihad. Iran must respect the sovereignty of the Iraqi Government and permit the disarming, demobilization, and reintegration of Shia militias. Iran must also end its military support for the Houthi militia and work toward a peaceful political settlement in Yemen. Iran must withdraw all forces under Iranian command throughout the entirety of Syria. Iran, too, must end support for the Taliban and other terrorists in Afghanistan and the region, and cease harboring senior al-Qaida leaders. Iran, too, must end the IRGC [Islamic Revolutionary Guard Corps] Qods Force's support for terrorists and militant partners around the world. And too, Iran must end its threatening behavior against its neighbors—many of whom are U.S. allies. This certainly includes its threats to destroy Israel, and its firing of missiles into Saudi Arabia and the United Arab Emirates. It also includes threats to international shipping and destructive ... cyberattacks.\"\nOn May 21, 2018, State Department Director for Policy Planning Hook stated that \"the plan is to continue working with our allies, as we have been over the last few months, to create a new security architecture.\" During a July 2, 2018, press briefing Hook explained that, following Trump's May 8, 2018, announcement, Secretaries Pompeo and Mnuchin \"decided to create joint teams of senior officials to visit every region of the world. These teams were launched on June 4.\" The United States is \"bringing severe economic pressure on Iran until the regime changes its destabilizing policies,\" Hook stated. Although Hook explained that the administration's policy \"is not about changing the regime, it is about changing the behavior of the leadership in Iran,\" most observers assert that it would be inconceivable for the current regime in Iran to change its behavior to comport with the requirements outlined by Secretary Pompeo. Pompeo himself stated during a June 22 television interview that, if Iran were to \"ramp up\" work on its nuclear program, \"the wrath of the entire world will fall upon\" the government, explaining that \"wrath\" referred to \"moral opprobrium and economic power,\" rather than military action.", "The U.S. exit from the JCPOA attracted broad criticism among the other parties to the JCPOA. The other JCPOA parties assert that unilateral U.S. reimposition of sanctions appears to violate the JCPOA. The agreement requires that a noncompliance notification to the U.N. Security Council, which would be necessary to trigger the reimposition of U.N. sanctions, be accompanied by \"a description of the good-faith efforts the participant made to exhaust the dispute resolution process specified in this JCPOA.\" The agreement also states that the P5+1 and Iran \"commit to implement this JCPOA in good faith and in a constructive atmosphere, based on mutual respect, and to refrain from any action inconsistent with the letter, spirit and intent of this JCPOA that would undermine its successful implementation.\" Whether this course of action violates UNSCR 2231 is unclear. U.S. officials have argued that the JCPOA is not legally binding. But a European Union official told CRS in a November 30, 2016, email that \"the commitments under the JCPOA have been given legally binding effect through UNSC Resolution 2231 (2015).\"\nOther P5+1 countries immediately reiterated their support for the JCPOA and announced that they intend to fulfill their JCPOA commitments and protect their companies from the effects of any U.S.-imposed sanctions. In a joint statement, France, Germany, and the United Kingdom declared their intention to remain party to the JCPOA and to \"work with all the remaining parties\" to the deal to ensure that Iran continues to receive \"the continuing economic benefits ... linked to the agreement.\" EU High Representative Mogherini stated that, if \"Iran continues to implement its nuclear related commitments ... the European Union will remain committed to the continued full and effective implementation\" of the agreement.", "Iranian officials have repeatedly stated that Tehran would fulfill its JCPOA commitments, as long as the United States did, and repeatedly have rejected renegotiating the JCPOA or negotiating a new agreement such as the sort described by U.S. officials. However, Zarif has asserted that Iran \"is fully prepared to return to the pre-JCPOA situation or even [to conditions] more robust than that if the US reneges on its promises to the extent that the JCPOA's continuation harms our national interests,\" Iranian Foreign Minister Javad Zarif asserted the previous month. Deputy Foreign Minister Seyed Abbas Araqchi claimed that Iran \"will be able to reach the industrial enrichment phase in less than two years\"; other Iranian officials have asserted that the country can rapidly reconstitute its fissile material production capability.\nIranian officials have described a number of possible responses to a U.S. decision to reimpose U.S. sanctions, including resuming uranium enrichment, referring the matter to the Joint Commission, decreasing cooperation with the IAEA, and withdrawing from the NPT. These responses do not include the possible Iranian development of nuclear weapons, Iranian officials have said. Asked on April 21 if Iran will continue to meet its JCPOA obligations if all P5+1 parties except for the United States continue to uphold their obligations, Zarif replied, \"I believe that's highly unlikely,\" adding that\nit is important for Iran receive the benefits of the agreement. And there is no way that Iran would do a one-sided implementation of the agreement. And it would require a major effort because right now, with the United States ostensibly in the agreement, a lot has been lacking in terms of Iran benefiting from the deal.\nFollowing Trump's May 8 announcement, Iranian officials rejected negotiating any new agreements. In a May 10, 2018, letter to U.N. Secretary General António Guterres, Foreign Minister Zarif wrote that \"[i]f JCPOA is to survive, the remaining JCPOA Participants and the international community need to fully ensure that Iran is compensated unconditionally through appropriate national, regional and global measures,\" adding that\nIran has decided to resort to the JCPOA mechanism in good faith to find solutions in order to rectify the United States' multiple cases of significant non-performance and its unlawful withdrawal, and to determine whether and how the remaining JCPOA Participants and other economic partners can ensure the full benefits that the Iranian people are entitled to derive from this global diplomatic achievement.\nSupreme Leader Khamene'i stated on May 23 that Iran will only continue to participate in the JCPOA if Europe provides \"concrete guarantees\" that it maintains Iran's existing revenue stream from oil sales to the EU countries. He also demanded that Europe not to raise the issues of Iran's missiles programs or regional influence, and added that \"Iran has the right to resume its nuclear activities.\" President Rouhani expressed a similar view in a July 4 speech.\nAccording to Iranian officials, Tehran has begun preparations for expanding its uranium enrichment program, albeit within the parameters of the JCPOA for the time being. Spokesman of the Atomic Energy Organization of Iran (AEOI) Behrouz Kamalvandi stated on June 5 that the organization \"will start the process of boosting the capacity of the country's uranium enrichment,\" by increasing Iran's capacity to produce uranium hexafluoride. On June 27, 2018, Iran's official news agency announced that Iran has resumed operations at its uranium conversion facility, which Iran has used to produce this material.\nKamalvandi also explained that Iran would begin the process of \"manufacturing and assembly of centrifuge rotors,\" which are critical components of such machines. Iran \"will begin building a centrifuge rotor plant,\" he noted. In addition, AEOI head Ali Akbar Salehi stated that Tehran will begin using an \"advanced centrifuge assembly centre in the Natanz nuclear facility,\" which Iran had not disclosed publicly. Kamalvandi noted that Iran would continue to operate within the constraints of its JCPOA commitments, but added that, should the JCPOA collapse, Iran would produce centrifuges beyond those constraints.\nAs noted, Iran remains subject to its obligations pursuant to the JCPOA and Resolution 2231 and could be subject to the reimposition of multilateral sanctions if Tehran violates these obligations.", "Following the initial reactions to the U.S. exit from the accord, Iran and the other parties began negotiations on concrete steps that would continue to provide Iran with the economic benefits of the JCPOA. On May 16, 2018, in an apparent effort to meet Iran's demands for remaining in the agreement, the EU announced \"practical measures\" for continued implementation of the JCPOA, including the following:\nmaintaining and deepening economic relations with Iran; the continued sale of Iran's oil and gas condensate petroleum products and petrochemicals and related transfers; effective banking transactions with Iran; continued sea, land, air, and rail transportation relations with Iran; provision of export credit and special provisions in financial banking to facilitate economic and financial cooperation and trade and investment; further memoranda of understanding and contracts between European companies and Iranian counterparts; further investments in Iran; and the protection of European Union economic operators and ensuring legal certainty; and finally further development of a transparent, rules-based business environment in Iran.\nSeveral multilateral meetings since the U.S. exit have not produced a firm Iranian commitment to the JCPOA. At Iran's request, the Joint Commission held meetings, attended by all of the JCPOA parties except for the United States, on May 25 and July 6. At the conclusion of the July 6 meeting, the Joint Commission participants reaffirmed their commitment to the EU \"practical measures\" enumerated above. However, President Rouhani reacted to the pledges by saying that \"Unfortunately, the EU's package of proposals lacked an operational solution and a specific method for cooperation.\" Rouhani's reaction likely reflected a lack of confidence that EU and other countries can counter the effects of a steady stream of announcements by EU, Japanese, South Korean, and Indian companies that they are leaving the Iran market rather than face the risk of reimposed U.S. sanctions. The corporate announcements are the result, at least in part, of Trump Administration official statements that the Administration plans to fully enforce reimposed sanctions and will likely deny requests by companies and their governments for waivers or exemptions to the U.S. sanctions. The issue of efforts by EU and other countries to preserve the economic benefits of the JCPOA is analyzed in: CRS Report RS20871, Iran Sanctions , by Kenneth Katzman, and CRS In Focus IF10916, Efforts to Preserve Economic Benefits of the Iran Nuclear Deal , by Cathleen D. Cimino-Isaacs, Kenneth Katzman, and Derek E. Mix.\nAppendix A. Chart on the JCPOA\nAppendix B. Nuclear Weapons Development\nAn effective nuclear weapons capability has three major elements: producing fissile material in sufficient quantity and quality for a nuclear explosive device; designing and weaponizing a survivable nuclear warhead; and producing an effective means for delivering the weapon, such as a ballistic missile. The U.S. government assesses that, although Iran could eventually produce nuclear weapons, it has not yet decided to do so and has not mastered all of the necessary technologies for building a nuclear weapon. Tehran had a nuclear weapons program but halted it in 2003, according to U.S. government estimates.\nBefore the JCOA took effect, then-Under Secretary of State for Political Affairs Wendy Sherman explained during an October 3, 2013, Senate Foreign Relations Committee hearing that Iran would have needed as much as one year to produce a nuclear weapon if the government made the decision to do so. This estimate took into account the amount of time that Iran would have needed to produce a sufficient amount of weapons-grade highly enriched uranium (HEU), which is widely regarded as the most difficult task in building nuclear weapons, as well as to develop the other components necessary for a nuclear weapon. This estimate did not include the time that Iran would need to be able to render a nuclear weapon deliverable by a ballistic missile. Then-Secretary of Defense Leon Panetta stated in January 2012 that Iran would have needed \"possibly ... one to two years in order to put [a nuclear weapon] on a deliverable vehicle of some sort.\"\nA senior intelligence official explained during a December 2007 press briefing that the \"acquisition of fissile material\" was the \"governing element in any timelines\" regarding Iran's production of a \"nuclear device.\" However, the estimate articulated by Sherman assumed that Iran would need two to three months to produce enough weapons-grade HEU for a nuclear weapon. This estimate also apparently assumed that Iran would use its declared nuclear facilities to produce fissile material for a weapon. The other assumptions behind the estimate are not clear.\nTehran would probably use covert enrichment facilities to produce fissile material for nuclear weapons—a tactic that would require a longer period of time, according to testimony from then-Director of National Intelligence James Clapper during an April 18, 2013, Senate Armed Services Committee hearing. In his February 2016 testimony to Congress, Director Clapper said that\nWe continue to assess that Iran's overarching strategic goals of enhancing its security, prestige, and regional influence have led it to pursue capabilities to meet its nuclear energy and technology goals and give it the ability to build missile-deliverable nuclear weapons, if it chooses to do so. Its pursuit of these goals will dictate its level of adherence to the JCPOA over time. We do not know whether Iran will eventually decide to build nuclear weapons.\nAs noted in the body of this report, U.S. officials have argued that the International Atomic Energy Agency would likely detect an Iranian attempt to use its safeguarded facilities to produce weapons-grade HEU. They have also expressed confidence in the United States' ability to detect covert Iranian enrichment plants." ], "depth": [ 0, 1, 1, 2, 2, 1, 2, 3, 3, 1, 2, 2, 3, 3, 3, 4, 4, 4, 4, 3, 2, 2, 3, 1, 2, 3, 3, 4, 3 ], "alignment": [ "h0_title h2_title h1_title", "h0_full", "", "", "", "", "", "", "", "h0_title h2_title", "h0_full", "h0_title", "", "", "", "", "", "", "", "h0_full", "h2_full", "", "", "h2_title h1_title", "h2_title h1_title", "h1_full", "h1_full", "", "h2_full" ] }

{ "question": [ "How was the JCPOA formed?", "What did the JCPOA require?", "What did the JCPOA replace?", "How did the JCPOA take effect?", "To what extent has Iran followed the JCPOA?", "How did the Trump Administration change the JCPOA?", "How did the other members of the accord respond?", "What was Iran's response?", "What kinds of legislation has been introduced addressing Iran?", "What does P.L. 115-44 mandate?", "What document contains more information on sanctions relief?" ], "summary": [ "On July 14, 2015, Iran and the six powers that had negotiated with Tehran about its nuclear program since 2006 (the United States, the United Kingdom, France, Russia, China, and Germany—collectively known as the P5+1) finalized a Joint Comprehensive Plan of Action (JCPOA).", "The JCPOA required constraints that seek to ensure that Iran's nuclear program can be used for purely peaceful purposes in exchange for a broad lifting of U.S., European Union (EU), and United Nations (U.N.) sanctions on Iran.", "The agreement replaced the Joint Plan of Action (JPA), an interim nuclear accord in effect from 2014 to 2016.", "Congress did not enact a resolution of disapproval of the JCPOA by the deadline of September 17, 2015, which was set by the Iran Nuclear Agreement Review Act (P.L. 114-17); the JCPOA formally took effect on \"Adoption Day\" (October 18, 2015). \"Implementation Day\" was declared by the P5+1 on January 16, 2016, representing the completion of Iran's nuclear requirements; entry into effect of U.N. Security Council Resolution 2231, which endorsed the JCPOA; and the start of sanctions relief stipulated in the agreement.", "Officials from both the Barack Obama and Donald Trump Administrations have certified that Iran has abided by its JCPOA commitments.", "On May 8, President Trump announced that the United States would no longer participate in the JCPOA and would reimpose sanctions that had been suspended pursuant to the agreement.", "The other powers that negotiated the accord with Iran—Russia, China, France, Britain, and Germany—opposed the U.S. decision and have been meeting with Iranian officials to continue implementing the JCPOA.", "Iran's President Hassan Rouhani has pledged to continue implementing the accord, provided Iran continues to receive the economic benefits of the agreement.", "In the 114th and 115th Congresses, legislation has been introduced with the stated purpose of redressing asserted weaknesses of the deal or preventing any U.S. sanctions relief beyond that explicitly promised in the JCPOA.", "The Countering America's Adversaries through Sanctions Act (P.L. 115-44) mandates sanctions on Iranian proliferation, human rights abuses, and support for terrorist activities.", "For details on the sanctions relief aspects of the JCPOA, see CRS Report RS20871, Iran Sanctions, by Kenneth Katzman." ], "parent_pair_index": [ -1, 0, 0, 0, 0, -1, 0, 0, -1, 0, 0 ], "summary_paragraph_index": [ 0, 0, 0, 0, 0, 3, 3, 3, 4, 4, 4 ] }

{ "title": [ "Background", "PFM Focuses on a Country’s Budget Cycle", "Assessment Tools Highlight Both Improvements and Weaknesses in Developing Countries’ PFM Systems", "International Attention to Strong and Effective PFM Systems Has Increased since 2003", "USAID’s and Treasury’s Processes for Developing PFM Programs Involve Consultation with Stakeholders and Rely on Assessments of Host-Country Systems", "USAID’s Processes", "Treasury’s Processes", "USAID and Treasury Use Certain Processes to Monitor and Evaluate PFM-Related Programs, but Implementation Has Some Weaknesses", "USAID’s Processes", "USAID Uses Multiple Tools to Monitor Its PFM Assistance but Lacks a Process for Tracking Use of Country Systems", "Treasury’s Processes", "Treasury’s OTA Uses Various Processes to Monitor PFM- Related Programs", "Conclusions", "Recommendations for Executive Action", "Agency Comments and Our Evaluation", "Appendix I: Scope and Methodology", "Appendix II: Several International Organizations Reported Results of Their Public Financial Management Diagnostic Tools", "Public Expenditure and Financial Accountability Program’s PFM Performance Measurement Framework", "World Bank’s Quality of Budgetary and Financial Management Indicator", "International Budget Partnership’s Open Budget Survey", "Appendix III: State Department Conducts Fiscal Transparency Reviews and Administers the Domestic Finance for Development Initiative", "State Department Conducts Two Public Financial Management- Related Activities", "State Processes for PFM Activities Derive from Legal Requirements and Presidential Initiatives", "State Is Taking Steps to Monitor Progress of Nontransparent Aid Recipients", "Appendix IV: Examples of Public Financial Management-related Projects in Six Countries", "Selected USAID PFM– Related Projects", "Appendix V: Comments from the U.S. Agency for International Development", "Appendix VI: Comments from the Department of the Treasury", "Appendix VII: GAO Contact and Staff Acknowledgments", "GAO Contact", "Staff Acknowledgments" ], "paragraphs": [ "", "The broad objectives of PFM are to achieve overall fiscal discipline, allocation of resources to priority needs, and efficient and effective allocation of public services, according to OECD. While donors may use different definitions of PFM, most definitions focus on a country’s budget cycle, the process used to manage public resources. The budget cycle centers around four main phases: (1) budget formulation, (2) budget execution, (3) accounting and reporting, and (4) external oversight (see fig. 1). OECD states that PFM includes all components of a country’s budget cycle.\nA budget cycle starts with the budget formulation process, in which the government, often with legislative oversight, plans for the use of the coming year’s resources in accordance with policy priorities. After the government approves the budget and the new fiscal year begins, programming agencies and the ministry of finance, or appropriate entity, are responsible for executing the budget. They use the resources allocated to them for items such as salaries for public servants, operating costs for their offices, and goods and services delivered to their beneficiaries. The ministry of finance, or equivalent, manages the flow of funds and monitors and makes in-year adjustments to help ensure compliance with the budget and PFM rules. Throughout the fiscal year, each programming agency is to account for and record its expenditures. The ministry of finance centrally consolidates these accounts. At the end of the fiscal year, the ministry of finance, or equivalent, issues an accounting report that demonstrates how the budget was implemented. External or independent entities, such as a country’s supreme audit institution, may review this report. The audit institution reviews the government’s revenue collection and spending and issues its own statement on the execution of the budget and the strength of the PFM systems. In many countries, the institution presents this audit report to an appropriate government entity for further scrutiny and action.\nPFM processes involve a number of governmental entities. While the ministry of finance is generally the focus of a country’s PFM system, PFM extends to all public ministries that are charged with delivering services or have spending authority. Civil society, donors, and oversight institutions, such as a country’s supreme audit institution, also help to ensure the proper management of public funds through external scrutiny and review.", "Broad PFM assessments conducted by international organizations report improvements in countries’ PFM systems, as well as continued weaknesses. Several international organizations, including the Public Expenditure and Financial Accountability (PEFA) program, World Bank, International Budget Partnership, and Transparency International, have developed assessment tools to assess broad aspects of PFM systems.These assessments have highlighted varying levels of progress in improving PFM systems around the world, and the last two have identified relatively low levels of transparency in many countries’ budgets and high levels of corruption, respectively. More specifically:\nPEFA: A 2010 monitoring report on the PEFA program, released by the PEFA Secretariat, found that while PFM systems were improving overall, progress varied among elements of countries’ systems. The PEFA secretariat’s analysis, based on a comparison of 33 repeat PEFA assessments from 2005 through 2010, showed that more countries had a higher number of improved versus worsened scores, indicating a broad trend of PFM improvement across the countries surveyed. According to the analysis, country actions taken to strengthen PFM features in the earlier stages of the budget cycle, such as planning, are more likely to improve or maintain a high score than actions taken later in the budget cycle, such as control and oversight of actual spending.\nWorld Bank: According to our analysis of the World Bank’s quality of budgetary and financial management indicator scores from 2005 through 2010, slightly more than one-third of the countries assessed showed improvements in the quality of their PFM systems, while one- quarter of the countries showed a worsening in the quality of their PFM systems.\nInternational Budget Partnership: In its 2010 open budget survey of 94 countries, the International Budget Partnership concluded that the state of budget transparency was poor. Only about 21 percent of the countries surveyed had open budgets while 44 percent of countries provided limited to no budget information. Nonetheless, the survey found the trend toward open budgets was favorable based on substantial improvements in budget transparency, especially among countries that had provided little information in the past. Some of these governments achieved improvements by simply making budget documents available on their websites.\nTransparency International: The organization’s Corruption Perceptions Index showed that nearly three quarters of the 178 countries in the index scored below 5, on a scale of 10 (very clean) to 0 (highly corrupt), indicating what it categorizes as a serious corruption problem.\nFor further information on each organization’s assessment tools and selected results, including the percentile rankings of our six case study countries in selected PFM diagnostic tools, see appendix II.", "Donors and recipient governments have increased their attention to strengthening PFM systems, recognizing that strong and effective PFM systems underpin fiscal and macroeconomic stability, guide the allocation of public resources to national priorities, support the efficient delivery of services for poverty reduction and economic development, and make possible the transparency and scrutiny of public funds. In 2003, OECD’s Development Assistance Committee established a Working Party on Aid Effectiveness, which has played a critical role in establishing an initial international donor coordination framework and setting goals for donors and aid recipient countries to strengthen PFM. The working party has sponsored four global development forums since 2003. The second forum, held in Paris in 2005, resulted in the Paris Declaration on Aid Effectiveness which included broad commitments by recipient governments and donors to strengthen PFM systems and use those systems as appropriate. More than 100 countries and aid agencies, including the United States, endorsed the declaration. By signing the declaration, recipient governments made clear commitments to strengthen their systems to the maximum extent possible, and donor governments made clear commitments to use those systems wherever possible. These commitments were renewed and refined in the subsequent forum in Accra, Ghana, in 2008. The most recent forum was held in Bussan, South Korea, in 2011. (See table 1.)\nUSAID and Treasury are the two main U.S. agencies providing PFM- related assistance. Combined, the two agencies have PFM-related projects in 70 countries in all regions of the world, as shown in figure 2. State also conducts some PFM-related activities, although it has not funded programs. See appendix III for details on State’s PFM activities.\nUSAID provides PFM capacity-building activities through its development programs and is seeking to provide more of its assistance through recipient countries’ financial systems. Capacity-building activities to strengthen PFM systems are typically part of broader democracy and governance (DG) or economic growth (EG) programs. PFM activities that are included as components of DG programs typically address the areas of legislative function and processes, public sector executive function, local government decentralization, and anticorruption reforms. PFM activities included as components of EG programs typically address fiscal and monetary policy issues. USAID has identified DG and EG programs with PFM components in over 60 countries since 2007. However, according to a USAID official, USAID cannot determine the total funding for PFM activities because it does not collect data at a sufficiently detailed level to precisely identify PFM activities. Therefore, the official reported that USAID is unable to separate PFM assistance from other assistance in larger DG and EG development programs. In 2011, total funding for DG programs was $1.7 billion, and for EG programs, $4.2 billion.appendix IV.\nFor illustrative examples of USAID PFM-related projects, see In addition to PFM capacity-building programs, USAID is seeking to increase the use of recipient country PFM systems to deliver assistance. As part of its implementation and procurement reforms under its institutional reform agenda, known as USAID Forward, USAID has announced an agency target of obligating 30 percent of its annual assistance through local systems, including both partner country PFM systems and local not-for-profit and for-profit organizations, by fiscal year 2015.\nTreasury’s OTA provides technical assistance through advisors who work in-country within the finance ministry, the central bank, or other government entities. OTA’s program consists of five core areas, as follows:\nBudget and Financial Accountability helps foreign governments reform and strengthen their PFM systems in order to promote control, accountability, and transparency over resources, and to improve a country’s overall financial condition.\nBanking and Financial Services promotes strong financial sectors in which institutions are well regulated, stable, and accessible; serve as efficient intermediaries between savers and investors; and are resistant to criminal activity.\nGovernment Debt Issuance and Management helps host countries implement sound public debt management practices and develop markets through which the government can finance itself.\nEconomic Crimes helps counterpart governments build their capacity to prevent, detect, investigate, and prosecute complex financial crimes.\nRevenue Policy and Administration provides assistance to ministries of finance and other relevant organizations that strengthens their ability to serve the country and its people through the efficient and responsible collection of revenues.\nOTA provides both long-term resident and intermittent advisors. Long- term resident advisors provide advice and training to ministers of finance, central bank governors, and other government officials. Country engagement typically lasts between 2 and 10 years, according to an OTA official. Intermittent advisors provide highly specialized technical assistance in support of long-term projects, projects requiring several different specialties, and projects of short duration. According to an OTA official, they currently have about 70 advisors in roughly 50 countries. In 2011, OTA’s total funding was $44.5 million, with $25.5 million in direct OTA appropriations and $19 million in transfers from other agencies, including State, USAID, and the Millennium Challenge Corporation. For illustrative examples of OTA technical assistance projects, see appendix IV.", "", "USAID is implementing new processes for developing programs that reflect new agency reform priorities to increase the use of country systems to deliver U.S. assistance. USAID’s work in PFM has traditionally involved capacity building under broader programs designed to improve fiscal management and promote good governance. According to agency officials, USAID has increased its attention to PFM issues. USAID’s new country strategy development and project design processes include various analyses and assessments that may identify opportunities to strengthen and use countries’ PFM systems, as prioritized by USAID’s reform agenda. In these new processes, USAID may identify the need for PFM assistance during countrywide development assessments or through other required assessments. Furthermore, according to USAID guidance, country offices are to develop these assistance programs in collaboration with country stakeholders throughout the program development process. USAID’s new processes are similar in structure and approach to prior processes, but, according to USAID, aim to incorporate more analytical rigor at all stages of the strategic planning framework so that USAID’s efforts are better aligned with the recipient country’s development efforts.\nUSAID may identify the need for PFM assistance during the country strategy development process. According to USAID, most country offices are required to develop a Country Development Cooperation Strategy, a 5-year strategy document, by the end of fiscal year 2013. USAID’s latest draft of the guidance for developing the country strategy, released in September 2011, states that the strategy should demonstrate how it is integrating the goals of USAID’s assistance reform effort, USAID Forward, such as working through host-country systems and developing the capacity of civil society and private sector partners. In developing the country strategy document, the USAID country office is to consult with various country stakeholders and conduct several assessments to understand the development context and develop goals and objectives. According to the guidance, the country office is required to develop the strategy document with a focus on maximizing the impact of USAID resources and build the capacity of specific institutions and related governance systems at the national, regional, and local levels. For example, if a USAID country office determines that a nontransparent and inefficient financial system is a key obstacle to economic growth, the country office is to work with the host government to improve its capacity for sound financial management and equitable allocation of resources. According to USAID officials, one indicator of need for a PFM project would be an assessment that the country has a major fiscal imbalance that needs to be corrected by a combination of increased revenue mobilization or reduction of budget expenditures. Another indicator would be a determination, arrived at through repeated reporting on corruption in the media, or internal and external publications, and supported by stakeholder interviews, that anticorruption programs would improve PFM.\nThe goals and objectives outlined in the country strategy are to provide the basis for project design, monitoring, and evaluation. As of June 2012, USAID stated it had approved 15 country strategies, and 73 USAID country offices are scheduled to complete a strategy by October 2013. See figure 3 for highlights of the elements of USAID’s new strategy and project design processes that could identify the need for PFM capacity building.\nAccording to the new USAID guidance on project design, after USAID approves the strategy document and identifies the need for PFM-related assistance, USAID country offices are to begin the project design phase. This phase is to begin with the formation of a design team that is responsible for the project’s development from planning to implementation. Overall, the project design phase is to comprise three stages, as follows:\nConceptual stage. During the conceptual stage, the project design team is to conduct stakeholder outreach, assessments, analysis, and implementation planning. This stage results in a concept paper, which provides a summary of a proposed project that country-office management can review to assess how the project aligns with the country strategy, the likelihood of success, and the assumptions underlying project success. After USAID management approves the concept paper, the design team transitions to the analytical stage.\nAnalytical stage. During the analytical stage, the design team seeks to understand the problem or constraints identified during the conceptual stage, and identify and assess critical assumptions. The team is to conduct a series of targeted assessments, including required gender, environmental, and sustainability analyses and other social, political, and institutional analyses. Of these analyses, we identified two that pertain directly to PFM systems, as follows:\nSustainability analysis. The sustainability analysis assesses the partner government’s ability to manage the continuation of the project after the project has concluded. According to USAID guidance, to build sustainability into a project, the design should consider how the country office will increase the skills and capacity of local stakeholders involved in maintaining development gains after the project ends—as well as how USAID will ensure that relevant activities or services are gradually tied to sustainable financing models through private sector participation or through sustainable, publicly managed arrangements and government processes. Institutional analysis. An institutional analysis is an in-depth assessment of the local institutions and systems most critical to the implementation of the project’s development interventions, including an assessment of the quality of their leadership, structure, and staff; and identification of their administrative and financial management strengths and weaknesses. Using the analysis, USAID is to develop a plan for project activities that are necessary and sufficient to bring these institutions up to the level of performance or engagement as partners appropriate for their roles in the project’s implementation and their eligibility for direct USAID funding.\nAccording to USAID guidance, the analytical stage results in a project authorization document that will be the basis for project implementation, adaptation, and evaluation, which includes a summary of the analyses that underlie the rationale for the project design.\nApproval stage. A successful project design results in an approved project authorization, which enables a project to move from the planning stage to implementation. The project authorization sets out the purpose and duration of the project, defines fundamental terms and conditions of the assistance when a partner country agreement is anticipated, and approves an overall total budget level, subject to the availability of funds.\nIn addition to the above analyses, USAID has developed a PFM risk- assessment framework (PFMRAF) to measure the fiduciary risk, or the risk of funds being misspent or mismanaged, when USAID plans to provide aid through the country’s finance systems. USAID guidance commits country offices to offer, if appropriate, a USAID assessment of partner country PFM systems with the goal of providing funding for project implementation through the use of those systems. If the offer is accepted, the assessment must be carried out using the PFMRAF. Whenever possible, USAID should begin conducting the PFMRAF during the conceptual stage of the project design process. The PFMRAF consists of the following five stages: 1. The Rapid Appraisal provides a high-level snapshot of country-level fiduciary risks associated with the use of partner country PFM systems and helps inform decisions on whether to undertake a more rigorous, formal risk assessment. 2. The Risk Assessment, Analysis, Mitigation, and the Approval for Use of Partner Country Systems establishes the baseline level of risk corresponding to contemplated funding levels and identifies vulnerabilities of the partner country PFM sector in which USAID is considering use of the system for project implementation. USAID determines whether any systemic risk can be reasonably mitigated and, if so, what kind of mitigating measures might be introduced to reduce the risk. USAID establishes an accountability framework with a set of conditions that would, if complied with, constitute formal approval for the use of a partner country PFM system. 3. The Project Design, Approval, Designation of Responsibilities, and Selection of the Funding Mechanism incorporates the approval of use of country systems into the project design, includes risk mitigation measures, such as capacity-building technical assistance, concurrent audits, and disbursements in tranches, as appropriate, and the appropriate funding mechanism. 4. Negotiating and Preparing the Bilateral Project Agreement with the Partner Country Government involves the preparation of the bilateral agreement in accordance with the risk mitigation measures outlined in the approval for use of partner country systems and in collaboration with the partner country government. 5. Implementation, Monitoring, and Evaluation occurs once both countries agree to the bilateral agreement and as outlined in the project design.\nAccording to USAID, the country office is to incorporate recommendations on actions to mitigate identified risks to providing assistance directly to the host government into various stages of the project design. According to one USAID official, the country office’s decision to implement the recommended steps for mitigating risk may depend on the availability of funds. According to USAID, if risks cannot be mitigated, USAID is not to deliver assistance through the partner country’s financial systems. Mitigation steps may include adding a PFM component to a project, such as technical assistance to improve an aspect of the financial system. As of June 2012, USAID had completed the rapid assessment in 20 countries and was in the process of finalizing the report for an additional 12. For 4 of the countries for which USAID had completed the rapid assessment, USAID had decided to either delay or not to proceed to stage 2 for various reasons, including funding cuts and the political situation in the country. For the second stage of the PFMRAF, USAID had completed the risk assessment for 3 countries and was in the process of conducting the assessment for 11 others. USAID had completed four stages of the PFMRAF for 3 countries. Table 2 contains a summary of the status of countries where USAID has begun the PFMRAF process.\nStage 2 on hold or no plan to continue to stage 2 in four of these countries.", "Treasury OTA’s processes for developing PFM programs involve collaboration with country government officials whom Treasury has determined have a strong commitment to reform and are seeking to develop strong PFM, as well as OTA’s assessment of the country system. OTA receives requests for assistance from foreign governments, other U.S. government agencies, U.S. embassies, international organizations, and OTA advisors and other donors already working in countries on other projects. According to OTA officials, OTA receives two to three requests for assistance per month, but due to the agency’s limited financial resources and the financial commitment required for each project, it selectively chooses its projects. OTA’s principles for providing assistance are as follows: work with partners committed to ownership of their reform; advocate self-reliance by providing countries with knowledge and skills required to generate and manage their own resources and reduce dependence on international aid; and work with ministry staff daily to build capacity through mentoring and on-the-job training on PFM practices.\nAfter receiving the request, OTA begins a preliminary assessment process to identify weaknesses and areas for assistance, according to OTA officials. The preliminary assessment is primarily a review of available information on the country’s PFM system, which may include information from the U.S. embassy, as well as relevant country reports and assessments prepared by international financial institutions, other bilateral assistance providers, and nongovernmental organizations. After reviewing documents, if it decides to proceed with the assessment, OTA completes a more in-depth, in-country assessment of PFM, which consists of meetings with U.S. embassy staff, other donors, and relevant ministry officials, including the minister of finance or the head of the central bank, as well as high-level policy staff and mid-level supervisors. According to OTA officials, the purpose of the in-country assessment is to review the structural issues related to the country system and determine whether the country has dedicated staff committed to working toward their reform efforts. At any point during the assessment process, OTA may determine that OTA assistance is not suitable for the country’s needs. OTA officials told us that in one such case, government officials requested that OTA manage their budget for them, which is against OTA’s principles because doing so would not promote self-reliance or help the country develop the capacity to generate and better manage its own revenues. Finally, OTA officials told us that their decision on whether to provide assistance depends on whether sufficient funding is available.\nThe in-country assessment typically results in a draft of official terms of reference, which identifies weaknesses to be addressed during OTA’s engagement. According to OTA officials, the terms of reference describes the broad goals of the project and represents agreement between Treasury and the host-country counterpart, the ministry staff with whom the advisor will work on a daily basis. For example, the 2010 terms of reference for a budget project in Honduras identified the following four agreed-upon areas for assistance: improve operational efficiency and enhance accountability by strengthening the organization of the ministry of finance; move toward compliance with International Public Sector Accounting enhance capacity to conduct fiscal analysis and produce more reliable macroeconomic estimates and revenue and expenditure projections; and conduct workshops on basic finance methods and terminology.\nThe terms of reference also identifies the advisor’s host-country counterparts and agreements regarding each party’s responsibilities. According to OTA officials, after OTA fully vets a project and secures funding, the parties finalize and sign the terms of reference. However, OTA and its counterparts may seek to revise the terms of reference if the central purpose of the technical assistance project changes or during times of transition, such as when a finance minister changes. In Honduras, the 2010 terms of reference replaced an existing OTA project following a gap in OTA assistance during a political crisis in the Honduran government in 2009.\nThe OTA advisor assigned to the country uses the broad goals expressed in the terms of reference to develop a work plan. The work plan contains specific objectives, milestones, and planned completion dates designed to work toward goals agreed upon in the terms of reference, and the plan must be developed within 60 days of the advisor arriving in-country. Each work plan covers a 1-year period and is the primary basis for regular monthly progress reports to OTA headquarters. OTA considers work plans, and the monthly reports on which they are based, to be dynamic documents that reflect the project’s progress in real time, and advisors can and should change or modify the work plan during the course of a project as appropriate and in consultation with the ministry staff and OTA management. Moreover, according to OTA officials, a 1-week in-country assessment may not provide all of the information needed and may require that the advisor rewrite the plan after a few months in the country. While the work plan is considered a management tool to monitor projects, OTA officials told us that in recent years it has also become a joint document between the OTA advisor and ministry staff as a shared tool to monitor and discuss progress.", "", "", "To monitor PFM-related programs, USAID develops performance management plans, reviews periodic progress reports, and conducts site visits, among other activities, but reviews of USAID programs have identified agency-wide weaknesses in implementation, including using unreliable baseline data and inaccurate reporting of results. USAID develops the monitoring and evaluation framework during the project design, and it generally is to include the following:\nA performance management plan: This is a tool to plan and manage the process of monitoring, evaluating, and reporting progress toward achieving the project’s development objectives. The performance management plan includes performance indicators and targets that link to the project objectives.\nA work plan: This specifies activities to be undertaken and the proposed schedule for these activities during the life of the project.\nPeriodic progress reports: USAID assistance agreements with nongovernmental organizations generally also require implementing partners to submit periodic progress reports, the frequency of which vary depending on the assistance agreement, but these reports may not be required more frequently than quarterly or less frequently than annually. The progress reports should generally contain a comparison of actual accomplishments with the goals and objectives established for the period and reasons why established goals were not met, if appropriate. Implementing partners should immediately notify USAID of developments that have a significant impact on the award- supported activities.\nSite visits: USAID guidance states that site visits are conducted as needed by the technical officers, who are responsible for monitoring.\nUSAID works with the implementing partner to produce and approve the work plan and the performance management plan. USAID’s technical officer approves the plans. USAID guidance also requires staff to conduct at least one portfolio review each year that covers all activities included in their various programs. These reviews determine, among other things, whether the activities are achieving the desired results.\nPrior reviews of USAID programs have identified challenges in the agency’s implementation of its monitoring processes across many types of programs, including DG and EG programs. In its fiscal year 2011 memo on management and performance challenges, USAID’s Inspector General identified specific monitoring-related weaknesses as one of USAID’s most serious management and performance challenges. The USAID Inspector General reported problems with assistance planning in 25 out of 80 performance audits conducted in fiscal year 2011. Assistance planning is important because it provides the means for program implementers to track progress toward program objectives and helps to ensure that USAID assistance programs achieve planned results. In addition, 37 of the 80 audit reports the Office of the Inspector General issued in fiscal year 2011 identified cases in which USAID operating units or their implementing partners reported misstated, unsupported, or unvalidated results. In recent reports, we also identified deficiencies in USAID’s monitoring practices, including the lack of an integrated plan for monitoring and evaluating nonemergency food aid, monitoring practices that do not correspond to agency performance guidelines, difficulties in developing meaningful outcome indicators related to building trade capacity, undocumented site visits for assistance programs in Burma, and lack of performance targets and baseline data for indicators related to PFM efforts in Afghanistan.\nMoreover, in our review of the fiscal year 2011 and 2012 Inspector General’s audits of USAID’s DG and EG programs, we found monitoring weaknesses cited in 20 of the 32 audit reports. monitoring weaknesses, including unreliable or nonexistent baseline data; performance data weaknesses, such as results that were not reported, lack of data verification, or inaccurate reporting of data; lack of a current performance management plan; and inadequate monitoring of program activities, including lack of regular submission of progress reports.\nWith regard to our three case study countries, we found that the country offices generally applied USAID’s monitoring processes in all three PFM- related programs; however, we did find some conditions that could make monitoring more difficult, as described below. Our review was not intended to be comprehensive or applicable to all USAID PFM-related programs.\nUSAID’s DG and EG offices are the primary offices providing PFM-related assistance.\nPerformance management plans: All three programs were clearly defined in terms of overall objectives, project objectives, tasks, expected results or outcomes, and required plans and reports. All three programs—the Kosovo Growth and Fiscal Stability Initiative, the Peru ProDecentralization Project, and Liberia’s Governance and Economic Management Support Program—had performance management plans containing objectives and indicators. Two of the three performance management plans also included targets. However, the targets for Liberia’s program had not been determined 9 months into the program.\nWork plans: All three programs also had work plans that specified tasks and timelines. However, Liberia’s Governance and Economic Management Support Program initially operated without an approved work plan, although it did establish an action plan to guide its activities.\nPeriodic progress reports: Assistance agreements for all three USAID programs required quarterly progress reports, and the implementing partners submitted all reports according to agreed-upon time frames. In our review of the three programs, we found that the language used to describe the objectives and results in the quarterly progress reports did not correspond to the language in the work plans, which could make it difficult to track progress against the work plans’ objectives. For example, the quarterly reports for the Kosovo Growth and Fiscal Stability Initiative Program describe progress on five separate lines of effort under the objective to improve fiscal stewardship, while the statement of work and work plan discuss only three lines of effort under the same objective.\nSite visits: USAID officials responsible for monitoring progress on all three projects said that they do not rely solely on progress reports to track progress, and that additional monitoring tools included weekly progress meetings, frequent site visits, and telephone and e-mail communications with implementers. For example, the USAID official in Kosovo reported that he works on a daily basis with the implementing partners who produce the quarterly and annual reports and that they exchange e-mails and phone conversations daily.\nSee appendix IV for descriptions of USAID PFM-related assistance programs from our case study countries.\nIn addition to USAID’s reported program monitoring weaknesses, we found that the agency does not have a process to fully identify and measure its use of country systems. USAID has set an agency target of obligating 30 percent of the agency’s annual assistance through local systems, including both partner country PFM systems and local not-for- profit and for-profit organizations, by fiscal year 2015. currently cannot track progress toward its 30 percent target because its accounting system cannot identify the full range of such assistance, which includes a variety of implementing mechanisms from host-country contracting to direct cash transfers. The project data in USAID’s accounting system does not provide sufficiently detailed information, such as the location of the organization receiving assistance, to identify qualifying assistance. According to a senior USAID official, the agency is working on a system whereby it will tag each entity receiving assistance with an identifier, such as government or not-for-profit organization, as well as a vendor location signifying U.S.-based or non-U.S. based. According to the official, this tagging process will facilitate identifying use of country systems. However, USAID’s financial system currently cannot distinguish whether non-U.S. based not-for-profit and for-profit organizations are located in the host country or in a third-party country.\nUSAID’s process to assess the effectiveness of its PFM-related programs involves independent evaluations, but weaknesses in the agency’s overall evaluation practices have been reported. USAID may use independent external evaluations in the middle or at the end of a program based on the need to inform program decisions. USAID adopted a new evaluation policy in January 2011 and updated its guidance in February 2012 to reflect it. The new evaluation policy requires that all large projects have at least one evaluation and that evaluations use methods that generate the highest-quality and most credible evidence, including experimental The policy also states that 3 percent of program budgets methods.should be devoted to external evaluation and classifies two types of evaluations: performance evaluations, which focus on descriptive and normative questions and other questions pertinent to program design, management, and operational decision making; and impact evaluations, which define a counterfactual (what would have happened had the program not been implemented) to control for external factors and measure the change in a development outcome that is attributable to a defined intervention.\nUSAID reported that experimental methods generate the strongest evidence for impact evaluations; however, experimental methods and impact evaluations may be difficult to apply to PFM capacity-building efforts. For example, USAID evaluations of PFM programs have highlighted difficulties associated with conducting impact evaluations, including lack of data or resources, and too short a time period to identify impact. A February 2012 USAID report on the first year of implementation of the new evaluation policy noted that USAID had not yet completed an evaluation under the new policy.\nUSAID adopted the new policy to address a number of weaknesses it had identified in its evaluation practices. USAID reported that the number of evaluations submitted to USAID’s Development Experience Clearinghouse—its main repository for agency evaluations—decreased from nearly 500 in 1994 to approximately 170 in 2009 despite an almost three-fold increase in program dollars managed. Furthermore, according to USAID, the majority of evaluations in recent years relied heavily on anecdotal information and expert opinion, rather than systematically collected evidence. We have also reported weaknesses in USAID evaluation practices in several areas in recent years, including not planning for evaluations or not using evaluation results. Furthermore, the weaknesses in performance indicators that the USAID IG identified in DG and EG programs could create difficulties for evaluating PFM programs. For example, weaknesses in baseline data or performance indicators would make it difficult to use quantitative measures to evaluate these programs.\nThese evaluations were not subject to USAID’s new evaluation policy, which was issued in January 2011. evaluation of the Economic Management for Stability and Growth program and found that the program improved the government’s institutional capacity in fiscal and monetary policy.did not document its evaluation methodology.", "", "Treasury’s OTA uses various processes to monitor PFM-related programs, including narrative monthly and trip reports, annual quantitative performance measures, and customer feedback surveys, but weaknesses exist in some of its evaluation processes. The work plan is the key document OTA uses to monitor a project. OTA uses monthly reports to document and monitor progress toward the milestones identified in the annual work plan, including changes to milestones or timelines, and to facilitate communication between the resident advisors and headquarters. OTA advisors may also share monthly reports with host-country counterpart institutions, U.S. embassy staff, other Treasury bureaus and offices, and other interested partners such as USAID, the Millennium Challenge Corporation, and relevant international financial institutions to monitor progress and coordinate donor assistance as relevant. In addition to updates on work-plan progress, the monthly reports may also include other information such as activities completed; significant meetings held; and important political, social, and economic developments. OTA also uses monthly reports to track changes made to the work plan agreed to by the advisor and his or her counterpart. For example, an OTA budget project in Cambodia listed implementation of program budgeting as one its primary objectives and improving budget classification as one its secondary objectives. In the monthly reports, the resident advisor documented the need to refocus the reform efforts on budget classification to better align with the Cambodian government’s ongoing PFM reform efforts. Further, in the case of OTA’s 2011 Honduras budget project to implement international public sector accounting standards, the objectives remained unchanged, but milestones were changed in the monthly reports. According to the advisor, some milestones had to be extended due to overly ambitious initial expectations that were purposely established to encourage the ministry staff to undertake reforms. See appendix IV for descriptions of OTA-funded PFM projects in our case study countries.\nOTA headquarters also maintains regular communication with its advisors. Senior OTA officials monitor project performance through regular contact with advisors in the field by e-mail, telephone, and site visits. One advisor told us that their director would already be aware of any issues raised in the monthly reports, given the frequency of their communications. Resident advisors also told us that senior Treasury staff visited Cambodia and Honduras to review OTA projects and talk with counterparts. Following site visits, OTA officials are required to prepare trip reports. For example, in a trip report from November 2011, a senior OTA official reported that he met with host-country counterparts to discuss the four current OTA engagements in Cambodia, including the budget project. The visit confirmed the reported difficulties in implementing the government financial management information system as a result of a procurement delay, but also affirmed OTA’s role in its eventual implementation. OTA also uses voluntary customer surveys to collect feedback on OTA projects from the host-country counterpart. For example, a Honduran government official who completed the voluntary customer feedback survey for the budget project indicated that the project met expectations and made a significant contribution by strengthening the host-country staff’s technical capacity through the training sessions that OTA staff offered.\nWe found that OTA applied its monitoring processes to all three of our case study country projects, but monthly reports lacked some details on progress. We reviewed OTA’s monitoring activities in three PFM-related projects to examine how OTA applied its monitoring process to these projects. Our review was not intended to be comprehensive or applicable to all OTA projects. We found the projects to be clearly defined with specific objectives, milestones, proposed completion dates, and regularly submitted monthly reports. In addition, in all three cases, the resident advisor reported frequent communication on project progress with headquarters. However, in two of the case study countries, Cambodia and South Africa, work plans had major changes in objectives, but only Cambodia documented its change in a monthly report. Additionally, our review found that the level of detail of the monthly report narratives on progress varied, with a few reports having little detail, which could make tracking progress for these specific projects difficult without other communication between the advisor and OTA management. However, as noted above, OTA headquarters maintained frequent communication with advisors in the field.\nOTA’s quantitative performance measures have been a useful project- level indicator of performance but have not been a useful indicator of OTA-wide performance because of conceptual problems and errors introduced by OTA when aggregating the performance data. OTA advisors and management score technical assistance projects annually based on project-specific indicators under four main categories. The projects are scored on a scale of one (lowest) to five (highest) for “traction,” or the degree of engagement with host-country counterparts, and “impact,” or the results of project activities that bring about change in counterpart law, systems, processes, and procedures. OTA officials told us that the traction and impact measures also reflect the language and values of OTA, and are useful to management, advisors, and host- country counterparts. The primary purpose of the quantitative performance scores was to respond to an Office of Management and Budget reporting requirement for evaluation data. While OTA reported that it met or exceeded targets for traction and impact set in 2008, in every year from 2009 through 2011, OTA officials acknowledged that the aggregate values associated with its annual goals were of limited value due to lack of comparability across programs and over time. In previous work on the Office of Management and Budget, we highlighted the difficulty of representing program performance with a single rating. Using a single rating can force agencies to simplify more nuanced and complex performance results, a circumstance similar to OTA’s aggregation of traction and impact scores. A senior official told us that OTA, in complying with the OMB requirement, designed the measures to be as useful as possible at the project level. For example, OTA uses the project-level traction and impact measures in setting expectations and discussing progress with both the host-country counterpart and the advisor. In addition, the official reported that OTA is continually looking for additional ways to use the traction and impact scores. One example of how researchers have used PFM performance data is by developing analytical approaches to identify the determinants of strong PFM systems and elements of successful PFM reform efforts, which can help to control for important differences across countries.\nOur analysis of OTA performance data found several errors that OTA introduced when aggregating project-level data; these errors collectively raised questions about the reliability of the instrument used to aggregate OTA’s quantitative performance measures and, thus, suggested there may be limitations in its ability to provide insight into performance across OTA projects. OTA uses this instrument to calculate the annual performance averages which are compared against annual targets and provided to OMB and to Congress in annual reports. Our analysis of the spreadsheet containing these data, and limited spot checking of some underlying data for our three case-study countries, identified a number of errors, including those introduced when transcribing data to the spreadsheet. In one instance, OTA listed a performance score under the wrong country, which resulted in inaccurate information for two countries’ projects.\nOTA has not yet fully implemented its requirement to conduct independent evaluations—that is, evaluations conducted by someone other than the resident advisor—of its completed technical assistance. OTA guidance for project reporting and documentation includes requirements for end-of-tour reports when a resident advisor leaves and end-of-project reports when a technical assistance project is completed. The end-of-project report is a postproject evaluation whose purpose is to (1) compare accomplishments with the initial objectives of the project and (2) improve the planning and execution of future projects. A senior OTA official said that the requirement for the end-of-tour report was fully implemented and that OTA intended to fully implement the end-of-project report requirement by the end of 2012. According to the guidance, the evaluation must be conducted independently; the report is the responsibility of the associate director and can be delegated to a senior advisor, but it should not be prepared by an advisor who prepared an end-of-tour report. Both OECD guidance and USAID guidance also highlight the importance of independence in evaluation. In contrast to the guidance, OTA provided three end-of-project reports that were conducted by OTA staff who had been involved in providing some of the technical assistance being evaluated. While no comprehensive and fully independent end-of-project evaluation has been conducted, OTA officials described relevant insights from a postproject trip to one country that was undertaken by a senior OTA official in part to better understand the longer-term impact of OTA assistance. During the trip, that official identified some factors that significantly limited the impact of this project, notably a lack of counterparty commitment at the policy level to implement and sustain reforms in key areas identified in the terms of reference.", "As more donors, including the United States, seek to provide additional assistance through countries’ systems, the need for strong PFM systems and accountability in recipient countries become even more important to help lessen corruption and ensure countries effectively manage resources. Given USAID’s stated goal of obligating 30 percent of annual assistance through local systems, including partner country PFM systems, by 2015, it must ensure that those systems are functioning properly and transparently. Efforts to strengthen PFM systems can lower the risks that assistance delivered through country systems will be misspent, while also increasing the capacity of the recipient country to effectively manage its own resources. Given concerns about transparency and corruption in many aid-recipient countries, achieving the expected benefits of using recipient countries’ PFM systems may be difficult without concerted efforts by the donors and countries to strengthen these systems. In addition, the risks to using these systems are increased without efforts to strengthen them. To help strengthen these systems, USAID provides developing countries with PFM capacity- building assistance. In light of this assistance, and given the difficulties USAID has experienced in the past with implementing monitoring and evaluation practices, the importance of developing efforts to strengthen PFM systems and effectively monitoring and evaluating these efforts has increased significantly. Previous difficulties USAID has experienced with regard to monitoring, including poor quality of reported data on projects, and the lack of reliable baseline data, could affect USAID’s ability to conduct effective evaluations of these projects, as evaluators will not have access to reliable data. Also, while USAID’s new evaluation policy places greater emphasis on impact evaluations and experimental methods, it may be difficult for USAID to evaluate its PFM capacity- building efforts using these approaches. Finally, for USAID to achieve its target for use of local systems, by fiscal year 2015, it must be able to identify and measure the full extent of assistance that qualifies.\nTreasury OTA advisors provide technical assistance targeted at weaknesses in countries’ PFM systems. Although OTA has taken numerous steps to monitor this assistance, errors in its aggregated performance data and the lack of comprehensive postproject evaluations limit OTA’s ability to effectively evaluate its assistance. OTA has adapted a challenging mandate from OMB to create a useful measure of its efforts’ performance for management, advisors, and host-country counterparts; however, conceptual problems with and errors in the aggregated measures undermine the measures’ reliability. With greater confidence in the quality of the data, opportunities exist to better identify patterns in performance across OTA programs, such as economic or institutional factors that influence program performance. These patterns could help OTA better understand the strengths and weaknesses of its assistance programs and make appropriate changes. OTA could also use the quantitative performance measurement system it has developed to experiment and document the results of new approaches. Finally, although OTA guidance recognizes the importance of postproject evaluations by including in its guidance the requirements for an end-of- project evaluation, the agency has yet to enforce this requirement. Without a postproject evaluation OTA may not fully understand results of its technical assistance or be able to apply lessons learned to new projects.", "To monitor progress toward USAID’s target to obligate 30 percent of its annual assistance through local systems by 2015, we recommend that the Administrator of USAID direct the appropriate offices to develop a process to reliably identify and track the agency’s use of local systems in all countries receiving assistance.\nTo help ensure that USAID conducts effective evaluations of PFM-related programs under its new policy, we recommend that the Administrator of USAID direct the appropriate offices to ensure that they are establishing adequate monitoring practices for PFM-related programs. Such practices may include selecting proper indicators, collecting reliable baseline data, and ensuring the reliability of reported results.\nTo improve the effectiveness of OTA’s technical assistance, we recommend that the Secretary of the Treasury direct OTA to take the following two actions to improve monitoring and evaluation: implement additional controls to improve the process for computing OTA-wide annual performance measures, and fully implement OTA’s existing requirement for end-of-project evaluations and, consistent with its existing guidance, have an independent party conduct the evaluations.", "We provided a draft of this report to USAID, Treasury, and State for their review and comment. Both USAID and Treasury concurred with our recommendations in their written comments, which are reproduced in appendix V and appendix VI respectively. These agencies along with State provided technical comments and updated information, which we have incorporated throughout this report, as appropriate.\nIn concurring with our two recommendations, USAID reported that it is in the process of refining definitions that will identify and help measure the assistance that qualifies to meet the agency’s target of obligating 30 percent of its annual assistance through local systems by 2015. USAID also reported that it has implemented two complementary reforms that will help ensure effective evaluations and adequate monitoring of its PFM assistance. The first reform involves USAID planning for the monitoring and evaluation of assistance during the early stages of project design, including defining indicators and collecting baseline data. The second reform requires USAID to plan final monitoring and evaluation schedules during project design.\nIn concurring with our two recommendations, Treasury reported that OTA has corrected several errors in the 2011 annual performance measures, and has taken steps to strengthen data controls, including conducting additional reviews and increasing staff resources dedicated to computing the performance measures. In addition, OTA has begun to implement its requirement for independent end-of-project evaluations of its technical assistance and intends to fully implement the requirement by the end of 2012.\nWe are sending copies of this report to appropriate congressional committees. We are also sending copies of this report to the Administrator of USAID and the Secretaries of the Treasury and State. In addition, this report is available at no charge on the GAO Web site at http://www.gao.gov.\nIf you or your staff have any questions about this report, please contact me at (202) 512-9601 or melitot@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this reported are listed in appendix VII.", "To examine the process the U.S. Agency for International Development (USAID) uses to develop programs to strengthen public financial management (PFM) systems, we reviewed USAID’s official policy and procedures, as contained in the Automated Directives System, as well as USAID’s new guidance documents for developing country strategies and designing projects, including the Country Development Cooperation Strategy and Project Design Guidance. We also interviewed USAID officials, including officials from the democracy and governance (DG) and economic growth (EG) offices. Most USAID country offices are required to have an approved country strategy by the end of fiscal year 2013 and to follow the new project design guidance starting July 2012. Because USAID was still in the process of transitioning to these new processes during the course of our audit, we did not review USAID’s implementation of these processes.\nTo examine the process the U.S. Department of Treasury’s Office of Technical Assistance (OTA) uses to develop programs to strengthen PFM systems, we interviewed senior OTA officials regarding OTA’s policies and procedures. We interviewed resident advisors regarding how OTA assessed and developed projects in our three OTA case study countries. We also reviewed OTA’s official policy guidance document and project- specific documents, including assessment reports, signed terms of reference, work plans, and monthly reports.\nTo examine and assess the processes USAID uses to monitor and evaluate its PFM-related programs, we reviewed USAID program development guidance; monitoring and evaluation policies and procedures; USAID reports; and program documents, including assistance agreements, monitoring and evaluation plans, and progress reports; USAID external project evaluations; past GAO reports; and USAID Inspector General reports. We used the review of the documents for our three USAID country case studies to illustrate the implementation of USAID’s monitoring processes for its PFM-related programs. We also interviewed agency officials in Washington, D.C., and conducted telephone interviews and had e-mail communications with key country- office staff for each of our case study countries.\nTo examine and assess OTA’s processes for monitoring and evaluating PFM-related programs, we reviewed OTA project reporting and documentation instructions, project work plans, and monthly reports, end- of-tour and end-of-project reports, annual quantitative performance data, Organization for Economic Cooperation and Development guidance on evaluation, and conducted interviews with OTA headquarters staff. We used the review of the documents for our three OTA case studies to illustrate the implementation of OTA’s monitoring processes. We supplemented the document review with interviews with current or former advisors for each of the case study countries. In addition, we assessed the reliability of the instrument OTA uses to aggregate quantitative performance measures across projects. We examined spreadsheets provided by OTA for consistency, examined data for outliers and missing values, and spot-checked the transcription of data to the spreadsheet for our case study countries. Due to a number of errors in the OTA data, we could not determine if the aggregated performance data were sufficiently reliable for identifying patterns in performance across projects or over time.\nIn selecting our case study countries, we focused on countries in which OTA or USAID had relevant ongoing or recently completed projects designed to strengthen PFM systems. We selected six countries: Cambodia, Honduras, and South Africa for OTA, and Kosovo, Liberia, and Peru for USAID. In selecting these countries, we considered the following two factors:\nGeographic diversity: For each agency, we selected countries from three different geographical regions.\nCountry income group diversity: For each agency, we chose a country that the World Bank has listed as (1) lower income, (2) lower-middle income, and (3) upper-middle income in order to report examples from different income levels, which may also be associated with different institutional characteristics.\nIn cases where more than one country would be acceptable under our decision criteria, we considered additional criteria, such as the availability of other broad-based indicators. For OTA, we focused our selection on countries receiving technical assistance from OTA’s Budget and Financial Accountability team, given its focus on traditional PFM aspects. For USAID, we selected our countries from a list of countries with significant PFM-related programs that USAID provided. USAID excluded some countries with PFM-related programs from the list because staff were not available to discuss their programs with us. Our review of USAID and OTA case study countries was not intended to be comprehensive or applicable to all their respective programs and projects or generalizable to all countries.\nTo describe recent trends in country PFM systems, we reviewed the data and publications of five international organizations that conduct broad assessments of country PFM systems. These broad assessment tools include the Public Expenditure and Financial Accountability Program, the World Bank’s Country Policy and Institutional Assessment’s quality of budgetary and financial management indicator, International Budget Partnership’s Open Budget Survey, Transparency International’s Corruption Perceptions Index, and the International Monetary Fund’s fiscal transparency Reports on the Observance of Standards and Codes. We converted our six case study country scores for the three PFM diagnostic tools for which scores were available (Open Budget Survey, Corruption Perceptions Index, and quality of budget indicator) into percentile rankings to illustrate each country’s performance as measured by the three PFM diagnostic tools. We also interviewed officials at the World Bank and International Monetary Fund to discuss their PFM-related diagnostic tools.\nTo describe the Department of State’s PFM-related efforts, we conducted interviews with agency officials in Washington, D.C. We reviewed State documents, including agency guidance, waiver packages, and program documents. We also reviewed relevant appropriations laws to identify the requirements for State’s fiscal transparency reviews.\nWe conducted this performance audit from October 2011 through September 2012 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.", "Five international organizations — the Public Expenditure and Financial Accountability Program, the World Bank, International Budget Partnership, Transparency International, and the International Monetary fund — have developed tools to assess various aspects of countries’ public financial management (PFM) systems, and some have published recent findings or results. We illustrate the percentile ranking for each of our case study countries in three broad PFM diagnostic tools – the Open Budget Survey, the Corruption Perceptions Index, and the World Bank’s quality of budgetary and financial management indicator.", "In December 2001, a multiagency partnership founded the Public Expenditure and Financial Accountability Program (PEFA) to strengthen the ability of aid recipients and donors to assess and improve country public expenditure, procurement, and financial accountability systems. In 2005, the program developed the PFM Performance Measurement Framework, known as the PEFA Framework, to provide a measure of the strengths and weaknesses of a country’s PFM system. The PEFA Framework incorporates a PFM performance report, which includes an assessment of the evaluated country’s PFM performance along six core dimensions of PFM. The six dimensions are the following:\nCredibility of the budget: The budget is realistic and is implemented as intended.\nComprehensiveness and transparency: The budget and the fiscal risk oversight are comprehensive, and fiscal and budget information is accessible to the public.\nPolicy-based budgeting: The budget is prepared with due regard to government policy.\nPredictability and control in budget execution: The budget is implemented in an orderly and predictable manner, and arrangements for the exercise of control and stewardship in the use of public funds exist.\nAccounting, recording, and reporting: Adequate records and information are produced, maintained, and disseminated to meet decision-making control, management, and reporting purposes.\nExternal scrutiny and audit: Arrangements for scrutiny of public finances and follow up by executive are operating.\nThe six core dimensions include 28 high-level indicators, each of which is assigned a letter score from A to D. The initial assessment helps establish performance baselines, while repeat assessments help in monitoring performance progress over time.\nIn 2011, the PEFA secretariat released the 2010 PEFA Monitoring Report. Based on a comparison of 33 repeat PEFA assessments over the 2005-2010 period, the analysis shows that more countries had a higher number of highest or improved scores (23 countries) than lowest or worsened scores (8 countries), indicating a broad trend of PFM improvement across the countries surveyed. According to the analysis, while PFM systems are improving overall, systems features vary significantly. Formal PFM features where progress can be achieved through adopting a new law, regulation, or technical tool, or focusing on no more than a few agencies, or at an early stage in the budget cycle are more likely to improve or maintain a high score than functional PFM features where progress requires actually implementing a new law or regulation, or coordinating the work of many agencies, or working later in the budget cycle.\nStarting July 2012, the PEFA partners are extending the PEFA program by 5 years and conducting a comprehensive review of the PEFA Framework, the first since it was launched in 2005. One of the objectives is to improve confidence in PEFA assessments through an endorsement process that provides an incentive to ensure adherence to PEFA good practices in undertaking an assessment.", "The World Bank undertakes annual Country Policy and Institutional Assessments to assess the quality of a country’s present policy and institutional framework. One of the 16 indicators the World Bank uses to assess the performance of a country’s current policies and institutions is the quality of budgetary and financial management. This criterion assesses the extent to which the country has a comprehensive and credible budget linked to policy priorities; effective financial management systems to ensure that the budget is implemented as intended in a controlled and predictable way; and timely and accurate accounting and fiscal reporting. Over the 5-year period from 2005 through 2010, 26 out of 73 countries, or slightly more than one-third, showed improvements in the quality of their PFM systems, while 19 countries’ scores worsened. Most countries, 62 percent in 2010, are clustered in the mid-range.\nIn addition to the quality of budgetary and financial management indicator, the World Bank uses other broad PFM diagnostic tools, including the Country Financial Accountability Assessments and the Public Expenditure Reviews. The objective of the Country Financial Accountability Assessments is to support the World Bank’s development objectives by identifying strengths and weaknesses in country PFM systems. The assessments are intended to help identify priorities and inform the design and implementation of capacity-building programs. The assessments also describe and analyze financial management and expenditure controls, including expenditure monitoring, accounting and financial reporting, internal controls, internal and external auditing, and legislative review. Information obtained from the assessments, taken together with that obtained from other World Bank diagnostic products and other sources, supports the preparation of an integrated fiduciary assessment. The results of these assessments inform the preparation of the World Bank’s Country Assistance Strategy, particularly the sections dealing with the size of the support program, the sectors to be supported, selection of lending instruments, and approaches to risk management. The assessments are particularly important where World Bank resources are managed by the country’s own PFM system, as in the case of budget support.\nThe Public Expenditure Review’s objectives are to strengthen budget analysis and processes to achieve a better focus on growth and poverty reduction, and to assess public expenditure policies and programs to provide governments with an external review of their policies. Public Expenditure Reviews may also address the incentives and institutions needed to improve the efficacy of public spending in major sectors such as health and education.", "The International Budget Partnership’s Open Budget Survey assesses the availability in each country of eight key budget documents, as well as the comprehensiveness of the data contained in these documents. The survey also examines the extent of effective oversight provided by legislatures and supreme audit institutions, as well as the opportunities available to the public to participate in national budget decision-making processes.", "", "The State Department (State) does not directly fund public financial management (PFM) programs, but its Office of Monetary Affairs (OMA) is responsible for two PFM-related activities. First, since 2008, U.S. appropriations laws have required State to evaluate the fiscal transparency of foreign governments receiving U.S. assistance. When State determines it is important to the United States’ national interest, it may approve waivers for countries that are deemed to be nontransparent that allow U.S. agencies to provide assistance to these countries in accordance with the legal prohibition against providing such assistance without waivers. State processed 28 such waivers in 2011.\nSecond, State supports the presidential initiative called Domestic Finance for Development (DF4D), which President Obama announced in 2011. Under this initiative, State is to help countries use their own resources and leverage other donor resources to meet development goals. State is piloting this initiative in five countries: El Salvador, Honduras, Kyrgyzstan, Tunisia, and Zambia. The goal of DF4D is to strengthen the commitment to reform within partner countries; provide technical assistance in partner countries, such as taxation expertise, including through innovative public- private partnerships; and elevate the importance and interrelation of domestic resource mobilization, fiscal transparency, and anticorruption efforts in public finance as key components for sustainable economic development. Because State has not funded programs in the past for this initiative, State has reached out to other organizations operating in these countries, including international and bilateral organizations, to leverage their programs and resources.", "State has developed processes for carrying out its PFM-related activities required by legislative mandate and presidential initiative. Under the Fiscal Transparency Review Process (FTRP), OMA reviews central governments expected to receive bilateral economic assistance and international security assistance for several dimensions of transparency: publicly disclosed budget, budget breakdown by ministry, standards for awarding natural resource contracts, and timely and accurate documents. Each year, OMA reviews all countries it deemed nontransparent in the prior year, and countries where recent events may have affected fiscal transparency to evaluate whether they meet the threshold of fiscal transparency. State uses the IMF’s definition of fiscal transparency as a guideline for the FTRP. During this process, OMA officials said they obtain information about the level of transparency of each country by collecting information from U.S. embassy staff working in those countries. In addition, OMA staff review publicly available reports published by international organizations and civil society representatives, such as the World Bank, International Monetary Fund, International Budget Partnership, and the World Economic Forum. Because these organizations do not always prepare country reports on an annual basis, officials told us they use these reports as a check on their internally generated information, rather than relying on them as primary sources of information. For countries that State finds to be nontransparent, State can issue a waiver that allows the country to receive otherwise restricted assistance. As part of the process of requesting a waiver, embassy staff in country develop action plans to assist the country in improving the level of transparency in its budget process. The action plan should address specific fiscal transparency issues identified in the transparency review process and should include recommendations of short- and long-term steps that the countries can take to improve budget transparency. Embassies work with host governments to encourage implementation of action plans, which may include activities such as continued daily engagement with country officials working on budget reforms, providing training and coordinating training on issues related to the budget process, and funding local nongovernmental organizations to perform budget oversight functions.\nFor OMA’s DF4D initiative, State officials, working with other agencies and organizations, helped develop programs based on needs expressed by country government officials that built on existing reform efforts and development priorities. As an interagency effort, OMA helps identify and leverage existing programs and resources, such as those of multilateral organizations and other donors, such as USAID’s Innovation Fund and the Global Health Initiative. For example, USAID is implementing a $7.6 million program to advance El Salvador’s fiscal reform agenda by building capacity and improving systems for public expenditure and management and tax revenue mobilization, promoting private sector engagement, and creating a $2 million Revenue Challenge Fund to support improved tax collection at the municipal level. With five countries piloting DF4D, State plans to proceed by selecting additional partner countries based on performance against quantitative DF4D-related measures, consultations with posts, and expressions of interest from ministers of finance and other economic leaders. Moreover, State plans to use action plans developed for FTRP for countries to be considered for DF4D. State encourages posts to report on PFM issues and opportunities to mobilize domestic resources, raise the issues with relevant stakeholders in the public and private sectors, and work with OMA staff to further the objectives of the DF4D initiative.", "State is beginning to conduct additional monitoring as part of its fiscal transparency evaluations. Starting in 2012, State is requiring benchmarks in its action plans for nontransparent countries so that it can compare progress annually. According to State officials, some country action plans had benchmarks but the quality of the benchmarks varied. The action plan attempts to capture all the steps necessary to improve a country’s fiscal transparency and includes more than just State actions. Lastly, appropriations law for 2012 requires State to evaluate whether or not the country has made progress toward improved fiscal transparency included in any waiver request submitted. State guidance reports that progress toward implementation of embassy action plans will factor into its decision of whether to renew waivers.", "To provide illustrative examples of U.S. projects to strengthen public financial management (PFM) systems, we chose six case study countries. For the U.S. Agency for International Development (USAID), we selected projects in Kosovo, Liberia, and Peru and for the U.S. Department of the Treasury (Treasury), we selected projects in Cambodia, Honduras, and South Africa. We used the following criteria to select the three countries for each agency:\nThe agency has relevant ongoing or recently completed projects focused on strengthening PFM systems.\nThe countries represent different geographic regions.\nThe countries have different income levels, which may be associated with different levels of government capabilities. For each U.S. agency, we selected a country that the World Bank has classified as lower income (Cambodia and Liberia), lower-middle income (Honduras and Kosovo), and upper-middle income (Peru and South Africa).\nFor one PFM-related project in each country we summarized the project’s background, and, for selected objectives, we summarized some of USAID’s expected results and some of Treasury’s activities. These examples are meant to be illustrative and not generalizable.", "Tables 3 through 5 summarize selected USAID PFM-related projects in Kosovo, Liberia, and Peru.\nKosovo Growth and Fiscal Stability Initiative Time period: July 2010-July 2013 Award amount: $1,051,208 Description: Since 1999, USAID’s Kosovo economic policy and institutional strengthening programs have focused on establishing key central economic institutions and an enabling environment for private sector growth. USAID is to adjust the focus of technical assistance as the Growth and Fiscal Stability Initiative builds upon the experience and lessons learned from the creation of reliable financial institutions in the central government to address the fiscal stewardship challenges faced by subnational governments. The initiative is to work with municipalities in areas that are directly linked with the Ministry of Finance and Economy, such as budget, treasury, property tax, and public private partnerships.\nLiberia: Governance and Economic Management Support Program (GEMS)\nTime period: July 2011-June 2016 Contract amount: $44,902,679 Description: USAID-GEMS is to address significant governance challenges remaining after USAID completed its previous capacity- building program in 2010. The program is to strengthen human and institutional capacity within selected ministries, agencies, and commissions. USAID-GEMS is to develop and maintain systems that increase transparency and accountability, increase efficiency, reduce expenditures, increase revenue, and limit corruption.\nPeru: USAID ProDecentralization 2 Time period: August 2008-July 2012 Award amount: $10,644,432 Description: The USAID/Peru ProDecentralization project is in the second phase. The first phase targeted national, regional, and municipal institutions responsible for implementing the decentralization process. The second phase seeks to continue to improve the policy framework at the national level and strengthen the institutional capabilities of regional and municipal governments. The national project aims to improve the legal and policy framework for decentralization, including fiscal policies that support a more equitable distribution of public resources. Regional and local-level activities are to target technical assistance and training to the diverse needs of Peru’s regional and municipal governments in effectively administering resources and responding to citizens’ increasing expectations. Under this project, existing services offered to subnational governments in planning, budgeting, accountability, and institutional strengthening are supplemented by new training and technical assistance programs.\nTables 6 through 8 summarize selected Treasury Office of Technology Assessment (OTA) PFM-related projects in Cambodia, Honduras, and South Africa.\nCambodia: Technical Advisory Services on Budgeting Time period: October 2009–September 2010 Description: The Cambodian government has been implementing a plan to create a credible budget and improve accountability. In the current phase of the plan, OTA and Cambodian government actions are focused on decentralizing the reform effort to the line ministries and subnational levels. These actions include expanding the use of strategic and program budgeting, implementing a PFM information system, improving macroeconomic forecasting, enhancing the linkage between the capital and operating budgets, and improving overall financial accountability. The overall aim is to improve the ability of the budget to be an instrument for policy delivery and to support effective and efficient service delivery.\nHonduras: Technical Advisory Services on Budgeting Time Period: January 2011-December 2013 Description: OTA’s technical assistance focuses on implementing international public sector accounting standards.\nSouth Africa: Technical Advisory Services on Budgeting Time Period: February 2007—January 2009 Description: Treasury OTA has conducted technical assistance projects in South Africa in the areas of budget formulation, intergovernmental finance, infrastructure budgeting, public finance training, and others since 1997. In 2006, the National Treasury of South Africa requested a new OTA budget project to focus on the organization of an expenditure program performance evaluation unit, performance information and cost analysis, and support for the Collaborative Africa Budget Reform Initiative. The central mission of the resident advisor was to establish an expenditure program performance review system.", "", "", "", "", "Cheryl Goodman (Assistant Director), Michael Maslowski, Shirley Min, RG Steinman, Michael Hoffman, Debbie Chung, Grace Lui, David Dayton, and Etana Finkler made key contributions to this report." ], "depth": [ 1, 2, 2, 2, 1, 2, 2, 1, 2, 3, 2, 3, 1, 1, 1, 1, 1, 2, 2, 2, 1, 2, 2, 2, 1, 2, 1, 1, 1, 2, 2 ], "alignment": [ "h0_title h2_title", "", "", "h0_full h2_full", "h0_title", "h0_full", "h0_full", "h1_title", "h1_title", "h1_full", "h1_title", "h1_full", "h2_full h1_full", "h1_full", "", "", "", "", "", "", "", "", "", "", "h0_full", "h0_full", "", "", "", "", "" ] }

{ "question": [ "What data do Treasury and USAID use in strengthening country government systems?", "What new processes did USAID implement in 2011?", "How did these new processes differ from what the agency traditionally did?", "What do these new strategy and program development processes include?", "What are the steps involved in the process?", "What is the current state of USAID and Treasury's processes for evaluating PFM assistance?", "What do USAID's procedures include?", "What weaknesses are there in this monitoring system?", "How has USAID attempted to address these weaknesses?", "What do the Treasury's processes for monitoring and evaluating programs include?", "What weaknesses have been identified with Treasury's quantitative performance measures?", "Why might it be in the best interest of developing countries to strengthen their PFM systems?", "How does the United States provide assistance to strengthen PFM systems?", "How does USAID strengthen PFM systems?", "How does Treasury provide assistance?" ], "summary": [ "To develop programs to strengthen developing countries’ Public Financial Management (PFM) systems, the U.S. Agency for International Development (USAID) and the U.S. Department of the Treasury (Treasury) rely on assessments of the host country government’s systems.", "In 2011, USAID implemented new processes that place a greater emphasis on PFM in its development efforts as the agency aims to increase its use of country systems to deliver assistance.", "The agency traditionally included PFM capacity-building efforts only as components of broader programs, as it identified relevant weaknesses during the country assessment or program design process.", "USAID’s new strategy and program development processes include a mandatory assessment of a country’s institutional capacity, including its financial systems, and a requirement to consider the use of country systems to deliver assistance. Most USAID country offices are required to develop a strategy using the new guidance by the end of fiscal year 2013.", "Treasury’s process for developing programs begins with an initial assessment of the host country’s capabilities. Treasury staff then draft objectives for the program. For example, a Treasury program in Honduras set four objectives, including improving operational efficiency and enhancing accountability by strengthening the organization of the ministry of finance. Once in country, the advisor develops an annual workplan, outlining more specific goals aimed at meeting the overall objectives.", "USAID and Treasury use several processes to monitor and evaluate their PFM assistance, but weaknesses exist.", "USAID uses its regular procedures, which may include performance management plans, periodic progress reporting, site visits, and evaluations, to monitor and evaluate its PFM-related programs.", "Prior reports by USAID’s Inspector General and GAO have found weaknesses in USAID’s implementation of its monitoring procedures in other programs, including programs from the USAID offices that provide PFM assistance. In addition, USAID is currently unable to monitor overall progress toward its target to obligate 30 percent of its program funds through local systems by 2015. USAID, and GAO in prior reports, have identified a number of weaknesses in evaluation practice.", "To address weaknesses the agency had identified, USAID adopted a new evaluation policy in January 2011 that states that all large projects are required to have an external evaluation, 3 percent of program budgets should be devoted to external evaluation, and evaluations must use methods that generate the highest quality evidence.", "Treasury’s processes for monitoring and evaluating its programs include monthly reports, annual quantitative performance measures, voluntary customer feedback surveys, and on-site management reviews, but Treasury does not fully evaluate the performance of its completed technical assistance programs.", "In addition, Treasury’s quantitative performance measures have been a useful project-level indicator of performance but have not been a useful indicator of overall performance due in part to inherent challenges associated with summarizing program performance and errors introduced when aggregating the performance data. Furthermore, a senior Treasury official reported that Treasury had not yet fully implemented a requirement to conduct independent postproject evaluations of its technical assistance programs.", "Effective management of public resources can play an important role in a country’s development. In recent years, developing countries committed to strengthen their PFM systems and donors committed to use those systems as much as possible.", "The United States provides assistance to strengthen PFM systems primarily through USAID and Treasury.", "USAID conducts capacity building activities to strengthen PFM systems as part of its development programs and has also set a target to obligate 30 percent of its annual assistance through local systems by 2015.", "Treasury provides technical assistance through advisors who work in country, typically with the finance ministry." ], "parent_pair_index": [ -1, -1, 1, 1, 3, -1, 0, 1, 2, 0, 4, -1, -1, 1, 1 ], "summary_paragraph_index": [ 2, 2, 2, 2, 2, 3, 3, 3, 3, 3, 3, 0, 0, 0, 0 ] }

{ "title": [ "Background", "Introduction of DDG 51 Flight III", "Flight III Shipbuilding", "IAMD Systems for Flight III", "Developmental and Operational Testing", "Radar Development Is on Schedule, with Considerable Development, Testing, and Integration with the Combat System Remaining to Meet Flight III Needs", "The Navy Has Made Progress Maturing SPY-6 Radar Technologies, with Key Developmental Testing Remaining to Demonstrate Radar Capability", "Despite Navy Efficiency Efforts, Aegis Upgrade Development Schedule Is Optimistic", "Extensive Changes Needed to Integrate ACB 20 with the SPY-6 Radar", "Efforts to Improve ACB 20 Development Outcomes and Address Schedule Risks", "Secretary of Defense Has Directed the Navy to Upgrade an Unmanned Self-Defense Test Ship for Flight III Operational Testing", "Complex Flight III Design May Pose Challenges in Maintaining Planned Ship Construction Schedule", "Complexity of Changes and Ship Density Create Challenges for Flight III Design and Construction", "SPY-6 Radar Drives Flight III Design Complexity", "DDG 51 Density Creates Design and Construction Challenges", "The Navy Is Pursuing an Aggressive Schedule to Complete Ship Design Prior to Construction", "The Navy Lacks Sufficient Knowledge to Procure Flight III Ships as Planned and Oversight Opportunities Are Limited by Planned Program Reporting", "Amidst Uncertainties in the Acquisition Strategy, the Navy Plans to Contract for First Flight III Ships Beginning in Fiscal Year 2016", "The Navy Has Not Gained Sufficient Acquisition and Design Knowledge to Award Lead Flight III Ship in Fiscal Year 2016", "Flight III Ships Will Offset Navy’s Estimated Cost Savings for Its Current Contracts and Meeting Criteria for New Multiyear Procurement Will Be Challenging", "DDG 51 Acquisition Approach Limits Opportunities for Insight into Flight III Cost and Schedule", "Flight III Ships Will Provide Improved Air and Missile Defense Capabilities to the Fleet, but Physical Constraints Limit Potential for Future Upgrades", "The Navy Is Using an Incremental Approach to Achieve Full Flight III Capability", "Flight III Cannot Provide Needed Capability to Address the Most Stressing Anticipated Threats to Surface Combatants", "Physical Constraints of the Hull Form Limit Flight III’s Future Upgrade Potential", "Flight III’s Ability to Fulfill Some Cruiser Responsibilities Is Being Considered as Navy Begins Planning for New Surface Combatant", "Conclusions", "Matter for Congressional Consideration", "Recommendations for Executive Action", "Agency Comments and Our Evaluation", "Appendix I: Objectives, Scope, and Methodology", "Appendix II: Comments from the Department of Defense", "Appendix III: GAO Contacts and Staff Acknowledgments", "GAO Contact", "Acknowledgments" ], "paragraphs": [ "The Navy delivered its first DDG 51 destroyer in April 1991, and 62 ships currently operate in the fleet. Two shipbuilders (Bath Iron Works Corporation in Bath, Maine, and Huntington Ingalls Industries in Pascagoula, Mississippi) build DDG 51 destroyers, with four separate configurations in the class (Flights I, II, IIA, and III) that reflect upgrades over the last 25 years to address the growing and changing capability demands on the Navy’s surface combatants. Table 1 provides details on each DDG 51 configuration.", "In 2007, the Navy determined, based on its Maritime and Missile Defense of Joint Forces (MAMDJF) Analysis of Alternatives, that a larger, newly- designed surface combatant ship with a very large radar was needed to address the most stressing ballistic and cruise missile threats. In response to the MAMDJF Analysis of Alternatives results, the Navy initiated development of a new cruiser, known as CG(X), and AMDR (SPY-6)—an advanced, scalable radar with a physical size that can be changed as needed to respond to future threats. Subsequently, in 2008, the Navy expressed an increasing need for greater integrated air and missile defense capability. Noting that DDG 51 ships demonstrated better performance than DDG 1000 ships for ballistic missile defense, area air defense, and some types of anti-submarine warfare, the Navy determined to restart production of DDG 51 Flight IIA ships to combat the increasing ballistic missile threats.\nIn January 2009, USD (AT&L) issued a memorandum stating that the Navy’s plan to buy additional DDG 51 Flight IIA ships would be followed by a procurement of either DDG 1000- or DDG 51-based destroyers that could carry the SPY-6 radar. To fulfill this demand, the Navy conducted a limited study in 2009, referred to as the Radar/Hull Study, which examined existing DDG 51 and DDG 1000 designs with several different radar concepts to determine which pairing would best address the integrated air and missile defense needs at lower cost than the planned CG(X). Following the Radar/Hull Study, the Navy validated the need for a larger, newly designed surface combatant with a very large radar to counter the most stressing threats. However, based on the analysis of the Radar/Hull Study, the Navy decided to pursue a new DDG 51 configuration instead—now referred to as DDG 51 Flight III—that would include a new advanced, but smaller, radar and an upgraded Aegis combat system. The Navy also cancelled the CG(X) program.\nWe found in 2012 that the Navy’s decision to pursue new DDG 51 destroyers equipped with a new air and missile defense radar represented a substantial commitment that was made without a solid analysis and that the planned oversight and visibility into the program was insufficient given the level of investment and potential risks. We also found that the Navy’s plan to buy the Flight III lead ship as part of an existing multiyear procurement of Flight IIA ships was not sound due to a lack of design and cost knowledge about the Flight III ships. Multiyear contracting is a special contracting method used to acquire known requirements for up to 5 years if, among other things, a product’s design is stable and the technical risk is not excessive. Based on our findings, we recommended that 1) the Navy complete a thorough analysis of alternatives for a future surface combatant program; 2) DOD increase the level of oversight for DDG 51 Flight III by changing the program designation to acquisition category (ACAT) 1D; and 3) the planned fiscal year 2013 DDG 51 multiyear procurement request not include a Flight III ship. Subsequent to our recommendations, the DDG 51 program was elevated to ACAT 1D status—with Flight III remaining an upgrade within the overall program—but a new analysis of alternatives was not undertaken and the fiscal year 2013 DDG 51 multiyear procurement was awarded as planned, with the Navy intending for the lead Flight III ship to be part of this procurement.", "The two existing DDG 51-class shipbuilders—Bath Iron Works and Huntington Ingalls Industries—will complete design changes to the existing DDG 51 hull form to support Flight III configuration needs and will construct the ships. In February 2015, the Navy modified its existing design contracts with the shipbuilders to begin Flight III detail design work, with initial construction planned for 2018. The detail design process, as shown in figure 1, begins at a high level for the overall ship. As the needs for the ship are better defined, the granularity of the design for individual units, or zones, of the ship comes into focus.\nThe shipbuilders use computer-aided design product models to design the ship. The product models generate a detail design, which allows engineers at the shipbuilders to visualize spaces and test the design. This validates elements of the design prior to construction, thereby avoiding potentially costly rework. During product modeling, the designers finalize the interfaces between zones, complete the design for ship-wide cables and pipes, and add all detail necessary to support ship construction. The Navy reviews the progress of each zone when it is 50 and 90 percent complete with product modeling. At these critical reviews, the Navy and other stakeholders assess the zone design progress and provide input to ensure that the design meets specifications. Once a zone is 50 percent complete, more detailed design tasks are undertaken by the shipbuilders to finalize and incorporate all outstanding data from the key systems. When the zone is 90 percent complete, it is essentially considered to be finished with detail design, and the shipbuilder will subsequently convert the design into drawings to support construction.", "The Navy’s AMDR program, which began development in 2013, will provide key IAMD capability for Flight III. The program includes engineering and manufacturing development of a new S-band radar— known as SPY-6—that is being executed by the Raytheon Company to provide volume search capability for air and ballistic missile defense. The radar is expected to have a sensitivity for long-range detection and engagement of advanced threats of at least “SPY+15”, referring to its improved capability compared to the current SPY-1D(V) radar used on existing DDG 51 ships. In addition, the contractor is developing a radar suite controller to provide radar resource management and coordination, and to interface with the Aegis combat system upgrades for Flight III. The Navy is leveraging an existing X-band radar—SPQ-9B—to provide horizon and surface search capabilities, as well as navigation and periscope detection and discrimination functions for the majority of currently planned Flight III ships. The Navy intends to develop a new X- band radar with improved capabilities that will be installed on later Flight III ships. Figure 2 depicts a notional employment of the S-band and X- band radars on a Flight III ship.\nAlong with AMDR development, the Navy is working with the prime contractor for the Aegis combat system—Lockheed Martin—to upgrade the system for Flight III ships. Aegis, which integrates ship sensors and weapons systems to engage anti-ship missile threats, has been providing the Navy with some form of surface defense capability for decades. Over that time, the system has been regularly upgraded, with Aegis Advanced Capability Builds (ACB) providing new, expanded capabilities. The most recently completed build—ACB 12—provides initial integrated air and missile defense capability for DDG 51 Flight IIA ships. ACB 16 is currently in development and is expected to provide, among other things, new electronic warfare capability and expanded missile capability options.\nFlight III will incorporate ACB 20, a combat system upgrade that includes support for the SPY-6 radar.", "As with any DOD weapon system, test and evaluation activities are an integral part of developing and producing DDG 51 Flight III, AMDR, and Aegis systems. Test activities provide knowledge of system capabilities and limitations as they mature and are eventually delivered to the warfighter.\nDevelopmental testing is intended to provide feedback on the progress of a system’s design process and its combat capability as it advances toward initial production or deployment. For Flight III systems, developmental testing occurs at contractor or government land-based test sites, and will eventually expand to include testing of systems on board the ship after installation—known as shipboard testing.\nOperational test and evaluation is intended to assess a weapon system’s capability in a realistic environment when employed in combat conditions against simulated enemies. During this testing, the ship is exposed to as many operational scenarios as practical to reveal the weapon system’s capability under stress. The Navy’s operational test agency plans and executes operational testing for DDG 51 and AMDR, as well as other selected programs—such as Aegis. The Director, Operational Test and Evaluation (DOT&E) within the Office of the Secretary of Defense coordinates, monitors, and reviews operational test and evaluation for major defense acquisition programs. DOT&E’s statutory responsibilities include (1) approval of test and evaluation master plans and operational test plans for systems subject to its oversight, (2) analyzing the results of the operational test and evaluation conducted for such systems to determine whether the test and evaluation performed were adequate and whether the results confirm the operational effectiveness and suitability for combat, and (3) reporting the evaluation results of operational testing to the Secretary of Defense and congressional defense committees.", "The Navy’s AMDR program is progressing largely as planned toward final developmental testing of the SPY-6 radar. An extensive technology developmental phase for the new radar helped increase the maturity of critical technologies, thereby reducing risk prior to beginning the program. Barring any setbacks during final developmental testing, the Navy plans to make an initial production decision for the SPY-6 radar in September 2017 and deliver the first radar to the shipyard for installation on the lead Flight III ship in 2020. In contrast, the Navy is still defining requirements for the Aegis combat system ACB 20 upgrades for Flight III and will not begin development until 2018. The Aegis development schedule appears ambitious when compared to previous combat system iterations and presents risks for shipboard testing. Further, integrating the Aegis combat system with the SPY-6 radar requires a significant amount of development and testing in a relatively short period of time, relying on concurrent land-based and shipboard testing; the Navy’s target date for initial operational capability of Flight III ships is 2023. Although the Navy is making a concerted effort to reduce risks associated with integrating the radar and combat system, the benefits of these efforts will be largely unknown until the start of combat system development and testing in 2018. The Navy must also complete an integrated test strategy and receive approval from DOT&E. After a lengthy debate with DOT&E over the need for an unmanned self-defense test ship equipped with Aegis and SPY-6 in initial operational test and evaluation plans, the Navy has begun to budget for the test ship at the direction of the Secretary of Defense.\nFigure 3 provides an overview of planned and completed activities for SPY-6, Aegis upgrade, and Flight III, including the anticipated time frame for installing the radar and combat system upgrade onto the ship and conducting operational testing.", "Prior to the start of the AMDR program, a 2-year technology development phase from 2010 to 2012 helped mature critical technologies required for the SPY-6 radar and reduce technical risk for the program. Table 2 describes the AMDR program’s four critical technologies for SPY-6 and their development status.\nIn 2012, we found that two of the technologies—digital beamforming and transmit/receive modules—had challenges to overcome in order to achieve the required capabilities. At that time, the ability to use gallium nitride-based semiconductors, which provide higher power and efficiency than previously used materials, was untested on a radar the size of SPY- 6. The Navy has since demonstrated each of the critical technologies using prototypes during the technology development phase, including a full-scale, single-face SPY-6 radar array engineering development model to demonstrate radar capability. According to Raytheon, performance of this SPY-6 engineering development model has exceeded requirements, demonstrating SPY+17 decibels (greater than 50 times the sensitivity of the SPY-1D(V) radar currently being fielded on DDG 51 Flight IIA ships).\nMore recently, the prime contractor experienced some challenges with digital beamforming and distributed receiver/exciter technologies that the Navy, Defense Contract Management Agency, and Raytheon indicated have been, or are being, addressed. As reported by the Defense Contract Management Agency, Raytheon and its subcontractors significantly underestimated the design, development, and test efforts required for these technologies to meet their performance requirements, leading to some cost growth but no delay to the start of the final developmental test phase in summer 2016. Final developmental testing will include testing the SPY-6 engineering development model in a maritime environment for the first time at the Navy’s land-based Advanced Radar Detection Laboratory in Hawaii, including live tracking of air, surface, and ballistic missile targets. These tests will help validate previous modeling and simulation tests at the prime contractor’s facilities. Final developmental testing is expected to be completed in time to inform an AMDR program low-rate initial production decision by USD (AT&L) in September 2017. The first SPY-6 radar system is scheduled to be delivered to the shipyard constructing the lead Flight III ship in 2020; this radar will be used in shipboard testing with Aegis ACB 20 in the lead up to Flight III initial operational capability, which is planned for 2023.", "The Aegis combat system upgrade—ACB 20—planned for DDG 51 Flight III will require significant changes to the version of Aegis currently fielded on DDG 51 Flight IIA ships in order to introduce new and expanded IAMD capabilities. Requirements for ACB 20 are not expected to be fully defined until the program completes its System Requirements Review planned for August 2016, but the Navy has established plans to field ACB 20 capabilities in two phases. The first phase—known as Phase 0—is intended to meet baseline anti-air, anti-surface, and anti-submarine warfare capability requirements for Flight III initial operational capability. The Navy has indicated that the first three Flight III ships will include Phase 0 capabilities. Improved ballistic missile defense and electronic warfare systems are expected to be introduced on Flight III ships as part of ACB 20 Phase 1 beginning in fiscal year 2025.", "The most extensive ACB 20 changes involve the replacement of the legacy SPY-1D(V) radar with the new SPY-6 radar. According to Lockheed Martin, ACB 20 must include an expanded and modified interface between the SPY-6 radar and the Aegis combat system in order to address the significant increase in data generated by the new radar. In general, the interface changes are intended to ensure data are packaged to take advantage of the radar’s capabilities and effectively provide operators with information to support IAMD needs. Table 3 outlines the Aegis combat system changes that are needed to interface with the SPY- 6 radar.\nWe found in 2012 that the Navy eliminated integration of SPY-6 from ACB 16 plans, effectively deferring integration activities to the ACB 20 upgrade. We concluded that this plan would leave little margin for addressing any problems with the radar’s ability to communicate with the combat system before Flight III’s initial operational capability in 2023. Since that time, the Navy and Lockheed Martin have established an ambitious schedule for ACB 20 development. The schedule is optimistic, particularly due to ACB 20’s interdependencies with the ACB 16 capabilities that are still being developed. For example, recent changes to ACB 16—which will provide the base capability for ACB 20—may affect the Navy’s ability to achieve the ACB 20 schedule. Specifically, the Navy added requirements to ACB 16 that resulted in a 184 percent increase in new and modified software code for ACB 16. As a result, ACB 16 software development will take longer than planned and will overlap with ACB 20 development. This introduces the potential for software deficiencies discovered during ACB 16 development to negatively affect the ACB 20 development schedule.\nIn addition, our comparison of the ACB 20 schedule to the schedule for the most recently fielded Aegis build—ACB 12—indicates that ACB 20 has a significantly shorter development timeline. ACB 12, which included a significant capability upgrade to enable limited IAMD for the first time on DDG 51-class ships, required substantially more development time than the Navy has planned for ACB 20. We found in 2012 that the Navy experienced several setbacks during ACB 12 development and testing, including challenges with coordinating combat system and ballistic missile defense development and testing, as well as an underestimation of the time and effort required to develop and integrate the signal processor with the radar, which led to schedule delays and cost growth.\nFigure 4 compares the planned timeline from the System Requirements Review—a review to ensure readiness to proceed into initial system development—to certification of the build’s capabilities for ACB 12, ACB 16, and ACB 20, Phase 0.\nTo execute this aggressive ACB 20 development plan, the Navy plans to test the fully-developed ACB 20 Phase 0 for the first time after testing begins on the lead Flight III ship at the end of 2020, adding risk to the program. This decision stems, in part, from the Navy’s late response to a July 2014 Navy requirements directive to redefine ACB 20 core capabilities, contributing to a 17-month delay for the ACB 20 requirements review. Conducting initial tests of the fully-developed ACB 20 Phase 0 after ship installation introduces concurrency between the shipboard and land-based test schedules, reducing opportunities to make less-costly fixes to defects discovered during land-based testing prior to installation of the system on the ship. As we have previously found with other shipbuilding programs, concurrency introduces the potential for additional unanticipated costs if concurrent land-based testing identifies needed modifications to shipboard systems after installation.\nThe Navy’s planned approach for testing the full ACB 20 Phase 0 capability is a departure from its approach for ACB 12, which demonstrated its final capability 4 months before installation on its first DDG 51-class ship. ACB 12 also benefitted from installation and extensive testing on an in-service DDG 51-class ship for an additional 30 months prior to installation on a new construction ship in September 2015, an approach which is not planned for ACB 20.", "Navy and prime contractor officials told us that several actions have been taken that they expect to ensure ACB 20 development can be executed under its notably compressed timeline. For example, changes have been made to the Aegis development approach in an effort to correct the underlying causes for some of the past issues or to take advantage of process efficiencies, such as: scheduling ACB 20 to begin software development in January 2018— a few months after the initial production decision for SPY-6—to allow time for key radar technologies to mature and for the radar design to stabilize, minimizing the risk of beginning Aegis combat system development with insufficient radar knowledge; coordinating with the Missile Defense Agency—including a single program manager at the prime contractor to oversee the Navy and Missile Defense Agency efforts, along with joint reviews and an integrated test strategy between the two organizations for Flight III activities; and using some Agile software development methods—an iterative approach that includes a series of smaller software increments that can be developed and delivered in shorter time frames, with the goal of improving quality, generating earlier insight on development progress or any potential issues, and reducing defects and rework. Navy officials emphasized that ACB 20’s schedule was not compressed based on any projected efficiencies from Agile use, though it may help reduce defect discovery once the Aegis combat system is installed on the lead Flight III ship.\nIn addition to these programmatic changes, the Navy and the prime contractors for SPY-6 and ACB 20 are making a concerted effort to reduce integration risk through the use of radar and combat system prototypes. Because the full ACB 20 Phase 0 capability and integration with SPY-6 will not be tested until after it is installed on the ship, the Navy and the prime contractor are counting on land-based prototype testing to reduce risk. As previously shown in figure 3, ACB 20 land-based testing is scheduled to begin in 2019 and will be used to verify combat system performance. This testing will be done prior to certification of the full ACB 20 Phase 0 system in February 2023, as will integrated testing of limited ACB 20 software, combat system hardware, and the SPY-6 engineering development model at multiple land-based test sites, and modeling and simulation tests.\nThe Aegis combat system prototype being developed for use with the SPY-6 engineering development model is expected to reduce risk by enabling testing that can identify the interface needs and provide developmental test results in support of the SPY-6 initial production decision. According to Lockheed Martin representatives, the Aegis prototype will model approximately 44 percent of the eventual interface between ACB 20 and SPY-6, including the most complex elements described earlier in table 3. However, the full extent to which software used with combat system prototype can be utilized for ACB 20 will not be known until integration testing of the full ACB 20 Phase 0 and SPY-6 is conducted in 2021.", "Recent actions taken by DOD indicate that the department supports the use of an Aegis- and SPY-6-equipped unmanned self-defense test ship. Operational test and evaluation plans for DDG 51 Flight III, SPY-6, and ACB 20 have been a source of disagreement between the Navy and DOT&E since at least early 2013. Specifically, the Navy and DOT&E disagree about the need for an unmanned self-defense test ship equipped with SPY-6 and the Aegis combat system to demonstrate Flight III self-defense capabilities through operational testing.\nDOT&E has asserted that an upgraded unmanned self-defense test ship is needed to help demonstrate the end-to-end performance of Flight III systems—from initial SPY-6 radar detection of a target, such as an anti- ship cruise missile, through target interception by an Evolved Sea Sparrow Missile launched from the ship. As statutorily required, DOT&E assessed the Navy’s proposed test and evaluation master plan for the AMDR and Aegis programs in May 2013 and August 2013, respectively, determining that neither plan was adequate for operational testing because they did not provide for operationally realistic testing of Flight III’s self-defense capability. DOT&E continues to assert this position. Specifically, DOT&E has stated that the Navy’s plan to use a manned ship for testing cannot realistically demonstrate the performance of the integrated Flight Ill combat system against anti-ship cruise missile stream raids—a series of targets approaching the ship from the same bearing— in the self-defense zone because of range safety restrictions. According to DOT&E, it is the practice for all other warships to use an unmanned self-defense test ship for their operational test programs. Use of an unmanned self-defense test ship equipped with SPY-6 and the Aegis combat system would allow a safety offset that is much closer to the ship (less than 400 feet) and would permit the targets to conduct realistic maneuvers, which provides the ability to ensure operationally realistic stream raid effects are present and make the test adequate.\nThe Navy has asserted that the end-to-end testing scenarios identified by DOT&E for operationally testing Flight III self-defense capabilities can be accomplished on a manned Flight III ship. Navy officials also stated that a robust test approach that includes testing at land-based test sites, on the currently-configured self-defense test ship, and on a manned Flight Ill ship, can provide sufficient information to support their test needs and accredit the modeling and simulation used in testing. Furthermore, the Navy’s position is that using an unmanned self-defense test ship equipped with Aegis and SPY-6 for Flight Ill operational testing would only minimally increase knowledge of operational performance beyond what can be achieved without its use. Navy officials emphasized that (1) land- based testing is expected to provide nearly all data required to accredit the Aegis modeling and simulation capability, (2) the Evolved Sea Sparrow Missile Block 2—a key element of Flight III’s self-defense capabilities—will be tested on DDG Flight llA ships using ACB 16, and (3) live-fire end-to-end testing of Flight Ill systems—within the bounds of range safety restrictions—will be completed using a manned ship to provide data on operational capability.\nSeveral factors have contributed to the different conclusions reached by the Navy and DOT&E on the need for, and value of using, a test ship equipped with the Flight III combat system to meet operational testing needs. Table 4 explains the key factors that we identified as having contributed to the different assessments of the need for a test ship.\nRecent actions taken by DOD indicate that the department is moving in the direction of supporting the use of the unmanned self-defense test ship.\nFirst, a December 2014 DOD resource management decision supporting the President’s budget for fiscal year 2016 directed the Office of Cost Assessment and Program Evaluation (CAPE) within the Office of the Secretary of Defense to conduct a study of test ship options that would satisfy DDG 51 Flight III self-defense operational testing, including an assessment of the risks and benefits, cost estimates for each option, and a recommended course of action. The study, completed by CAPE in 2015 found that the lowest risk option was to equip the Navy’s existing USS Paul F. Foster self- defense test ship with Flight III combat systems—at an estimated cost of about $350 million—to support operational test and evaluation. The study recommended that the Navy and DOT&E collaborate to develop an integrated test plan to determine the number of air targets and test missiles needed to support developmental testing and operational testing for key Flight III-related self-defense systems.\nSecond, following the study of self-defense test ship options, a February 2016 DOD resource management decision supporting the President’s budget for fiscal year 2017 directed the Navy to adjust funds within existing resources—$175 million total across fiscal years 2019 through 2021—to procure long-lead items in support of an Aegis- and SPY-6-equipped self-defense test ship. The Navy’s subsequent fiscal year 2017 President’s budget submission includes funding in this amount for equipment associated with the self-defense test ship starting in 2019.\nThird, as recommended in the 2015 self-defense test ship study, the Secretary of Defense directed the Navy to work with DOT&E to develop an integrated test strategy for the Flight III, AMDR, Aegis Modernization, and Evolved Sea Sparrow Missile Block 2 programs, and to document that strategy in a test and evaluation master plan or plans by July 29, 2016.\nOfficials from the Navy and DOT&E both questioned whether an integrated test strategy could be completed as directed based on the significant differences between the two sides. However, DOT&E officials stated in April 2016 that the Navy’s integrated warfare systems program executive office had begun working on an integrated test strategy to examine the ship’s anti-ship cruise missile self-defense and integrated air and missile defense capabilities in an effort to meet the intent of the July 2016 deadline.\nAlthough it appears progress is being made in support of the Secretary’s direction, the Navy has not yet fully responded to it. If the integrated test strategy being developed by the Navy does not include the use of an unmanned self-defense test ship as directed in DOD’s recent resource management decision, then DOT&E will not approve the Navy’s operational test plan. If the plan is not approved, a resolution is not likely to be achieved until fiscal year 2019 when the Navy would need to begin buying SPY-6 and Aegis-related long-lead items for the unmanned self- defense test ship to maintain its plan for Flight III initial operational test and evaluation and initial operational capability in 2023.", "Integrating the SPY-6 radar with the DDG 51 hull form will require significant changes to the existing ship’s hull, mechanical, and electrical systems. The Navy plans to limit the use of new technologies and introduce some Flight III equipment on Flight IIA ships first in order to reduce the program’s technical risk. Flight III design is complex and the tightly-packed existing design of the DDG 51-class ship presents additional challenges for Flight III ship design and construction. The Navy recognizes the need to mature and complete all phases of Flight III design before construction begins in spring 2018. However, its Flight III design schedule is ambitious—considering the amount and complexity of the remaining design work—and the shipbuilders will have a significant amount of design work to complete in a relatively short amount of time.", "Flight III configuration changes are driven primarily by the need to integrate the SPY-6 radar with the existing DDG 51-class hull form. The design changes that make up the Flight III configuration are complex because of the need to integrate the SPY-6 radar and its supporting equipment into the densely constructed DDG 51-class ship.", "According to the Navy, DDG 51-class ships were selected as the platform for the SPY-6 radar because the hull form involves relatively low overall risk, as it already is integrated with the Aegis weapon system architecture and is a proven ship design. However, integrating the SPY-6 radar will require extensive changes to the ship’s hull, mechanical, and electrical systems. Figure 5 illustrates key changes that will be introduced to the ship as part of the Flight III configuration in order to accommodate SPY-6.\nFor example, the ship’s deckhouse must be modified because the SPY-6 radar is considerably deeper and heavier than the legacy DDG 51 radar. In particular, the positioning of the SPY-6 radar arrays high on the deckhouse has a significant impact on the ship’s estimated weight and center of gravity. As part of the preliminary design, the Navy introduced plans to widen the ship’s stern by up to 4 feet on each side, allowing the ship to carry more weight to accommodate SPY-6 and restore available weight service life allowance. Flight III’s hull will be reinforced with steel to lower the ship’s center of gravity and counteract the radar’s additional weight. Significant upgrades to the ship’s electric plant and air conditioning systems also are required to support SPY-6 radar operations. These upgrades involve the use of generators, power conversion modules, transformers, power distribution equipment, and high-efficiency air conditioning units that are new to the DDG 51 class of ships. The Navy also plans to introduce other Flight III changes that are not related to SPY-6 integration. Table 5 describes changes related to SPY-6 and other upgrades planned for Flight III.\nThe Navy has taken several steps to reduce technical risk in Flight III design, including limiting the use of new technologies. New electric and air conditioning plant technologies planned for Flight III ships are in use on ships that are currently—or soon will be—in the fleet. For example, Flight III’s higher capacity generators and power conversion modules are derived from generators being used on the Zumwalt-class destroyers. Additionally, the Navy plans to retain a substantial amount of the existing electric plant design, changing the design only where necessary to provide increased power to operate the SPY-6 radar. The Navy noted that this approach should minimize design impacts and testing requirements for the electric plant. Navy officials acknowledged, however, that the new Flight III systems are evolutions of existing technologies and may require some modifications. To further reduce risk, the Navy plans to introduce some technologies required for Flight III on earlier Flight IIA ships. For example, an Aegis hardware upgrade and a new power conversion system will be introduced on DDG 51 Flight IIA ships beginning with DDG 121, which will be delivered in July 2020.", "In addition, the density of the existing DDG 51-class ship design presents challenges for Flight III ship design and construction. As we have previously found with shipbuilding, density—the extent to which ships have equipment, piping, and other hardware tightly packed within ship spaces—affects design complexity and cost. Density can complicate the design of the ship, as equipment will need to be rearranged to fit new items. Construction costs can increase because of the inefficiencies caused by working in spaces that are difficult to access. Although in this case the two shipbuilders have extensive experience in building the DDG 51 hull form, Navy officials acknowledged the significant effort required to integrate the SPY-6 radar on the ship and the space and power constraints it poses for adding new systems. Table 6 describes how ship density contributes to challenges in designing and constructing Flight III ships.\nThe Flight III upgrade requires extensive changes to the DDG 51 design. Navy officials estimate that approximately 45 percent of the ship’s design drawings will need to be changed. The shipbuilders estimate that 72 of 90 ship design zones will also require revisions. At the same time, however, Navy program officials have stated that the design work associated with the Flight III upgrade is no more complicated than previous DDG 51 upgrades. They noted, for example, that the number of drawing changes for Flight III is fewer than the Flight IIA upgrade. While this is true based on current estimates, the Flight III estimate is a projection and may increase once the final design is complete. Moreover, the Flight III design is projected to require nearly 1 million design hours to incorporate the changes that the Navy attributed, at least in part, to additional quality assurance and design reviews to accommodate stricter government oversight than with previous upgrades. The projected design hours for Flight III are notably more than what were required on previous upgrades, as seen in figure 6.", "The Navy recognizes the need to mature and complete all phases of Flight III design before construction begins, currently projected for spring 2018. Our prior work on shipbuilding has identified this practice as a key factor in better ensuring that ships are delivered on time, within planned costs and with planned capabilities. The Navy has completed most of the two initial phases of ship design (preliminary and contract design) as shown in Figure 7 below.\nThese design efforts are aimed at the production of technical data packages, preliminary drawings, and ship specifications needed for detail design and construction. In February 2015, the Navy modified its existing design contracts with the two DDG 51-class shipbuilders—Bath Iron Works and Huntington Ingalls Industries—to begin Flight III detail design work, which includes three-dimensional product modeling of the ship’s individual zones, also referred to as zone design.\nThe shipbuilders began Flight III zone design activities for their respective ship designs in October 2015, using a computer-aided design product model to make changes to the zones that make up the design of the ship. Shortly before beginning zone design, the shipbuilders revised their design approach in an effort to better manage and complete the activities. The Navy had originally planned to split zone design between the two shipbuilders, requiring both shipbuilders to ensure that their designs were compatible with one another. According to the shipbuilders, a change was made so now each shipbuilder will complete its own design for the ships built at their respective yards.\nThe Navy’s design schedule is ambitious, considering the amount and complexity of the remaining design work. For example, as of April 2016, one shipbuilder stated that it had completed product modeling of 7 percent of the ship’s zones and had held a 50 percent milestone review for three of the 72 zones that require design changes as part of the Flight III upgrade. The lead shipbuilder plans to complete about 25 percent of zone design by October 2016. Flight III detail design work is planned to be completed by December 2017, as directed by the Navy. The shipbuilders are scheduled to complete detail design about 3 months earlier than they originally planned, which provides more time between design completion and the start of ship construction. However, under the current schedule, the shipbuilders will have a significant amount of design work to complete in a relatively short amount of time. In addition to design time, one shipbuilder will not begin the zone design for the five zones requiring the most significant changes until December 2016, leaving less time to discover and address any design problems for some of the most complex areas of the ship. In addition, the shipbuilders will face challenges as they enter the more difficult product modeling phases— when the details of the design must be finalized to start ship construction.", "If the Navy purchases the first Flight III ship in fiscal year 2016 as planned by issuing a series of modifications to its existing construction contracts, it will do so without sufficient acquisition and design knowledge. As of May 2016, the Navy was still in the process of updating key acquisition documents with Flight III information, including a revised cost estimate, and had not released a request for proposals for construction of the lead Flight III ship design. In addition, because the Navy will have a significant amount of Flight III zone design work remaining at the end of fiscal year 2016, any procurement decisions will not be informed by a complete understanding of Flight III design. In addition, while the Navy did not update its anticipated cost savings under the current (fiscal year 2013- 2017) multiyear procurement to reflect the addition of Flight III ships, doing so would provide Congress a more accurate savings estimate, as well as provide improved information to support future multiyear procurement savings estimates. Further, in February 2017, when the Navy plans to request authority from Congress to award new multiyear procurement contracts for 10 Flight III ships in fiscal years 2018-2022, it will not be positioned to meet the criteria necessary to support the request. For example, the Navy would be required to preliminarily find by February 2017 that the Flight III design is stable, although shipbuilders will not complete detail design until December 2017. Finally, while the Flight III upgrade is being managed as a continuation of the longstanding DDG 51 program, the Navy is completing many of the activities that are required for new acquisition programs, including the establishment of a new acquisition program baseline. However, information on the Flight III upgrade is not planned to be presented to Congress in Selected Acquisition Reports as a separate major sub-program of the DDG 51 class of ships, which will reduce decision makers’ insight into its cost and schedule performance.", "To construct the lead Flight III ship and the next two follow-on ships, the Navy intends to modify its existing DDG 51 multiyear procurement contracts with Bath Iron Works and Huntington Ingalls Industries. In 2013, the Navy awarded multiyear procurement contracts to these shipbuilders to construct a total of 10 DDG 51 ships from fiscal years 2013 through 2017. The Navy plans to modify these existing contracts, which are currently priced for Flight IIA ship construction, through a series of 17 design changes—also called engineering change proposals—to introduce the Flight III upgrades on up to three ships. A new target cost will be established for each Flight III ship to reflect the yet-to-be-determined cost of design changes. Figure 8 illustrates how the Navy plans to modify the existing multiyear procurement contracts to convert Flight IIA ships to Flight III ships.\nThe Navy plans to issue the necessary modifications for the lead Flight III ship in fiscal year 2016 and do the same for the two additional Flight III ships in fiscal year 2017. The procurement approach for the lead ship recently changed due to additional funding provided by Congress. Specifically, Congress provided the Navy with an additional $1 billion in construction funding for fiscal year 2016 to procure an additional DDG 51 ship. Of note, however, the $1 billion is not sufficient to procure a complete ship in either the Flight IIA or Flight III configuration. The Chief of Naval Operations included $433 million on the Navy’s fiscal year 2017 unfunded priorities list provided to Congress to fully fund the additional ship. If the funding is approved, the total number of new ships would increase from 10 to 11 over the multi-year contract period. The Navy originally planned to introduce the lead Flight III ship as one of the two ships procured under the multiyear contracts in fiscal year 2016. However, according to the Navy, the additional ship in fiscal year 2016 is now anticipated to become the lead Flight III ship, although the acquisition strategy has not been determined. A procurement contract for this additional ship has not been awarded and it is not currently included in the existing multiyear procurement contracts.\nTable 7 provides details of how the additional fiscal year 2016 funds affect the Navy’s multiyear procurement contracting strategy.\nIn addition, the Navy no longer plans to introduce limited competition between the two shipbuilders for the lead Flight III ship construction. The Navy’s acquisition strategy for the first three Flight III ships included use of a contracting strategy to introduce limited competition between the two shipbuilders for the Flight III procurement. As part of this strategy, both shipbuilders would submit proposals for the additional work associated with Flight III changes. The shipbuilder that submitted the lowest proposal for the work would have received a higher percentage of target profit and would have been awarded the contract modifications to build the lead Flight III ship in fiscal year 2016 and build one of the fiscal year 2017 ships; the other shipbuilder would build one fiscal year 2017 Flight III ship. In April 2016, the Navy issued a pre-solicitation notice, stating that it now intends to issue a request for proposal to Bath Iron Works for the lead Flight III ship, which would be a sole-source award for the lead ship with no competition between the shipbuilders for profit. The extent to which the Navy plans to introduce limited competition into the Flight III modifications for the two fiscal year 2017 ships and how such competition would be structured remains uncertain.", "As of May 2016, the Navy had not demonstrated sufficient knowledge regarding its Flight III acquisition approach to modify the current multiyear procurement contracts to introduce these upgrades. In a June 2014 Flight III Acquisition Decision Memorandum, USD (AT&L)—the decision authority for the DDG 51 program—approved a plan to support a fiscal year 2016 program review of the Flight III upgrade prior to modifying ship construction contracts. Under this plan, the Navy is required to update its acquisition program baseline and test and evaluation master plan, among other documents, with Flight III-specific information. According to officials from the DDG 51 program and the Office of the Secretary of Defense, as of May 2016, the Navy was still in the process of updating these documents.\nThe 2014 plan also requires the Navy to ensure that the Flight III program is fully funded in the Future Years Defense Plan and that CAPE assess the Navy’s Flight III cost estimate. A prior Navy cost estimate completed in 2014 lacked knowledge on the current Flight III baseline, making it difficult to use the estimate as support for construction award decisions. CAPE officials stated they began working with the Navy Center for Cost Analysis in November 2015 to ensure the Navy cost estimate being developed in response to the 2014 direction incorporates data on all of the relevant factors that will influence the cost of Flight III ships. These factors include historical DDG 51 ship construction hours, maintenance cost trends, and shipyard labor cost trends, among others. According to a CAPE official, as of May 2016, the Navy had yet to provide a revised cost estimate to be assessed, thus the estimate was not expected to be completed until the summer of 2016 at the earliest. Until this estimate is finalized and assessed by CAPE, the Navy will not have an independent perspective on its Flight III costs and, pursuant to USD (AT&L)’s 2014 requirements, cannot move forward with a contract for Flight III ships.\nThe Navy originally scheduled a program review in March 2016 to approve its plans to award the lead Flight III ship, but the review was postponed because key contract-related activities had not been accomplished. Specifically, the Navy is required to release requests for proposals to modify the fiscal years 2016 and 2017 Flight III multiyear procurement and to evaluate the shipbuilders’ proposals prior to this review. As of May 2016, the Navy had yet to release these requests for proposals. Until the Navy complies with the documentation requirements established by USD (AT&L) in June 2014, releases the requests for proposals, and receives and evaluates shipbuilder proposals, it will not have achieved sufficient knowledge about its acquisition approach to make an informed decision to proceed with the Flight III modifications to the existing multiyear procurement contracts.\nEven if the Navy fulfills its documentation requirements, procuring the lead Flight III ship in fiscal year 2016 as currently planned increases the cost risk with the lead ship because cost estimates will be based on limited detail design knowledge. The lead shipbuilder expects to have about 75 percent of zone design work remaining at the end of fiscal year 2016 and, as a result, procurement activities—including the shipbuilder proposal development, Navy completion of construction cost estimates, and finalization of the target cost for constructing the lead Flight III ship— will not be informed by a more complete understanding of Flight III design. Our prior work has found that over time, cost estimates become more certain as a program progresses—as costs are better understood and program risks identified. According to both shipbuilders, waiting until fiscal year 2017 to procure the lead Flight III ship would allow Flight III design to further mature, which would provide greater confidence in their understanding of the Flight III design changes and how these changes will affect ship construction costs. By completing more detail design activities prior to procuring a Flight III ship, the Navy—and both shipbuilders—will be better positioned for Flight III procurement and construction. One shipbuilder also noted that waiting until fiscal year 2017 to procure the lead Flight III ship would enable the Navy to coordinate government furnished equipment delivery schedules with suppliers that support the shipyard production need dates.", "Congress authorized procurement of up to 10 DDG 51 ships under the Navy’s current multiyear procurement for fiscal years 2013 through 2017; the Navy’s estimated cost savings of $1.54 billion did not take into account the differing costs between Flight IIA and Flight III ships. With the Navy planning for up to three of the ships to be in the Flight III configuration, some of the projected cost savings will be offset by the additional costs associated with Flight III ship construction. The Navy updated the estimated savings to $2.35 billion in September 2014 for 10 Flight IIA ships based on (1) additional savings achieved through DOD’s Better Buying Power principles, (2) exercising the option for a tenth DDG 51 ship, and (3) lower cost estimates for the purchase of ship equipment. According to DDG 51 program officials, the Navy did not provide a revised estimate of savings based on the Flight III changes. While it is not known at this point whether or not the Navy may still achieve cost savings with the addition of Flight III ships in the fiscal year 2013-2017 multiyear procurement, the cost increases associated with the modifications for the Flight III upgrade will reduce the extent of the savings. The multiyear procurement statute does not require that existing savings estimates be updated to include costs associated with design changes, but doing so for Flight III changes would provide improved transparency of costs for Congress and the taxpayers. It would also help inform a more realistic basis for estimating future multiyear procurement savings.\nOnce the current DDG 51 multiyear procurement ends in 2017, the Navy plans to award new multiyear procurement contracts to both shipyards, covering fiscal years 2018-2022, for the construction of the next 10 Flight III ships. In order to request authority from Congress to use a multiyear procurement contract to procure Flight III ships, the Navy must preliminarily find that several criteria will be met. However, based on our analysis, the Navy is not likely to be positioned to meet all of the criteria for requesting multiyear procurement authority in time to seek authority to award the Flight III multiyear contracts in fiscal year 2018. This request for multiyear contracting authority would have to be submitted with the fiscal year 2018 President’s budget request, scheduled to be released in February 2017.\nTable 8 shows the statutory criteria for requesting authority to use a multiyear procurement contract and the extent to which the Navy will be positioned to preliminarily find they would be met by February 2017.\nTo highlight one aspect, to request authority to use a multiyear contract, the Navy will have to preliminarily find that the design of the Flight III ships is stable. As we previously stated, the most complicated aspects of Flight III design work are ongoing, and detail design will not be complete until December 2017—well after the President’s budget request is submitted to Congress. In addition, the Navy plans to begin construction of the lead Flight III ship in spring 2018. Until the Navy begins construction of the lead Flight III ship, it will not have sufficient knowledge to demonstrate a realistic construction estimate or cost savings because there will be no prior cost or construction history on the Flight III upgrade. Another example is that technical risk for Flight III systems— such as with Aegis upgrades—will remain and ship design stability will not yet be achieved if new multiyear procurement contracts are awarded at the start of fiscal year 2018, because software coding for the Aegis combat system upgrade will only have just begun.\nAlthough the Navy has previously used multiyear procurement contracts for DDG 51 ships, it has typically first demonstrated production confidence by building ships in the corresponding configuration before employing a multiyear procurement approach. For example, the Navy built 10 Flight IIA ships before entering into a multiyear procurement for them. If the Navy proceeds with a multiyear procurement strategy for Flight III ships beginning in fiscal year 2018, it will be asking Congress to commit to procuring nearly half of the planned Flight III ships with an incomplete understanding of cost, and effectively, no Flight III construction history to support the decision.", "The Flight III upgrade represents a significant resource investment for the Navy, with more than $50 billion over the next 10 years devoted to designing and constructing 22 Flight III ships. Despite the magnitude of these costs and the degree of changes to the ship, DOD is not treating it as a new acquisition program. Instead, as permitted under law and regulation, the Flight III upgrade is being managed as a continuation of the existing DDG 51 program, which is currently designated as an ACAT 1D program. Two key decision reviews have been held or are planned for Flight III: one in June 2014 to approve the beginning of detail design, and one to review the readiness of the program to proceed with Flight III ship construction, which was originally scheduled for March 2016, but has not yet occurred.\nThe Navy is still conducting some activities for the Flight III upgrade that are commensurate with what is required of a new acquisition program, even though the upgrade is being managed as part of the existing DDG 51 program. Milestone B is normally the formal initiation of a DOD acquisition program at which, for example, the acquisition program baseline—a document which establishes a program’s business case—is approved by the program’s decision authority. As part of the tailored plan for Flight III approved by USD (AT&L) in June 2014, the Navy is completing some, but not all, of the fundamental activities that are required at Milestone B. This includes development of a Flight III cost estimate that will be assessed by CAPE, which is being done in lieu of an independent cost estimate that would be typical for a new major defense acquisition program. Table 9 shows the degree to which the Navy is completing the fundamental activities for the Flight III upgrade that are required for new programs at Milestone B.\nFurther, while the Navy held a Milestone B-like review for Flight III and is going to establish a new acquisition program baseline, Flight III is not a distinct acquisition program or major subprogram, which has implications for reporting requirements related to cost and schedule performance. In particular, since the Flight III upgrade is part of the existing DDG 51 program, certain oversight mechanisms that are generally set in motion after passing through Milestone B—such as reporting Nunn-McCurdy breaches of unit cost growth thresholds and periodic reporting of the program’s cost, schedule, and performance progress—do not apply to Flight III separately from the overall program. Flight III performance measures do not have to be broken out for the DDG 51 program Selected Acquisition Report—a report submitted by DOD that provides Congress with information that is used to perform oversight functions—which diminishes transparency and encumbers oversight efforts. For example, the DDG 51 program’s December 2015 Selected Acquisition Report did not include schedule estimates for any Flight III events with the SPY-6 radar. Additionally, the average procurement unit cost of approximately $1.19 billion per DDG 51 ship reported in 2015 is significantly less than the average procurement unit cost currently anticipated for Flight III ships because it represents the unit cost for DDG 51 ships as a whole. Without distinct Flight III information, decision makers will not be able to distinguish cost growth associated with the overall DDG 51 program baseline from Flight III cost growth, which may limit the effectiveness of oversight mechanisms, such as Nunn-McCurdy unit cost thresholds. Further, since the Navy is not reporting key events for Flight III as part of the overall DDG 51 program, Congress and the Office of the Secretary of Defense will not be made aware of any changes to Flight III’s schedule via this standard reporting mechanism for acquisition programs.\nUSD (AT&L) has the authority to designate major subprograms within major defense acquisition programs, like the DDG 51 program. DOD’s guidance states that establishing a major subprogram may be advisable when increments or blocks of capability are acquired in a sequential manner. In the case of the DDG 51 program, designating the Flight III upgrade as a major subprogram would allow for oversight of the upgrade separate from the overall DDG 51 program. For example, Nunn-McCurdy breaches could be tracked and reported separately. Treating the upgrade as a major subprogram would also offer the ability to separately baseline and track cost (including unit cost), schedule, and performance for Flight III within the overall DDG 51 Selected Acquisition Report. This more granular level of reporting would provide Congress and the Office of the Secretary of Defense with greater visibility into the cost, schedule, and performance of the Flight III upgrade.", "In the future, as the Navy begins assessing solutions for the next surface combatant ship, it will need to make important decisions about evolving threats and the IAMD capabilities necessary to combat those threats. The Navy expects Flight III ships to meet key operational performance requirements in 2023, with full Flight III capabilities delivered in 2027. While Flight III ships will increase the fleet’s IAMD capabilities, they will not provide the level of capability that the Navy previously identified as necessary to address the more stressing IAMD threats. The limited weight and stability service life allowance of the ship due to Flight III’s design changes will also affect the Navy’s ability to add capabilities to the ship in the future without removing existing equipment or making significant structural changes to the ship. The Navy is also considering the extent to which Flight III destroyers may be used instead of Navy cruisers to provide air and missile defense for carrier strike groups. In 2016, the Navy began a capabilities-based assessment to identify capability gaps and potential solutions for the next surface combatant ship which, according to the Navy’s annual long-range shipbuilding plan, will be introduced in 2030.", "The Navy plans to meet key operational performance requirements for Flight III initial operational capability in 2023, as outlined in the Navy’s DDG 51 Flight III Capability Development Document, but is using an incremental approach to deliver the full capability planned for the ships. The first three Flight III ships will not include all of the Navy’s planned capabilities, and full capability for a Flight III ship is expected in 2027. The incremental approach is tied to the delivery of X-band radar and Aegis combat system capabilities. For the X-band radar, the Navy changed its original Flight III plans. Specifically, the Navy intended to develop two new radars—an X-band and an S-band—under the AMDR program to support Flight III ships. However, in 2012 the Navy altered its plans, with the AMDR program reduced to a new S-band radar development effort that would be paired with the existing SPQ-9B X-band radar for the first 12 Flight III ships. This decision helped reduce the risk associated with conducting parallel radar development efforts, but also delayed the timeline for the improved X-band capability planned for Flight III until the 13th ship, anticipated to be delivered in 2027. According to Navy officials, there are no plans to retrofit the first 12 Flight III ships with the new radar once it is available. The Navy has not yet begun planning for the new X- band radar program and initial budgeting activities are not expected until at least 2018, with the new radar expected to be part of the Flight III baseline in fiscal year 2022. The first three Flight III ships will include ACB 20 core capabilities, with a second phase of capability improvements intended to be provided beginning with the fourth ship. Figure 9 illustrates the Navy’s planned approach for introducing additional capability to Flight III ships.", "Ultimately, the DDG 51 Flight III cannot provide the SPY+30 capability needed to address the threats identified in the 2007 MAMDJF analysis because the SPY-6 radar, which is as large as can be accommodated by the Flight III configuration, is not able to achieve this capability. MAMDJF stated that a large radar was needed on a surface combatant to counter the most stressing ballistic and cruise missile threats expected in the 2024 to 2030 time frame. In 2009, the Navy’s Radar/Hull Study looked at ways to leverage existing Navy destroyer designs to address less stressing threats in the near-term at less cost. Raytheon representatives stated that the SPY-6 radar’s performance in testing shows it provides SPY+17 capability, exceeding the SPY+15 requirement for Flight III and providing greater performance than existing radars.\nDDG 51 Flight III ships with the SPY-6 radar are expected to deliver the capability necessary to counter the near-term threats identified in the Radar/Hull Study. Navy officials affirmed that the SPY-6 radar, if already available to the fleet, would help combat current threats. Navy officials also agreed that the threats identified in the 2007 Analysis of Alternatives remain valid. The actual threat environment when the first Flight III ships are delivered is more likely to reflect the threats outlined in the MAMDJF Analysis of Alternatives, as opposed to the less stressful threats outlined in the Radar/Hull Study. As shown in figure 10, the time frame for the threat environment assumed by the Radar/Hull Study will have passed by the time the lead Flight III ship is delivered to the fleet; at that point, the more stressing threat environment outlined in the MAMDJF Analysis of Alternatives timeframe will be imminent. Under the Navy’s acquisition approach, six of the Flight III ships planned for the fiscal year 2018-2022 multiyear procurement, and over three-fourths of the 22 total planned ships, will be outpaced by the threat environment identified in the MAMDJF Analysis of Alternatives.\nTo account for the gap between the anticipated radar capability need and what SPY-6 can provide, the Navy may consider other maritime platforms that can accommodate a larger-scale version of SPY-6 or the use of radars on multiple ships. For example, as we found in 2012, the Navy altered its concept on the number of ships that will be operating in an IAMD environment in an effort to address the gap that exists between the 2007 Analysis of Alternatives’ stated need and the expected SPY-6 capability. Specifically, rather than one or a small number of ships conducting IAMD alone and independently managing the most taxing threat environments without support, the Navy has envisioned multiple ships that can operate in concert with different ground- and space-based sensor assets to provide cueing for SPY-6 when targets are in the battlespace. The cueing would mean that the ship could be told by the off- board sensors where to look for a target, allowing for earlier detection and increased size of the area that can be covered. According to Navy requirements officers, the Navy is examining this concept—referred to as sensor netting—to augment radar capability, but the viability of this operational concept has yet to be proven.", "The MAMDJF Analysis of Alternatives had originally excluded DDG 51- class ships from consideration as the platform for the SPY-6 radar due, in part, to minimal opportunity for growth and limited service life. Weight and center of gravity service life allowance limitations, in particular, affected the Navy’s decisions about Flight III capabilities from the outset. Specifically, the SPY-6 radar was sized to provide the largest radar feasible for the Flight III configuration without requiring major structural changes to the hull form and design. A larger ship could have taken advantage of the scalability of the SPY-6 radar by installing a larger radar that would provide the Navy with increased capability. Thus, for any future capability upgrades to Flight III related to the radar or other systems, the Navy will have to consider significant changes to the DDG 51 hull form. Navy officials stated that adding a new section (called a plug) to the middle of the existing hull form is one option by which the Navy could achieve the additional square footage necessary to accommodate a larger radar. However, the Navy has never executed a plug for a complex, large surface combatant ship and the associated design effort would likely be complicated and costly.\nThe Navy’s weight estimate for Flight III ships has remained relatively stable throughout design, with an overall weight growth of 159 tons since 2012. Navy officials acknowledged that the addition of the SPY-6 radar consumed a significant amount of the ship’s vertical center of gravity service life allowance. Navy weight and vertical center of gravity allowances enable future changes to the ships, such as adding equipment, and reasonable growth during the ship’s service life without unacceptable impacts on the ship. Ten percent of weight and a 1-foot vertical center of gravity are the Naval Sea Systems Command’s architecture standards for surface combatants. According to program officials, the Navy accepts that Flight III will have less of an available service life allowance margin because DDG 51-class ships are inherently dense by design. As figure 11 shows, according to Navy estimates, Flight III ships will essentially be right at the service life allowance standard for weight and well below the vertical center of gravity standard, even with the planned service life allowance improvements included as part of Flight III design.\nAccording to Navy requirements officers, Flight III’s upgrade potential will require trade-offs with the currently planned systems and the Navy has already identified several other Flight III capability limitations as a result of DDG 51’s hull size. For example, the Navy is unsure how the addition of the future X-band radar would impact the Flight III ship’s center of gravity. In 2012, a Navy technical study on Flight III found that the addition of a new X-band radar would most likely require additional electric and cooling capacity beyond what is being introduced as part of Flight III configuration, which would necessitate the addition of another generator and air conditioning plant and subsequent equipment arrangement challenges. Navy officials stated that based on their improved understanding of Flight III design, they now expect that there may be enough electric capacity to forgo the need for an additional generator. Similarly, the Navy is planning to begin a study to determine if an upgraded electronic warfare system— included in the initial Flight III concept—can be included within the ship’s existing constraints.", "With the pending retirement of the CG 47 Ticonderoga-class of cruisers and no new cruiser currently being developed, the Navy has expressed concern about a destroyer supporting the Navy commander’s role in providing air and missile defense for a carrier strike group. Specifically, an air warfare commander (AWC), who is typically the commanding officer of a Navy cruiser within a carrier strike group, is responsible for defense against air and missile threats and requires crew and command, control, communications, and computer resources to fulfill this role. While destroyers and cruisers both utilize the Aegis combat system and can accommodate AWC staff, the Navy has noted that the cruisers were built to support an AWC and are the most capable ships for fulfilling this role. Further, the Navy found through analysis of a Flight III technical feasibility study that the Flight III design does not have an increased capacity to readily enable the functionality required by a major warfare commander. A former Commander of Naval Surface Forces identified some notable differences for meeting AWC responsibilities on the different ships, including:\nThe cruisers are commanded by a captain and have a more senior staff on the ship, with more individuals dedicated to the planning and execution of the air defense mission for the carrier strike group. By contrast, the destroyers are commanded by a commander with a less experienced, though capable, staff that will typically operate in a support role. If the AWC role were to transition permanently to the destroyers, additional training and expertise would be required for the staff. In the second year of its analysis of DDG 51 Flight III technical feasibility, the Navy estimated that for the AWC role to be executed on a Flight III, personnel would need to be increased to fill 15-18 additional positions. The total amount needed is dependent on ballistic missile defense capability requirements.\nUnlike destroyers, the cruisers have radar array and transmitter redundancies that help avoid losing radar capability if the ship is damaged in combat. The cruisers also have a greater capacity— about 25 percent more than a Flight IIA—for launching surface-to-air missiles in support of the air defense mission. The cruisers have increased command-and-control capability over the guided-missile destroyers. This includes greater radio and satellite communication suites than a destroyer, as well as extra space for AWC staff—20 consoles in the combat information center compared to 16 on a DDG 51.\nNavy requirements and DDG 51 program officials stated there are no current plans to have Flight III ships permanently replace the cruisers with respect to AWC operations. The Navy included a requirement for AWC equipment and crew accommodations in the Flight III upgrade. According to Navy officials, the equipment and accommodations will provide enhanced ballistic missile defense capability and can provide temporary AWC capability; however, Flight III ships do not meet the longevity requirement for AWC operations, making their use as a one-for-one replacement for the cruiser less viable. The AWC requirement for Flight III ultimately is an effort to reduce—but not eliminate—the capability gap created by the upcoming cruiser retirements.\nThe Navy is currently conducting a capabilities-based assessment for future surface combatants, which will assess capability shortfalls and risks in the mid-21st century for surface combatant forces. According to Navy officials, this assessment will take into account the findings and gaps identified in the MAMDJF Analysis of Alternatives. The assessment is intended to provide a better understanding of the capability challenges that will result from the retirements of cruiser, littoral combat, and DDG 51 Flight IIA ships in the coming decades, but will not identify potential solutions to address those challenges. In addition to this ongoing assessment, the Navy identified plans in its fiscal year 2016 annual long- range shipbuilding plan, submitted to Congress, for a future surface combatant ship, referred to as DDG(X), with the procurement of 37 ships to begin in 2030. This was a change from the Navy’s 2012 annual long- range plan, which included a future DDG 51 Flight IV, with the procurement of 22 ships to begin in 2032.", "The Navy is in the early stages of its planned investment of more than $50 billion over the next 10 years to design and construct 22 DDG 51 Flight III destroyers. While the Navy has made some good decisions in support of DDG 51 Flight III, including taking an incremental approach to developing and delivering new radar and Aegis combat system capabilities, several challenges in design, development, integration and testing of the radar, upgraded combat system, and the ship itself will need to be overcome going forward. The Navy has implemented a number of practices to reduce program risk. However, the Navy is still defining requirements for an upgraded Aegis combat system, which must be successfully developed, integrated, and tested with the SPY-6 radar under a relatively compressed schedule that includes increased risk in order to meet Flight III’s schedule needs. Further, substantial design changes remain before the Navy will have a sufficient understanding of the resources required to support ship construction. Nevertheless, the Navy intends to ask Congress to commit to the initial ships and the succeeding multiyear procurement beginning in fiscal year 2018 with limited design and cost information in hand. This approach portends risk in the future, which amplifies the need for improved oversight mechanisms to facilitate greater transparency of the cost, schedule, and performance for Flight III.\nThe considerable cost of the Flight III, AMDR, and Aegis programs, as well as the challenges the Navy faces in working to effectively synchronize their schedules, emphasizes the need to ensure a knowledge-based contracting approach and adequate program oversight. Many unknowns remain with regards to cost and the design of Flight III. In particular, the Navy’s plan to issue the lead Flight III ship construction modifications with limited design knowledge puts the government at greater risk that the contract modifications may not represent the true cost to implement the changes during construction. A realistic assessment of Flight III costs gained through completing more of the ship design prior to procuring the lead ship would put the government in a better negotiating position—which is particularly important given that the lead ship is anticipated to be awarded on a sole source basis. Further, the Navy’s estimate of $2.35 billion in cost savings that it expects to achieve through the fiscal year 2013-2017 multiyear procurement has not been updated to reflect the additional costs to design and construct the Flight IIIs. A more accurate assessment of the estimated cost savings for this current multiyear procurement would increase transparency into the expected cost savings. It would also provide valuable insight into expected savings for the next planned multiyear procurement of Flight III ships. The timing of the Navy’s request for authority for the next procurement is also a matter of concern. The Navy’s plan to request, in February 2017, multiyear procurement authority for fiscal years 2018-2022, means it would ask Congress to commit to procuring nearly half of the planned Flight III ships with an incomplete understanding of cost and, effectively, no Flight III construction history to support the decision.\nAlthough the department responded to our 2012 recommendation to improve program oversight by elevating the program’s milestone decision authority, Flight III’s status as a new configuration within the existing DDG 51 program, as opposed to its own acquisition program or a major subprogram, reduces congressional insight into cost and schedule plans and performance. Greater transparency of Flight III performance against cost and schedule goals, for example, in standard Selected Acquisition Reports to Congress on the DDG 51 class, would assist DOD and Congress in performing their oversight responsibilities. This oversight continues to be important, as the Navy still has risks to overcome in achieving the intended capabilities of Flight III ships. Greater transparency could also increase awareness of how any future Navy decisions to add capabilities to Flight III will affect the program, such as those related to the cost and schedule plans for the future X-band radar or plans to upgrade electronic warfare systems for later ships.", "To ensure a more accurate estimate of the expected cost savings under the fiscal year 2013-2017 multiyear procurement, Congress should consider requiring the Navy to update its estimate of savings, which currently reflects only Flight IIA ships, to increase transparency for costs and savings for Congress and the taxpayers, as well as provide improved information to support future multiyear procurement savings estimates.", "We recommend that the Secretary of Defense take the following three actions: To ensure the department and the shipbuilder have sufficient knowledge of the Flight III design and anticipated costs when making decisions on the award of the lead ship, we recommend that the Secretary of Defense direct the Secretary of the Navy to:\nDelay the procurement of the lead Flight III ship until detail design is sufficiently complete to allow the government to have a more thorough understanding of the costs and risks associated with Flight III ship construction.\nTo ensure sufficient knowledge of Flight III design and enable some Flight III construction history to inform cost expectations for future multiyear procurement decisions, we also recommend that the Secretary of Defense direct the Secretary of the Navy to:\nRefrain from seeking authority from Congress for multiyear authority for the procurement of Flight III ships, as currently planned for 2018, until the Navy is able to preliminarily find, relying on DDG 51 Flight III data, that the Flight III configuration will meet criteria for seeking multiyear procurement authority, such as a stable design and realistic cost estimates.\nTo better support DDG 51 Flight III oversight, we recommend that the Secretary of Defense:\nDesignate the Flight III configuration as a major subprogram of the DDG 51 program in order to increase the transparency, via Selected Acquisition Reports, of Flight III cost, schedule, and performance baselines within the broader context of the DDG 51 program.", "We provided a draft of this report to DOD for review and comment. Its written comments are reprinted in appendix II of this report. DOD partially concurred with our three recommendations.\nIn regards to our recommendation to delay procurement of the lead Flight III ship until more detail design information will be available, DOD acknowledged the importance of a thorough understanding of the costs and risks prior to making procurement decisions but does not believe the procurement should be delayed. We continue to believe that waiting until at least fiscal year 2017 to procure the lead Flight III ship would result in additional time to develop the detail design for Flight III and would in turn support a more refined understanding of design changes and their implications on ship construction and costs prior to making significant contractual commitments. As noted in our report, both shipbuilders support this delay. Additionally, the Flight III program has yet to finalize its request for proposal for the lead ship and receive a shipbuilder response, both of which are required prior to the planned Defense Acquisition Board review—which was postponed indefinitely earlier this year—and are needed in order to proceed with the procurement of the lead Flight III ship. The positive aspects of delaying the lead ship procurement, when combined with the reality that the department will be challenged to accomplish all of its requisite activities to procure the first Flight III ship before the end of fiscal year 2016, support lead ship procurement based on improved design knowledge in fiscal year 2017.\nRegarding our recommendation on the next planned multiyear procurement for DDG 51 Flight III ships, the department agrees that the criteria for seeking multiyear procurement authority must be met but disagreed that it should refrain from seeking multiyear procurement authority based on the current state of information available on the Flight III configuration. As we have emphasized, the Navy is unlikely to meet all of the criteria for requesting multiyear procurement authority using data from Flight III—particularly as they relate to cost and design stability—in time to seek authority to award the Flight III multiyear contracts planned for fiscal year 2018. Flight III detail design will be nearly a year away from completion when the President’s budget request for fiscal year 2018 would need to be submitted for such a procurement. Further, construction of the first Flight III ship will be about to begin, meaning there will be no Flight III construction history to inform any estimates of ship costs or the savings from use of multiyear procurement. We believe the Navy’s Flight III multiyear procurement strategy lacks sufficient knowledge on design and cost, and poses significant risk to the government. This includes the risk of Congress committing to procure nearly half of the planned Flight III ships without adequate information to support such a decision.\nFinally, while the department agreed that visibility into Flight III cost, schedule, and performance is important for oversight, and noted planned activities to provide such visibility, DOD does not plan to designate Flight III as a major subprogram. Instead, the department intends to continue reporting on DDG 51-class ships as a single major program in the Selected Acquisition Reports as it has done through previous Flight upgrades. DOD stated that the major impediment to implementing our recommendation is the difficulty in allocating research, development, test, and evaluation costs for the Aegis weapon system. Although the Flight III information that the department stated it intends to provide in next fiscal year’s budget documentation and future Selected Acquisition Reports may help support oversight activities, we believe that designating Flight III as a major subprogram would enhance Flight III oversight efforts and is befitting for an acquisition that is expected to cost more than $50 billion over the next decade. We acknowledge the challenge noted by the department regarding the allocation of costs for the Aegis weapon system. However, the Navy has demonstrated the ability to provide sufficient Aegis funding information to support reporting on specific Aegis advanced capability builds that are designated to specific DDG 51 ships. For example, the fiscal year 2016 President’s budget submission outlines funding for different builds, including ACB 20 that is being developed for Flight III. We understand that some elements of Aegis cost may be more difficult to associate with Flight III because of software components shared across different baselines of the system. The Navy could communicate any limitations to the information as part of reporting Aegis cost information for Flight III. We continue to believe that the improved transparency that would be achieved by formally recognizing Flight III as a major subprogram would be beneficial to Congress and to the taxpayers.\nDOD also separately provided technical comments on our draft report. We incorporated the comments as appropriate, such as to provide additional context in the report. In doing so, we found that the findings and message of our report remained the same. In a few cases, the department’s suggestions or deletions were not supported by the preponderance of evidence or were based on a difference of opinion, rather than fact. In those instances, we did not make the suggested changes.\nWe are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, the Secretary of the Navy, and other interested parties. In addition, this report is available at no charge on the GAO website at http://www.gao.gov.\nIf you or your staff have any questions about this report, please contact me at (202) 512-4841 or mackinm@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III.", "This report evaluates the Navy’s planned acquisition strategies for the DDG 51-class Flight III ships and the Air and Missile Defense Radar (AMDR) programs. Specifically, we assessed (1) the status of the Navy’s efforts to develop, test, and integrate the SPY-6 radar and Aegis combat system in support of DDG 51 Flight III, including plans for operational testing; (2) challenges, if any, associated with the Navy’s plans to design and construct Flight III ships; (3) the Flight III acquisition approach and oversight activities, including reporting on cost, schedule, and performance; and (4) the capabilities that Flight III ships are expected to provide and the extent to which these capabilities fulfill the Navy’s existing and future surface combatant needs.\nTo assess the status of the Navy’s effort to develop, test, and integrate the SPY-6 radar and Aegis combat system in support of DDG 51 Flight III, we reviewed program briefings and schedules, results from recent test and design reviews, and other Navy, Department of Defense (DOD), and contractor documentation to assess the cost, schedule, and performance risks of the AMDR and Aegis combat system programs. We assessed the maturity of the technologies that make up AMDR to determine remaining risks to their development. We reviewed the acquisition program baseline, selected acquisition reports, and Defense Contract Management Agency assessments to determine the cost risk that exists within the program. We assessed the progress and existing risks for the SPY-6 radar and identified integration challenges with Aegis. We reviewed the results of the current Aegis testing and schedules for software development, including the Navy’s plans for the Aegis iteration that will support DDG 51 Flight III. To corroborate documentary evidence and gather additional information in support of our review, we met with officials from the Navy’s Program Executive Office (PEO) Integrated Warfare Systems (IWS) 1.0 and 2.0, which manage the Aegis and AMDR programs, respectively, and the Missile Defense Agency. Additionally, we met with representatives from Raytheon and Lockheed Martin, the prime contractors for the SPY-6 radar and Aegis combat system, respectively, to discuss the development efforts, test plans, and initial integration efforts for each capability. We met with officials from the Defense Contract Management Agency to discuss Raytheon’s SPY-6 radar development activities and performance. We also met with officials from the Navy’s office of the Deputy Assistant Secretary of the Navy (Test and Evaluation) and relevant PEOs, as well as DOD’s offices of the Director, Operational Test and Evaluation, Deputy Assistant Secretary of Defense for Developmental Test and Evaluation, and Cost Assessment and Program Evaluation (CAPE) to discuss the use of a self-defense test ship for operational testing. This included discussion of how the Flight III integrated air and missile defense systems— particularly the SPY-6 radar, Aegis, and Evolved Sea Sparrow Missile systems—could be effectively tested to demonstrate the ship’s self- defense capabilities. We reviewed the Navy’s planned test approach and the technical aspects of the approach that have been the subject of disagreement between the Navy and DOT&E regarding the use of an unmanned self-defense test ship. We assessed the fundamental differences between the two positions, including the costs associated with use of a self-defense test ship for operational testing. In addition to the contents within this report, we are also issuing a classified annex, Arleigh Burke Destroyers: Classified Annex to GAO-16-613, Delaying Procurement of DDG 51 Flight III Ships Would Allow Time to Increase Design Knowledge, GAO-16-846C, which contains supplemental information on the self-defense test ship issue for Flight III.\nTo determine what challenges, if any, are associated with the Navy’s approach to design and construct Flight III ships, we reviewed Navy and contractor documents that address the technologies being introduced as part of Flight III, including program schedules and briefings, test reports, and design progress reports. We compared Flight III design changes— including number, type, and location of those changes—to Navy and contractor estimates and to previous DDG 51-class upgrades to assess the complexity of Flight III design. We evaluated Navy and contractor documents outlining schedule parameters for DDG 51 Flight III ships, including budget submissions, contracts, cost estimates, reports to Congress, and program schedules and briefings. We analyzed the extent to which these parameters have changed over time for Flight III and compared them with our prior work on shipbuilding best practices.\nTo assess the Flight III acquisition approach and oversight activities, including reporting on cost, schedule, and performance, we reviewed the acquisition strategy and other key documents, including DOD memorandums and reports to Congress, which outlined the Navy’s acquisition approach for Flight III. We compared the Navy’s acquisition strategy against the documentation and requirements typically necessary for a new acquisition program based on DOD acquisition guidance. We reviewed Navy program briefings, reports to Congress, and testimony statements to identify how the Flight III acquisition strategy has changed over time and the extent to which the Navy has completed key activities that are part of its acquisition approach, including updating documents and holding program reviews. We also assessed the Flight III contracting strategy by comparing the Navy’s knowledge of Flight III design and construction to statutory criteria required for requesting authorization to use a multiyear contract. To further corroborate documentary evidence and gather additional information in support of our review, we conducted interviews with relevant Navy officials responsible for managing the design and construction of DDG 51 Flight III ships, such as those within PEO Ships, DDG 51 program office, Electric Ships program office, PEO IWS, Naval Sea Systems Command’s Naval Systems Engineering, and Supervisor of Shipbuilding, Conversion, and Repair. We also met with representatives from the lead and follow shipyards—Bath Iron Works Corporation and Huntington Ingalls Industries—to understand their role in Flight III design and development. To understand Flight III cost considerations, we interviewed CAPE about cost estimation activities for the program.\nTo assess what capabilities Flight III ships are expected to provide and the extent to which these capabilities fulfill the Navy’s existing and future surface combatant needs, we compared the Navy’s 2009 Radar/Hull Study—which was the main tool the Navy used to identify the DDG 51 Flight III as the platform for AMDR—with the Navy’s Maritime Air and Missile Defense of Joint Forces (MAMDJF) Analysis of Alternatives, a 2007 Navy study related to ballistic missile defense and integrated air and missile defense. We reviewed the Capability Development Documents for both DDG 51 Flight III and AMDR and other Navy documentation to determine the capabilities that the Navy had originally planned to include as part of the Flight III configuration. We compared these capabilities against those that are currently expected to be delivered as part of the first three Flight III ships. We assessed the extent to which Flight III and AMDR planned capabilities fulfill requirements for surface combatants based on MAMDJF stated requirements. We also reviewed the potential for Flight III to fulfill air and missile defense requirements that are currently the responsibility of the Navy’s cruiser fleet. We examined ship weight reports and other Navy, DOD, and contractor documentation to analyze Fight III’s service life allowance and determine the extent to which future upgrades can be introduced onto the ship. To further corroborate documentary evidence and gather additional information to support our review, we met with officials from the office of the Chief of Naval Operations to discuss the status Navy’s current and any future studies related to surface combatants and integrated air and missile defense capabilities. We also met with officials from the PEO Ships, PEO IWS, and the Joint Staff.\nWe conducted this performance audit from July 2015 to August 2016 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.", "", "", "Michele Mackin, 202-512-4841 or mackinm@gao.gov.", "In addition to the contact above, Diana Moldafsky, Assistant Director; Pedro Almoguera; Laura Greifner; Laura Jezewski; C. James Madar; Sean Merrill; Garrett Riba; Roxanna Sun; James Tallon; Hai Tran; and Alyssa Weir made key contributions to this report." ], "depth": [ 1, 2, 2, 2, 2, 1, 2, 2, 3, 3, 2, 1, 2, 3, 3, 2, 1, 2, 2, 2, 2, 1, 2, 2, 2, 2, 1, 1, 1, 1, 1, 1, 1, 2, 2 ], "alignment": [ "h2_title", "", "", "h2_full", "", "h0_full", "", "", "", "", "h0_full", "", "", "", "", "", "h4_title h1_full", "", "h1_full", "h4_full h1_full", "h1_full", "", "", "", "", "", "h2_full", "h1_full", "h4_full h2_full h1_full", "h4_full", "h0_full h3_full", "", "", "", "" ] }

{ "question": [ "How is AMDR's SPY-6 radar progressing?", "In what ways will testing be important?", "What is the status of this testing?", "What weaknesses exist in the Navy's Flight III process?", "What specific limitations are at play?", "What is the Navy's timeline for Flight III contracts?", "What problems exist with this timeline?", "How could establishing Flight III as a major subprogram be beneficial?", "What are the Navy's plans regarding Flight III destroyers?", "What role will Congress play in this spending plan?", "What new technologies will Flight III ships include?", "Why did GAO examine the Navy's plans for Flight III ships?", "What does GAO's report assess?", "How did GAO make these assessments?", "In what ways should Congress adjust to reflect the addition of the Flight III ships?", "How should the Navy respond to this process?", "How should DOD respond?", "How did DOD respond to this recommendation?", "What is GAO's stance on the matter?" ], "summary": [ "The Air and Missile Defense Radar (AMDR) program's SPY-6 radar is progressing largely as planned, but extensive development and testing remains.", "Testing of the integrated SPY-6 and full baseline Aegis combat system upgrade—beginning in late 2020—will be crucial for demonstrating readiness to deliver improved air and missile defense capabilities to the first DDG 51 Flight III ship in 2023.", "After a lengthy debate between the Navy and the Department of Defense's (DOD) Director of Operational Test and Evaluation, the Secretary of Defense directed the Navy to fund unmanned self-defense test ship upgrades for Flight III operational testing, but work remains to finalize a test strategy.", "The Navy has not demonstrated sufficient acquisition and design knowledge regarding its Flight III procurement approach and opportunities exist to enhance oversight.", "If the Navy procures the lead Flight III ship in fiscal year (FY) 2016 as planned, limited detail design knowledge will be available to inform the procurement. In addition, the Navy's anticipated cost savings under the FY 2013-2017 Flight IIA multiyear procurement (MYP) plan do not reflect the planned addition of Flight III ships. While the Navy did not update its cost savings with Flight III information, doing so would increase transparency and could help inform expected savings under the next MYP.", "The Navy plans to request authority to award new Flight III MYP contracts (FY 2018-2022) in February 2017.", "The Navy will be asking Congress for this authority to procure nearly half of Flight III ships before being able to meet the criteria to seek this authority. For example, detail design will not be complete and costs will not be informed by any Flight III construction history. Finally, Flight III cost and schedule performance is not distinguished from that of the overall DDG 51 ship class in annual reports to Congress.", "Establishing Flight III as a major subprogram would improve reporting and offer greater performance insight.", "Over the next 10 years, the Navy plans to spend more than $50 billion to design and procure 22 Flight III destroyers, an upgrade from Flight IIA ships.", "The Navy's MYP approach requires the Navy to seek authority to do so from Congress.", "Flight III ships will include the new SPY-6 radar system and Aegis (ballistic missile defense) combat system upgrades.", "House report 114-102 included a provision for GAO to examine the Navy's plans for the DDG 51 Flight III ships and AMDR.", "This report assesses (1) the status of efforts to develop, test, and integrate SPY-6 and Aegis in support of Flight III; (2) challenges, if any, associated with the Navy's plans to design and construct Flight III ships; and (3) the Flight III acquisition approach and oversight activities, among other issues.", ":GAO reviewed key acquisition documents and met with Navy and other DOD officials and contractors.", "Congress should consider requiring an update of estimated savings for the current DDG 51 MYP to reflect the addition of Flight III ships.", "The Navy should delay procurement of the lead Flight III ship and refrain from seeking authority for a MYP contract until it can meet criteria required for seeking this authority.", "DOD should also designate Flight III as a major subprogram to improve oversight.", "DOD partially concurred with all three recommendations but is not planning to take any new actions to address them.", "GAO continues to believe the recommendations are valid." ], "parent_pair_index": [ -1, 0, 1, -1, 0, 0, 2, 0, -1, 0, 0, -1, 0, 0, -1, 0, 0, 2, 3 ], "summary_paragraph_index": [ 2, 2, 2, 4, 4, 4, 4, 4, 0, 0, 0, 1, 1, 1, 5, 5, 5, 5, 5 ] }

{ "title": [ "", "Introduction", "Evolution of the NAMA Negotiations", "Possible Effects of a NAMA Agreement", "Major NAMA Negotiating Issues", "Tariff Reduction", "The Current Draft", "Tariff Binding", "Special and Differential Treatment for Developing Countries", "Non-Tariff Barriers", "Sectoral Approaches", "Congressional Consideration" ], "paragraphs": [ "", "Talks on Non-Agricultural Market Access (NAMA) in the World Trade Organization (WTO) Doha Round refer to the reduction of tariff and non-tariff barriers (NTBs) on industrial and primary products, basically all trade in goods which are not foodstuffs. While the agriculture negotiations have received greater scrutiny in the Doha round, trade of industrial and primary products, the subject of the NAMA negotiations, continues to make up the bulk of world trade. Nearly $12.5 trillion in manufactures and primary products was traded worldwide in 2009, accounting for 78.9% of world trade activity. In the United States, industrial and primary products accounted for 68% of exports and 81% of imports in 2009. Hence, the outcome of these negotiations could have a substantial impact on the U.S. trade picture and some effect on the overall U.S. economy.\nPrevious to the Doha Round, industrial tariff negotiations were the mainstay of General Agreements on Tariffs and Trade (GATT) negotiations. These rounds led to the reduction of developed country average tariffs from 40% at the end of World War II to 6% today. However, average tariff figures mask higher tariffs for many labor intensive or value-added goods that are especially of interest to the developing world. Moreover, average tariff levels in developing countries remain high, with average industrial tariffs averaging about 13%.\nFor the United States and other developed countries, prospective gains from the NAMA talks in this round would be from the reduction of high tariffs in the developing world, particularly from such countries as Brazil, India, and China. Developing countries were exempted from making concessions in market access in previous rounds, thus sustaining the heavy tariff structure in those countries. Developing countries are leery of opening up their markets to competition, often making the argument that protectionist policies were employed in the development of many successful economies, from the European and North American economies in the 19 th century to the rise of the East Asian tigers in the 20 th century. However, as negotiating positions have made clear, developed countries are demanding more access for their industrial products as a price for opening up their agricultural sectors, where many developing countries have a comparative advantage. Conversely, developing countries have held industrial tariff negotiations hostage to movement on agriculture. This dynamic has been one of the factors contributing to the current deadlock in the negotiations.\nLegislation to implement any agreement that results from the Doha Round negotiations would need to be passed by Congress. If considering such legislation, Congress may examine the extent to which a potential agreement opens foreign markets to U.S. exporters through the reduction of both tariff and non-tariff barriers. Congress may also examine a potential agreement by its impact on the health of the U.S. manufacturing sector, and its impact on manufacturing employment.", "The current round of trade negotiations were launched at the 4 th Ministerial of the WTO, held at Doha, Qatar, in November 2001. The course of the negotiations were set in the Doha Ministerial Declaration, which provided the negotiating objectives of the round in general terms. The objectives for the non-agriculture market access negotiations were described in Paragraph 16, which read:\nWe agree to negotiations which shall aim, by modalities to be agreed, to reduce or, as appropriate, eliminate tariffs, including the reduction or elimination of tariff peaks, high tariffs, and tariff escalation, as well as non-tariff barriers, in particular on products of export interest to developing countries. Product coverage shall be comprehensive and without a priori exclusions. The negotiations shall take fully into account the special needs and interests of developing and least-developed country participants, including through less than full reciprocity in reduction commitments... To this end, the modalities to be agreed will include appropriate studies and capacity-building measures to assist least-developed countries to participate effectively in the negotiations.\nThe NAMA paragraph was short on specifics and left the modalities for the talks to negotiations. The general nature of the document reflected the reluctance of many members to sign up for the round, and the language has been characterized as the least common denominator of what could be agreed upon at the time. However, the declaration gives certain clues about what path the negotiations would take. First, the declaration showed a clear intent to address concerns of the developing countries by a commitment to reduce tariff peaks and escalations, to concentrate on products of export interest to developing countries, and to provide special and differential treatment (SDT), including \"through less than full reciprocity in reduction commitments\" which became a mantra for developing countries. However, the language on reducing tariff peaks, high tariffs, and escalation also suggests the desire for a degree of tariff harmonization. This, in turn, would suggest the use of a non-linear reduction formula (see \" Tariff Reduction \" below). Paragraph 16 allowed members to take away from the Ministerial what they wanted, and to return to specifics later. This initial ambiguity has haunted the negotiations to this day.\nNegotiations proceeded at a slow pace in 2002 and 2003. Several deadlines for agreement on negotiating modalities (i.e., methodologies by which negotiations are conducted) were missed in the agriculture and industrial market access talks. Without agreement, negotiators looked toward the September 2003 Cancún Ministerial to resolve the modalities. In the weeks before Cancún, negotiating documents to achieve this resolution were criticized by all sides, and expectations of the Ministerial were reduced to achieving an agreement on the framework for the modalities to be used in future negotiations.\nDuring this period, the United States favored an aggressive tariff-cutting negotiating strategy. In December 2002, the United States proposed the complete elimination of tariffs by 2015. This proposal would have eliminated \"nuisance\" tariffs (tariffs below 5%) and certain industrial sector tariffs by 2010, and would have removed remaining tariffs in five equal increments by 2015. This proposal applied to all countries and did not contain SDT language. Throughout the negotiations, the United States generally has sought to limit the scope of special and differential treatment, maintaining that it is in the developing countries' own interest to lower tariffs, not least to promote trade among developing countries.\nThe initial European Union (EU) tariff reduction proposal relied on a \"compression formula,\" one in which all tariffs are compressed in four bands with the highest band being 15%. A joint submission by the United States, Canada, and the EU before the Cancún Ministerial first proposed the use of a Swiss-style harmonization (i.e., non-linear) formula for tariff reduction. This joint paper did contain SDT language for developing countries in the form of credits awarded for unilateral liberalization activity.\nIn the end, industrial market access was not even discussed at the Cancún Ministerial, which broke up over agriculture and the so-called \"Singapore issues.\" Yet, a draft text from the Ministerial, known as the Derbez text, became the basis for the July 2004 Framework Agreement, which, in turn, formed the basis for subsequent negotiations. The July Framework Agreement reaffirmed the use of an unspecified non-linear formula applied line-by-line that provides flexibilities for developing countries. The text also supported the concept of sectoral tariff elimination as a complementary modality for tariff reduction on goods of particular export interest to developing countries, but it advanced no concrete proposal.\nIn negotiating the July Framework, developing countries resisted the wholesale inclusion of the Derbez text. They insisted on a paragraph, included as the first paragraph of the text, indicating that \"additional negotiations are required to reach agreement on the specifics of some of these elements,\" the elements being the formula, treatment of unbound tariffs, flexibilities for developing countries, participation in sectoral tariff modalities, and preferential tariff beneficiaries. As in the Doha Ministerial, ambiguity allowed for an immediate agreement, but sowed the seeds of future disagreement.\nAs in other sectors, subsequent negotiations on NAMA have been conducted on the basis of the July Framework Agreement. Although it was hoped that modalities could be achieved in time for the 6 th Ministerial at Hong Kong, this proved optimistic, and progress was limited to incremental steps. For example, while the July Framework called for a non-linear, harmonizing tariff reduction formula, the Hong Kong Ministerial finally settled on the Swiss formula for tariff reduction, but did not settle on coefficients for that formula. At the Ministerial, WTO members agreed on a new deadline of April 30, 2006, to achieve final negotiating modalities and to establish draft schedules based on these modalities by July 31, 2006. These deadlines were not met, and after a contentious negotiating session on agriculture on July 23, 2006, Director-General Pascal Lamy suspended the Doha Round for a period that was to last approximately six months.\nFollowing the July 2006 suspension, several WTO country groups such as the G-20 and the Cairns Group of agricultural exporters met to lay the groundwork to restart the negotiations. Although these meeting did not yield any breakthrough, Lamy announced the talks were back in \"full negotiating mode\" on January 31, 2007. Key players in the talks, such as the G-4 (United States, European Union, Brazil, India), conducted bilateral or group meeting to break the impasse in the first months of the year. In April 2007, G-6 negotiators (G-4 plus Australia and Japan) agreed to work towards concluding the round by the end of 2007, yet a G-4 negotiating session in Potsdam collapsed anew in June 2007.\nOn July 17, 2007, the chairman of the NAMA negotiating group released a modalities text to be considered by the negotiating committee. While this text proved controversial, it served as the basis for continued, if fruitless, Geneva negotiations for the next year with revisions to this text produced in February, May, July, and December 2008. These various texts have reflected some narrowing of positions over time, but they should not be considered to reflect the present state of agreement in the negotiations. The United States, in particular, has rejected the use of these drafts as the basis for further negotiations, particularly in the areas of sectorals and tariff flexibilities for developing countries. Low-level negotiations continued during much of 2009 as the new U.S. administration formulated its trade policy and continued in 2010, although efforts to flesh out positions on non-tariff barriers and sectoral proposals were made by the Geneva-based negotiators.", "Several studies seek to estimate the potential gains emanating from the reduction of tariffs on industrial products resulting from a successful outcome of the Doha negotiations. These studies typically attempt to quantify the net welfare benefit from various liberalization scenarios. They use models of the world economy known as computable general equilibrium (CGE) models, which provide computer simulations of the world economy through equations that simulate the relationship between economic variables. The models use the versions of the Global Trade Action Project (GTAP) database, which compiles trade flows, and estimate the economic impact of such flows on tariff revenues, production, prices, and welfare.\nAssumptions made in modeling the world economy, as well as the version of the GTAP data used, affect the results of the studies. For example, it has been noted that models that use the most recent data (GTAP version 6, using 2001 data) have found smaller welfare gains to the world economy from trade liberalization. Previous versions of the data did not reflect ongoing trade liberalization such as China's entry into the WTO, the implementation of preferential trading arrangements, or the phase-in of previous liberalization commitments. The results also depend on whether a given model uses static or dynamic assumptions such as constant or increasing returns to scale, or whether the model accounts for unemployment or technology transfer. The focus of these reports are often on the effects of agricultural liberalization or on the potential gains (or losses) of developing countries. However, this section restricts itself to those studies that model industrial or primary product tariff reductions. Table 2 provides a summary of the model outcomes described below.\nOne well-known attempt to gauge the impact of the multilateral trade liberalization is the Michigan Model , a multi-country, multi-sector, general equilibrium model that is used to analyze various trade policy changes and scenarios. In this study, conducted at the beginning of the round, the model measures the welfare effects of a 33% reduction in tariffs and subsidies on agriculture, the same reduction on tariffs in manufactures, and service sector liberalization. According to this model, a 33% reduction in manufacturing tariffs would result in a net welfare benefit of $163.4 billion to the world economy. The United States would achieve a net $23.6 billion welfare gain, although Japan ($45.2 billion) and the EU (39.2 billion) would receive greater gains. Overall, the developed countries would achieve $113.4 billion in net welfare gains and the developing countries led by China ($10.9 billion) would receive the other $50 billion in worldwide net benefit. The model's outcome suggests, the United States could gain primarily from services liberalization ($135 billion), would receive some net welfare benefit from manufacturing tariff liberalization ($23.6 billion), but could suffer a net welfare loss of $7.23 billion from the agricultural liberalization assumed in the model. The model suffers from the use of older data from 1995, but is bolstered by more dynamic assumptions such as increasing returns to scale and monopolistic competition.\nThe World Bank and several other organizations have modeled the effect of trade liberalization using more recent GTAP-6 data from 2001. The World Bank study found that full liberalization of all merchandise trade (including agriculture) could lead to a $287 billion increase in real income by 2015. Full liberalization in industrial manufactures alone would lead to a $105 billion increase in real income, divided between a $38 billion increase from textiles and apparel liberalization, and a $67 billion increase from liberalization for other manufacturers. Developed countries could receive the largest share of benefit from full liberalization in dollar terms ($57 billion v. $10 billion for developing countries), but developing countries may achieve greater benefits in proportion to the size of their economies. The World Bank study found that developing countries would receive a preponderance of the benefits resulting from textile and apparel liberalization ($22 billion v. $16 billion in the developed world).\nThe World Bank study also modeled possible Doha Round outcomes. In computing a 50% reduction by developed country tariffs and a 33% reduction by developing countries for all merchandise trade (agriculture and industrial), the study found that welfare gains from such liberalization could total $96.1 billion. Of this amount, industrial tariff liberalization could provide $21.6 billion of extra net welfare benefit with $7.1 billion accruing to developing countries.\nA Carnegie Endowment for International Peace study uses an applied general equilibrium model with some novel features that attempt to account for the presence of unemployment in developing countries (most studies assume full employment), and to chart the dynamic effects of technology transfer, which increases along with trade. The model poses two different scenarios for possible manufacturing outcomes of the Doha Round: an ambitious scenario of a 50% reduction in developed country tariffs and a 33% reduction in developing country tariffs and a more modest scenario for manufacturing with a 36% reduction in developed country and a 24% reduction in developing country tariffs. The authors of the model warn the extent of liberalization may be overstated due to the model's use of applied, rather than bound tariffs.\nThe study found global real income gains from manufacturing were $53.1 billion for the ambitious scenario and $38.1 billion for the modest scenario. The liberalization of manufacturing tariffs represented over 90.6% of the gains from the Doha round liberalization in the ambitious scenario and over 87% for the more modest formula. In the ambitious scenario, the gains were apportioned between $30.2 billion (56.8%) for developing countries and $23 billion (43.2%) accruing to developed countries. The more modest scenario yielded $21 billion to developing countries and $16.4 billion to developed countries. In either scenario, the largest recipient of welfare gains is China at $14.8 billion and $10.6 billion, respectively. These figures represent nearly half of all gains shown for the developing world, and slightly more than one-fourth of the gains overall. The study suggests that some regions, such as Sub-Saharan Africa would be net losers in manufactured goods liberalization. In terms of net gains or losses of world export market share for developing country manufacturing exports under the modest scenario, China would be the largest gainer with an approximate 0.33% increase in its share of world exports. Some countries including Brazil, Mexico, South Africa, and the rest of Sub-Saharan Africa would lose industrial market share under the modest scenario. For the United States, the model suggests that real income gains resulting from manufacturing liberalization would be nearly $6.5 billion for the ambitious Doha scenario and $4.5 billion in gains for a more modest outcome.\nThe United Nations Committee on Trade and Development (UNCTAD) also models trade liberalization in industrial sectors. The UNCTAD model uses a static CGE model that assumes perfect competition and constant returns to scale. The study models welfare gains under free trade and under several \"Swiss\" formula scenarios, the formula under which negotiations are now taking place (see \" Tariff Reduction \" below). Under the complete liberalization scenario, the net welfare benefit accruing to the entire world was estimated at $200.8 billion, with developing countries accruing $135.3 billion of that. Over one-third of that gain would accrue to China ($48.6 billion). The EU would receive the largest gains among developed countries at $28.5 billion, and the study predicted the United States would receive $11.2 billion in benefits.\nThe UNCTAD study also models Swiss formula reductions using coefficients equaling the average weighted industrial bound tariff by group (3.4% for developed countries, 12.5% for developing countries) with one scenario modeling the respective coefficients at twice that level. This model generated net welfare gains between $107.6 billion and $134.7 billion. Under the scenarios, developing countries gained $65.2 billion to $86.9 billion of this figure, nearly two-thirds of the gains. Again, China gained the most between $34.8 billion and $41.2 billion, around ½ of total world welfare gains. The model shows U.S. gains of $5.8 billion and $7.0 billion, respectively. While this study has the advantage of using an agreed-upon negotiating modality, the study does not use coefficients actually proposed during the negotiations.\nA 2006 Organization for Economic Cooperation and Development (OECD) study found that worldwide net welfare gains from full tariff liberalization in manufactured goods could be $23.4 billion, which represented 56% of all tariff reduction gains. Seventy-three percent of this gain went to developing countries ($17 billion) with $6.3 billion accruing to the developed world. In relation to the size of their economies, developing countries gained relatively more with such gains equaling 0.33% of developing country GDP, versus 0.05% for developed countries. Notable in this survey was an outcome showing that North America would suffer the largest welfare loss from manufacturing liberalization ($6.8 billion) due to, according to the authors, an unfavorable terms-of-trade effects in the motor vehicle and related industries, resulting from lower prices in the sector. The study also modeled several Swiss formula scenarios, but the models did not differentiate between agriculture and manufacturing tariffs.\nBecause of the differing assumptions made in these models and the different datapoints generated by them, it is difficult to generalize about their results. All but one found a greater net welfare benefit from liberalization of manufacturing tariffs than from agriculture. The studies suggest that developing countries would gain the most from manufacturing liberalization, at least in relative terms, and that the single largest gainer in terms of net welfare benefit would be China. Most of these studies indicate the United States could achieve modest net welfare gains from manufacturing liberalization.", "", "The principal negotiating issue in the NAMA talks has been over the tariff formula. The December 2005 Hong Kong Ministerial declaration endorsed the use of a non-linear, \"Swiss\" style, tariff reduction formula. This result builds on previous negotiations, beginning with the Doha Ministerial Declaration, which launched the round in November 2001. That Declaration committed member nations to negotiate the reduction or elimination of tariffs, based on modalities to be agreed in the talks. Negotiating modalities discussed for the NAMA talks included cuts determined by formula, by a request-offer approach, or by agreement to harmonize or eliminate tariffs in a specific sector—all of which had been used in previous rounds of negotiations.\nThe Doha Declaration called for the reduction or elimination of tariff peaks or tariff escalation. Tariff peaks refer to a country's adoption of the maximum allowable tariff in order to protect sensitive products from competition. Tariff peaks are levied by the United States for certain textile products, footwear, and watches. Tariff escalation is the practice of increasing tariffs as value is added to a commodity. As an example of tariff escalation, cotton would come in with a low tariff, fabric would face a higher tariff, and a finished shirt would face the highest tariff. Tariff escalation is often employed to protect import-competing, value-adding industries. Peak tariffs and escalations tend to be levied particularly against the products of developing countries, thereby adding to the cost of consumer goods in developed countries.\nNegotiations to achieve modalities proceeded at a slow pace, but after more than two years including the ill-fated Cancun Ministerial, the July 2004 Framework Agreement endorsed a non-linear formula applied on a line-by-line basis as a modality to conduct tariff reduction negotiations. A non-linear formula works to even out or harmonize tariff levels among participants. This type of formula would result in a greater percentage reduction of higher tariffs than lower ones, resulting in a greater equalization of tariffs at a lower level than before. Negotiations on a \"line-by-line\" basis means that the formula would not be applied as an average to industrial categories, but to the tariff line of each individual product. A harmonization formula would also work to reduce tariff peaks and tariff escalations, another stated goal of the Doha Declaration. By contrast, an example of a linear formula would be one that reduced tariffs by a certain percentage across the board. Consequently, this formula would not change the relative tariff rates among members. A country with relatively high tariffs before undergoing the formula would still have high tariffs relative to other countries afterwards. This approach is generally favored by countries with high tariffs or certain tariff peaks that the country seeks to preserve.\nAfter a further 18 months of largely fruitless negotiations, the December 2005 Hong Kong Ministerial formally adopted the Swiss formula as the non-linear formula by which industrial tariff cuts would be negotiated. It is known as the Swiss formula because it was the formula proposed by Switzerland, and later adopted by GATT members, to cut tariffs in the 1970s Tokyo Round. The Swiss formula is,\nT= at/(a+t)\nwhere T , the resulting tariff rate, is obtained by dividing the product of the coefficient ( a ) and the initial tariff rate ( t ) by the sum of the coefficient ( a ) and the initial tariff ( t ). Selection of the coefficient is key, because it determines the final tariff; a lower coefficient results in a lower tariff (T). In addition, the equation works in such a way that the coefficient also represents the country's maximum tariff after the formula has been applied.\nAlthough the Ministerial agreed to a Swiss formula, it did not agree on the coefficients that would finalize the negotiating modalities. Before the Round was temporarily suspended in July 2006, negotiations in Geneva were being conducted around the use of two coefficients for the formula, with one value for developed countries and another, higher, value for developing countries. The EU in its cross-cutting proposal of October 2005 proposed a coefficient of 10 for developed countries and 15 for developing and least developed countries (LDCs); this ratio was subsequently endorsed by the United States. Pakistan proposed that the developed countries have a coefficient of 6 and developing countries a coefficient of 30. Other proposals suggested a range of figures. New Zealand has suggested that the difference between the two should be no more the five percentage points. Developing countries contend that they should be afforded a higher coefficient based on language in the Doha Ministerial Declaration affording them \"less than full reciprocity in reduction commitments.\"\nAn alternate developing country proposal distinct from the Swiss formula with multiple coefficients was one put forth by Argentina, Brazil, and India, known as the ABI proposal. ABI also used the Swiss formula, but it proposed the coefficient to be the tariff average of each country, thus each country would have its own coefficient. ABI would not result in tariff harmonization among countries because there would not be a common coefficient; however, it would result in harmonization across products within each country's tariff schedule.\nJust prior to the ill-fated June 30-July 1, 2006, mini-ministerial in Geneva, Pascal Lamy suggested a possible compromise in the form of the 20-20-20 proposal. In addition to advocating a ceiling of $20 billion in U.S. domestic agriculture support and the use of the G-20 agricultural market access proposal for developed countries, Lamy advocated a developing country of coefficient of 20 for the NAMA Swiss formula. The NAMA element of the proposal was criticized by U.S. and EU officials as lacking ambition. U.S. manufacturing groups scored the proposal as failing to provide sufficient market access to make a deal worthwhile to U.S. manufacturers. Brazil, for its part, attacked the proposal as too ambitious, and renewed its call for a coefficient of 30 for developing countries.\nThe NAMA chairman's negotiating draft of July 2007 (and reaffirmed in February 2008) suggested a Swiss formula coefficient of [8-9] for developed countries and between [19-23] for developing countries. The chairman calculated that such a coefficient range would yield an average tariff of 3%, 90% of tariffs below 5%, and tariff peaks of 7%-8.5% for the United States and Europe. For developing countries, the chairman calculated the average bound tariff resulting from the suggested coefficients as 12%, with 80% to 90% of tariff lines below 15%. Thirty-one developing countries would apply these tariff reductions; least developed countries (LDCs) would be exempt from reduction commitments and recently acceded members (such as China, Taiwan, and Vietnam) would be granted a higher coefficient to reflect the ambitious reductions these countries have already undertaken in order to join the WTO.\nThe July 2007 NAMA draft reflected a middle ground between the more ambitious coefficient range [10-15] of the developed country proposal and that of the NAMA-11 [10-35]. Such a middle ground was proposed by Chile and drew support from Colombia, Mexico, Costa Rica, Hong Kong, Peru, Singapore, and Thailand. This proposal called for a developed country coefficient of \"less than 10\" and \"between the upper teens and low twenties\" as a developing country coefficient.\nReaction to the July 2007 draft was cool on all sides. The NAMA-11 group of countries criticized what they considered the asymmetry of the proposal with the agriculture text, claiming that it demanded more from developing countries than the agriculture text did from developed countries. It also claimed that the proposal did not reflect the \"less than full reciprocity\" commitment for developing countries reflected in the Doha Declaration. Three members of NAMA-11, Argentina, Bolivia, and Venezuela, indicated that the draft could not be the basis for further negotiations. Meanwhile, the United States and the European Union scored the proposal for not being ambitious enough to provide a satisfactory level of market access.", "The July 2008 draft, as modified by the Lamy proposal at the July 2008 Ministerial and reaffirmed in the December 2008 draft, suggests an 8 coefficient value for developed countries and a sliding scale approach for the value of the coefficient for developing countries. Under this proposal, the developing country coefficient would be tied to the use of one of the so-called \"Paragraph 7\" flexibilities that had been introduced in the July 2004 framework agreement. Under that agreement, developing countries may choose one of the following flexibilities: (1) apply less than formula cuts for up to 10% of tariff lines provided that the cuts applied are no less than half the formula cuts and that the tariff lines do not exceed 10% of the value of a member's non-agricultural imports, or (2) keep tariff lines unbound or not applying formula cuts for 5%of tariff lines provided they do not exceed 5%of the value of a member's non-agricultural imports. The bracketed percentages were initially posited as working hypotheses, then adopted by the July 2007 draft modality text, and then removed in the February 2008 revised draft. While this was seen by some as a step backward in the negotiations, according to the chairman it was done to increase the range of flexibilities available to developing countries to encourage them to accept the existing range of coefficients in the overall tariff reduction formula.\nThe result of these negotiations has been the proposal to tie these Paragraph 7 or \"sliding scale\" flexibilities directly to the overall formula cuts. Under this scenario, a developing country would choose a coefficient of 20, 22, or 25. Thus, a developing country adopting coefficient x= 20 could choose (1) to apply less than formula cuts for up to 14% of tariff lines provided that the cuts applied are no less than half the formula cuts and that the tariff lines do not exceed 16% of the value of a member's non-agricultural imports, or (2) keep tariff lines unbound or not applying formula cuts for 6.5% of tariff lines provided they do not exceed 7.5% of the value of a member's non-agricultural imports.\nA developing country adopting coefficient y=22 would adopt the original Paragraph 7 flexibilities. Thus, this country would apply less than formula cuts for up to 10% of tariff lines provided that the cuts applied are no less than half the formula cuts and that the tariff lines do not exceed 10% of the value of a member's non-agricultural imports, or (2) keep tariff lines unbound or not applying formula cuts for 5% of tariff lines provided they do not exceed 5% of the value of a member's non-agricultural imports. A developing country adopting coefficient z=25 would not avail itself of any flexibilities, as it has made the least formula reductions.\nThe use of these flexibilities has been further complicated by the so-called \"anti-concentration clause,\" which provides that the flexibilities available to developing countries shall not be used to exclude full chapters of the harmonized tariff schedule (HS) from full formula reductions. Both the United States and the EU have been adamant that the flexibilities should not be used in a way to exclude whole industrial sectors from formula cuts, as reflected in the 2 digit HS chapter. Meanwhile, developing countries have opposed expanding the scope of the anti-concentration clause beyond the statement that it should not apply to full HS chapters, as agreed by all members at Hong Kong. The December 2008 text reaffirmed full formula tariff reductions as a minimum of 20% of national tariff lines or 9% of the value of imports of the member in each HS chapter.\nThe current draft also provides for certain flexibilities for countries participating in customs unions such as the Southern African Customs Union (SACU)(South Africa, Namibia, Botswana, Lesotho, and Swaziland) and Mercosur (Brazil, Argentina, Uruguay, and Paraguay). These flexibilities are sought to allow these countries to maintain a common external tariff, while subjecting them to formula cuts.\nCountries that have recently joined the WTO, so-called \"recently acceded members\" (RAMs), had to commit to tariff reductions and bindings as a part of their accession negotiations. Thus, they have been given some additional flexibilities in the proposed modalities. Albania, Armenia, Macedonia, Kyrgyzstan, Moldova, Saudi Arabia, Tonga, Vietnam, and Ukraine will not be required to undertake any tariff reductions beyond their accession commitments this round, and China, Oman, Croatia, and Taiwan will have extended periods in which to phase-in their tariff commitments. Another group of countries, so-called \"small and vulnerable economies\" (SVEs), countries with less than 0.1% of world trade and whose economies are reliant on the production of a few products, would be allowed flexibilities in the amount and structure of their tariff reductions, but would be required to increase the level of their tariff bindings. However, Venezuela's request to be considered as an SVE, due to what it claims to be its concentrated pattern of imports and reliance on petroleum exports, was not looked upon favorably by the United States.", "A second issue in the negotiations is the process of tariff binding and the use of bound tariffs in the reduction formula. Under Article II of the GATT, tariffs are \"bound\" at a specific levels of customs duty when an agreement is reached between nations on a most-favored nation basis to (1) lower a duty to a stated level; (2) maintain an existing level of duty; or (3) not to raise a duty above a specified level. Tariffs can be bound as a specific duty per item or as an ad valorem duty. An ad valorem tariff is set as a percentage of the value of an imported good, while a non- ad valorem or specific tariff uses some other measurement such as a fixed rate per unit or weight of goods. The binding of tariffs provides for stability and predictability in the trading system by preventing the raising of tariff rates except under strict circumstances accompanied by compensatory actions.\nThe Uruguay Round achieved success in binding tariffs in both developing and developed countries. For all countries, the percentage of imports under bound rates increased from 68% to 87%. The percentage of imports under bound rates increased from 78% to 99% in developed countries, from 73% to 98% in transition economies, and from 21% to 73% in developing countries.\nThe value of tariff binding to the world trading system is that it sets a maximum tariff which cannot be exceeded without penalty. However, many countries actually apply much lower tariffs to imported goods. These applied tariffs can vary widely from bound tariffs especially in developing countries. Although the United States, the EU, and several other NAMA \"Friends of Ambition\" advocated the use of applied tariffs as the basis by which tariff formula cuts be made, the 2004 July Framework and the subsequent Hong Kong Ministerial document decided to implement tariff cuts based on bound rates.\nThis decision had implications for the tariff formula. Because bound tariffs are often significantly higher than applied tariff levels, reductions from applied rates would result in greater cuts to actually applied tariffs. Thus for the negotiations to provide actual market access, as opposed to just cutting the binding rate, the formula coefficient must be lower. Higher coefficients would work to exclude some tariff lines from any actual cuts in applied tariffs, especially in developing countries.\nA second goal of the Doha negotiations in this area concerns the binding of tariffs by developing countries. Because the binding process commits a country not to raise tariffs beyond a certain level, binding has been seen as the first step in tariff reduction. Under the 2004 Framework Agreement, reductions in unbound tariff lines would be calculated from twice the currently applied rate. However, the Hong Kong Ministerial Declaration adopted a \"constant non-linear mark-up approach,\" but did not adopt any particular formula. Generally, such an approach would add a certain number of percentage points to the applied rate of the unbound tariff line in order to establish the base rate on which the tariff reduction formula would be applied. The current draft suggests a mark-up of applied rate plus 25 percentage points.\nThe Framework also provided flexibility for developing countries who have bound less than 35% of their non-agricultural tariff lines. They would be exempt from tariff reduction commitments in the Round provided that they bound the remainder of their non-agricultural tariff lines at an average level of 28.5%. Subsequent discussions on this issue have backtracked somewhat, however, with the current draft proposing that countries with binding coverage below 15% of tariff lines bind 75% of currently unbound tariffs, and countries and countries with binding coverage at 15% or above bind 80% of their tariff lines at an average rate of not more than 30%.\nIn addition, all tariffs are to be bound in ad valorem terms; all remaining non- ad valorem tariffs would be converted and bound by a methodology to be determined through negotiation. While non-ad valorem tariffs are more prevalent in agriculture, they continue to be employed for non-agricultural tariffs and are not solely a developing country phenomenon. One study calculates that 4.2% of lines in the United States tariff schedule remain non ad-valorem and for Switzerland the figure is 82.8%.", "Aside from the formula-based flexibilities and binding concessions described above, the negotiations, it provides least developed countries (LDCs) with other special and differential treatment. LDCs would not be required to apply formula cuts, nor participate in the sectoral cuts, but would undertake to \"substantially\" increase their level of bound tariffs. The Hong Kong Ministerial also agreed that developed countries and developing countries in a position to do so would grant LDCs duty-free and quota-free access to 97% of their tariff lines as part of their Doha obligations. The negotiations have also acknowledged the challenge of designing tariff reductions for countries that are already beneficiaries to various preference programs such as the U.S. African Growth and Opportunity Act or the EU's Everything But Arms (EBA) Initiative. To ameliorate such preference erosion, the draft modalities provide extended implementation periods for tariff reduction for certain tariff lines on which some developing now receive non-reciprocal tariff preferences.", "The industrial market access talks also encompass negotiations on the reduction of non-tariff barriers (NTBs). Non-tariff barriers include such activities as import licensing; quotas and other quantitative import restrictions; conformity assessment procedures; and technical barriers to trade. The 2004 July Framework instructed members to submit notification of NTBs by October 31, 2004, for negotiators to identify, examine, categorize, and ultimately, negotiate. Although this notification procedure occurred, little substantive negotiations on the NTBs identified subsequently took place.\nThe NAMA drafts have included various horizontal and vertical proposals that would be subject to text-based negotiations under a modalities agreement. The horizontal proposals include a proposed agreement on remanufactured goods and a 2006 EU-and NAMA-11-sponsored mechanism to facilitate solutions to specific NTBs, apart from the dispute settlement system, as they arise. Vertical proposals have been put forward concerning NTBs for chemical products; electronics; electrical safety and electromagnetic compatibility; labeling of textiles, clothing, footware, and travel goods; and automotive products.", "WTO members have agreed to consider the use of sectoral tariff elimination as a supplementary modality for the NAMA negotiations. Sectoral initiatives, such as tariff elimination or harmonization, permit a critical mass of countries representing the preponderance of world trade in a commodity to agree to eliminate tariffs in that good. Such an arrangement requires the participation of the major players, however, because under the most-favored-nation principle those tariffs would be eliminated for all countries, even those not reciprocating. The 1996 Information Technology Agreement is an example of a completed sectoral tariff elimination agreement in which 41 countries have eliminated tariffs on 180 products.\nThe Hong Kong Ministerial Declaration took note of these sectoral negotiations and instructed negotiators to determine which sectors \"could garner sufficient support to be realized.\" Sectoral negotiations have been proposed for automotive and related parts; bicycles and related parts; chemicals; electronics/electrical products; fish and fish products; forest products; gems and jewelry; hand tools; industrial machinery; open access to enhanced health care; raw materials; sports equipment; toys; and textiles, clothing and footwear. Countries that have indicated a willingness to participate in at least one of these sectoral negotiations include Canada, the European Union, Hong Kong, Iceland, Japan, Korea, New Zealand, Norway, Oman, Singapore, Switzerland, Taiwan, Thailand, United Arab Emirates, United States, and Uruguay.\nFacing resistance from developing countries who maintain that sectoral negotiations did not form part of the original negotiating mandate, the sectoral provisions have weakened over time. The current NAMA draft reaffirms the voluntary aspects of sectoral negotiations, and does not require participation. However, it does permit developing country members participating in sectoral initiatives to increase their coefficient in the overall tariff reduction formula by an increment to be determined. The current draft also proposes special and differential treatment for developing countries participating in the sectorals including \"0 for x\" tariff reductions, longer implementation times and partial product coverage to be determined on a sector-by-sector basis. Some developing countries have participated in these discussions, and have proposed some sectors, other developing countries have questioned engagement in sectoral negotiations prior to settling on a formula for negotiations.\nThe switch in the terms used to describe the level of participation that would make a sectoral initiative feasible, from \"critical mass\" to \"viable\" has also been seen as weakening the text. This is because the term \"critical mass\" has come to mean the initiative would include countries comprising 90% of world trade, thus requiring the participation of China and maybe other developing countries. The term viable, by contrast, does not have such a defined connotation, perhaps giving these countries a pass on participation.\nThe United States has been the main proponent of sectoral negotiations and has sought to have developing countries commit to at least two sectorals and to the level of cuts prior to determining the level of formula cuts. U.S. industry groups have been disappointed in the trajectory of the sectoral negotiations. The National Association of Manufacturers have criticized the sectoral proposals, claiming \"robust participation in sectoral agreements is the key to a successful NAMA agreement ... the tariff-cutting formulas currently proposed for manufactured goods are too weak to generate new market access and trade flows, making strong sectoral agreements the only option for sufficient trade liberalization in industrial goods.\"", "Although Doha Round negotiations are continuing, U.S. trade promotion authority (TPA) expired on July 1, 2007. Any future congressional consideration of TPA extension legislation may provide a venue for a debate on the status of the Round and the prospects for reaching an agreement consistent with principles set forth by Congress in granting TPA.\nIf progress is not made in the Doha Round, or if it goes into a period of limbo, there may be consequences for industrial tariff liberalization. First, the negotiation of bilateral and regional free trade agreements may accelerate. In the wake of the 2006 negotiation suspension, the United States, the EU, Brazil, and India all announced plans to concentrate on additional bilateral liberalization. While bilateral or regional free trade agreements (FTA) potentially can completely remove tariffs or any other trade distortions between negotiating countries, the proliferation of these agreements may complicate international trade as exporters must navigate competing tariff schedules, rules of origin, or other non-tariff barriers. This prospect can lead to trade diversion, a circumstance in which countries trade based on tariff levels and not on comparative advantage. A related question is whether the proliferation of these agreements may erode the willingness of participating countries to negotiate multilaterally, especially if countries are able to strike deals with their major trading partners.\nA further consequence may be the loss of agreements already made at the negotiations. While the NAMA talks are far from completed, some components (such as the Swiss formula) have been agreed. It is possible that prolonged disagreements may imperil the progress that has been made as countries may withdraw what they have agreed to without signs of forward momentum.\nIt is also unlikely that the NAMA talks can achieve a breakthrough in the absence of progress in the agriculture talks. For good or ill, the agriculture talks have become the linchpin of the negotiations. Aside from the intrinsic importance developing countries place on agriculture, many developing countries appear to have used the NAMA negotiations as a bargaining chip to hold out for better agriculture offers. These countries often hold defensive positions in the NAMA talks and seek expanded agricultural access in protected and subsidized developed country agricultural markets as recompense for any NAMA concessions they might make. Conversely, developed countries seek market openings in industrial products to offset their concessions in agriculture. Because of the negotiating principle of the single undertaking, in which nothing is agreed until everything is agreed, separate agreements in discrete negotiating areas are unlikely." ], "depth": [ 0, 1, 1, 1, 1, 2, 3, 2, 2, 2, 2, 2 ], "alignment": [ "h0_title h2_title h1_title h3_title", "h0_full h3_full h1_full", "h0_full h2_full h1_full", "", "h2_title h3_title", "h2_full", "", "", "", "h2_full", "h2_full", "h3_full" ] }

{ "question": [ "What is the importance of NAMA?", "What is NAMA's influence on the World Trade Organization?", "What is the relationship between NAMA and world trade more broadly?", "How have tarrifs changed in the past 60 years?", "How does relative wealth influence a country's relationship to tarriffs?", "For what reasons did the G-20 call for the end of the Doha Round?", "What steps have been taken to conclude the Doha round?", "What is the subject of the current NAMA?", "What is the current agreement regarding tariff reduction?", "What disagreements have persisted?", "What other barriers do the talks seek to address?", "How does the Doha Round pass agreements?", "What is Congress' current status with regards to trade?", "What are the expected effects of this expiration?" ], "summary": [ "NAMA refers to the cutting of tariff and non-tariff barriers (NTB) on industrial and primary products, basically all trade in goods which are not foodstuffs.", "Non-Agricultural Market Access (NAMA) in the World Trade Organization's (WTO) Doha Round has emerged as a major stumbling block in the seven-year Doha Round negotiations.", "While the agriculture negotiations have often overshadowed the NAMA talks, trade of industrial and primary products continues to make up the bulk of world trade.", "Average tariffs in developed countries have declined from 40% at the end of World War II to 6% today through successive rounds of General Agreement on Tariffs and Trade (GATT)/WTO trade negotiations.", "Developed countries seek the reduction of continuing high tariffs in the developing world, particularly from such countries as Brazil, India, and China. Developing countries seek special and differential treatment and tie their cuts in industrial tariffs to reductions in agricultural tariffs and subsidies.", "In response to the global economic crisis, the Group of 20 (G-20) leading economies have repeatedly called for conclusion of the Doha Round as a way to bolster economic confidence and recovery.", "WTO Director-General Pascal Lamy has referred to 2011 as a window of opportunity to conclude the round and announced an intensive work program to achieve this goal.", "The subject of the current NAMA negotiation is a draft text—revised several times since its initial release in 2007—that has been subject to much disagreement.", "Members agreed to a Swiss-formula non-linear tariff reduction formula approach at the December 2005 Hong Kong Ministerial, one in which higher tariffs are decreased more than lower tariffs.", "The negotiation of the tariff reduction formula was initially the main stumbling block in the negotiations. However, disagreements persist about the size or amounts of the tariff cuts.", "The talks also seek to reduce the incidence of non-tariff barriers, which include import licensing; quotas and other quantitative import restrictions; conformity assessment procedures; and technical barriers to trade. The use of sectoral tariff elimination and special and differential treatment for developing countries has also proven controversial.", "Legislation to implement any agreement that results from the Doha Round negotiations would need to be passed by Congress.", "U.S. Trade Promotion Authority (TPA), under which Congress agreed to a time line for voting on implementing legislation with no amendments in return for consultation and adherence to congressional negotiating objectives, expired on July 1, 2007.", "Consequently, there may be attempts to revise or extend TPA in order to consider legislation resulting from a Doha agreement." ], "parent_pair_index": [ -1, 0, 0, -1, -1, -1, 0, -1, -1, 0, -1, -1, -1, 1 ], "summary_paragraph_index": [ 0, 0, 0, 0, 0, 2, 2, 2, 3, 3, 3, 4, 4, 4 ] }

{ "title": [ "Background", "General Aviation Accidents Decreased, but Some Segments Had Disproportionate Shares of Accidents", "Some Industry Segments Experienced Fatal Accidents Disproportionately to Their Estimated Annual Flight Hours", "Pilot Error Was a Cause of Most Accidents, but Targeting Mitigations Is Difficult because of a Lack of Pilot Data", "Flight Activity Data Limitations Impede FAA’s Ability to Assess General Aviation Safety and Target Risk Mitigation Efforts", "FAA’s Singular Goal to Reduce the Fatal Accident Rate May Mask Problems in Certain Segments of General Aviation", "FAA Has Key Initiatives Under Way to Improve General Aviation Safety, but One Has Several Shortcomings", "FAA Renewed the GAJSC in Early 2011", "FAA Launched a 5-Year Strategy in 2011 to Help Reduce the Fatal General Aviation Accident Rate", "The 5-Year Strategy Has Significant Shortcomings", "FAA Has Other Initiatives Under Way That Could Also Contribute to Improved General Aviation Safety", "Technology and Equipment May Also Help Improve General Aviation Safety", "Conclusions", "Recommendations for Executive Action", "Agency Comments", "Appendix I: Scope and Methodology", "Appendix II: GAO Contact and Staff Acknowledgments", "GAO Contact", "Staff Acknowledgments" ], "paragraphs": [ "General aviation is characterized by a diverse fleet of aircraft flown for a variety of purposes. In 2010, FAA estimated that there were more than 220,000 aircraft in the active general aviation fleet, comprising more than 90 percent of the U.S. civil aircraft fleet. Included among these aircraft are airplanes, balloons, unmanned aircraft systems, gliders, and helicopters. (See fig. 1.) Airplanes comprise the vast majority—almost 80 percent—of the general aviation fleet. According to a 2009 FAA study, general aviation airplanes have an average age of 40 years. In addition, most are single-engine piston, such as the Beechcraft Bonanza, Cessna 172, and Piper Archer.\nFAA designates a small, but growing, portion of the general aviation fleet as “experimental.” These include aircraft used for racing and research as well as exhibition aircraft, such as former military aircraft known as warbirds. The largest group of experimental aircraft—and the fastest growing segment of the general aviation fleet, according to FAA—is defined by FAA as “experimental-amateur built” (E-AB). Individuals build E-AB aircraft either from kits sold by manufacturers or from their own designs. E-AB aircraft can contain previously untested systems, including engines not designed for aircraft use, and modifications of airframes, controls, and instrumentation. The E-AB fleet is diverse, ranging from open-framework designs with no cabin structure to small, pressurized airplanes able to fly long distances. The majority are simple craft used primarily for short personal flights. The expertise of the builders varies, as does the experience of the pilots and the availability of training for transitioning to the aircraft. Following a successful inspection of the aircraft and documentation review, FAA issues a special airworthiness certificate in the experimental category to the aircraft’s builder and assigns operating limitations in two phases specifying how and where the aircraft can be flown.the builder determines the aircraft’s airspeed and altitude capabilities and develops a flight manual. Phase II refers to normal operations after the flight testing is completed.\nPhase I is the required flight test period, in which General aviation aircraft can be used for a wide variety of operations, although about 78 percent of general aviation operations fall under one of four types: personal (e.g., a pilot taking his family on a sightseeing trip); business (e.g., a pilot flying herself to a meeting); corporate (e.g., a professionally-piloted aircraft transporting corporate employees around the globe); and instructional (e.g., a student flying with a certified flight instructor).\nThese operations are conducted from the more than 2,950 public use general aviation airports (which primarily serve general aviation aircraft) as well as from thousands of other airports (including those that support commercial air service) and landing facilities (e.g., heliports). General aviation flights operate under various federal aviation regulations. For purposes of this report, our definition of general aviation includes flights operated under part 91 general operation and flight rules.\nGAO-12-117. Our definition of flight-instructor based schools includes individual flight instructors. more information about the estimated number of active airplane pilots and selected pilot certificate requirements and limitations.\nVarious offices within FAA are responsible for ensuring general aviation safety, most notably the Flight Standards Service, Aircraft Certification Service, Office of Accident Investigation and Prevention, and Office of Runway Safety. According to FAA, the agency’s fiscal year 2011 budget submission included nearly $203 million for activities within the Aviation Safety organization related to the top priority of reducing the general aviation fatal accident rate. FAA’s responsibilities include administering aircraft and pilot certification, conducting safety oversight of pilot training and general aviation operations, and taking enforcement actions against pilots and others who violate federal aviation regulations and safety standards. FAA also collects general aviation fleet and flight activity data through an annual survey and supports the NTSB by gathering information about general aviation accidents. According to NTSB officials, FAA collects information on the vast majority of general aviation accidents.\nNTSB is responsible for all aviation accident investigations—using the information gathered by FAA and its own investigators—and for determining the probable cause of accidents. NTSB uses a coding system of aircraft accident categories and associated phases of flight that are useful in describing the characteristics and circumstances of aviation accidents. For ease of interpretation and to categorize similar events, NTSB identifies one event as the “defining event” of the accident, which generally describes the type of accident that occurred—hard landing, midair collision, or fuel exhaustion, for example. In addition, NTSB identifies the causes of an accident and the contributing factors, which describe situations or circumstances central to the accident cause. Just as accidents often include a series of events, the reason those events led to an accident may reflect a combination of multiple causes and contributing factors. For this reason, a single accident report can include multiple cause and contributing factor codes. NTSB also collects descriptive information about the environmental conditions, aircraft, and people involved in aviation accidents. It captures its findings and descriptive information in its Aviation Accident Database. NTSB calculates general aviation accident and fatality rates, which it does using its own accident data and FAA’s annual estimates of general aviation flight activity. NTSB may also recommend regulatory and other changes to FAA and the aviation industry based on the results of its investigations and any studies it conducts.\nThe U.S. general aviation industry includes a number of trade groups, “type clubs,” and other organizations that actively promote the importance of safety and, in many cases, offer educational opportunities to pilots. Many of the groups also work with FAA on advisory and rulemaking committees. Prominent trade organizations include the Aircraft Owners and Pilots Association (AOPA), the Experimental Aircraft Association (EAA), the General Aviation Manufacturers Association (GAMA), and the National Business Aviation Association (NBAA). The Society of Aviation and Flight Educators (SAFE) and the National Association of Flight Instructors represent certified flight instructors and other aviation educators. The American Bonanza Society (ABS), the Cirrus Owners and Pilots Association, and the Lancair Owners and Builders Organization are examples of the several general aviation type clubs.", "Our analysis of NTSB accident data showed that the annual number of general aviation accidents generally decreased for 1999 through 2011. We also identified several characteristics of accidents with respect to the types of operations and the causes of the accidents. These characteristics were largely consistent with observations made during our last review of general aviation safety in 2001. To better understand these characteristics, where possible, we sought to measure their occurrence in numbers of accidents in relation to their overall occurrence in, for instance, total flight hours or pilot certifications as estimated by FAA. In doing so, we identified some accident characteristics that, based on our analysis, appear to occur disproportionately. However, we also identified methodological and conceptual limitations with the activity data—particularly the General Aviation and Part 135 Activity Survey that FAA uses to estimate annual flight hours and the number of active aircraft—that we discuss later in this section. See table 2 for a summary of the characteristics of general aviation accidents according to our analysis of the NTSB accident data.\nFrom 1999 through 2011, nonfatal accidents involving general aviation airplanes generally decreased, falling 29 percent, from 1,265 in 1999 to 902 in 2011. Fatal accidents generally decreased as well, falling 24 percent. Figure 2 indicates the number of fatal and nonfatal accidents for each year we reviewed. During this period of time, though the majority (approximately 56 percent) of all accidents resulted in no injuries, there were more than 200 fatal accidents each year.\nFrom 1999 through 2011, personal operations accounted for 73 percent of airplanes in nonfatal general aviation accidents and 77 percent of airplanes in fatal general aviation accidents. (See fig. 3.) This is not a new phenomenon. As we reported about accidents occurring in 1998, personal operations accounted for more than 75 percent of fatal general aviation accidents.\nFrom 1999 through 2011, airplanes flying instructional operations were the second most often involved in accidents. However, instructional operations were also the operation with the smallest proportion of fatal accidents. According to our analysis, almost 38 percent of accidents that occurred during instructional flying involved hard landings or loss of control while the aircraft was on the ground. These types of events are less likely to cause fatalities than other types of events. It is also possible that the presence of a certified flight instructor onboard to share the management of the cockpit and other tasks may have contributed to the lower fatality rate for instructional operations.\nCorporate operations, in which a professional pilot flies an aircraft owned by a business or corporation, was the least common type of operation to be involved in general aviation accidents. Corporate operations accounted for less than 1 percent of fatal general aviation accidents and less than 0.5 percent of nonfatal accidents. From 2008 through 2011, there were no fatal accidents involving corporate airplanes, giving corporate operations an accident record similar to that of commercial air carriers. Again, this is not a new phenomenon. As we reported in 2001, the low number of accidents involving corporate operations is attributable to a number of factors, including the pilot’s training, experience, and participation in ongoing training to maintain and improve their skills, as well as the safety equipment that is typically installed on corporate aircraft.\nAccording to a representative of the NBAA, an organization representing companies that rely on general aviation aircraft to conduct business, most corporate operations also benefit from advanced technologies, including avionics that provide synthetic vision and terrain displays; auto-throttle, which helps maintain airspeed; and fuel gauges that are built to the standards required for commercial airliners. Further, airplanes used for corporate purposes are often powered by turbine engines and may be subject to additional safety requirements. Flying for corporate purposes can also differ from other types of flying. Whereas a pilot flying for fun may perform several take-offs and landings and practice maneuvers, a corporate flight likely includes a single take off and landing, with the majority of time spent en route—one of the phases of flight when the fewest fatal accidents occur.\nRegarding the type of aircraft involved in general aviation accidents, single-engine piston airplanes accounted for almost 76 percent of airplanes in nonfatal general aviation accidents and 60 percent of airplanes in fatal accidents. Single-engine piston airplanes are the most common type of aircraft in the general aviation fleet and, according to stakeholders, the type of aircraft most commonly flown by pilots holding private pilot certifications and flying for personal reasons. According to AOPA, mechanical failures cause relatively few accidents, indicating that the frequency with which single-engine piston airplanes are in accidents is not necessarily a reflection of the safety of the aircraft.\nE-ABs were the second most common airplane involved in general aviation accidents. From 1999 through 2011, E-AB aircraft accounted for 14 percent of airplanes in nonfatal general aviation accidents and approximately 21 percent in fatal accidents. According to EAA, the organization that represents experimental and amateur-built aircraft owners, E-AB airplanes were also the fastest growing type of aircraft in the general aviation fleet in recent years. In 2011, there were approximately 33,000 registered E-AB aircraft, a 10 percent increase from 3 years earlier. AOPA’s 2010 Nall Report—an annual safety report that provides perspectives on the previous year’s general aviation accidents— indicated that the physical characteristics and the manner in which these aircraft are used expose E-AB aircraft pilots to greater risk and make accidents less survivable.\nIn 2012, NTSB completed a safety study of E-AB aircraft that included the use of an EAA survey of E-AB pilots. Among other findings, NTSB concluded that the flight test period—the first 50 hours of flight—is uniquely challenging for most E-AB pilots because they must learn to manage the handling characteristics of an unfamiliar aircraft while also managing the challenges of the flight test environment, including instrumentation that is not yet calibrated, controls that may need adjustments, and possible malfunctions or adverse handling characteristics. NTSB added that the E-AB safety record could be improved by providing pilots with additional training resources and, accordingly, made several recommendations to FAA and EAA regarding flight training and testing.", "To better understand the above observations about the airplanes involved in and the types of operations flown during general aviation accidents, we compared the proportions of fatal accidents by airplane category and operation type to their shares of FAA estimated flight hours for 1999 through 2010. For this analysis, we considered 5 airplane categories: (1) non-E-AB, single-engine piston; (2) non-E-AB, multi-engine piston; (3) non-E-AB, turbine engine; (4) E-ABs, regardless of engine type; and (5) others. As designated, there is no overlap in this categorization. If there were no relationship between accidents and airplane category, then we would expect each airplane category to be involved in accidents in proportion to its share of overall flight activity; for example, we would expect an airplane category that comprised 50 percent of general aviation flight hours to also comprise 50 percent of accidents. We found this to be the case with the single-engine piston airplane. Though the single-engine piston airplane is most often involved in fatal general aviation accidents, its share of fatal accidents (60 percent) was slightly less than its share of general aviation flight hours (65 percent). By comparison, E-ABs comprised 21 percent of fatal accidents, but only 4 percent of estimated flight hours. With regard to type of operation, we found that 77 percent of fatal accidents occurred during personal operations, but only 40 percent of the estimated flight hours involved personal operations. (See table 3.)\nLoss of control in flight—the unintended departure of an aircraft from controlled flight, airspeed, or altitude—was the most common defining event in fatal general aviation accidents. Loss of control can occur because of aircraft malfunction, human performance, and other causes. During the period we examined, 1,036 fatal accidents (31 percent) were categorized as loss of control in flight. This was the most common event in a fatal accident for 3 of the 4 types of general aviation operations— personal, instructional, and business operations—and for all types of airplanes. FAA and the industry recently completed a review of a subgroup of fatal loss of control accidents and will be developing detailed implementation plans for the intervention strategies.", "According to our analysis of NTSB data, the pilot was a cause in more than 60 percent of the general aviation accidents from 2008 through 2010. The pilot’s actions, decision making, or cockpit management was a cause for 70 percent of the airplanes in fatal accidents and 59 percent in nonfatal accidents. NTSB and other experts view aviation accidents as a sequence of events with multiple causes and contributing factors. Of the 2,801 general aviation accidents that occurred from 2008 through 2010 for which a causal determination was made, 71 percent were determined to have multiple causes. In approximately 34 percent of fatal accidents involving airplanes, the cause was a combination of the pilot’s actions and the failure to properly attain or maintain a performance parameter—e.g., airspeed and altitude.\nIn some instances, there was more than one pilot associated with an airplane. Since we were unable to determine from the data which pilot was in control of the aircraft at the time of the incident, we included data on all pilots involved in the accident in this and subsequent analyses regarding pilot characteristics or experience. percent of all pilots had fewer than 100 hours in any given airplane make and model, then we could expect the results of the above analysis even if pilot flight hours in the airplane make and model had no relation to accidents. We discuss the implications of the lack of this and other data later in this section.\nTo further explore the relationship between pilot flight hours and accidents, we looked at the portion of pilots with fewer than 100 hours in the accident airplane make and model where the pilot was determined to be a cause of the accident and compared it to the portion of pilots with more than 100 hours in the accident airplane make and model. We then did the same using pilot certification levels. Our analysis of accidents from 2008 through 2010 found that private pilots with fewer than 100 hours of experience in the accident airplane make and model were a cause of fatal and nonfatal general aviation accidents at similar rates as pilots with more than 100 hours of experience and with higher pilot certifications. For fatal accidents, 73 percent of pilots with fewer than 100 hours of experience in the accident airplane make and model were a cause as compared to 76 percent of pilots with more than 100 hours of experience. In nonfatal accidents, those portions were 63 and 64 percent, respectively. With regard to pilot certification levels, we found that in nonfatal accidents, private pilots were a cause more often (68 percent) than other types of pilots (percentages ranging from 52 to 58 percent); but in fatal accidents, similar proportions of private and commercial pilots were found to be a cause (75 percent and 80 percent, respectively).\nAlthough some experts may believe that lack of experience can contribute to pilot error and accidents, the above suggests that this might not necessarily be the case. However, we do not have enough information to draw any real conclusions because FAA lacks certain key information about pilots that could help identify the root causes of accidents and, thus, risk mitigation opportunities. First, FAA’s estimate of the number of active pilots is an imperfect measure because, according to FAA’s definition, an active pilot is a certificated pilot who holds a valid medical certificate. However, depending on the type of operation the pilot is flying and the pilot’s certification level, age, and health condition, the medical certificate is valid for between 6 and 60 months. The designation as active is also not an indication of whether the pilot has actually flown in the previous year. Second, though pilots report total flight hours as part of their medical certificate application, a pilot’s experience in different makes and models of aircraft—which is not collected—is also relevant as there are risks associated with operating an unfamiliar airplane. As described above, this information would be necessary to draw conclusions about the effect of pilot flight hours on accidents. Third, though pilot flight hours are to be reported as part of the accident report, investigators are not always able to obtain this information for accident pilots as the logbooks in which it is recorded are sometimes destroyed in accidents. Of the 3,257 pilots involved in an accident from 2008 through 2010, pilot flight hours in the accident airplane make and model was missing for 514, or 16 percent of them. Missing data can compromise the validity of analyses that seek to examine the relationship between pilot experience and the causes of general aviation accidents.\nIn addition, FAA does not maintain information about where pilots were trained or whether noncommercial pilots participate in any recurrent training programs other than its WINGS pilot proficiency program— information that would facilitate analyses of the relationship between pilot training and the causes of general aviation accidents and that could help identify shortcomings in current pilot training programs. Private pilots are not required to participate in recurrent training, though they must successfully complete a biennial review of their skills and knowledge by a designated pilot examiner or a certified flight instructor. In recent years, as pilot training has been identified as a contributing factor in high profile accidents, there has been a renewed focus on the sources and amount of pilot training and on altering the training paradigm. FAA has been required to take steps to maintain qualification and performance data on airline pilots, but there has been no decision about whether recurrent training will be included in the database, and no such effort has been undertaken with regard to the remaining pilot population. Without more information about the training of general aviation pilots—and not just those who are in accidents—FAA’s efforts to identify and target risk areas and populations is impeded.", "FAA estimates of general aviation annual flight hours—a measure key to NTSB’s calculation of general aviation accident and fatality rates and NTSB’s and FAA’s assessments of the safety of general aviation—may not be reliable because of methodological and conceptual limitations with the survey used to gather flight activity data. Since 1978, FAA has used a survey of aircraft owners to estimate annual general aviation flight hours. The survey was redesigned in 1999, and FAA has modified it since then, on its own volition and in response to NTSB recommendations, to improve the survey’s ability to capture activity trends. Changes include sampling 100 percent of certain subpopulations of general aviation aircraft owners who were previously underrepresented in the random sample response—such as owners of turbine engine, rotorcraft, and Alaska-based aircraft—and revising the process for collecting information from owners of multiple aircraft. FAA and NTSB believe these changes have improved the reliability of the survey’s estimates, but some conceptual and methodological limitations persist.\nFirst, as with all surveys that rely on self-reported data, there is the risk that respondents will not be able to accurately recall and report information, introducing error and perhaps bias into the survey’s estimates. The general aviation survey, which is usually open from March through August each year, asks respondents to estimate the number of hours flown during the previous calendar year. Depending on funding availability, the survey has opened later or for shorter periods of time. This year, because of contracting-related delays in bringing the survey consultant on board, aircraft owners did not receive the first request for information about 2011 flight hours until August 2012. According to NTSB, accuracy depends on the record-keeping habits and memories of aircraft owners, and in some cases, the aircraft owners’ ability to obtain needed information from pilots who fly their aircraft. Though some portion of aircraft owners may record each flight in their logbooks, to which they can refer to complete the survey, logging each flight is not mandatory. To the extent aircraft owners rely on their recollection of flight hours flown in the previous year, long delays such as the one occurring this year are likely to further degrade the resulting information.\nSecond, the survey has long suffered from low response rates, and this shortcoming, combined with limited information about the population, can call into question any estimates based on the survey’s results. Since the current method for calculating the response rate was implemented in 2004, the overall response rate has ranged from 43 and 47 percent annually through 2010. The primary problem with low response rates is that they can lead to biased estimates if survey respondents and nonrespondents differ with regard to the variables of interest—in this case, annual flight hours. According to guidance from the Office of Management and Budget, agencies should plan to conduct item-level bias analyses if the expected response rate of the survey is below 70 percent and to consider the anticipated response rate in the decision to proceed with the survey. In 2011, the survey contractor completed a nonresponse analysis and concluded that there was no evidence of significant bias. However, relatively little is known about the aircraft owners who do not respond and, as a result, the contractor and we concluded that the sample is not rich enough in information to understand the differences between the two groups. For instance, there may be certain characteristics of owners that are associated with flying habits, such as the owner’s age or certification level. Though a low response rate does not necessarily imply bias, it does raise the possibility for it. Further, the ability to detect any such bias is limited by what is known about those who do not respond. Given these conditions, bias remains a serious concern.\nAn alternative data collection method implemented in 2004 for owners of multiple aircraft may also introduce bias to the survey’s flight-hour estimates. In an effort to improve response rates among owners of multiple aircraft who were less likely to respond because of the burden of multiple forms, the survey administrators developed a modified data collection procedure for these owners. This includes sending out a form and calling these owners to verify receipt of the survey and encouraging participation. Survey staff also collect essential data—including the number of hours flown—during these phone calls. This alternative method accounted for data for approximately 23 percent of the aircraft owners responding to the survey that estimated 2010 flight hours. These efforts may have improved response rates, but these owners, the aircraft they own, and their use of the aircraft likely differ from owners of a single aircraft. By encouraging responses from a particular set of owners, survey estimates may be biased.\nFlight hours account for what stakeholders refer to as “exposure” or how often particular types of operations or aircraft are flown. FAA’s flight hour estimates can provide a general sense of the relationship between hours and accidents. However, the methodological and conceptual limitations we have identified call the estimates’ precision into question. As a result, these estimates may not be sufficient for drawing conclusions about small changes in accident rates over time—including FAA’s progress toward its goal to reduce the fatal general aviation accident rate per 100,000 flight hours by 10 percent over 10 years. Implementing alternative means of collecting flight hour data, such as requiring the reporting of aircraft engine-revolution or run-time data, could supplement or replace the data generated through the survey and add rigor to FAA’s flight-hour estimates. Moreover, more precise flight-hour data could allow FAA to better target its safety efforts at subpopulations within the general aviation community. This could include reviewing an industry segment’s characteristics, such as the number of fatal accidents relative to its portion of estimated flight hours and setting a measurable goal for improving safety within that segment. Though FAA has attempted to address the disproportionate number of fatalities within the E-AB community by developing an advisory circular to encourage transition training for pilots, it has not set a specific goal for reducing fatal accidents in that segment.\nFAA and NTSB, to their credit, have recognized that flight-hour estimates derived from the general aviation survey are imperfect. FAA has discussed ways to improve its flight-hour data, including requiring general aviation owners to report flight hours (in the form of engine-revolution or run-time data) directly to FAA during aircraft registration renewals or at the annual aircraft maintenance check. However, collecting data from these alternative sources has not progressed beyond internal discussions. In addition, organizations representing pilots have generally been opposed to suggestions for increased data collection, which they view as potential impediments to flying. According to these groups, general aviation pilots typically would prefer to avoid additional regulation or federal involvement.\nIn 2005, NTSB explored using alternative approaches to determining annual general aviation activity, approaches that involved using other measures as proxies for hours flown—including the number of active pilots and fuel consumption. However, there are shortcomings to each of these options. As discussed previously, active pilots are defined as those who have current medical certifications; this is not related to whether the pilot actually flew in a given year. And while aviation gas consumption could be a proxy measure for piston engine aircraft activity, some piston- engine aircraft are used for operations other than general aviation. Further, jet fuel consumption cannot reasonably be used as a proxy for the general aviation activity of turbine engine aircraft because of the many types of operations (e.g., air taxi, air ambulance, etc.) flown by these aircraft.", "In 2008, FAA set a goal to reduce the fatal general aviation accident rate by 10 percent—from a baseline of 1.12 fatal accidents per 100,000 flight hours to 1 fatal accident per 100,000 flight hours—over 10 years, from 2009 to 2018. This single long-term safety goal may mask problems in certain segments of the community. The goal stemmed from FAA’s desire to have a target for its general aviation safety improvement efforts that accounted for changes in flight activity over time. According to FAA officials, they were looking for a goal that was achievable and represented an improved level of safety. FAA did not meet the annual targets for the goal in 2009 and 2010 and, according to projections of flight activity, it does not appear FAA will meet its target in 2011.\nThis singular goal is applied to an industry that is diverse in aircraft types and operations—some of which experience accidents at a higher rate than others. General aviation airplanes differ significantly in size and performance, ranging from single-seat E-AB airplanes to large corporate jets. The types of flying and pilot experience also vary by segment. Some private pilots may only fly a few times each year, while some corporate pilots may keep a schedule similar to that of a commercial airline pilot. In addition, given the expense of flying and maintaining an airplane, downturns in the economy can decrease activity in some segments of general aviation. Changes in flight activity in certain segments of the industry could mask or minimize problems in others and contribute to a rate that does not accurately reflect the trends in the individual segments. (See fig. 4.) For instance, total general aviation flight hours have decreased since the most recent recession, but some segments have declined at a faster rate than others. Personal flying hours in 2010 were 4 percent lower than they were in 2008; corporate flying hours, by comparison, were almost 15 percent lower in 2010 than in 2008. Historically, corporate flying has been one of the safest types of general aviation operations. From 1999 through 2010, corporate airplane operations accounted for just 1 percent of fatal general aviation accidents but 14 percent of flight hours. And from 2008 through 2011, there were no fatal accidents involving corporate airplane operations. As a result, changes in corporate flight activity could result in changes in the overall fatal accident rate that are not necessarily a reflection of changes in safety but rather a reflection of the changing composition of general aviation flight activity. In addition, as previously discussed, the rate is based on estimates of annual general aviation flight hours that may not be reliable.\nThere has been some discussion within FAA and industry about implementing separate goals for each segment of general aviation. According to one stakeholder we interviewed, the types of operations— even among fixed-wing aircraft—differ enough to warrant such a disaggregation. He explained that an hour flown during a corporate operation, during which an advanced aircraft flies from point to point with a significant portion of the time spent en route, is quite different from a pilot flying for pleasure and practicing maneuvers and take-offs and landings—the phase of flight when most accidents occur. However, other stakeholders we interviewed maintained that they all fly under the same operating rules, so it is proper to consider the safety of general aviation as a whole. Given the significant dissimilarities among the various general aviation sectors, along with the varied accident and fatality rates, setting separate safety improvement goals would allow FAA to take a more risk- based approach and target its resources and safety improvement efforts to the unique characteristics of and risks posed by each sector.", "FAA has embarked on key initiatives to achieve its goal of a 10-percent reduction in the fatal general aviation accident rate per 100,000 flight hours by 2018. One is the long-standing General Aviation Joint Steering Committee (GAJSC), which is led by the Office of Accident Investigation and Prevention. More recently, FAA announced a 5-year strategy to improve general aviation safety that was developed by the General Aviation and Commercial Division of the Flight Standards Service. Although both initiatives work toward the overall goal of reducing general aviation fatalities, the GAJSC is using a data-driven approach to identify risks in general aviation operations and propose mitigations, while the 5- year strategy is composed of a wide variety of activities under four focus areas.", "In January 2011, FAA renewed the GAJSC, a joint FAA effort with the general aviation industry, the National Aeronautics and Space Administration (NASA), and NTSB that in 1998 was part of the Safer Skies Initiative. Utilizing the model of the Commercial Aviation Safety Team (CAST), the GAJSC’s goal is to focus limited government and industry resources on data-driven risk reductions and solutions to general aviation safety issues. The GAJSC consists of a steering committee that provides, among other things, strategic guidance and membership outreach. It also consists of a safety analysis team (SAT), which determines future areas of study and charters safety studies, among other things. GAJSC officials indicated that they would charter working groups as issues for study were identified.\nThe first working group of the renewed GAJSC focused on loss of control in approach and landing accidents. This area was selected because, according to analyses of NTSB accident data for fatal airplane accidents that occurred from 2001 through 2011and for which NTSB had completed its investigation, loss of control was the number one causal factor. The working group divided into three subgroups—reciprocating non-E-AB aircraft, turbine engine aircraft, and E-AB aircraft—and agreed upon a sample of 30 accidents to be analyzed by each. Despite issues such as a lack of data and the consistency of member participation, the working group developed 83 intervention strategies. These strategies were used to develop the 27 safety enhancements that were presented to the GAJSC for approval. The GAJSC approved 23 of the safety enhancements. The next steps will include developing detailed implementation plans for each of the strategies, with the SAT conducting resource/benefit evaluations of each plan. The SAT then will determine which are the most effective solutions, draft a master strategic plan, and submit the plan to the GAJSC for approval. Implementation is expected to begin upon approval. During implementation, the SAT will be responsible for tracking implementation schedules and levels, tracking the effectiveness of the intervention strategies, and recommending areas for future study. We believe that with the GAJSC’s renewal and adoption of CAST-like methods, it has the potential to contribute to a reduction in general aviation accidents and fatalities over the long term.", "In March 2011, FAA announced its 5-year strategy to improve general aviation safety. This initiative is a complementary effort to the work of the GAJSC. FAA described the strategy as a nonregulatory approach conducted in partnership with the general aviation community and coordinated across FAA lines of business. The strategy has four focus areas—(1) risk management, (2) safety promotion, (3) outreach and engagement, and (4) training—and includes a 2-year review and the development of validation metrics as each phase of the plan is implemented.\nFAA initially planned to concentrate its risk management efforts in three areas: (1) the top 10 causes and contributing factors in fatal general aviation accidents—initiated in coordination with the GAJSC, (2) E-AB aircraft, and (3) agricultural operations, which comprise one segment of the general aviation sector. To begin this effort, an FAA team identified the top ten causes of fatal general aviation accidents as well as the leading contributing factors, and provided the information to the GAJSC. The GAJSC, as previously discussed, is using the results of the data analysis to focus its efforts on loss-of-control accidents during approach and landing.\nFor the safety promotion aspect of its 5-year strategy, FAA relies on the FAA Safety Team (FAASTeam). Created in September 2004 as the the FAASTeam consists of 154 education and outreach arm of FAA, FAA employees in eight regional field offices, along with 32 groups and 2,500 individual members from the general aviation industry. In 2011, FAA refocused the FAASTeam—from national and international activities—to promote general aviation safety and technical proficiency through a host of nationwide seminars and contact with pilots at airports. A significant part of the FAASTeam’s new focus is the annual FAA safety standdown—a series of nationwide meetings that highlight issues of concern for general aviation and include industry and GAJSC member participation. The 2012 standdown focused on loss of control, the focus of a GAJSC working group, from three different perspectives: (1) preflight mistakes, (2) aeronautical decision making, and (3) handling a loss of control. In addition, the FAASTeam is conducting workshops for certified flight instructors to increase the quality of training offered to general aviation pilots. The FAASTeam has also been examining intervention strategies by working directly with designated pilot examiners to promote its educational opportunities to all applicants for practical tests.\nIn its outreach and engagement efforts for the 5-year strategy, FAA has briefed aviation associations, type clubs, and flight instructors, and, with the assistance of the Aviation Accreditation Board International, held a symposium on flight training with academia in July 2011. FAA has also reached out to major aviation insurance providers. As a result of these and other efforts, FAA reports that it has strengthened its links with aviation associations while also improving its outreach efforts to type clubs.\nThe training portion of FAA’s 5-year strategy includes chartering an aviation rulemaking committeeon pilot testing standards and training, expanding its focus on certified flight instructors, and revamping the WINGS pilot proficiency program. In September 2011, FAA announced the establishment of an aviation rulemaking committee to address concerns from AOPA, SAFE, and others about the testing and training standards for pilots.flight instructor, private pilot, instrument rating, and commercial pilot certificates. It made nine recommendations to FAA to enhance the pilot- testing and pilot-training processes. The recommendations included establishing a stakeholder body to assist in the development of knowledge test questions and handbook content as well as transitioning to a single testing standard document for the knowledge test. FAA concurred with most of the rulemaking committee’s recommendations.\nThe rulemaking committee focused on the certified To increase its focus on certified flight instructors, FAA is reviewing certified flight instructor recurrent training and renewal requirements. FAA also updated the advisory circular on flight instructor courses and published it in September 2011.\nThe FAASTeam’s voluntary WINGS pilot proficiency program is being revamped to encourage more participation. An FAA-established industry group has been surveying pilots to determine what changes need to be made to the WINGS program. Once the survey is completed, the resulting data will be analyzed and recommendations for changes will be made by the end of fiscal year 2012. FAA officials anticipate implementing changes to the program as funding becomes available in fiscal year 2013.", "FAA’s 5-year strategy to improve general aviation safety suffers from several shortcomings that hinder its potential for success. First, senior FAA officials acknowledged that there are no specific performance goals or measures for the activities under the 5-year strategy. The officials said that because the goal of the initiative, as a whole, is to change general aviation culture, the strategy’s success will be measured through changes in the general aviation fatal accident rate. They also indicated that they are developing validation metrics as each phase of the plan is implemented. However, successful results-oriented organizations measure their performance at each organizational level by developing performance measures. Without performance goals or measures for the individual initiatives implemented under the 5-year strategy, FAA will not be able to evaluate the success or failure of those activities, regardless of whether the fatal accident rate is reduced. Further, FAA has yet to meet its annual target for the general aviation fatal accident rate goal and may not meet the overall goal by 2018. Therefore, it is even more crucial that FAA determine whether these activities have been successful.\nSecond, the strategy was developed without the initial input of significant stakeholders—the GAJSC and the general aviation industry. Successful agencies we have studied based their strategic planning, to a large extent, on the interests and expectations of their stakeholders, and stakeholder involvement is important to ensure that agencies’ efforts and resources are targeted at the highest priorities. According to officials from the GAJSC and the general aviation industry groups we contacted, although they were briefed on the strategy, they were not consulted in its development and were surprised by the announcement of the strategy. General aviation industry trade groups, type clubs, and other organizations are active in promoting a safety culture and continuous education among their members. For example, AOPA offers numerous seminars each year to educate the pilot community, and EAA offers advisory programs for experimental aircraft builders and pilots. Further, many initiatives are joint efforts of FAA and the industry. Involving stakeholders in strategic planning efforts can help create a basic understanding among the stakeholders of the competing demands that confront most agencies, the limited resources available to them, and how those demands and resources require careful and continuous balancing. FAA officials have indicated that their initial publication of the strategy served as a “straw man” for obtaining industry’s input and that there has been industry acceptance of the strategy as demonstrated by various industry groups’ development of plans and programs supporting the strategy. However, a lack of industry input into the development and announcement of the strategy jeopardizes its prospects for acceptance and success. This may be indicated in the current perspective of two industry groups—which is that the best use of industry resources to improve general aviation safety is through the work of the GAJSC.\nThird, the FAASTeam, which will be the main vehicle for promoting the 5- year strategy to the industry, lacks the confidence of two significant general aviation industry stakeholders we interviewed, and its reorganization has not been completed. These industry stakeholders indicated that there is inconsistency in the focus of the FAASTeam. One stakeholder noted that industry “struggles to understand the role of the FAASTeam,” and the other stated that the FAASTeam is “well intentioned, but unfocused.” In addition, FAA initially planned to reorganize the FAASTeam to reduce the number of volunteers to a strong core group and to include a national FAASTeam located in Washington, D.C. However, a senior FAA official recently indicated that the restructuring of the FAASTeam is in flux and that the plan to reduce the number of volunteers to a strong core group does not begin until 2013. We believe that until there is a strong performance management structure, input and buy-in from industry, and a respected and organized FAASTeam, the effectiveness of the 5-year strategy will be in jeopardy.", "Formed a rulemaking committee to recommend revisions to the small airplane airworthiness standards: In August 2011, FAA chartered a rulemaking committee to reorganize part 23—which promulgates airworthiness standards for small airplanes—according to airplane performance and complexity criteria as opposed to the traditional criteria of airplane weight and propulsion. The goals of this rulemaking committee include increasing safety and decreasing certification costs. Co-chaired by the manager of FAA’s Small Airplane Directorate, the rulemaking committee includes members representing other sections of the Aircraft Certification and Flight Standards Services as well as members from industry groups, manufacturers, and foreign aviation authorities. The committee is expected to complete its work by the summer of 2013.\nEncouraging adoption of a safety management system (SMS): In guidance issued in April 2011, FAA encouraged general aviation business and corporate operators to develop and implement SMS.\nVisual flight rules govern the procedures for conducting flight under visual conditions, as opposed to instrument flight rules, which govern the procedures for conducting flights using instruments. year 2007, the Weather Camera Program has funded the procurement and installation of 182 weather camera sites in Alaska. The cameras provide near real time video images of sky conditions at airports, mountain passes, and strategic VFR locations, such as high- use air routes, to enhance pilots’ situational awareness. According to FAA, this new capability is providing measurable reductions in weather-related VFR accidents in Alaska. FAA’s goal is to install a total of 221 weather camera sites.", "According to FAA, new technologies such as inflatable restraints (air bags), ballistic parachutes, weather in the cockpit, angle-of-attack indicators, and terrain avoidance equipment could significantly reduce general aviation fatalities. Angle of attack indicators and inflatable restraints have the greatest likelihood of significantly improving safety. Angle-of-attack indicators provide the pilot with a visual aid to prevent loss of control of the aircraft. Previously, cost and complexity of indicators limited their use to the military and commercial aircraft. FAA has streamlined the approval of angle-of-attack indicators for general aviation aircraft and is working to promote the retrofit of the existing fleet. FAA is also streamlining the certification and installation of inflatable restraints with the goal of making all general aviation aircraft eligible for installation. Further, FAA is working with manufacturers to define equipage requirements and support the Next Generation Air Transportation System (NextGen)—a new satellite-based air traffic management system that by 2025 will replace the current radar-based system—by streamlining the certification and installation of NextGen technologies. Some industry experts told us, however, that there might not be future opportunities to significantly improve general aviation safety with the aid of technology since most accidents are still attributed to pilot error.", "To further reduce the number of fatal general aviation accidents, FAA needs to effectively target its accident mitigations, as it is attempting to do through the GAJSC. The agency’s ability to do so, however, is limited by a lack of pilot data. For instance, FAA does not maintain certain key information about general aviation pilots, including how many are actively flying each year and whether they participate in recurrent training other than FAA’s own WINGS program. Without this information, FAA cannot determine the potential effect of the various sources and types of training on pilot behavior, competency, and the likelihood of an accident. The lack of pilot data also makes it difficult to identify the root causes of accidents attributed to pilot error and determine appropriate risk mitigation opportunities.\nThe annual survey FAA uses for collecting general aviation flight-activity data suffers from significant limitations—limitations that call into question the resulting activity estimates FAA produces as well as the accident rates calculated by NTSB. Though FAA has improved the survey over the years, our concerns remain because the survey continues to experience response rates below 50 percent and relies on the record-keeping habits and memories of survey respondents who sometimes have to recall details that occurred more than 12 months earlier. Further, other methods for obtaining general aviation flight-activity data have encountered resistance from the industry. Without a more accurate reporting of general aviation flight activity, such as requiring the reporting of flight hours at certain intervals—e.g., during registration renewals or annual maintenance inspections—FAA lacks assurance that it is basing its policy decisions on a true measure of general aviation trends, and NTSB lacks assurance that its calculations of accident and fatality rates accurately represent the state of general aviation safety.\nGiven the diversity of the general aviation community—illustrated, for example by the wide variety of aircraft in the fleet and the varying nonfatal and fatal accident rates among the general aviation segments, the adoption of a singular agency goal–-a 10 percent reduction in the general aviation fatal accident rate per 100,000 flight hours by 2018 is not the most effective risk-based tool for achieving general aviation safety gains. The goal does not take into account the variety of general aviation operations or the risks associated with each. For example, one hour flown during a personal operation is not the same as one hour flown during a corporate operation. Also, economic conditions affect each segment differently, making it difficult to discern if a change in the accident rate is an indication of a change in the safety of the industry. If the goal is reached, the overall success might mask ongoing safety issues in one or more segments of the community.\nFAA officials have indicated that the success of the 5-year strategy— which is composed of numerous initiatives—will be measured through changes in the general aviation fatal accident rate. However, successful results-oriented organizations measure their performance at each organizational level by developing performance measures. For this reason, we think it is important for FAA to develop performance measures for the significant initiatives underlying the 5-year strategy. This is important because if FAA does not measure the performance of the significant underlying initiatives, it will not be able to determine whether the initiatives were effective in their own right. In addition, in order for the FAASTeam to be successful in its promotion of the 5-year strategy, it must be well respected within the general aviation community. We are not making a recommendation regarding the FAASTeam at this time since plans for restructuring it are in flux and its volunteer force realignment is not scheduled to begin until 2013.", "To enhance FAA’s efforts to improve general aviation safety, we recommend that the Secretary of Transportation direct the FAA Administrator to take the following four actions:\nTo expand the data available for root cause analyses of general aviation accidents and other purposes, collect and maintain data on each certificated pilot’s recurrent training, and update the data at regular intervals.\nImprove measures of general aviation activity by requiring the collection of the number of hours that general aviation aircraft fly over a period of time (flight hours). FAA should explore ways to do this that minimize the impact on the general aviation community, such as by collecting the data at regular events (e.g., during registration renewals or at annual maintenance inspections) that are already required.\nTo ensure that ongoing safety issues are addressed, set specific general aviation safety improvement goals—such as targets for fatal accident reductions—for individual industry segments using a data- driven, risk management approach.\nTo determine whether the programs and activities underlying the 5- year strategy are successful and if additional actions are needed, develop performance measures for each significant program and activity underlying the 5-year strategy.", "We provided the Department of Transportation (DOT) with a draft of this report for review and comment. DOT officials agreed to consider our recommendations and provided technical comments, which we incorporated as appropriate.\nWe are sending copies of this report to the appropriate congressional committees, the Secretary of Transportation, the Chairman of NTSB, and interested parties. In addition, this report is available at no charge on the GAO Web site at http://www.gao.gov.\nIf you or your staff members have any questions about this report, please contact me on (202) 512-2834 or at dillinghamg@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix II.", "Our objective was to conduct a comprehensive review of general aviation safety. To do so, we addressed the following questions: (1) what are the characteristics and trends in general aviation accidents from 1999 to 2011 and (2) what actions have been taken by the Federal Aviation Administration (FAA) to improve general aviation safety?\nTo identify the characteristics of and trends in general aviation accidents, we conducted a data analysis using the National Transportation Safety Board’s (NTSB) Aviation Accident Database. We limited our analysis to accidents involving airplanes operating under Part 91 of the Federal Aviation Regulations that occurred from January 1, 1999, through December 31, 2011, in the U.S. We excluded accidents that occurred in U.S. territories, possessions, and international waters. To assess the reliability of the NTSB data, we reviewed documentation on data collection efforts and quality assurance processes, talked to knowledgeable NTSB officials about the data, and checked the data for completeness and reasonableness. We determined that these data were sufficiently reliable for the descriptive and comparative analyses used in this report. To supplement our analysis of the NTSB accident data, we also analyzed FAA’s general aviation flight-hour estimates for 1999 through 2010 and estimated active pilot data for 2011. To assess the reliability of these data, we reviewed documentation on data collection efforts and quality assurance processes and talked to knowledgeable FAA officials. In assessing the reliability of the flight-hour estimates, we also spoke with the contractors responsible for executing the survey that yielded these estimates, the General Aviation and Part 135 Survey. We determined that the flight-hour data and the active pilot data were sufficiently reliable for the purposes of this engagement. Specifically, these data elements were sufficiently reliable to provide meaningful context for the numbers and characteristics of accidents that we report. However, we also determined that because of the methodological limitations identified—a low response rate and the potential for nonresponse bias—the flight-hour estimates developed from the General Aviation and Part 135 Survey may not have the precision necessary to measure small changes in the general aviation accident rate over time.\nTo identify actions FAA and others have taken to improve general aviation safety, we reviewed our prior reports as well as documents and reports from FAA, NTSB, NASA, and general aviation industry trade and other groups, including the Aircraft Owners and Pilots Association (AOPA), the Experimental Aircraft Association (EAA), and the Society of Aviation and Flight Educators (SAFE); FAA orders, notices, advisory circulars; and applicable laws and regulations. We also determined the roles and responsibilities of FAA and NTSB in collecting and reporting general aviation safety data. In addition to interviewing officials from the various FAA offices and divisions responsible for general aviation safety, we interviewed aviation experts affiliated with various aviation industry organizations. (See table 4.)\nTo obtain additional insight into the general aviation industry, we attended the September 2011 AOPA Aviation Summit in Hartford, Connecticut; the March 2012 Annual FAA Aviation Forecast Conference in Washington, D.C.; the February 2012 Northwest Aviation Conference in Puyallup, Washington; and the June 2012 NTSB General Aviation Forum in Washington, D.C.", "", "", "In addition to the contact named above, the following individuals made important contributions to this report: H. Brandon Haller, Assistant Director; Pamela Vines; Jessica Wintfeld; Russ Burnett; Bert Japikse; Delwen Jones; Josh Ormond; and Jeff Tessin." ], "depth": [ 1, 1, 2, 2, 2, 2, 1, 2, 2, 2, 2, 2, 1, 1, 1, 1, 1, 2, 2 ], "alignment": [ "h1_full", "h1_title", "", "h1_full", "", "", "h0_full", "", "h0_full", "h0_full", "", "", "", "", "", "h1_full", "", "", "" ] }

{ "question": [ "What has the FAA done to reduce fatal aviation accidents?", "What are the focus areas of the GAJSC?", "What poses problems for the GAJSC?", "What are possible effects of this lack of performance management structure?", "What is the status of the U.S. general aviation system?", "What is the relationship between aviation fatality and general aviation?", "What is most often the cause of these accidents?", "What was GAO asked to do in the face of those statistics?", "How did GAO conduct this research?" ], "summary": [ "FAA has embarked on several initiatives to meet its goal of reducing the fatal general aviation accident rate by 2018. These include the renewal of the General Aviation Joint Steering Committee (GAJSC) with a data-driven approach and the implementation of the Flight Standards Service’s 5-year strategy.", "The GAJSC, a government-industry partnership, focuses on analyzing general aviation accident data to develop effective intervention strategies. The 5-year strategy involves numerous initiatives under four focus areas: (1) risk management, (2) outreach which is composed of FAA staff and industry volunteers, will be responsible for carrying out significant portions of the strategy.", "While the GAJSC’s efforts are modeled on an approach deemed successful in contributing to a reduction in fatal jeopardize its potential for success. For example, the strategy lacks performance measures for the significant activities that comprise it.", "Without a strong performance management structure, FAA will not be able to determine the success or failure of the significant activities that underlie the 5-year strategy.", "Although the U.S. aviation system is one of the safest in the world, hundreds of fatalities occur each year in general aviation—which includes all forms of aviation except commercial and military. The general aviation industry is composed of a diverse fleet of over 220,000 aircraft that conduct a wide variety of operations—from personal pleasure flights in small, piston aircraft to worldwide professionally piloted corporate flights in turbine-powered aircraft.", "According to 2011 National Transportation Safety Board (NTSB) data, 92 percent of that year’s fatal accidents occurred in general aviation.", "The majority of general aviation accidents are attributed to pilot error.", "GAO was asked to examine the (1) characteristics of and trends in general 2011 and (2) recent actions taken by FAA to improve general aviation safety.", "GAO analyzed NTSB accident data, reviewed government and industry studies and other documents, and interviewed FAA and NTSB officials and industry stakeholders." ], "parent_pair_index": [ -1, 0, 0, 2, -1, 0, 1, -1, 3 ], "summary_paragraph_index": [ 2, 2, 2, 2, 0, 0, 0, 0, 0 ] }

{ "title": [ "", "Introduction", "Medicaid Financing", "Federal Share", "The Federal Medical Assistance Percentage", "Medicaid and the Federal Budget Process", "State Share", "Medicaid Expenditures21", "Medicaid and National Health Expenditures", "Trend in Medicaid Expenditures", "Medicaid Expenditures by Service Type", "Per-Enrollee Medicaid Expenditures", "Factors Affecting Medicaid Expenditures", "State Variability in Medicaid Spending", "Conclusion", "Medicaid Expenditures by State" ], "paragraphs": [ "", "Medicaid is a means-tested entitlement program that finances the delivery of primary and acute medical services as well as long-term services and supports. Medicaid is a federal and state partnership. The states are responsible for administering their Medicaid programs, and Medicaid is jointly financed by the federal government and the states. In FY2014, Medicaid is estimated to have provided health care services to 65 million individuals at a total cost of $494 billion (including federal and state expenditures).\nParticipation in Medicaid is voluntary, though all states, the District of Columbia, and the territories choose to participate. The federal government sets some basic requirements for Medicaid, and states have the flexibility to design their own version of Medicaid within the federal government's basic framework.\nStates incur Medicaid costs by making payments to service providers (e.g., for beneficiaries' doctor visits) and performing administrative activities (e.g., making eligibility determinations). The federal government reimburses states for a share of each dollar spent in accordance with their federally approved Medicaid state plans.\nMedicaid is an entitlement for both states and individuals. The Medicaid entitlement to states ensures that, so long as states operate their programs within the federal requirements, states are entitled to federal Medicaid matching funds. Medicaid is also an individual entitlement, which means that anyone eligible for Medicaid under his or her state's eligibility standards is guaranteed Medicaid coverage.\nThis report provides an overview of Medicaid's financing structure, including both federal and state financing issues. The \" Medicaid Expenditures \" section of the report discusses Medicaid in terms of national health expenditures, trends in Medicaid expenditures, economic factors affecting Medicaid, and state variability in spending.", "The federal government and the states share the cost of Medicaid. The federal government reimburses states for a portion (i.e., the federal share or the federal financial participation ) of each state's Medicaid program costs. Federal Medicaid funding is an open-ended entitlement to states, which means there is no upper limit or cap on the amount of federal Medicaid funds a state may receive.", "A primary goal of the federal Medicaid matching arrangement is to share the cost of providing health care services to low-income residents with the states. The Medicaid financing structure represents a fiscal commitment on the part of the federal government toward paying at least half (but not all) of the cost of Medicaid.\nThe federal government's open-ended financial commitment to Medicaid provides a fiscal incentive for states to extend Medicaid coverage to more low-income individuals than a state might choose to fund without the federal Medicaid funding. However, this incentive is counterbalanced by the requirement for states to share in the cost of Medicaid.\nAlthough most federal Medicaid funding is provided on an open-ended basis, certain types of federal Medicaid funding are capped. For instance, federal disproportionate share hospital (DSH) funding to states cannot exceed a state-specific annual allotment. In addition, Medicaid programs in the territories (i.e., American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, Puerto Rico, and the Virgin Islands) are subject to annual spending caps. Another exception to open-ended federal Medicaid funding includes the Qualified Individuals program.", "The federal government's share of most Medicaid expenditures is established by the federal medical assistance percentage (FMAP) rate, which generally is determined annually and varies by state according to each state's per capita income relative to the U.S. per capita income. The formula provides higher FMAP rates, or federal reimbursement rates, to states with lower per capita incomes, and it provides lower FMAP rates to states with higher per capita incomes. FMAP rates have a statutory minimum of 50% and a statutory maximum of 83%. In FY2016, FMAP rates range from 50% (13 states) to 74% (Mississippi).\nThe FMAP rate is used to reimburse states for the federal share of most Medicaid expenditures, but exceptions to the regular FMAP rate have been made for certain states (e.g., the District of Columbia and the territories), situations (e.g., during economic downturns), populations (e.g., certain women with breast or cervical cancer and individuals in the Qualifying Individuals program), providers (e.g., Indian Health Service facilities), and services (e.g., family planning and home health services). In addition, the federal share for most Medicaid administrative costs does not vary by state and is generally 50%.\nThe Patient Protection and Affordable Care Act (ACA; P.L. 111-148 , as amended) included a couple of FMAP exceptions, such as the newly eligible federal matching rates and the expansion state federal matching rates. Under the newly eligible federal matching rate, from 2014 through 2016, states receive a 100% federal matching rate for the cost of individuals who are newly eligible for Medicaid due to the ACA expansion, and this newly eligible federal matching rate phases down to 90% for 2020 and thereafter. The expansion state federal matching rate is available for coverage of individuals in expansion states who were eligible for Medicaid on March 23, 2010, and are in the new eligibility group. The expansion state federal matching rate ranged from 72% to 92% in 2014 and varies each year until 2020, when the matching rate will be 90% for 2020 and thereafter.\nThe federal share of Medicaid expenditures used to be about 57% in a typical year, which meant the state share was about 43%. However, with the exceptions to the FMAP added by the ACA, the federal share of Medicaid expenditures has increased. In FY2014, the federal share of Medicaid expenditures was 60% on average. It is expected to remain around 60% through at least FY2023.", "As discussed above, Medicaid is a federal entitlement to states, and in federal-budget parlance entitlement spending is categorized as mandatory spending , which is also referred to as direct spending . Although most mandatory spending programs bypass the annual appropriations process and automatically receive funding each year according to either permanent or multiyear appropriations in the substantive law, Medicaid is funded in the annual appropriations acts. For this reason, Medicaid is referred to as an appropriated entitlement .\nThe level of spending for appropriated entitlements, similar to other entitlements, is based on the benefit and eligibility criteria established in law. The amount of budget authority provided in appropriations acts for Medicaid is based on budget projections for meeting the funding needs of the program. Although most changes to the Medicaid program are made through statute, the fact that Medicaid is subject to the annual appropriations process provides an opportunity for Congress to place funding limitations on specified activities in Medicaid, such as the circumstances under which federal funds can be used to pay for abortions.\nThe appropriations bill usually provides Medicaid with (1) funding for the fiscal year considered in the appropriations bill and (2) an advance appropriation for the first quarter of the following fiscal year. For instance, the Consolidated and Further Continuing Appropriations Act, 2015 ( P.L. 113-235 ), provided Medicaid with $234.6 billion for FY2015 and an advance appropriation of $113.3 billion for the first quarter of FY2016.", "The federal government provides broad guidelines to states regarding allowable funding sources for the state share of Medicaid expenditures. However, to a large extent, states are free to determine how to fund their share of Medicaid expenditures. As a result, there is significant variation from state to state in funding sources.\nStates can use state general funds (i.e., personal-income, sales, and corporate-income taxes) and \"other state funds\" (i.e., provider taxes, local government funds, tobacco settlement funds, etc.) to finance the state share of Medicaid. Federal statute allows as much as 60% of the state share to come from local government funding. Federal regulations also stipulate that the state share not be funded with federal funds (Medicaid or otherwise). In state fiscal year 2013, on average, 73% of the state share of Medicaid expenditures was financed by state general funds, and the remaining 27% was financed by other state funds.\nA few funding sources have received a great deal of attention over the past couple decades because states have used these funds in financing mechanisms designed to maximize the amount of federal Medicaid funds coming to the state. For example, some states have used financing mechanisms that involve the coordination of fund sources, such as provider taxes and intergovernmental transfers, and payment policies, such as DSH and supplemental payments, to draw down federal Medicaid funds without expending much, if any, state general funds.", "Medicaid expenditures account for a significant and growing portion of total health expenditures in the United States. Expansions of eligibility account for much of Medicaid's expenditure growth over time, and the ACA Medicaid expansion is expected to significantly increase Medicaid expenditures over the next few years. However, Medicaid expenditures also are influenced by economic, demographic, and programmatic factors. In addition, there is considerable variation in Medicaid spending from state to state due to demographic differences, state policy choices, utilization of services, and provider payment rates.", "In 2014, Medicaid represented 16% of national health expenditures; in that same year, private health insurance and Medicare accounted for 33% and 20% of national health expenditures, respectively. Figure 1 shows Medicaid as a percentage of national health expenditures from 1966 (the first year Medicaid was in operation) through 2014. Since the start-up years (i.e., 1966 through 1971), Medicaid expenditures have grown as a percentage of national health expenditures with just a couple of exceptions. In the past, much of Medicaid's expenditure growth has been due to federal or state expansions of Medicaid eligibility criteria. Over time, Medicaid has become one of the largest payers in the U.S. health care system.\nMedicaid is a major payer in some categories of national health expenditures and accounts for a smaller share of other categories of expenditures. Figure 2 shows that in 2014, Medicaid was a major payer in the categories of spending that include long-term services and supports, with Medicaid paying 56% of expenditures in the other residential, and personal care category; 36% of home health expenditures; and 32% of nursing facilities and continuing care retirement communities. Medicaid accounted for 17% of hospital expenditures. For the other services, in 2014, Medicaid accounted for a smaller share of the national expenditures, with Medicaid paying 13% of durable medical equipment, almost 11% of physician and clinical expenditures, 9% of prescription drugs, 9% of dental expenditures, and 7% of other professional expenditures. Medicaid did not have any expenditures for non-durable medical products in 2014.", "Over time, much of Medicaid's expenditure growth has been due to federal or state expansions of Medicaid eligibility criteria, and the ACA Medicaid expansion is expected to significantly increase Medicaid expenditures over the next few years. Figure 3 shows actual Medicaid expenditures from FY1997 to FY2014 and projected Medicaid expenditures from FY2015 through FY2023 broken down by state and federal expenditures. In FY2014, Medicaid spending on services and administrative activities in the 50 states, the District of Columbia, and the territories totaled $494 billion (see Table A-1 for state-by-state expenditures for FY2014). Medicaid expenditures are estimated to grow to $835 billion in FY2023.\nFederal Medicaid expenditures totaled $299 billion, or 60% of total Medicaid expenditures, in FY2014, and state Medicaid expenditures were $195 billion, which was 40% of total Medicaid spending. From FY2013 to FY2014, federal Medicaid expenditures grew by almost 14% whereas state Medicaid expenditures grew by only 1% due to the enhanced federal matching rates for the ACA Medicaid expansion (discussed in the \" The Federal Medical Assistance Percentage \" section). Medicaid expenditures resulting from the ACA Medicaid expansion are projected to be $457 billion from FY2014 to FY2023, with the federal government paying about 93% of this amount.", "Most Medicaid expenditures (i.e., 95% in FY2014) are for medical assistance (or nonadministrative) payments. In FY2014, Medicaid spending on medical assistance grew by an estimated 9.5%, which is significant relative to the annual percentage increases for FY2012 and FY2013—0.2% and 6.0%, respectively. The ACA Medicaid expansion was the main reason for the large increase in Medicaid spending, but the woodwork effect also contributed to the increase.\nFigure 4 shows medical assistance payments by service type for FY2014. Managed care, which includes payments to managed care organizations, primary care case management, and non-comprehensive prepaid health plans, accounted for 37% of Medicaid expenditures. Long-term services and supports, which include nursing facility care and home- and community-based services, made up 23% of all Medicaid expenditures. Hospitals received 11% of total Medicaid expenditures in return for services provided to Medicaid fee-for-service enrollees at the payment rates set by states.", "In Medicaid, there are four main eligibility groups: children, adults, the aged, and individuals with disabilities. Per-enrollee Medicaid expenditures across these groups averaged $6,897 in FY2013. However, as shown in Figure 5 , per-enrollee expenditures varied significantly by eligibility group, with the per-enrollee expenditures by eligibility group ranging from $2,807 for children to $17,352 for individuals with disabilities.\nOne reason the aged and disabled populations have higher per-enrollee expenditures is because these populations consume most of the long-term services and supports, which comprise almost a quarter of all Medicaid expenditures (see Figure 4 ). Another reason for the difference in per-enrollee expenditures by eligibility group is that children and adults tend to be healthier and therefore tend to have lower health care costs than the aged and disabled populations, even though a significant number of nondisabled adults are pregnant women.\nIn FY2013, the aged and disabled populations together accounted for about 26% of Medicaid enrollment and 64% of Medicaid expenditures. In comparison, the children and adult populations accounted for about 74% of Medicaid enrollment and 36% of Medicaid expenditures.", "Medicaid expenditures are influenced by economic, demographic, and programmatic factors. Economic factors include health care prices, unemployment rates, and individuals' wages. Demographic factors include population growth and the age distribution of the population. Programmatic factors include state decisions regarding which optional eligibility groups and services to cover and how much to pay providers. Other factors include the number of eligible individuals who enroll and their utilization of covered services.\nMedicaid enrollment is affected by economic factors, which in turn impact Medicaid expenditures. Medicaid is a countercyclical program, which means Medicaid enrollment growth tends to accelerate when the economy weakens and tends to slow when the economy gains strength. During the most recent recession, researchers estimated that for every 1% increase in the national unemployment rate, Medicaid enrollment increased by 1 million individuals. People become eligible for Medicaid during economic downturns because they lose their jobs, experience reductions in income, or lose access to health benefits.", "Figure 6 shows that total Medicaid spending is highly concentrated, with the seven most populous states (California, New York, Texas, Pennsylvania, Florida, Ohio, and Illinois) accounting for almost half of Medicaid expenditures in FY2014 (see Table A-1 for state-by-state expenditures for FY2014). State variation in Medicaid per-enrollee expenditures is significant, with per-enrollee Medicaid expenditures ranging from $4,803 in California to $13,039 in the District of Columbia for FY2012.\nSome of the state variation in Medicaid per-enrollee expenditures is due to demographic differences across states. For instance, states with lower-than-average proportions of elderly and disabled Medicaid enrollees and higher-than-average proportions of Medicaid enrollees who are children and adults would be expected to have lower-than-average per-enrollee Medicaid expenditures. However, state policy choices regarding optional populations and services cause variation in Medicaid spending. Other reasons for state variation in Medicaid per-enrollee expenditures include variation in utilization and provider payment rates.", "Medicaid is the largest source of general revenue-based spending on health services (even when compared to Medicare) because a sizable portion of Medicare spending is funded by a dedicated revenue source. Medicaid constitutes a significant portion of the federal budget, and federal Medicaid expenditures are expected to increase significantly over the next 10 years due to the ACA Medicaid expansion. As a result, Medicaid could be a focus of potential deficit reduction or other legislative proposals affecting the federal budget.\nBoth the House and Senate FY2016 budget resolutions included proposals to reform Medicaid financing. The House Budget Resolution for FY2016 ( H.Con.Res. 27 ) and its resolutions for the previous four years have included converting Medicaid to a block grant as an illustrative example for achieving budget savings. The FY2016 Senate Budget Resolution ( S.Con.Res. 11 ) proposes to convert Medicaid for the \"low-income, working-age, able-bodied adults\" and children to a capped allotment like CHIP. Also, in February 2015, Senators Richard Burr and Orrin Hatch along with Representative Fred Upton released the Patient Choice, Affordability, Responsibility, and Empowerment (CARE) Act, which is a policy proposal that would convert Medicaid to a capped allotment.", "Table A-1 provides the most recent Medicaid expenditures for each state, including both the federal and state shares of spending on benefits, administrative services, and total Medicaid expenditures. These Medicaid expenditures exclude expenditures in the territories and spending for State Medicaid Fraud Control Units, Medicaid survey and certification of nursing and intermediate care facilities, and the Vaccines for Children program." ], "depth": [ 0, 1, 1, 2, 3, 3, 2, 1, 2, 2, 3, 3, 2, 2, 1, 2 ], "alignment": [ "h0_title h2_title h1_title", "", "h0_title h2_title", "h0_full h2_title", "h0_full h2_full", "", "", "h2_title h1_title", "h1_full", "h2_full", "", "", "", "", "", "" ] }

{ "question": [ "What is the FMAP?", "Why is the FMAP important?", "What is the relationship between FMAP and states?", "What is the breakdown of health expenditures?", "How is most of the Medicare percentage spent?", "What services comprise a smaller share of Medicaid?", "How important is government assistance to Medicaid as of 2014?", "What is the impact of the Patient Protection and Affordable Care Act?", "Why is this the case?" ], "summary": [ "The federal government's share for most Medicaid expenditures is called the federal medical assistance percentage (FMAP). Generally determined annually, the FMAP formula is designed so that the federal government pays a larger portion of Medicaid costs in states with lower per capita incomes relative to the national average (and vice versa for states with higher per capita incomes).", "Generally determined annually, the FMAP formula is designed so that the federal government pays a larger portion of Medicaid costs in states with lower per capita incomes relative to the national average (and vice versa for states with higher per capita incomes).", "Federal Medicaid funding to states is open ended.", "In 2014, Medicaid represented 16% of national health expenditures; in that year, private health insurance and Medicare accounted for 33% and 20% of national health expenditures, respectively.", "Medicaid is a significant payer in the categories of health spending that include long-term services and supports and hospital expenditures.", "For the other services (such as durable medical equipment, physician and clinical services, prescription drugs, and dental services), Medicaid accounts for a smaller share of the national expenditures.", "In FY2014, Medicaid expenditures totaled $494 billion, with the federal government paying $299 billion, or about 60% of the total.", "Over the next few years, Medicaid expenditures are expected to increase significantly due to the Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) Medicaid expansion.", "The federal government is paying the vast majority of the costs associated with the ACA Medicaid expansion due to the enhanced federal matching rates available to states that choose to implement the ACA Medicaid expansion." ], "parent_pair_index": [ -1, 0, -1, -1, 0, 1, -1, -1, 1 ], "summary_paragraph_index": [ 1, 1, 1, 3, 3, 3, 4, 4, 4 ] }

{ "title": [ "", "Background", "National Aviation Security Policy", "The National Strategy for Aviation Security", "Threats to Aviation", "Aircraft-related Threats", "Threats to Aviation Infrastructure", "Threats Involving Exploitation of Air Cargo", "Risk-Based Methodology", "Strategic Objectives", "Roles and Responsibilities", "Aviation Mode-Specific Plans", "Some Possible Issues for Congress", "What Is the Validity of Underlying Risk Assumptions?", "To What Extent Do the Contents of U.S. Policy, National Strategy, and Mode-Specific Plans for Aviation Security Align with Recommendations of the 9/11 Commission, and Statutory Requirements Related to the Implementation of Those Recommendations?", "Does the National Strategy for Aviation Security and Its Supporting Plans Sufficiently Consider the Sustainability of the Aviation Security System and Its Various Components?", "Is the National Strategy for Aviation Security Forward-Looking, or Does It Perpetuate a Reactive Approach to Strategic Security Planning in the Aviation Domain?", "To What Extent Does the National Strategy for Aviation Security Provide a Comprehensive Framework for Conceptualizing and Implementing Initiatives to Develop and Maintain a Robust Aviation Security System?", "How Do the Objectives and Approaches Set Forth in the Aviation Security Strategy and Mode-Specific Plans Align with Budgetary Decision-Making and Resource Availability?" ], "paragraphs": [ "", "In the years preceding the terrorist attacks of September 11, 2001, the United States lacked a comprehensive national policy and strategy for aviation security. The United States approach to aviation security had largely been shaped by past events such as the bombing of Pan Am flight 103 in December, 1988 and, at that time, was undergoing a reactive shift in strategy, placing emphasis on addressing the threat of aircraft bombings aboard commercial airliners, albeit with limited resources and a much slower time frame compared to actions taken following the terrorist attacks of September 11, 2001.\nIn April 2001, the Federal Aviation Administration issued a strategic plan for civil aviation security titled \"A Commitment to Security.\" The vision was for the FAA and the U.S. aviation security system to be \"[r]ecognized as the world leader in civil aviation security—identifying and countering aviation-related threats to U.S. citizens worldwide.\" The strategic goal stated in the plan was to let \"[n]o successful attacks against U.S. civil aviation\" occur. In comparison to the breadth and depth of the post-9/11 focus on aviation security, the desired key results stated in this document in retrospect seem quite modest and the goal tragically unattained. The pre-9/11 strategic plan sought to improve on checked baggage and checkpoint screening performance and utilize a combination of explosives detection system (EDS) screening and positive passenger baggage match (PPBM) techniques to vet 100% of checked baggage. In addition to improving technical capabilities to detect explosives in checked baggage, strategies identified by the FAA included\nestablishing security screening operations and training standards which, at that time, did not exist; ensuring Federal Air Marshals were available to protect selected high-risk flight, although their numbers had dwindled to 33 at the time of the 9/11 hijackings; ensuring that certified explosives canine teams were available at major U.S. airports; and ensuring preparedness and crisis management to respond to incidents that may occur.\nThe FAA Civil Aviation Security Strategic Plan also sought to improve air cargo security, primarily to reduce transport of dangerous goods, a likely response to the concerns over the transport of dangerous goods highlighted by the May 11, 1996 crash of Valujet flight 592 in the Florida Everglades. The strategic plan sought to achieve this objective largely through industry training and education and targeted inspections of dangerous goods transportation areas. Despite the emphasis on preventing aircraft bombs carried in passenger luggage, the potential threat of a bomb placed in air cargo was not mentioned in the strategic plan. Also, while the strategic plan addressed internal FAA security, the emphasis of this strategic element was on handling and protection of sensitive information and maintaining up-to-date background checks and clearances for employees in security-sensitive positions. While the strategic plan did identify the completion of facility security assessments and the protection of information systems among key results sought, it did not convey any insight regarding the potential threats and vulnerabilities of air traffic facilities to physical attack or FAA information systems to physical or cyber-attack.\nThe FAA's pre-9/11 strategic plan also identified several key results regarding external relationships including improved communications with Congress, the aviation industry, foreign governments, the Office of Management and Budget (OMB), and the Department of Transportation, Office of Inspector General (DOT OIG). The strategic plan, however did not specifically address relationships with federal law enforcement agencies and the intelligence community, factors that became a central focus of post-9/11 homeland security policy debate. The strategic plan also did not address relationships and coordination with the military for incident response, a major deficiency in the FAA's response to the hijackings on September 11, 2001, and an area of considerable focus during post-9/11 strategic planning.\nWhile the FAA strategic plan for aviation security failed to adequately consider all security risks, the 9/11 Commission concluded that the terrorist attacks of September 11, 2001, revealed failures in imagination, policy, capabilities, and management both on the part of the FAA and the U.S. intelligence community. Although the brunt of the criticism levied by the 9/11 Commission was directed at the U.S. intelligence community, it faulted the FAA for focusing too heavily on the threat of bombings and for not involving the FAA's civil aviation security intelligence functions in the FAA's policymaking process. The 9/11 Commission pointed out that the suicide hijacking threat was imaginable, and was, in fact, imagined by FAA Civil Aviation Security intelligence analysts in 1999, but largely dismissed as being unlikely. The 9/11 Commission faulted Congress as well for becoming entrenched in debate over airline passenger service issues while failing to focus attention and resources on the terrorist threat to the aviation system. The FAA Civil Aviation Security Strategic Plan released in April 2001 serves as evidence that the FAA did not create a comprehensive strategy for protecting the aviation domain from the full spectrum of terrorist threats, and did not effectively prioritize and allocate resources for reducing the vulnerability of the aviation system to possible terrorist attacks.\nImmediately following the terrorist attacks of September 11, 2001, aviation security policy and strategy debate were closely linked to the legislative process leading to the swift passage of the Aviation and Transportation Security Act (ATSA; P.L. 107-71 ). With regard to strategy and policy, ATSA gave the newly created position of Undersecretary of Transportation for Security (now known as the TSA Administrator) specific authority and responsibility for assessing threats to transportation and developing policies, strategies, and plans for dealing with these threats to transportation security. However, the primary emphasis of ATSA was on the security of passenger airline operations, and the immediate focus of the TSA was to meet congressionally established requirements and deadlines for the deployment of air marshals, the federalization of airport security screeners, and 100% explosives detection system (EDS) screening of checked baggage. While the importance of establishing comprehensive policy and strategy for aviation security was recognized by many policymakers, a strategic plan for protecting the aviation domain was slow to take shape.\nIn 2002, as these mandates for enhancing passenger airline security set forth in ATSA were being carried out, and while Congress debated legislation to establish the Department of Homeland Security (DHS), the Bush Administration began examining U.S. policies for protecting the homeland against future terrorist attacks in a broader context, considering other infrastructure and assets beyond the aviation domain that may be at risk. In July 2002, the President issued the National Strategy for Homeland Security and in February 2003, the President issued the National Strategy for the Physical Protection of Critical Infrastructures and Key Assets. However, neither of these strategies offered specific details on aviation security strategy, nor did they specify how aviation security plans and programs fit into these broader strategies for protecting the homeland and its critical infrastructure and key resources (CI/KR) from terrorist attacks.\nOn July 22, 2004, the 9/11 Commission released its final report, concluding that the TSA had failed to develop an integrated strategic plan for the overall transportation sector and specific plans for each of the transportation modes. The 9/11 Commission recommended that the U.S. strategy for transportation security should be predicated on a risk-based prioritization for allocating limited resources to protect transportation infrastructure in a cost-effective manner, assigning roles and responsibilities for federal, state, regional and local authorities as well as private stakeholders. Following the release of the 9/11 Commission's final report, Congress made addressing the recommendations of the report a key legislative priority, reflecting many of the Commission's recommendations in the Intelligence Reform and Terrorism Prevention Act of 2004 ( P.L. 108-458 ), which was enacted on December 17, 2004. The act specifically required the DHS to develop, prepare, implement, and keep up-to-date a comprehensive national strategy for transportation security and mode-specific security plans. Reflecting 9/11 Commission recommendation language, the act required the strategy to assign risk-based priorities and realistic deadlines for implementing practical and cost-effective defenses against security threats, setting forth agreed upon roles and missions for federal, state, regional, and local authorities and mechanisms for private sector cooperation and participation.\nUnder the requirements established in the act, the National Strategy for Transportation Security was to be accompanied by mode-specific security plans, including an aviation mode-specific plan. The modal security plan for aviation was required to include a threat matrix outlining each threat to the United States civil aviation system and the corresponding layers of security in place to address these threats and a plan for mitigation and reconstitution of the aviation system in the event of a terrorist attack. While the act required that the first iteration of the strategy be transmitted to the congressional homeland security authorizing committees by April 2005, the strategy document was delivered in September 2005. As required by law, updates to the strategy and the mode-specific plans must be transmitted to Congress every two years. These strategy documents have been designated as security sensitive information as provided for in the act. Consequently, they have had limited distribution beyond the DHS and the homeland security authorizing committees in Congress. Therefore, there has not been extensive public discourse on the DHS approach to developing a national strategy for transportation security and strategies and plans specific to protecting the aviation mode from future terrorist attacks.\nHowever, in June 2006, President Bush issued policy guidance directing the DHS to establish and implement a national strategy for aviation security and a series of supporting plans for implementing this strategy. Unlike prior strategies and plans that had either been too broad in scope to provide detailed information regarding aviation-specific security strategies or were limited in distribution, the policy, strategy, and supporting plans developed under this Presidential directive have been made available to the public, thus offering insight into the strategic direction and approach to aviation security being pursued by the DHS in coordination with other federal agencies. These documents are also much more comprehensive in their consideration of security in the aviation domain compared to prior strategy documents and therefore provide a more thorough picture of U.S. policy and strategy for mitigating threats involving aviation. This report examines the current National Aviation Security Policy, the National Strategy for Aviation Security, and formal mode-specific plans developed for implementing this strategic approach. This report also identifies and discusses some overarching considerations for congressional oversight and possible legislative action regarding the U.S. policy and strategy for securing the aviation domain.", "The National Aviation Security Policy represents the overarching aviation-specific components of The National Strategy for Homeland Security. That strategy specifies that the Department of Homeland Security (DHS) will serve as the focal entity for managing and coordinating border and transportation security initiatives \"... to prevent the entry of terrorists and the instruments of terror, while facilitating the legal flow of people, goods, and services on which our economy depends.\" The policy, however, addresses a broader spectrum of threats to the air domain that include not only specific threats to the homeland, but also threats to national security interests both within the United States and abroad. Therefore, in addition to the overall responsibility for homeland security and aviation security for which the DHS and the TSA are directly responsible, the National Aviation Security Policy also involves matters concerning the Department of Defense, the Department of State, the Department of Justice, and a variety of other federal, state, and local agencies and private entities, and relies on close coordination with and continued cooperation from other nations.\nOn June 20, 2006, President Bush issued Homeland Security Presidential Directive 16 (HSPD-16/ National Security Presidential Directive 47 (NSPD-47)) establishing new U.S. policy, guidelines, and implementation of actions to address threats to the air domain. The document broadly defines the air domain as the global airspace and all aircraft operating within that airspace including both manned and unmanned vehicles, as well as all people and goods being transported by such aircraft, and all supporting aviation infrastructure.\nThe policy objectives set forth in HSPD-16 endeavor to prevent terrorist acts and other hostile actions either directed at or exploiting elements of the aviation domain while also minimizing the impact on air commerce and fostering the economic growth and stability of the aviation industry. The statement of policy notes that:\n[t]he United States must continue to use the full range of its assets and capabilities to prevent the Air Domain from being used by terrorists, criminals, and other hostile states to commit acts of terrorism and other unlawful or hostile acts against the United States, its people, property, territory, and allies and friends, all while minimizing the impact on the Aviation Transportation System and continuing to facilitate the free flow and growth of trade and commerce in the Air Domain. These efforts are critical to the global stability and economic growth and are vital to the interests of the United States.\nThe stated policy specifies that the United States, in cooperation with international partners, will take all necessary and appropriate actions, consistent with applicable laws, statutes, and international agreements, to enhance the security and protect the United States and U.S. interests in the air domain. The implementation of this policy is to be consistent with a risk-based prioritization of aviation security strategies and tactics. Activities to support this policy objective specifically cited in this directive include\nprotecting critical transportation networks and infrastructure from terrorist attacks and other hostile, criminal, and unlawful acts and reducing the vulnerability of the air domain to these types of possible attacks or exploitation; improving situational awareness of security issues affecting the air domain and facilitating and enhancing information sharing to improve detection of threats and appropriate responsive actions; ensuring seamless, coordinated efforts relating to aviation security among federal, state, tribal, and local agencies and authorities; enhancing the resilience of the air transportation system to a terrorist attack, including the capability to rapidly recover from such an attack and minimize impacts on economic, transportation, social, and governmental systems; countering the proliferation of standoff weapons, such as shoulder-fired missiles, that pose significant risks to both civilian and military users of the air domain by terrorists, criminals, and other hostile groups and individuals; and enhancing international relationships and promoting the integration of other nations and private sector partners in an improved global aviation security framework.\nImplementation of this policy is to be coordinated through the President's Homeland Security Council (HSC) Border and Transportation Security Policy Coordination Committee (BTS PCC). The policy established a requirement for the Secretary of Homeland Security to develop an overarching national strategy for aviation security and supporting plans to carry out this strategy.", "HSPD-16 directed the Department of Homeland Security to implement this policy through the creation of an overarching national strategy for aviation security. The directive explicitly called for the development of a national strategy for aviation security that is adaptive to changing threat levels and types of threats, and it is rooted in a risk-based, multi-disciplinary, and global approach to aviation security. The directive required that the national strategy, along with its supporting plans, include, at a minimum, risk-based approaches to address the following threats:\nattacks using aircraft against ground-based targets, including possible attacks using aircraft to deliver or transport chemical, biological, radiological, nuclear, or explosive (CBRNE) weapons; attacks using stand-off weapons, such as shoulder-fired missiles or other man-portable air defense systems (MANPADS); attacks using on-board explosive devices and other conventional and non-conventional weapons to directly target aircraft; hijackings and air piracy; and physical attacks or cyber-attacks on aviation critical infrastructure and facilities, such as air traffic control facilities and networks and navigation systems.\nThe directive also identifies several specific action items to be addressed in supporting mode-specific plans to implement the national strategy for aviation security. The required plans include\nthe Aviation Transportation System Security Plan; the Aviation Operational Threat Response Plan; the Aviation Transportation System Recovery Plan; the Air Domain Surveillance and Intelligence Integration Plan; the International Aviation Threat Reduction Plan; the Domestic Outreach Plan; and the International Outreach Plan.\nThe National Strategy for Aviation Security, along with several of these supporting plans (except for the Aviation Transportation System Recovery Plan which is still undergoing internal review within DHS and the International Aviation Threat Reduction Plan), was publically released on March 26, 2007.", "The National Strategy for Aviation Security identifies three origins or sources of threats to the air domain: terrorist groups, hostile nation-states, and criminals. The strategy document points out that while physical attacks from terrorist groups pose the most prominent threat, terrorists may also use criminal tactics to move operatives, weapons, explosives or possibly weapons of mass destruction (WMDs) through the aviation system. The strategy notes that \"[s]uch threats are particularly worrisome in areas of the world where governments are weak or provide safe haven to terrorists.\" Further, hostile-nation states may directly sponsor international terrorism directed against aviation by providing funding, training, weapons, explosives, supplies, and other material support to carry out attacks against the air domain. Also, the presence of criminal elements with extensive knowledge of the aviation sector, both within the United States and in foreign countries, pose a persistent threat to aviation and could provide potentially violent domestic groups or international terrorists with specific capabilities to exploit weaknesses in aviation security. Therefore, these three threat origins or sources cannot be viewed as being mutually exclusive, as they may combine in various forms to carry out attacks either directly against aviation assets or by exploiting elements of the air domain to prepare for or carry out attacks against the homeland or U.S. interests abroad.\nThe strategy document defines three primary categories of threats against the aviation domain based on the target of the threat. These consist of: threats involving aircraft; threats to aviation infrastructure; and threats involving hostile exploitation of air cargo. A variety of tactics may be used to attack these targets, including hijackings, bombings, shootings, and criminal tactics such as smuggling of persons and weapons. A synopsis of the relationships between threat origins or sources, aviation targets, and tactics for attacking these aviation targets is presented in Figure 1 .", "Aircraft threats may be directed at aircraft or may involve the use of aircraft to attack other targets, as was the case in the terrorist attacks of September 11, 2001. The strategy document notes that large passenger aircraft have historically been at the greatest risk from terrorist attacks, including both hijackings and bombings, because terrorists have perceived that attacks against such aircraft have significant potential to cause catastrophic damage and mass casualties and disrupt the aviation system. The document, however, notes that terrorists may also seek to attack all-cargo aircraft, especially large all-cargo aircraft which are considered attractive as weapons to attack ground-based targets in 9/11-style attacks. All-cargo aircraft, and the air cargo system in general, may also be attractive to terrorists or criminals as a means of conveyance for weapons, explosives, or other supplies. The strategy considers large transport aircraft, both passenger airliners and to a lesser extent all-cargo aircraft, to be at risk from possible attacks using shoulder-fired guided missiles or other standoff weapons.\nThe strategy also indicates that small aircraft face both the threat of direct attack as well as the threat that they may be used as weapons to attack ground-targets. While the strategy notes that small aircraft appear to be relatively unattractive targets for attacks by themselves because they carry few passengers, it cautions that terrorists may use a wide variety of small aircraft, such as business jets and helicopters, to destroy ground-targets, especially critical assets and infrastructure. The most formidable threat comes from the potential use of small aircraft to either transport or deliver a WMD payload. The strategy also notes that small aircraft are also used by transnational criminal elements to carry out illegal activities, such as drugs and weapons smuggling, and pose a considerable challenge for border protection.\nFinally, the strategy recognizes that non-traditional aircraft, such as unmanned aircraft, ultra-lights, and aerial-application aircraft (i.e., crop dusters), may be used as either weapons or means of conveyance for WMDs. The strategy states that terrorists may employ such aircraft for missions that are limited in range, require limited accuracy, and have a specific and small target. For example, crop dusting aircraft have been regarded as a potential threat for dispersing a chemical or biological agent. The strategy notes that such tactics deserve very close monitoring.\nThe strategy also briefly notes the potential threat to the air domain posed by hostile nation-states from military aircraft and missiles. However, these threats are mainly a concern for national defense and the Department of Defense (DoD), rather than a focus for homeland security, and thus have not been a major focus of the aviation security strategy and its supporting plans. This threat is, therefore, not further considered in this discussion.", "The strategy maintains that reported threats to aviation infrastructure, including airports and air navigation facilities are relatively few. The strategy notes that air navigation facilities, in particular, have a low public profile and are resilient to attack due to a robust multilayered design that can be quickly reconstituted thus limiting psychological and economic impacts stemming from an attack. The strategy, however, notes that there is a wide variety of potential threats to aviation infrastructure. The strategy notes in particular the potential threat to concentrations of individuals at major airport passenger terminals. Terrorists may attack passenger terminal buildings with explosives, as was attempted at Glasgow International Airport, Scotland in June 2007 and in several other historical incidents.\nThe strategy concludes that attacks against other facets of aviation infrastructure, such as general aviation airports and air cargo handling areas, are less likely to materialize, largely because attacks against these facilities would generally not offer the opportunity to target large numbers of people and would therefore have a more limited psychological impact. The strategy, however, was released a few months before U.S. law enforcement authorities arrested members of a suspected homegrown terrorist cell who were plotting to bomb jet fuel storage tanks at New York's John F. Kennedy International Airport (JFK) and the network of jet fuel distribution pipelines in the New York City area. While the actual vulnerability of this infrastructure to such an attack remains debatable, the plot highlighted the possibility that aviation jet fuel storage facilities and distribution systems at major U.S. airports may be at risk. While the sophistication of this particular plot has been questioned, in general, the potential threat to fuel farms and pipelines and other critical aviation infrastructure—where an attack could have a dramatic effect capturing public attention and potentially disrupting the aviation system on a large scale—may deserve further attention from policy makers and aviation security strategists.", "The strategy recognizes that the large scale, diversity, and complexity of the air cargo industry makes it potentially vulnerable to exploitation by terrorists. The strategy, however, concludes that post-9/11 actions to enhance air cargo security have been effective in reducing the threat of stowaways aboard air freighters that could carry out a 9/11-style suicide hijacking and the threat of explosives. Nonetheless, the strategy recognizes that the enhanced regulatory framework for air cargo security is not immune to exploitation, and the air cargo system, in general, has been exploited for years by criminal elements. In addition to possible threats to all-cargo aircraft noted above, the threat of terrorist infiltration of air cargo handling operations and facilities remains a threat that could lead to exploitation of the air cargo system as a means of conveyance for terrorist operatives, and conventional weapons, WMDs, explosives, weapon components, and other terrorist items. While not discussed specifically by the strategy, it should be noted that all sorts of criminal activities, possibly including cargo-related crimes in the aviation domain, could provide revenue sources to support terrorist organizations.", "The U.S. National Strategy for Aviation Security is predicated on a risk-based, multi-disciplinary, and global approach to ensure that resources allocated at the federal, state, and local levels and by private sector aviation interests provide the greatest potential to detect, deter, and prevent attacks against aviation and mitigate the consequences if an attack does occur. This risk-based approach or methodology is described in detail in the National Infrastructure Protection Plan (NIPP) and the NIPP Transportation Sector Specific Plan (TSSP) which were made available to the public in May 2007. In general, the NIPP serves to define the unifying structure through a common framework for identifying critical assets, conducting risk assessments, and developing and implementing risk reduction and mitigation initiatives based on the results of these assessments. The TSSP applies this risk-based framework across the entire transportation sector, including the aviation domain.\nThe system-based risk-management framework outlined in the TSSP describes risk as a function of threat, vulnerability, and potential consequences, and it analyses security risk by taking into account all three of these factors. The transportation sector approach to risk management adheres to an underlying vision for risk-based decision making that seeks to establish a balance between security and freedom. The goals outlined in the TSSP include\npreventing and deterring terrorist acts against transportation systems; enhancing the resilience (i.e., the ability to absorb damage without catastrophic failure) of the U.S. transportation system; and improving the cost-effective use of resources allocated to transportation security.\nThe risk-based methodology seeks to achieve these three overarching goals by prioritizing resources based on risk. This approach seeks to involve extensive participation from global, state and local, and private sector entities with specific domain expertise. It also is intended to rely on inputs from the intelligence community, expert judgment, and futures analysis related to the impact or consequences of various threat scenarios.\nA wide variety of risk-based transportation sector security assessment tools have been developed to assist security strategists and planners. These consist of self-assessment tools and government site evaluations, reviews, and analytic tools examining either risk as a whole, or specific risk subcomponents including threat, vulnerability, and consequence. Some specific tools being implemented to assess risk in the aviation domain include government facilitated site assistance visits and comprehensive reviews, web-based Vulnerability Identification Self Assessment Tool (VISAT) modules for airports that are currently under development, and the FAA's Information Systems Security Program (ISSP) for air traffic control systems and related functions. Communication and dissemination of this information to sector stakeholders is seen as a critical component of the risk-based strategy.", "Relying on the risk-based approach, the National Strategy for Aviation Security identifies five strategic objectives to guide aviation security activities. These include\ndeterring and preventing terrorist attacks and criminal or hostile acts in the air domain; protecting the homeland and United States interests in the air domain; mitigating damage and expediting recovery if an attack against aviation occurs; minimizing the impact of an attack on the aviation system and the broader U.S. economy; and actively engaging domestic and international partners.\nAccording to the strategy for aviation security, terrorist attacks will be deterred and prevented by maximizing shared awareness of domestic and international airspace, aviation infrastructure, and individuals having access to the aviation system. Therefore, the strategy seeks to establish a system of protection that considers not only individual elements of the aviation system, but also their connections and interdependencies.\nWhile the principal goals of the strategy are to deter and prevent attacks, the strategy also seeks to prepare for, and have in place, contingencies for mitigating damage and expediting recovery. The strategy identifies a need for diverse and flexible response options, for example, allowing for the selective restriction or suspension of air traffic on local or regional levels as necessary and providing decision makers with tools and resources to effectively close and reconstitute the aviation system and take other appropriate steps to prevent further attack. In general, the strategy seeks an overall approach to implementing security measures whose normal operations will minimize impacts on the flow of goods and people through the air transportation system while at the same time providing a high level of protection tailored to the unique needs of the aviation sector.", "The complexity and scope of the global aviation transportation systems requires cooperation among federal, state, and local government entities, international agreements and cooperation, and the participation of various industry and other private sector stakeholders to prevent, respond to, and recover from possible attacks involving aviation assets. The leading and supporting roles and responsibilities of these various entities are guided by existing laws and regulations particularly those regarding the authority to act, desired outcomes or objectives, and the availability of assets and capabilities to address aviation security needs or requirements.\nAt the highest levels of federal government (i.e., among cabinet-level leadership), the Secretary of Homeland Security has responsibility for coordinating national aviation security programs. In general, responsibilities of the Department of Homeland Security (DHS) include risk analysis and reviews of aviation security programs; coordination of aviation security law enforcement operations; border protection including monitoring of cross-border aviation operations and inspections and controls at all ports of entry including airports; coordinating efforts to assess and prioritize security measures for critical infrastructure and key resources (CI/KR); developing security technologies to protect against threats to aviation security such as explosives, carry-on weapons, and shoulder-fired missiles; coordination of aviation security measures and incident response; and information sharing to support and improve the global aviation security network.\nWithin the DHS, the TSA has the statutory responsibility for security across all modes of transportation, including aviation where it has extensive operational responsibility for passenger airline security as well as strategic planning and regulatory responsibilities for all other aspects of security. The TSA collaborates with Department of Transportation (DOT) entities, and in particular the Federal Aviation Administration (FAA), on transportation and aviation infrastructure protection and security issues. The TSA administers a variety of programs to support aviation security, including the National Explosives Detection Canine Team program, which trains and deploys canine teams for explosives detection in aviation and other transportation modes; the Federal Flight Deck Officers Program which trains and deputizes armed pilots to defend commercial airliner flight decks from hostile actions; checkpoint and baggage screening carried out by TSA-employed Transportation Security Officers (TSOs); the use of aviation security inspectors to ensure regulatory compliance among aviation operators and related industries; Federal Air Marshals (FAMS), and the explosives operations division to respond to potential explosives threats. Additionally, the TSA maintains an intelligence function to coordinate and provide notice regarding threats to transportation, vetting passengers and aircrews, foreign students seeking flight training in the United States, airport workers, and other populations that may pose a threat to aviation or transportation security. During a national emergency, the TSA has the responsibility of coordinating transportation security-related responsibilities and activities of other departments and agencies in all modes, including aviation.\nThe TSA Office of Intelligence (OI) plays a central role in the transportation threat assessment process. It is the only federal entity focused solely on transportation and aviation security threat assessment. As such, it has developed a wide range of threat assessment products, based on analysis of intelligence information provided by the National Counterterrorism Center (NCTC) and other components of the intelligence community. These include a transportation intelligence gazette; comprehensive transportation-related threat assessments; annual modal threat assessments for all transportation modes including aviation; special threat assessments of specific events; weekly intelligence reports; suspicious incident reports; intelligence notes on transportation-related terrorist trends, incidents, and tactics; and transportation situational awareness notes on notable transportation-related terrorist information.\nWhile the TSA has broad authority and responsibility for both domestic and international aviation and other transportation modes, Customs and Border Protection (CBP) has a specific primary mission of preventing terrorists and terrorist weapons from entering the United States. CBP also provides radar tracking and monitoring to support the FAA and the Department of Defense in protecting airspace around Washington, DC and throughout the continental United States. The United States Coast Guard (USCG) conducts aviation operations for national defense, law enforcement, and national security, including the specific mission of providing aerial patrols and aircraft interdiction in the National Capital Region around Washington, DC. The Department of Defense (DoD) is, however, ultimately responsible for deterring, defending against, and if necessary, defeating aviation threats within the United States and to U.S. interests globally. To meet this mission, the DoD operates as part of the North American Aerospace Defense Command (NORAD) to monitor, deter, and detect potentially hostile actions. The DoD also maintains a capability to respond to aerial threats by keeping significant numbers of fighter aircraft on alert, carrying out airborne fighter patrols over the homeland, and deploying ground-based missile defense systems around Washington, DC and other areas as warranted.\nWhereas the DoD has responsibility for airborne threats, potential criminal and terror threats to aviation by individuals or groups of individuals is primarily the responsibility of the law enforcement arm of the Department of Justice (DOJ), the Federal Bureau of Investigation (FBI). The FBI's Civil Aviation Security Program (CASP) and counterterrorism units have been involved extensively in efforts to uncover and prevent terrorist operations to attack or exploit civil aviation in the United States. The FBI has deployed over 500 airport liaison agents (ALAs) to about 450 airports with commercial passenger service to respond to aviation-related incidents and threats and participate in vulnerability assessments and planning at the airport level of analysis.\nThere are a myriad of other agencies and organizations that play important roles in operational aviation security. The DHS Science and Technology (S&T) Directorate maintains research and development programs to enhance aviation security, especially to address explosives threats and threats to aircraft from shoulder-fired missiles. Additionally, the multi-agency Joint Planning and Development Office (JPDO) has responsibility for designing and overseeing the implementation of the future air transportation system, including its security components. However, the degree to which the JPDO plans for future aviation security systems are integrated with DHS aviation security technology initiatives has not been fully assessed at this point.\nIn addition to these efforts, the Department of State has overall responsibility for outreach and coordination with foreign governments to enhance cooperation in improving aviation security. Ongoing State Department efforts includes initiatives to improve data sharing for advance passenger prescreening, and programs to reduce stockpiles of standoff weapons, including shoulder-fired missiles, which pose a threat to civil aircraft. Also, the Department of Commerce plays a role in international trade negotiations and by developing U.S. policy and regulation regarding aviation trade an security issues, while the DOT, in coordination with the Department of State, negotiates international agreements regarding airline and other commercial aviation activities. Additionally, the intelligence community, coordinated through the Office of the Director of National Intelligence (ODNI) plays an important role in assimilating and assessing intelligence—collected through signals interception (SIGINT), imagery (IMGINT), and human collection (HUMINT)—on threats exploiting aviation security measures. Additionally, other DHS components, including the Federal Emergency Management Agency (FEMA), the Domestic Nuclear Detection Office (DNDO), and the Office of Infrastructure Protection (OIP) have various responsibilities related to infrastructure protection and critical incident response in the aviation domain. Also, the Department of Energy provides scientific and technical expertise regarding nuclear weapons, radiation detection capabilities at airports to detect possible nuclear weapons or radiological materials, and coordinating response to any radiological contamination resulting from a possible nuclear or radiological attack.\nIn addition to the federal role, a variety of industry advisory groups have been established to provide insight and recommendations for guiding transportation security policy and practice. Most notably, the Aviation Security Advisory Committee (ASAC) exists to support the TSA by providing advice and developing recommendations for improving aviation security methods, equipment, and procedures. The ASAC has been in existence since before September 11, 2001, and advised the FAA on aviation security matters; it has continued in this role, now supporting the TSA in its role as the lead federal agency for aviation security issues. Also, the National Research Council (NRC) and the Transportation Research Board (TRB), components of the National Academies, provide venues for information sharing and analysis of transportation security policies and practices among researchers, practitioners, and other subject matter experts. Additionally, airports, airlines, and other aviation industry stakeholders as well as state and local security and law enforcement entities play an important role in shaping and carrying out the national aviation security policy and strategy, largely by working in cooperation and coordination with the TSA to design and execute aviation mode-specific security plans.", "The DHS had developed a suite of aviation mode-specific plans that serve as a general framework for implementing the national strategy for aviation security under normal operating conditions, in response to an eminent threat or ongoing terrorist attack involving the aviation domain, and during recovery and reconstitution of aviation system functions and services following a potential attack. Specifically, the Aviation Transportation System Security Plan most directly addresses the day-to-day security measures and programs to reduce the vulnerability of the air transportation system to terrorist actions or other criminal acts. This plan is augmented by the Air Domain Surveillance and Intelligence Integration Plan which coordinates intelligence gathering, analysis, and dissemination within the air domain. In addition, the International Aviation Threat Reduction Plan and the International Outreach Plan provide a framework for working with other nations to improve the global aviation security network with an emphasis on outreach to promote the implementation of effective security practices worldwide.\nUpon recognition that a terrorist or criminal attack targeting or exploiting aviation assets was taking place, the Aviation Operational Threat Response Plan would be activated. This plan considers specific actions and concepts of operations for mitigating the consequences of a broad array of attack scenarios. This plan is augmented by the Domestic Outreach Plan which considers the involvement and coordination of state, local, and tribal government resources and private sector entities in responding to such an event, focusing most specifically on strategies for incident communications as well as the dissemination of threat information during routine operations. An Aviation Transportation System Recovery Plan is also being developed by the DHS to facilitate rapid recovery following a possible terrorist attack or similar disruption to the air transportation system. The goal of the recovery plan is to mitigate the operational and economic impacts of such events on the aviation system.", "While the above discussed national policy and strategy for aviation security and the supporting mode specific plans provide an important framework for structuring aviation security measures in the United States, these documents themselves can appropriately be viewed with a critical eye to identify any potential shortcomings in underlying assumptions and approaches. In the process of congressional oversight and legislative debate, specific questions regarding aviation security policy and strategic approaches may arise. Some possible issues that may arise as the result of oversight or legislative debate may include\nthe validity of underlying risk assumptions made in developing the aviation security policy, national strategy, and mode-specific plans; the adequacy of considerations regarding the sustainability of the aviation security system and its various components; whether the policy and strategy are forward-looking, or rather, do they perpetuate a reactive approach to security planning in the aviation domain; the extent to which the policy and strategy provide a comprehensive framework for developing and maintaining a robust aviation security system; and the extent to which objectives and approaches outlined in the national strategy align with budgetary processes and resource availability to ensure that strategic objectives can be adequately met.\nThese possible issues are discussed in further depth below.", "Determining the validity of the various risk models and assumptions that have been used to set aviation security policy and strategy is a difficult task. These risk determinations have largely arisen from restricted access intelligence information and other limited distribution sources, thus constraining the ability to engage in open public discourse on the validity of their underlying evidence and assumptions. Nonetheless, some critics have argued that these risk assumptions and resulting policy and strategic decisions may be based on inaccurate and incomplete analysis. For example, some have noted that federal intelligence and security agencies are \"inexperienced with and uninterested in statistics.\" This has led some to argue that the use of statistical techniques to study terrorism data is sorely needed, although it has been questioned whether the federal government has necessary capability and expertise to assess the reliability of available data, and use reliable methods to perform statistical analyses. Instead, some have argued that \"security agencies seem to advance policies without any empirical basis,\" relying instead on anecdotal evidence, political pressures, or \"gut feelings.\" Such a basis for setting policy and establishing strategies for homeland security and aviation security can result in inappropriate estimates of risk—overstating the risk of certain scenarios while underestimating the risk of others. While it appears that efforts are being made to better document global terrorism incidents and perform statistical analyses to identify risk trends, more comprehensive efforts to look specifically at risks to the aviation domain may be needed to provide better guidance for developing and refining aviation security policies and strategies. Congress may specifically examine DHS efforts to employ reliable statistical tools and techniques to validate underlying risk assumptions cited as the justification for pursuing certain courses of action to implement aviation security policies and strategies.", "Congress has relied heavily on the findings and recommendations of the 9/11 Commission in setting legislative priorities. The 9/11 Commission recommendations provided a framework for consideration of legislation enacted in both in the 108 th Congress when the Commission's final report was first released in 2004 (see P.L. 108-458 ), and during the first session of the 110 th Congress in 2007 ( P.L. 110-53 ).\nWith regard to aviation security, both the 9/11 Commission and subsequent legislation have emphasized policies and strategies to aggressively pursue capabilities to detect explosives on passengers, and pursue technologies to better screen passengers and carry-on items for a broad array of threat objects. The Intelligence Reform and Terrorism Prevention Act of 2004 ( P.L. 108-458 ) specified that the DHS should give a high priority to checkpoint screening technologies for detecting nonmetallic, chemical, biological, radiological, and explosives and directed the DHS to develop a strategic plan for the deployment of explosives detection technologies at checkpoints, such as walk-through explosive detection portals, document scanners, shoe scanners, and backscatter X-ray scanners. The act authorized funding for the development and testing of these various checkpoint screening technologies. However, while the TSA has also recognized the importance of enhancing passenger screening capabilities, progress has been slow in developing the required checkpoint screening strategy and results of using these technologies in airport settings has been mixed, prompting Congress to include language in the Implementing the 9/11 Commission Recommendations Act of 2007 ( P.L. 110-53 ) requiring the DHS to finalize its checkpoint screening strategic plan and begin implementing it by the summer of 2008.\nProgress, however, has been slowed by technology hurdles including reliability issues with walkthrough explosives trace detection portals deployed for field testing and the failure of shoe explosives scanners tested on Registered Traveler program participants in Orlando, Florida to meet minimum standards set by the TSA. The TSA has also been faced with shifting technology strategies prompting them to pursue liquids explosives screening technologies as well. The TSA has reported good results in evaluations of highly sensitive handheld explosives trace detection sensors that are now being field tested for screening carry-on liquids at passenger checkpoints. While technology testing is progressing, a clear strategic picture of how these emerging technologies will be deployed to upgrade and enhance screening checkpoints is still needed. The recent mandate in P.L. 110-53 to develop and implement such a strategy appears to address this need. However, further congressional oversight of the TSA's progress in implementing the strategic plan for emerging checkpoint screening technologies may be scheduled to ensure that appropriate and effective program and budgetary decisions are made to achieve strategic goals.\nThe 9/11 Commission emphasized the need for the federal government to take over the role of checking passenger names to allow for thorough vetting of passengers against the comprehensive, consolidated terrorist watchlist maintained by the federal government. While this objective has largely been accomplished by Customs and Border Protection (CBP) for all inbound international flights, efforts to deploy a system for federal prescreening of passengers on all domestic flights has been repeatedly delayed amid continued controversy over privacy rights, protection of personal data, and adequate procedures for redress when individuals are falsely denied boarding or singled out for additional screening. While Congress has generally concurred with the 9/11 Commission's view that comprehensive passenger prescreening against the consolidated watchlist is needed, Congress has also been sensitive to these privacy rights, data protection, and redress concerns, and through legislation has placed specific contingencies related to these issues on system implementation, and has repeatedly directed the GAO to carefully scrutinize the TSA's progress in addressing specific requirements for full-scale system deployment. Further congressional oversight of TSA's progress toward implementing federally run passenger prescreening on domestic flights may be called for, as the strategic plan indicates that implementation of this initiative is expected in 2008.\nThe 9/11 Commission also recommended that ongoing initiatives to integrate checked baggage explosives detection systems (EDS) with airport baggage handling systems should be expedited. Congress has placed an emphasis on funding airport projects to integrate EDS in-line with baggage handling conveyors, establishing the Aviation Security Capital Fund for this purpose as part of the Vision 100 – Century of Aviation Reauthorization Act ( P.L. 108-176 ) in 2003. Nonetheless, the GAO estimates that making the needed changes at all airports in the United States to integrate EDS equipment will not be completed until 2024 if future funding remains consistent with historic funding levels for thee activities. In recognition of this continuing funding need, Congress took the unusual step of including a 20-year reauthorization of funding for in-line baggage system deployment, extending authority for the Aviation Security Capital Fund and other funding mechanisms for in-line EDS integration through 2028, and directed the TSA to take further steps to prioritize airport EDS integration projects as part of the Implementing the 9/11 Commission Recommendations Act of 2007 ( P.L. 110-53 ). Oversight of TSA strategies and plans for funding airport projects related to EDS integration may be of long-lasting interest for Congress given the size, scope, complexity, and cost of this initiative.\nIn addition, the 9/11 Commission recommended that the TSA intensify efforts to identify suspicious cargo, and appropriately screen and track potentially dangerous cargo in aviation as well as in maritime operations. Toward this objective, the TSA has issued regulations to increase the security of air cargo operations and has been pursuing risk-based targeting capabilities to identify shipments requiring additional scrutiny to direct physical screening resources toward elevated risk cargo with some amount of random screening. Congress, however, has been pushing the TSA toward increasing the amount of cargo destined for passenger aircraft that is screened, and in 2007 passed legislation (see P.L. 110-53 , Sec. 1602) that requires the TSA to establish a system to screen 100% of cargo transported on passenger aircraft by the summer of 2010. Unlike the requirement for 100% checked baggage screening which was tied to a specific technology, namely EDS, the mandate for 100% screening of cargo placed on passenger aircraft can be met using a variety of approaches, including X-ray systems, EDS, trace detection technologies, canine teams, and possibly other methods for physical examination as approved by the TSA. To address this mandate and achieve 100% screening of cargo placed on passenger airlines within the three-year time frame set forth in the legislation, the TSA will need to move relatively swiftly in developing and implementing a strategy for cargo screening. Given the continued congressional interest on the issue of air cargo security, it is likely that extensive oversight of the TSA's progress toward meeting this mandate and effectively conducting air cargo screening operations will occur over the next few years.\nWhile the national strategy and mode-specific plans acknowledge and emphasize passenger prescreening, checkpoint screening, in-line EDS integration, and cargo screening issues, the extent to which DHS efforts on these matters align with congressional views and legislative mandates remains a specific topic for ongoing analysis and debate.", "One seemingly unavoidable reality for aviation security strategists is that continued growth in demand for air travel and for shipping goods by air is anticipated. The FAA estimates that the number of airline passengers will increase at an annual rate of about 3.4% domestically and about 4.7% for international flights over the next twelve years. This anticipated growth could strain passenger and baggage screening operations in the future if it is not adequately planned for. Similarly, growth in air cargo volume is expected to increase at an average annual rate of 3.5% domestically and by 6.7% on international routes through 2020. Strategies and initiatives to enhance the security of air cargo operations and screen air cargo shipments must, therefore, also consider these growth projections in carrying out policies, strategies, and plans for enhancing air cargo security. Air traffic is also expected to increase about 3.8% with a growth of about 3.7% in general aviation operations expected. Airspace security strategies and approaches may need to consider this growth in flight operations in devising effective security programs and procedures for protecting airspace over areas considered critical for national security.\nIt remains unclear, however, whether this anticipated growth in aviation operations is being adequately planned for in the context of national strategies and mode-specific plans for aviation security. The strategies indicate that they will evolve with shifting threat and vulnerability characteristics on the basis of ongoing risk assessments. However, the degree to which the changing nature, size, and scope of aviation and air travel is being considered in these risk assessments remains a signficant issue for policymakers and aviation security strategists.\nWith regard to the sustainability of aviation security technologies, specific strategies for maintaining deployed technologies and phasing-in next generation screening technologies have not yet been clearly defined. While plans for enhancing aviation security under the comprehensive Next Generation Air Transportation System (NGATS) initiative envision extensive improvements to aviation security by 2025, the roadmap to achieving these capabilities has not yet been fully defined. According to the future concept of operations for aviation and airport security, significant security transformations will include\nintegrated dynamic risk management solutions; biometric technologies for airport access controls; smaller footprint, multi-threat detection capabilities for screening passengers and baggage; network-enabled environmental sensors to detect and warn of chemical, biological, radiological, nuclear, and explosives (CBRNE) threats at airports; rapidly deployable, reconfigurable screening systems to meet temporary and intermittent screening requirements; on-board aircraft safety modifications and ground-based systems and procedures to protect flights from shoulder-fired missiles; network-centric information sharing capabilities for data mining and decision support to aid security operations personnel and security analysts; and capabilities to allow for CBRNE screening of all air cargo items not packed in secured areas or securely conveyed to aircraft. While all of these objectives are reflected to some degree in the National Strategy for Aviation Security and the supporting plans, Congress may have a particular interest in how the strategic plan aligns with NGATS plans for enhancing aviation and airport security over the next 18 to 20 years.", "As previously noted, some experts have expressed concern that the DHS may be relying too heavily on \"gut feelings\" and anecdotal evidence in pursuing certain courses of action reflected in aviation policies, strategies, and plans. Similarly, some have questioned whether the DHS and the TSA approach to aviation security has taken on too much of a reactive stance, failing to strategically plan resource allocation based on robust and thoughtful risk analysis, instead allowing high profile events and media reaction to potentially influence decision making.\nFor example, using the TSA's response to the foiled liquid explosives plot in August 2006 by restricting carry-on liquids, some critics have argued that the Administration is allowing single events and the media coverage and public attention they generate to shape policy decisions. The TSA has defended its actions in response to the liquid explosives threat, making available to the public documentation and demonstrations of the formidable threat posed by improvised liquid explosive devices. However, liquid explosives have long been known by security experts to pose a formidable threat to aircraft, yet U.S. aviation policy and strategy before this plot was uncovered had not included any specific near-term measures to screen passengers for liquid explosives.\nCritics argue that reacting to single events is near-sighted and goes against the very purpose of developing strategies and plans in the first place, which is to be proactive in assessing threats and directing resources to mitigate associated risks. However, on the contrary, if strategies and underlying plans are to be adaptive, they should be able to shift rapidly in response to changing threat characteristics and changing threat levels. Reviewing the TSA response to the liquid explosives plot may provide more specific insights into whether this response was a reasonable adaptive approach to mitigate unforseen risks or a case of taking immediate, and arguably questionable, actions in an effort to restore and maintain public confidence in aviation security. If it is determined that the TSA's actions in response to the liquid explosives plot represented a well thought out example of an evolving strategy that can respond quickly and effectively to emerging threats, then perhaps additional questions need to be asked regarding why the emerging threat of liquid explosives was not foreseen prior to widespread public disclosure of information regarding the failed liquid explosives plot in the United Kingdom. A more detailed examination of the deliberations and decision-making regarding liquid explosives, both before and after receiving knowledge of the foiled plot can perhaps provide unique insights and \"lessons learned\" to aid security analysts and senior policy makers in developing strategic and tactical decision making tools to improve upon the U.S. response to future emerging threat situations.\nCritics argue that the government must replace its practices of responding to single threats with more systematic approaches for improving homeland security. A lingering concern is that if aviation security policies and practices, and more broadly homeland security policies and practices, remain too reactionary, terrorists may be able to exploit this approach. Terrorist may be able to trigger reactionary responses by providing misinformation about intended targets or attack methods. This may lead to haphazard allocation or reallocation of resources that could be wasteful and inefficient, and could even result in resources being moved in a manner that could make the system more vulnerable to attack. In other words, terrorists may be able to more easily exploit a reactionary approach to aviation security by using diversionary tactics that may increase vulnerabilities in other areas or aspects of the air domain.", "In 2004, the GAO issued recommendations regarding the desired characteristics of national strategies to combat terrorism. The desired elements of such strategies identified by the GAO included\na purpose, scope, and methodology; a definition of the problem and an assessment of the associated risk; an identification of the goals and supporting or subordinate objectives and activities to meet these goals, and performance measure to evaluate progress toward achieving these goals; an identification of resources, costs, and a risk management analysis to determine where resources and investments should be targeted; a clear definition of organizational roles, responsibilities, and coordination; and a discussion of how a particular strategy relates to other strategies and how plans, activities, and objectives will be integrated to meet the stated goals of the various related strategies.\nWhile the GAO used these criteria to evaluate various national security, homeland security, counterterrorism, and infrastructure protection strategies that had been developed prior to 2004, the National Strategy for Aviation Security had not been developed at that time and has not subsequently been evaluated against these desired elements. At first glance, the aviation security strategy appears to contain or address many of these desirable characteristics. Where the strategy and supporting plans may be lacking, however, is in\nfully defining the methodology for evaluating risk and carrying out the strategy; fully documenting associated cost estimates and resource requirements; providing sufficient detail regarding roles, responsibility, and coordination, particularly among non-federal entities that are expected to participate in carrying out the various mode-specific plans; and clearly indicating how the various components fit into the hierarchy of national security, homeland security, and counterterrorism strategies and plans and how the elements of these various plans may be integrated both within and beyond the aviation domain.\nCongress may seek to carry out a more detailed review of the National Strategy for Aviation Security to specifically identify potential needs for more detail and specificity with regard to addressing these, and perhaps other, key elements of the strategy and supporting plans.\nAdditionally, one of the key required features of the national strategy for aviation security is that it must be adaptive. Consequently, the national strategy and its supporting plans and documents are likely to evolve over time to address changes in threats, intelligence, terrorist tactics and capabilities, as well as new security technologies and capabilities. It is also likely that the strategy and its supporting plans will sometimes need to change quickly in the face of imminent threats. Therefore, Congress may also have a particular interest in assessing the robustness of the national strategy for aviation security and the capability of the underlying aviation security system to adapt based on shifting risk dynamics.", "As a final consideration, Congress and the Administration may have a particular interest in assessing how the national strategy and supporting plans align with budgetary decisions and resource availability, particularly in the context of the annual budget and appropriations process. This could be a key consideration as elements of the current strategy call for some considerable expansion of the TSA's roles and responsibilities. For example, DHS objectives for the TSA to assume passenger identification functions and carry out behavioral observation both at and beyond airport screening checkpoints is likely to be human resource intensive and, therefore, may need further scrutiny in the context of budget and resource prioritization. Also, technology advancements for checkpoint, baggage, and cargo screening are also being sought by both Congress and the Administration. Additionally, new and proposed statutory requirements may also expand the functions of the TSA and other federal agencies. For example, provisions in the Implementing the 9/11 Commission Recommendations Act of 2007 ( P.L. 110-53 ) require the swift phase-in of air cargo inspections to achieve 100% inspections of all cargo carried on passenger air carrier aircraft within three years. This mandate is likely to have significant cost and resource implications not only for the federal government, but also for the airline industry. Aligning this initiative with ongoing strategic plans for risk-based profiling and targeting of cargo shipments and investment in cargo screening technologies is likely to be a topic of considerable interest in the context of the federal budget process over the next few years.\nAs part of the budget process, the TSA has prepared a Strategic Context component of its Congressional Justification documents since the FY2007 budget cycle. While these documents provide a general framework of key strategic issues for the TSA, they adhere to a program level justification and analysis and do not provide in-depth discussion of how specific programs and initiatives address specific strategic issues and risk management practices. While these documents provide a general framework for understanding TSA programs in the strategic context, they may not provide sufficient detail regarding the methods used to set priorities and how the various aviation security programs and initiatives being pursued align with risk-based priorities.\nAs Congress proceeds with initiatives to oversee and possibly modify U.S. approaches to aviation security, substantive issues relating to the contents of aviation security policy, national strategy, and planning documents may be a considerable focus of discussion and debate. While these documents will likely play an important role as a general blueprint for guiding aviation security policy and strategy, it is also likely that the U.S. approach to aviation security will need to continually evolve and adapt to shifting threats and vulnerabilities. Addressing funding and resources to address shifts in risk and security strategy may be an issue of considerable interest in the context of future year budget planning and debate." ], "depth": [ 0, 1, 1, 1, 2, 3, 3, 3, 2, 2, 2, 1, 1, 2, 2, 2, 2, 2, 2 ], "alignment": [ "h0_title h2_title h1_title", "h0_full h2_full h1_full", "", "", "", "", "", "", "", "", "", "", "h2_title h1_title", "", "", "", "h1_full", "", "h2_full" ] }

{ "question": [ "What event sparked a more in-depth look at aviation security?", "What was aviation security policy like before this?", "What did the events of 9/11 reveal about the FAA and US Intelligence?", "What was the policy response to 9/11?", "How did later acts update the Aviation and Transporation Security Act?", "What were the limitations on this reform?", "What direction was the DHS asked to take in 2006?", "What is important for Congress to focus on with these plans?", "What issues, specifically, should Congress be paying attention to?", "What is the current status of this report?" ], "summary": [ "In the years leading up to the terrorist attacks of September 11, 2001, the United States lacked a comprehensive national policy and strategy for aviation security.", "The approach to aviation security was largely shaped by past events, such as the bombing of Pan Am flight 103 in December 1988, rather than a comprehensive evaluation of the full range of security risks.", "The 9/11 Commission concluded that the terrorist attacks of September 11, 2001, revealed failures of imagination, policy, capabilities, and management by both the Federal Aviation Administration (FAA) and the U.S. intelligence community.", "Following the September 11, 2001, attacks, U.S. aviation security policy and strategy was closely linked to the changes called for in the Aviation and Transportation Security Act (ATSA; P.L. 107-71), which emphasized sweeping changes to the security of passenger airline operations.", "While the importance of strategic planning was recognized, it was not a priority. The 9/11 Commission Report concluded that the TSA had failed to develop an integrated strategy for the transportation sector and mode specific plans, prompting Congress to mandate the development of these strategies and plans in the Intelligence Reform and Terrorism Prevention Act of 2004 (P.L. 108-458).", "While the TSA has developed these strategies and plans, the documents have been considered security sensitive thus limiting public discourse on the DHS strategy for aviation security.", "However, in June 2006 President Bush directed the DHS to establish and implement a national strategy for aviation security and an accompanying set of supporting plans.", "Congress may have a specific interest in assessing whether these plans are comprehensive, adaptable, sustainable, and adequately coordinated with budgetary decisions and resource allocation.", "Specific issues for Congress may include the validity of the strategy's underlying risk assumptions; the extent to which 9/11 Commission recommendations and statutory requirements are reflected in the strategy; consideration of sustainability of and advancement of security technologies to meet future needs and system demands; whether the strategy is sufficiently forward-looking and not reactive in its approach; the extent to which the strategy provides a comprehensive framework for a robust aviation security system; and the degree to which strategic objectives and approaches align with budget priorities and resource availability.", "This report will not be updated." ], "parent_pair_index": [ -1, 0, 0, -1, -1, 1, -1, -1, 0, -1 ], "summary_paragraph_index": [ 0, 0, 0, 1, 1, 1, 1, 3, 3, 3 ] }

{ "title": [ "", "Description of the Proposals", "Changes in Basic Individual Tax Provisions (Both Proposals)", "Business and Capital Income Tax Treatment Under the Income Tax Proposal (SIT)", "Additional Modifications of Business and Capital Income Tax Treatment Under the Pro-Growth Proposal (GIT)", "Revenue Neutrality", "Simplification", "Fairness and Equity", "Vertical Equity", "Horizontal Equity", "Efficient Allocation of Capital and the Taxation of Capital Income", "Differential Taxes Across Asset Types", "The Debt Equity Distortion", "Distortions of Payout and Realization Decisions", "Corporate Versus Non-corporate Business Distortions", "Business versus Owner-Occupied Housing and Total Burden", "Effects on Savings, Labor Supply, Growth, and Output", "International Tax Treatment", "Other Tax Incentives", "Health Care", "Charitable Contributions", "State and Local Tax Deductions; Tax Exempt Bonds", "Transition Issues", "Conclusion" ], "paragraphs": [ "In early 2005, the President appointed a tax reform advisory panel to formulate tax reform proposals. The report of the President's Advisory Panel on Tax Reform, issued in November 2005, recommended two reform plans to consider: 1) a revised income tax, referred to as the simplified income tax (SIT); and 2) a consumption tax coupled with a tax on financial income, referred to as the growth and investment tax (GIT).\nThe income tax proposal, or SIT, is an income tax reform proposal that broadens the base and lowers the rates. The consumption tax, or GIT, is imposed as a direct tax which includes a cash flow tax on businesses and a progressive tax on individual wage income. A consumption tax of this type is often referred to by the generic term \"flat tax\" when rates are flat, and as an \"x-tax\" when the tax on wages is progressive. The GIT is not a pure consumption tax plan because it also includes a 15% tax on financial income (interest, dividends, and capital gains); rather it is a consumption tax, with a wage credit and an add-on tax on passive capital income at the individual level. Few individuals are likely, however, to pay much of that capital income tax because of the generous opportunities for tax-favored savings accounts.\nThe advisory panel's report discussed and found some merit in considering partial replacement of the income tax with a value added tax (VAT), but did not propose such a tax. Finally, the report discussed but rejected a retail sales tax as a replacement for the income tax, and also rejected full replacement of the income tax with a VAT. Note, however, that there are several congressional proposals that include value added taxes and retail sales taxes, as well as income tax and flat tax proposals.\nCurrently, the reform proposals are being considered further by the Treasury Department, which has recently released a dynamic analysis that discussed the two tax reform proposals as well as a third proposal, a progressive consumption tax (PCT) that modifies the GIT by eliminating the 15% financial income tax, and raising the top rate to 35%.\nThis report describes the two formal proposals and analyzes them based on revenue neutrality, simplicity and administrative feasibility, equity (distributional effects), and a variety of economic effects. The section on economic effects considers the effects on the allocation of capital, overall effects on growth, potential consequences of the international tax rules, and effects of other tax incentives, including health care, charitable contributions, and spending by state and local governments. Some of these sections also include brief mention of the PCT, the VAT, and the retail sales tax. The report concludes with a discussion of transition issues.", "The tax reform plans have not been presented in legislative language, and therefore details of the plans are not always clear. Many tax issues, such as the treatment of casualty losses or alimony, or capital gains on owner-occupied housing, are not directly addressed, but would presumably be addressed once specific legislative changes are contemplated. However, the major important features are clear.", "The proposals generally have similar provisions that relate largely to the current individual income tax:\nConvert personal exemptions and standard deductions to credits. Replace the current rate structure (10%, 15%, 25%, 28%, 33%, and 35%) with four rates (15%, 25%, 30%, and 33%) in the SIT and three rates (15%, 25%, and 30%) in the GIT. Repeal the alternative minimum tax (AMT). Increase the maximum earned income credit (EIC). Eliminate itemized deductions. Allow a 15% mortgage interest credit for all taxpayers with the mortgage amount capped at the average price of housing in the region. Allow a deduction for charitable contributions in excess of 1% of income for all taxpayers. ( Note: deductions for state and local taxes would be eliminated). Allow a deduction for the purchase of health insurance to taxpayers not covered by an employer plan, and cap employers' deductions for health insurance. Simplify the exclusion for social security benefits and index it. Eliminate the tuition tax credit and other education preferences. Significantly expand existing preferred savings accounts, such as individual retirement accounts, by allowing two savings accounts, each with a limit of $10,000. No income restrictions would apply. The \"Save for Retirement\" account would replace existing individual retirement accounts with a current limit of $5,000. The \"Save for Family\" account would replace education and health savings accounts; funds could be used for education, health, and first time home purchase. Simplify employer savings plans. All individual savings plans would be converted to Roth-type plans (not deductible up front) and, in the case of the GIT, 401(k) and similar plans would be converted to Roth-type plans as well. Simplify employer savings accounts, and encourage and remove barriers to automatic enrollment and growth of contributions.\nSeveral provisions listed above would also have consequences for the taxation of investments in assets. For owner-occupied housing, the changes in mortgage interest and property taxes would affect the return on that investment. Tax burdens on capital income would also be affected by the preferred savings accounts.", "The simplified income tax plan would make major revisions in the current treatment of capital income in addition to those affecting savings in preferred accounts and investment in owner-occupied housing. As in the case of the individual structural provisions, the treatment of some items is not entirely clear. For example, although the research and experimentation credit would presumably be repealed, the expensing of intangible investment in R&D would presumably continue. The major changes are as follows:\nEliminate taxes on dividends and reduce taxes on capital gains on corporate stock to a more or less negligible level. Allow a significant amount of expensing of investment in equipment as well as cash accounting for small businesses, and cash accounting for medium sized businesses. Small businesses would be required to have a separate business bank account. Repeal the corporate alterative minimum tax (AMT). Provide a new, simplified depreciation system. Eliminate most existing preferences. Eliminate the taxation of income from active business abroad, but tax earnings from intangibles currently.", "The GIT provides a cash flow tax at the business level so that the treatment of investments that are currently expensed, such as intangible expenditures on research and development, would continue.\nAll investments and purchases are expensed (deducted when paid); old depreciation deductions phased out. Interest would not be deductible by business and interest income would not be taxable; deductions and payment of taxes on interest on existing debt would be phased out. Taxes paid would be rebated at the border (similar to the treatment of a value added tax). Financial capital income (dividends, capital gains, and interest) would be taxed at 15%.\nThe progressive consumption tax (PCT) plan studied by Treasury would eliminate the tax on financial capital (and obviate the need for savings accounts), and would raise the top rate to 35%. The VAT would be similar to the PCT but would not allow a deduction at the firm level for wages and would not tax wages to individuals, and therefore would eliminate all of the features of the individual tax including the mortgage credit and the deduction for charitable contributions for that part of the tax. The VAT was discussed, however, as a partial replacement for the income tax.", "One of the objectives of the proposal was revenue neutrality. How revenue neutrality is measured depends on the baseline used, and the panel chose to use the Administration baseline, which included the permanent extension of the 2001-2003 tax cuts. This baseline differs from the baseline used by the Congressional Budget Office (CBO), which simply relies on the current tax law, and thus assumes that temporary provisions, including the 2001-2003 tax cuts, will expire. Thus, revenues raised under the administration baseline are smaller than those raised under the CBO baseline.\nAs a result, the revenues raised by the tax reform proposal are associated with a substantial deficit—and one even more substantial given that there is a currently a surplus in the Social Security account that will eventually disappear and become a deficit. Over the period 2007-2016, in addition to the projected deficit of $0.8 trillion, the cost of making temporary tax provisions (except the AMT) permanent, including debt service, is about $2.3 trillion. And these projections do not include the possibility that discretionary spending will rise to keep pace with national income, which would increase the deficit by $1.6 trillion.\nBecause the panel used the Administration baseline, any comparisons made in the analysis are with current law incorporating the 2001-2003 tax reductions. Nevertheless, some additional source of revenue must eventually be identified, which means that tax rates might need to be increased or tax preferences reduced, and how that revenue is made up would affect the analysis. Note also that there are some smaller provisions that would be difficult to dispense with, as discussed below, and if they were restored, an additional revenue shortfall would occur.\nThere is an additional reason that the proposals may not be truly revenue neutral even within the context of the baseline used. The adoption of Roth-type savings accounts reduces current losses from deductions in traditional accounts, but loses revenue in the future. Such a loss could be significant. For example, some rough estimates suggest that a similar proposal by the Administration that gained a small amount of revenue in the budget horizon could eventually cost around $50 billion at current income levels, an amount equal to about 4% of current income tax revenues.", "Both proposals contain many elements that would simplify tax compliance. The elimination of itemized deductions would simplify tax filing. The proposal would, however, add complexity to current non-itemizing returns, which account for 70% of all returns, by allowing the charitable deduction, health insurance deduction, and mortgage credit. Some non-itemizers do not give in amounts that exceed the threshold for charitable deductions (1% of income), and either rent their homes (about a third of the population rents) or have paid off their mortgages. But for those who have either a mortgage payment or significant charitable deductions, or who purchase health insurance, tax filing will be more complicated. Charitable deductions, in particular, require record keeping, although floors may eliminate the need of those with small contributions relative to income to do so.\nThe proposal, on its surface, also eliminates some itemized deductions that are difficult to dispense with, such as the casualty loss deduction, the deduction for extraordinary medical costs, and the deduction for miscellaneous items such as employee and investment costs. Because the panel remained silent on these other itemized deductions, there is no way to know how they would be treated. These exemptions, all over a floor (except for casualty losses for hurricane victims in 2005), are designed to allow offsets for unusually large costs relative to income. It is difficult to imagine not allowing some deduction for these extraordinary costs, but allowing the deductions for all taxpayers would significantly add to the complexity of the tax form. Under current law, two factors limit the claiming of these deductions to truly large costs: the floor, and the fact the deduction is itemized (so that low-income individuals must have a significant dollar loss). Since itemized deductions are no longer feasible, since there is no longer a standard deduction, restoring these deductions would be complicated and undo much of the apparent simplification with respect to itemized deductions.\nThere are also \"above the line\" deductions, such as those for alimony and for moving expenses, as well as some credits that might be thought desirable (the child care credit) whose retention might prove important. Given the extension of tax benefits to non-itemizers, and the possibility of reintroducing some additional deductions, it is not clear whether simplification for individual tax filers on the whole is increased or decreased. A considerably simpler approach to reform would have been to eliminate the state and local income tax deduction while leaving other itemized deductions in place; calculations based on the public use file suggest that change would have reduced the number of itemizers from 30% to about 20%.\nAll taxpayers should experience simplification from the collapsing of deductions, exemptions, and credits into a single family credit, and, for higher-income taxpayers, from eliminating phaseouts and the AMT. Higher-income taxpayers who save will also benefit from the simplified savings accounts.\nAllowing cash accounting and expensing for small businesses under the income tax would also significantly simplify their tax compliance, although much of this benefit would be lost if state income taxes do not make similar adjustments. The provision requiring small business bank accounts to be handled separately from personal accounts could complicate the affairs of those with occasional small amounts of self-employment income unless a de-minimus rule were adopted. (An example would be a professional who receives a small consulting fee, but whose major source of income is employment, or a skilled workman who occasionally moonlights). Complications would also occur for those who use assets for both business and personal use (e.g., homes and cars). Although there is some simplification of the depreciation system for larger businesses, most of the current complexities would remain, as would most of the challenges in allocating international income for multinationals which cannot be eliminated. The elimination of the production activities deduction is an important simplification, however.\nOn the whole, the income tax proposal appears to simplify the tax system for higher-income taxpayers and the self-employed, while possibly complicating it for lower- and middle-income wage earners. The consumption tax proposal should achieve more simplification for business because all acquisitions would be expensed. In this system, there is no need to keep depreciation accounts or inventories.", "Issues of tax equity may concern vertical equity (how effective tax rates rise as incomes rise) and horizontal equity (how different taxpayers with similar circumstances are treated). The discussion below suggests that the income tax replacement has relatively small effects on either vertical or horizontal equity, and indeed may increase inequities across family types. It is more difficult to characterize the growth plan, which is essentially a consumption tax, but there is a case to be made that such a tax would be much less progressive than the current income tax system. In any case, the distributional method used in the panel's study for their progressive consumption tax is inconsistent with the one they suggest is appropriate for another economically equivalent consumption tax—the VAT.", "A second objective of the panel was to maintain the current progressivity of the tax system. The panel's report shows both the SIT and the GIT to be distributionally neutral, at least across broad income classes. (There is no detail about the extremely high-income individuals at the top who constitute only a tiny fraction of taxpayers but a large fraction of income). Note that this distributional comparison is with respect to the assumption that the 2001-2003 tax cuts, which favored higher-income individuals, are in place. Even so, there are questions about the distributional neutrality of the plans.\nProposals to reduce taxes on capital income through reducing or eliminating taxes on dividends, capital gains, and interest income, would likely shift the burden, other things equal, away from high-income individuals to the middle class. The commission's distributionally neutral system is likely, in part, a temporary artifact of the shift into back-loaded savings accounts (which can raise revenue from owners of assets in the short run but lower it dramatically in the long run). The magnitude of this effect is difficult to determine, but analysis of the President's budget proposals of this nature, which had less generous contribution limits and negligible revenue effects in the budget window, suggested the long-run revenue loss could easily be $50 billion or more at current income levels, an amount equal to 4% of FY2005 corporate and individual income taxes. This saving would accrue to individuals in the higher income levels, as savings of any sort tends to be concentrated there.\nDistributional issues are far more problematic in the case of the consumption tax proposal. Although distributional tables are presented that also show distributional neutrality, that conclusion is not clear. As in the case with the income tax proposal, some of the overall effect reflects the effects of savings accounts, and these effects are even more important in the GIT because all defined contribution plans (such as 401(k)s) will be converted into backloaded plans. Moreover, because dividends and capital gains are taxed under this proposal, the long-run sheltering of income by high-income individuals may be even more important. The effects will likely be larger than the effects in the SIT, which are already significant.\nA second, and more important, problem with evaluating vertical equity under the GIT is how to distribute the tax that is collected. One might propose to allocate the tax according to consumption, along with a credit for wage tax reductions due to graduated rates. Indeed, in discussing the VAT, which is also a consumption tax, the study indicates that tax would be allocated according to consumption and would be regressive, not progressive, requiring additional fixed-rate credits and, even in that case, resulting in lower shares of tax paid by the highest-income individuals. However, for the GIT, which is simply a VAT imposed in a different form with a wage credit, a different distributional methodology was used. The business cash flow tax is allocated according to income, and thus the tax is modeled as if it were an income tax.\nA consumption tax is a tax on wage income and a lump sum tax on old capital that is effectively collected over time as the assets are consumed. For very-high-income individuals who indefinitely pass on assets in estates, that consumption may never occur. If one distributed the tax on the basis of consumption, the tax would decline as income rises despite the rate structure. The tax was, however, distributed as if it were an income tax and thus the cash flow tax at the firm level (which is really a lump sum tax on old capital that may or may not be translated into an effective tax on consumption) is treated as if it is a tax on income and falls on high-income individuals.\nTo illustrate the importance of these approaches, consider a recent study that compared the distributional effects of an \"x tax\" with a 15% and 30% rate and a demogrant (rebate to lower-income individuals to offset the tax) under both approaches. This plan is similar in many respects to the panel's proposal. If distributed according to consumption, the middle quintile has an effective tax rate of 23.3%, the top quintile a tax rate of 12.1% and the top 1% a tax rate of 6.1%. If distributed according to income, the tax rate is 11.4% for the middle quintile, 22.5% for the top quintile, and 22.0% for the top 1%.\nDistributing a consumption-based tax in the short run is tricky, and there is no perfect answer because the cash flow tax is a tax that causes asset values (or their purchasing power) to fall, but does not burden new investment which can be purchased at a discount. However, in the long run the consumption tax base tends to be similar to a wage tax base, except that it also favors higher-income people, even in the long run, because they are less likely to consume all of their lifetime wage income. Thus it is highly unlikely that the GIT is distributionally neutral; it makes the tax system less progressive by largely exempting capital income from tax.", "Horizontal equity refers to the equal treatment of those with similar circumstances. There are three basic issues of horizontal equity that could be considered: equal treatment of different family sizes, equity in the treatment of different age cohorts, and equity in the treatment of taxpayers who vary in their preferences for tax-favored activities.\nA recent study used an equivalency index (similar to the poverty levels that vary across family size) to compare tax burdens on families of different sizes. This analysis suggested that in the lower-income levels, families with children tend to be heavily favored compared to singles and childless couples with similar abilities to pay, whereas the reverse is the case at the higher income levels. The tax reform plans appear largely to preserve these features of the tax system. The benefits for families with children at lower income levels arise from the earned income tax credit and child credits, which are maintained. At higher income levels families with children are penalized because the adjustments for family size are not large enough; this problem may be magnified by the converting of personal exemptions into credits, but reduced by the repeal of the alternative minimum tax and phase-outs of deductions. On the whole there appears to be no major change in this aspect of the tax system.\nConsumption taxes, such as the GIT, inevitably shift the burden of the tax towards the current older generation and away from young and future generations. Essentially, those with assets who expect to consume out of these assets are subject to a substantially higher tax. This shifting across the generations is relieved to some extent by the transition rules that allow some recovery of depreciation, but this offset is quite limited. That shift means that older people pay a higher lifetime tax than younger or unborn generations.\nThe elimination of preferences for investment types, the most frequent type of tax preference in the income tax, is generally not viewed as important to horizontal equity in the long run, since capital and pre-tax returns shift to equate returns after tax. The tax revisions continue to favor homeownership, although, as seen below, to a lesser degree. The proposals eliminate the preferences for taxpayers in states with higher taxes, and appear to reduce the benefits for those covered by employer provided health care while allowing benefits for those not covered by employer plans. Charitable contributions effects are mixed as the benefit is provided to non-itemizers, but also subject to a floor. On the whole, the proposals appear to improve horizontal equity as measured on this basis.", "In the broadest terms, a tax reform can alter economic behavior by changing the tax rates on labor and capital income. One of the most important ways in which the tax reform proposals would affect the nature of the tax system is through changes in the taxes on capital income. Indeed, the indications from a recent dynamic analysis of the tax reform proposals suggest there is little or no change in either average or marginal tax rates on labor income from the proposals. It is largely in the treatment of capital income that the proposals have a potential effect.\nChange in the treatment of capital income can improve economic efficiency if they lead to a better allocation of capital to different uses. In general, more even taxation of different types of assets is more efficient. If investors tend to equate returns after tax on different investments, then more neutral taxation will more clearly equate the pre-tax, or social, return, leading to a higher level of output and well-being. A lower aggregate tax rate on capital income can also reduce distortions and lead to a more optimal savings behavior.\nThe method for examining this issue begins with measuring the effective tax rate on the returns to capital invested in different types of assets. In the absence of external effects or other \"market failures,\" capital is allocated most efficiently when all returns are taxed in at the same rate and when financial choices are not influenced by the tax code. Effective tax rates can vary across physical assets (such as equipment and structures), across organizational forms (corporate versus non-corporate businesses), and financial form (corporate debt versus equity).\nEffective tax rates presented in this section are estimated effective rates on income from prospective investments; they take into account the timing of deductions and the fact that a tax benefit received today is more valuable than a tax benefit received in the future because of the time value of money (i.e., money received today can be invested and yield more money in the future). (See Appendix A for a more detailed explanation.) These effective tax rates can differ substantially from average tax rates in the economy because the timing of deductions has a different (and in the long run, more powerful) effect on tax burdens on new investment than is reflected in average tax rate measures. Indeed, it is possible for effective tax rates on new investments to be negative, while average tax rates are positive. However, it is the effective tax rates on new investment that affect the allocation and size of the capital stock. Aside from the statutory tax rate, the main provision affecting the tax burden on new investment is how quickly the cost of the asset is recovered via depreciation deductions.\nWhen tax depreciation matches economic depreciation, the effect is to tax the return to capital (investment income) in each period and the effective tax rate is the statutory rate, when considering a firm's tax burden. The same effect occurs as long as the present discounted value of depreciation deductions is equal to the present discounted value of economic depreciation deductions. Two opposing forces can affect depreciation (and therefore effective tax rates). Because depreciation is based on historical acquisition cost, the real value of depreciation deductions is undermined by inflation. Thus, higher inflation means higher effective tax rates. This inflation effect, other things equal, raises the effective tax rate more for shorter-lived investments than for longer-lived ones. However, depreciation deductions are generally allowed more quickly than the rate that would be justified by economic decline, and that tendency is particularly pronounced in the case of equipment, which increases the deductions' value and leads to a lower effective tax rate. Under current law, most equipment assets, for example, have their costs deducted in five to seven years, although they last a much longer period of time. The Internal Revenue Code specifies that buildings are deducted over 39 years (although residential structures are deducted over 27.5 years).\nThe maximum acceleration of depreciation allows investments to be deducted when incurred, and is a feature of the consumption tax (GIT) at the firm level. The effective tax rate on new investment is zero.\nTax rates can be measured in different ways. The tax rate at the corporate level on equity financed investment, which is calculated first, shows the effects of depreciation rules across asset type (e.g., computing equipment, buildings). Effective corporate tax rates can also be measured as the total tax at both the corporate and personal level, which also reflects the deductibility of interest by corporations and the imposition of individual income taxes on interest, dividends, and capital gains. This measure indicates the change in the total burden on corporate investment. Tax rates can also be separated into total rates on debt financed and equity financed investment, to examine the degree of distortion that favors debt finance. The total tax rate can also be compared with tax rates on non-corporate investment to measure the differential between the total tax on investment in the corporate and non-corporate sectors, as well as federal income taxes on owner-occupied housing (which tend to be around zero). Tax rates also affect the dividend payout choice, arising from differential treatment of retained earnings (which give rise to capital gains) and dividends, and the realization of capital gains. Finally, the overall tax rate in the economy, which requires weighting by asset type, can affect savings decisions.", "Table 1 shows the effective tax rates across different types of assets for the corporate sector with a corporate level tax and shows how even the tax rates are. Two different types of tax rates for current law are reported, one without and one with the 9% production activities deduction enacted in 2004. The statutory rate without the production activities deduction is 35%, and the effective statutory rate with the production activities deduction is 31.85%, similar to the statutory rate of 31.5% in the panel's income tax revision. The last column reports the effective tax rates using the depreciation system in the panel's income tax plan. Although the corporate tax rate under the panel's consumption tax plan is 30%, it is not really relevant to the effective tax rate, since all investments are effectively subject to zero tax rate.\nTable 2 reports these tax rates aggregated across basic composite asset types, and assumes a third of assets is eligible, under current law, for the production activities deduction. This table indicates that the panel's income tax reform evens out tax rates slightly and very slightly increases the effective tax rate (by a percentage point). Essentially that plan does not differ much from current law. The consumption tax reform, however, results in a zero effective corporate tax rate on all assets.\nThese comparisons across asset types indicate that the depreciation system in the income tax reform plan is quite similar in its features to the current provision. Equipment assets are slightly favored relative to structures and inventory, and tax rates are reasonably close to their statutory rates. The income tax reform slightly narrows these differentials, but, in general, is quite similar to current law. The consumption tax reform plan is completely neutral across assets because all investment is expensed, leading to a zero effective tax rate at the firm level (taxes may still be paid at the individual level, however).", "Another issue is the differential tax treatment, within the corporate sector, of debt-financed versus equity-financed capital. Debt is favored at the corporate level under current income tax rules and under the income tax reform because corporations deduct interest payments. If taxes applied only to real economic profits, the tax rate on debt financed earnings would be zero and the tax rate on equity would be the statutory rate, currently 35% for most corporate income. However, under current law, debt is subject to a subsidy at the firm level, for two reasons. First, interest is deducted at the statutory rate (adjusted for the production activity deduction, which on average lowers the rate to 34%) whereas the income is taxed (as suggested above) at a lower effective rate of 29% due to accelerated depreciation. Second, nominal rather than real interest is deducted. Together these effects mean that debt, at the firm level, enjoys a 32% subsidy, whereas equity has a 29% tax.\nThese tax rates are increased and the differences are moderated, however, because equity is favored at the individual level. Capital gains and dividend tax rates are lower, and capital gains can be deferred until the stock is sold and are never paid if shares are passed on at death. (Note that this calculation uses the lower rates on capital gains and dividends adopted in 2003 and technically scheduled to expire in 2010; tax rates would be higher if these provisions expire.) Individual taxes on the return to capital are also reduced because they are imposed on profits after the corporate tax, and thus the corporate tax is effectively deductible from the individual tax base. For an individual in the 30% tax bracket, for example, the tax on interest income is 30% for a dollar of earnings, but the additional individual tax on equity is only 20% (0.3 X (1-0.35)). The recent temporary revisions lowered the tax rate on capital gains (for most recipients) from 20% to 15% and extended these lower tax rates to dividends—a change favoring equity investment. There was also a temporary benefit to debt finance, from the individual tax rate reductions.\nThese effects are shown in the first three rows of Table 3 , which shows that the tax reform plans narrow the differentials between the two types of finance. In fact, the consumption tax reform results in slightly higher tax burdens for debt finance. Under this plan, the only tax is at the individual level, and because of the preferential treatment of capital gains (about half is effectively not taxed through deferral and step up in basis at death), the effective burden on equity-financed investment is lower than that on debt-financed investment.\nThe effective tax rate on debt vs. equity is, however, complicated by the existence of tax-favored forms of individual investment, through pensions and IRAs, where individual tax rates are effectively zero. If these effects are taken into account, current tax rates are lower and the effect of changes in individual tax rates less important. Since these pension funds and IRA account managers (whether or not self directed) can also choose between debt and equity, the case with these effects incorporated is probably more realistic.\nDetermining exactly what weight to assign to tax exempt assets is not entirely clear. Although roughly half of interest and dividends are in funds where they are eligible for exemption under current law, it is not clear whether half of the marginal investments were exempt because some assets were in accounts where investment was made up to the limit. The account limits reduce the share of investments that were non-taxable at the margin. In addition, because of the restraints on these investments, such as penalties for early withdrawal or lack of access to funds, assets in tax exempt accounts at the margin also pay an implicit cost that offsets, to some extent, the tax benefit.\nIt is clear, however, that the share of investment financed from tax exempt sources is likely to increase under the reform commission proposals, and for that reason a case is shown that is financed 100% with tax exempt investment. These plans increase the exemption levels to $10,000 and allow both a retirement account and a savings account—where withdrawals may be made for health, education, or purchase of a primary residence—to replace existing IRAs that are limited to $5,000, as well as existing health and education savings plans that also tend to have smaller limits. Income limits would also be abolished. In addition, for the income tax plan, the exemption of dividends and most of capital gains should allow more interest-bearing assets to be placed into exempt accounts.\nOnce tax exempt forms are considered, and the exempt share is assumed to be larger for the reform plans, it is no longer obvious that the income tax reform narrows the debt-equity distortion compared to current law. In comparing tax rates with large discrepancies, and particularly those with negative rates, a more meaningful comparison is the tax wedge, or the excess by which the pre-tax return must exceed a fixed after-tax return, which is measured by t/(1-t), where t is the tax rate. Thus under current law without considering tax exempt forms effects, a debt-financed return must exceed the after-tax return by 10% (0.09/(1-0.09)), whereas an equity-financed return must exceed the after-tax return by 59% (0.37/(1-0.37)). The difference between those is 49% of after-tax return. The difference between the wedges for the income tax reform proposal is 30%. However, the difference between the wedges for current law with 50% tax exempt finance is 59%, whereas the difference for the tax reform proposal is 48% for 50% tax finance and 62% for 100% tax finance. (The differences are negligible for the consumption tax plus tax on financial income reform.)\nThese measures suggest that the income tax reform is likely to narrow the differences between debt and equity finance, but perhaps not by very much, whereas the consumption tax reform would eliminate virtually all of the differences.", "Under current law, the tax system favors the retention of earnings in corporations and the delay in the realization of capital gains, because capital gains that arise from retained earnings are not taxed until the asset is sold, and are never taxed if held until death. As a result the effective tax rate on capital gains for taxable investors is about half the rate of dividends, and the distortion is small (about an eight percentage point differential) because most dividends and capital gains are taxed at a flat 15% rate. There are no distortions for tax exempt investments. This basic treatment is retained in the consumption tax reform provision, although the share of tax exempt investment is likely larger. The income tax revision actually reverses the relationship, because the tax rate on dividends is zero, but only 75% of capital gains are excluded. That treatment creates an incentive to pay out earnings. The magnitude of the distortion is probably less, however; the maximum capital gains effective rate will be only about 8%.", "Aside from the distortion between debt and equity, the corporate tax also discourages investment in the corporate sector. Table 4 examines the total effective tax rate in the corporate sector as compared with the non-corporate sector under the different tax regimes.\nAs in the debt vs. equity case, calculations are also done taking into account the lower individual tax rates for pensions and IRAs. Since these entities would not invest directly in unincorporated businesses (such as sole proprietorships and partnerships), the non-corporate numbers consider only the case when the providers of loans are not fully subject to tax. However, since non-corporate investment is not a viable alternative for passive investment entities such as pension plans, the more relevant measure may be the tax rates without incorporating these effects, since it is among taxable accounts that choices might be made about investing directly in businesses rather than financial instruments.\nThis table also considers the differential treatment of small businesses (which are largely non-corporate). The smallest businesses (which account for most non-corporate investment) are assumed to operate on a cash basis and expense equipment investments, whereas the medium sized businesses would also be on a cash basis but would depreciate equipment and buildings. Cash accounting produces a zero effective tax rate on inventory investment. For current law, the calculations assume that small non-corporate businesses would be able to expense investments in equipment under current provisions of the tax law that allow expensing with a ceiling.\nAs in the case of the debt equity choice, the income tax reform proposal appears to narrow the differentials between corporate and non-corporate investment although the reduction is generally small. The consumption reform significantly narrows the differentials.", "Table 5 provides estimates of the total tax burden on business investment for owner-occupied housing and for aggregate investment in the economy.\nThe income tax reform, in general, narrows the differences in tax rates between business investment and owner-occupied housing, from a difference in tax wedges of about 40% under current law to a difference of about 27%. The consumption tax reform narrows the wedge to less than 15%. Thus both reforms would reduce the distortions between business investment and housing.\nA final rate shown in Table 5 is the overall marginal tax rate in the economy. The income tax reform proposal keeps about the same effective tax rates if the same assumptions are made about tax exempt finance, but it would be likely to slightly lower the overall tax rate because of the increased amount of tax exempt finance. The consumption tax proposal with the tax on financial income would lower overall tax rates, and is likely to produce a negative overall tax rate. A negative tax rate could occur when most investment comes from tax exempt forms (and thus there is little or no tax on financial investment) and combines a virtually zero tax on business investment with a negative tax on owner-occupied housing, due to the mortgage credit. A negative tax rate on capital income, like a positive one, causes an intertemporal distortion.", "If tax rates on capital and labor income affect labor and savings and if they are altered, output and growth rates in the near and intermediate term can change. Despite the presumption that lower tax rates will increase supply, such an outcome is neither theoretically nor empirically certain. For both of these effects, there are offsetting income and substitution effects. A rise in after-tax wage income can cause work effort to decrease because the individual wishes to consume more of everything, including leisure, offsetting the incentive to shift consumption from leisure to other goods, with the outcome uncertain. Similarly, a rise in the after-tax rate of return can allow individuals to achieve a target amount with smaller savings, offsetting the effects of the incentive to save more to achieve a higher target. Simple empirical evidence suggests that effects are small because labor supply and savings responses are relatively small.\nEconomists at the Treasury Department recently prepared a dynamic analysis of the tax reform plans, and that analysis will be used to discuss the potential growth effects. The Treasury study, in addition to examining the two reform plans, also examined a personal consumption tax (PCT) that was similar to the panel's consumption tax (GIT), but excluded the 15% tax on financial income (interest, dividends, and capital gains) and had a slightly higher top individual tax rate (35% rather than 30%).\nThe Treasury used three different models to analyze the effects. One model is a standard neoclassical growth model with fixed labor supply and an elasticity of savings with respect to the rate of return equal to 0.4. The other two models used in the Treasury study were the standard intertemporal models: the Ramsey model, which depicts the economy as a single infinitely lived person; and the overlapping generations model (OLG), which traces cohorts of individuals over time. These intertemporal models were developed to bring the microeconomic foundations of decisions regarding savings and labor supply into macroeconomic models. Although more satisfying theoretically to many economists, these models have not been tested empirically and are highly stylized in many ways.\nTable 6 summarizes the effects on output of the various reform plans using the three models in the first 10 years, in year 20, and in the long-run steady state. As the numbers in this table indicate, two results are clear. First, the income tax reform has very small effects on growth in any of the model simulations, because it has little effect on tax rates. None of the proposals had a significant effect on marginal and average-wage tax rates, and only the consumption tax proposals had an effect on tax rates on investment. Second, for those proposals that had a noticeable effect on the capital income tax rate, the results vary significantly depending on the model used. In the first 10 years, on average output increases by 1.9% for the Ramsey model, 1.5% for the OLG model, and 0.1% for the Solow model. In the long run, output is larger respectively by 4.8%, 2.2%, and 1.4%.\nExplaining the causes of these different results and evaluating the reasonableness of the models is quite complicated, and the technical discussion is contained in an appendix to this paper. However, the major conclusions suggested in that appendix are as follows:\nStraightforward empirical evidence indicates that savings could rise or fall and even in the model with the most modest results (the Solow model) it is not clear that the effects would, indeed, be positive, as some time-series elasticities are negative. The use of Roth-type IRAs and, in some cases, 401(k)s from traditional IRAs would, according to the theory embedded in intertemporal models, be less likely to induce savings as individuals would no longer need to save the up-front tax reduction to pay future taxes. This effect could be particularly pronounced in the GIT where defined contribution pension plans will be converted to Roth style plans, as substituting a Roth for a deductible plan should reduce savings. These effects are not accounted for. Intertemporal models, while theoretically appealing in many ways, involve some fairly heroic assumptions about the abilities of individuals to make complex decisions and have not been empirically tested. Much of the savings response reflects intertemporal substitution of labor in response to interest rate changes, where virtually no evidence of a response is available. Alternative \"rules of thumb\" savings behavior may be more consistent with individual savings behavior and tend to imply a zero or negative elasticity. This view of behavior suggests that automatic enrollment in employer retirement plans, facilitated by the proposals, might increase savings, for which there is some direct evidence. The Ramsey model also suffers from some serious limitations, as it requires some strict assumptions to achieve an internal solution (i.e., where there is general ownership of capital across many people, as observed in the economy), including homogeneous preferences, asexual reproduction, and a common tax rate, thereby making it impossible to apply the model to a progressive tax rate structure, an open economy, or to incorporate differential state tax rates. Even within the context of the intertemporal models, many of the implicit elasticities are inconsistent with the empirical evidence, including the labor supply elasticities and particularly the intertemporal labor substitution elasticity, which empirical work suggests is less than 0.2, but which is set at around 0.75 in the Ramsey model and around 0.5 in the OLG model. Standard labor supply elasticities also tend to be higher than most empirical estimates, especially in the Ramsey model. Part of the reason for these high elasticities is the somewhat arbitrary choice of hours available for additional work. Even where the higher growth effects are expected, these effects are quite modest compared to the normal growth of the economy. For example, the largest growth is projected for the GIT by the Ramsey model. In that simulation, over the 20-year period, output rises by 3.7%, for an average annual growth rate of less than 2/10 of a percent. Normal growth is usually 2 to 3% and growth per worker typically 1% or more. Growth induced by even a significant tax change of this nature is not likely to materially affect the fiscal outlook—that is, we cannot grow our way out of the deficit by changing the shape of the tax system.", "The panel proposes a significant change in the tax treatment of foreign source income in its income tax proposal, and proposes to treat taxes in its consumption tax proposal (GIT) in the same manner as a VAT.\nUnder current income tax law, income of foreign subsidiaries of U.S. parents is not taxed until repatriated as dividends, a treatment referred to as deferral. Income of foreign branches of U.S. companies is taxed currently as is certain passive income (Subpart F income) of subsidiaries that is easily subject to abuse. When income is taxed, firms can take a credit against foreign taxes paid up to the amount of the U.S. tax due, and these credits are aggregated across countries, so that unused credits for taxes in high-tax countries can be used to offset U.S. tax due in low-tax countries. This offsetting of credits across countries is referred to as cross-crediting. Certain passive income is segregated into a separate foreign tax credit \"basket.\"\nThe international tax regime has several problems relating to economic efficiency and tax compliance. First, because of deferral and cross-crediting, too much of U.S. investment flows to low-tax countries (where its pre-tax return is too low) and too little to the United States and high-tax countries. Deferral does not produce as large a disincentive as outright exemption, but once income is earned abroad there is an incentive to reinvest abroad to avoid the repatriation tax. Second, the potential to reallocate profits from high- to low-tax jurisdictions complicates tax administration and compliance. Profits may be reallocated by setting prices for inter-company transactions and by assigning patent rights to operations in low-tax countries. In addition, since companies control their tax liability through repatriation decisions, they engage in complex planning to minimize their taxes, and, indeed, very little tax is paid on foreign source income.\nOne reform approach would be to tax all income currently, which would eliminate the repatriation issue. Also, if it were administratively feasible (although there are claims that it is not), foreign tax credits could be separated into country baskets, a treatment that would eliminate incentives for investment in low-tax countries (although it would increase the disincentive to invest in high-tax countries). But even with cross-crediting, a case can be made that this change would lead to greater economic efficiency through eliminating much of the incentive to invest in low-tax countries. Moreover, there would be less incentive to transfer income across different countries. U.S. individual investors could avoid some of this current tax by investing in foreign parents, and there would also be incentives for U.S. parents to transform into foreign parent corporations (corporate inversion). The evidence suggests that these effects would probably be small, and corporate inversions could be discouraged with legislation. Revenue raised from this approach could be used to reduce the corporate income tax rate and top income tax rates, if the distributional effects are to be held constant.\nAn argument is sometimes made that this type of change would lead to an unfair disadvantage to companies that must compete in low-tax countries with firms from other countries who do not tax their subsidiaries' income. It could lead to a smaller presence abroad of U.S. firms, but, nevertheless, the investment that takes place in the United States would earn a higher return and benefit the U.S. economy. That is, from the point of view of U.S. society as a whole this is not so much an \"unfair competition\" but rather a system that diverts resources to their best uses.\nThe panel did not choose current taxation of foreign source income, but rather a complete exemption of active income, and current taxation of passive income including royalties. This latter provision would eliminate the ability of companies to shift income abroad through the use of royalties. This option suggests the panel wanted to focus more on the international abuses and reduction of planning costs, as this treatment eliminates the repatriation decision and reduces the opportunity to shift income through royalties. The panel argues their plan on the basis of conforming to what most other countries do and also invokes the \"level-playing-field\" argument discussed above. They also suggest that the tax shelter problem is more severe than the real allocation of capital. But the plan can be criticized as not only increasing real asset allocation distortions but also giving up the opportunity to reduce transfer pricing and expense allocation methods of shifting profits to low-tax jurisdictions.\nFor the consumption tax plan, since the tax is no longer a corporate income tax, all of these mechanics would be abandoned. Two approaches that are generally equivalent for a uniform tax (and this tax is relatively uniform) are an origin basis tax (where output is taxed where produced) and a destination basis tax (where output is taxed where consumed). In the destination approach, as used in the VAT, taxes would be rebated on exports and imposed on imports. The panel recommends a destination basis because it eliminates the incentive to shift taxable sales into low-tax countries.", "The tax reform proposal eliminates a series of tax preferences, some of which are discussed in the document and some of which are simply presumed to be eliminated based on general statements. An analysis of this myriad of tax incentives is beyond the scope of this report, although it is possible to argue that many of them tend to distort the allocation of resources and many are simply accidents of history. Some provisions, however, are substitutes for what might be desirable spending programs that are channeled through the tax system, and repealing them without providing an alternative spending program may be questioned.\nAn example is the low-income-housing credit, for which a case may be made that use of the tax system is inefficient, but where the goal (helping low-income people obtain decent housing) may be laudable. Another example is the education tax credit and deduction, which was aimed at making higher education more affordable for the middle class and was phased out at higher incomes. The tuition credits and deductions were criticized because a direct system for delivering aid was already in place, and using the tax system simply made the system more complicated. One can also debate the desirability of expanding aid to middle class, given the extensive subsidies that already exist, but that is a debate about education, not tax, policy. It is the case, however, that the proposal retained the subsidies for saving for higher education through the \"Save for Family\" accounts, subsidies that are likely to be more concentrated to higher-income families who can afford to save for a long period of time.\nAs noted above, many of the provisions in current law affect the allocation of capital investment, and the major ones are incorporated in the analysis of capital income taxes. There are certain consumption items that are favored in a significant way by the current tax law, and these will be discussed briefly in this section. Perhaps the most significant, in terms of lost dollars of revenue, is the current benefits for health care, and specifically for health insurance. Also discussed is the subsidy for charitable giving and the effect on state and local governments (due to the deductibility of state and local taxes and the exclusion of interest on tax exempt bonds). The panel's proposal would make changes in all of these areas. Although a full analysis of these issues is beyond the scope of this report, some brief discussion is provided.", "Some of the largest subsidies in the tax code accrue to health care, with forgone revenues of $90.4 billion in FY2006 for the exclusion of health insurance benefits from employees' income. There is also a $3.8 billion loss for exclusion of health insurance for the self-employed. Some part of spending for cafeteria plans, where employees choose benefits, is associated with health care; these plans result in a revenue loss of $27.9 billion. In addition to these benefits for private health insurance, $7.5 billion is lost in itemized deductions for major health costs (those over 7.5% of income). There are also some losses due to exclusion of employee benefits and Medicare benefits, the latter being relatively costly.\nThere are reasons for government intervention into the health care market, which is subject to adverse selection (differential premiums for people with poor health histories) and moral hazard (encouraging too much spending on health care due to insurance). In addition, our society does not wish to deny critical medical care to people due to lack of ability to pay.\nThe revisions in the panel's plan may reduce some of the problems but possibly aggravate others. The exclusion of insurance for employer plans (and the self-employed) can be criticized on the grounds that it adds to moral hazard (by encouraging coverage of ordinary medical expenses) and is unfair because it does not benefit employees of firms without plans. At the same time, employer plans, by pooling individuals in the workplace, can address adverse selection. The proposal to limit employer contribution deductions (it is not practical to tax this implicit income to employees) might reduce moral hazard without interfering with the benefits of offsetting adverse selection, and thus may be considered an efficient reform. Allowing a deduction for health insurance premiums to those not covered by employer plans has both desirable effects—it would be more equitable and would improve coverage—and undesirable effects—it would increase moral hazard and could undermine the employer system with its improvement of adverse selection. In addition to including health-related fringe benefits, the plan would eliminate the extraordinary medical expense deduction, a provision that allowed relief for families with significant medical costs and one which might be difficult to dispense with.", "The panel's proposals would restrict the current deduction for charitable contributions to amounts over a floor equal to 1% of income, and would also extend the benefits to all taxpayers, not just itemizers. The proposal would also permit individuals to sell assets and donate the cash to charity without paying a capital gains tax if the cash is donated within a short time frame, a provision that would eliminate the tax benefits of donating property directly.\nCharitable contributions are subject to a market failure in that, assuming individuals benefit from the goods financed by charitable contributions, individuals can \"free-ride\" on others' contribution. Because of this \"free-ride,\" people count on others to fund charities and do not give enough in the aggregate. Thus there is a justification for a subsidy. The tax benefit is potentially subject to abuse as people attempt to gain private benefits, overstate their deductions, and exaggerate values of property donated. Even for taxpayers who are intending to be honest, valuation of property is often difficult. This problem would be reduced to some extent by the provision allowing the property to be sold and then donated.\nThe 1% floor would contribute to target efficiency, which focuses on how much charitable contributions are increased for each dollar of revenue loss. Target efficiency is often referred to as \"bang for the buck.\" The floor would also achieve administrative simplicity by disallowing small deductions. Among itemizers, it would reduce the overall incentives for giving (for those with contributions under the threshold). According to calculations using the public use statistics of income file, about 63% of itemizing contributors gave over 1% of income. These contributors accounted for 95% of giving, with 18% under the floor and 77% above the floor. These numbers suggest for itemizers that the floor will create a more target efficient system without doing much to reduce giving, since 78% of the revenue gain from the floor is associated with the loss deductions by those already over the threshold who will retain an incentive to give at the margin.\nThe extension of the deduction to non-itemizers may offset the reduction in coverage and also will be more efficient than a deduction without a floor. Thus, overall this change is likely to lead to a more effective incentive for charitable giving.", "The proposal eliminates the existing deductions for state and local taxes, which include income, property, and, as a temporary alternative to income tax deductions, sales tax deductions. The property tax deduction can be considered as part of the general beneficial treatment to owner-occupied housing, as well. But, in general, the argument against deducting state and local taxes is that these taxes pay for state and local goods and services that are not taxed to the recipients; hence the deduction encourages more expenditure on these goods. Of course, there is no close relationship between taxes and services as there is for private spending or even fees (such as those for national parks), so this argument is not entirely straightforward. The deduction also encourages the use of deductible taxes (income and property, and, temporarily, general sales taxes); some consider this effect to be an inappropriate interference in choice, but others may support the encouragement to use more progressive taxes, especially the income tax. Another argument for allowing a deduction is that these taxes are not voluntary and reduce ability to pay, although the deduction can also be criticized as favoring taxpayers in high-tax states. Whether the deduction for state and local taxes is desirable or undesirable, therefore, is difficult to determine.\nAnother major subsidy in the tax system is the exemption of interest on state and local bonds. On theoretical grounds, this benefit is questionable because there seems no particular reason to favor spending on investment goods (which generally are the purposes of these bonds). In addition, some of the subsidies go to investments which are not really public goods through localities financing (for example) sports stadiums and convention centers, or through the use of private activity bonds which are permitted to benefit private investors with restrictions on the purposes and amounts. Although there is no explicit elimination of the subsidy, the expansion of tax-favored savings accounts in both plans will, however, diminish the tax benefit.", "In any major tax revision, transition issues become difficult. In the case of the income tax plan (SIT), these transition issues are likely to be most problematic for moderately high- and higher-income homeowners who have purchased homes with values high relative to income, and will lose part of the value of their mortgage deductions and their deduction for property taxes.\nThe transition problems are much more severe for the consumption tax proposal and, indeed, may be severe enough to make adoption of such a proposal impossible. In shifting from an income to a consumption base, businesses would normally lose all of their recovery of costs of existing assets, including depreciation deductions, basis in the sales of assets, and costs of goods sold when selling items in (or produced from) inventory or intermediate purchases.\nA consumption tax is, as noted above, equivalent to a wage tax and a lump sum tax on capital income. Under a consumption tax without transition rules, the value of assets falls because the full value of the asset will be taxed upon sale. Also, because the consumption tax does not include financial assets in its base but does not require a price accommodation (as might be the case for a VAT or a retail sales tax), that lump sum tax on old assets falls on the equity share of capital. It should also be reflected in stock market share values, where, absent adjustment costs, the imposition of a 30% consumption tax should be expected, given that about one third of assets is debt financed, resulting in a theoretically predicted fall in asset value of 45% (20%/(2/3)). Taxpayers with heavily debt-financed assets not only would be unable to deduct interest costs, as well as depreciation or costs of goods sold, but also could suffer a significant burden if they wish to sell their business or major asset, with the tax due on sale exceeding their cash proceeds. Examples of taxpayers who might be adversely affected are individuals with substantial inventory going out of business (and unable to deduct the cost of their goods sold) or individuals who own and wish to sell a single piece of property, such as a building.\nThese effects are adjustment costs, and can be reduced by transition rules, but transition rules for recovery of depreciation or inventory costs would be extremely expensive. This lump sum effect would be offset in part if depreciation deductions and recovery of old inventory costs were still allowed. However, without adjustment costs, assets would still lose about half of their value because the present value of depreciation deductions is less than the current value of the property.\nThe panel's transition rules are quite limited. There would be a four-year phaseout of depreciation deductions and interest deductions—80% in the first year, 60% in the second, 40% in the third, and 20% in the fourth. (Interest would be taxed in the same proportions.) No other transitions are allowed, and sale of an asset would terminate depreciation transitional rules and new financial contracts would terminate interest deduction allowances.\nBased on this transition rule, a taxpayer with a new nonresidential building purchased before the tax was imposed would lose approximately 95% of scheduled deductions on buildings, about 65% of deductions for equipment (for a typical seven year asset), and all of the deductions for existing inventory (either goods for sale or goods in process). The loss would be smaller in present value for the buildings and, to some extent, for equipment, and smaller for older assets. But inventories would bear virtually the full loss, and the loss is substantial. \"Current inventories\" for the fourth quarter of 2004 were $1.7 trillion, thus, providing any sort of partial relief would be extremely costly, as most inventories are turned over very quickly.\nTaxpayers with outstanding debt would also lose a significant fraction of interest deductions unless they can refinance. Not all bonds can be called. According to bondmarket.com, out of $207.7 billion of corporate bonds with maturities of over a year, over half, or $121.7 billion, are not callable. The average maturity of bonds is approximately seven years. For a seven-year bond paying a coupon, taxpayers would lose 71% of interest deductions. The loss would be greater for longer maturities: 80% for a 10-year bond, 90% for 20-year bond, and 93% for a 30-year bond.\nPresumably all depreciation would be lost when an asset is sold and presumably the basis of the asset would not be recovered (all proceeds taxed). Thus all depreciation would be lost for these assets.\nThese transition problems impose a very significant barrier to the possibility of adopting a consumption tax.", "Of the two proposals presented by the panel, the income tax revision may be more likely to have any chance of ultimate adoption. The consumption tax has gains in efficiency (through the allocation of capital), possibly some gains in growth (although the analysis in this report suggests these effects may be modest), and some significant gains in simplicity, especially for business, that exceed those of the income tax proposal. However, the analysis presented in the last section suggests that the progressive consumption tax proposed by the panel would be very difficult to implement. Moreover, the consumption tax is likely, when appropriate distributional analysis is considered, to significantly reduce the progressivity of the federal tax system.\nThese observations suggest a focus on the income tax proposal (SIT). There are some important simplifications in the SIT, especially for businesses and high-income individuals, although lower-income taxpayers may find their affairs more complicated. In translating the income tax plan to a more detailed proposal that deals with small, but important, deductions, however, some of these simplification gains may be lost. The SIT faces revenue sufficiency problems that will require some taxes to be increased in the future, and is probably not entirely distributionally neutral, but shifts some of the burden away from high-income taxpayers. There are efficiency gains in a number of areas, although probably little effect on growth, and the change to international tax may increase inefficiency and even exacerbate tax sheltering. There are also some transition problems, but they are small compared to the consumption proposal.\nWhether the gains from the changes under the SIT are worth the costs is unclear. Historically, it has been difficult to make major changes to the tax code because of the disruption in taxpayers' affairs. Nevertheless, there are some limited aspects of the proposals that do seem to have many advantages and few drawbacks. The proposal for a floor on charitable deductions has a salutary effect on both target efficiency and tax administration and simplification. Removing barriers to automatic enrollment in employer retirement plans is, as well, a proposal that is likely to facilitate savings. A ceiling on deductions by employers in health insurance plans appears to preserve the benefits of reduced adverse selection in health insurance markets while reducing both moral hazard effects and differential treatment of taxpayers. It may be that the greatest contribution of the panel study is to identify some possibilities for more limited reforms.\nAppendix A. Calculating Effective Capital Income Tax Rates\nThe tax rates in this paper are calculated by first determining, given a required after-tax return and an expected rate of decline in productivity of the asset due to depreciation, how much the investment must initially produce in order for the sum of profits after tax over time, discounted by the after-tax return, to equal the individual investment outlay (i.e., to break even). Then all of the tax payments and deduction are eliminated and the before profit flows are used to determine what pre-tax discount rate would sum the flows to original cost. The effective tax rate is the pre-tax rate of return minus the after-tax rate of return, divided by the pre-tax rate.\nDiscounting means dividing each flow by a discount factor; for a flow earned a year from now, the discount factor is , for a flow earned two years from now , for a flow three years from now , where r is the discount rate. In practice, however, the analysis uses a continuous time method with continuous compounding. The formula derived from this method is\n(1)\nwhere r is the pre-tax return, R is the after-tax discount rate of the corporation, d is the economic depreciation rate, u is the statutory tax rate, and z is the present value of depreciation deductions (discounted at , where is the inflation rate). The effective tax rate for equity at the firm level is . When including individual level taxes and debt finance, the tax rate is measured by determining r as above, where , where f is the share debt financed, I is the nominal interest rate, and E is the real return to equity before individual tax but after corporate tax. E is equal to D + g, where D is the dividend rate and g is the growth rate. The after-tax real return , is , where t is the effective individual tax rate and c is the effective capital gains tax rate. The total tax rate is .\nFor a more complete description of the methodology and data sources, including useful lives for depreciation purposes, formulas for measuring z, and the allocation of assets in the economy, see [author name scrubbed], The Economic Effects of Taxing Capital Income , Cambridge, MA, MIT Press, 1994.\nFor purposes of this analysis, the following assumptions were made: the interest rate is 7.5%, the inflation is 2%, and the real return to equity before individual taxes is 7% , with a 4% return (or 57% of real profits) paid as dividends. The corporate rate is 35%, the average individual marginal tax rate on investment income is 23% (data consistent with calculations in the National Bureau of Economic Research TAXSIM model). Statutory tax rates on dividends and capital gains are 15% under current law and under the consumption alterative; taxes on gains are half the rates on dividends to reflect exclusion and deferral at death. Under the income tax reform, 50% of capital gains is excluded to reflect deferral and exclusion at death, and 75% of the remainder is excluded because of the exemption rule, with the remainder taxed at 23%.\nWithin businesses, the following asset shares apply: 62.2% in corporations, 5.3% in large non-corporate firms, 2.7% in medium non-corporate firms, and the remainder in small non-corporate firms. Owner-occupied housing is 40% of total assets.\nAppendix B. Discussion of the Macroeconomic Analysis of the Tax Reform Plans by the Treasury Department\nThe model that yields the smallest results in the dynamic analysis is the Solow model, where labor supply is fixed, but savings is responsive to changes in the rate of return. The savings response is based on a direct estimate of the savings elasticity from time series evidence. Most evidence of labor supply is consistent with a relatively unresponsive supply. This evidence reflects the historical stability of participation and hours by prime-age men, cross section studies of labor supply, and studies using contrived or natural experiments. Similarly, times series estimates of saving tend to suggest a small response that is not surprising given the relative constancy of the savings rate over time as well as the constancy of the capital output ratio, despite significant changes in tax rates. These estimates may be positive or negative but are close to zero, and the 0.4 elasticity estimate used in that model is about at the upper range of estimates of savings supply response from time series studies.\nAlthough it is possible to construct an intertemporal model with a fixed labor supply, a standard labor supply response is included in the two intertemporal models; however, that standard response is only part of the effect that labor has in the model. In addition to a potential permanent decrease or increase in the labor supply due to within-period choices of leisure and consumption, there can be an intertemporal shift. Indeed, this intertemporal shift in labor can play a major role in the short-run response to a tax cut in capital income, as occurs in a shift to consumption taxes. This effect comes about because of the desire to shift leisure from the present to the future, so that the agent works more today, saves that income, and works less in the future. In addition to these labor supply effects, there is the normal savings response that would occur even in models with fixed labor supply, a savings response that depends on the rate of return. This savings response tends to have a very small effect on output in the short run, but can be significant in the long run.\nThere are several issues surrounding the use of these intertemporal models to project the effects of tax changes. These issues are also discussed in considerable detail in a CRS report on dynamic revenue estimating. However, three questions may be raised about these intertemporal models.\nThe first question is how realistic such models are as a way of depicting how people actually behave. These models are attractive to economists because they rest on the basic micro-foundations of consumer behavior. Nevertheless, the Ramsey model originated as a planning model rather than a description of how people actually behave and can only be considered as a representation of economy-wide behavior if strict assumptions are met. Since the model treats society as an infinitely lived person, it requires asexual reproduction if dynasties are to be represented as an infinitely lived person. And, in order to avoid reaching a \"corner solution\" where all capital is owned by one group, it requires completely homogeneous tastes (i.e., all individuals have the same preferences for present and future consumption), and common marginal tax rates. Thus, the model cannot be used if there are differential marginal tax rates either through progressivity in tax rates, or differential tax rates across states of the United States, or differential rates across countries.\nThe overlapping generations (OLG) life-cycle model does not suffer from these problems, and a planning horizon of 50 years or more provides significant savings effects. In addition, because income is shifted from the old to the young, savings may increase for that reason as well. Some economists doubt the appropriateness of such a model because of the extreme complexity of the decision the individual is making. The model presumes individuals to make optimal decisions choosing work decisions, savings, and consumption for, typically, around a 55-year adult life. Individuals may not be able to make these decisions because they do not have the knowledge and skills to do so, or even the self control and freedom from procrastination. An alternative model, sometimes referred to as a \"bounded rationality\" model, suggests that people may make choices based on rules of thumb, and the most common rules of thumb, a fixed fraction of income saved, or a target retirement fund, imply zero or negative savings elasticities. There is some empirical evidence to support this type of model, and, indeed, evidence on the importance of defaults on savings in retirement plans is a justification for the automatic savings provisions for employer plans included in the panel's report. In addition, the life cycle model is sensitive to many types of assumptions that may be made in an arbitrary fashion, including how retirement occurs, how bequests are left, whether there are precautionary as well as retirement savings, and many other characteristics.\nThe OLG model can also have outcomes that depend on specific model features. However, the OLG model used by Treasury does avoid one troublesome problem in some other OLG models: it has a fixed retirement age. That feature means that an effect common in an OLG model with endogenous retirement, older people returning to work in significant numbers due to the lump sum tax on older people's assets under a consumption tax, a phenomenon that seems unlikely given the adjustment costs and health issues, does not occur.\nThe second question is whether the models have been empirically tested, and the basic answer to that question is no. Although relationships are based on certain empirical estimates of substitutions across time, there are no estimates of substitution elasticities across long periods of time. Basically, the models presume that the substitutability across far-apart periods is the same as for close-together periods. In addition, the models often predict very dramatic short-run changes in savings and labor supply that are difficult to reconcile with the stability of these relationships over time.\nThe third question is how closely the models, given that structure, track those empirical relationships that we can observe, and how those empirical relationships, in turn, drive the model. There are actually four types of empirical relationships to draw on: the substitution effect for the static labor supply response, the income effect for the static response, the intertemporal substitution elasticity for consumption bundles over time, and the intertemporal labor supply elasticity, and these in turn govern the short run labor supply response, the initial savings response, and, ultimately, the long run effect on the capital stock. Both labor supply and consumption can be shifted over time due to changes in expected wages over time or changes in the rate of return.\nIt is possible to sort out some of these effects, in a rough fashion, to compare them with empirical estimates. Those empirical estimates include the static income and substitution (compensated) elasticities of labor supply with respect to wage changes, the intertemporal substitution elasticity (how consumption shifts across time, with respect to the interest rate), and the intertemporal labor supply elasticity (how labor supply shifts with respect to the wage rate).\nThe formula for percentage change in labor from a static model is\n(1)\nwhere l is hours of leisure, H is the time endowment, L is hours of labor, E is the substitution elasticity between leisure and consumption, a is the ratio of non-labor income to labor income, t m is the marginal tax rate, and t a is the average tax rate.\nIn the model, the share of the time endowment in leisure was 0.6 in the Ramsey model and 0.5 in the OLG model, and the elasticities were 0.8 and 0.6 respectively. Given the tax rate changes in the text, this effect suggests a reduction in labor for the SIT of about -0.1% (because of the slight fall in the average tax on labor income, whose income effect causes less work). For the GIT, where the marginal tax rate fell and the average tax rate rose, both income and substitution effects led to a 0.5% increase in the Ramsey model and a 0.4% increase in the OLG. In the full simulations by the Treasury, in the Ramsey model, the labor supply fell in the first 10 years, on average, by 0.1% in the SIT, but rose by 0.3% in the OLG model. These small differences could have arisen because of some small amount of intertemporal shifting and variations in income effects. For the GIT, however, labor supply rose in the first 10 years by 1.3% and 1.2% respectively. Moreover, while labor supply changes over time stayed relatively constant for the SIT (-0.2% and 0.4% in year 20 for the Ramsey and OLG, -0.3% and 0.4% in the long run), they show a significant decline in the GIT. For the Ramsey model, the labor supply increase was 1.3% in the first 10 years, 1% in year 20, and 0.1% in the long run. For the OLG model, the labor supply increase was 1.2% in the first 10 years, 0.7% in year 20, and 0.6% in the long run.\nThe intertemporal labor supply response also affects saving because the increase in labor is for the purpose of saving to permit more leisure in the future. There was additional savings as well in the GIT simulation, since, even as labor increased, consumption fell.These calculations suggest that, at least in simulating the GIT (and the PCT) that the intertemporal labor supply response is important.\nSeveral empirical measures govern these responses. For labor, the static responses imply a compensated elasticity (which captures the positive effect on wages on labor supply and multiplies the marginal tax rate term in equation (1), with the value of a ranging from zero to 0.2) of 0.48 to 0.53 and an income elasticity of -0.56 to -0.6. For the OLG model the substitution elasticity is 0.3 to 0.33 and the income elasticity is -0.45 to -0.5. The smaller elasticities in the OLG model reflect the lower leisure share (0.6 in the Ramsey model versus 0.5 in the OLG model) and, with respect to the compensated elasticity, because of the smaller intratemporal substitution elasticity (0.8 in the Ramsey model and 0.6 in the OLG model). These elasticities are likely to be high. Based on surveys of the evidence, the Congressional Budget Office chose an uncompensated elasticity of 0.14 and an income elasticity of -0.07, whereas the Joint Tax Committee chose an uncompensated elasticity of 0.18 and an income elasticity of -0.13. The CBO has recently increased their elasticities. Yet, there is more of a justification for reducing them, because it is likely that the response for women has decreased because of greater participation: for participation, as for hours, the greater the labor supply the smaller the elasticity is likely to be. A recent study suggested that elasticities of women's labor supply had decreased by about 50%.\nThe second type of elasticity that can be compared with empirical evidence is the intertemporal substitution of labor with respect to the wage rate. This elasticity is\n(2)\nwhere is the share of total consumption spent on leisure, is the intertemporal substitution elasticity, and is the intratemporal substitution elasticity between leisure and consumption. Although the elasticities vary, most of the evidence suggests intertemporal labor supply elasticities that are quite small, in the neighborhood of 0.2. The Treasury elasticities are higher than that value. For the Ramsey model, the elasticity is estimated at 0.75, whereas for the OLG model it is estimated at 0.49.\nThese relatively high labor supply responses, particularly in the Ramsey model, drive a lot of the short-run response in the GIT. One simple way of reducing these elasticities to conform more closely with the empirical evidence, without disturbing other parts of the model, is to reduce the time endowment available for labor. There are some direct reasons to do so as well. For example, in the Ramsey model, assuming 40 hours of work for a full time worker and eight hours to sleep would result in a \"leisure\" of 64%, not much above the allowance in the Ramsey model. But this ratio leaves no time to carry on the essential functions of modern life which are really not leisure but simply necessary tasks, such as commuting, personal grooming, eating and preparing food, shopping, and maintenance of home and possessions.\nThe intertemporal substitution elasticities, of 0.25 in the Ramsey model and 0. 35 in the OLG model, are consistent with the empirical evidence, suggesting the intertemporal elasticity is below 0.5 and that the average is around 0.3.\nNote that there are really no studies that capture some of the other relationships directly such as the labor supply response to a change in the rate of return, or responses across long periods of time. It is these far-apart periods that drive much of the models' results because the savings elasticity with respect to the interest rate is multiplied by the time period so that the savings response in the long run is very large. In fact, in the Ramsey model, the long run steady state does not depend on the intertemporal substitution elasticity as the savings elasticity is effectively infinite; it merely determines the adjustment path. In the long run, in both models, it is the increase in the capital stock that largely causes the increase in output.\nAnother important elasticity in both models for both the short run and the long run is the factor substitution elasticity, which is set at one. Setting this value at one is common in many models. Nevertheless there are some economists who have studied this issue and argue that the elasticity is much lower, around 0.4. These elasticities can make a great deal of difference. In a simulation study, lowering the elasticity from 1.0 to 0.5 caused the output change to fall by 45%.\nBased on this survey of models and elasticities, it is unlikely that the GIT would have as pronounced an effect on output, especially in the short run, as depicted in the models.\nThere is one final issue that makes the effects also likely to be overstated. In these models, private saving is influenced by the timing of taxes. Thus, in a shift to a consumption tax, that fact that taxes are higher in the retirement years as assets are drawn down results in an increase in savings in the short run. The changes in IRAs and 401(k)s, however, are moving in the opposite direction. Traditional IRAs with deductions up front should cause greater private savings because individuals should save their tax cut today to pay taxes on withdrawals in the future. For the Roth style IRA, there is no up-front deduction, and substituting Roth IRAs for traditional IRAs should cause savings to fall." ], "depth": [ 0, 1, 2, 2, 2, 1, 1, 1, 2, 2, 1, 2, 2, 2, 2, 2, 1, 1, 1, 2, 2, 2, 1, 1 ], "alignment": [ "h0_title h2_title h1_title", "h0_title", "h0_full", "", "", "h1_full", "h0_full", "h0_title h1_title", "h0_full h1_full", "", "h0_full", "", "h0_full", "", "", "", "h0_full", "", "", "", "", "", "h2_full", "h0_full h2_full h1_full" ] }

{ "question": [ "What two reform options were presented in 2005?", "What do the proposals have in common?", "What characterizes their differences?", "What was promised about these proposals?", "What would be the implication of tax cut expirations?", "What adds to the revenue loss of the proposed reforms?", "How do these proposals compare to current law?", "What transition problems would be present for the SIT?", "What transition issues would the GIT raise?" ], "summary": [ "In November 2005, the President's Advisory Panel on Tax Reform presented two potential reform proposals: a simplified income tax (SIT) and a direct consumption tax proposal (the growth and investment tax, or GIT).", "Both proposals would eliminate itemized deductions while allowing, for all taxpayers, a credit for mortgage interest deductions and deductions for charitable contributions and health insurance. Both proposals substitute credits for personal exemptions and standard deductions. Both would allow greatly expanded tax-preferred savings plans.", "SIT would eliminate taxes on dividends and most capital gains from corporate stock, simplify depreciation and allow expensing (deducting costs immediately) for small business, and alter the international tax regime. GIT, as a consumption tax, would allow expensing of all investment. GIT also includes a tax on passive capital income (dividends, interest, and capital gains).", "Both proposals are stated to be both revenue and distributionally neutral.", "Because the panel uses a baseline assuming the 2001 tax cuts are permanent, both would lose revenue compared to the Congressional Budget Office (CBO) official baseline, which has the tax cuts expire as provided by current law.", "n additional revenue loss is expected in the long run because of the proposals for tax-deferred savings plans.", "These measures also cause the income tax proposal to be slightly less progressive than current law. The consumption tax proposal is likely to be significantly less progressive than current law.", "Transition problems present difficulties; the main issue with the SIT would probably be in the loss of deductions for homeowners with large houses and mortgages.", "These transition problems in the SIT are minor, however, in comparison with the significant problems in the GIT arising from the loss of depreciation deductions, interest deductions, and deductions for the recovery of inventory." ], "parent_pair_index": [ -1, 0, 0, -1, -1, 1, -1, -1, -1 ], "summary_paragraph_index": [ 0, 0, 0, 1, 1, 1, 1, 4, 4 ] }

{ "title": [ "Background", "Hiring Process for CBPOs and BPAs", "The Majority of Arrests against CBP Employees Are Related to Misconduct; Majority of Allegations Occurred at Locations along the Southwest Border", "The Majority of Arrests of CBP Employees since Fiscal Year 2005 Are Related to Alleged Misconduct Activities", "Allegations against CBPOs and BPAs as a Percentage of Total Onboard Personnel Remained Relatively Constant from Fiscal Years 2006 through 2011", "CBP Has Implemented Integrity-Related Controls, but Could Better Assess Screening Tools for Applicants and Incumbent Employees", "CBP Employs Controls to Mitigate the Risk of Hiring Potentially Corrupt Officers and Agents, but Does Not Track Data That Can Help Determine the Relative Effectiveness of Screening Tools", "CBP Has Tools for Screening Incumbent Officers and Agents", "CBP Has Not Assessed the Feasibility of Expanding Its Polygraph Program to Incumbent Officers and Agents", "CBP IA Could Benefit from Implementing Its Quality Assurance Program for Initial Background and Periodic Reinvestigations", "OFO and USBP Have Developed Integrity- Related Controls; OFO Could Benefit from Clarifying the Roles and Responsibilities of Its Integrity Officers", "An Agencywide Strategy and Lessons Learned Analyses Could Help Guide CBP Integrity-Related Efforts", "CBP Is Developing an Integrity Strategy, but Does Not Have Target Timelines for Its Completion and Implementation", "CBP Has Not Yet Completed Analyses of Prior Cases of Corruption", "Conclusions", "Recommendations for Executive Action", "Agency Comments and Our Evaluation", "Appendix I: Scope and Methodology", "Appendix II: Comments from the Department of Homeland Security", "Appendix III: GAO Contact and Staff Acknowledgments", "GAO Contact", "Staff Acknowledgments" ], "paragraphs": [ "CBP is the largest uniformed law enforcement agency in the United States, with approximately 21,400 BPAs patrolling between the nation’s ports of entry and more than 20,000 CBPOs stationed at air, land, and seaports nationwide at the end of fiscal year 2011.southwest border, there are about 5,500 CBPOs and 18,000 BPAs as of the end of fiscal year 2011. CBPOs, based within OFO, are responsible for processing immigration documentation of passengers and pedestrians and inspecting vehicles and cargo at U.S. ports of entry. BPAs are based within the USBP and are responsible for enforcing immigration laws across the territory in between the ports of entry and at checkpoints located inside the U.S. border. Together, CBPOs and BPAs are On the U.S. responsible for detecting and preventing the illegal entry of persons and contraband, including terrorists and weapons of mass destruction, across the border.", "U.S. citizens interested in becoming CBPOs or BPAs must successfully complete all steps of the CBP hiring process, which includes an online application, a cognitive exam, fingerprint collection, financial disclosure, a structured interview, fitness tests, medical examinations, a polygraph examination, a background investigation, and a drug test. CBP IA’s PSD manages the personnel security program by initiating and adjudicating preemployment investigations for CBP applicants, which aim to ensure that the candidates are reliable, trustworthy, and loyal to the United States, and therefore suitable for employment. In addition, CBP IA’s Credibility Assessment Division (CAD) is responsible for administering the polygraph examinations, interviewing applicants, and collecting any admissions that an applicant may reveal including past criminal behavior or misconduct. Human Resource Management is responsible for making the hiring decisions based on the final suitability determination from CBP IA (this includes PSD’s overall assessment of the polygraph examination and background investigation), as well as the applicant’s successful completion of the other steps in the hiring process.\nThe number of CBP employees increased from 43,545 in fiscal year 2006 to 60,591 as of August 2012. During this time period, both OFO and USBP experienced a hiring surge and received increased appropriations to fund additional hiring of CBPOs and BPAs. The majority of the newly hired CBPOs and BPAs were assigned to the southwest border. In particular, during this time period, their total numbers along the southwest border increased from 15,792 to 24,057. As of fiscal year 2011, 57 percent of the CBPOs and BPA were stationed along the southwest border. Figure 1 provides additional details.\nAllegations against CBP employees for misconduct, corruption, or other issues can be reported through various mechanisms. CBP IA, in partnership with the Office of Professional Responsibility—an office within DHS’s U.S. Immigration and Customs Enforcement—accepts allegations through the Joint Intake Center (JIC). JIC is CBP’s central clearinghouse for receiving, processing, and tracking all allegations of misconduct involving personnel and contractors employed by CBP. Staffed jointly by CBP IA and the Office of Professional Responsibility, JIC is responsible for receiving, documenting, and routing misconduct allegations to the appropriate investigative entity for review to determine whether the allegation can be substantiated. CBP employees or the general public may report allegations to JIC’s hotline by e-mail or telephone, to local CBP IA field offices, the DHS Office of Inspector General, or the other law enforcement agencies. Anonymous allegations are also received, documented, and subjected to further inquiry.", "According to CBP’s data, incidents of arrests of CBP employees from fiscal years 2005 through 2012 represent less than 1 percent of the entire CBP workforce per fiscal year. During this time period, 144 current or former CBP employees were arrested or indicted for corruption—the majority of which were stationed along the southwest border. In addition, there were 2,170 reported incidents of arrests for misconduct.Allegations against CBPOs and BPAs as a percentage of total on-board personnel remained relatively constant from fiscal years 2006 through 2011 and ranged from serious offenses such as facilitating drug smuggling across the border to administrative delinquencies such as losing an official badge. The majority of allegations made against OFO and USBP employees during this time period were against officers and agents stationed on the southwest U.S. border.", "CBP data indicate that from fiscal year 2005 through fiscal year 2012, the majority of arrests since fiscal year 2005 are related to alleged misconduct activities. A total of 144 current or former CBP employees were arrested or indicted for corruption. In addition, there were 2,170 reported incidents of arrests for misconduct. In both cases, each represents less than 1 percent of the entire CBP workforce per fiscal year. Specifically, in fiscal year 2005, out of 42,409 CBP employees, 27 were arrested or indicted for corruption. In addition, during this time period, there were 190 reported incidents of arrests for misconduct. As of August 2012, when CBP’s workforce increased to 60,591, 11 CBP employees were arrested or indicted for corruption, and there were 336 reported incidents of arrests for misconduct. CBP IA defines delinquent activity as either corruption or misconduct. Corruption involves the misuse or abuse of the employee’s position, whereas misconduct may not necessarily involve delinquent behavior that is related to the execution of official duties. CBP further categorizes the delinquent behavior into the following categories: (1) non-mission-compromising misconduct, (2) mission-related misconduct, (3) corruption, and (4) mission-compromising corruption. The first category is the only one that is unrelated to the execution of the CBP employee’s official duties or authority, and the majority of the incidents of arrests for misconduct (2,153 out of 2,170) since fiscal year 2005 fall in this category. Examples include domestic violence and driving under the influence while off duty. Table 1 provides CBP IA’s definitions of the two types of delinquent activity and examples of each category.\nAbout 65 southwest border. Our review of documentation on these cases indicates that 103 of the 144 cases were for mission-compromising corruption activities, which are the most severe offenses, such as drug or alien smuggling, bribery, and allowing illegal cargo into the United States. Forty-one of the 144 CBP employees arrested or indicted were charged with other corruption-related activities. According to CBP IA, this category is less severe than mission-compromising corruption and includes offenses such as the theft of government property and querying personal associates in a government database for purposes other than official business. Table 2 provides a breakdown of these arrests by fiscal year.\nTable 3 outlines the number of incidents of arrests of CBP employees for misconduct for fiscal years 2005 through 2012.\nAlthough the total number of corruption convictions (125) is less than 1 percent when compared with CBP’s workforce population by fiscal year, CBP officials stated that they are concerned about the negative impact employee corruption cases have on agencywide integrity. For example, the Acting Commissioner of CBP testified that no act of corruption within the agency can or will be tolerated and that acts of corruption compromise CBP’s ability to achieve its mission to secure America’s borders against all threats while facilitating and expediting legal travel and trade. In particular, there have been a number of cases in which individuals, known as infiltrators, pursued employment at CBP solely to engage in mission-compromising activity. For example, in 2007, a CBPO in El Paso, Texas, was arrested at her duty station at the Paso Del Norte Bridge for conspiracy to import marijuana into the United States from June 2003 to July 2007, and was later convicted and sentenced to 20 years in prison. OFO reported that she may have sought employment with CBP to facilitate drug smuggling. CBP officials view this case as an example of the potential impact of corruption—if the officer had succeeded in facilitating the importation of 5,000 pounds of marijuana per month, this would amount to a total of 240,000 pounds over 4 years with a retail value of $288 million dollars. In another case, a former BPA previously stationed in Comstock, Texas, was arrested in 2008 for conspiracy to possess, with intent to distribute, more than 1,000 kilograms of marijuana. The agent was convicted in 2009 and sentenced to 15 years in prison and ordered to pay a $10,000 fine. CBP is also concerned about employees who may not be infiltrators, but began engaging in corruption-related activities after joining the agency. For example, CBP IA officials stated that some employees may have experienced personal hardships after being hired, such as financial challenges, which made them vulnerable to accepting bribes to engage in corrupt activity. In addition, some employees arrested for corruption had no prior disciplinary actions at the time of their arrests.", "According to our analysis of CBP data, from fiscal years 2006 through 2011, a total of 32,290 allegations were made against CBP employees; 90 percent (29,204) were made against CBPOs and BPAs. CBP IA categorizes allegations of misconduct or corruption by varying levels of severity. For example, allegations may range from serious offenses such as facilitating drug smuggling across the border to administrative delinquencies such as losing a badge. CBP allegations of corruption or misconduct are sorted into differing classes depending on the severity of the allegation and whether there is potential for federal prosecution. As table 4 indicates, class 1 allegations comprise the more severe allegations that could lead to federal prosecution, such as drug smuggling or bribery, with classes 2, 3, and 4 representing decreasing levels of severity.\nInformation for management may include notifications such as reporting a lost badge or an arrest of an employee’s family member. CBP management will take this information into consideration but may determine that the action does not warrant referring the case for further disciplinary action.\nTable 5 depicts the number of allegations against CBPOs and BPAs from fiscal years 2006 through 2011. Allegations made against OFO and BP employees as a percentage of the total OFO and USBP workforce remained constant from 12 percent to 14 percent over fiscal years 2006 to 2011.\nSimilar to the arrest data, of the total number of allegations made against OFO and USBP employees from fiscal year 2006 to fiscal year 2011— 29,204 total allegations—the majority of these allegations were made against officers and agents stationed on the southwest U.S. border. Specifically, there were approximately 19,905 total allegations against CBPOs and BPAs stationed on the southwest border—about 68 percent of total allegations. Approximately 57 percent of all CBPOs and BPAs are stationed along the southwest border. By comparison, during this time period, there were 9,299 allegations made against officers and agents across the rest of CBP’s ports of entry and sectors. According to a senior CBP IA official who is responsible for tracking and maintaining CBP allegations data, it is possible that the southwest border region received more allegations, in part, because CBP assigned more employees to the region, many of whom were new, relatively less experienced agents from the hiring increases from fiscal years 2006 through 2011, or were employees on detail to the southwest border region. During this same period, the number of officers and agents and BPAs along the southwest border increased from 15,792 to 24,057. In addition, in each fiscal year from 2006 through 2011, more allegations were made against USBP employees than OFO employees along the southwest border— allegations against BPAs were about 32 percent higher, on average, than those against CBPOs.", "CBP employs integrity-related controls to mitigate the risk of corruption and misconduct for both applicants and incumbent officers and agents, such as polygraph examinations and random drug testing, respectively. However, CBP does not maintain or track data on which screening tools provided the information that contributed to applicants being deemed unsuitable for hire, making it difficult for CBP to assess the relative effectiveness of these screening tools. In addition, an assessment of the feasibility of expanding the polygraph program to incumbent officers and agents, and consistent implementation of its quality assurance review program for background investigations and periodic reinvestigations, could strengthen CBP’s integrity-related controls. OFO and USBP have also implemented controls to help detect and prevent corruption and misconduct; however, additional actions could help improve the effectiveness of OFO’s integrity officers.", "CBP has two key controls to screen applicants for CBPO and BPA positions during the hiring process—background investigations and polygraph examinations. Background investigations involve, among other things, a personal interview; a 10-year background check; and an examination of an applicant’s criminal, credit, and financial history, according to Office of Personnel Management (OPM) regulations. Polygraph examinations consist of a preinterview, the examination, and a postexamination interview. The Anti-Border Corruption Act of 2010 requires that, as of January 2013, all CBPO and BPA applicants receive polygraph examinations before they are hired. CBP IA officials stated that the agency met the mandated polygraph requirement in October 2012—90 days before the deadline.\nPSD considers multiple factors, or a combination thereof, to determine whether an applicant is suitable for employment. PSD officials stated that suitability determinations are based on three adjudication phases: (1) after PSD verifies that each applicant’s forms are complete and conducts preliminary law enforcement database and credit checks, (2) after CAD reports the technical results of the polygraph examinations to PSD, and (3) after the completion of the background investigation. PSD is responsible for adjudicating the final polygraph examination results, as well as reviewing any other information that may be used in determining whether or not applicants are suitable for employment. If, after the final adjudication, there is no derogatory information affecting an applicant’s suitability, PSD forwards the final favorable adjudication decision to Human Resources Management, which completes the remainder of the required steps in the hiring process.\nRegarding polygraph examinations, CAD has maintained data on the number of polygraph examinations that it administers and the technical results of those examinations since January 2008. CAD officials stated that an applicant technically fails the polygraph examination by receiving a “significant response” on the test or using countermeasures to deceive the test, which is an indicator of deception and results in PSD making a determination that an applicant is unsuitable for hire. Alternatively, an applicant can technically pass the polygraph examination, but admit to past criminal behavior (e.g., admitting to frequent and recent illegal narcotics usage) that would likely render the applicant unsuitable for CBP employment when PSD adjudicates a complete record of CAD’s polygraph examination and associated interviews. Table 6 provides our analysis of CAD’s data on the 11,149 polygraph examinations administered since 2008, and the technical results of those examinations.\nIn addition to the technical examination results, CAD maintains documentation on admissions that applicants reveal during the polygraph examination process. Applicants have admitted to a range of criminal activity from plans to gain employment with the agency in order to further illicit activities, such as drug smuggling to excessive illegal drug use. For example, one applicant admitted that his brother-in-law, a known Mexican drug smuggler, asked him to use employment with CBP to facilitate cocaine smuggling. Another applicant admitted to using marijuana 9,000 times, including the night before the polygraph examination; cocaine 30 to 40 times; hallucinogenic mushrooms 15 times; and ecstasy about 50 times. CBP IA officials stated that admissions such as these highlight the importance of the polygraph examination to help identify these types of behaviors in applicants before they are hired for CBP employment. CBP IA officials stated that the polygraph examination is the key investigative tool in the agency’s integrity program because it can help identify whether applicants have misled background investigators regarding previous criminal histories or misconduct issues.\nPSD is responsible for maintaining data on its final suitability determinations—whether or not it determines that applicants are suitable for hire. However, CBP IA does not have a mechanism to track and maintain data on which of its screening tools (e.g., background information or polygraph examination) provided the information that PSD used to determine that applicants were not suitable for hire, making it difficult for CBP IA to assess the relative effectiveness of its various screening tools. For example, if 100 applicants technically pass a polygraph examination, but 60 of these applicants are ultimately found unsuitable for hire, CBP IA does not have data to indicate if the applicants were found unsuitable based on admissions during the polygraph examination, derogatory information collected by background investigators, a combination of this information, or on the basis of other screening tools. PSD officials stated that they do not have the data needed to assess the effectiveness of screening tools because of limitations in PSD’s information management system, the Integrated Security Management System (ISMS), which is not designed to collect data on the source of the information (e.g., background information, polygraph examination) and the results used to determine whether an applicant is deemed suitable for hire. CBP IA’s Assistant Commissioner and other senior staff stated that maintaining these data on an ongoing basis would be useful in managing CBP IA’s programs.\nStandards for Internal Control in the Federal Government states that program managers need operational data to determine whether they are meeting their goals for accountability for effective and efficient use of resources. Moreover, the standards state that pertinent information should be identified, captured, and distributed in a form and time frame that permits managers to perform their duties efficiently. The standards also require that all transactions be clearly documented in a manner that is complete and accurate in order to be useful for managers and others involved in evaluating operations. which screening tools provide information that contributes to PSD determining that an applicant is not suitable for hire could better position CBP IA to gauge the effectiveness of each tool and the extent to which the tools are meeting their intended goals for screening applicants for hire.\nGAO/AIMD-00-21.3.1.", "CBP has two key controls for incumbent employees—random drug testing and periodic reinvestigations—to ensure the continued integrity of the CBPOs and BPAs. CBP is required to conduct random drug tests on an annual basis for at least 10 percent of the employees in designated positions, including CBPOs and BPAs, to help ensure employees who hold positions in the area of law enforcement or public trust refrain from the use of illegal drugs while on or off duty. According to CBP data for fiscal years 2009 through 2011, more than 99 percent of the 15,565 random drug tests conducted on CBP employees were negative. CBP officials stated that actions against those with positive results ranged from voluntary resignation to removal. In September 2012, Human Resource Management officials told us that DHS was in the process of reviewing drug-free workplace programs across the department and that CBP was coordinating with DHS’s drug-free workforce program. Changes under consideration for DHS’s program include eliminating the 2-hour advance notice that employees currently receive before they are required to provide a urinalysis sample, which human resource officials stated could help reduce the possibility of CBP employees potentially engaging in efforts to dilute the results of the tests.\nIn addition, CBP policy states that all CBPOs and BPAs are subject to a reinvestigation every 5 years to ensure continued suitability for employment. control for monitoring incumbent officers and agents, particularly for those employees who were hired in the past without a polygraph examination.\nCBP policies allows for reinvestigations to be initiated outside of the standard 5-year cycle. As of July 2012, CBP has not conducted any periodic reinvestigations outside of the normal cycle, according to CBP IA officials.\nCBP IA officials stated that they conducted few periodic reinvestigations during fiscal years 2006 to 2010 because resources were focused on meeting mandated hiring goals. Thus, CBP IA accumulated a backlog of 15,197 periodic reinvestigations as of 2010. To help address this backlog, the Anti-Border Corruption Act of 2010 required CBP to initiate all outstanding periodic reinvestigations within 180 days of the enactment of the law, or July 3, 2011. As of September 2012, CBP IA had initiated 100 percent, and had completed 99 percent (15,027 of 15,197) of the outstanding reinvestigations from the backlog. According to CBP IA officials, 13,968 of the reinvestigations that were completed as of September 2012 have been adjudicated favorably, and CBP officials stated that they had referred three additional cases to the Office of Labor and Employee Relations for possible disciplinary action. CBP IA data indicate, however, that about 62 percent of the favorably adjudicated reinvestigations initially identified some type of issue, such as criminal or dishonest conduct or illegal drug use, which required further review during the adjudication process. According to CBP IA officials, PSD adjudicators mitigated these issues and determined that they did not warrant any referrals to labor and employee relations officials for disciplinary actions.", "CBP IA officials stated that they are considering implementing a polygraph requirement for incumbent employees; however, CBP has not yet assessed the feasibility of expanding the program beyond applicants. In May 2012, CBP’s Acting Deputy Commissioner testified that the agency is considering whether and how to subject incumbent officers and agents to polygraph examinations. CBP IA officials and supervisory CBPOs and BPAs that we interviewed at all four of the locations we visited expressed concerns about the suitability of the officers and agents hired during the surges because most of these officers and agents did not take a polygraph examination. CBP IA’s Assistant Commissioner also stated that he supports a periodic polygraph requirement for incumbent officers because of the breadth and volume of derogatory information that applicants have provided during the polygraph examinations. The Assistant Commissioner and other senior CBP officials stated that they have begun to consider various factors related to expanding polygraph examinations to incumbent officers and agents in CBP. However, CBP has not yet fully assessed the costs and benefits of implementing polygraph examinations on incumbent officers and agents, as well as other factors that may affect the agency’s efforts to expand the program. For example:\nCosts. In September 2012, CBP IA officials told us that they had not fully examined the costs associated with different options for expanding the polygraph examination requirement to incumbent employees. To test 5 percent of current eligible law enforcement employees (about 45,000 officer and agents), for example, equates to 2,250 polygraph examinations annually, according to CBP IA. Testing 20 percent of eligible employees each year, by comparison, equates to 9,000 polygraph examinations annually. CBP IA preliminarily identified some costs based on the average cost per polygraph examination (about $800); however, it has not completed analyses of other costs associated with testing incumbent employees, including those associated with mission support specialists, adjudicators, and supervisors who would need to be hired and trained to conduct the examinations. In October 2012, CBP IA officials stated that there would be further costs associated with training polygraph examiners— approximately $250,000 per examiner. CBP has not determined the full costs associated with expanding polygraph examinations to incumbent employees to help assess the feasibility of various options for expansion.\nAuthority and ability to polygraph incumbents. According to OPM requirements, to conduct polygraph examinations on current employees, CBP would need to request and obtain approval from OPM. As of September 2012, CBP had not yet sought approval from OPM to conduct polygraph examinations on incumbent employees because CBP’s senior leadership had not completed internal discussions about how and when to seek this approval. In addition, CBP officials identified other factors that the agency has not yet assessed, which could affect the feasibility of conducting polygraph examinations on incumbent employees. These factors include the need to assess how the agency will use the results of incumbent employees’ polygraphs and whether these options are subject to negotiation with the labor unions that represent CBPOs and BPAs. For example, according to CBP officials, it might be necessary to negotiate with the unions as to what disciplinary action could be taken based on the possible outcomes of the examination, including the test results themselves and any admissions of illegal activity or misconduct made by the employee during the examination.\nFrequency or number of polygraph examinations to be conducted. According to the CBP IA Assistant Commissioner, the agency has identified possible options for how frequently to implement polygraph examinations for incumbent employees or for what population to conduct the examinations. For example, possible options include conducting polygraph examinations on a random sample of incumbent employees each year (e.g., 5 percent or 20 percent of eligible employees each year), or conducting the examinations based on reasonable suspicion of finding derogatory information. CBP IA officials stated that testing incumbent employees on a random basis could have a deterrent effect by causing some employees to cease their corrupt behavior, and dissuading other employees from becoming involved in corrupt behavior. Although CBP has identified possible options for how frequently to implement polygraph examinations for incumbent employees or for what population to conduct the examinations, CBP officials stated that they have not assessed the feasibility of implementing these options, particularly in light of their relative costs and benefits.\nStandard practices for project management call for the feasibility of programs to be considered early on. Moreover, standard practices for project management state that specific desired outcomes or results should be conceptualized, defined, and documented as part of a road map.\nCBP has not fully assessed the feasibility of expanding the polygraph program to incumbent officers and agents, in accordance with standard practices for project management, including assessing all of the associated costs and benefits, options for how the agency will use the results of the examinations, and the trade-offs associated with testing incumbent officers and agents at various frequencies. In October 2012, the CBP IA Assistant Commissioner stated that the agency has begun to discuss options with senior agency officials for expanding its polygraph program. He and other senior CBP IA officials acknowledged that his office had not yet fully assessed the various factors that might affect the feasibility of expanding the polygraph program and agreed that such an assessment would be useful in discussions with CBP senior management. Assessing the feasibility of expanding periodic polygraphs early on in its planning efforts, consistent with standard practices, could help CBP determine how to best achieve its goal of strengthening integrity-related controls over incumbent CBPOs and BPAs.", "A senior PSD official stated that PSD has not implemented a quality assurance program at the level desired because it has prioritized its resources in recent years to address hiring goals and the mandated requirements to clear the backlog of reinvestigations. PSD established a quality assurance program in 2008 to help ensure that proper policies and procedures are followed during the course of the preemployment background investigations and incumbent employee reinvestigations. As part of this program, PSD is to (1) review, on a monthly basis, no more than 5 percent of all completed investigations to ensure the quality and timeliness of the investigations and to identify any deficiencies in the investigation process, and (2) report the findings or deficiencies in a standardized checklist so that corrective action can be taken, if necessary. As of September 2012, PSD officials stated that they have not consistently completed the monthly checks, as required by the quality assurance program, because they have prioritized their resources to screen applicants to meet CBP’s hiring goals. PSD officials stated that they have performed some of the required checks since 2008. However, PSD officials could not provide data on how many checks were conducted or when the checks were conducted because they did not retain the results of the checks on the required checklists. In addition, CBP IA officials stated that they had performed 16 quality reviews on an ad hoc basis outside of the monthly checks from fiscal years 2008 through 2010. CBP IA documented the results of these ad hoc checks, which did not identify significant deficiencies according to officials.\nStandards for Internal Control in the Federal Government provides guidance on the importance of evaluating the effectiveness of controls and ensuring that the findings of audits and other reviews are promptly resolved and evaluated within established time frames so that all actions that correct or otherwise resolve the matters have been brought to management’s attention. The standards also state that all transactions and other significant events need to be clearly documented, and the documentation should be readily available for examination. Senior CBP IA officials stated that a quality assurance program is an integral part of their overall applicant screening efforts, and they stated that it is critical for CBP IA to identify and leverage resources to ensure that the quality assurance program is fully implemented on a consistent basis. Without a quality review program that is implemented and documented on a consistent basis, it is difficult to determine the extent to which deficiencies, if any, exist in the investigation and adjudication process and whether individuals that are unsuitable for employment are attempting to find employment with CBP. As a result, it is difficult for CBP to provide reasonable assurance that cases have been investigated and adjudicated properly and that corruption risk to the agency is mitigated accordingly.", "In addition to CBP’s screening tools for applicants and incumbent employees, OFO and USBP have developed controls to help mitigate the risk of potential CBPO and BPA corruption and misconduct (see table 7). For example, OFO has been able to use upgraded technology at ports of entry to help prevent and detect possible officer misconduct and to monitor officers’ activities while on duty. USBP established a policy that limits the use of portable electronic devices while on duty to mitigate the risks of agents potentially organizing illegal border crossings.\nSenior USBP officials stated that its agents operate in an environment that does not lend itself to the types of technological controls, such as Red Flag, that OFO has implemented at the ports of entry, which are more confined and predictable environments than Border Patrol environments. For example, BPAs are required to patrol miles of terrain that may be inaccessible to radio coverage by supervisors at the sector offices. CBPOs operate in more controlled space at U.S. ports of entry as opposed to the open terrain across USBP sectors. Nevertheless, USBP officials stated that they are working with AMSCO and CBP IA to identify innovative ways that technology might be used to assist USBP in mitigating the risk of corruption along the border.\nIn addition, in 2009, OFO established the integrity officer position to provide an additional control within the individual field offices. As of August 2012, there were 19 integrity officers across OFO’s 20 field offices; there were 5 officers across the 4 field offices on the southwest border. Integrity officers monitor integrity-related controls, including the Red Flag system and video surveillance cameras. Integrity officers also perform data analyses and provide operational support to criminal and administrative investigations against OFO employees. However, CBP IA officials stated that OFO has not consistently coordinated the integrity officer program with CBP IA, which is the designated lead for all integrity- related matters within CBP. According to a CBP directive, entities within CBP, such as OFO, that are engaged in integrity-related activities must coordinate with CBP IA to ensure organizational awareness and prevent investigative conflicts. CBP IA officials stated that although they are aware of the Integrity Officer program, they expressed concerns that the roles and responsibilities of these officers may not be clearly articulated and thus could result in potential problems, such as jeopardizing ongoing investigations.\nSee Statement of David Aguilar, Acting Commissioner, U.S. Customs and Border Protection, before the Subcommittee on Government Organization, Efficiency, and Financial Management, Committee on Oversight and Government Reform, U.S. House of Representatives. Washington, D.C.: Aug. 1, 2012. responsibilities, including the definition of assisting with operational inquiries. For example, in our meetings with 4 of the integrity officers along the southwest border, we found that 3 defined their role to include active participation in investigations of allegations of misconduct and corruption against OFO employees. At one location we visited, the integrity officer stated that he had created an online social media profile under an assumed name to connect with CBP employees at his port of entry, one of whom was under investigation—an activity that the OFO Program Manager, senior OFO officials, and CBP IA officials acknowledged was beyond the scope of the intended role of the integrity officer position. Further, one integrity officer indicated that his role includes a right to “fully investigate” CBP employees, while another interpreted his role to be limited to conducting data analysis.\nCBP IA officials stated that integrity officers are not authorized to conduct investigations nor are they trained to do so. Differences in integrity officers’ activities across field locations could be justified given the variances at each port of entry. CBP IA officials expressed concerns, however, that the integrity officers may be overstepping their roles by inserting themselves into ongoing investigations, which could potentially disrupt or jeopardize ongoing investigations because they could unknowingly compromise the independence of an investigation or interview. OFO’s Acting Assistant Commissioner and the integrity officer program manager acknowledged that it would be useful to further clarify integrity officers’ duties to avoid any conflicts with ongoing investigations and ensure that the officers were approaching their duties more consistently. Clear roles and responsibilities for integrity officers developed in consultation with key stakeholders such as CBP IA, and a mechanism that monitors the implementation of those roles and responsibilities, could help OFO ensure that the program is operating effectively and, in particular, in coordination with the appropriate stakeholders like CBP IA.", "CBP has not developed a comprehensive integrity strategy to encompass all CBP components’ initiatives. Further, CBP has not completed some postcorruption analyses on employees convicted of corruption since October 2004, missing opportunities to gain lessons learned to enhance policies, procedures, and controls.", "CBP has not completed an integrity strategy that encompasses the activities of CBP components that have integrity initiatives under way, including CBP IA, OFO, and USBP, as called for in the CBP Fiscal Year 2009-2014 Strategic Plan. Specifically, CBP’s Strategic Plan states that it will deploy a comprehensive integrity strategy that integrates prevention, detection, and investigation. Further, a 2008 CBP directive states that CBP IA is responsible for developing and implementing CBP’s comprehensive integrity strategy to prevent, detect, and investigate all threats to the integrity of CBP. We have previously reported that developing effective strategies can help ensure successful implementation of agencywide undertakings where multiple entities are involved, such as CBP integrity-related efforts. Elements of an effective strategy include, among others, (1) identifying the purpose, scope, and particular problems and threats the strategy is directed toward; (2) establishing goals, subordinate objectives and activities, priorities, timelines, and performance measures; (3) defining costs, benefits, and resource and investment needs; and (4) delineating roles and responsibilities.\nCBP convened the IPCC in 2011 as a forum to discuss integrity-related issues and ideas and to share best practices among the members. IPCC is responsible for facilitating integrity-related operations of individual offices within CBP as a deliberative body. In particular, IPCC was tasked with making recommendations to address the results of an integrity study conducted by the Homeland Security Studies and Analysis Institute. The IPCC is composed of representatives from CBP IA, OFO, USBP, Human Resources Management, and Labor and Employee Relations, among others. See Homeland Security Studies and Analysis Institute, U.S. Customs and Border Protection Workforce Integrity Study. Dec. 15, 2011. committees in selected sectors, including along the southwest border, to establish training and guidance to help BPAs and reinforce concepts such as professional behavior and ethical decision making. OFO established an Integrity Committee to review misconduct and corruption data related to OFO employees, identify potential trends, and develop integrity initiatives to address any concerns. Although CBP IA has a strategic implementation plan for its activities and officials told us that these integrity coordination committees have been useful as forums for sharing information about the components’ respective integrity-related initiatives, CBP has not yet developed and deployed an agencywide integrity strategy.\nDuring the course of our review, CBP IA began drafting an integrity strategy for approval by the components and CBP’s senior management, in accordance with CBP’s Fiscal Year 2009-2014 Strategic Plan. CBP IA officials stated that a comprehensive strategy is important because it would help guide CBP integrity efforts and can, in turn, lead to specific objectives and activities, better allocation and management of resources, and clarification of roles and responsibilities. A 2011 workforce integrity study commissioned by CBP recommended that CBP develop a comprehensive integrity strategy and concluded that without such a strategy, there is potential for inconsistent efforts, conflicting roles and responsibilities, and unintended redundancies. However, CBP IA’s Assistant Commissioner stated that, as of September 2012, his office had not developed timelines for completing and implementing the agencywide integrity strategy and has not been able to finalize the draft, in accordance with the Fiscal Year 2009-2014 Strategic Plan. He indicated that that there has been significant cultural resistance among some CBP component entities in acknowledging CBP IA’s authority and responsibility for overseeing the implementation of all CBP integrity- related activities. Program management standards state that successful execution of any program includes developing plans that include a timeline for program deliverables. Without target timelines, it will be difficult for CBP to monitor progress made toward the development and implementation of an agencywide strategy. Further, it is too soon for us to determine if the final strategy will meet the key elements of an effective strategy that encompasses CBP-wide integrity stakeholders’ goals, milestones, performance measures, resource needs, and roles and responsibilities. A strategy that includes these elements could help better position CBP to provide oversight and coordination of integrity initiatives occurring across the agency.", "CBP has not completed some analyses of some cases in which CBPOs and BPAs were convicted of corruption-related charges. Such analyses could provide CBP with information to better identify corruption or misconduct risks to the workforce or modify existing policies, procedures, and controls to better detect or prevent possible corrupt activities on the part of CBPOs and BPAs. In 2007, OFO directed relevant managers to complete postcorruption analysis reports for each employee convicted for corruption. In 2011, USBP began requiring that these reports be completed after the conviction of any USBP employee for corruption. The reports are to include information such as how the employee committed the corrupt activity, and provide, among other things, recommendations on how USBP and OFO could improve policies, procedures, and controls to prevent or detect similar corruption in the future. For example, according to an OFO Director, several reports stated that the use of personal cell phones helped facilitate and coordinate drug smuggling efforts. As a result of these analyses, OFO implemented a restriction on the use of personal cell phones while on duty.\nAs of October 2012, OFO has completed about 66 percent of the total postcorruption analysis reports on OFO employees convicted since October 2004 (47 of 71 total convictions). OFO’s Incident Management Division Director stated that OFO had not completed the remaining reports because some convictions occurred prior to the 2007 OFO directive or because the convictions had not been published on CBP IA’s internal website—a point that informs OFO when it has 30 days to complete the report. USBP has completed about 4 percent of postcorruption anlaysis reports on USBP employees convicted since October 2004 (2 of 45 total convictions). USBP was instructed to complete postcorruption analysis reports in August 2011, and USBP officials stated that the agency does not have plans to complete analyses for convictions before August 2011 because CBP IA is reviewing these cases as part of a study to analyze behavioral traits among corrupt employees. However, CBP IA’s study does not substitute for postcorruption analysis reports because for this study, CBP IA researchers are exploring the convicted employees’ thinking and behavior to gain insights into the motives behind the betrayal of trust, how the activity originated, and how they carried out the illegal activity. The postcorruption reports, however, may go beyond this type of analysis and also may aim to identify deficiencies in port or sector processes that may have fostered or permitted corruption and to produce recommendations specific to enhancing USBP policies, procedures, or controls. A USBP Deputy Chief acknowledged that completing the remaining reports could be beneficial to understanding any trends or patterns of behavior among BPAs convicted of corruption. In some cases, OFO and USBP officials stated that it may be difficult to complete postcorruption analysis reports for older convictions, as witnesses and other information on the corruption-related activities may no longer be available.\nStandards for Internal Control in the Federal Government provides guidance on the importance of identifying and analyzing risks, and using that information to make decisions. These standards address various aspects of internal control that should be continuous, built-in components of organizational operations. One internal control standard, risk assessment, calls for identifying and analyzing risks that agencies face from internal and external sources and deciding what actions should be taken to manage these risks. The standards indicate that conditions governing risk continually change and periodic updates are required to ensure that risk information, such as vulnerabilities in the program, remains current and relevant. Information collected through periodic reviews, as well as daily operations, can inform the analysis and assessment of risk. Complete and timely information from postcorruption analysis reports of all convictions could assist USBP and OFO management in obtaining and sharing lessons learned to enhance integrity-related policies, procedures, and controls throughout CBP.", "Data indicate that the overwhelming majority of CBP employees adhere to the agency’s integrity standards; however, a small minority have been convicted of engaging in corruption due, in part, to the increasing pressure from drug-trafficking and other transnational criminal organizations that are targeting CBPOs and BPAs, particularly along the southwest U.S. border. The Acting Commissioner of CBP testified that no act of corruption within the agency can or will be tolerated and that acts of corruption compromise CBP’s ability to achieve its mission to secure America’s borders against all threats while facilitating and expediting legal travel and trade. Strategic and continuous monitoring of operational vulnerabilities is important given the shifting tactics of drug-trafficking organizations seeking to infiltrate the agency. Therefore, CBP has taken steps to mitigate the risk of misconduct and corruption among incoming CBPOs and BPAs by implementing controls during the preemployment screening process. However, tracking and maintaining data on the results of its screening tools for applicants, a feasibility assessment for potential expansion of polygraph requirements, and a robust quality assurance program for background investigations and periodic reinvestigations that ensures reviews are consistently conducted and documented could better position CBP to mitigate risk of employee corruption. In addition, clear roles and responsibilities for OFO’s integrity officers developed in coordination with appropriate stakeholders such as CBP IA could help CBP ensure that the program is operating effectively. Moreover, establishing a target time frame for completing a comprehensive integrity strategy could help CBP ensure sufficient progress toward its development and implementation. In addition, completed, postcorruption analysis reports of former CBP employees who have been arrested for corruption could better position CBP to implement any lessons learned from these cases.", "To enhance CBP’s efforts to mitigate the risk of corruption and misconduct among CBPOs and BPAs, we recommend that the CBP commissioner take the following seven actions: develop a mechanism to maintain and track data on the sources of information (e.g., background investigation or polygraph examination admissions) that PSD uses to determine what applicants are not suitable for hire to help CBP IA assess the effectiveness of its applicant screening tools; assess the feasibility of expanding the polygraph program to incumbent CBPOs and BPAs, including the associated costs and benefits, options for how the agency will use the results of the examinations, and the trade-offs associated with testing incumbent officers and agents at various frequencies; conduct quality assurance reviews of CBP IA’s adjudications of background investigations and periodic reinvestigations, as required in PSD’s quality assurance program; establish a process to fully document, as required, any deficiencies identified through PSD’s quality assurance reviews; develop detailed guidance within OFO on the roles and responsibilities for integrity officers, in consultation with appropriate stakeholders such as CBP IA; set target timelines for completing and implementing a comprehensive integrity strategy; and, complete OFO and USBP postcorruption analysis reports for all CBPOs and BPAs who have been convicted of corruption-related activities, to the extent that information is available.", "We provided a draft of this report to DHS for its review and comment. DHS provided written comments, which are reproduced in full in appendix II. DHS concurred with all seven recommendations and described actions under way or plans to address them. DHS also discussed concerns it had with periodically polygraphing incumbent law enforcement officers.\nWith regard to our first recommendation, DHS concurred and indicated that by March 31, 2013, CBP expects to collect data on the impact of the polygraph examination regarding the outcome of CBP applicant suitability adjudications and undertake steps to ensure data reliability across various CBP personnel security databases.\nWith regard to the second recommendation, while DHS concurred, it reported possible adverse impacts associated with periodically polygraphing incumbent law enforcement officers. Specifically, DHS noted that doing so could adversely affect CBP resources without additional resources to implement the requirement. While we understand DHS’s concerns, we did not recommend that CBP expand its polygraph program to incumbent employees; rather, we recommended that CBP assess the feasibility of expanding polygraph examinations to incumbent CBPOs and BPAs. Thus, concerns such as these could be considered in conducting its feasibility assessment. As we reported, assessing the feasibility of expanding periodic polygraphs early on in its planning efforts could help CBP determine how to best achieve its goal of strengthening integrity-related controls over incumbent CBPOs and BPAs. In addition, DHS noted that expanding the polygraph program to incumbent employees would be contingent on approval from OPM and may encounter resistance from unions representing CBP’s employees who may view it as a potential change to the conditions of their employment. As noted in the report, these are important factors CBP could consider in assessing the feasibility of expanding the polygraph program.\nWith regard to the other five recommendations, DHS concurred and indicated that CBP will work to strengthen its current quality assurance processes and develop a process to document deficiencies identified through quality reviews; develop detailed guidance on the duties, roles, and responsibilities of integrity officers; complete a comprehensive integrity strategy; and develop postcorruption analysis reports for any convictions that do not currently have such reports. DHS estimates that it will complete these steps by July 31, 2013. The actions that DHS has planned or under way should help address the intent of the recommendations. DHS also provided technical comments, which we incorporated as appropriate.\nAs agreed with your offices, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days after its issue date. If you or your staff have any questions about this report, please contact me at (202) 512-8777 or gamblerr@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix III.", "To examine data on arrests of and allegations against U.S. Customs and Border Protection (CBP) employees accused of corruption or misconduct issues, we analyzed data on 144 CBP employees arrested or indicted from fiscal year 2005 through fiscal year 2012 for corruption activities. We also analyzed data on allegations of corruption and misconduct against CBP employees from fiscal years 2006 through 2011. For both arrest and allegation data, these are the time periods for which the most complete data were available. In particular, we analyzed variations in both sets of data across CBP components and geographic region. To assess the reliability of these data, we (1) performed electronic data testing and looked for obvious errors in accuracy and completeness, and (2) interviewed agency officials knowledgeable about these data to determine the processes in place to ensure their accuracy. We determined that the data were sufficiently reliable for the purposes of this report. In addition, we interviewed officials from CBP Office of Internal Affairs (IA), Office of Field Operations (OFO), United States Border Patrol (USBP), and CBP’s Human Resource Management, and Labor and Employee Relations, to gain their perspectives on these data on CBP employee corruption and misconduct.\nTo evaluate CBP’s implementation of integrity-related controls to prevent and detect employee misconduct and corruption, we analyzed relevant laws such as the Anti-Corruption Border Act of 2010, which requires, by January 2013, that all CBP officer (CBPO) and U.S. Border Patrol Agent (BPA) applicants receive polygraph examinations before they are hired.\nWe also reviewed documentation on CBP’s preemployment screening practices and their results—including background investigations and polygraph examinations—and relevant data and documentation on the random drug testing program and the periodic reinvestigation process for incumbent CBPOs and BPAs. In particular, we evaluated CBP IA data on the technical results of polygraph examinations from January 2008 through August 2012. To assess the reliability of the technical results of the polygraph data, we (1) performed electronic data testing and looked for obvious errors in accuracy and completeness, and (2) interviewed agency officials knowledgeable about these data to determine the processes in place to ensure their accuracy. We determined that these data were sufficiently reliable for the purposes of this report. In addition, we examined CBP IA’s quality assurance program for its Personnel Security Division (PSD), including interviewing PSD officials who are responsible for deciding whether an applicant or incumbent officer or agent is suitable for hire or continued employment. We also analyzed Human Resource Management’s random drug testing data for fiscal years 2009 through 2011, the time period for which the most complete data were available, and examined the results of those mandated periodic reinvestigations that CBP IA had completed as of September 2012. To assess the reliability of these data, we conducted tests for accuracy and interviewed officials responsible for managing the drug testing and reinvestigation programs and found that the data were sufficiently reliable for the purposes of our report.\nWe compared CBP’s integrity-related controls, as applicable, against recommended controls in Standards for Internal Control in the Federal Government and standard practices from the Project Management Institute. Furthermore, we conducted site visits to four locations along the southwest U.S. border to observe the implementation of various integrity-related controls and obtain perspectives from CBP IA, OFO, and USBP officials at these locations on the implementation of integrity- related controls. We conducted these visits in El Paso, Texas; Laredo, Texas; San Diego, California; and, Tucson, Arizona. We selected these locations on the basis of a variety of factors, including the colocation of CBP IA with OFO offices and USBP sectors along the southwest border and the number of allegations against or arrests of CBP employees for corruption or misconduct. Because we selected a nonprobability sample of sites, the information we obtained from these interviews and visits cannot be generalized to all OFO, USBP, and CBP IA field locations.\nHowever, observations obtained from these visits provided us with a greater understanding of CBP’s integrity-related initiatives.\nTo evaluate CBP’s integrity strategy, including how the agency incorporates lessons learned from prior misconduct and corruption cases, we reviewed documentation on integrity initiatives from CBP IA, OFO, and USBP, as well as from the Integrity Integrated Planning and Coordination Committee (IPCC), which CBP convened in 2011 as a forum to discuss integrity-related issues and ideas and to share standard practices among the members. In particular, we analyzed these documents against the requirements set forth in the CBP Fiscal Year 2009-2014 Strategic Plan. In addition, we analyzed all available postcorruption analyses reports, which identify deficiencies that may have enabled CBP employees to engage in corruption-related activities, against OFO and USBP program requirements. We interviewed officials in Washington, D.C., from the Office of Policy and Planning, CBP IA, USBP, OFO, and IPCC, as well as officials during our site visits, regarding CBP’s integrity strategy and the extent to which CBP is using lessons learned from prior corruption and misconduct cases to guide changes in policies and procedures, as appropriate.\nWe conducted this performance audit from December 2011 to December 2012, in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.", "", "", "", "In addition to the contact named above, Kathryn Bernet, Assistant Director; David Alexander; Nanette J. Barton; Frances Cook; Wendy Dye; David Greyer; Jackson Hufnagle; Wendy Johnson; Otis S. Martin; and Linda Miller made significant contributions to the work." ], "depth": [ 1, 2, 1, 2, 2, 1, 2, 2, 2, 2, 2, 1, 2, 2, 1, 1, 1, 1, 1, 1, 2, 2 ], "alignment": [ "h3_full", "", "h0_full", "h0_full", "h0_full", "h1_full", "h1_full", "", "h1_full", "h1_full", "", "h2_title h3_title", "h3_full h2_full", "", "h3_full", "", "", "h3_full", "", "", "", "" ] }

{ "question": [ "What is the status of arrests of CBP officials?", "By what margin is the relationship between misconduct and corruption?", "What is the geographical center of CBP misconduct?", "What is the official reaction to these arrests?", "What resources does the CBP employ to combat corruption and misconduct?", "Why are these tools ineffective?", "What other potential options is CBP considering to aid in their testing?", "How could CBP IA improve its quality assurance?", "To what extent does CBP employ an integrity strategy?", "What is the current state of the strategy?", "What may have caused this stagnation?", "Why is it important that this strategy becomes completed and active?", "What is CBP's importance?", "What vulnerability does the CBP have because of that importance?", "What organizations monitor CBP?", "What are the contents of GAO's report?" ], "summary": [ "U.S. Customs and Border Protection (CBP) data indicate that arrests of CBP employees for corruption-related activities since fiscal years 2005 account for less than 1 percent of CBP’s entire workforce per fiscal year. The majority of arrests of CBP employees were related to misconduct.", "There were 2,170 reported incidents of arrests for acts of misconduct such as domestic violence or driving under the influence from fiscal year 2005 through fiscal year 2012, and a total of 144 current or former CBP employees were arrested or indicted for corruption-related activities, such as the smuggling of aliens and drugs, of whom 125 have been convicted as of October 2012.", "Further, the majority of allegations against CBP employees since fiscal year 2006 occurred at locations along the southwest border.", "CBP officials have stated that they are concerned about the negative impact that these cases have on agencywide integrity.", "BP employs screening tools to mitigate the risk of employee corruption and misconduct for both applicants (e.g., background investigations and polygraph examinations) and incumbent CBP officers and Border Patrol agents (e.g., random drug tests and periodic reinvestigations).", "However, CBP’s Office of Internal Affairs (IA) does not have a mechanism to maintain and track data on which of its screening tools (e.g., background investigation or polygraph examination) provided the information used to determine which applicants were not suitable for hire. Maintaining and tracking such data is consistent with internal control standards and could better position CBP IA to gauge the relative effectiveness of its screening tools.", "CBP IA is also considering requiring periodic polygraphs for incumbent officers and agents; however, it has not yet fully assessed the feasibility of expanding the program. For example, CBP has not yet fully assessed the costs of implementing polygraph examinations on incumbent officers and agents, including costs for additional supervisors and adjudicators, or factors such as the trade-offs associated with testing incumbent officers and agents at various frequencies. A feasibility assessment of program expansion could better position CBP to determine whether and how to best achieve its goal of strengthening integrity-related controls for officers and agents.", "Further, CBP IA has not consistently conducted monthly quality assurance reviews of its adjudications since 2008, as required by internal policies, to help ensure that adjudicators are following procedures in evaluating the results of the preemployment and periodic background investigations. CBP IA officials stated that they have performed some of the required checks since 2008, but they could not provide data on how many checks were conducted. Without these quality assurance checks, it is difficult for CBP IA to determine the extent to which deficiencies, if any, exist in the adjudication process.", "CBP does not have an integrity strategy, as called for in its Fiscal Year 2009-2014 Strategic Plan.", "During the course of our review, CBP IA began drafting a strategy, but CBP IA’s Assistant Commissioner stated the agency has not set target timelines for completing and implementing this strategy.", "Moreover, he stated that there has been significant cultural resistance among some CBP components in acknowledging CBP IA’s authority for overseeing all integrity-related activities.", "Setting target timelines is consistent with program management standards and could help CBP monitor progress made toward the development and implementation of an agencywide strategy.", "CBP—a component within the Department of Homeland Security— is responsible for securing U.S. borders and facilitating legal travel and trade.", "Drug-trafficking and other transnational criminal organizations are seeking to target CBP employees with bribes to facilitate the illicit transport of drugs, aliens, and other contraband across the southwest U.S. border, in particular.", "CBP IA is responsible for promoting the integrity of CBP’s workforce, programs, and operations; and CBP components implement integrity initiatives. GAO was asked to review CBP’s efforts to ensure the integrity of its workforce.", "This report examines (1) data on arrests of and allegations against CBP employees for corruption or misconduct, (2) CBP’s implementation of integrity-related controls, and (3) CBP’s strategy for its integrity programs. GAO analyzed arrest and allegation data since fiscal year 2005 and 2006, respectively, reviewed integrity-related policies and procedures, and interviewed CBP officials in headquarters and at four locations along the southwest border selected for geographic location, among other factors." ], "parent_pair_index": [ -1, 0, 0, 0, -1, 0, -1, -1, -1, 0, 1, 0, -1, 0, -1, 2 ], "summary_paragraph_index": [ 1, 1, 1, 1, 2, 2, 2, 2, 3, 3, 3, 3, 0, 0, 0, 0 ] }

{ "title": [ "Background", "Various Reported Fraud Schemes against Housing Choice Voucher Participants Can Occur, but PHAs Reported Limited Incidents, and GAO Covert Testing Found Limited Online Indicators of Fraud", "Waiting-List, Rental, and Side-Payment Fraud Are among the Reported Types of Schemes That Can Affect Voucher Participants", "PHAs Are Aware of Limited Instances of Fraud Affecting Voucher Participants in Their Jurisdictions, with Side- Payment Fraud Reported Most Often", "Few Indicators of Potential Fraud Found in Online Covert Testing", "HUD and PHA Antifraud Efforts Focus Mainly on Fraud against the HCV Program; Some PHAs Voluntarily Provide Information about Fraud against Participants", "Agency Comments", "Appendix I: Objectives, Scope, and Methodology", "First Objective", "Types of Reported Fraud", "Fraud Alerts", "Consumer Complaint Data", "Awareness of Fraud Incidents", "Survey", "Interviews of Government Officials, Nongovernment Officials, and Others", "Indications of Potential Fraud Online", "Covert Testing", "Second Objective", "Appendix II: Results of GAO’s Survey of Public Housing Agencies", "Fraudulent Activities by Fraudsters or Impersonators", "Fraudulent Activities by Landlords and Building Inspectors", "Survey Question 5 Responses", "Appendix III: GAO Contact and Staff Acknowledgments", "GAO Contact", "Staff Acknowledgments" ], "paragraphs": [ "The HCV program, administered by HUD, subsidizes housing costs for low-income households in the private rental market. Because HUD provides HCV assistance directly to the household, participants are able to find their own housing, including single-family homes, townhouses, and apartments. If the household moves out of the unit, it can move with continued assistance to another private rental unit.\nPHAs administer the HCV program at the local level, while HUD administers funding and furnishes technical and professional assistance to PHAs in planning, developing, and managing the program. Approximately 2,200 PHAs across the country administer the voucher program on HUD’s behalf, managing day-to-day operations in the HCV program, including the application and voucher distribution processes, as well as housing inspection and approval. PHAs are responsible for ensuring that rents are reasonable, determining households’ eligibility, calculating and periodically redetermining households’ incomes and rental payments, and making subsidy payments to landlords. In addition, PHAs perform basic program functions, such as establishing and maintaining a waiting list, processing tenant moves, conducting landlord and tenant outreach, and reporting to HUD.\nLocal PHAs determine the eligibility of households, approve applications, and distribute vouchers. In general, to be eligible to participate in the HCV program, households must have very low incomes—that is, incomes not exceeding 50 percent of the area median income. Moreover, at least 75 percent of new voucher program participants must have extremely low incomes, not exceeding 30 percent of the area median income. Once a household is approved by a PHA to participate in the program and finds a rental unit, that household pays 30 percent of its monthly income, after certain adjustments, toward rent. The remaining portion of the rent is paid through the HUD-subsidized voucher. PHAs can pay subsidies to cover between 90 percent and 110 percent of the fair market rent for their areas.\nThe HCV application and rental process is displayed in figure 1.\nThe following applies in the HCV application process:\nHouseholds seeking to enter the HCV program may wait years for their local PHA to announce an open application period. PHAs may establish waiting lists if the number of applicants to the program exceeds available vouchers, and may close the waiting list if it contains more households than the PHA can assist in the near future. Therefore, prospective applicants in some locations can wait years for a local PHA to determine the eligibility of those already on the waiting list—and provide vouchers to eligible individuals—before reopening waiting lists to new applicants.\nDuring open application periods, applicant households may encounter processes and requirements that vary amongst PHAs. Applying for a voucher from a local PHA may take place in person or online, while PHAs may determine an applicant’s priority to receive a voucher by varying methods, such as a random lottery amongst all applicants, or on a first-come-first-serve ordering of when applicants applied. Moreover, PHAs can establish local preferences for selecting applicants from their waiting lists. For example, PHAs may give preference to a household that (1) is homeless or living in substandard housing, (2) is paying more than 50 percent of its income for rent, or (3) has an older-adult household member. Regardless of methods to determine eligibility, apply for, and obtain a voucher within the HCV program, it is free to participants.\nWhen an open application period ends and before determining household eligibility, PHAs may initially put applicant households on a waiting list. Because the demand for vouchers may exceed the supply available to the local PHA, households that have already waited to apply to the program may also wait years to receive a determination of eligibility and receive a voucher.\nAfter receiving a voucher, households must find eligible private- market rental housing within a limited time frame. A PHA will make contact with and issue a voucher to a household that is determined to be eligible and is subsequently selected from the waiting list. Households receiving vouchers use them to subsidize their rents in private apartments or houses available in the rental market. Households must find housing quickly—generally within 60 days— unless the PHA grants an extension. In some cases, PHAs direct voucher holders to websites dedicated to rentals in the HCV program, where private landlords list available units.\nWhen a voucher-holding household finds a unit that it wishes to occupy—and reaches an agreement with the landlord over the lease terms—the PHA inspects the dwelling and determines whether the rent requested is reasonable. To be eligible, a rental unit must meet HUD minimum housing-quality standards, and must provide an acceptable level of health and safety. After the unit is inspected and deemed eligible, the household signs a contract with HUD, and both HUD and the household sign contracts with the landlord. The contract stipulates that the PHA will make the housing-assistance payment to the landlord and the household will pay the difference between the housing-assistance payment and the rent. Landlord participation in the HCV program is free, and landlords do not pay to maintain compliance with the program. Moreover, the HCV program provides for the use of vouchers across locations. Once a household receives a voucher, it may use the voucher in any location in which a PHA administers the voucher program, as long as it remains eligible.", "", "Reported fraud schemes against program participants—including prospective applicants, individuals on waiting lists, current voucher holders, and landlords providing rental units—can occur at each point in the HCV application and rental process, according to program officials and our analysis of FTC complaint data. On the basis of our reviews of fraud alerts issued by PHAs and complaints submitted to the FTC, the type of fraud that participants, including older adults, may encounter depends on where they are in the process and whether they are landlords or renters. Fraudsters perpetrate reported schemes in a variety of ways, such as through in-person impersonation of PHA staff or by manipulating telephone numbers to convince landlords to make unnecessary payments. Reported types of fraud schemes and when they could potentially occur in the HCV application and rental process are displayed in figure 2.\nAs shown in figure 2, various reported fraud types can be carried out against HCV participants. While some fraud types are specific to the HCV program, participants may also be victims of general rental-housing fraud. The reported fraud types, which we identified through interviews with PHAs and others and through an analysis of PHA fraud alerts and Consumer Sentinel complaints, include the following:\nWaiting-List Placement Fraud. In online or in-person settings, fraudsters may claim they can provide a voucher, place applicants onto a waiting list, or move individuals to a higher position on the waiting list. In exchange, fraudsters may request a payment, or may request information (such as name, credit-card number, and e-mail address) that may put participants at risk of credit-card fraud or identity theft. Waiting lists maintained by PHAs may open infrequently, and program application processes and requirements vary from location to location. Reported fraud schemes may take advantage of applicant unfamiliarity with program rules, and target those seeking to enter the program or awaiting a voucher.\nRental-Advertisement Fraud. Because they rent in the private market, voucher holders are susceptible to online rental-fraud schemes. Those who place online rental advertisements may request wire transfers from prospective renters to secure fake rentals, or steer potential renters to suspect credit-reporting services that offer commissions to the scammers or realtor services that charge users a onetime or recurring monthly fee.\nSide-Payment Fraud. Officials from PHAs and other organizations characterized side payments as two distinct activities—alternatively, as landlord fraud against tenants on one hand, and mutually beneficial agreements between tenants and landlords on the other. In exchange for property rental or successful inspection, landlords or building inspectors may fraudulently request additional payments or pressure participants for other favors from voucher holders. Landlords may ask tenants for a monthly payment above the agreed rent, or may require HCV participants to pay for utilities when not required to in their rental agreement. For example, a Midwest PHA we interviewed reported being aware of coercive demands by landlords for side payments or sexual favors in exchange for a rental unit. Side payments may also be a mutual arrangement between landlord and voucher holders. For example, voucher holders may make a payment above their monthly rent—in violation of program rules—and in exchange the landlord agrees not to report that there are unauthorized occupants living in the unit, again in violation of program rules. A West Coast PHA we interviewed characterized most side payments it is aware of as mutual agreements of this type.\nSecurity-Deposit Fraud. Because they rent in the private market, voucher holders may encounter fraudsters advertising a rental and requiring a security deposit from one or several prospective renters even if there is no rental unit available or only one of the prospective renters will ultimately obtain the rental.\nProgram-Compliance Fraud against Landlords. Fraudsters may take advantage of landlord unfamiliarity with HCV program rules. In calls to HCV program landlords, fraudsters mask their phone number with that of the local PHA, and direct the landlords to make a credit-card payment over the phone to purchase materials or to make a payment in order to remain in compliance with program rules.", "An overwhelming majority of surveyed PHAs did not report awareness of any occurrences of most fraud types that could affect HCV program participants, while those that were aware of fraud against participants reported few instances, according to our survey results and interviews. We surveyed a nationally representative sample of PHAs representing approximately 1.9 million households. We inquired about incidents occurring within their area of jurisdiction from spring 2016 through spring 2017. We asked about fraudsters promising placement onto or a higher place on a waiting list, selling vouchers, stealing security deposits, or offering suspect credit-report services; voucher holders and landlords engaging in side payments; and landlords and building inspectors illegally soliciting favors. Apart from incidents of side payments (discussed in detail below), on the basis of PHA responses to our survey we estimate that between 3 and 10 percent of all PHAs with 1,000 or more vouchers were aware of any occurrences of the types of fraud schemes included in our survey (see fig. 3). Further, when PHAs were aware of such fraud schemes, most reported between 2 to 5 cases in their local area of jurisdiction from spring 2016 through spring 2017. Our other sources of evidence were consistent with our survey results. For example, we interviewed officials with two PHA associations—representing approximately 1,900 total PHAs—about fraud against HCV participants (other than side payments). The associations reported that they were unaware of widespread instances of these types of fraud against participants.\nPHAs were much more likely to report awareness of incidents of side payments than the other types of fraud included in our survey, according to our analysis of survey responses. As noted above, side-payment fraud involves agreements—mutual or compelled—in which the voucher holder pays additional rent or other payments to the landlord in return for benefits, to secure a rental, or to avoid eviction. On the basis of survey responses, we estimate that 41 percent of all PHAs with 1,000 or more vouchers were aware of incidents of side payments in the prior year, as shown in figure 3 above. Of PHAs reporting side payments, we estimate that the vast majority (93 percent) were aware of 1 to 10 instances of side payments in the prior year (spring 2016–spring 2017), with most reporting between 2 and 5 incidents in the past year. Further, we estimate that 7 percent were aware of 11 or more instances in the prior year.\nOfficials from all eight PHAs we interviewed similarly told us that they were aware of side payments, but some said that participants rarely report cases of side payments to them. Because violation of HVC rules could result in termination of a lease or loss of voucher for the recipient, it is possible that side payments are not always reported to PHAs. Two experts providing legal services to low-income individuals said that, in regard to fraud affecting HCV participants, landlord requests for side payments is relatively more common than other types of fraud. In addition, a current voucher holder told us about personal experiences involving requests for such payments by landlords, but also said that he or she had not experienced any other types of fraud.\nIn response to our open-ended survey question on other fraud not specifically mentioned in the survey, three PHAs in two regions reported variations of a type of fraud that intends to convince landlords that they are not in compliance with HCV rules, and that they must make a payment over the phone. Although this type of fraud was not included explicitly in our survey and is therefore not included in figure 3 above, in survey comments one West Coast PHA and two PHAs in the Southeast reported instances of this type of fraud. In open-ended survey comments, a West Coast PHA reported being aware of two attempts of similar fraud, in which fraudsters called landlords and asked them to make a credit-card payment over the phone to maintain program compliance. Similarly, two southeastern PHAs also reported being aware of instances of similar fraud schemes in the last year, although neither provided the number of cases reported to them. Furthermore, another West Coast PHA that was not included in our survey issued an online alert about scammers calling landlords, masking their actual phone number with the PHA’s phone number, and stating that in order for the landlord to maintain program compliance, the landlord must make a credit-card payment over the phone to purchase a program manual. In an interview, officials from this PHA reported being aware of 36 attempts of this fraud type against landlords from September 2015 to April 2017.\nAccording to PHA officials, fraud schemes generally have not targeted older-adult HCV participants. In survey responses, a limited number of PHAs reported fraud against older adults. For example, we estimate that of PHAs reporting awareness of side-payment schemes, very few PHAs (about 8 percent) were aware of instances in which landlords targeted older adults in side-payment requests. Moreover, an official from one PHA we interviewed stated that because older adults are likely to have advocates helping them to find housing, they are less likely than other HCV participants to be victims of fraud. Similarly, one expert providing legal services to older adults in the HCV program indicated that project- based participants—who rent units only in specific buildings—are more likely than HCV participants to be targets of in-person fraud because they are located in identifiable properties.\nSeveral PHAs issued fraud alerts about schemes against participants, but officials at PHAs we interviewed about some of the alerts told us that incidents of these fraud types were limited. Specifically:\nA Midwestern PHA issued an alert about an individual promising a voucher for a fee and meeting victims in person to receive payment. In a follow-up interview, PHA officials stated that, in total, they received five to seven reports about this fraud. Each of these cases occurred while the PHA’s waiting list was open in 2015. A nearby PHA also reported that when its waiting list was open in 2011, an individual with fake PHA credentials fraudulently took payment from individuals and promised to move them to the top of the waiting list. The PHA was aware of 10 individuals who were victims of the fraud, and estimated that they each paid about $200 to the perpetrator.\nA West Coast PHA issued an alert about a website charging applicants to submit a program application. However, in an interview the PHA reported awareness of only one case over the last 3 years of fraud committed by outside parties against voucher participants.\nAlthough instances of fraud against HCV participants reported to PHAs appear relatively rare, participants who provide personal information to unknown individuals are still at risk for identity theft, according to some experts we interviewed. Two identity-theft experts stated that credit-card fraud is likely if individuals enter payment information in unverified sites. Furthermore, one expert stated that low-income individuals can be targets for identity theft because fraudsters can use stolen identities with low credit scores to obtain high-interest loans that they do not intend to pay off.", "In covert testing using undercover tools and techniques, we found no indicators of fraud in rental advertisements posted online, and few indicators of fraud in commercial websites offering information to participants about the HCV program.\nThrough our online covert testing, we found no indicators of potential fraud in 350 advertisements—selected using a random-selection methodology—posted in online marketplaces across six cities. On the basis of an academic study of online fraud schemes on rental marketplaces and information provided by PHAs, we developed a list of indicators of potential fraud. These indicators include requests for a wire transfer of security deposit or first month rent without offering to provide an in-person viewing of the property, or requesting an up-front or monthly side-payment agreement as a condition of rental. In searches of one rental website, we came across a small number of advertisements that initially appeared to contain an indicator of potential fraud—specifically, links to a website for specialized realtor services; covert testing of that link did not find further indicators of potential fraud.\nNone of the 26 commercial websites we covertly tested contained text explicitly stating that they would place or move someone up a waiting list for a fee. Further, in e-mail correspondence with every website, we asked whether they could help place us on a waiting list. Some website operators never replied and some stated they could not do so, with none agreeing to place us on a list. However, some websites used HUD’s Equal Housing Opportunity logo, which might make them appear to be associated with official government programs, while others requested payment for suspect services and products. For example:\nOne PHA fraud alert specifically named one of the websites we tested covertly, and indicated that the website fraudulently offered to submit an application for the HCV program for a onetime registration fee. Our covert testing found that this website displayed HUD’s Equal Housing Opportunity logo, and charges a fee for a “guide” about the voucher program, but at the time of our testing the website did not offer to submit an application for a fee. Payment to the website resulted in access to a guide and online forum containing a list of open PHA waiting lists for the HCV program and links to publicly available PHA websites.\nOne website we covertly tested requested payment for an e-book guide to assist with the HCV application process. We made payment but never received the e-book.\nOne website subject to covert testing stated that landlords in the HCV program may deny or refuse to rent to a potential tenant based on his or her credit-report information, and referred us to a suspect website offering credit reports. The website claimed to offer a “free credit report” and requested personal information including a Social Security number and credit-card number. As part of our covert testing, we provided a credit-card number. We also entered all zeroes as a Social Security number on the site, prompting the site to state that it could not provide us with a credit report, as we had not provided a valid Social Security number. Despite that fact, the site charged our credit card a recurring payment. In a phone call, a representative of the website stated that, in the terms-of-use for the website, users are informed that they must explicitly request that recurring payments be terminated or that those payments would continue.", "HUD regulations and guidance and PHA informational materials pertinent to fraud primarily focus on protecting the HCV program rather than protecting participants from fraud committed by external parties. For example, where the regulations mention fraud explicitly, it is generally in relation to mitigating program violations by owners and voucher program participants, recovering program losses from fraud, and assessing participants, applicants, and owners for participation or continued participation in the program.\nApart from requiring that PHAs inform participants about a prohibition against side payments to landlords (a program rule violation), HUD’s antifraud guidance, as outlined in the Housing Choice Voucher Program Guidebook, generally focuses on preventing fraud against the program, as opposed to fraud against participants. For example, an applicant misrepresenting income and assets to obtain an HCV voucher and a landlord bribing a PHA employee to approve substandard rental housing are types of program fraud. See figure 4 for examples of HCV program- related fraud listed in the guidebook.\nEducation and outreach requirements for PHAs specified in the HCV guidebook largely focus on providing adequate public notice of waiting-list openings; an oral briefing when the PHA selects a family to participate in the program; and a written briefing packet for participants, which must include a variety of subjects related to program administration, leasing a unit, and family obligations. Consistent with the guidebook, written or online briefing materials from the eight PHAs we interviewed mention various types of program violations. All but one specifically state that side- payment agreements between landlords and tenants are prohibited, which, as discussed above, can be viewed as both fraud affecting the participant and against the program. HUD directs PHAs to inform participants that landlord–participant side payments are prohibited.\nHUD provides guidance on how a PHA should handle a situation in which the landlord is collecting side payments. If the PHA finds that the landlord is collecting side payments, the PHA must notify the landlord to immediately cease collecting these payments and require repayment to the tenant of the full amount collected. The PHA must determine whether the landlord also collected side payments from other participants and follow up to require repayment. The amount can be repaid by offsetting the amount due against future housing-assistance payments. At its discretion, the PHA may terminate the housing-assistance payments contract with the landlord immediately, even if the landlord has repaid amounts due the tenant, but the PHA must cancel the contract if the landlord fails to repay.\nAlthough not required, several PHAs we visited or contacted voluntarily provided informational materials to program participants that included targeted messages and alerts notifying them of certain housing- assistance fraud by outside parties, such as voucher-sale fraud, or fraud involving being placed on or moved up a waiting list. For example, in program briefing documents given to participants, a northeastern PHA warns participants of housing-assistance scams, and specifically advises participants not to pay to, among other things, (1) be placed on or be moved up a waiting list or (2) receive an HCV voucher or voucher extension; a different northeastern PHA advises HCV participants not to give their voucher to anyone, including the apartment owner, agent, or property manager; and not to give any money to the apartment broker, owner, or agent until the PHA approves the selected apartment; and a West Coast PHA advises HCV applicants and participants to be aware of fraud, particularly schemes that require a payment to file an application or to move up a waiting list.\nIn addition, PHAs share best practices that could include these and other issues. For example, two industry associations representing approximately 1,900 PHAs provide mechanisms for PHAs to share information and best practices about HCV administration and issues affecting HCV program participants and their communities. Both regularly hold conferences, meetings, and other events that provide a venue for members to discuss relevant issues. In addition, one of these associations has published reports on issues affecting older adults and connecting housing and community services, among other issues, while the other published a report on issues related to rental reform proposals.", "We provided a draft of this report for review and comment to HUD, FTC, the Consumer Financial Protection Bureau, the Department of Health and Human Services, and the U.S. Postal Service. We received e-mails from HUD, the Consumer Financial Protection Bureau, and the Department of Health and Human Services in which liaisons to GAO for those agencies stated they had no comments on the report. We received technical comments from FTC and the U.S. Postal Service, which we incorporated in the report as appropriate.\nWe are sending copies of this report to the appropriate congressional committees, the Secretary of Housing and Urban Development, the Federal Trade Commission, the Director of the Consumer Financial Protection Bureau, the Secretary of Health and Human Services, and the Postmaster General of the U.S. Postal Service. In addition, the report is available at no charge on the GAO website at http://www.gao.gov.\nIf you or your staff members have any questions about this report, please contact me at (202) 512-6722 or shear@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix III.", "In this report, we describe (1) the types of reported fraud schemes committed against Housing Choice Voucher (HCV) participants (including older adults), awareness by Public Housing Agencies (PHA) and other relevant organizations of fraud incidents and how often they occur, and indicators of such schemes online; and (2) antifraud regulations, guidance, and informational materials, if any, that the Department of Housing and Urban Development (HUD) and PHAs have in place to identify and mitigate fraud against program participants.\nTo address our first objective we used a variety of methods (see fig. 5). Details on our use of these methodologies are described below.", "", "", "Some PHAs issue online alerts and post these on their websites to inform HCV applicants and participants about potential fraud schemes. We initially identified PHA fraud alerts by performing online searches about fraud in the HCV program. We then developed a structured search method for identifying additional fraud alerts. To do this, in 2016 and 2017, we searched fraud alerts issued by a nongeneralizable sample of 60 PHAs; in total, 20 PHAs published 22 alerts about fraud affecting HCV applicants and participants on their websites.\nWe identified our nongeneralizable sample of 60 PHAs using 2015 fourth- quarter Picture of Subsidized Households data from HUD, which contain information on subsidized housing units by several types of programs including the HCV program. The initial population contained PHAs ordered by total number of HCV program vouchers available. We selected our sample of PHAs based on those with the most vouchers.", "We reviewed consumer complaint data from the Federal Trade Commission’s (FTC) Consumer Sentinel database from calendar years 2011 through 2016. The date range of the data represents the most- recent years available at the time of our request. Our review of the data focused on complaints related to the HCV program and companies that offer rental housing services. We assessed the reliability of the data by interviewing officials and reviewing related documentation and found the data sufficiently reliable for the purposes of our reporting objectives.\nWe developed several categories for reviewing complaints based on criteria on fraud schemes affecting HCV program applicants and participants. To develop an initial list of categories, we selected a subsample of the first entries in the data and independently created categories that could be used to categorize the complaints in the subsample. On the basis of this methodology, we identified a set of defined coding categories, which were as follows: 1. HCV-specific fraud, 2. housing-related fraud (HCV not mentioned), 3. housing-related fraud involving the purchase of foreclosed property, 4. housing-related credit-report fraud, 5. housing-related fraud requesting electronic wire transfer of funds, 6. HCV-specific complaints where fraud is not mentioned or the nature of 7. housing-related complaints where fraud is not mentioned or the nature of fraud is unclear, and 8. complaints not related to the scope of the engagement.\nWe also separately coded whether the subject matter of each complaint specifically affected an older adult.\nWe applied a two-person data-coding process to ensure intercategorization reliability. FTC delivered the data to us in batches organized along search terms we provided. For several of the initial batches we received, as a first step in the coding process, a coder categorized each complaint into one of the categories above, and simultaneously identified any complaints that contained relevant housing- related or HCV-related fraud types that we had not already discovered. As a second step, a reviewer assessed a nonrandomized sample of the data to determine whether coding was correct, and whether the coder had identified any previously unknown fraud types in the batch. We repeated this process for three of the five batches that we received, and reviewed over 600 total complaints. Upon finding no new fraud types in the coded data, we ceased analysis and did not code the remaining two batches we received, which we deemed to contain complaint categories unlikely to reveal new types of fraud.\nWe also interviewed PHA officials from eight PHAs (selected using a methodology discussed below). Additionally, we reviewed an academic study describing fraud against prospective renters in online marketplaces, which allowed us to identify several fraud types that could be used against HCV participants searching for rental units. The study used crawling and automated interaction to identify fraud types. We interviewed an author of the study to clarify research techniques. We assessed that the individual was sufficiently independent. Our methodological specialist assessed the study, and found its conclusions to be sufficiently valid and reliable for our purposes.", "", "We conducted a web-based survey with a nationally representative stratified random sample of executive directors overseeing PHAs. In the survey, we asked PHA executive directors and their staffs to provide information on known fraudulent activities by fraudsters or impersonators, fraudulent activities by landlords and building inspectors, and any other information on fraudulent activities adversely affecting HCV program applicants and participants from spring 2016 through spring 2017. We administered our survey from April to May 2017. Estimated percentages of the responses for all closed-ended questions from the survey are included in appendix II.\nWe identified the population of PHA executive directors using 2015 fourth-quarter Picture of Subsidized Households data from HUD, which contain information on subsidized housing units by several types of programs including the HCV program. The Picture of Subsidized Households data also contain the percentage of households using these programs by factors such as age, income, and disability. We assessed the reliability of the data for use as our sampling frame by reviewing technical documentation, conducting electronic testing, and interviewing officials who oversee the data system; we found the data sufficiently reliable for our purposes.\nOur initial population list contained a total of 2,243 PHA executive directors, and our sample contained 278 PHA executive directors. We stratified the population by size of PHAs as follows: We drew (1) a certainty sample of 83 executive directors who oversaw at least one PHA with 5,000+ vouchers (“large” PHAs) and (2) a probability sample of 195 executive directors who oversaw at least one PHA with 1,000–4,999 vouchers (“medium” PHAs). For purposes of discussion, we refer to the experiences of PHAs in our analysis, although our sampling unit was the executive directors of the PHAs.\nTo formulate our survey questionnaire on the types of fraud potentially adversely affecting HCV program applicants and participants, we conducted research on the topic of fraud by interviewing PHA officials, reviewing fraud alerts publicly posted on the Internet by large PHAs, and reviewing consumer complaint data. On the basis of the results of our research, we developed our survey questionnaire to include questions on external fraud such as (1) fraudsters or impersonators promising placement on a voucher waiting list, (2) fraud offering higher placement on voucher waiting lists, (3) fraud offering fake vouchers, (4) fraud offering suspect credit-report services, (5) landlords requiring prohibited side payments, (6) illegal solicitation of favors by landlords and building inspectors, and (7) illegal solicitation of rental-unit security deposits by landlords. We pretested our survey instrument with four PHAs located in Maryland, Michigan, Ohio, and Virginia. We revised our questionnaire language and format based on input received by officials in these four PHAs in order to improve the clarity of the questions. An independent survey specialist within GAO also reviewed a draft of the questionnaire prior to its administration; it is available in appendix II.\nWe administered a web-based questionnaire accessible through a secure server. When we completed the final survey questions and format, we sent an e-mail announcement of the survey to 278 PHAs in April 2017. The PHA points of contact were notified that the questionnaire was available online and were given unique passwords and usernames. We sent follow-up e-mail messages twice in May 2017 to those who had not yet responded. We contacted remaining nonrespondents by telephone, beginning in May 2017. The questionnaire was available online until mid- May 2017.\nWe obtained a weighted overall response rate of 84 percent, and the response rate by stratum was 86 percent for our first stratum (“large” PHAs) and 83 percent for our second stratum (“medium” PHAs). Because we followed a probability procedure on random selections, our sample is only one of a large number of samples that we might have drawn. Since each sample could have provided different estimates, we express our confidence in the precision of our particular sample’s results as a 95 percent confidence interval (e.g., plus or minus 10 percentage points). This interval would contain the actual population value for 95 percent of the samples we could have drawn. Confidence intervals are provided along with each sample estimate in the report. All survey estimates presented in this report are generalizable to the population of large and medium PHAs, or to either the population of large PHAs or medium PHAs analyzed separately. Unless otherwise noted, estimates for the full population of large and medium PHAs have a margin of error for a 95 percent confidence interval within +/-4.5 percentage points or less. Unless otherwise noted, estimates for the medium PHAs analyzed separately have a maximum margin of error for a 95 percent confidence interval of +/-5.4 percentage points or less. Unless otherwise noted, estimates for the large PHAs analyzed separately have a maximum margin of error for a 95 percent confidence interval of +/-4.5 percentage points or less. Some questions had too few respondents to generate reliable estimates. In these cases, we report the raw frequencies of respondents to our survey.\nTo minimize nonsampling errors, and to enhance data quality, we employed recognized survey design practices in the development of our survey questionnaire and in the collection, processing, and analysis of the survey data. To minimize errors arising from differences in how survey questions might be interpreted and to reduce variability in responses that should be qualitatively the same, we conducted pretesting of our survey questionnaire; see discussion on pretesting above. To reduce nonresponse, a source of nonsampling error, as mentioned above we followed up by e-mail and by telephone with PHAs who had not responded to the survey to encourage them to complete it.\nTo analyze open-ended comments provided by those responding to the survey, we conducted a content analysis for the purpose of identifying fraudulent activities against HCV program participants not addressed in our survey questionnaire. We analyzed open-ended responses to identify fraud types not directly addressed in our survey. We identified two additional types of fraud. One type of fraud involved fraudsters posing as PHA officials, calling landlords to convince them to make unnecessary payments. This type of fraud against landlords is discussed in the report. The other type of fraud identified was not related to participation in the HCV program, and so is not discussed in the report.", "As part of our site visits, we interviewed officials from eight PHAs located in three U.S. regions. On the East Coast, we interviewed officials with the New York City Department of Housing Preservation and Development, the New York City Housing Authority, and New York State Homes and Community Renewal. In the Midwest, we interviewed officials with the Cuyahoga Metropolitan Housing Authority, the Detroit Housing Commission, and the Flint Housing Commission. On the West Coast, we interviewed officials with the Housing Authority of the County of San Bernardino and the Housing Authority of the City of Los Angeles. We identified our interviewee selection on the basis of ensuring geographical representation, budgetary considerations, metropolitan cities with a large population, PHAs’ issuance of fraud alerts, PHA size—large, medium, and small, PHA in states with a large number of older adults, and consideration for overlap of other GAO ongoing work in the area of the HCV program. Our sample of PHA interviewees is nongeneralizable. Moreover, we interviewed an HCV voucher holder about the voucher holder’s knowledge of fraud against participants.\nWe also interviewed government and nongovernment officials and others based on their knowledge and expertise on the topic of fraud in general; fraud education campaigns; fraud adversely affecting HCV program applicants and participants; fraud affecting older adults; or identity theft. Specifically in reference to government agencies, we interviewed officials from the U.S. Federal Trade Commission (FTC), the Consumer Financial Protection Bureau, the U.S. Postal Inspection Service, and the Department of Health and Human Services about fraud types and about practices used by federal agencies to inform the public about fraud- related issues. We also interviewed officials from the HUD Office of Inspector General (OIG) about any past or ongoing work related to the scope of our reporting objectives. For our interviewee selection, we considered recommendations from other organizations such as PHAs and legal-assistance organizations and reviewed prior GAO work on the issue of older-adult financial exploitation. We also considered organizations’ characteristics in terms of fraud prevention or work performed in assisting potential fraud victims. These characteristics include whether the organization has an investigative unit that may have data on fraud schemes, posts fraud alerts on its Internet websites, has data on fraud cases, collaborates with other groups on fraud awareness, has a fraud or complaint hotline, works on fraud prevention and provides support to victims of fraud, or works with vulnerable populations including low-income individuals or the older-adult population on social or legal issues.", "", "On the basis of an academic study about fraud in online rental marketplaces (discussed above) and PHA-provided information, we developed a list of indicators of potential fraud that might appear in online advertisements. We used covert tools and techniques to test a nongeneralizable sample of advertisements posted on commercial websites commonly used by HCV voucher holders and landlords for rental property listings, counting advertisements as potentially fraudulent if the originator of the advertisement did any of the following:\nRequested a wire transfer of security deposit or first month’s rent, or both, without offering to provide an in-person viewing of the property. For example, the person who posted the advertisement might state that the rental is available, but that the person is currently not in the country.\nProvided a link to a suspect credit-report site within the advertisement or subsequent correspondence. While requiring a credit report is a normal part of the rental process, fraudsters may post a fake rental advertisement and redirect victims to a credit-score company. If the victim pays for the credit score, the credit-score company will pay the fraudster a commission.\nStated in correspondence that the rental unit is no longer available, but recommended a suspect site providing rental search, broker services, or monthly payments toward purchase of a foreclosed property.\nRequested an up-front or monthly side-payment agreement as a condition of rental.\nIncluded an e-mail address directly in the text of the ad. According to one academic expert on fraud, it was rare to see a legitimate advertisement poster embed an e-mail address in a post, because most people do not want to expose that information on the Internet.\nAdvertisements or correspondence containing an indicator of fraud do not necessarily reveal the presence of a fraud scheme. For example, the presence of an e-mail address directly in the text of an advertisement may also indicate that the advertisement was posted by a realtor service.\nWe selected 6 geographically diverse cities nationwide for covert testing of online rental advertisements. To generate a list of cities for possible selection, we identified cities containing the 20 PHAs with the largest number of HCV vouchers. We identified one commonly used online housing-rental marketplace for the general public and another online rental marketplace specifically dedicated to HCV rentals. We then determined the total number of advertisements available across the two rental websites in those cities. We used the following criteria to select cities for covert testing:\nFrom the 20 cities described above, we selected 3 cities with the most available advertisements across the two online rental marketplaces.\nFrom the 20 cities described above, we selected 2 cities where a nearby PHA had closed its HCV waiting lists in the last half of 2016.\nOutside of the 20 cities described above, we also selected 1 city with a large number of available advertisements where we had previously completed a site visit.\nIn each metropolitan area selected for covert testing, we identified relevant online rental marketplaces operating in the area. We then used a random-selection methodology to identify advertisements for testing from amongst all current advertisements on each marketplace. In total, we responded to 350 advertisements. On sites specifically dedicated to HCV rentals, we generally sampled from among all current ads. On sites featuring a mix of private rental ads, we developed a list of search keywords and sampled only among ads that explicitly stated that they would accept an HCV voucher. By e-mail, we contacted the originator of each of the 350 advertisements we covertly tested and engaged in correspondence.\nTo determine the extent of detected potential fraud in online sites, we covertly tested websites identified as offering information or assistance with the HCV program; note that this methodology is distinct from that described above to covertly test advertisements. To discover sites for investigation, we performed web searches with a variety of relevant search terms using two popular search engines. We clicked through the first few pages of each set of search results, and collected the names of commercial sites that appeared either within search results or in ads accompanying the results. Finally, we entered the address of each of the websites we found into a separate search portal. This search portal suggests possible competitor and similar websites for the target website; we added websites discovered through this method to our list of websites for investigation. In total, we tested 26 websites. If the website requested a payment of any kind, we made the payment. We also corresponded with each website, asking explicitly whether it could place us on an HCV waiting list.", "To address our objective regarding antifraud regulations, guidance, and informational material, if any, that HUD and PHAs have in place to identify and mitigate potential fraud against program participants, we reviewed HUD regulations on the HCV Program and the Section 8 Management Assessment Program. These regulations outline the requirements for PHAs to perform education and outreach on the HCV program. We also reviewed HUD’s HCV Program Guidebook. This guidebook provides direction to PHAs administering the HCV Program on informing applicants about program-related fraud.\nWe also reviewed written or online briefing materials for participants developed by the eight PHAs we interviewed. These briefing materials must include a variety of subjects, related to program administration, leasing a unit, and family obligations.\nWe conducted this performance audit from May 2016 to December 2017 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. We conducted our related investigative work from January 2017 to July 2017 in accordance with investigative standards prescribed by the Council of the Inspectors General on Integrity and Efficiency.", "To determine awareness of incidents of fraud schemes among PHAs, we conducted a web-based survey to a nationally representative sample of executive directors overseeing Public Housing Agencies (PHA) from April 2017 to May 2017. We solicited input on executive directors’ familiarity with and awareness of fraud schemes against U.S. Housing and Urban Development (HUD) Housing Choice Voucher (HCV) Program applicants and participants. We distributed the survey to 278 PHAs, of which 233 (84 percent) responded. We stratified the population by size of PHA as follows: (1) a certainty sample of 83 executive directors who oversaw at least one PHA with 5,000+ vouchers (“large” PHAs); and (2) a probability sample of 195 executive directors who oversaw at least one PHA with 1,000–4,999 vouchers (“medium” PHAs). Results of our survey are generalizable to the entire population of large and medium PHAs. For a more-detailed discussion of our survey methodology, see appendix I.\nThe results of our survey provide the input of PHA executive directors and their staffs at the time they completed the survey in April and May 2017. The questions we asked in our survey are presented below. Our survey comprises seven top-level, fixed-choice questions; three subquestions for each “yes” response to top-level questions; and one open-ended question. In this appendix, we include all survey questions, and the estimated percentages for the responses to the top-level questions. Because of the limited number of respondents answering “yes” to the top- level survey questions, we could not generate reliable estimates for the survey subquestions; therefore we present only raw frequency counts for all subquestions except those corresponding to survey question 5 where we present both estimated percentages and raw frequency counts for those responses.\nIn our survey open-ended question, we asked PHA executive directors to provide information on fraudulent activities affecting HCV program participants other than those covered by the seven fixed-choice questions. This element was our attempt at identifying fraud types not directly addressed in our survey. While we are not providing the responses to the open-ended question, our analysis of those responses identified two additional types of fraud. One type of fraud involved fraudsters posing as PHA officials, calling landlords to convince them to make unnecessary payments. The other type of fraud identified was not related to participation in the HCV program, and so is not discussed in the report.", "", "", "Tables 17–23 below present results for PHAs that responded “yes” to question 5. Because of the number of respondents answering “yes” to question 5, we were able to generate reliable estimates for question 5 subquestions and present both estimates and raw frequency counts.", "", "", "In addition to the contact named above, Kathy Larin (Director), Tonita Gillich (Assistant Director), Scott Hiromoto (Analyst-in-Charge), Maurice Belding, Yue Pui Chin, Colin Fallon, Dennis Fauber, Maksim Glikman, Ronald La Due Lake, Jill Lacey, Won Lee, Robert Letzler, Barbara Lewis, Olivia Lopez, Maria McMullen, Anna Maria Ortiz, Sabrina Streagle, Adam Windram, and Helina Wong made key contributions to this report.\nAlso contributing were Marcus Corbin, Cory Marzullo, Wayne McElrath, Josephine Perez, Samuel Portnow, and Paul Schmidt." ], "depth": [ 1, 1, 2, 2, 2, 1, 1, 1, 2, 3, 4, 4, 3, 4, 4, 3, 4, 2, 1, 2, 2, 3, 1, 2, 2 ], "alignment": [ "h3_full", "h4_title h0_title h1_title h3_title", "", "h0_full h3_full h1_full", "h0_full h4_full h1_full", "h2_full", "", "h0_full h4_full h2_title", "h0_title h4_title", "", "", "", "h0_title h4_title", "h0_full", "h4_full", "", "", "h2_full", "", "", "", "", "", "", "" ] }

{ "question": [ "What have PHAs noted in their reports?", "How does this compare to GAO's identifications?", "What did GAO's report reveal on this issue?", "What is an example of a type of fraud?", "What types of fraud do PHAs report?", "What did GAO determine about PHAs' awareness of fraud?", "What did GAO's online efforts unearth?", "What is an example of such fraud?", "What audience are the HUD and PHAs focused on protecting?", "How do PHAs take action in this policy?", "What other actions do PHAs take for anti-fraud measures?", "How can PHAs continue to provide protection for the HCV program?", "What is HUD's method of achieving its goal?", "What is the issue with this program?", "Why does this contribute to crime?", "How large is the span of the report?", "What methods were used to collect this information?", "How were PHAs chosen to complete the report?" ], "summary": [ "Public Housing Agencies (PHA) have reported various types of fraud schemes against Housing Choice Voucher (HCV) participants, including older adults, but were aware of limited instances of such schemes.", "Similarly, GAO identified few potential indicators of these schemes in online covert testing of rental ads and websites.", "According to GAO's analysis of fraud alerts and complaint data, the type of fraud participants may encounter—such as waiting-list, rental, and side-payment fraud—depends on where they are in the HCV process and whether they are applicants, voucher holders, or landlords, as shown in the figure below.", "For example, side-payment fraud involves agreements—mutual or compelled—in which the voucher holder pays additional rent or other payments to the landlord for benefits, for example to secure a rental or avoid eviction.", "According to GAO's survey of PHAs representing approximately 1.9 million households, PHAs reported few incidents of the various fraud types, although side-payment fraud, a program violation, was noted most frequently.", "Specifically, GAO estimates that while 41 percent of PHAs were aware of instances of side-payment fraud in the prior year, most reported 2 to 5 incidents in the prior year. In addition, 3 to 10 percent of PHAs were aware of instances of the other types of fraud GAO identified.", "GAO's online covert testing also found few indicators of potential fraud.", "For example, some websites requested payment for information about the HCV application process, but none explicitly offered to do something prohibited by program rules, such as placing someone on a waiting list for a fee.", "The Department of Housing and Urban Development's (HUD) and PHAs' antifraud regulations, guidance, and information largely focus on efforts to protect the HCV program.", "For example, PHAs are required by HUD to inform families of program-related fraud and abuse, including the prohibition against side payments.", "In addition, GAO found that several PHAs voluntarily provide targeted messages to participants about fraud schemes by outside parties.", "Through industry associations, PHAs have mechanisms through which they share best practices that could include these and other issues.", "With the goal of providing safe, decent, affordable housing, HUD provides rental assistance to low-income households through its HCV program, administered locally by approximately 2,200 PHAs around the country. In fiscal year 2016, the HCV program received approximately $20 billion in funding and provided rental assistance to approximately 2.4 million households.", "Local demand in the program may exceed voucher supply, and individuals may wait years before receiving a voucher. After receiving a voucher, participants have a limited amount of time to secure a rental.", "Accordingly, PHAs have issued alerts about criminals targeting program participants with fraud schemes, such as by claiming to offer admission to the program for a fee.", "This report describes (1) the types of reported fraud schemes against HCV participants, including older adults, PHAs' awareness of such schemes and their frequency, and indicators of such schemes online; and (2) HUD's and PHAs' antifraud regulations, guidance, and information related to fraud risks affecting program participants.", "GAO reviewed online fraud alerts and consumer complaint data from calendar years 2011 to 2016; conducted a generalizable survey of PHA officials about their awareness of fraud against participants; interviewed agency officials and experts; and conducted online covert tests of 350 rental ads and 26 commercial websites.", "GAO visited eight PHAs, selected based on size and location, among other factors." ], "parent_pair_index": [ -1, 0, 1, 2, -1, 0, -1, 2, -1, 0, 1, 0, -1, 0, 1, -1, 0, 0 ], "summary_paragraph_index": [ 3, 3, 3, 3, 4, 4, 4, 4, 5, 5, 5, 5, 0, 0, 0, 1, 1, 1 ] }

{ "title": [ "", "Overview", "Executive Proposal and Legislative Action", "NMI Program Provisions of RAMIA", "NMI Purposes", "NMI Structure", "Centers for Manufacturing Innovation", "Center Activities", "Identification of Existing Centers for Inclusion in the Network", "Financial Assistance to Establish and Support Centers", "Center Selection Considerations", "Center Funding", "NMI Funding", "National Program Office of the NMI Program", "Mandated Reports and Audits", "Annual Center Reports to the Secretary", "Annual Reports by the Secretary to Congress", "Biennial Assessment by the U.S. Government Accountability Office to Congress", "Additional NMI Program-Related Authorities", "Issues for Consideration", "Appropriate Role of the Federal Government in Manufacturing", "National Need for the NMI Program", "Availability and Prioritization of Appropriations", "The Role of the Federal Government in the Network", "The Role of the Federal Government After FY2024", "Congressional Oversight" ], "paragraphs": [ "", "In December 2014, Congress passed the Revitalize American Manufacturing and Innovation Act of 2014 (RAMIA), as Title VII of Division B of the Consolidated and Further Continuing Appropriations Act, 2015 ( P.L. 113-235 ). President Obama signed the bill into law on December 16, 2014. RAMIA directs the Secretary of Commerce to establish a Network for Manufacturing Innovation (NMI) program within the Commerce Department's National Institute of Standards and Technology (NIST). The act comes about two years after President Obama first proposed the establishment of a National Network for Manufacturing Innovation in his FY2013 budget.", "President Obama first proposed the establishment of a National Network for Manufacturing Innovation (NNMI) in his FY2013 budget, requesting $1 billion to support the establishment of up to 15 institutes. Shortly thereafter, he formally introduced the concept in a speech at a manufacturing facility in Virginia on March 9, 2012.\nNo legislation to enact the President's proposal was introduced in the 112 th Congress. In 2013, the President renewed his call for an NNMI in his FY2014 budget request, again seeking $1 billion in mandatory funding. The President's FY2015 budget proposal also sought authority and funding to establish the NNMI. The request was not part of the President's FY2015 base budget request, but rather a part of an adjunct $56 billion Opportunity, Growth, and Security Initiative (OGSI) proposal. The OGSI request included $2.4 billion to establish up to 45 NNMI institutes.\nIn August 2013, bills entitled the Revitalize American Manufacturing and Innovation Act of 2013 were introduced in the House ( H.R. 2996 ) and the Senate ( S. 1468 ) to establish a Network for Manufacturing Innovation. H.R. 2996 passed the House in September 2014. S. 1468 was reported by the Senate Committee on Commerce, Science, and Transportation in August 2014.\nIn December 2014, provisions of H.R. 2996 were incorporated in the Consolidated and Further Continuing Appropriations Act, 2015 ( P.L. 113-235 ) as Title VII of Division B, the Revitalize American Manufacturing and Innovation Act of 2014 (RAMIA). P.L. 113-235 was signed into law by President Obama on December 16, 2014. RAMIA includes provisions establishing and providing for the operation of a Network for Manufacturing Innovation.", "RAMIA, in part, amends the National Institute of Standards and Technology Act (codified at 15 USC 271 et seq.) establishing the NMI program, setting forth its purposes, and authorizing its structure, funding, and operation. The act also establishes a National Program Office to support the NMI program.", "RAMIA articulates eight purposes of the NMI program:\nto improve the competitiveness of U.S. manufacturing and to increase the production of goods manufactured predominantly within the United States; to stimulate U.S. leadership in advanced manufacturing research, innovation, and technology; to facilitate the transition of innovative technologies into scalable, cost-effective, and high-performing manufacturing capabilities; to facilitate access by manufacturing enterprises to capital-intensive infrastructure, including high-performance electronics and computing, and the supply chains that enable these technologies; to accelerate the development of an advanced manufacturing workforce; to facilitate peer exchange and the documentation of best practices in addressing advanced manufacturing challenges; to leverage non-federal sources of support to promote a stable and sustainable business model without the need for long-term federal funding; and to create and preserve jobs.", "The act directs the Secretary of Commerce to establish a Network for Manufacturing Innovation program in the Commerce Department's National Institute of Standards and Technology. The Secretary, acting through NIST, is directed to support the establishment of centers for manufacturing innovation and to establish and support a network of centers for manufacturing innovation.", "The act defines a \"center for manufacturing innovation\"—including centers established prior to the act, as well as ones established under the provisions of the act—as one that meets each of the following criteria:\nhas been established to address challenges in advanced manufacturing and to assist manufacturers in retaining or expanding industrial production and jobs in the United States; has a predominant focus on a manufacturing process; novel material; enabling technology; supply chain integration methodology; or another relevant aspect of advanced manufacturing, such as nanotechnology applications, advanced ceramics, photonics and optics, composites, bio-based and advanced materials, flexible hybrid technologies, and tool development for microelectronics; has the potential, as determined by the Secretary of Commerce, to improve the competitiveness of U.S. manufacturing; to accelerate non-federal investment in advanced manufacturing production capacity in the United States; or to enable the commercial application of new technologies or industry-wide manufacturing processes; includes active participation among representatives from multiple industrial entities, research universities, community colleges, and such other entities as the Secretary of Commerce considers appropriate, which may include industry-led consortia; career and technical education schools; federal laboratories; state, local, and tribal governments; businesses; educational institutions; and nonprofit organizations.", "The act authorizes activities of a center to include\nresearch, development, and demonstration projects (including proof-of-concept development and prototyping) to reduce the cost, time, and risk of commercializing new technologies and improvements in existing technologies, processes, products, and research and development (R&D) of materials to solve precompetitive industrial problems with economic or national security implications; development and implementation of education, training, and workforce recruitment courses, materials, and programs; development of innovative methodologies and practices for supply chain integration and introduction of new technologies into supply chains; outreach and engagement with small and medium-sized manufacturing enterprises, including women- and minority-owned manufacturing enterprises, in addition to large manufacturing enterprises; and such other activities as the Secretary of Commerce, in consultation with federal departments and agencies whose missions contribute to or are affected by advanced manufacturing, considers consistent with the purposes specified in the act.", "The act allows a number of existing manufacturing centers to be classified as a center for manufacturing innovation for participation in the network of centers. President Obama initiated the establishment of several such centers prior to enactment of RAMIA under the existing general statutory authority of several agencies, including the Department of Defense and Department of Energy. In particular, the act incorporates\nthe National Additive Manufacturing Innovation Institute and other manufacturing centers formally recognized as manufacturing innovation centers pursuant to Federal law or executive actions, or under pending interagency review for such recognition as of the date of enactment of the Revitalize American Manufacturing and Innovation Act of 2014.\nHowever the act prohibits such centers from receiving any financial assistance authorized under the act's Financial Assistance to Establish and Support Centers for Manufacturing Innovation provisions (described in the next section).\nThe National Additive Manufacturing Innovation Institute (NAMII) is led by the Department of Defense (DOD). In addition, DOD and the Department of Energy (DOE) have established, are in the process of establishing, or have announced plans for several other manufacturing centers since the President's original NNMI proposal. Several of these centers include the participation of other federal agencies, including the Department of Commerce, the National Aeronautics and Space Administration, and the National Science Foundation. These centers include\nDigital Manufacturing and Design Innovation Institute (DOD-led); Lightweight and Modern Metals Manufacturing Innovation Institute (DOD-led); Next Generation Power Electronics National Manufacturing Innovation Institute (DOE-led); Clean Energy Manufacturing Innovation Institute for Composite Materials and Structures (DOE-led); Integrated Photonics Institute for Manufacturing Innovation (DOD-led); Flexible Hybrid Electronics Manufacturing Innovation Institute (DOD-led); and Clean Energy Manufacturing Innovation Institute on Smart Manufacturing: Advanced Sensors, Controls, Platforms and Modeling for Manufacturing (DOE-led).\nThese centers may be considered candidates for inclusion in the Network for Manufacturing Innovation.", "RAMIA authorizes the Secretary of Commerce to award financial assistance to a person or group of persons to assist in planning, establishing, or supporting a center for manufacturing innovation. The act requires an open process for the solicitation of applications that allows for the consideration of all applications relevant to advanced manufacturing, regardless of technology area, and competitive merit-based review of the applications that incorporates peer review by a \"diverse group of individuals with relevant experience from both the public and private sectors.\" Political appointees are prohibited from participating on any peer review panel, and the Secretary of Commerce is required to implement a conflict of interest policy that ensures public transparency and accountability, as well as full disclosure of any real or potential conflicts of interest of individuals participating in the center selection process.\nThe Secretary of Commerce is required to make publicly available at the time of any award of financial assistance to a center a description of the bases for the award, including the merits of the winning proposal relative to other applicants. The Secretary must also develop and implement performance measures to assess the effectiveness of the funded activities.\nIn making center selections, the act requires the Secretary, working through the National Program Office (discussed later in this report), to collaborate with federal departments and agencies whose missions contribute to or are affected by advanced manufacturing.", "RAMIA requires the Secretary to apply certain considerations in the selection of centers for manufacturing innovation. The considerations specified in the act include\nthe potential of a center to advance domestic manufacturing and the likelihood of economic impact, including creation or preservation of jobs, in the predominant focus areas of the center for manufacturing innovation; the commitment of continued financial support, advice, participation, and other contributions from non-federal sources to provide leverage and resources to promote a stable and sustainable business model without the need for long-term federal funding; whether the financial support provided to the center from non-federal sources significantly exceeds the requested federal financial assistance; how the center will increase the non-federal investment in advanced manufacturing research in the United States; how the center will engage with small and medium-sized manufacturing enterprises to improve the capacity of such enterprises to commercialize new processes and technologies; how the center will carry out educational and workforce activities that meet industrial needs related to its predominant focus areas; how the center will advance economic competitiveness and generate substantial benefits to the United States that extend beyond the direct return to participants in the program; whether the predominant focus of the center is a manufacturing process, novel material, enabling technology, supply chain integration methodology, or other relevant aspect of advanced manufacturing that has not already been commercialized, marketed, distributed, or sold by another entity; how the center will strengthen and leverage the assets of a region; and how the center will encourage education and training of veterans and individuals with disabilities.\nIn addition, the act allows for other factors to be considered.", "RAMIA includes several provisions related to center funding:\nFinancial assistance may not be awarded to a center more than seven years after the date the Secretary of Commerce first awards financial assistance to that center. Total federal assistance awarded to a center, including funding made under the provisions of RAMIA, may not exceed 50% of the total funding of the center in that year. The Secretary of Commerce may make exceptions in circumstances in which a center is making large capital facilities or equipment purchases. The Secretary is directed to give preference to centers seeking less than the maximum federal share of funds allowed. Centers are to receive decreasing levels of funding in each subsequent year of funding. The Secretary may make exceptions to this requirement when a center is otherwise meeting its stated goals and metrics, unforeseen circumstances have altered the center's anticipated funding, and the center can identify future non-federal sources of funding that would warrant a temporary exemption.", "RAMIA authorizes NIST to use $5 million per year for FY2015-FY2024 from funds appropriated to its Industrial Technology Services account to carry out the Network for Manufacturing Innovation program. The act also authorizes the Department of Energy to transfer to NIST up to $250 million over the FY2015-FY2024 period from funds appropriated for advanced manufacturing R&D in its Energy Efficiency and Renewable Energy account.\nThe Secretary of Commerce, in addition to amounts appropriated to carry out the NMI program, may accept funds, services, equipment, personnel, and facilities from any covered entity to carry out the NMI program, subject to certain conditions and constraints.", "RAMIA directs the Secretary of Commerce to establish, within NIST, a National Program Office of the Network for Manufacturing Innovation to oversee and carry out the program.\nThe act specifies the following functions of the National Program Office:\nto oversee planning, management, and coordination of the program; to enter into memoranda of understanding with federal departments and agencies whose missions contribute to or are affected by advanced manufacturing, to carry out the authorized purposes of the program; to develop a strategic plan to guide the program no later than one year from the date of enactment of the act, and to update the strategic plan at least once every three years thereafter; to establish such procedures, processes, and criteria necessary and appropriate to maximize cooperation and coordination of the activities of the program with programs and activities of other federal departments and agencies whose missions contribute to or are affected by advanced manufacturing. The act, in particular, calls for the Secretary to ensure that the NIST Hollings Manufacturing Extension Partnership (MEP) is incorporated into NMI program planning to ensure the results of the program reach small and medium-sized entities; to establish a clearinghouse of public information related to the activities of the program; and to act as a convener of the Network for Manufacturing Innovation.\nIn support of the development and updating of the strategic plan, the Secretary of Commerce is directed by the act to solicit recommendations and advice from a wide range of stakeholders, including industry, small and medium-sized manufacturing enterprises, research universities, community colleges, and other relevant organizations and institutions on an ongoing basis. The Secretary is directed to transmit the strategic plan to the Senate Committee on Commerce, Science, and Transportation and the House Committee on Science, Space, and Technology.\nThe act authorizes any federal government employee to be detailed to the National Program Office without reimbursement and without interruption or loss of civil service status or privilege to the employee.", "RAMIA requires several reports and audits to be conducted with respect to the NMI program.", "RAMIA directs the Secretary of Commerce to require each recipient of federal assistance under the act to submit an annual report to the Secretary that describes the finances and performance of the center for which assistance was awarded. Each report is required to include an accounting of expenditures of amounts awarded under the program to the center; a description of the performance of the center with respect to its goals, plans, financial support, and accomplishments; and an explanation of how the center has advanced the purposes of the NMI program as specified by the act.", "RAMIA requires the Secretary of Commerce to report annually to Congress through December 31, 2024, on the performance of the program during the most recent one-year period. Each report is to include a summary and assessment of the annual reports provided by each center; an accounting of the funds expended by the Secretary under the program, including any temporary exemptions granted; an assessment of the participation in, and contributions to, the network by any centers for manufacturing innovation not receiving financial assistance under the NMI program; and an assessment of the NMI program with respect to meeting the purposes described in the act.", "RAMIA requires the Comptroller General of the United States to conduct an assessment of the NMI program at least once every two years during the operation of the program, covering the two most recent years of the program on the overall success of the NMI program, and a final assessment to be made not later than December 31, 2024.\nEach assessment is to include, for the period covered by the report: a review of the management, coordination, and industry utility of the NMI program; an assessment of the extent to which the program has furthered the purposes identified in the act; such recommendations for legislative and administrative action as the Comptroller General considers appropriate to improve the NMI program; and an assessment as to whether any prior recommendations for improvement made by the Comptroller General have been implemented or adopted.", "Other provisions of RAMIA authorize:\nthe Secretary of Commerce to appoint such personnel and enter into such contracts, financial assistance agreements, and other agreements as the Secretary considers necessary or appropriate to carry out the program, including support for R&D activities involving a center for manufacturing innovation; the Secretary of Commerce to transfer to other federal agencies such sums as the Secretary considers necessary or appropriate to carry out the program—however, such funds may not be used to reimburse or otherwise pay for the costs of financial assistance incurred or commitments of financial assistance made prior to the date of enactment of RAMIA; agencies to accept funds transferred to them by the Secretary of Commerce, in accordance with the provisions of RAMIA, to award and administer, under the same conditions and constraints applicable to the Secretary, all aspects of financial assistance awards under RAMIA; and the Secretary of Commerce to use, with the consent of a covered entity and with or without reimbursement, land, services, equipment, personnel, and facilities of such covered entity.\nRAMIA also specifies that the provisions of 35 USC 18, Patent Rights in Inventions Made with Federal Assistance, shall apply to any funding agreement awarded to new or existing centers. This chapter of the U.S. Code is widely known as the Bayh-Dole Act and formally titled the University and Small Business Patent Procedures Act of 1980.", "While RAMIA establishes the NMI program; sets forth its purposes; and authorizes its structure, funding, and operation; a number of broad policy issues and ones related to the program's implementation remain.", "The appropriate role of the federal government in fostering technological innovation or supporting a particular company, industry, or industrial sector (e.g., manufacturing) has been the focus of a long-running national policy debate. Views range from those who believe that the federal government should take a hands-off or minimalist approach to those who support targeted federal investments in promising technologies, companies, and industries. And while there has been broad agreement on federal support for fundamental research, the consensus in favor of federal support frays as technology matures toward commercialization.\nAdvocates for a strong federal role in advancing technologies and industries often assert that such interventions are justified by the economic, national security, and societal benefits that generally accompany technological advancement and U.S. technological and industrial leadership. For such reasons, the manufacturing sector has received the attention of the federal government since the nation's founding.\nCritics of a strong federal role provide a variety of arguments. For example, some contend that such interventions skew technology development and competition by replacing market-based decisions of companies, capital providers, and researchers with the judgment of government bureaucrats or politicians (sometimes referred to as the government \"picking winners and losers\"). Those who hold this view generally assert that this may result in inefficient allocation of capital, development and deployment of inferior technologies, and political favoritism (sometimes referred to as \"crony capitalism\"). Others assert that such interventions often represent a transfer of wealth from taxpayers to already-prosperous companies and their shareholders (sometimes referred to as \"corporate welfare\").\nOthers may prefer an approach that is more technology- or industry-neutral, such as reducing costs and other burdens on manufacturers by reducing taxes, regulations, and frivolous lawsuits.\nThe NMI—with its focus on advanced manufacturing research, innovation, and technology—is likely at the intersection of these viewpoints.", "While RAMIA included a number of findings that highlight the role manufacturing plays in the U.S. economy, it did not identify specific shortcomings of the U.S. manufacturing sector that the NMI program is to address. Analysts hold divergent views of the health of U.S. manufacturing. While some may be supportive of the effort, others may question whether there is a compelling national need for the Network for Manufacturing Innovation program.\nSome analysts believe that the U.S. manufacturing sector is at risk. Expressed concerns of those holding this view include\na \"hollowing-out\" of U.S. manufacturing resulting from the decision of many U.S. manufacturers to move production activities and other corporate functions (e.g., research and development, accounting, information technology, tax planning, legal research) offshore; focused efforts by other nations to grow the size, diversity, and technological prowess of their manufacturing capabilities and to attract manufacturing operations of U.S.-headquartered multinational companies using a variety of policy tools (e.g., tax holidays, worker training incentives, market access, and access to rare earth minerals); and a decades-long declining trend in U.S. manufacturing employment, punctuated by a steeper drop from 2001 to 2010. In January 2010, U.S. manufacturing employment fell to its lowest level (11.5 million) since March 1941, down more than 41% from its peak of 19.6 million in June 1979.\nIn support of the President's proposal for a National Network for Manufacturing Innovation, the Information Technology and Innovation Foundation, a Washington, DC-based think tank, articulated a variety of reasons why there is a need for an NMI-like federal program in a report titled Why America Needs a National Network for Manufacturing Innovation . Among the ITIF's assertions:\nAn NMI-like program would address two issues important to U.S. manufacturing competitiveness: technology and talent. Spillovers from successful innovations resulting from a firm's investments can yield substantial benefits captured by competitors producing a market failure that results in underinvestment in manufacturing R&D and innovation. Other types of market failures—for example, the need for large-scale capital investments and training outlays that may require many years to pay off—may \"limit the scale-up of innovative manufacturing processes, the installation of new capital equipment, and the full integration of manufacturing systems across supply chains.\" Foreign governments engage in a variety of policy and programmatic activities designed to attract U.S. and other manufacturing firms to their countries; subsidize and protect domestic producers; or \"repress labor, condone intellectual property theft, and manipulate their currency values in order to expand their manufacturing footprint.\" The federal government provides little support for manufacturing-focused U.S. based research activities: such funding is scattered among multiple agencies and \"has rarely been a priority for any of them.\" This position contends that U.S. academia, in general, does not incentivize engineering advances and practical problem-solving, but rather \"originality and breakthroughs.\" The emphasis on \"engineering as a science\" in U.S. academic engineering programs contributes further to this bias.\nOther analysts see the U.S. manufacturing sector as vibrant and healthy. Those holding this view tend to point to, among other things, the sector's strong growth in output and productivity, as well as the United States' substantial share (17.4%) of global manufacturing value-added (second only to China, 22.4%). In addition, between January 2010 and September 2014, manufacturing employment added approximately 707,000 jobs, growing to 12.2 million. In addition, many analysts attribute U.S. manufacturing employment losses to broader global technology and business trends, such as technology-driven productivity improvements, increases in capital-labor substitution, movement of labor-intensive production activities to lower wage regions of the world, foreign competition in manufactured goods in both U.S. and foreign markets, and disaggregation of work processes resulting in the contracting of service work previously performed by employees of manufacturing firms as well as the offshoring of manufacturing activities.\nIndependent of their perspective on the health of the U.S. manufacturing sector, some analysts may believe that there should not be an NMI program. Some may assert that the role envisioned for the NMI should be performed by the private sector; that the federal government should not favor or subsidize particular companies, industries, or technologies; that the NMI would be ineffective or counterproductive; that the funds that would go to the NMI should be used to support manufacturing in other ways; that the funds should be used for different federal functions altogether; or that the funds should be directed toward deficit reduction.\nSome may also believe that the NMI is, in part or in whole, duplicative of other federal programs, such as the NIST Advanced Manufacturing Technology (AmTech) consortia program or the Manufacturing Extension Partnership; or, as a new and separate program, represents an increasing fragmentation of federal efforts to help manufacturers. Some may question whether additional federal funding will produce more innovation and whether and how the U.S. manufacturing base will effectively absorb such innovations.\nOthers may prefer an expanded direct role for the federal government. This could include increasing federal funding for manufacturing R&D, providing grants and loan guarantees for domestic manufacturing, and, in some cases, subsidizing production of products for which there are deemed positive benefits for the nation that cannot be captured by the manufacturer.\nStill others argue that long-term employment losses in manufacturing are inevitable and that federal policy should focus elsewhere. In a July 2014 Wall Street Journal article, former Treasury Secretary Lawrence Summers argued that, \"The economic challenge of the future will not be producing enough. It will be providing enough good jobs.\" Summers described the loss of manufacturing jobs over the long-term as \"inexorable and nearly universal,\" a result of technology and market forces mirroring the earlier loss of agricultural jobs, only, he added, this \"change will come faster and affect a much larger share of the economy.\" Summers did not offer a prescriptive alternative, but rather stated the need for government policies and approaches that \"meet the needs of the information age.\"\nWhen considered in the context of the overall U.S. economy, manufacturing output, or federal spending, the NMI appropriations authorizations provided in P.L. 113-235 are relatively small. Nevertheless, both proponents and opponents of the NMI may see such appropriations authorizations as opening the door to future increases in funding for the NMI as well as establishing a precedent for the creation of additional programs of a similar nature for manufacturing or other sectors of the U.S. economy.", "The act provides for the Secretary of Commerce to use up to $5 million in funds appropriated to the NIST Industrial Technology Services account to carry out the NMI program. The availability of funds from this authorization, however, will depend on the level of annual appropriations made to the NIST ITS account. In addition, whatever appropriations are made to the ITS account may be subject to congressional prioritization and restrictions included in report language accompanying the appropriations bill. In FY2015, Congress appropriated $138.1 million for the ITS account, directing NIST to spend $130.0 million on the Hollings Manufacturing Extension Partnership and $8.1 million on NIST's Advanced Manufacturing Technology Consortia program. It did not provide explicit funding for the NMI in FY2015. For FY2016, if Congress desires to provide funding to NIST to carry out the NMI program under the act's authorization, it may choose to increase funding for the ITS account in an amount equal to the level of funding it wishes to provide for the administration of the NMI program, reduce funding for one or both of the existing programs being funded by this account, or leave the determination of the allocation of the ITS appropriation to the Secretary of Commerce or NIST.\nA second source of funding provided for by the act is authority given to the Department of Energy to transfer to NIST up to $250 million for the period FY2015-FY2024. However, the availability of funds provided by the DOE to NIST depends, in part, on the level of annual appropriations made to the DOE's Energy Efficiency and Renewable Energy account specifically for advanced manufacturing R&D. This source of funding for the NMI may also be subject to prioritization and potential restrictions included in report language accompanying the appropriations bill. In addition, the availability of these funds to NIST will depend on DOE's willingness to transfer funds to NIST for the NMI program.\nA third possibility for funding the program is the authority given to the Secretary to accept funds, services, equipment, personnel, and facilities from any covered entity to carry out the program.\nThe act does not specify how the funds provided by NIST, DOE, or other agencies are to be allocated between program management activities and funding for the centers. In the absence of such specifications, it appears that the funds from these sources may be used for either or both of these purposes.", "In addition to authorizing the establishment of centers for manufacturing innovation, the act authorizes the establishment of a network of these centers. In this regard, the act specifies which centers are eligible to be a part of the network and designates the National Program Office as \"a convener of the Network.\" However, the act does not further specify the purpose, federal role, or activities of the network. Congress may opt to consider amending the act to clarify these points or to authorize NIST and participating agencies to do so.", "The act authorizes the NMI through FY2024 and requires the Comptroller General of the United States to make a final assessment by December 31, 2024. No specifications are made for a federal role after the end of FY2024. As the program progresses, Congress may opt to consider whether to continue the NMI beyond FY2024 or to allow it to expire.", "Congress may opt to conduct oversight hearings on the implementation of the NMI program to ensure that it is operating as Congress intends, with respect to funding, interagency cooperation, the establishment of new centers, the incorporation of existing manufacturing centers as part of the network, the integration of the NMI with existing federal manufacturing activities, and other related issues." ], "depth": [ 0, 1, 1, 1, 2, 2, 3, 3, 3, 3, 3, 3, 2, 2, 2, 3, 3, 3, 2, 1, 2, 2, 2, 2, 2, 2 ], "alignment": [ "h0_title h1_title", "", "", "h0_title", "", "", "", "", "", "", "", "", "h0_full", "h0_full", "", "", "", "", "", "h0_title h1_title", "", "", "h0_full h1_full", "h1_full", "", "h1_full" ] }

{ "question": [ "What power does RAMIA have over the Network for Manufacturing Innovation?", "What is the relationship between NIST, the Department of Energy, and the Network?", "What other funding is made available for the Network?", "What does the act establish to aid in setting up the program?", "What is a significant issue for the funding of NMI?", "What will determine the program's funding?", "How is the Department of Energy involved in this issue?" ], "summary": [ "RAMIA includes provisions authorizing NIST, the Department of Energy, and other agencies to support the establishment of centers for manufacturing innovation and establishing and providing for the operation of a Network for Manufacturing Innovation.", "NIST is authorized to use up to $5.0 million per year of appropriated funds for FY2015-FY2024 to carry out its responsibilities under the act. The Department of Energy is authorized to transfer to NIST up to $250.0 million of appropriated funds over the same FY2015-FY2024 period.", "The Secretary of Commerce is also authorized to accept funds, services, equipment, personnel, and facilities from any covered entity—federal department, federal agency, instrumentality of the United States, state, local government, tribal government, territory, or possession of the United States, or of any political subdivision thereof, or international organization, or any public or private entity or individual—to carry out the program.", "The act also establishes a National Office of the Network for Manufacturing Innovation Program (also referred to in this report as the National Program Office) at NIST to oversee and carry out the program.", "Although the act authorizes funding for establishment of the centers and the network, the act does not appropriate any funds.", "Funding availability for the program will depend on congressional appropriations, priorities, and allocations.", "In addition, the Department of Energy is authorized, but not required, to transfer funds to NIST to carry out the program." ], "parent_pair_index": [ -1, 0, 0, 0, -1, 0, 0 ], "summary_paragraph_index": [ 1, 1, 1, 1, 3, 3, 3 ] }

{ "title": [ "", "Introduction", "Issues for Congress", "Renewable Fuel Standard Statutory Waiver", "Ethanol Trade Issues", "Potential Market Effects", "Greenhouse Gas Emissions", "Ethanol Blend Rates", "Federal Support for the Ethanol Industry12", "U.S. Ethanol Supply and Use", "U.S. Ethanol Production", "Renewable Fuel Standard (RFS)", "The Ethanol Production Process", "U.S. Ethanol Imports", "Economics of Ethanol", "The Ethanol Industry During the Recession of 2008-2009", "Impact on Commodity Markets", "Impact on Domestic Food Markets", "Energy Efficiency", "Lifecycle Greenhouse Gas Emissions", "Distribution and Consumption Issues", "Distribution Bottlenecks", "Alternative Blend Levels and the \"Blend Wall\"", "Federal Intervention in the Ethanol Industry", "Blender's Tax Credit", "Small Producer Credit", "Alternative Fuel Infrastructure Tax Credit", "Ethanol Import Tariff", "Grant and Loan Programs", "The Business and Industry Guaranteed Loan Program", "Repowering Assistance Program" ], "paragraphs": [ "", "The United States consumes about 186 billion gallons of light-duty road motor transportation fuel annually, most in the form of petroleum-based fuel (i.e., gasoline and diesel). However, biofuels are a small, yet growing, component of U.S. fuel consumption, accounting for an estimated 10 billion gallons in 2008, or 5% of total light-duty road motor transportation use by volume. Ethanol and biodiesel are the most common agriculture-based biofuels. Ethanol accounted for about 92% of agriculture-based biofuels consumption in 2008, and biodiesel for 8%, on an energy-equivalent basis. Together with imports, U.S. ethanol consumption was 6.7 billion gallons in 2007 and 8.9 billion gallons in 2008. Although a small volume compared with total liquid fuel consumption, it nevertheless displaced roughly 88 million barrels of oil in 2007 and 125 million barrels in 2008, compared with oil imports of about 3.7 billion barrels.\nThis report focuses on \"first generation\" biofuels—that is, those currently in commercial production (corn-starch ethanol and foreign-produced sugar cane ethanol). \"Second generation\" biofuels, primarily cellulosic biofuels, are not yet produced on a commercial scale in the United States.\nHistorically, fossil-fuel-based energy has generally been less expensive to produce and use than energy from renewable sources. However, since the late 1970s, U.S. policymakers at both the federal and state levels have enacted a variety of incentives, regulations, and programs to encourage the production and use of agriculture-based energy. These programs have proven critical to the economic success of rural renewable energy production. The benefits to rural economies and to the environment are not always clear and come with costs, leading to a lively debate between proponents and critics of government subsidies that underwrite agriculture-based renewable energy production.\nProponents of government support for agriculture-based biofuels have cited national energy security, environmental benefits (such as reductions in greenhouse gas (GHG) emissions to moderate climate change rates), and higher domestic demand for U.S.-produced farm products as viable justifications. In addition, proponents argue that rural, agriculture-based energy production can enhance rural incomes and employment opportunities, while expanding the value added to U.S. agricultural commodities.\nIn contrast, petroleum industry critics of biofuels subsidies argue that technological advances in seismography, drilling, and extraction continue to expand the fossil-fuel resource base, which has traditionally been cheaper and more accessible than biofuels supplies. Other critics argue that current biofuels production strategies can only be economically competitive with existing fossil fuels in the absence of subsidies if significant improvements in existing technologies are made or new technologies are developed. Until such technological breakthroughs are achieved, critics contend that the subsidies distort energy market incentives and divert research funds from the development of other potential renewable energy sources, such as wind, solar, or geothermal, that offer potentially cleaner, more bountiful alternatives. Still others question the rationale behind policies that promote biofuels for energy security. These critics question whether the United States could ever produce sufficient feedstock of either starches, sugars, or vegetable oils to permit biofuels production to meaningfully offset petroleum imports. Finally, there are those who argue that the focus on development of alternative energy sources undermines efforts to conserve and reduce the nations energy dependence.\nThe Renewable Fuel Standard (RFS) is the most significant government intervention in the ethanol industry. The RFS mandates that increasing volumes of renewable fuels be blended with conventional fuels through 2022. In 2009, 11.1 billion gallons of biofuels must be used, of which 10.5 billion gallons may be corn ethanol. The RFS is discussed in detail below.\nThis report examines the role of government intervention and economic, trade, and environmental issues related to ethanol that are likely to be discussed in the 111 th Congress.", "Ethanol will likely be central to discussions of renewable fuel issues during the 111 th Congress. This report's discussion of ethanol presupposes the continued dominance of the internal combustion engine and the current infrastructure for petroleum fuel extraction and refining and biofuels feedstock production and refining—as opposed to the major near-term market penetration of alternatives such as plug-in-electric automobiles. The following highlights major topics of potential legislative interest that are discussed in this report.", "In April 2008, Texas Governor Rick Perry applied to the U.S. Environmental Protection Agency (EPA) for a waiver of the renewable fuel standard, citing economic damage to the livestock and poultry industries in his state. EPA denied the request in August 2008 after determining that implementation of the RFS mandate during the time period at issue would not severely harm the economy of a state, region, or the United States. Around the same time, legislation ( S. 3031 ) was introduced to limit the RFS to 9 billion gallons annually, compared with 15 billion under the current law. Proponents cited the RFS and corn ethanol production as contributing to rising food prices and high input costs for livestock and poultry producers. Opponents of the reduction claimed it would set back efforts to increase national energy security and achieve environmental goals. They also argued that high fuel costs played a much larger role in food price increases than the higher price of corn attributable to the mandate. The bill was referred to the Committee on Environment and Public Works, but no action was taken. Statutory changes to the RFS might be considered in the 111 th Congress.", "Most ethanol imported into the United States is subject to a tariff of $0.54 per gallon. During the 110 th Congress, legislation was introduced to eliminate the import tariff on ethanol ( H.R. 6137 ), to reduce the tariff to parity with the blender's tax credit ( H.R. 6324 ), and to extend the tariff ( S. 1106 , H.R. 2419 ). The tariff was extended through 2010 in the 2008 farm bill ( P.L. 110-246 ). Several factors may generate debate on the tariff during the 111 th Congress: (1) beginning in 2009, the tariff is $0.09 per gallon higher than the blender's tax credit it was intended to offset, (2) as the RFS increases and becomes more difficult to fulfill, imports may play a greater role in reaching mandated volumes, and (3) if the price of imported ethanol was lower (without the tariff), blenders would be likely to blend more ethanol into gasoline, achieving one of the benefits of ethanol—reduced emissions. The tariff is discussed in more detail later in this report.", "The use of food crops to produce energy has altered the dynamics of agricultural markets. The U.S. Department of Agriculture (USDA) projects that nearly a third of the 2008/2009 corn crop will be refined into ethanol. Corn production has increased in recent years to accommodate higher demand, resulting in higher prices and shifts in acreage to corn from soybeans and other crops. High corn prices have boosted costs for the livestock industry. Congress may continue its debate and oversight in this area, possibly focusing on two areas: first, the role of speculation in increasing the magnitude and volatility of agricultural and food prices, and second, the response to higher food prices by domestic and international providers of food aid. Both are likely to be examined during the 111 th Congress as they were during the 110 th . For more information on the food versus fuel debate, see CRS Report R40155, Selected Issues Related to an Expansion of the Renewable Fuel Standard (RFS) , by [author name scrubbed] and Tom Capehart.", "The Energy Independence and Security Act of 2007 (EISA, P.L. 110-140 ) requires that biofuels eligible under the RFS reduce greenhouse gas (GHG) emissions by certain levels compared with fossil fuels. EPA is charged with formulating rules for calculating GHG emissions using lifecycle analysis that includes both direct and significant indirect effects (see section below on GHG emissions for more detail). The methodology selected by EPA could potentially eliminate certain biofuels from the RFS—with major economic implications for segments of the renewable fuels industry. If EPA rules on GHG emissions are perceived as overly restrictive, some in Congress could introduce legislation to relax the rules.", "Ethanol industry proponents are concerned that, even as production of corn ethanol increases, limitations in distribution infrastructure and vehicle absorption capacity will create a bottleneck, known as the \"blend wall,\" holding down potential consumption. The blend wall occurs when the maximum allowable percentage of ethanol in conventional gasoline (e.g., gasoline meant for all vehicles) does not absorb the volume of ethanol mandated by the RFS. For instance, current annual gasoline consumption of 140 billion gallons allows for theoretical ethanol consumption of 14 billion gallons at the current maximum blend of 10% (E10). Thus 14 billion gallons is the blend wall. However, it is not practical to blend every gallon of fuel consumed in the United States at the 10% level, so the actual amount of ethanol consumed is slightly less—closer to 12.5 billion gallons. The blend wall is reached when the volume of ethanol mandated under the RFS is greater than the volume which can be consumed as E10 plus the very small amount consumed as E85. Currently, the ability to consume E85 is very limited due to the lack of infrastructure and the small number of flexible fuel vehicles (FFVs)—annual E85 consumption is about 10 million gallons per year, accounting for less than 1% of total ethanol consumption.\nOne solution to the blend wall is to increase the proportion of ethanol in gasoline consumed by conventional vehicles. Increasing the allowable blend to E12 could raise potential consumption to 17 billion gallons without any additional investment in infrastructure or vehicle modifications. This solution is very popular with corn and ethanol producers, who claim an increase in green jobs, benefits to rural economies, and the displacement of foreign-produced petroleum. U.S. Secretary of Agriculture Tom Vilsack has supported a shift to E15. Those against increasing the blend rate, such as livestock producers and retail food interests, claim that higher food and feed prices will result from higher corn demand. EPA has been assessing the feasibility of increasing the ethanol blend rate. In addition to market impacts, concerns include the effects of higher blends on motorcycles, small engines, and emission control and fuel systems, especially in older vehicles.", "The ethanol industry has received substantial support from the federal government. However, some ethanol industry supporters argue that the current economic environment justifies additional government support. Recent industry proposals include guaranteed operating loans targeted to ethanol refiners and tax credits for \"green\" job creation or preservation. The blender's tax credit (or volumetric ethanol excise tax credit) is an income tax credit of $0.45 per gallon on each gallon of ethanol blended into gasoline for sale or consumption. It is scheduled to expire during the 111 th Congress—at the end of 2010—and ethanol proponents are expected to argue for its extension. While the cellulosic biofuels production tax credit and the small producer's tax credit do not expire during the 111 th Congress, either could be modified as the debate progresses. Proponents of other types of renewable energy contend that available resources could be better used supporting wind, solar, or other types of renewable energy and they will likely argue for a shift of government support away from ethanol.\nSome critics of the ethanol industry maintain that government expenditures in the form of tax credits and other subsidies for the ethanol industry are excessive. They question whether the industry will ever be viable without government assistance. Others question the balance between support for biofuels and other forms of renewable energy. A recent Environmental Working Group report based on U.S. Department of Energy (DOE) analysis shows that biofuels accounted for three-quarters of the tax benefits and two-thirds of all federal subsidies allotted for renewable energy in 2007. According to data compiled by DOE's Energy Information Agency, the corn-based ethanol industry received $3 billion in tax credits in 2007, more than four times the $690 million in credits to other forms of renewable energy, including solar, wind, and geothermal power.\nProponents of the ethanol industry urged policymakers to direct economic stimulus package resources authorized by the 111 th Congress toward the ethanol industry. Among the support requested was a $1 billion short-term credit facility to finance current operations, additional loan guarantees for new production capacity and infrastructure, job creation tax credits for new jobs created by production operations, and expanded federal support for research and development. However, the final stimulus plan (the American Recovery and Reinvestment Act of 2009, P.L. 111-5 ) does not contain specific additional support for ethanol, although it expands the tax credit for E85 fuel pumps and storage facilities.", "U.S. ethanol production in 2008 exceeded 9.2 billion gallons per year (bgpy), 42% above 2007, following rapid increases during the past decade. Production in 2007 reached 6.5 bgpy, a 33% advance from 2006 (see Figure 1 ). Production in 1998 was only 1.4 bgpy. The United States also imports ethanol, increasing the supply by about 400 to 700 million gallons per year (mgpy). Total supply in 2007 was 6.9 bgpy and 9.8 bgpy in 2008.\nSince 2005, the United States has surpassed Brazil as the worlds leading producer of ethanol. Several events contributed to the historical growth of U.S. ethanol production: the energy crises of the early and late 1970s; a partial exemption from the motor fuels excise tax (legislated as part of the Energy Tax Act of 1978); ethanols emergence as a gasoline oxygenate; and provisions of the Clean Air Act Amendments of 1990 that favored oxygenate blending with gasoline. Ethanol production is projected to continue growing rapidly through at least 2015 on the strength of both the extension of existing government incentives and the possible addition of new ones. These include the per-gallon blender's tax credit of $0.45, the conventional biofuels RFS of 10.5 bgpy rising to 15 bgpy by 2015, and a $0.54 per gallon tariff on most imported ethanol.", "As of November 2008, ethanol was produced in 27 states by 172 refineries with 10.3 billion gallons per year capacity (see Table 1 ). Most refineries are in the Corn Belt, but some are located on the West Coast and in the Southeast. Ethanol is generally produced in rural areas where corn is grown, to limit transportation costs for feedstocks. Ethanol plants range in size from 20 mgpy to over 100 mgpy. Corn is the principal feedstock for ethanol produced in the United States, accounting for about 97% of total output. Sorghum and a very small quantity of wheat are also used. These feedstocks, along with sugar, produce what are known as \"first generation\" biofuels. Biofuels produced from cellulosic feedstocks such as corn stover, prairie grasses, or woody biomass are known as \"second generation\" biofuels.\nIn early 2009, not all ethanol plants were producing at full capacity. Some plants owned by financially troubled companies have closed and others are on standby or operating at reduced levels until more profitable circumstances exist. In 2008 an additional 23 refineries, accounting for 3.3 bgpy capacity, were under construction, although many of these projects are now on standby or have been cancelled.", "The expanded renewable fuel standard (RFS) in the Energy Independence and Security Act of 2007 (EISA, P.L. 110-140 ) mandates renewable fuels blending requirements for fuel suppliers. It expands the earlier renewable fuel standard in the Energy Policy Act of 2005 (EPAct 2005, P.L. 109-58 ) by increasing mandated volumes and creating carve-outs for different types of biofuels. The expanded RFS consists of two main categories. The first is an unspecified category that may be filled with any type of biofuel, including corn ethanol, which predominates. The second category is \"advanced biofuels,\" and can be fulfilled with biofuels other than corn ethanol. Within the advanced biofuels category are carve-outs for cellulosic, biodiesel, and other advanced biofuels.\nThe RFS requires that 11.1 billion gallons of renewable fuels be blended into gasoline in 2009. The total blending requirement grows annually to 36 billion gallons in 2022 (see Figure 2 ) . The unspecified portion of the RFS is capped at 10.5 billion gallons in 2009 and increases annually until it is capped at 15 billion gallons from 2015 through 2022. This component of the mandate is likely to be filled by corn-starch ethanol, although any renewable biofuel may be used as long as it meets the lifecycle greenhouse gas emissions requirement. Although advanced biofuels may be used to fulfill the non-advanced renewable fuels portion of the mandate, corn ethanol cannot be used to meet the advanced biofuels mandate.\nAs previously discussed, eligibility under the RFS also requires that biofuels achieve GHG emissions reductions. For corn ethanol from new refineries, a reduction of 20% compared with gasoline's emissions is required. Advanced biofuels have a more stringent GHG reduction requirement of 50% compared with gasoline, and eligible cellulosic biofuels must have a 60% reduction. The rules for calculating lifecycle greenhouse gas emissions are currently being formulated by EPA and are due to be announced in 2009. These regulations will determine which fuels are eligible for the RFS and will therefore have a significant impact on the future of the biofuels industry. EISA requires consideration of both direct and indirect lifecycle emissions. Indirect GHG emissions caused by land use changes are particularly difficult to calculate (see section on GHG emissions below).", "Ethanol, or ethyl alcohol, is an alcohol made by fermenting and distilling simple sugars. It can be produced from any biological feedstock that contains appreciable amounts of sugar or materials that can be converted into sugar such as starch or cellulose. Sugar beets and sugar cane are examples of feedstocks that contain sugar. Corn and sorghum contain starch that can relatively easily be converted into sugar. In the United States, corn is the principal ingredient used in the production of ethanol; in Brazil, sugar cane is the primary feedstock.\nCorn-starch ethanol can be produced using either of two processes: wet milling or dry milling. These processes differ in the initial processing of the corn prior to fermentation. During the early stages of the ethanol industry, the wet milling process was predominant. Most new plants have used the dry mill process.\nThe shift over time from the wet mill process to the dry mill process has resulted in improved efficiencies. The cost of inputs, especially energy, per gallon of ethanol produced has been reduced.\nFeedstocks, water, energy, labor, and capital are the major inputs for ethanol production. Ethanol yields in 2008 ranged from 2.5 to 2.9 gallons per bushel of corn, with a weighted average of 2.75 gallons per bushel.\nMost ethanol plants operate using natural gas or coal, although some plants use biomass or manure. Electrical energy is used to operate plant machinery, and steam or hot air are used in liquefaction, fermentation, distillations, and drying by-products. Distillers grains for livestock feed are an important byproduct of ethanol production but must be dried before shipping long distances to reduce weight. Since drying distillers grains is a major use of energy for ethanol producers, refineries often locate near users of animal feed, such as large cattle operations, and ship distillers grains wet to cut processing costs.\nWater is a major input into the distillation process and an important environmental consideration. Improved recycling processes have reduced water use in newer ethanol plants.", "In addition to domestic production, the U.S. ethanol supply includes imports of sugar-cane ethanol from Brazil and the Caribbean Basin Initiative (CBI) nations of El Salvador, Costa Rica, Jamaica, and Trinidad and Tobago. Ethanol imports reached 557 million gallons in 2008, or 6% of U.S. supply. Brazil, which ranks second behind the United States in ethanol production, traditionally accounts for about half of U.S. ethanol imports, with the remainder shipped from CBI countries. (Much of this is originally produced in Brazil and transshipped to CBI countries, where it is dehydrated to qualify for tariff-free status when shipped to the United States.) Under the CBI, an unlimited amount of ethanol may be shipped to the United States duty-free if indigenous feedstocks are used in its production. Ethanol refined in CBI countries from foreign feedstocks or foreign ethanol that is substantially altered prior to shipment can be shipped duty-free up to a volume no greater than 7% of U.S. use. This rule has encouraged countries, for instance Jamaica, to import hydrous ethanol from Brazil, dehydrate it to remove moisture, and ship the anhydrous ethanol to the United States duty-free.\nU.S. imports of ethanol are subject to a $0.54 per gallon duty. Originally, the duty was intended to deny the benefit of tax credits available to ethanol blended in the United States to imported ethanol. These credits are $0.45 per gallon beginning in 2009, $0.09 per gallon less than the tariff, increasing its discriminatory impact. In addition, a much smaller ad valorem tariff of 2.5% is levied on imported ethanol. Many argue that a tariff on ethanol increases costs to consumers.\nEthanol imports benefitted from a duty drawback provision through September 2008. Imported ethanol received a duty drawback if a \"like commodity\" to ethanol, or its final product, a gasoline-ethanol mixture, was exported. Jet fuel was considered a like commodity to the gasoline-ethanol mixture and was frequently exported to trigger the duty drawback. However, a provision in the Food, Conservation, and Energy Act of 2008 (the 2008 farm bill, P.L. 110-246 ) eliminated the duty drawback for fuels that do not contain ethanol (such as jet fuel).\nThe ethanol tariff will likely be of interest for the 111 th Congress. During the 110 th Congress, several bills were introduced to eliminate, reduce, or extend the tariff on ethanol. Proponents of the tariff cite the need to support the ethanol industry against lower-priced imports until it reaches maturity. They contend that it prevents imported ethanol from benefitting from the blender's tax credit, which is intended, among other things, to promote U.S. energy independence. Opponents of the tariff claim that the industry is generally profitable and has matured to the point where such incentives are unnecessary. Opponents also point out that imports of Brazilian ethanol may be essential to fulfill the RFS mandate in coming years and should therefore be encouraged.\nLegislation ( S. 622 ) has been introduced in the 111 th Congress to address the lack of parity between the blender's tax credit and the tariff on ethanol. The bill would periodically reduce the tariff on ethanol by the same amount as any reduction in income or excise tax credit applicable to ethanol so that the tariff is equal to, or less than, the applicable income or excise tax credit.", "The economics underlying ethanol production include decisions concerning capital investment, plant location (relative to feedstock supplies, population centers, and by-product markets), production technology, and product marketing and distribution, as well as federal and state production incentives and usage mandates.\nDemand for ethanol is dependent on regulatory mandates, its price relative to gasoline, and, until 2006, its use as an oxygenate. Profitability for an ethanol refiner depends primarily on the cost of the main input, corn, relative to the value of ethanol (adjusted for any applicable tax credits), and the value of co-products produced.\nCo-products are an important economic consideration for ethanol producers. For each gallon of ethanol produced using the dry mill process, an average of 6.7 pounds of dried distillers grains (DDG) (at 10% moisture) is produced. For every gallon of ethanol produced in a dry mill plant, about $0.25 of distillers dried grains and $0.006 of CO 2 can be sold.", "During 2005 and much of 2006, the ethanol industry enjoyed a period of significant profitability. However, the fundamentals for ethanol production began to shift in 2008. In late 2008, ethanol prices exceeded gasoline prices and remained higher through early 2009. Discretionary blending above the RFS mandate stopped and demand for ethanol slipped. Simultaneously, the overall economic climate worsened—demand for fuel declined, further reducing demand, and credit tightened. Ethanol refineries cut back production, and many with heavy debt loads were forced into bankruptcy.\nAt the same time, corn prices reached record levels before falling in early 2009. At that time, ethanol prices of $1.66 per gallon combined with corn prices of $4.10 per bushel (nearby month on the futures market) and gasoline prices around $1.68 per gallon resulted in reduced ethanol demand and losses by refiners. When ethanol is priced below gasoline (on an energy-equivalent basis), as it was during the 2006-2008 period, ethanol reduces the price consumers pay at the pump. However, beginning in the last half of 2008 and early 2009, ethanol prices were higher than gasoline, and blending actually increased the pump price.\nA radically different picture emerged in mid- to late 2008 as the economy began to slow and credit markets tightened. The recession has provided numerous challenges for the ethanol industry. Volatility in the corn and petroleum markets have made it difficult to maintain profitability. Tightening credit markets stopped most plant construction. Ethanol production was reduced to 80% to 90% of capacity as crush margins tightened, low-priced gasoline was more competitive, and overall demand for transportation fuel fell. Illustrative of the industry's recent problems, VeraSun, a major ethanol producer, filed for bankruptcy on October 31, 2008, and is selling its refineries. Other plants have suspended operations or are operating at reduced capacity. At the end of 2008, some estimates placed the total industry output at 84% of its potential.\nSome analysts have predicted substantial consolidation as the next step for the maturing ethanol industry. However, consolidation lately has been slowed by tight credit markets. Nevertheless, some of the larger ethanol producers, including Poet and Archer Daniels Midland (ADM) have expressed interest in buying up smaller, struggling plants. Many of these smaller, cooperative-owned, older plants buy local corn and have a local market for ethanol. They have more favorable balance sheets than recently constructed 100 mgpy plants with heavy debt loads and are under little pressure to sell. The sale at auction of VeraSun's 16 refineries may contribute to further consolidation. Despite the difficult economic times, five ethanol plants, with a total production capacity of 485 mgpy, came online during October and November 2008.", "USDA estimates that 3.7 billion bushels of corn (about one-third of total U.S. corn production) from the 2008 corn crop will be used to produce ethanol during the 2008/2009 (September-August) corn marketing year. Ethanol's share of corn production was 20% (2.119 billion bushels) in 2006/2007 and expanded to 23% (3.026 billion bushels) in 2007/2008. In its annual baseline projections (February 2009), USDA projects that U.S. ethanol production will use 35% (5.1 billion bushels) of the corn crop by 2018. In March 2009, the Food and Agricultural Policy Research Institute (FAPRI) projected that 2018 U.S. ethanol production will reach 17.7 billion gallons and use 44% (5.4 billion bushels) of the U.S. corn crop.\nAs corn prices rise, so too does the incentive to expand corn production either by planting on more marginal land or by altering the traditional corn-soybean rotation that dominates Corn Belt agriculture. This shift could displace other field crops, primarily soybeans, and other agricultural activities. Further, corn production is among the most energy-intensive of the major field crops. An expansion of corn area could have important and unwanted environmental consequences due to the increases in fertilizer and chemical use and soil erosion. The National Corn Growers Association claims \"there is still room to significantly grow the ethanol market without limiting the availability of corn.\" However, other evidence suggests that effects are already being felt from the current expansion in corn production.\nThe increasing share of the U.S. corn crop utilized by ethanol blenders, and other market conditions, has resulted in declining U.S. exports. Tight global corn supplies contributed to high commodity prices, impacting consumers, especially in low-income countries where grains form a large share of diets and food is a major expenditure.\nSupporters of corn ethanol claim that biofuels production and use will have enormous agricultural and rural economic benefits by increasing farm and rural incomes and generating substantial rural employment opportunities. Opponents maintain that continued expansion of corn-based ethanol production could have significant negative consequences for traditional U.S. agricultural crop production and rural economies. Large-scale shifts in agricultural production activities could likely also have important regional economic consequences that have yet to be fully explored or understood.\nFor more information on the impact of ethanol on food and feed prices, see CRS Report RL34265, Selected Issues Related to an Expansion of the Renewable Fuel Standard (RFS) , by [author name scrubbed] and Tom Capehart. For more information on commodity price impacts, see CRS Report RL34474, High Agricultural Commodity Prices: What Are the Issues? , by [author name scrubbed].", "Critics of first generation ethanol claim it was responsible for a large proportion of recent food price increases that occurred in early 2008. As evidence they cite USDAs estimate that the U.S. Consumer Price Index (CPI) for all food increased 5.5% in 2008, and 4.0% in 2007, compared with an average rate of increase of 2.5% for 1997 to 2006. In analyzing this criticism, however, it is important to distinguish between prices of farm-level commodities and retail-level food products, because most consumer food prices are largely determined by marketing costs that occur after the commodities leave the farm. The price of a particular retail food item varies with a change in the price of an underlying input in direct relation to the relative importance (in value terms) of that input. For example, if the value of wheat in a $1.00 loaf of bread is about 10, then a 20% rise in the price of wheat translates into a 2 rise in a loaf of bread.\nConsidering corns relatively small value-share in most retail food product prices, some contend that it is unlikely that the ethanol-driven corn price surge is a major factor in current food price inflation estimates. Furthermore, many economists agree that the majority of retail food price increases were not mainly ethanol-driven, but rather were the result of various other factors, including a sharp increase in energy prices that rippled through all phases of marketing and processing channels, and the strong increase in demand for agricultural products in the international marketplace from China and India (a product of their large populations and rapid economic growth).", "An examination of energy efficiency can help determine whether ethanol provides an improvement over gasoline or other fuels. Does it take more fossil fuel to produce a gallon of ethanol than the energy available when that gallon of ethanol is consumed? The net energy balance (NEB) of a fuel is a useful means of comparing different fuels for public policy purposes. The NEB is expressed as a ratio of the energy produced from a production process relative to the energy used in that production process. An output/input ratio of 1.0 implies that energy output equals energy input. The critical factors underlying ethanol's energy efficiency include (1) corn yields per acre (higher yields for a given level of inputs improves ethanol's energy efficiency); (2) the energy efficiency of corn production, including the energy embodied in inputs such as fuels, fertilizers, pesticides, seed corn, and cultivation practices; (3) the energy efficiency of the corn-to-ethanol production process: clean burning natural gas is the primary processing fuel for most ethanol plants, but several plants (including an increasing number of new plants) use coal; and (4) the energy value of corn by-products, which act as an offset by substituting for the energy needed to produce market counterparts.\nOver the past decade, technical improvements in the production of agricultural inputs (particularly nitrogen fertilizer) and ethanol, coupled with higher corn yields per acre and stable or lower input needs, appear to have raised ethanol's NEB. About 82% of the corn used for ethanol is processed by more efficient dry milling (a grinding process) and about 18% is processed by wet milling plants. All new plants under construction or coming online are expected to dry mill corn into ethanol: thus the dry milling share will continue to rise for the foreseeable future.\nA 2007 report by the National Renewable Energy Laboratory (NREL) summarized recent reports on the NEB for corn ethanol. Results varied widely, but most reports using similar assumptions found the NEB for corn ethanol to be positive. In 2004, USDA reported that, assuming best production practices and state of the art processing technology, the NEB for corn ethanol (based on 2001 data) was a positive 1.67—that is, 67% more energy was returned from a gallon of ethanol than was used in its production. Other researchers have found much lower NEB values under less optimistic assumptions, leading to some dispute over corn-to-ethanol's representative NEB. A 2006 review of several major corn-to-ethanol NEB analyses found that, when co-products are properly accounted for, the corn-to-ethanol process has a positive NEB that is improving with changing technology. This result was confirmed by another comprehensive study that found an NEB of 1.25 for corn ethanol. However, these studies clearly imply that inefficient processes for producing corn (e.g., excessive reliance on chemicals and fertilizer or bad tillage practices) or for processing ethanol (e.g., coal-based processing), or extensive trucking of either the feedstock or the finished ethanol long distances to plant or consumer, can result in an NEB significantly less than 1.0. In other words, not all ethanol production processes have a positive energy balance. A few studies have concluded that corn ethanol does not have a positive NEB (that is, that it takes more fossil energy to produce a gallon of ethanol than it contains). However, these studies were distinguished by much higher energy inputs in the agriculture, transport, refining, and distribution components of the ethanol manufacturing process than other studies.", "Lifecycle greenhouse gas (GHG) emissions are the aggregate quantity of GHG emissions (including direct emissions and significant indirect emissions such as emissions from land use changes) accounting for all stages of fuel and feedstock production and distribution, from feedstock generation or extraction through the distribution, delivery, and use of the finished fuel to the ultimate consumer.\nMany link GHG emissions to global climate change, so the relative emissions from different types of fuels are of great interest. Although the use of ethanol has been touted by proponents as reducing GHG emissions compared with conventional fuels, some contend that the benefits are nonexistent or minimal. Under the Energy Independence and Security Act of 2007 (EISA P.L. 110-140 , Section 202), GHG emissions reductions must be calculated by the U.S. Environmental Protection Agency (EPA) using a methodology yet to be determined. Estimates for GHG reductions from ethanol vary widely depending on the methodology used. As noted above, provisions in the EISA require the reduction of lifecycle emissions including \"direct emissions and significant indirect emissions such as those from land use changes.\" For example, some studies have concluded that, if ethanol production displaces another crop that is then grown on newly cleared forest land (such as a rainforest in Brazil), the resulting GHG emissions could be substantial, and if high enough, could render the fuel ineligible under the RFS. Different methodologies will allot varying weights to these impacts and hence benefit different stakeholders. EPA is required to establish rules defining the methodology for measuring lifecycle GHG emissions under the RFS.\nSection 202 of EISA required EPA to develop revised RFS regulations no later than one year after enactment (December 19, 2008). This deadline has passed, and a proposed rule is expected to be issued soon, followed by a comment period. These rules will likely be the subject of intense debate because they will determine whether a fuel is eligible for the RFS. Congress granted wide latitude to EPA in drafting the rules for calculating lifecycle GHG emissions. Depending on the outcome of EPA's rulemaking, Congress might revisit this issue.\nMost studies show a 10% to 20% reduction in GHG emissions for corn ethanol compared with gasoline. Estimates vary based on the system boundaries used, cultivation practices (e.g. minimum as opposed to normal tillage) used to grow the corn, and the fuel used to process the corn into ethanol (e.g., natural gas versus coal). These studies do not take into account indirect GHG emissions due to land use changes. One controversial study (based on direct and indirect lifecycle GHG emissions) comparing vehicles powered by various sources claimed more health and environmental harm from E85 ethanol-powered vehicles than from battery-electric-powered vehicles (from all alternative sources of electricity generation including coal with carbon sequestration).\nEISA requires that corn ethanol produced in facilities that commence construction after enactment (December 2007) must achieve at least a 20% reduction in lifecycle GHG emissions compared with gasoline. This provision applies to roughly 4 billion gallons of capacity out of 13.7 billion gallons of current and under-construction plants. Enough grandfathered capacity currently exists to nearly fulfill the 15 billion gallon maximum ethanol mandate that becomes effective in 2015 under the RFS. EISA also enables EPA to reduce the GHG reduction requirements if it is determined that \"generally such reduction is not commercially feasible for fuels made using a variety of feedstocks, technologies, and processes to meet the applicable reduction.\"\nEthanol industry proponents are calling for GHG emissions to be calculated using only significant indirect factors and to exclude international land-use effects until EPA develops \"objective and peer reviewed methodology\" for their calculation.", "Distribution and absorption constraints may hinder the utilization of ethanol. As the RFS progresses, greater volumes of advanced biofuels (i.e., cellulosic or non-corn-starch ethanol, biodiesel, or imported sugar ethanol) would need to be used to fulfill the rising advanced biofuels mandate. Currently the infrastructure required to ship this volume of ethanol and the vehicles to consume it do not exist.", "Distribution issues may hinder the efficient delivery of ethanol to retail outlets. Ethanol, mostly produced in the Midwest, must be transported to more populated areas for sale. The current ethanol distribution system is dependent on rail cars, tanker trucks, and barges. Ethanol cannot be shipped in pipelines designed for gasoline because ethanol tends to separate and attract water in gasoline pipelines, causing corrosion. As a result, ethanol would need its own dedicated pipeline. This would be enormously expensive; however, some Members of Congress have introduced legislation calling for such a pipeline. Preliminary assessments of a 1,700 mile ethanol pipeline from Minnesota to New York are being conducted by a major ethanol producer and petroleum pipeline operator. Because of competition, options (especially for rail cars) are often limited. As non-corn biofuels play a larger role, some infrastructure concerns may be alleviated as production is more widely dispersed across the nation. Also, if biomass-based diesel substitutes are produced in much larger quantities, some of these infrastructure issues may be mitigated. However, ethanol would still need to be stored in unique storage tanks and blended immediately before pumping, requiring further infrastructure investments. See CRS Report R40155, Selected Issues Related to an Expansion of the Renewable Fuel Standard (RFS) , by [author name scrubbed] and Tom Capehart.", "The \"blend wall\" is the maximum possible volume of ethanol that can be blended into conventional U.S. motor gasoline at a given blend level. At a 10% ethanol blend (E10) this is roughly 14 billion gallons of ethanol. This limit becomes problematic as the volume under the RFS exceeds this level—which is expected to occur in 2012 when the RFS reaches 15 bgpy. Once the potential volume utilized by conventional vehicles has been reached, additional increases in volume will have no market except for the very limited number of flex fuel vehicles (FFVs) that can use higher blends. Although greater use of E85 could absorb additional volume, it is limited by the lack of E85 infrastructure (limited by the considerable expense of installing or upgrading tanks and pumps) and the size of the FFV fleet.\nProposed legislation in the 111 th Congress, the E-85 Investment Act of 2009 ( H.R. 1112 ), would increase the credit against income tax for E85 refueling property (filling station pumps, tanks, and other related equipment) to 75% from 30% for property placed in service prior to 2012. The credit maximum is $30,000 for depreciated property and $1,000 for other property. The credit maximum is gradually reduced for property placed in service after December 2012 through 2016.\nAn increase in the tax credit for E85 infrastructure was included in the enacted 2009 economic stimulus package (The American Recovery and Reinvestment Act of 2009, P.L. 111-5 ) and is available for the cost of installing alternative fueling equipment. P.L. 111-5 provides a temporary increase in the credit to 50% of the cost for equipment placed into service on or after December 31, 2008, and before January 1, 2011, not to exceed $50,000. The credit is also increased for residential fueling equipment.\nTo increase potential ethanol use without the infrastructure and vehicle changes required for E85, some have proposed raising the ethanol blend level for conventional vehicles from E10 to E15 or E20. For such an increase to take place, EPA must issue a waiver under Section 211(f) of the Clean Air Act, thereby allowing a higher ethanol blend. In addition, automobile and motor equipment manufacturers would have to extend warranties to include higher blends, and infrastructure such as pumps and storage tanks would have to be certified for the higher level. Most automotive manufacturer warranties are currently valid for E10 only.\nRecently, Underwriter's Laboratories (UL) certified gasoline dispensing equipment for blends up to 15% ethanol. However, given that the actual ethanol content of E10 ranges from 7% to 13% , it is likely E15 blends will contain up to 18% percent ethanol, and would not be covered in the UL certification.\nOn March 6, 2009, Growth Energy, a major organization promoting ethanol, applied to EPA (on behalf of 52 ethanol producers) for a waiver of Section 211(f)(4) of the Clean Air Act to allow an immediate increase in the maximum ethanol blend level from E10 to E12 or E13, and later allowing blends up to E15 to be used by conventional vehicles. EPA must grant or deny the waiver request within 270 days of receipt (December 1, 2009). This is significant because, even without any increase in the consumption of E85, raising the blend rate for conventional vehicles would enable an additional 7-8 billion gallons of ethanol in gasoline. This would raise the \"blend wall\" to roughly 22 billion gallons. The waiver request is supported by corn and ethanol interests and opposed by livestock and environmental groups.\nLegislation addressing supply and distribution issues has been introduced in the 111 th Congress. The Open Fuel Standard Act of 2009 ( H.R. 1476 ), would require 50% of the automobiles powered by internal combustion engines that are manufactured in the United States to be capable of operating on either 85% ethanol, 85% methanol, or biodiesel beginning in 2012, and 80% to be capable of operating on either 85% ethanol, 85% methanol, or biodiesel beginning in 2015.", "The federal government provides incentives and support for the ethanol industry though tax credits, research and development, grants and loan guarantees for plant construction, import tariffs, and perhaps most important, the RFS usage mandate, which was discussed above.\nHistorically, federal subsidies have played an important role in encouraging investment in the U.S. ethanol industry. The Energy Tax Act of 1978 first established a partial exemption for ethanol fuel from federal fuel excise taxes. The Highway Trust Fund, funded by gasoline excise tax receipts, was reduced by the amount of the exemption so that increased ethanol use resulted in reduced funding for state transportation programs and highway projects. In addition, dealers sometimes purchased exempted gasoline and then failed to blend it with ethanol, even though they paid the reduced excise tax. In 2005, a volumetric ethanol excise tax credit, paid out of the general fund, replaced the partial tax exemption and eliminated these problems. The credit has no impact on the Highway Trust Fund and is based on the volume of ethanol in the blended fuel, reducing the opportunities for fraud. A discussion of this credit and other subsidies follows. For more information on biofuels incentives, see CRS Report RL33572, Biofuels Incentives: A Summary of Federal Programs , by [author name scrubbed].", "The blender's tax credit, or volumetric ethanol excise tax credit, is an income tax credit based on the volume of ethanol blended with gasoline for sale or use. For each gallon of ethanol blended, an income tax credit of $0.45 per gallon is available. The credit was established by Section 301 of the American Jobs Creation Act of 2004 ( P.L. 108-357 ). The 2008 farm bill ( P.L. 110-246 ) extended the credit through 2010 and reduced it from $0.51 per gallon to $0.45 per gallon beginning the first calendar year following calendar-year production exceeding 7.5 billion gallons. Since 2008 production exceeded this threshold, the tax credit reduction became effective in January 2009. Credits under this program are estimated at $5 billion in 2008. The Energy Improvement and Extension Act of 2008 ( P.L. 110-343 , Division B, Section 203) limits the blender's credit to fuels that are to be consumed in the United States. The credit is administered by the Internal Revenue Service.", "A small producer income tax credit (26 U.S.C. 40) of $0.10 per gallon for the first 15 million gallons of production is available to ethanol producers whose total output does not exceed 60 million gallons of ethanol per year. The credit applies to the first 15 million gallons of a refiner's output. Based on the number of refiners with less than 60 million gallons output in 2008, credits under this program applied to approximately 1.6 billion gallons in 2008. The small producers credit terminates on December 31, 2010. This credit was established by the Omnibus Budget Reconciliation Act of 1990 ( P.L. 101-508 ) and is administered by the Internal Revenue Service.", "The alternative fuel infrastructure tax credit is available for the cost of installing alternative fueling equipment placed into service after December 31, 2005. Although not a credit for biofuels per se, it applies to retail pumps and other equipment used for E85 ethanol. A maximum credit of 30% of the cost, not to exceed $30,000, is available for equipment placed into service before January 1, 2009. The economic stimulus package (the American Recovery and Reinvestment Act of 2009, P.L. 111-5 ) provides a temporary increase in the credit to 50% of the cost for equipment placed into service on or after December 31, 2008, and before January 1, 2011, not to exceed $50,000. Fueling station owners who install qualified equipment at multiple sites are allowed to use the credit toward each location. Consumers who purchase residential fueling equipment may receive a tax credit of up to $1,000, which increases to $2,000 for equipment placed into service after January 1, 2009, and before January 1, 2011. The alternative fuel infrastructure tax credit is administered by the Internal Revenue Service.", "A $0.54 per gallon most-favored-nation tariff on most imported ethanol was extended through December 31, 2010, by a provision in the 2008 farm bill. Caribbean Basin Initiative countries are exempt from the ethanol duty up to a volume equal to 7% of total U.S. consumption. Imports of ethanol during recent years have been approximately 500 million gallons. The tariff is administered by U.S. Customs and Border Protection.", "", "The Business and Industry (B&I) Guaranteed Loan Program is a long-standing program authorized by Section 310B of the Consolidated Farm and Rural Development Act of 1972 (P.L. 92-385) and administered by USDA Rural Development. The program is intended to improve, develop, or finance business, industry, and employment in rural areas. Biofuel projects, such as ethanol refineries, have frequently utilized the B&I Program.\nThe percentage of guarantee, up to the maximum allowed, is to be negotiated between the lender and USDA. The guaranteed principal is limited to 80% for loans of $5 million or less, 70% for loans between $5 and $10 million, and 60% for loans exceeding $10 million. A loan is limited to a maximum guarantee of $10 million. An exception to this limit may be granted for loans of up to $25 million under certain circumstances. FY2009 appropriations for the Business and Industry Guaranteed Loan Program are $43 million, to support $993.0 million in loan authorizations—unchanged from FY2008.", "The Repowering Assistance Program provides grants to biorefineries that use or convert to renewable biomass to reduce or eliminate fossil fuel use. The program is authorized by the 2008 farm bill ( P.L. 110-246 ) and is available to all refineries in existence at the date of enactment. The program provides mandatory funding of $35 million for FY2009 that will remain available until the funds are exhausted. The farm bill also authorizes additional funding of $15 million per year, from FY2009 through FY2012, subject to appropriations. No appropriations were authorized for FY2009. Rules for implementation of the Repowering Assistance Program are currently being developed by USDA." ], "depth": [ 0, 1, 1, 2, 2, 2, 2, 2, 2, 1, 2, 2, 2, 2, 1, 2, 2, 2, 1, 1, 1, 2, 2, 1, 2, 2, 2, 2, 2, 3, 3 ], "alignment": [ "h0_title h2_title h4_title h3_title h1_title", "h0_full h3_full h4_full h1_full", "h3_full h2_title h1_title h4_title", "", "", "", "", "", "h3_full h2_full h4_full h1_full", "h4_title", "", "h4_full", "", "h4_full", "h0_title h1_title", "", "h0_full h1_full", "h1_full", "", "h0_full h4_full h1_full", "", "", "", "h2_full", "h2_full", "", "", "", "", "", "" ] }

{ "question": [ "What is the current stance on ethanol?", "What might be its impact on security?", "What are the environmental advantages to ethanol?", "How might it influence the economy?", "For what economic reason is ethanol considered problematic?", "How does ethanol change the agricultural industry?", "How might ethanol impact energy security?", "As of this report, what is the political status of ethanol?", "What kinds of support does the federal government provide?", "Why were the tax credits put into place?", "What is likely to be the 111th Congress' stance regarding ethanol?", "Why is ethanol a particular issue?", "What debate is surrounds political involvement in ethanol?", "How is ethanol different from other alternatives to gasoline?", "What issues may influence Congress' debate over ethanol?", "Why might the renewable fuel standard constitute a problem?", "How is the EPA addressing the RFS?", "What will be the likely impact of these rules?" ], "summary": [ "Ethanol has the potential to provide many benefits.", "As an alternative to gasoline refined from imported oil, its use can improve U.S. national energy security, albeit marginally.", "Although the exact magnitude is subject to debate, ethanol is thought by many to produce lower greenhouse gas (GHG) emissions compared with gasoline. For this reason, its increased use is seen by many as playing a potential key role in reducing the contribution of the transportation sector to global climate change.", "U.S.-produced ethanol can also boost demand for U.S.-produced farm products, stimulate rural economies, and provide \"green\" jobs in rural areas.", "An ethanol-centric policy does have its critics. For example, ethanol has been implicated as a factor in rising commodity and food prices.", "As ethanol production increases, corn is diverted from feed and export markets and acreage is diverted from other crops, such as soybeans. The extent to which ethanol is responsible for these impacts has been the subject of debate and wide-ranging estimates.", "Also, the potential to displace gasoline and increase national energy security is limited by the land available to grow corn.", "Since the 1970s, ethanol has received support from the U.S. government.", "Presently, federal support is provided in the form of mandated levels of consumption, financial incentives such as grants and loan guarantees, tax credits, tariffs on ethanol imports, and federally funded research and development efforts. Tax credits made available to blenders of ethanol are expected to total nearly $6 billion in 2009.", "Incentives were initially provided to get the ethanol industry off the ground—many now argue that the ethanol industry has matured and these resources should be used elsewhere.", "Federal support for biofuels and ethanol in particular is likely to be an issue facing the 111th Congress.", "Ethanol has received more federal support than other types of renewable energy.", "Some argue that the market, rather than the government, should direct investment, whether it be for ethanol, wind, solar, geothermal, or other alternatives.", "In addition, ethanol is used in internal-combustion engines that mostly use fossil fuels, unlike alternatives such as battery or plug-in-electric vehicles, which do not consume fossil fuels directly.", "Other issues of congressional interest may include financial support for ethanol during the recession and the extension of the blender's tax credit and the import tariff, both of which expire after 2010.", "The renewable fuel standard (RFS), which mandates increasing volumes of renewable fuel use through 2022, may become an issue if biofuels production shortfalls occur and the mandate cannot be met.", "The U.S. Environmental Protection Agency (EPA) is drafting rules on the calculation of lifecycle greenhouse gas emissions that will determine which fuels qualify for the RFS.", "These rules will likely attract congressional scrutiny if they exclude major stakeholders in the ethanol industry. In addition, continuation of the RFS itself may be the subject of debate." ], "parent_pair_index": [ -1, 0, 0, 0, -1, 0, -1, -1, 0, 1, -1, 0, -1, -1, -1, -1, 1, 2 ], "summary_paragraph_index": [ 1, 1, 1, 1, 2, 2, 2, 3, 3, 3, 4, 4, 4, 4, 5, 5, 5, 5 ] }

{ "title": [ "Background", "Roles and Responsibilities for Programs and Their Supply Chains", "DOD’s Critical Asset Identification Process", "DOD’s 2016 Report Did Not Fully Address Two of Four Elements in the Senate Report Direction and Did Not Include Information That Would Have Provided Further Insight into Risks", "DOD’s Report Fully Addressed Two Elements, Partially Addressed One Element, and Did Not Address One Element", "DOD Partially Addressed One Element, but Has Not Identified Plans for Mitigating the Risk of Supplier Loss", "Report Did Not Address Element on Operational Impacts, but DOD Has Data on Capabilities That Could Be Affected by the Loss of a Facility", "DOD’s Report Did Not Include Information on DOD Organic Facilities That Could Have Provided Further Insight into Risks", "Program Offices May Not Have Complete Information for Identifying and Managing Risks Associated with a Single Source of Supply", "Selected Programs Had Procedures to Manage Single Source of Supply Risks", "Selected Program Offices Were Not Aware of CAIP Results That Potentially Affected Their Weapon Systems", "Program Offices May Have Limited Information from Contractors on Single Source of Supply Risks", "Selected Program Offices Varied in Implementing Efforts Aimed at Managing Loss of Suppliers and Parts Shortages", "Conclusions", "Recommendations for Executive Action", "Agency Comments and Our Evaluation", "Appendix I: Scope and Methodology", "Appendix II: Comments from the Department of Defense", "Appendix III: GAO Contact and Staff Acknowledgments", "GAO Contact", "Staff Acknowledgments" ], "paragraphs": [ "", "DOD relies on a cadre of program managers to lead the development, delivery, and sustainment of individual weapon systems throughout their life cycles. The program managers are the designated individuals with responsibility for and authority to accomplish the program’s development, production, and sustainment objectives to meet the users’ operational needs. Additionally, along with certain other senior officials, the program manager is responsible for decision-making and program execution and is accountable for results. Program offices include the program managers and other individuals who support the program. Product teams, comprised of program office staff and other relevant experts and contractor officials, as appropriate, also support the management of the program.\nGenerally, program managers or their designees interact with prime contractors who manage subcontractors to provide the final good or service to DOD. In addition, program executive officers within the military departments manage a portfolio of programs (e.g., aircraft, missiles, combat vehicles, and ships). Once delivered to DOD, weapon systems are sustained under various arrangements that may include contactors, DOD organic facilities, or some combination of the two. Materiel support commands in the military services, as well as the Defense Logistics Agency, manage inventories of spare parts, and individual weapon system programs are typically supported by a complex supplier network that includes a prime contractor, sub-contractors, and various tiers of parts suppliers.\nWithin the Office of the Under Secretary of Defense for Acquisition, Technology and Logistics, the Office of the Deputy Assistant Secretary of Defense for Supply Chain Integration describes its mission as establishing strategic supply chain governance and reporting and overseeing the integration of global logistics and supply chain performance. According to the office, its specific responsibilities include leading the development of DOD supply chain policies, reducing excess inventories, improving control of critical assets, and strengthening detection of counterfeit items, among others. Also within the Office of the Under Secretary of Defense for Acquisition, Technology and Logistics, the Deputy Assistant Secretary of Defense for Manufacturing and Industrial Base Policy (MIBP) is responsible for various industrial base matters, including developing DOD policy and providing guidance, oversight, and technical assistance on assessing or investing in defense industrial capabilities to the Under Secretary of Defense for Acquisition, Technology and Logistics. MIBP supports the Office of the Secretary of Defense and Service Acquisition Executives by providing analyses of defense supply chains and recommendations for taking appropriate actions to maintain the health, integrity, and technical superiority of those supply chains. MIBP reports annually to the Senate and House Armed Services Committees on DOD’s industrial base assessments, actions initiated during the previous year to better understand or respond to risks, and investments planned for certain defense industrial base funding programs. MIBP’s assessments of the supply base are intended in part to identify and mitigate weaknesses stemming from fragile suppliers that are likely to be disrupted or from critical characteristics that make a part difficult to replace. MIBP typically analyzes supply base issues that jointly affect more than one DOD component. The military services also conduct supply base analyses that focus on their own programs.\nDOD recognizes that there are potential risks to its supply chain, including risks associated with having single sources of supply, and DOD’s policy is to identify and manage these risks. Specifically, DOD Instruction 4140.01 states that potential disruptions in the DOD supply chain shall be identified, monitored, and assessed to mitigate risk to supply chain operations. The instruction further indicates that supply chain risk management strategies shall be employed to address potential supply chain disruptions. Some examples of supply chain disruptions are unreliable suppliers, flooding, terrorism, labor strikes, and natural disasters. While DOD has multiple sources of supply for some parts, it relies on a single source for many others. There are a number of reasons for using single sources of supply. For example, demand for parts may not be high enough to justify the cost of maintaining more than one production line, and limitations on DOD’s access to technical data may also inhibit its ability to develop multiple sources of supply.", "DOD has established a process for analyzing defense infrastructure called the Critical Asset Identification Process (CAIP). CAIP is intended to provide a common analytical framework that is consistent and repeatable to identify critical assets, such as facilities to protect against supply disruptions. This process is part of DOD’s Mission Assurance program, which is intended to protect and ensure the continued functioning of capabilities and assets by securing, protecting, and managing the risks of programs that support DOD’s mission. The defense industrial base is one of several defense infrastructure sectors, and CAIP is repeated annually to identify critical facilities, or “assets,” in the defense industrial base that must be protected. As the Defense Infrastructure Sector Lead Agent for the defense industrial base, the Defense Contract Management Agency (DCMA) leads this process for the defense industrial base, working in conjunction with MIBP. According to DOD, defense industrial base input into CAIP is supported by a continuous assessment process that includes fragility and criticality assessments, service industrial base assessments, data calls to the services and defense agencies, and direct information from industry.\nAccording to its October 2016 report, in implementing the CAIP, DCMA evaluates assets in the defense industrial base against risk-based criteria. One of the key criteria it notes is whether an item has a single source of supply. From an initial list of important capabilities, the annual process results in three main lists of assets—task assets, task critical assets (TCA), and defense critical assets; each successive list is of more critical importance to DOD and national security. DOD officials stated that the assets on these lists remain relatively stable from year to year. Figure 1 shows how DOD describes different types of assets and the criteria for each type of asset list within CAIP.\nWhen the annual CAIP is completed, the TCA list for the defense industrial base (as well as assets from other defense infrastructure sectors) is submitted to the Joint Staff, which then is responsible for compiling DOD’s overall TCA list from across all defense sectors. From this list, Joint Staff officials also nominate assets for consideration as defense critical assets and provide them to the Assistant Secretary of Defense for Homeland Defense and Global Security for approval. Defense critical assets are the most critical type of asset, defined as assets of such extraordinary importance to operations in peace, crisis, and war that incapacitation or destruction would have a very serious, debilitating effect on the ability of DOD to fulfill its missions.", "", "DOD’s October 2016 report on single source of supply risks fully addressed two elements of the direction in the Senate Report, partially addressed one element, and did not address one element. Table 1 summarizes our assessment of DOD’s report against each element.\nDOD’s report contained two classified appendixes, one that identified a list of more than 380 task assets and the other that identified a list of 33 TCAs. Based on our analysis of these appendixes, we found that the information they contained addressed two elements of the Senate Report’s direction, identifying (1) major defense acquisition programs with operational implications and (2) a list of critical components of such programs that are provided by a single source of supply. The list of task assets includes information about each facility, such as the major defense acquisition programs that are supported by that facility and the part or parts it supplies. In many cases, a single facility on the list provides parts for numerous programs. While information on specific programs and parts is not included on the TCA list, it is possible through cross-referencing to identify the information that corresponds to that facility in the task asset list.\nMIBP officials stated that when the Senate Report direction for a report on single source of supply risks was received, they believed the task would be difficult, as there was no one list of all single sources of supply. However, they determined that the existing CAIP could be used, because it relies on criteria that include whether a facility is a single source of supply. They therefore used information resulting from this process to develop the two appendixes. They noted that the decision to use CAIP to respond to the direction in the Senate Report was discussed with and approved by the Joint Industrial Base Working Group. The working group is a DOD forum to exchange information and collaborate on tasks relative to defense industrial base issues. Its membership includes representatives from the military departments’ acquisition and industrial base assessment organizations.", "DOD’s report partially addressed the direction to identify risk mitigation actions—with associated implementation plans and time lines—that it would take to prevent negative operational impact in the event of the loss of single-source or single-provider suppliers. The report provided an overview of some of the risk mitigation strategies DOD can use to manage risks resulting from single sources of supply within the industrial base; however, DOD did not identify implementation plans and time lines for any risk mitigation actions pertaining to specific assets listed in the report, including the TCAs. The report listed four tools that DOD can use to mitigate risk in the defense industrial base—Titles I and III of the Defense Production Act, the Manufacturing Technology program, and the Industrial Base Analysis and Sustainment program. Through these available tools, DOD can provide funding to address critical problems within a supply chain or to seek technological innovations as solutions to those problems. DOD’s report did not describe other risk mitigation actions that, according to DOD and service officials, are routinely used by program offices to respond to and mitigate risks, such as life-of-need buys, development of a new source, or redesign of parts, among others.\nDOD officials have taken steps to mitigate risks or supply issues when they become aware of a loss or a pending loss of a single source of supply. We found that some of the parts supplied by the 33 TCAs have been the focus of funding projects associated with the Defense Production Act, the Manufacturing Technology program, or the Industrial Base Analysis and Sustainment program. For example, the Industrial Base Analysis and Sustainment program funded various projects on chemicals used as part of batteries or other parts associated with certain programs supported by TCAs.\nHowever, DOD’s report did not identify plans and time lines for risk mitigation actions associated with any specific facilities listed in the report. Further, for parts supplied by facilities that have not been the focus of the above funding programs, it is unclear what, if any, risk mitigation actions have been considered for those facilities. DOD officials stated that it would be exceedingly time and resource intensive to develop risk mitigation strategies for every supplier used by the department. DOD Instruction 4140.01, however, states that potential disruptions in the DOD supply chain shall be identified, monitored, and assessed to mitigate risk to supply chain operations and indicates that supply chain risk management strategies shall be employed to address potential supply chain disruptions. DOD officials acknowledged that numerous TCA facilities or parts provided by those facilities have been the focus of risk mitigation funding projects, as discussed previously. Further, they stated that while it would not be feasible to develop risk mitigation strategies for every supplier, focusing on risk mitigation plans and timeframes for the most critical suppliers within the department, such as TCAs, would be more appropriate. While DOD is not required to update its 2016 report on single source of supply risks, the department regularly reports information to congressional committees on the defense industrial base, such as through an annual report. Without information on risk mitigation actions, to include implementation plans and time lines, congressional and DOD decision makers do not have reasonable assurance that it is prepared to mitigate the loss of a critical facility, such as a TCA.", "DOD’s report did not address the reporting element that the department identify the severity of operational impacts resulting from the loss of single source or single provider suppliers. DOD stated in its report that information on operational impacts was not included in the report, because the assessments, performed by the Joint Staff, are kept close- hold and are mission scenario-driven assessments. We found, however, that the Joint Staff has not performed such operational impact assessments. Joint Staff officials stated it would not be feasible due to resource constraints to assess the operational impacts resulting from the loss of all assets identified as critical within the industrial base. Moreover, they stated it is difficult to determine operational impacts because of stocked inventory or other strategies for mitigating the loss of an asset.\nWhile DOD does not have information on operational impact assessments for the facilities included in its report, it does collect relevant data on the effects on defense capabilities that could result from the loss of a critical facility such as a TCA. Joint Staff officials stated that as part of CAIP, DCMA and other DOD components regularly submit data regarding the types of defense capabilities that are supported by TCAs. According to Joint Staff and other DOD officials, these defense capabilities allow DOD to carry out specific types of tasks, including the use of necessary equipment and supplies; this differs from operational impacts or the resulting effect on military operations. The officials stated that information on affected defense capabilities would be more relevant to understanding single source of supply risks than information on operational impacts.\nOther officials from DOD and the services also stated that determining the effects on mission readiness resulting from the loss of a defense industrial base facility could be difficult and that a focus on effects on defense capabilities would be more relevant information for understanding the potential negative effects of a loss. We reviewed the Joint Staff’s database containing TCA information and found numerous instances where potential effects on defense capabilities had been reported. For example, a Navy official and a DCMA official both nominated a facility as a TCA, because its loss would affect the deployment and maintenance schedules for certain types of ships. Standards for Internal Control in the Federal Government states that agency management should obtain and use quality information to achieve the entity’s objectives and should communicate the quality information internally and externally. As discussed previously, while DOD is not required to update its 2016 report, the department does update its CAIP information annually, and it regularly reports information about the defense industrial base to congressional committees. In the absence of such information in DOD’s report, congressional and DOD decision makers may not have a full understanding of single source of supply risks.", "DOD’s report did not identify TCAs that are DOD organic facilities; we found that this information was available and could have provided additional insight into single source of supply risks. DOD’s report included commercial TCA assets but did not include DOD organic facilities that have been designated as TCAs that support the major defense acquisition programs identified in the report. Examples of DOD organic facilities in the defense industrial base are maintenance depots, shipyards, and ammunition factories. We reviewed data provided by the Joint Staff and found more than 60 DOD organic facilities that have been assessed as TCAs but were not included in DOD’s report. Further, Joint Staff officials stated that one facility within the industrial base sector has been identified as a defense critical asset and it is a DOD organic facility. As noted previously, defense critical assets are extraordinarily important to operations, and the loss of such an asset would have a very serious, debilitating effect on the ability of DOD to fulfill its missions. This DOD organic asset was not included in the October 2016 report.\nStandards for Internal Control in the Federal Government states that agency management should obtain and use quality information to achieve the entity’s objectives and should communicate this quality information internally and externally. DOD officials stated that they did not include existing information on DOD organic facilities in the October 2016 report because, while DOD might not be aware of potential stoppages that could occur at commercial facilities, it would be well aware of any changes at its own facilities that could result in the loss of a production line. However, DOD organic facilities, like commercial facilities, are susceptible to natural disasters or other events that could disrupt a supply chain. As discussed previously, while DOD is not required to update its 2016 report, the department does update its CAIP information annually and it regularly reports information to congressional committees on the defense industrial base. Without information about DOD organic facilities that are critical single sources of supply, such as TCAs, including the potential effects on defense capabilities and risk mitigation actions, congressional and DOD decision makers may not be fully aware of, and prepared to address, potential risks associated with the loss of facilities that are single sources of supply for weapon systems.", "Weapon systems program offices do not consistently receive complete information that would help them to identify and manage risks associated with a single source of supply. The selected program offices we contacted had procedures to manage risks, including known single source of supply risks. However, these program offices were not aware of results relevant to their programs that were generated by CAIP and included in DOD’s October 2016 report. In addition, we found that program offices may have limited information from contractors on single sources of supply within the tiers of their supply chains, and they were inconsistent in implementing a DOD program that is intended to identify and manage risks associated with the loss of suppliers and material shortages, which may involve single sources of supply.", "Program managers are responsible for managing risks to their weapon systems programs, and selected program offices we met with had procedures to manage such risks. DOD guidance indicates that program managers are the single point of accountability for accomplishing program objectives for total life-cycle systems management and are accountable for credible cost, schedule, and performance reporting to the Milestone Decision Authority. DOD guidance also describes program manager responsibilities regarding risk management, including consideration of risk management techniques such as assessing industrial base availability and capabilities. It further states that program management is responsible for incorporating industrial base analysis, to include capacity and capability considerations, into acquisition planning and execution. As described by guidance, the objectives of industrial base analysis include ensuring that DOD can identify and mitigate industrial capability risks such as single points of failure and support resilience of critical defense industrial base capabilities.\nMIBP and service officials stated that, ultimately, it is the responsibility of program office management to identify and manage the risks affecting the program, including risks stemming from a single source of supply. To manage known risks from a single source of supply, the selected program offices we met with had procedures, such as risk management boards or meetings and integrated product teams, that focused on issues such as the program’s industrial base or obsolete parts. A risk management board, serving as an advisory body to the program manager, reviews risk analysis results, risk mitigation plans, and associated resources, as well as progress associated with implemented risk mitigation plans. It includes relevant program management officials, subject matter experts, and contractor personnel, as appropriate. Integrated product teams, according to DOD, are composed of representatives from appropriate functional disciplines working together to build successful programs, identify and resolve issues, and make sound and timely recommendations to facilitate decision making.\nAn Air Force program office we met with had an internal risk management board comprised of government employees and a joint risk management board with representatives from both the program office and its main contractor. According to officials, both boards met monthly to discuss and address risks. Similarly, officials from a Navy program office stated that program officials and representatives from its contractor and suppliers participated in management and technical reviews to analyze performance metrics and prioritize any risks. They stated that while both program officials and contractor representatives discuss strategies to address risks, it is ultimately the program management that determines the severity of a risk and how to address it. Other program officials we contacted stated that the Program Executive Office played an important role in monitoring the industrial base for the portfolio of related programs. For example, officials from an Army program office stated that they conduct ongoing monitoring of the availability and production of needed items for their program and also participate in an integrated product team covering the Program Executive Office’s entire portfolio that meets monthly to discuss risks. Officials also described risk management plans, including management plans that identify known risks and opportunities as well as potential obsolescence issues or material shortages or the loss of suppliers, for example, as well as single sources of supply.", "DOD used CAIP to generate the information for its October 2016 report on risks associated with single sources of supply, but program officials from the nine offices we spoke with from March to June 2017 said they were not familiar with the CAIP results in DOD’s report, including those regarding TCAs. Although each selected program had at least one part supplied by a TCA listed in DOD’s report, none of the officials from the nine program offices we spoke with were aware of this fact. In addition, service officials from the offices above for the nine selected programs were not aware that the program had an item supplied by a TCA.\nNumerous service and program office officials stated that information about risks associated with certain suppliers, such as that generated through CAIP, would be beneficial to the management of their supply chain. Officials from program offices added that early identification of risks, when possible, provides additional options or opportunities for risk management. For example, with advance notice of a facility ceasing production of a part, a life of need buy can be made to ensure that parts are available until a substitute part or another source becomes available, which can prevent negative effects on a weapon system’s availability and higher costs. Some officials we spoke with stated that they requested copies of DOD’s October 2016 report after we brought it to their attention. In addition, we found that two of the programs in our sample were also supported by a DOD organic facility that was identified as a TCA in data provided by the Joint Staff. As discussed earlier, DOD’s report included only commercial TCAs and not DOD organic facilities.\nDOD Instruction 4140.01 identifies potential supply chain disruptions as a factor to be considered as part of DOD supply chain operations, and DOD guidance regarding the defense acquisition system notes the importance of complete and current program information to the acquisition process. According to DOD policy regarding supply chain management, potential disruptions within and outside the DOD supply chain shall be identified, monitored, and assessed to mitigate risk to supply chain operations. DOD policy on acquisition states that complete and current program information is essential to the acquisition process. As discussed previously, DOD guidance on acquisition further discusses both the responsibility of program management and the importance of information in the context of industrial base analysis. Further, Standards for Internal Control in the Federal Government states that agencies should use quality information that is complete and current and should internally communicate necessary information to achieve objectives.\nDOD officials involved in developing the October 2016 report stated that there is an existing information-sharing channel with the military services through the Joint Industrial Base Working Group. DOD officials additionally stated that it was at the discretion of military service representatives on the working group to share the information as needed. However, our interviews with program offices and program executive offices indicated that such information-sharing did not occur. DOD officials acknowledged that improved communication and sharing of information among the various offices that play a role in managing DOD’s supply chains and responding to industrial base risks would be beneficial to the management of DOD’s programs. Having relevant information generated through the annual CAIP, such as the type of information included in the October 2016 report, would help program managers to be aware of parts supplied by a single source that is considered to be a most critical risk (i.e., a TCA), and thus have complete and current information that could provide important focus for managing these risks.", "Program offices often rely heavily on the prime contractor to identify existing and potential single source of supply risks, among other types of risks, but in some cases they may have limited information from contractors to help them be aware of and manage those risks. DOD and service officials stated that risk identification is part of the activities that the federal government pays a prime contractor to manage as part of a contract, and that the prime contractor is to be aware of the health of the supply chain and any risks within the supply chain that supports the program. However, we found there have been several instances when a known risk was not communicated up through the tiers of suppliers to the government. For example, DOD officials stated that several years ago a supplier of a chemical compound that is a key component of a type of butane needed for certain missiles had planned for several years to stop production of the material, but this information was unknown by the government until the material was no longer available after production had stopped and a shortage of butane occurred. While DOD officials said such instances do not occur frequently, and they took steps to successfully resolve the issue, they stated that advance warning of risks can result in less costly and more efficient mitigation of those risks.\nDuring our interviews at the selected program offices, numerous officials stated that they expect the prime contractor for their program to identify risks related to a single source of supply and to bring that information to the attention of the program office. However, they acknowledged that they do not have a way to ensure this information-sharing and that they are not fully aware of risks that exist in the sub-tiers of contracts. In contrast, officials from two programs, both of which manage older systems that have long been in the sustainment phase of their life cycle, told us they did not rely on contractors for information on supply risks. Officials from one of these program offices stated that while a contractor can be an important partner, the government should not rely on a contractor to understand and manage risks to the federal government. Also, these officials stated that independent analysis is critical to appropriately manage risk. For example, an official from an Army program stated that detailed analysis performed by the Army found that certain targeted investments in critical parts, such as infrared technologies and transmissions, would ensure continued availability of the system and preserve the health of certain single sources of supply. The Army official stated that this kind of detailed analysis allows program offices to have the same or better information than the contractors and thus results in more informed decision making and negotiations with suppliers and more effective use of resources.\nDOD has efforts under way to obtain better information from contractors on obsolescence risks but not for other types of related risks, such as those stemming from a single source of supply. For example, DOD officials said that the department and military services determined that contract language requiring certain contractors to notify program offices of certain obsolescence risks associated with electronic parts would benefit program offices’ ability to manage risks proactively, and they are pursuing this type of requirement through proposed changes to the Defense Federal Acquisition Regulation Supplement. However, DOD has not developed a mechanism to ensure the timely and comprehensive sharing of information on single-source risks from contractors to program offices. DOD officials stated that while departmental guidance directs program offices to obtain information about risks, this guidance could be improved with a mechanism to ensure that program offices can obtain information from contractors. High-quality and comprehensive information is the foundation for proper management and decision making at any program or agency. Standards for Internal Control in the Federal Government states that agency management should obtain relevant data from both internal and external sources in a timely manner and that these data should be reliable and free from error and bias. Timely and comprehensive information from contractors about single source of supply risks would help program offices be aware of risks early enough to take proactive steps to understand and, where necessary, mitigate those risks.", "DOD has a program intended to provide information regarding the loss of suppliers and parts shortages and to proactively manage these risks, but program offices we met with varied in their implementation of this program. DOD’s Diminishing Manufacturing Sources and Material Shortages (DMSMS) program is intended to predict and respond to the loss, or impending loss, of manufacturers or suppliers of items, raw materials, or software. In its DMSMS guidebook, DOD describes DMSMS management as a process to identify issues, assess the potential for negative effects, analyze potential mitigation strategies, and implement the most cost-effective strategy. The guidebook provides best practices on how to conduct robust management of supply chain risks connected with DMSMS, which include the loss of suppliers and single source of supply risks. Proactive DMSMS management can mitigate risks, avoid costs, and prevent schedule delays resulting from the loss of a single source of supply.\nDOD has reported cost savings from proactive DMSMS management. For example, by integrating DMSMS management into the design and build process, the Virginia-class submarine program resolved over 1,200 obsolescence issues and avoided over $150 million in costs, according to DOD. Similarly, DOD reported that when the manufacturer indicated that an expensive system upgrade was required for the B-1 bomber due to an impending obsolescence issue, the program office used its DMSMS monitoring to determine that only minimal concerns existed and alternate parts were readily available. In this case, DOD estimated a cost avoidance of more than $300 million over 10 years. Further, according to an official leading implementation of DMSMS across the department, when DMSMS is managed properly, there is typically more access to the data and information, which can speed other solutions. A Navy program official stated that, due to obsolete technologies identified through its DMSMS management, the program is switching to a new type of processor chip. The program was able to purchase enough of the current type of chip to maintain its systems until the supplier completed the lengthy redesign and requalification process for the new chip. If the program had not been aware of the obsolescence issue, the official stated, the program office would have had to pursue a costly solution.\nAlthough DOD has reported positive results from DMSMS, we found through our interviews with officials at the nine program offices in our sample that their implementation of DMSMS practices varied. Six program offices had some type of DMSMS management strategy, and three did not. Of the six program offices that had some type of strategy, two offices relied primarily on their prime contractor to identify and manage supply chain risks, including DMSMS concerns; two offices retained DMSMS management within their program offices; and two used a combination of program office and contractor management. Of the three offices that did not have DMSMS management strategies, two were participating in a pilot for DMSMS management through an Army command-level program, and one was in the process of establishing but had not yet implemented DMSMS management. Officials from one of the offices participating in the Army pilot stated that next steps would be determined after the completion of evaluations of various methods for managing risks, including the pilot program.\nIn June 2017, a DOD official involved in leading DMSMS efforts estimated that between 50 and 75 percent of DOD program offices have effective DMSMS management and that most of the programs that do not have strong DMSMS management either rely heavily on contractors for information about risks to their programs or are very small programs. DOD reported in its most recent annual report to congressional committees on defense industrial base capabilities that DMSMS issues continue to be a concern for the department. For example, DOD reported that 98 percent of suppliers within the missile and munitions sector are single sources of supply, it is not possible to find replacements for parts if a supplier stops production, and requalification for new parts or materials can be very costly, especially for larger missile systems. Additionally, the report states that most programs do not plan or budget for obsolescence, and the department and industry do not have a coordinated mitigation approach for this issue. Further, different programs and companies operate independently, which leads to the services paying to solve the same issue multiple times, and a more coordinated approach would be more efficient and less costly to the department.\nA key factor contributing to the variance in implementation of DMSMS is that DOD guidance regarding DMSMS management contains limited detail regarding actions required at the level of a weapon system’s program office. DOD’s DMSMS guidebook details strategies and best practices for effective DMSMS management, including that a program manager or product support manager should establish a DMSMS management team and that the program manager should develop and adopt a plan to carry out the DMSMS management strategy. However, higher-level DOD guidance containing requirements and procedures for DMSMS management across the department, such as the DOD manual regarding supply chain material management procedures, does not clearly detail requirements to be followed by program managers to implement DMSMS at the weapon system program level. Military department-level guidance varies. The Navy instruction on acquisition requires that program managers establish a DMSMS program to proactively identify, resolve, and eliminate any negative effects from DMSMS throughout all phases of a program’s life cycle and requires the development of a DMSMS plan for certain programs. The Air Force instruction on life-cycle management of weapon systems’ programs also details some responsibilities of its program managers to consider and support DMSMS management. Further, the Air Force has a command- level instruction regarding implementation of DMSMS, but it does not require a DMSMS plan during weapon system development or clearly describe the responsibilities at the program office level. This guidance is currently under revision and an Air Force official stated that DMSMS requirements would be strengthened. The Army’s industrial base process regulation requires that program managers consider DMSMS throughout the acquisition life cycle, including during design, redesign, and production, but direction specific to DMSMS planning largely focuses on post-production support planning activities. Standards for Internal Control in the Federal Government states policy should be used to define the responsibilities that should be assigned to best achieve objectives and implement control activities.\nDOD officials are considering the need for improved DMSMS policies as part of their efforts to improve the DMSMS program and their efforts to address the associated risks. The improvement efforts are being led by the Defense Standardization Program Office and a department-wide DMSMS working group. The working group is pursuing 10 objectives, based on 23 DMSMS program gaps it has identified. Among these objectives is an effort to focus on improving DMSMS policies. A DOD official leading DMSMS efforts stated in June 2017 that the working group is discussing changes to future versions of existing high-level DOD acquisition and supply chain policy that would provide more focus on obsolescence, a type of DMSMS issue. However, the official stated that none of these changes represent a specific, stand-alone policy that requires DMSMS implementation and management throughout a weapon system’s acquisition life cycle. For example, DOD’s supply chain management manual indicates that the military departments and DLA are to proactively take timely and effective actions to manage DMSMS issues and to proactively consider DMSMS through a system’s life cycle. It also directs the military departments and DLA to designate a focal point to plan and coordinate actions, such as assessing DMSMS effects on new DOD weapon systems, including during design, redesign, or production. However, DOD officials stated that this guidance is used primarily by inventory managers during the sustainment phase of the acquisition life cycle—as opposed to program managers during the earlier stages of acquisition—and noted the utility of adding DMSMS procedures and requirements to other guidance documents used more directly by program managers, such as DOD Instruction 5000.02. Moreover, various members of the working group have acknowledged the need for department-wide policy to clarify DOD’s DMSMS strategy by defining roles and responsibilities and procedures to follow as part of DMSMS management at the program office level. The official leading DMSMS stated that a DMSMS policy could require a service-specific, dedicated lead for DMSMS, the development of a DMSMS plan for each program office throughout the acquisition life cycle, and the use of consistent metrics for monitoring the program.\nWhile efforts are under way within DOD to improve DMSMS management, in the absence of a DMSMS policy—such as an instruction that clearly defines the requirements for DMSMS management at the individual program office level and details the responsibilities and procedures to be followed to implement that policy—DOD will continue to have inconsistent implementation of DMSMS management across program offices. Further, program offices may not have complete information to proactively identify and manage diminished manufacturing sources and material shortages, including those stemming from single source of supply risks, in order to reduce costs and prevent shortages.", "DOD relies on many single sources of supply to provide needed parts for its weapon systems and has reported to congressional committees on facilities that represent risks associated with single sources of supply. In the case of the 33 TCAs listed in the October 2016 report, these are considered critical risks. DOD’s report contains important information for congressional and DOD decision makers. However, DOD’s report did not identify risk mitigation actions with associated implementation plans and time lines for the assets listed in its report, including the relatively small number of TCAs. In addition, DOD’s report did not identify the severity of operational impacts that could result from the loss of single source suppliers or include available information on the effects of such a loss on defense capabilities. Further, the report was limited to commercial TCAs and did not include DOD organic facilities. Without more complete information, such as the risks to and effects from potential losses of commercial and organic single sources, congressional and DOD decision makers do not have a full understanding of potential risks associated with the loss of facilities that are single sources of supply for weapon systems. Further, if DOD does not ensure that risk-mitigation actions have been considered for the most critical single sources of supply, it cannot assure that plans are in place to prevent costly delays or parts shortages that could affect mission readiness.\nProgram managers may not have complete information on single source of supply risks within the supply chain that are associated with their weapon systems programs. First, program offices may not be receiving the results from the annual CAIP for the defense industrial base, because existing channels of communication with the military services either have not been used or are not sufficient. Second, program offices often rely heavily on the prime contractor to identify single source of supply risks, but DOD does not have a mechanism to ensure that program offices obtain information on risks from contractors. Third, the DMSMS program is intended to provide information regarding the loss of suppliers and parts shortages and to proactively manage these risks, but program offices varied in their implementation of this program due to the lack of a department-wide policy, such as an instruction, that clearly defines requirements or procedures for DMSMS management by program offices. In the absence of information provided though CAIP assessments, reporting from contractors, and a better defined and consistent implementation of DMSMS, program offices may not have all of the information available to identify and manage supply chain risks for their weapon systems programs, including single source of supply risks.", "We are making the following six recommendations to DOD: The Under Secretary of Defense for Acquisition, Technology and Logistics, in conjunction with DCMA and the military departments, should assess whether risk mitigation actions have been identified in the event of a loss of each TCA facility in the defense industrial base and, based on this assessment, develop risk mitigation actions with associated implementation plans and time lines, and provide this information to congressional and DOD decision makers. (Recommendation 1)\nThe Under Secretary of Defense for Acquisition, Technology and Logistics, in conjunction with DCMA and the military departments, should provide congressional and DOD decision makers with information on potential effects on defense capabilities in the event of a loss of each TCA facility in the defense industrial base. (Recommendation 2)\nThe Under Secretary of Defense for Acquisition, Technology and Logistics, in conjunction with DCMA and the military departments, should provide congressional and DOD decision makers with information on DOD organic facilities that have been identified as TCAs, similar to the information provided previously on commercial facilities. This information also should include (1) the potential effects on defense capabilities in the event of a loss of the facility and (2) risk mitigation actions and associated implementation plans with time lines. (Recommendation 3)\nThe Under Secretary of Defense for Acquisition, Technology and Logistics, in conjunction with DCMA and the military departments, should take steps to share information on risks identified through the annual CAIP with relevant program managers or other designated service or program officials. At a minimum, relevant officials should receive information on the most critical facilities (such as TCAs) that produce parts supporting their programs. This information-sharing could occur through service-specific channels of communication or another method of internal communication deemed appropriate by DOD. (Recommendation 4)\nThe Under Secretary of Defense for Acquisition, Technology and Logistics, in conjunction with the military departments, should develop a mechanism to ensure that program offices obtain information from contractors on single source of supply risks. (Recommendation 5)\nThe Under Secretary of Defense for Acquisition, Technology and Logistics, in conjunction with the military departments, should issue department-wide DMSMS policy, such as an instruction, that clearly defines requirements of DMSMS management and details responsibilities and procedures to be followed by program offices to implement the policy. (Recommendation 6)", "We provided a draft of this report to DOD for review and comment. In its written comments, which we received on September 20, 2017, DOD concurred with our six recommendations and noted planned actions to address each recommendation. DOD’s comments are reprinted in their entirety in appendix II. DOD also provided technical comments, which we incorporated into the report as appropriate.\nWe are sending copies of this report to the appropriate congressional committees; the Secretary of Defense; the Under Secretary of Defense for Acquisition, Technology and Logistics; the Secretaries of the Army, the Navy and the Air Force; the Commandant of the Marine Corps, and the Director of the Defense Contract Management Agency. In addition, the report is available at no charge on the GAO website at http://www.gao.gov.\nIf you or your staff have any questions about this report, please contact me at (202) 512-5257 or merrittz@gao.gov. Contact points for our Office of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff members who made key contributions to this report are listed in appendix III.", "To determine the extent to which the Department of Defense’s (DOD) report on single source of supply risks addresses the direction in the Senate Report, we compared DOD’s October 2016 report against the elements identified in the provision of Senate Report 114-49. The provision directed DOD to develop a classified report that addressed the following four elements: 1. Identify major defense acquisition programs with operational implications. 2. Include a list of critical components of such programs provided by single source and single provider suppliers. 3. Identify risk management actions with associated implementation plans and time lines DOD will take to prevent negative operational impact in the event of a loss of such suppliers. 4. Identify severity of the operational impact of the loss of such suppliers.\nDOD’s report included unclassified information and two classified appendixes listing specific assets, or facilities. We assessed whether the information in DOD’s report addressed, partially addressed, or did not address each element. Two GAO analysts independently reviewed DOD’s report and discussed and resolved any disagreements regarding their assessments. They also discussed their assessment with a GAO attorney to ensure a common understanding regarding each element.\nTo obtain information on the process used to develop the report, we reviewed relevant DOD guidance and documents and interviewed officials from DOD’s Manufacturing and Industrial Base Policy (MIBP) office and the Defense Contract Management Agency’s (DCMA) Industrial Analysis Group. Specifically, we reviewed guidance on supply chain material management, the DOD acquisition system, industrial base capabilities, and the mission assurance program. In our interviews with MIBP and DMCA officials, we discussed the scope of the report, the methodology and data used to generate the information in the report, and their perspectives on how the report and associated information was to be used within the department. In those discussions and through a review of relevant documents and guidance that detail procedures to be followed when collecting and verifying data within the Critical Asset Identification Process (CAIP), we assessed the reliability of the data used to generate lists contained in DOD’s report. We concluded that the data submitted as part of CAIP by DCMA and the military services to be sufficiently reliable for the purposes of discussing the total numbers of facilities and critical facilities listed in DOD’s report. We also met with Joint Staff officials to understand their role in CAIP and their perspectives on DOD’s report based on CAIP information from the defense industrial base. We compared Joint Staff-provided data from a database used as part of CAIP against the data contained in DOD’s report, and we identified any types of information contained in the Joint Staff database that was not included in DOD’s report. We also compared DOD’s report and related information and data to relevant criteria in Standards for Internal Control in the Federal Government, such as internal control principles related to using quality information and the communication of that information.\nTo determine the extent to which DOD’s weapon systems program offices have information for identifying and managing single source of supply risks, we reviewed DOD and military department guidance related to acquisitions, program management, and risk mitigation, as well as guidance regarding the Diminishing Manufacturing Source and Material Shortages (DMSMS) program. We interviewed, and obtained information from, officials at relevant DOD, military department, and program offices, including MIBP and Office of Supply Chain Integration, DCMA, and the Defense Logistics Agency. We also interviewed DOD’s lead for the DMSMS program in the Defense Standardization Program Office. Within the military departments, we interviewed headquarters officials involved in logistics policy and oversight, as well as officials at materiel and sustainment commands. We also interviewed or contacted relevant officials within the DMSMS program from the military departments and defense agencies.\nFrom the population of programs with single source of supply risks identified in DOD’s report, we randomly selected nine major program offices from three categories—air, missile, and other types of programs. For the selection, we individually numbered assets listed in DOD’s report, assigned them to a category, and then used a random generator to order the numbers. Using the generated number list, we created a list by category of programs corresponding to the numbered assets. From the random selection, we chose the first three programs with publicly- available information from each military department to ensure we included perspectives from Army, Navy, and Air Force program officials. We interviewed relevant officials in the nine selected offices about their risk identification and management processes. We also interviewed or received responses to submitted questions from each program’s higher program executive office on these topics. While not generalizable to all program offices, our discussions with officials from selected program offices provide insights into how they identify and manage risks.\nWe conducted this performance audit from June 2016 to September 2017 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.", "", "", "", "In addition to the contact named above, key contributors to this report were Thomas Gosling, Assistant Director, Rebekah Boone, Joshua Ormond, Suzanne Perkins, Richard Powelson, Michael Shaughnessy, and Andrew Stavisky." ], "depth": [ 1, 2, 2, 1, 2, 3, 3, 2, 1, 2, 2, 2, 2, 1, 1, 1, 1, 1, 1, 2, 2 ], "alignment": [ "h2_title", "h2_full", "", "h0_title", "h0_title", "h0_full", "", "h0_full", "h2_title h1_title", "", "h2_full", "h1_full", "h1_full", "h0_full h1_full", "", "", "h0_full h3_full h2_full", "", "", "", "" ] }

{ "question": [ "To what extent did DOD's report on single-source supply risks address the issues raised by a Senate report?", "What potential risks did DOD examine?", "What potential risks did DOD not include?", "What duty does DOD have to report to external stakeholders?", "How does the lack of information undermine the goal of the report?", "How adequately are program offices prepared to manage single-source supply risks?", "What information did program officials lack?", "What other kinds of limited information did program offices receive?", "To what extent has DMSMS been implemented uniformly?", "How is DOD attempting to improve DMSMS implementation?", "How does DOD sustain its weapon systems?", "How might single-source supplies negatively affect DOD sustainability?", "How has DOD examined the issue of single-source supplies?", "How did H.R. 114-102 affect GAO?", "What does this report evaluate?", "What data did GAO use for this report?" ], "summary": [ "The Department of Defense's (DOD) 2016 report on risks associated with single sources of supply did not fully address two of the four elements directed by a Senate report and did not include other information that would have provided further insight into those risks.", "DOD included information on major defense acquisition programs and supporting parts provided by each single source of supply.", "However, DOD did not include implementation plans and timelines for risk mitigation actions or information about the effects of the loss of suppliers, as directed. In addition, complete information about DOD organic facilities was not included.", "While DOD is not required to update its report, it regularly reports industrial base information to congressional committees.", "Without complete information about critical suppliers, congressional and DOD decision makers do not know all potential risks and effects associated with the loss of single sources of supply for weapon systems.", "Program offices do not have complete information to fully identify and manage single source of supply risks.", "First, program officials GAO spoke with were not aware of DOD's 2016 report, and thus did not have information about parts from single-source suppliers that are considered to be most critical, which could provide important focus for managing these risks.", "Second, program offices often rely on the prime contractor to identify single source of supply risks, among other types of risks, and GAO found that program offices in some instances had limited information to manage those risks because DOD does not have a mechanism to ensure program offices obtain complete information from contractors. Without such a mechanism, program offices may not be aware of risks early enough to take proactive actions to understand and, as appropriate, mitigate those risks.", "Third, DOD has a program intended to provide information regarding the loss of suppliers and shortages and to proactively manage these risks, called the Diminishing Manufacturing Sources and Material Shortages (DMSMS) program, but GAO found that DMSMS implementation varied at selected program offices.", "DOD is taking steps toward improving DMSMS management, but there is no department-wide policy that clearly defines the requirements for DMSMS implementation at the program office level throughout the acquisition life cycle. Without such a policy there is no clearly defined requirement for program managers to proactively manage DMSMS issues.", "DOD has an extensive network of suppliers that provide millions of parts needed to sustain its weapon systems.", "Some parts are provided by a single source of supply (e.g., one manufacturing facility), and if that single source were no longer able to provide the part, DOD could face challenges in maintaining systems.", "Senate Report 114-49 directed DOD to report on risks associated with single sources of supply. DOD completed its report in October 2016.", "House Report 114-102, accompanying a bill for the National Defense Authorization Act for Fiscal Year 2016, included a provision that GAO review single sources of supply for major defense acquisition programs.", "This report evaluates the extent to which (1) DOD's 2016 report addressed the direction in the Senate report and (2) DOD's weapon systems program offices have information for identifying and managing single source of supply risks.", "GAO reviewed DOD policy and procedures, analyzed DOD's report, and interviewed officials from a non-generalizable selection sample of nine program offices." ], "parent_pair_index": [ -1, 0, 0, 0, 0, -1, 0, 0, -1, 3, -1, 0, 1, -1, -1, 1 ], "summary_paragraph_index": [ 2, 2, 2, 2, 2, 3, 3, 3, 3, 3, 0, 0, 0, 1, 1, 1 ] }

{ "title": [ "Background", "Competitive Examining Has Been the Traditional Method of Hiring", "Congress and the President have Created Alternatives to Competitive Examining", "OPM and Agency Coordination and Oversight Roles", "Agencies Relied on 20 Authorities for Over 90 Percent of New Hires in Fiscal Year 2014", "Three Selected Agencies and OPM Need to Better Assess the Effectiveness of Hiring Authorities to Strengthen Hiring Efforts", "Selected Agencies and OPM Do Not Measure the Effectiveness of Individual Hiring Authorities in Meeting Agencies’ Needs", "Improved Hiring Authority Data Could Identify the Most Effective Hiring Authorities", "OPM Conducted Compliance Audits and Evaluations, but Did Not Analyze the Effectiveness of Authorities Subject to Its Oversight", "OPM Manages Numerous Hiring Reform Initiatives and Tools", "Conclusions", "Recommendations for Executive Action", "Agency Comments", "Appendix I: Objectives, Scope, and Methodology", "Appendix II: Selected Agencies’ Strategies for Improving the Effectiveness of their Hiring Efforts", "Appendix III: United States Office of Personnel Management", "Appendix IV: GAO Contact and Acknowledgments", "GAO Contacts", "Staff Acknowledgments" ], "paragraphs": [ "Selecting applicants based on their qualifications instead of patronage has been the foundation of the federal hiring system for more than 130 years. Congress passed the Pendleton Act in 1883, establishing that federal employment should be based on merit. The nine merit system principles were later codified as part of the Civil Service Reform Act of 1978. The first merit principle requires that agencies recruit qualified individuals from appropriate sources to achieve a work-force from all segments of society. It also requires that selection and advancement should be determined solely on the basis of relative ability, knowledge, and skills after fair and open competition. This assures that all receive equal opportunity.\nIn this report, “Title 5” refers to the government-wide personnel management laws and related provisions generally applicable to federal employment.", "Title 5 outlines the rules agencies must follow to hire employees, such as the competitive examining hiring authority. Competitive examining has been the traditional method for making appointments to competitive service positions. The competitive examining process requires agencies to notify the public that the government will accept applications for a job, screen applications against minimum qualification standards, apply selection priorities such as veterans’ preference, and assess applicants’ relative competencies or knowledge, skills, and abilities against job- related criteria to identify the most qualified applicants. Federal agencies typically assess applicants by rating and ranking them based on their experience, training, and education.", "Congress and the President have created a number of additional hiring authorities—beyond competitive examining—to expedite the hiring process or to achieve certain public policy goals. In some cases, Congress created hiring authorities outside of Title 5 granting access directly to specific agencies. For example, provisions under Title 42 of the United States Code provide authority for the Department of Health and Human Services to hire individuals to fill mission critical positions in science and medicine. In other cases, Congress and the President created authorities under Title 5 which permitted hiring actions to be taken by means other than competitive examining. Through authority delegated by the President, OPM has authorized excepted service appointment authorities for when it is not feasible or practical to use competitive examining. Examples of some exceptions to the competitive hiring process include the following:\nFilling critical skills gaps. Congress created “direct hire authority” to help agencies fill vacancies in the competitive service under certain circumstances. Congress authorized OPM to permit agencies to use direct hire authority for a position or group of positions where OPM has determined that there is either a severe shortage of candidates or a critical hiring need for such positions. This direct hire authority expedites the typical hiring process associated with the competitive examining hiring authority in Title 5 by eliminating competitive rating and ranking procedures and veterans’ preference. Congress has also provided direct-hire authority directly to agencies for specified purposes.\nEmployment of veterans. Congress created a hiring authority called the Veterans’ Recruitment Appointment authority that allows for certain exceptions from the competitive examining process. Specifically, agencies may appoint eligible veterans without competition under limited circumstances or otherwise through excepted service hiring procedures.\nEmployment of students and recent graduates. To ensure that the federal government continued to compete effectively for students and recent graduates, a 2010 executive order created the Pathways Program. Pathways replaced two former student programs and incorporated the Presidential Management Fellows program.", "OPM decentralized and delegated many personnel decisions to federal agencies. It also has encouraged agencies to use human capital flexibilities, such as hiring authorities, to help tailor their personnel approaches to accomplish their missions. In January 1996, for example, OPM delegated competitive examining authority to federal agencies for virtually all positions in the competitive service. OPM is responsible for ensuring that the personnel management functions it delegates to agencies are conducted in accordance with merit system principles, and the standards established by OPM for conducting those functions.\nThe exceptions authorized under Title 5 to the competitive examining process, and the creation of exceptions to hiring rules through new agency-specific non-Title 5 hiring authorities mentioned above, also affect oversight responsibilities. Oversight of hiring actions depends on the origin of the authorized exception. For example, if the position was excepted from the competitive service by OPM, OPM is responsible for ensuring that the hiring actions taken to fill those positions are consistent with merit principles and other relevant Title 5 laws and regulations. However, if Congress directly granted an agency authority to appoint individuals into the excepted service without regard to Title 5 and OPM authority, generally the agency (rather than OPM) must ensure that it is meeting relevant standards under that grant of authority or additional oversight provisions detailed by Congress.\nFurther, the Chief Human Capital Officers (CHCO) Act of 2002 established the CHCO Council to advise and coordinate the activities of member agencies on such matters as the modernization of human resources systems, improved quality of human resources information, and legislation affecting human resources operations and organizations. The CHCO Council is chaired by the Director of OPM and serves to coordinate and collaborate on the development and implementation of federal human capital policies.", "Our analysis of OPM data found that overall, agencies used a relatively small number of hiring authorities to fill nearly all of the vacancies in 2014, and a large number of hiring authorities to fill the small proportion of positions that remained. Specifically, we found that agencies used 105 hiring authority codes for 196,226 new appointments in fiscal year 2014. These appointments were for competitive service positions, as well as for excepted service positions, made under both Title 5 and agency-specific non-Title 5 authorities. However, of these 105 authorities, agencies used just 20 hiring authority codes for more than 178,000 (91 percent) of the new appointments, while using 85 hiring authority codes for the 18,000 (9 percent) remaining new appointments (see fig. 1).\nAs noted, Congress and the President have created a number of additional hiring authorities—beyond competitive examining—intended to address positions that cannot be filled through competitive examining in order to expedite the hiring process or to achieve certain public policy goals, such as facilitating the entrance of certain groups into the civil service.\nImportantly, our analysis provides only a snapshot of a single fiscal year. The use of hiring authorities was influenced by particular hiring levels at certain agencies. For example, the Department of Veterans Affairs (VA) used the Title 38 hiring authority—the second most used authority—to hire almost 8,000 nurses and more than 3,000 medical officers in fiscal year 2014 in response to increased demands for healthcare providers.\nOf the 20 top-used hiring authorities, agencies relied most heavily on three types of authorities: (1) the competitive examining hiring authority, (2) other Title 5 hiring authorities, and (3) agency-specific hiring authorities (non-Title 5 as well as Title 5). Each of these is discussed in greater detail below (see table 1 for a description of all 20 hiring authority codes most commonly used in fiscal year 2014).\nCompetitive examining hiring authority. While the Title 5 competitive examining hiring authority—has been the traditional method for federal hiring—was the single most used hiring authority in fiscal year 2014, it accounted for less than a quarter of all new appointments government- wide. Further, only 3 of the 24 agencies covered under the Chief Financial Officers (CFO) Act of 1990, as amended—the Department of Justice, the Small Business Administration, and the Department of the Treasury—used the competitive examining hiring authority for a majority of their new appointments in fiscal year 2014. At the same time, 6 of the 24 CFO Act agencies used competitive examining for less than 10 percent of all new appointments in fiscal year 2014. They include the Departments of Agriculture, and Transportation, VA, U.S. Agency for International Development, Nuclear Regulatory Commission, and the National Science Foundation.\nOther Title 5 hiring authorities. In addition to competitive examining, in fiscal year 2014, agencies often used other Title 5 hiring authorities available to all agencies. For example, agencies used direct hire—which waives the rating and ranking process and the application of veterans’ preference under competitive examining for certain critical needs, or when there is a severe shortage of candidates. In other instances, agencies used special hiring authorities to hire veterans, students, and recent graduates.\nWith respect to direct hire, OPM provided agencies with government-wide direct hire authorities for certain IT specialists and medical occupations, among other critical needs occupations. This enables an agency with delegated examining authority to hire, after public notice is provided, any qualified applicant without regard to certain competitive hiring requirements such as category rating and veterans’ preference. Additionally, agencies often used hiring authorities related to hiring veterans and students or recent graduates. For example, the Veterans Employment Opportunities Act (VEOA), a competitive service appointment authority, was the fifth most frequently used hiring authority code for new appointments in fiscal year 2014. One of our case agency officials told us that they used VEOA to recruit veterans eligible to apply for positions announced under merit promotion procedures.\nFiscal year 2014 was one of the first years agencies used two new Pathways excepted service hiring authorities for interns and recent graduates. These authorities are to be used as a supplement to, not a substitute for, the competitive hiring process. Pathways Programs are tools for agencies because of their focus on students and recent graduates. For example, nearly all of the 24 CFO Act agencies used at least one of the three Pathways Programs (the third being the Presidential Management Fellowship), and two agencies—the National Aeronautics and Space Administration and the National Science Foundation—used the Pathways Internship authority for more than 50 percent and 30 percent, respectively, of their new hires. At the same time, 7 of the 24 CFO Act agencies that used at least one of the Pathways authorities used it for less than 5 percent of their new appointments in fiscal year 2014.\nAgency-specific hiring authorities. Agencies also relied heavily on hiring authorities that are only available to specific agencies. As shown in figure 2, in fiscal year 2014, 38 percent of all new federal appointments were made using hiring authorities designated only for specific agencies.\nAgency-specific hiring authorities can be authorized directly by Congress or may be provided to the agency by OPM. As previously noted, VA used Title 38 hiring authorities—attributable to the second most used hiring authority code—to hire for medical occupations in fiscal year 2014. In addition, two of the most used non-Title 5 hiring authorities related to entire agency-components—the Transportation Security Administration and Federal Aviation Administration—were provided by Congress with additional flexibility in hiring agency personnel for all occupations.\nOPM also provided special Title 5 excepted service hiring authorities to certain agencies. OPM annually publishes a consolidated listing of all agency specific Title 5 excepted service hiring authorities granted under Schedules A, B, or C in the Federal Register. Schedules A, B, C, and D refer to distinct suites of authorities that enable agencies to hire in those circumstances when it is not practicable to use competitive service qualification standards or to rate applicants using traditional competitive examining procedures, when recruiting certain types of students (or others who have recently completed certain educational programs), or to fill positions of a confidential or policy-determining nature. For example, OPM granted a Schedule A hiring authority to the General Services Administration and Office of Management and Budget to hire digital services staff as a part of the President’s Management Agenda’s Smarter Information Technology (IT) Delivery Initiative through September 2017 and 2016, respectively. In May 2015, OPM approved government-wide Schedule A hiring authority for digital services staff for all agencies working on IT projects as part of this initiative, also through September 2017.", "", "In our 2002 report, we found that to address their human capital challenges, it is important for agencies to assess and determine which human capital flexibilities, including hiring authorities, are the most appropriate and effective for managing their workforces. Among other things, such assessments help ensure that agencies use hiring authorities as part of an overall human capital strategy. By helping agencies to better understand the impact that different authorities have on the pool of available candidates, agencies could use hiring authorities more strategically to achieve specific talent management and public policy goals such as closing mission critical skills gaps, employment of veterans, and increased workforce diversity. Assessments can also better ensure that agencies first identify and use the flexibilities already available under existing laws and regulations and only seek additional flexibilities when necessary based on sound business cases.\nMoreover, given agencies’ reliance on a relatively small number of authorities in 2014, assessments of authorities’ effectiveness could help inform whether there are opportunities to refine, consolidate, or reduce the number of available authorities to simplify the hiring process, or whether provisions of some agency-specific authorities should be expanded to more agencies. Indeed, OPM officials said they do not know if agencies rely on a small number of authorities because agencies are unfamiliar with other authorities, or if they have found other authorities to be less effective in meeting their needs.\nAs part of its hiring reform efforts, in 2010 the administration launched the Hiring Reform Initiative, which was aimed at improving the effectiveness of the hiring process. To gauge agencies’ progress in meeting those goals, OPM tracked improvements in time-to-hire and manager and applicant satisfaction levels as key indicators for jobs posted on the USA jobs website. Time-to-hire and satisfaction surveys are useful metrics of the effectiveness of the hiring process as a whole. Neither OPM nor the selected agencies used or explored the potential for this information to analyze the effectiveness of individual, or the different types, of hiring authorities. Without this information, it is difficult for OPM and agencies to assess the impact specific hiring authorities are having on the administration’s reform efforts and other goals.\nAs one example, OPM requires agencies to report time-to-hire information for all job announcements posted on USAjobs.gov. However, neither OPM nor officials from our selected agencies said they used this data to analyze the effectiveness of individual hiring authorities. Likewise, OPM surveys managers and applicants to gauge their opinions of the application process. OPM officials said while they conduct some government-wide analysis of these surveys and brief the CHCO Council on trends and findings, they have not analyzed the relative effectiveness of individual hiring authorities.\nOPM officials said that the time-to-hire, manager satisfaction, and applicant satisfaction databases were located in different systems, thus making it difficult to analyze or identify trends. Further, OPM officials said they view the use of hiring authorities as case-specific and in some cases tied to agency-specific goals, which makes it difficult to compare them to one another and develop meaningful conclusions about how they are used.\nHowever, there are several potential benefits to understanding the relative effectiveness of different authorities for particular agency requirements. First, different types of hiring authorities have different procedures associated with them. By analyzing the effectiveness of hiring authorities, OPM and agencies could identify improvements that could be used to refine those procedures. Second, Congress and OPM could provide more agencies access to specific authorities found to be highly effective. Third, authorities found to be less effective could be revised or eliminated by Congress or OPM, thus helping to ensure only those hiring tools found to be the most useful were available to agencies.\nMoreover, a better understanding of the relative effectiveness of different hiring authorities could enhance agencies’ awareness of the implications different authorities may have on the composition of their workforce. For example, when agencies use one hiring authority to achieve a particular public policy objective, it may have implications for the attainment of a different objective. In its 2015 report, the U.S. Merit Systems Protection Board found that when agencies used veteran-specific hiring authorities in fiscal year 2012, they hired between 50 and 60 percent more men than women, not surprising given the active duty military is over 80 percent male. Better information on the impact different authorities have on the applicant pool could help agencies use hiring authorities more deliberatively to accomplish different hiring outcomes.\nOfficials from our selected agencies—AFMC, Energy, and NIH—said that they had not used time-to-hire data or manager and applicant satisfaction survey data to evaluate specific hiring authorities. Like OPM, officials from the selected agencies said they have focused their efforts and used this information to better understand and improve the overall hiring process but had not considered it for analyzing the use of individual authorities. Given that an individual agency may only use a subset of all authorities, an agency-specific analysis may not reveal many differences across authorities. However, compiling agency evaluations of the range of authorities available would likely provide greater insight. A number of factors can determine how and whether agencies get the talent they desire. Selected agencies described for us additional strategies they use to help meet their workforce requirements. These are discussed in greater detail in appendix II).", "Despite the importance of assessing the effectiveness of individual hiring authorities, there are some limitations to using available OPM data for this type of analysis. The hiring authority codes used in OPM’s EHRI database are a tool for tracking the use of hiring authorities across the federal government. However, the codes are not a perfect one-for-one match for individual hiring authorities, and some hiring authority codes represent an unknown number of authorities. For example, the hiring authority codes for “Digital Service Experts” are also used to track the use of other hiring authorities. As a result, it is unclear how frequently these particular digital services authorities are used.\nSimilarly, OPM uses a single hiring authority code for all “other laws, executive orders, and regulations,” which was the sixth most used hiring authority code for new appointments in fiscal year 2014.\nAs a result of these data limitations, OPM is unable to use its own data to determine the extent to which special hiring authorities like these are being used, to determine (or aid agencies in determining) whether they are meeting their intended purpose, if refinements are needed, or whether they should be expanded for other agencies with similar needs. With this analysis, OPM could revise authorities within its authority and work with agencies to develop legislative proposals as warranted to revise authorities beyond its authority.", "OPM is responsible for executing, administering, and enforcing the civil service rules and regulations and the laws governing the civil service, including those pertaining to hiring. Additionally, OPM is required to establish and maintain oversight over delegated personnel activities, including delegated competitive examining activities, to ensure agencies are acting in accordance with the merit system principles and the relevant standards established by OPM, such as compliance with applicable laws, rules, regulations, executive orders, and OPM policies. OPM monitors overall implementation and identifies corrective actions when deficiencies are found. OPM conducts this oversight through three primary means: delegated examining unit audits, human resource management evaluations, and special studies.\nDelegated examining audits: OPM oversees agencies’ use of the delegated examining authority for competitive service. These audits focus on compliance with merit principles and other key goals. To a lesser extent they consider the effectiveness of the overall hiring process, but typically do not analyze the effectiveness of specific hiring authorities.\nHuman resource management evaluations: OPM and agencies evaluate how well human capital programs, align with agency mission and goals and comply with the merit system principles, laws, and regulations. In contrast to the delegated examining unit audits, officials said that human resource management evaluations provide an opportunity for identifying best hiring practices at agencies.\nSpecial studies: OPM officials said they periodically conduct special studies of hiring issues. For example, officials said OPM is currently studying the use of Pathways Programs government-wide. Officials said the study will identify trends in agencies’ usage, highlight notable practices by agencies, identify any challenges within the programs, and assess whether the programs are being used as intended.\nOPM’s oversight functions provide an in-depth understanding of agency hiring, and could provide important information to help OPM identify opportunities to streamline and consolidate federal hiring authorities. However, OPM officials identified two challenges to analyzing audit findings to understand the effectiveness of hiring authorities. First, OPM does not maintain all the different types of audit reports in a single, centralized location. Conducting a government-wide analysis would require manually piecing together reports from different systems. However, even identifying trends within the audit type could provide leading practices for OPM to share and opportunities for agencies to improve their use of hiring authorities. According to OPM officials, OPM is developing a new database capable of housing all audit findings, which will enable it to conduct this analysis in future years.\nOPM officials said a second challenge to government-wide analysis of hiring authorities is that OPM’s oversight is limited to the hiring authorities established in Title 5. According to OPM, the evaluation or oversight requirements, if any, of non-Title 5 excepted service hiring authorities are authority-specific. Since non-Title 5 excepted service hiring authorities are granted to agencies directly by Congress, OPM does not generally have a direct oversight role under these authorities.", "In recent years, OPM has launched several initiatives and provided agencies with tools to address federal hiring challenges. In 2008, for example, OPM and the CHCO Council partnered to lead the End-to-End Hiring Roadmap, which aimed to improve the hiring process from an applicant perspective. Then, in 2010, the President’s Hiring Reform initiative aimed to address impediments to recruiting and hiring highly qualified employees into the federal civilian workforce. Also in 2010, OPM began an effort to increase employment of veterans. In 2011, OPM started a new initiative to increase employment of students, and recent graduates, in part by educating agencies about new or existing hiring authorities for these groups. OPM also established the Veterans Employment Program Office and Office of Diversity and Inclusion. In 2015, OPM introduced the Recruitment, Engagement, Diversity, and Inclusion (REDI) Strategy. REDI’s objective, in part, was to improve the quality of the hiring process by meeting with HR professionals and hiring managers to ensure they understand current hiring flexibilities through guidance and resources, referred to as “untying the knots” sessions.\nSince 2014, OPM and the Presidential Personnel Office have led the People and Culture Cross-Agency Priority Goal intended to deploy a world-class workforce by creating a culture of excellence and enabling agencies to hire the best talent from all segments of society. As part of this goal OPM with OMB’s assistance, kicked off a new initiative in early 2016—the Hiring Excellence Campaign—designed to improve the federal hiring process. According to OPM officials, one of the objectives of the campaign is to raise awareness and effective use of hiring authorities by managers and human resource professionals and to address administrative and other obstacles that may be impeding the government’s ability to recruit and hire the best talent. Officials said the campaign will feature a series of multi-agency, in-person discussions about hiring and assessment policies and corresponding guidance led by OPM and OMB officials. The events are to be in locations with high concentrations of human resources specialists, where agencies have been hiring for hard-to-fill occupations, among other factors.\nOPM’s Hiring Excellence Campaign is designed to bring together agency hiring specialists and hiring managers to discuss hiring tools and opportunities for improving the hiring process, and therefore could help agencies make better use of available hiring authorities. The campaign’s ultimate effectiveness will depend to a large degree on OPM’s ability to implement the effort as planned and ensure it generates lasting improvements. To help in this regard, OPM officials said they have identified objectives, strategies, and baseline measures to track the success of the campaign. Further, OMB officials said they were identifying agency-specific hiring authority subject matter experts to assist in the discussions where audiences may have questions about non-Title 5 hiring authorities. OPM officials said they are developing a project plan for implementing the campaign. These activities could help improve OPM’s management, monitoring, and oversight of the Hiring Excellence Campaign and will need to be implemented as planned. Given the similarities between the Hiring Excellence Campaign and OPM’s prior efforts to improve federal hiring, it will also be important for OPM to ensure that the campaign leverages these prior initiatives, incorporates relevant lessons learned, if any, and ensures there is no unnecessary overlap or duplication with other efforts to improve federal hiring.\nIn addition to the initiatives noted above OPM makes available a variety of resources to help agencies make better use of hiring authorities, as shown in table 2.\nDescription The Hiring Toolkit, available on the HR University web site, describes the fundamentals of federal hiring, the hiring process, competitive and excepted service hiring, veteran’s appointing authorities, hiring authorities and pay. It complements the interactive Hiring Decision Tool, which matches potential hiring flexibilities with hiring needs.\nEnd-to-End Hiring Roadmap The End-to-End Hiring Roadmap is a timeline tool based on a generic process model for conducting efficient, high-quality hiring. The purpose of this is to help identify similar steps in agencies’ hiring processes and diagnose areas of greatest need for improvement.\nThe Delegated Examining Operations Handbook provides assistance to agencies with delegated examining authority under Title 5 and applies to competitive examining only. The handbook provides agencies with guidance, options, and specific operational procedures designed to ensure that examining programs comply with merit system laws and regulations.\nThe Vet Guide consolidates the laws and regulations that affect the employment of veterans in the federal government in one central location. The guidebook describes veteran’s preference and special hiring authorities for veterans.\nThe Hiring Excellence website provides information, tools, and guidance to hiring specialists and hiring managers to assist in agency hiring. The website includes, among other things, information about strategic recruitment, assessment and selection, hiring authorities, and diversity and inclusion.\nOfficials from our selected agencies reported mixed impressions about OPM’s online resources, including some of the above examples. During our discussion groups, some hiring managers and HR specialists said they found OPM’s resources useful, some said OPM’s website and guidance were fragmented and difficult to use, and some officials said they were not familiar with OPM’s tools and resources and relied on agency-specific policies and tools. Officials familiar with OPM’s resources said they most often relied on agency-specific policies and procedures before turning to OPM’s resources and guidance on hiring authorities. While OPM’s resources may be developed and targeted for different users, without additional review these tools may not be having their intended effect. We have previously recommended, and continue to encourage OPM ensure agencies are getting the needed guidance and tools by evaluating the communication and effectiveness of relevant tools or leading practices created by OPM or agencies to address crosscutting human capital challenges.", "Given the long-standing human capital challenges and difficulties in filling critical skills gaps, federal agencies need to have an assortment of effective tools to bring qualified applicants onboard as well as to meet public policy goals. In fiscal year 2014, 20 authorities were used to make around 90 percent of new appointments.\nA critical first step in understanding if and which authorities are meeting agency needs is for OPM and agencies to analyze if and how specific authorities contribute to the effectiveness of the hiring process. This information would help OPM and agencies better manage the suite of hiring authorities and identify opportunities to simplify and improve the hiring process by refining, consolidating, or eliminating some authorities or by expanding provisions of some agency-specific authorities to more agencies. Likewise, agencies could make more strategic use of the hiring authorities, selecting those that data have shown are best suited for their particular talent needs and other objectives. However, despite the metrics available to assess their performance, OPM and our selected agencies do not measure the effectiveness of hiring authorities.\nFinally, while OPM has launched several initiatives to reform the hiring process over the last several years, some of the issues they were designed to address, including improving agencies’ use of federal hiring authorities, remain. Going forward, it will be important for OPM to ensure that its most recent initiative, the Hiring Excellence Campaign, is implemented as planned, as well as to ensure that there is no unnecessary overlap or duplication with earlier efforts.", "To help strengthen the government’s ability to compete in the labor market for top talent, we recommend that the Director of OPM, in conjunction with the CHCO Council, take the following actions to improve the federal hiring process: 1. For hiring authorities for which OPM oversees, conduct a study or assessment of specific hiring authorities and/or processes to gain insight into why these agencies relied on the authorities, the relationship between the agencies’ choices and the agency mission and broader public policy goals, consistent with merit systems principles, and determine whether modernization is necessary. For agency-specific hiring authorities and/or processes, OPM should collaborate with the CHCO Council to obtain similar insights agencies may have regarding their authorities and/or processes and to determine whether there are lessons learned which may be relevant to government-wide modernization efforts. 2. Use this information to determine whether opportunities exist to refine, consolidate, eliminate, or expand agency-specific authorities to other agencies and implement changes where OPM is authorized, including seeking presidential authorization (as necessary) in order to do so. In cases where legislation would be necessary to implement changes, OPM should work with the CHCO Council to develop legislative proposals. 3. As OPM continues with the implementation of the Hiring Excellence Campaign, determine ways to sustain aspects of the campaign that focus on equipping agencies with information, tools, and support to strengthen their knowledge and ability to attract and hire top talent beyond the active roll out of the campaign and leverage prior related efforts through such activities as incorporating applicable lessons learned and that there is no unnecessary overlap and duplication across their individual efforts.", "We provided a draft of this product to the Acting Director of OPM and the Director of OMB for comment. We also provided relevant portions of this product to the Secretaries of the Department of the Air Force, Department of Energy, and Department of Health and Human Services for technical comment. Technical comments were received from OPM, OMB, and the Air Force, and incorporated, as appropriate.\nIn written comments, reproduced in appendix III, OPM generally concurred with our findings and recommendations.\nAs agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Director of the Office of Personnel Management, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov.\nIf you or your staff have any questions about this report please contact me at (202) 512-2757 or goldenkoffr@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this product are listed in appendix IV.", "This report examines: (1) the hiring authorities agencies used in fiscal year 2014 (the most recent year for available data when we began our review), (2) the extent to which selected agencies and OPM assessed the effectiveness of hiring authorities used for selected occupations in helping meet hiring needs, and (3) how OPM ensured that agencies have the assistance and information needed to use the hiring authorities effectively.\nTo address our first objective, we used Office of Personnel Management (OPM) Enterprise Human Resources Integration (EHRI) data, which contains personnel action and workforce data for most federal civilian employees. We analyzed government-wide and agency-level EHRI data from fiscal year 2014, which was the most recent year that data were available during our review. We primarily used the following EHRI data variables: (1) “current appointment authority 1 and 2” to describe the hiring authorities agencies used; and (2) “nature of action” codes to identify new appointments into federal service. First, we used OPM’s “current appointment authority” codes in EHRI to determine which hiring authorities agencies used in fiscal year 2014. According to OPM’s Guide to Data Standards—the guidance document that describes data elements in EHRI—the current appointment authority code is a mandatory data code that describes the law, executive order, rule, regulation, or other basis that authorizes an employee’s most recent conversion or accession action. Each agency must record the appointment authority codes for each hiring action in its own personnel system, which is then submitted to OPM’s EHRI data warehouse. Second, to calculate the new appointments made with each hiring authority, we aggregated the hiring actions using a subset of EHRI’s “nature of action” codes. Nature of action codes capture information about the type of personnel action being tracked, such as whether the action was an appointment, conversion, or separation. We limited our analysis to include nature of action codes for new full- and part-time, and permanent and non-permanent federal appointments in the competitive or excepted services. We also excluded certain groups outside of the scope of this engagement. Using these parameters, we aggregated the hiring actions for new appointments by current appointment authority in fiscal year 2014, and we sorted the current appointment authority codes from most used to least used government- wide.\nSometimes agencies entered two current appointment authority codes for the same hiring action. Based on OPM documentation, we determined certain situations in which OPM instructed agencies to enter two codes for a single hiring action. However, there were a number of situations in which OPM could not provide documentation explaining why agencies should enter two current appointment authority codes. For these instances, we generally counted each current appointment authority code agencies entered as a single hiring authority “use.” We confirmed our methodology for describing government-wide use of hiring authorities with OPM.\nAdditionally, we used OPM documentation to match the current appointment authority codes with a name and citation in applicable laws, regulations, and executive orders. We examined laws, OPM regulations, and additional OPM materials to obtain a description of the most frequently used hiring authorities government-wide in fiscal year 2014. We reviewed OPM’s EHRI data for reasonableness and the presence of any obvious or potential errors in accuracy and completeness. On the basis of these procedures, we believe the data are sufficiently reliable for use in the analyses presented in this report.\nTo assess the extent that hiring authorities are effective in helping meet the needs of selected agencies, we focused on three occupations at three agencies as case examples. Based on our prior work on government- wide mission-critical occupations and skills gaps, we focused on the following occupations: Information Technology Specialists, Contract Specialists, and Science, Technology, Engineering, and Mathematics (STEM) occupations. We reviewed OPM’s list of white collar occupational groups and included occupations within groups that appeared to be related to STEM. Specifically, we aggregated hiring actions for the occupations within the following occupational groups: (1) Natural Resources Management and Biological Science Group; (2) Medical, Hospital, Dental, and Public Health Group; (3) Veterinary Medical Science Group; (4) Engineering and Architecture Group; (5) Physical Sciences Group; and (6) Mathematical Sciences Group.\nUsing data from OPM’s EHRI database, we made a nonprobability, judgmental selection of three case agencies based on two primary factors. First, we only considered agencies that hired our selected occupations in fiscal year 2014. Second, we selected agencies that used a variety of hiring authorities for these occupations in fiscal year 2014. Based on these factors, we selected the following case agencies: Air Force Materiel Command (AFMC), Department of Energy (DOE), and the National Institutes of Health (NIH). At AFMC, DOE, and NIH, we interviewed human resources (HR) policy officials to learn about which hiring authorities agencies used for our selected occupations, reasons for using these authorities, and ways that agencies were measuring the effectiveness of the authorities. We also covered these topics with HR specialists and hiring managers for our selected occupations at each case agency using a series of group discussions that we conducted using a standardized set of questions.\nIn addition to the case study approach, we also identified available government-wide data sources on the effectiveness of the hiring process. For example, we reviewed OPM time-to-hire data government-wide and by agency. We reviewed the Chief Human Capital Officers’ (CHCO)\nApplicant Satisfaction Survey and the CHCO Manager Satisfaction Survey, which provided information on the applicant and hiring manager experience with the hiring process. Further, we reviewed government- wide reporting on the administration’s hiring policy goals, such as increasing the employment of veterans and people with disabilities in the federal workforce. We also interviewed knowledgeable officials at OPM and the Merit Systems Protection Board about the effectiveness of federal hiring authorities.\nWe also assessed the extent to which OPM’s oversight of hiring authorities evaluated their effectiveness. Specifically, we identified relevant laws and policies that outline OPM’s oversight responsibilities for hiring authorities and interviewed OPM on the implementation, results, and analysis of these oversight efforts. We identified and reviewed OPM’s policy documents that describe the key components of OPM’s oversight program for hiring authorities, Delegated Examining Unit (DEU) audits and Human Resources Management Evaluations (HRME). Examples of policy documents we reviewed included the Practitioner’s Guide: How to Conduct a Delegated Examining Audit and Merit System Audit and Compliance Evaluator Handbook. We interviewed knowledgeable OPM officials about oversight activities related to Title 5 hiring as well as officials at our selected case agencies—AFMC, Energy, and NIH—who are responsible for working with OPM on these oversight reviews. For both OPM and the selected case agencies, we interviewed knowledgeable agency officials about the types of analyses they conducted based on audit findings and how, if at all, they shared information on any lessons learned. In addition to reviewing oversight of Title 5 hiring, we also reviewed documentation from our case agencies and interviewed case agency officials about non-Title 5 hiring authority oversight procedures.\nTo assess the extent that OPM ensures agencies have the assistance and information needed to use hiring authorities effectively, we identified online tools and guidance from OPM’s website as well as OPM documents, such as online trainings, handbooks, toolkits, and hiring authority fact sheets. We interviewed selected case agency officials to gauge their awareness of and satisfaction with these resources. We reviewed documentation on previous OPM initiatives that focused in part on making improvements to hiring authorities. These initiatives included OPM’s End-to-End Hiring Roadmap, OPM’s responses to the 2010 hiring reform executive orders, the Recruitment, Engagement, Diversity, and Inclusion initiative, and OPM’s work on cross-agency priority (CAP) goals. We interviewed officials from OPM, the Office of Management and Budget, and our selected case agencies to discuss these initiatives, particularly about measuring impact and sustainability. We reviewed OPM’s plans for its most recent hiring initiative—the Hiring Excellence Campaign, which is part of the “People and Culture” CAP goal—with practices outlined in our prior work that are associated with success of such interagency efforts.\nWe conducted this performance audit from May 2015 to August 2016 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our finding and conclusions based on our audit objectives.", "Institute formalized recruitment meetings with human resources (HR) staff and hiring managers to discuss recruitment strategy. HR specialists and hiring managers at NIH said they used recruitment meetings to clarify the needs for the position, characteristics of an ideal applicant, possible applicant pools, and potential hiring authorities to use. They also discussed the use of professional or private-sector organizations to identify applicants and of broader recruitment topics, such as agency goals for diversity and veteran hiring. Hiring managers told us that these meetings helped them target the intended applicant pools for their open positions.\nUse specialized experience statements to help ensure a better fit between the applicant and the position. Hiring managers at Air Force Materiel Command (AFMC) and Department of Energy (DOE) said specialized experience statements—an explicit description provided in the job announcement—helps ensure that applicants possess the knowledge, skills, and abilities to perform the work of the position. Without using a specialized experience statement, AFMC officials told us that it can be difficult for HR specialists to filter out unqualified applicants. Hiring managers felt that specialized experience statements helped improve the quality of applicants on certificate lists.\nActively recruit, particularly among preference groups such as veterans, to direct qualified applicants to the job announcement. Hiring managers at NIH and DOE said they used professional networking sites, university contacts, and professional organizations to target potential applicants who may not be actively searching for a new employment opportunity. For example, hiring managers at NIH reported using LinkedIn to identify and send potential job applicants to specific vacancy announcements for hard-to-fill IT positions. Sometimes these applicants would be eligible for excepted service hiring authorities. NIH officials said it enabled them to hire them more quickly than through a competitive examining process. Hiring managers said that they have used this recruiting technique to successfully identify qualified veterans for several IT positions.\nUse global job announcements when possible to reduce duplication of effort and to share quality applicant lists. Officials from DOE and NIH said that using global or open vacancy announcements allowed hiring officials to make multiple selections from a single vacancy announcement. For example, NIH uses an agency-wide recruitment strategy for commonly filled positions across the institutes. Under this initiative, NIH posts one vacancy announcement for a specific position. Then, any of the 27 institutes can use it to fill a vacancy for that position. Hiring managers at NIH told us that using the global recruitment saved them the time of creating multiple, similar announcements. It also allowed them to review a large number of resumes to find quality applicants.\nInclude subject matter experts in the assessment process to filter out applicants who are not qualified. Hiring managers for STEM occupations at DOE involved subject matter experts in the assessment process to help HR specialists determine which resumes met technical job qualifications. After the HR specialists conducted the initial screening to determine which applicants were eligible to apply for the position, DOE’s subject matter experts reviewed these resumes without applicant identifying information and provided documentation to show whether the applicants met technical job requirements. HR personnel were then able to use subject matter expert feedback to complete applicant assessments and assign a qualification rating. Officials told us that this process has resulted in better qualified applicant on certificate lists.", "", "", "", "Individuals making key contributions to this statement include: Chelsa Gurkin (Assistant Director), Rebecca O’Connor (Analyst-in-Charge), Sara L. Daleski, Christopher Falcone, Karin Fangman, Ellen Grady, Shelley Rao, David Richards, and Elizabeth Wood." ], "depth": [ 1, 2, 2, 2, 1, 1, 2, 2, 2, 1, 1, 1, 1, 1, 1, 1, 1, 2, 2 ], "alignment": [ "", "", "", "", "h0_full", "h0_title h1_title", "h0_full h1_full", "h1_full", "", "h2_full", "h2_full", "", "", "", "", "", "", "", "" ] }

{ "question": [ "What is a hiring authority?", "Why do agencies rely on a small number of authorities?", "To what extent was the competitive examining hiring authority used in FY2014?", "To what extent does OPM analyze hiring data?", "What is known about the effectiveness of hiring authorities?", "How could an analysis of hiring authorities be benefitial?", "What is OPM's Hiring Excellence Campaign?", "What details about the campaign have OPM officials revealed?", "How will OPM manage the campaign in the future?" ], "summary": [ "A hiring authority is the law, executive order, or regulation that allows an agency to hire a person into the federal civil service. Of the 105 hiring authorities used in fiscal year 2014, agencies relied on 20 for 91 percent of the 196,226 new appointments made that year.", "Office of Personnel Management (OPM) officials said they do not know if agencies rely on a small number of authorities because agencies are unfamiliar with other authorities, or if they have found other authorities to be less effective.", "The competitive examining hiring authority, generally seen as the traditional method for federal hiring, was the single most used authority in fiscal year 2014, but accounted for less than 25 percent of all new appointments.", "While OPM—the agency responsible for overseeing the delegated hiring authority and managing federal civilian personnel data—tracks data on agency time-to-hire, manager and applicant survey results, and compliance audits to assess the hiring process, this information is not used by OPM or agencies to analyze the effectiveness of hiring authorities.", "As a result, OPM and agencies do not know if authorities are meeting their intended purposes.", "By analyzing hiring authorities, OPM and agencies could identify improvements that could be used to refine authorities, expand access to specific authorities found to be highly efficient and effective, and eliminate those found to be less effective.", "OPM's Hiring Excellence Campaign consists of a number of multi-agency, in-person events and is OPM's latest initiative designed to address long-standing challenges with federal hiring.", "OPM officials described the objectives, strategies, and measures by which the campaign will be measured and sustained.", "Going forward it will be important for OPM to sustain the campaign's efforts and incorporate lessons learned, if any, from similar prior or existing efforts to improve federal hiring." ], "parent_pair_index": [ -1, -1, 1, -1, 0, 1, -1, 0, 0 ], "summary_paragraph_index": [ 3, 3, 3, 5, 5, 5, 6, 6, 6 ] }

{ "title": [ "", "The Context: Current Economic Conditions", "Defining Infrastructure in Today's Context", "Infrastructure and the Economy", "Productivity and Output", "The Contribution of Infrastructure to Economic Recovery", "Issues", "Job Creation Estimates", "Short-Term Economic Stimulus vs. Long-Term Investment", "Setting Priorities and Determining Funding Needs", "Is There a Role for \"Green Infrastructure\" in Creating Jobs and Aiding Economic Recovery?" ], "paragraphs": [ "Policymakers at all levels of government are debating a wide range of options for addressing the nation's faltering economic conditions. One option that is once again receiving attention is accelerated investments in the nation's public infrastructure—that is, highways, mass transit, airports, water supply and wastewater, and other facilities—in order to create jobs while also promoting long-term economic growth.\nThis report discusses policy issues associated with using infrastructure as a mechanism to benefit economic recovery. It begins with two contextual aspects of this discussion, what is the current economic condition and how to define infrastructure. The report then reviews the role of infrastructure investment in economic growth generally and in contributing to bolstering a faltering economy. It discusses key issues including the potential role of traditional and \"green\" infrastructure in creating jobs, timing, and setting priorities.", "Debate about direct government spending to accelerate economic recovery has intensified recently in response to economic indicators showing significant and continuing weakness of the national economy. Although the U.S. economy officially began to emerge in June 2009 from the recession that began in December 2007, the recovery has been sluggish, and the economy has continued to feel the recession's impact in terms of both budget deficits and high unemployment. In August 2011, the nation's unemployment rate was 9.1%, slightly improved from the 2010 average rate of 9.6%, but still stubbornly higher than in 2007 (4.6%) and 2008 (5.6%). Also in August, the Congressional Budget Office (CBO) projected continuing but modest economic growth for the next few years. Under its baseline projections, CBO estimated that deficits will fall from 8.5% of gross domestic product (GDP) in FY2011 to 6.2% in FY2012 and 3.2% in FY2013, although part of the expected change reflects policy changes, such as the expiration of the George W. Bush-era tax cuts in 2013 and expiration of the payroll tax cut in 2012.\nFiscal problems are affecting all levels of government. In May, the National Association of State Budget Officers reported that state fiscal conditions in 2011 are somewhat improved from conditions in 2009 and 2010. However, the slow economic recovery and wind down of significant federal funding enacted in 2009 will continue to present states with tight fiscal conditions. State revenue collections continue to be affected by the economic downturn and soft consumer spending, while demand for healthcare and social services remains high. State general fund revenue collections are forecast to increase in 2011 and 2012, but state finances can take many months to recover from recessions. States also face long-term issues such as funding pensions and maintaining and repairing infrastructure.\nLocal governments also are dealing with fiscal pressures. In June, the U.S. Conference of Mayors projected that by the end of 2011, 25 metropolitan economies will have unemployment rates higher than 12%, 75 will still be in double digits, and 193 (53% of all such areas) will have rates higher than 8%. The mayors group projected that by the close of 2014, over half of metropolitan areas will have returned to their peak employment levels, but that 48 are not expected to regain jobs lost during the recession in the next decade. Similarly, the National League of Cities has observed that state-local fiscal pressures require layoffs and difficult choices about cuts to necessary services like schools, fire, and police.\nMuch of the public responsibility to build, operate, and maintain infrastructure resides with states and localities. Cities and states normally rely on the bond market to finance long-term projects, meaning that turmoil in financial markets creates concern for financing economic development and infrastructure projects. Virtually all state and local governments have balanced budget requirements and, before undertaking any borrowing, must carefully ensure their ability to repay. Thus, their capacity to self-finance needed projects is more constrained during economic downturns than when the economy is growing rapidly. Facing budgetary pressures and more difficult access to financing, officials may scale back, delay, or cancel projects.\nAs a result of these conditions, organizations representing states and municipalities have issued agenda documents with both policy and short-term and long-term assistance recommendations for Congress and the Administration, including those in areas of infrastructure, economic development, businesses, manufacturing, and trade.\nThe concept of countering the effect of economic downturn with legislation to spur job creation through increased spending on public works infrastructure is not new. In recent decades, Congress has done so on several occasions. For example, in 1983 ( P.L. 98-8 ) and 1993 ( P.L. 103-50 ), Congress appropriated funds to a number of existing federal infrastructure and public works programs in hopes that projects and job creation would be stimulated quickly. During the recent recession, policymakers took a number of monetary and fiscal policy actions to stimulate the economy. On the monetary policy side, the Federal Reserve has used both conventional tools (lowering short-term interest rates) and unconventional tools (purchasing equity interest in financial firms, long-term Treasury debt, and mortgage-backed securities). On the fiscal policy side, Congress enacted several measures in 2009 and 2010 that were intended to increase demand for goods and services through increases in federal spending and reduction in taxes. The largest of these was the American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5 ), a $787 billion package consisting of $286 billion in tax cuts and the remainder in spending. The spending in ARRA included more than $62 billion in infrastructure investment.\nWhile the fiscal stimulus from ARRA added to demand over time, this effect diminished as spending authority was spent and tax cuts expired. By CBO's estimate, ARRA funds will continue to be spent out through 2020, but the economic effects of ARRA—including direct and indirect effects—peaked in the first half of 2010. After that, the stimulus still adds to demand but by smaller amounts, and its effect eventually turns negative.\nAt least two factors are bringing renewed attention to these issues, including whether another round of fiscal stimulus—including infrastructure spending—is needed. One is the slow pace of the current recovery. ARRA was controversial when enacted. While most economists believe it was effective, there is dispute among some economists. Nevertheless, there is widespread desire to accelerate job creation and economic recovery, although consensus on how to do so is not apparent.\nAnother factor is that debate about additional job-creating programs has merged with discussion among infrastructure advocates that has been ongoing for years about the need for investment to address problems of aging and deteriorating public works. These infrastructure problems have been increasingly recognized by policymakers and the public at large. It is argued that U.S. investments in public infrastructure have declined significantly in recent decades, to the point that this country is underinvesting in its critical assets, and is failing to construct new facilities or adequately maintain existing systems. The perception that current investment levels are inadequate is in part supported by data which show that, relative to GDP, infrastructure spending has declined about 20%, from 3.0% of GDP in 1960 to 2.4% in 2007. During this same period, spending shifted from predominantly on capital (60% in 1960, compared with 45% in 2007) to operation and maintenance (40% in 1960, compared with 55% in 2007). In a growing economy, infrastructure should hold its own, but other data show that that has not been the case. While total government spending on infrastructure increased from $92 billion in 1960 to $161 billion in 2007, it declined from a high of $1.17 per capita in 1960 to $0.85 per capita in 2007 (in 2009 dollars).\nIn response to these multiple concerns, on September 8, 2011, President Obama proposed the American Jobs Act ( S. 1549 ), legislation that includes tax cuts for businesses, extended unemployment insurance, expanded payroll tax cuts, $80 billion in spending on transportation infrastructure and school repair and modernization, and establishment of a national infrastructure bank to finance large infrastructure projects. Congress is to soon consider the President's proposal and possibly others for job creation and economic recovery.", "Most people probably think about roads, airports, or water supply when they refer to infrastructure, having in mind the types of systems or facilities that are publicly provided and are important to the productive capacity of the nation's economy. But some analysts argue that such a conception is too narrow. Accordingly, the term can be defined more broadly to also include spending by the private sector, such as by private utilities that provide electricity or natural gas. In addition, other types of public investment, such as public buildings, may not add directly to the productive capacity of the economy but do represent assets in the nation's capital stock.\nThere is no single definition of infrastructure (see the box \"What Is Infrastructure?\" below). Today, many policymakers and stakeholder groups define the term broadly to include facilities and categories that vary considerably in the degree of historic federal investment in building or rebuilding physical structures (e.g., highways compared with public schools) and systems that have a long history of combined public and private ownership (water resource projects as well as electric transmission systems, some of which are federally owned, for example). Indeed, today there is considerable blurring between public and private infrastructure, raising more frequent questions about what should be the role of government, including the federal government, in providing infrastructure services. In part, this is due to increasing reliance on the private sector—through contract operations, full ownership and other arrangements—to provide functions and services that typically are thought of as public. Examples include prisons, highways, passenger rail, and postal services and mail delivery. A relatively new dimension in today's context is the notion of coupling public works with investments in environmentally friendly systems that incorporate renewable technologies or energy efficiency—called \"green infrastructure\" (see discussion below).", "Academics, economists, and policymakers debate two key issues concerning the contribution of infrastructure investment to the economy. One is the issue of the effects of infrastructure spending and investment on productivity and growth. The second related issue is the role of infrastructure spending, including short-term job creation, as a countercyclical tool to support economic recovery.", "The question of whether or how the availability of public infrastructure, and investments in public infrastructure, influence productivity and growth has long interested academics. One economist describes the issue as follows:\nThe argument is simple. Infrastructure is a public good that produces positive externalities for production. The provision of adequate infrastructure is a necessary condition for private firms to be productive. Even if infrastructure is also provided for its amenity value (i.e. for its direct utility value to individuals) it is obvious that it plays a central role in generating external effects that fundamentally alter the capacity of the economy to produce goods and services. Just imagine an economy without roads or telephones to think about the impact that infrastructure has on productivity.\nFew would argue that infrastructure isn't important to economic activity. A Mercatus Center researcher observed that \"economists have long recognized the value of infrastructure. Roads, bridges, airports, and canals are conduits through which goods are exchanged.\" But the precise ways in which infrastructure is important, and to what degree (e.g., new construction or maintenance of existing systems), are questions that have interested researchers. Thus, public roads are important, but by themselves, they don't produce anything. Yet they are linked in complex ways to economic growth. Economically, what is important are the services that roads provide in transporting goods and people, mitigating congestion, etc.\nAcademic interest in the issue of economic payoff associated with public infrastructure spending was motivated in part by recognition of declines in public investment in the early 1970s and declines in economic productivity growth at about the same time. The question for researchers was whether there was linkage, or causality, between public investments and economic productivity and, consequently, whether underinvestment in infrastructure helped to explain the slowdown in productivity growth. Research reported in the late 1980s found that there are very large returns on investment from infrastructure spending and, by implication, argued that part of the U.S. productivity slump in the 1970s and 1980s was due to a shortfall of investing in infrastructure. Some of this early work found that a 10% rise in the public capital stock would raise multifactor productivity (meaning, changes in economic output resulting from the combination of labor, capital, materials, fuels, and purchased services) by almost 4%. This was a very high estimate and, as such, was very controversial. Subsequent investigations by others found that the initial results were highly sensitive to numerous factors, such as minor changes in data, or time period, or sectors of the economy that were analyzed.\nDuring the 1990s, further research on this issue modified the methodology used to analyze the economic effects of investing in public infrastructure and either affirmed or challenged the findings of the initial work. Although not all subsequent studies found a growth-enhancing effect of public capital, a general consensus has developed over time that there are positive returns on investment in public infrastructure, but that the impact is less than was first reported. Some of this research suggests that investments in energy infrastructure have the greatest impact on long-term wages and investment, followed by mass transit, and water and sewer.\nAnother aspect of the issue is the interconnected nature of multiple infrastructure systems and the argument that being competitive in a global economy requires investment in what some refer to as \"supply chain infrastructure,\" that is, ports and associated road, rail, and air connections that facilitate manufacturing, transport, and export. According to this view, inefficient connections and capacity limitations lead to delays that raise the price of a company's product and make it harder to compete globally, especially if global competitors out-perform the United States in this regard.\nOne conclusion of more recent research is that both the average return and range of return to the economy vary, based on the type of infrastructure and the amount of infrastructure already in place. In other words, the larger the existing stock and the better its efficient use and current quality, the lower will be the impact of new infrastructure. Also, the effect of new public investment will crucially depend on the extent to which spending aims to alleviate bottlenecks in the existing network of infrastructure systems and facilities.", "Since mid-2008, Congress and the Administration have attempted to address the nation's significant economic difficulties through a variety of policy approaches. Policymakers have debated a range of options for doing so and, as noted previously, have used a combination of tools to stimulate the economy. Under discussion now is the need for additional actions.\nThroughout these debates, some have argued that economic stabilization can best be achieved through monetary policy (i.e., the Federal Reserve's ability to adjust interest rates), coupled with automatic fiscal stabilizers. CBO and others contend that the conventional policy tools available to the Federal Reserve for additional monetary stimulus currently are limited, since the Fed announced that it will continue to hold short-term interest rates near zero at least through mid-2013. The Fed could again use unconventional monetary policy tools, such as purchasing Treasury securities, as it has done since 2008.\nOthers have argued for governmental policy to provide fiscal stimulus, which can involve tax cuts, government spending increases, or both. During debates that preceded enactment of ARRA in February 2009, a wide range of experts—including economists who generally differ in their economic policy views, such as Martin Feldstein and Paul Krugman —contended that, in times when neither consumers nor businesses are spending, a massive infusion of government spending is needed quickly to energize economic activity. Infrastructure investment, they argued, can be an important source of stimulating labor demand when the labor market is underutilized, and enhancing U.S. productivity through long-neglected investments in roads, bridges, water systems, ports, etc. Again today, some advocate using direct fiscal stimulus through a combination of measures such as infrastructure investments, state fiscal relief, employer tax benefits, and expanded unemployment insurance to provide a needed boost for the economy.\nThe economic value of infrastructure investments follows from the cumulative, or multiplier effect, which is described by CBO.\nInfrastructure spending directly increases employment because workers are hired to undertake construction projects. It also adds to demand for goods and services through purchases of material and equipment and through additional spending by the extra workers who are hired … that increase in demand leads to further hiring.\nAccording to this view, spending on projects to address unmet infrastructure needs presents an opportunity to contribute significantly to economic recovery. During recessionary periods and the beginning of recovery, the state of the U.S. economy is such that there is excess capacity of both labor and materials for infrastructure projects. Large number of workers are unemployed, especially in the construction sector, which reported a 13.5% unemployment rate in August 2011. It is widely believed that a large number of those workers (many of whom had been employed in residential construction) could be employed on infrastructure construction projects. This same argument was raised during debate that preceded enactment of ARRA, when similarly high unemployment prevailed among construction workers.\nProponents argue that the cumulative, or multiplier, effect of infrastructure spending on the economy, discussed previously, makes it especially beneficial to economic recovery. CBO recently estimated the multiplier effect of major provisions of ARRA and concluded that each dollar transferred to state and local governments for infrastructure raised GDP above what it would have been otherwise by a total of $1 to $2.50 over several quarters. In CBO's analysis, the output multiplier of infrastructure spending was the same as ARRA provisions for purchases of goods and services by the federal government, and both were greater than impacts of other ARRA provisions such as tax cuts for individuals. However, some critics of using public spending to create jobs argue that the costs far exceed the benefits.", "Public infrastructure's potential role in contributing to job creation at a time when the economy continues to sputter raises several questions, including does infrastructure spending really create jobs, does it invest in assets with long-term value, and how are needs and priorities determined? These issues, along with the potential contribution of investments in \"green\" infrastructure, are explored in the remainder of this report.", "One of the ways in which Congress has tried to spur job growth and stem job losses to mitigate the impact of recessions is by directly raising demand for (i.e., increasing spending on) goods and services. That is to say, Congress has increased federal spending to counteract the labor market effects of decreased consumer purchases. Most often in the postwar period, Congress has engaged in direct job creation by increasing federal expenditures on public works.\nWhen Congress has considered raising spending on infrastructure or other federally funded activities to help stimulate a flagging economy, a commonly asked question is \"how many jobs will be created?\" Although there are other bases upon which to develop estimates of the number of jobs created by a given economic activity, an input-output (I-O) model of the economy often is used due to its cost-effectiveness. An I-O model describes the interrelationships between industries in the production process, showing how the dollar value of a sale is distributed across industries at a particular point in time. It thus reflects how much of the purchased product comes from final and supplier industries. An I-O table might show, for example, the dollar value of concrete produced by the nonmetallic minerals product manufacturing industry and of steel produced by the primary metals manufacturing industry that the construction industry uses to produce its various final outputs (e.g., buildings, roads, and dams).\nThe output requirements from each intermediate and final goods industry are then converted to employment requirements. Employment requirements are derived from productivity estimates for each industry at a particular point in time. The employment requirement associated with a given type of final demand is the employment in the industry producing the final product or service plus the employment in supplier industries. In other words, it is an approximation of both the direct and indirect employment dependent upon (supported by) the economic activity. It commonly is expressed as the number of jobs per billion dollars of expenditures valued in a particular year's dollars.\nLike an I-O table, an employment requirements table is a matrix of hundreds of columns and rows. Each column displays the number of jobs supported in each of the industry rows by an expenditure of one billion dollars in an industry as defined in the North American Industry Classification System (NAICS). For example, one billion dollars spent in the construction industry supports direct employment in the industry's various components (e.g., bridge construction) and indirect employment in the many industries that supply goods and services to the construction industry (e.g., fabricated metal bridge section manufacturing).\nActual job creation may differ from estimated job creation, however, because I-O models assume that resources are unlimited. If, for example, the economy were performing at a fairly high level (i.e., plants operating near full capacity and few workers unemployed), the actual number of new jobs might fall short of the estimate due to capital and labor constraints. In addition, I-O tables may not differentiate between imported and domestically produced goods. As a consequence, the domestic employment impact of expenditures might be overstated to the extent that inputs are imported. Employment requirements tables also do not distinguish between jobs by number of hours worked (part- or full-time) or length of employment (short- or long-term).\nInduced jobs, that is, the number of jobs resulting from purchases of goods and services by those in first-round (direct and indirect) jobs, may be included in job creation estimates as well. For example, workers who are directly or indirectly employed as the result of a highway construction program might spend some of their wages in grocery stores, at auto repair shops, etc. Estimates of induced jobs (i.e., the multiplier) are considered tenuous in part because their calculation relies on estimates of how much of the additional money earned by first-round workers will be spent versus saved. The jobs multiplier will further depend on economic conditions (e.g., the availability of labor, the inflation rate).\nJob creation estimates vary from one source to another depending on such factors as industry definition and time period. The Federal Highway Administration (FHWA) provides the most widely cited estimate of jobs supported by federal highway investments. The latest iteration of the FHWA model indicates that a $1 billion expenditure on highway construction in 2007 supported a total of 30,000 jobs:\n10,300 construction-oriented jobs (i.e., jobs at construction firms working on the projects and at firms providing direct inputs to the projects, such as guard rails); 4,675 jobs in supporting industries (i.e., jobs at companies providing inputs to the firms directly supplying materials and equipment used in highway construction, such as sheet metal producers who supply guard rail manufacturers); and 15,094 induced jobs (i.e., jobs dependent on consumer expenditures from the wages of workers in \"construction-oriented\" and \"industry-supporting\" jobs).\nThe FHWA noted two caveats about I-O analysis in addition to those mentioned above. First, the job estimate \"utilizes the national average mix of construction materials and labor inputs. Specific projects and local utilization ratios will alter the actual employment supported.\" For example, a different combination of materials and number of workers might be required for road resurfacing compared to bridge construction projects. Second, the 30,000 jobs estimate \"includes 'new jobs' to the extent unemployed labor is hired; ... and 'sustained jobs' as current employees are retained with the expenditure.\"\nAnother source of job creation estimates is the employment requirements table of the U.S. Bureau of Labor Statistics (BLS). Its most recent employment requirements table is based on the 2002 national I-O table developed by the U.S. Bureau of Economic Analysis (BEA), which BLS updated to reflect 2008 production and distribution technologies. The updated I-O table and 2008 labor productivity data were then used to develop an employment requirements table for 2008. The BLS employment requirements table indicates that 11,265 jobs were directly or indirectly dependent upon $1 billion of spending on construction activities in 2008. A majority of the jobs were in the construction industry itself (7,174 direct jobs). The 2008 figure from the BLS employment requirements table for construction expenditures (11,265) is lower than the 2007 direct and indirect jobs figure for highway expenditures from the FHWA (14,975).\nAnother example of an infrastructure job creation estimate is provided by the BEA's Regional Input-Output Modeling System (RIMS II). Currently, the BEA uses either the 2002 benchmark I-O for the nation or the 2008 annual I-O for the nation adjusted by 2008 data from its regional economic accounts to provide subnational estimates. As shown in Table 1 , the number of jobs directly and indirectly supported by an expenditure of $1 billion in the construction industry in a given state in 2008 ranged widely. The main reason for the disparity in estimates is that each state has a different mix of industries within its borders. As a result, one state varies from the next in its capacity to supply all the intermediate goods needed to carry out construction projects. A secondary explanation is that earnings vary by state.", "Funding infrastructure is a long-term investment, not quick-fix spending, that should lead to something durable, useful, and financially productive. The long-term nature of such investments can be at odds with the goal of quickly injecting money into the economy. Thus, the overriding question in debating infrastructure spending as part of a job creation package is, what will the increased spending buy? Two important considerations regarding any such proposal are, will the proposal produce short-term or long-term benefit, and will it produce a significant amount of incentive for the economy, relative to its budgetary cost.\nSome analysts are cautious about the effectiveness of infrastructure spending in this regard because of one key issue: timing. This concern was described in testimony by the Director of the Congressional Budget Office in 2008.\nThe timing of fiscal stimulus is critical. If the policies do not generate additional spending when the economy is in a phase of very slow growth or a recession, they will provide little help to the economy when it is needed.... Poorly timed policies may do harm by aggravating inflationary pressures and needlessly increasing federal debt if they stimulate the economy after it has already started to recover.\n****\nFor federal purchases [of goods and services, such as infrastructure spending], the primary issue in targeting the spending is that of timing ... because many infrastructure projects may take years to complete, spending on those projects cannot easily be timed to provide stimulus during recessions, which are typically relatively short lived.\nBy definition, the goal of stimulus spending is to get money into the economy swiftly. But that objective conflicts with the reality of building infrastructure projects that typically are multiyear efforts with slow initial spendout. Public works projects are likely to involve expenditures that take a long time to get underway and also are spread out over a long time. Large-scale construction projects generally require years of planning and preparation, including cost analysis, land acquisition, engineering, environmental review, and securing financing. For major infrastructure, such as highway construction and water resource projects, the initial rate of spending can be 25% or less of the funding provided in a given year. Based on CBO information, the National Governors Association reported spendout rates for several infrastructure categories:\nAbout 68% of highway and 45% of transit obligations spend out over the first two years of a project. About 19% of airport obligations spend out in the first year and another 42% in year two. About 24% of drinking water and wastewater obligations are expended over two years, and 54% over three years.\nEconomist Mark Zandi, who has been an advocate of infrastructure spending to stimulate economic recovery, acknowledged that it does take a substantial amount of time for funds to flow to builders, contractors, and the broader economy. \"Even if the funds are only used to finance projects that are well along in their planning, it is very difficult to know just when the projects will get underway and the money spent.\"\nHowever, advocates of infrastructure spending have two responses to this concern. First, to the extent that recovery from a lengthy recession is slow—as it is now—projects with extended timeframes can still contribute to recovery. Thus, the general concern about timing is less relevant, they say. Second, because every major infrastructure category has significant backlogs of projects that could proceed except for funding, advocates are confident that large amounts of actual construction work can be undertaken with increased financial assistance.\nIn 2009, policymakers concerned about these timing issues included requirements in ARRA that stimulus funds be awarded to \"shovel ready\" or \"ready to go\" infrastructure projects that could proceed to construction and contribute to economic output quickly. ARRA's effectiveness in meeting that challenge is not fully known, but may be less than was hoped for, at least according to CBO: \"As a practical matter, the experience with ARRA suggests that fewer projects are 'shovel ready' than one might expect: By the end of fiscal year 2009, outlays for infrastructure spending from ARRA made up less than 10 percent of the budget authority granted for infrastructure in that year.\"\nA related concern raised by some is whether spending that is undertaken in efforts to stimulate economic recovery will represent investment in long-term assets for society. Critics contend that emphasizing \"ready to go\" projects is likely to result in spending on many with marginal value, such as projects with plans that have been backlogged for some time because they lack sufficient merits. Critics contend that most projects are small and do not solve long-term problems or have strategic value. Infrastructure projects should be justified on the merits, not as job-creating instruments. One such critic of additional infrastructure spending noted, \"If additional infrastructure is worthwhile, it should be constructed. Such determinations are most likely to be accurate, however, when they are made without the haste associated with an attempt to respond to economic weakness.\"\nUndoubtedly, some types of public jobs programs support jobs that have little long-term impact, such as hiring workers to sweep streets or rake leaves, sometimes called \"make work.\" Projects that involve substantial new construction are slower to complete and to impact jobs, but often have a political appeal because of high visibility to the public. Some infrastructure, such as highway resurfacing and minor road repairs or replacement of pumps and compressors at water facilities, does benefit the value of the nation's capital assets and can be done more quickly than new construction. Likewise, acquiring new clean fuel buses or rehabilitating transit stations can occur more rapidly than extending collector sewer lines into unsewered communities. Many public officials believe that it is possible to balance both short-term and long-term goals through infrastructure projects.\nSome economists contend that public infrastructure investments benefit economic growth only if the impact of the infrastructure outweighs the adverse effects of higher taxes that are needed to finance the investment, or if it outweighs the adverse effects of spending cuts in other areas, such as properly maintaining existing public works systems. Higher deficits that result from stimulus spending slow economic growth in the long run, it is sometimes said, because government borrowing crowds out private investment. Critics of this view say that this concern is valid in times when the economy is working at full capacity, because under those circumstances, government spending just changes the mix of jobs with no change in the overall quantity or quality of labor. According to this alternative view, government spending in a severe and lingering economic slowdown affects resources and labor that are idle, and it does not fully displace private investment.\nOther economists say that if federal assistance merely provides fiscal relief by paying for spending that would have occurred anyway—that is, if federal dollars merely substitute for or replace local dollars invested in the same activity—it provides no economic boost. In response, state and local public officials say that that is not the case in today's economy. Because of the pressures that they continue to face, states and cities have been cancelling and delaying infrastructure projects. Another way of describing this situation could be to say that what is under discussion is in reality about holding state and local governments harmless in order to encourage them to carry out projects that they could not otherwise do, because of budget shortfalls.", "Traditionally, setting priorities for infrastructure spending is based on a combination of factors. Estimates of funding needs are one factor that is commonly used as a measure of the dimension of a problem and to support spending on some activities relative to others, as in: funding needs for X are much greater than for Y, therefore, society should spend more heavily on X.\nOne widely cited estimate of the nation's infrastructure needs is presented in the finding of the American Society of Civil Engineers (ASCE) that the condition of the nation's infrastructure merits a letter grade of \"D.\" According to ASCE, five-year funding needs total $2.2 trillion, while the \"gap\" between estimated investment needs and estimated spending is $1.8 trillion. ASCE reported the condition of a dozen categories of infrastructure, including roads (\"Poor road conditions cost U.S. motorists $67 billion a year in repairs and operating costs—$333 per motorist\"), dams (\"The gap between dams needing repair and those actually repaired is growing significantly\"), wastewater (\"Aging, underdesigned, or inadequately maintained systems discharge billions of gallons of untreated wastewater into U.S. surface waters each year\"), and schools (\"No comprehensive, authoritative nationwide data on the condition of America's school buildings has been collected in a decade. The National Education Association's best estimate to bring the nation's schools into good repair is $322 billion.\"). However, assessing \"need\" is complicated by differences in purpose, criteria, and timing, among other issues.\nIn the infrastructure context, funding needs estimates try to identify the level of investment that is required to meet a defined level of quality or service. Essentially, this depiction of need is an engineering concept. It differs from economists' conception that the appropriate level of new infrastructure investment, or the optimal stock of public capital (infrastructure) for society, is determined by calculating the amount of infrastructure for which social marginal benefits just equal marginal costs.\nThe last comprehensive national infrastructure needs assessment was conducted by the National Council on Public Works Improvement that was created by the Public Works Improvement Act of 1984 ( P.L. 98-501 ). The Council reported in 1988 that government outlays for public works capital totaled about $45 billion in 1985 and that a commitment to improve the nation's infrastructure \"could require an increase of up to 100 percent in the amount of capital the nation invests each year.\" This estimate of future needs by the Council may have been imprecise because of the inherent difficulties of needs assessments, something its report discusses in detail. It is worth highlighting a few of these key difficulties as a cautionary note when attempting to interpret infrastructure needs assessments.\nOne of the major difficulties in any needs assessment is defining what constitutes a \"need,\" a relative concept that is likely to generate a good deal of disagreement. For this reason, some needs assessments are anchored to a benchmark, such as current provision in terms of physical condition and/or performance. This current level of provision may be judged to be too high by some and too low by others, but nonetheless it provides a basis for comparison as future spending needs can be estimated in terms of maintaining or improving the current condition and performance of the infrastructure system. Needs estimates in highway and public transit are calculated in this way by the U.S. Department of Transportation (DOT). The Environmental Protection Agency (EPA) similarly estimates total U.S. funding needs for wastewater treatment facilities. EPA defines a \"need\" as the unfunded capital costs of projects that address a water quality or water quality-related public health problem existing as of January 1, 2008, or expected to occur within the next 20 years.\nIn some cases, estimates are intended to identify needs for categories of projects that are eligible for assistance under various federal programs. By being defined in that manner, assessments based solely on funding eligibility may not take into consideration needs for non-eligible categories, such as replacement of aging infrastructure or projects to enhance security.\nSome federal agencies estimate the funding necessary to bring the current infrastructure system to a state of good repair. The resulting funding estimate is sometimes referred to as the infrastructure \"backlog.\" Again, among other problems, such as inventorying the current condition of infrastructure and calculating repair costs, the needs estimate is affected by judgments about what constitutes a state of good repair. It is worth noting, too, that needs assessment are often conducted by organizations with a vested interest in the outcome. This is most obviously a concern when a needs assessment is conducted by an advocacy group, but may also occur with government agencies.\nA second major difficulty with needs assessments is estimating future conditions, especially consumer demand for services that infrastructure provides. To begin with, estimating demand is difficult because it is based on a host of assumptions such as the rate of population and economic growth. Typically, the longer the time period over which conditions are forecast, the harder it is to accurately predict them. Particularly hard to predict, and, thus, the effect they have on infrastructure needs, are structural changes in the economy and technological change. In addition, however, consumer demand can vary enormously depending on how a service is financed and priced, as well as other public policy decisions including regulation and conservation. For example, highway infrastructure is primarily financed by fuels and other taxes that provide a vague signal or no signal at all about the total cost of driving, particularly the external costs such as the fuel and time wasted in congested conditions. Highway tolls, on the other hand, particularly those that fluctuate in line with congestion, provide a direct price signal for a trip on a certain facility at a certain time of the day. Pricing highway infrastructure in this way has been found to reduce travel demand, thereby affecting infrastructure need. Consumer demand can sometimes be met without infrastructure spending. For example, water supply needs can be reduced by employing water conservation methods.\nFinally, it is worth mentioning that the need for public funding to supply infrastructure, including federal support, may often be an open question because the roles of the public and private sector can and do shift over time. Even within the public sector, the roles of federal, state, and local governments change and these shifting intergovernmental relationships may even affect the assessments of infrastructure needs.\nA third major difficulty with infrastructure needs assessments is that needs estimates for individual elements of public infrastructure are rarely comparable. Some assessments include only capital spending, others include both capital and operation and maintenance (O&M) spending. Some estimates of need are developed for the purposes of short-term, fiscally constrained spending plans, while others are developed to assess long-term needs based on current system condition and performance, future demand, and the effects of pursuing different policy options. Some needs assessments are for public sector spending by all levels of government, while others focus only on federal spending. Furthermore, needs estimates are rarely directly comparable because of differing underlying assumptions, such as those about economic and population growth, based on when the assessment is being done and for what purpose. Even comparing assessments for the same category over time can be difficult, if criteria of what gets counted change.\nNeeds surveys are likely to be conducted at different times, and thus will be expressed in different years' dollars. Comparing dollar estimates of infrastructure needs from different assessments is difficult. Many estimates are prepared in nominal dollars for the reference year, while others, particularly multi-year estimates, are sometimes prepared in constant dollars for a base year. Because there are different ways to inflate and deflate nominal dollar estimates, it should not be assumed that dollar estimates for the same year are necessarily comparable.\nBecause of major differences in coverage and methodology, individual needs assessments cannot be added together to provide a single estimate of future public infrastructure needs, despite the political desire to do so. Moreover, as needs assessments are typically prepared separately, there may be instances where a need for a type of infrastructure is included in more than one estimate, resulting in double counting, and other instances of omission, resulting in undercounting. As separately estimated, these assessments also ignore competitive and complementary situations in which spending levels in one area may affect needs in another. For example, in the case of transportation infrastructure, an improved freight rail line might reduce the need to improve the highway system to accommodate truck traffic.\nA further complication arises in the context of evaluating job creation plans—whether infrastructure funds are targeted to true need, and whether \"need\" is defined by engineering assessments and established distribution methods, or by economic measures such as unemployment or the effectiveness of programs to pull in or leverage private capital.", "A relatively recent addition to debate over the issues discussed in this report is the concept of growing the economy and creating jobs with investments that will promote clean energy and environmental protection. In the current context of economic recovery, consideration of \"green\" projects is less prominent than it was preceding enactment of ARRA in 2009, but the concept continues to have advocates who contend that investments in technologies with improved energy efficiency, energy security, or environmental protection will benefit the economy. Several interest groups have advocated these types of proposals. Among these, the Center for American Progress (CAP), a public policy and research think tank, recommended green investment projects totaling $100 billion as part of \"A Strategy for Green Recovery\" and also has advocated on behalf of the economic benefits of investing in clean energy. Also, a February 2011 report by the BlueGreen Alliance and the Economic Policy Institute argues that investments in the green economy can address near-term economic challenges of creating jobs and the long-run challenge of helping global economies transition to less carbon-intensive forms of economic activity.\nSeveral questions arise concerning such proposals. First, what, exactly, is \"green infrastructure?\" The term is less precisely defined than is traditional infrastructure (see page 4), which some \"green\" advocates now refer to as \"gray infrastructure.\" In the context of benefitting economic activity, green infrastructure has been broadly defined to include support for constructing the manufacturing infrastructure to develop and commercialize various technologies that are more energy efficient (e.g., advanced vehicle batteries) or more environmentally friendly (e.g., investments in renewable energy sources and the electricity grid to transmit and distribute clean energy). Renewable energy technologies generate electricity from resources such as the sun or wind, or produce transportation fuels from biomass, with essentially no net greenhouse gas emissions. Most of the future growth in green jobs is generally envisioned as coming from the growth in deployment of renewable energy technologies. Attention also has been given to mass transit projects that can decrease energy consumption and reduce global warming pollution. Similarly, many advocates favor such other technologies or techniques to retrofit schools and public buildings for greater energy efficiency.\nA second question is, can investment in \"green\" projects create jobs that benefit the economy's recovery? One aspect of this is, are there \"ready to go\" \"green\" projects that could create jobs quickly? As previously discussed, the key to stimulus spending is to get funds moving quickly into the economy. However, many of the proposals by green economy proponents were not conceived for the purpose of quickly stabilizing or increasing the number of jobs in the nation, or in industries particularly hard hit by recession. Studies like CAP's 2008 report recommend categories of projects to create green jobs, such as full funding of federal energy-efficiency programs, which \"can start stimulating the economy relatively rapidly\" and others, such as new authorization for grants to states to support manufacturing plant retooling to produce clean and energy-efficient technologies, that are \"less fast-acting.\" Eighty percent of CAP's recommended funding would have been for \"less fast-acting\" programs. Critics say that many types of \"green\" projects are pricey, are subsidized through tax expenditures, and would do little to benefit the economy rapidly, but proponents contend that \"green\" investments represent a downpayment on long-term economic growth and should be done even over a somewhat longer time period.\nOne environmental advocacy group, the Alliance for Water Efficiency, estimated that investments in water efficiency programs could increase GDP by $1.3-1.5 million per million dollars of direct investment. The types of projects include installing green roofs, raingardens, and permeable pavement that can reduce the need for new wastewater treatment plants and stormwater and sewer pipes; restoring wetlands and natural floodplains; and residential and commercial water efficiency projects.\nA final question is, what is the job creation potential of \"green infrastructure\" investments? Estimating the number of jobs dependent upon green infrastructure activities presents a greater challenge than estimates related to infrastructure projects as traditionally defined. As mentioned previously, the basis for most data collection by U.S. statistical agencies is the North American Industry Classification System (NAICS). It currently does not identify separately so-called green industries (e.g., those that utilize renewable resources to produce their outputs, or those that manufacture goods which minimize energy use). Within NAICS, the electric utility industry is disaggregated into hydroelectric, fossil fuel, nuclear, and other power generation, transmission, and distribution. Such renewable sources of energy production as wind, solar, and biomass are not uniquely recognized; they are included in the \"other\" category. If harnessing the wind to produce electricity and plant material to produce biofuel requires a substantially different mix of inputs than relying on coal and gasoline, for example, the conventional input-output (I-O) model does not seem well-suited as a basis for estimating the number of jobs supported by these green activities. Similarly, within NAICS, the building construction industry does not have a unique category for \"green\" retrofitting (e.g., installing additional insulation, fluorescent lighting, or energy-efficient heating and air-conditioning systems). Retrofitting likely requires a combination of inputs from supplier industries that differs from the mix for the top-to-bottom construction of buildings, once again making use of conventional I-O models problematic.\nThis recognized difficulty generally is either not mentioned, or how it is dealt with is not described, in analyses of green job creation. The 2008 CAP study, mentioned above, does address the problem. The researchers explain that because \"the U.S. government surveys and accounts that are used to construct the input-output tables do not specifically recognize wind, solar, biomass, building retrofitting, or new mass transit as industries in their own right,\" they created synthetic industries by combining parts of industries for which data are available. The researchers provided an example in the case of the biomass \"industry:\" they constructed it by combining the farming, forestry, wood products, and refining industries; then they \"assigned relative weights to each of these industries in terms of their contributions to producing biomass products.\"\nFurther complicating the matter is the context and manner in which estimates of green jobs generally are presented. Studies often develop employment projections based on differing sets of assumptions and time horizons, with the resulting analyses producing wide-ranging estimates of the number of green jobs. For example, some attempt to estimate the number of direct and indirect jobs 10 or more years in the future that are supported by an assumed increase in the demand for energy that is met by an assumed shift during the projection period from coal to wind and geothermal power generation. Some reports also include induced employment, but this is not always made clear. In addition, some analyses relate to a particular state. Their results may not be generalizeable to other areas, because state economies have different mixes of industries and may not be able to provide any or all of the inputs for a particular green output. The analyses also may express job estimates per unit of power generated by renewable resources and saved by increased demand for energy-efficient products and equipment, rather than per dollar of investment in green activities. And, the assumptions and methodologies underlying the job creation estimates often are not clearly articulated, which makes thoughtful review of the results very difficult. For these reasons, policymakers considering which if any green infrastructure programs to fund to create and preserve jobs in the near term may not find helpful many green economy studies." ], "depth": [ 0, 1, 2, 1, 2, 2, 1, 2, 2, 2, 2 ], "alignment": [ "h0_title h2_title h1_title", "h0_full", "", "h0_title h1_full", "h1_full", "h0_full h1_full", "h2_title h1_title", "", "h1_full", "h2_full", "" ] }

{ "question": [ "How did policymakers react to the recent recession?", "What legislation helped stimulate the economy?", "Why is there continued interest in using federal spending to stimulate the economy?", "How can economic recovery be best accelerated?", "What does this report cover?", "What issues are debated regarding the role of infrastructure investment in the economy?", "How do infrastructure investments affect productivity?", "Why might infrastructure investment not be effective for this type of stimulus?", "What is the stance of spending advocates?", "How are infrastructure spending priorities set?", "How are funding needs determined?", "How do job creation plans complicate the evaluation of funding needs?" ], "summary": [ "During the recent recession, policymakers took a number of monetary and fiscal policy actions to stimulate the economy.", "Notably, Congress enacted the American Recovery and Reinvestment Act (ARRA) that provided increases in federal spending and reduction in taxes in order to increase demand for goods and services.", "However, as the economy is only slowly emerging from the recession, interest in using federal government spending to boost U.S. economic recovery has again intensified.", "There is widespread desire to accelerate job creation and economic recovery, although consensus on how to do so is not apparent. Policymakers at all levels of government are debating a range of options to address these problems.", "This report is an overview of policy issues associated with one approach that also was included in ARRA: using accelerated investments in the nation's public infrastructure as a mechanism to benefit economic recovery.", "Academics, economists, and policymakers debate two issues concerning the contribution of infrastructure investment to the economy. One issue is the effects of infrastructure investment on productivity and growth. The second related issue is the role of infrastructure spending, which is typically a long-term activity, as a short-term mechanism to invigorate a sluggish economy.", "Research conducted over time has resulted in a general consensus that there can be positive returns on productivity of investing in infrastructure. Many experts now argue that infrastructure spending could be an important source of stimulating labor demand and enhancing U.S. productivity through investments in roads, bridges, water systems, etc.", "Still, some analysts are cautious about the effectiveness of this type of fiscal stimulus because of one key issue: timing. By definition, the goal of stimulus spending is to get money into the economy swiftly, but infrastructure spending is different.", "Spending advocates contend that to the extent that recovery from a lengthy recession is slow—as it is now—projects with extended timeframes can still contribute to the economy's recovery.", "Setting priorities for infrastructure spending is based on a combination of factors, often including estimates of funding needs.", "Determining \"need\" is complicated by differences in purpose, criteria, and timing.", "In the context of evaluating job creation plans, a further complication is whether funds are targeted to true need, and whether \"need\" is defined by engineering assessments, by economic measures such as unemployment, or a program's effectiveness in leveraging private capital." ], "parent_pair_index": [ -1, 0, -1, -1, -1, -1, -1, 1, 1, -1, 0, 1 ], "summary_paragraph_index": [ 0, 0, 0, 0, 0, 2, 2, 2, 2, 4, 4, 4 ] }

{ "title": [ "", "Background", "Pipeline of TRIO Programs", "TRIO Upward Bound (UB) Program8", "Eligible Recipients", "Program Participants", "Program Intensity and Activities", "Outcome Criteria", "TRIO Talent Search (TS) Program17", "Eligible Recipients", "Program Participants", "Program Intensity and Activities", "Outcome Criteria", "TRIO Educational Opportunity Centers (EOC) Program21", "Eligible Recipients", "Program Participants", "Program Intensity and Activities", "Outcome Criteria", "TRIO Student Support Services (SSS) Program26", "Eligible Recipients", "Program Participants", "Program Intensity and Activities", "Outcome Criteria", "Ronald E. McNair Postbaccalaureate Achievement (McNair) Program34", "Eligible Recipients", "Program Participants", "Program Intensity and Activities", "Outcome Criteria", "TRIO Staff Development (Training) Program36", "Eligible Recipients", "Program Participants", "Program Intensity and Activities", "Outcome Criteria", "Comparison of Key Features of the TRIO Programs", "Program Appropriations and Project Participants", "Major HEOA Amendments to Common TRIO Provisions", "Required Program Activities", "Prior Experience Points", "Student-Serving TRIO Programs", "TRIO Training", "Application Review Process (Appeal)", "Award Amounts and Numbers of Program Participants", "Length of Grant Award", "Multiple Grants for Different Populations", "Research, Evaluation, and Assessments", "SSS Independent Evaluations", "AY1991-1992 Freshman SSS Participants", "2006 SSS Promising Practices", "AY2007-2008 Freshman SSS Participants", "SSS PART Reviews and Annual Performance Report Data", "UB Independent Evaluations", "UB PART Review and Annual Performance Report Data", "TS Evaluations", "TS PART Review and Annual Performance Report Data", "EOC Evaluations", "EOC PART Review and Annual Performance Report Data", "McNair Independent Evaluations", "McNair PART Review and Annual Performance Report Data", "Training Evaluations" ], "paragraphs": [ "", "Since its inception, the Higher Education Act (HEA) of 1965 has had a focus on increasing the postsecondary access and achievement of disadvantaged students, including low-income and first-generation college students. The two major approaches are financial support and supportive services. The Pell Grant program is the single largest source of federal grant aid supporting primarily low-income postsecondary education students. The Pell Grant program is estimated to provide approximately $30.1 billion to approximately 7.6 million undergraduate students in FY2019. The TRIO programs are the primary federal programs providing support services to disadvantaged students to promote achievement in postsecondary education. The Higher Education Amendments of 1968 (P.L. 90-575) consolidated a \"trio\" of programs under one overall program. The number of TRIO programs has since expanded to six, and they were funded at a total of $950 million in FY2017.\nCollectively, the TRIO programs are designed to identify qualified individuals from disadvantaged backgrounds, prepare them for a program of postsecondary education, provide support services for postsecondary students, motivate and prepare students for doctoral programs, and train individuals serving or preparing for service in the TRIO programs. TRIO services support the federal policy goals of secondary school completion, college preparation, college enrollment, undergraduate completion, and graduate school preparation. There are six main TRIO programs (in descending order of funding levels):\nTRIO Upward Bound (UB) Program, TRIO Student Support Services (SSS) Program, TRIO Talent Search (TS) Program, TRIO Educational Opportunity Centers (EOC) Program, Ronald E. McNair Postbaccalaureate Achievement (McNair) Program, and TRIO Staff Development (Training) Program.\nThe Higher Education Opportunity Act (HEOA; P.L. 110-315 ) of 2008 made several changes most recently to the TRIO programs to increase accountability, rigor, and uniformity and to ensure that all disadvantaged students had access to the programs. In 2010, the U.S. Department of Education (ED) released the final regulations to implement the HEOA TRIO program provisions.\nThis report serves as an introduction to the TRIO programs. The initial section describes the provisions of each of the programs, as reauthorized by HEOA. The subsequent section provides a brief overview of recent funding and participation trends for each of the programs. This is followed by a description of unique provisions and regulations that are common to the TRIO programs, highlighting key HEOA and regulatory changes. A concluding section presents the key findings and results of recent program evaluations and assessments.", "The federal TRIO programs provide support services and some financial assistance primarily to low-income, first-generation college students to help them succeed academically and encourage them to advance through much of the educational pipeline. The TRIO programs work together to provide a pipeline of support services from secondary school through undergraduate education. Each of the TRIO programs is designed to serve a different target population of participants through a different level of education. The following subsections describe the purpose, eligible recipients, program participants, program intensity and activities, and outcome criteria of each of the TRIO programs and are ordered according to their sequence in the educational pipeline:\nUB primarily supports the college preparation of secondary students, TS primarily supports the postsecondary enrollment of secondary students, EOC primarily supports the postsecondary enrollment of adult students, SSS primarily supports the completion of undergraduate education, McNair primarily supports graduate school preparation, and Training supports TRIO staff development.\nFor a comparison of eligible grant recipients, program participant requirements, and required program activities, see Table 1 , Table 2 , and Table 3 , respectively.", "The UB program is intended to provide intensive preparation and encouragement toward success in education beyond secondary school. UB has three types of projects: Regular UB to prepare secondary school students for programs of postsecondary education, UB Math and Science Centers (UBMS) to prepare high school students for postsecondary education programs that lead to careers in the fields of math and science, and Veterans UB (VUB) to assist military veterans to prepare for a program of postsecondary education. Compared to Regular UB projects, UBMS projects typically serve more students in their junior or senior years, serve students with stronger math and science skills, and emphasize the summer component more.", "Grants or contracts are available to institutions of higher education (IHEs); public and private agencies and organizations, including community-based organizations (CBOs) with experience in serving disadvantaged youth; secondary schools; and combinations of such institutions, agencies, and organizations.", "All participants must have completed eight years of elementary education or be at least 13 years of age but not more than 19 years of age, unless the age and grade limitation defeats the purpose of the program. In addition, all participants must be in need of academic support to pursue education beyond secondary school successfully. At least two-thirds of the program participants must be low-income, first-generation college students. The remaining one-third of Regular UB and VUB participants must be low-income, first-generation, or at risk of academic failure. The remaining one-third of UBMS participants must be low-income or first-generation. Program regulations define a Regular UB participant who has a high risk for academic failure as an individual who is not at the proficient level on state assessments in reading or language arts; is not at the proficient level on state assessments in math; has not successfully completed pre-algebra or algebra by the beginning of the 10 th grade; or has a grade point average of 2.5 or less (on a 4.0 scale) for the most recent school year. Program regulations define a military veteran who has a high risk for academic failure as an individual who has been out of high school or dropped out of a program of postsecondary education for five or more years; has scored on standardized tests below the level that demonstrates a likelihood of success in a program of postsecondary education; or meets the definition of an individual with a disability. For each new grant competition after 2010, the Secretary identifies the minimum number of participants and the minimum and maximum grant award amounts in the Federal Register notice inviting applications.", "Historically, UB has been a relatively high-intensity program for precollege students. In FY2017 on average, Regular UB, UBMS, and VUB projects expended $4,458, $4,436, and $2,163 per participant, respectively. The Regular UB and UBMS per-participant spending is, on average, at least 10 times higher than TS and EOC projects, which may also serve secondary school students.\nThe HEA requires each grantee to provide the following seven services:\ninstruction in mathematics through precalculus, laboratory science, foreign language, composition, and literature, as part of the core curriculum in the third and succeeding years; academic tutoring to enable students to complete secondary or postsecondary courses; secondary and postsecondary course selection advice and assistance; assistance in preparing for college entrance examinations and assistance in completing college admission applications; information on student financial aid opportunities and assistance in completing financial aid applications; guidance on and assistance in methods for achieving a secondary school diploma or an equivalent or postsecondary education; and education or counseling services designed to improve financial and economic literacy.\nPer regulations, Regular UB and UBMS grantees must provide a summer instructional component. Regulations also require UBMS grantees to provide participants with opportunities to learn from mathematicians and scientists who are engaged in research and teaching and opportunities with graduate and undergraduate science and mathematics majors.\nProgram statute lists permissible activities such as exposure to cultural events, academic programs not usually available to disadvantaged students, mentoring programs, and programs and activities designed specifically for special populations. Program regulations allow UB grantees, under certain conditions, to pay tuition for courses that will allow participants to complete a rigorous secondary school program of study and room and board for a residential summer instructional component.\nRegular UB and UBMS grantees may also provide such services as cultural or academic field trips, mentoring, work-study, or stipends. The Regular UB and UBMS stipends may not exceed $40 per month for the academic year component and may not exceed $60 per month for the three-month summer recess, except that youth participating in work-study may be paid $300 per month during the summer recess. Regular UB and UBMS stipends are for full-time, satisfactory participants only.\nVUB grantees may provide such services as short-term remedial or refresher courses, stipends, and assistance accessing veteran support services. The VUB stipend may not exceed $40 per month and is for full-time, satisfactory participants only.", "All UB projects must annually report the extent to which they meet or exceed the goals approved in their application for the following outcome criteria:\nthe number of participants served; participant school performance, as measured by the percentage of participants with a specified cumulative grade point average (inapplicable to VUB grantees); participant academic performance, as measured by the percentage of participants scoring at or above the proficient level on state standardized tests in reading/language arts and math, or, in the case of VUB, receiving a better score on a standardized test after completing the program; secondary school retention and graduation of participants, as measured by the percentage of participants reenrolling at the next grade level or graduating with a regular high school diploma or, in the case of VUB, program retention or completion; completion of a rigorous secondary school curriculum (see box below), as measured by the percentage of current and prior participants expected to graduate who actually graduate with a regular high school diploma and complete a rigorous secondary school curriculum (inapplicable to VUB grantees); postsecondary enrollment of participants, as measured by the percentage of current and prior participants expected to graduate or, in the case of VUB, who have completed the VUB program and enrolled in an IHE within a specified timeframe; and completion of a postsecondary degree, as measured by the percentage of prior participants enrolled in an IHE within a specified timeframe who graduate with a degree within a specified period or, in the case of VUB, completion of postsecondary education.", "The TS program also has the aim of high school completion and postsecondary enrollment. It encourages students to complete high school and enroll in postsecondary education; helps students apply for student financial assistance; and encourages older individuals who have not completed secondary or postsecondary education to enter, or reenter, and complete such programs.", "Grants or contracts are available to institutions of higher education (IHEs); public and private agencies and organizations, including community-based organizations (CBOs) with experience in serving disadvantaged youth; secondary schools; and combinations of such institutions, agencies, and organizations.", "All participants must have completed five years of elementary education or be at least 11 years of age but not more than 27 years of age, unless the age and grade limitation defeats the purpose of the program. Individuals over 27 years of age may participate if they cannot be served by an area Educational Opportunity Centers (EOC) grantee. At least two-thirds of the program participants must be low-income, first-generation college students.", "Grantees must provide course selection advice and assistance, assistance in preparing for college entrance examinations, assistance in completing college admission applications, information on student financial aid opportunities, assistance in completing financial aid applications, and guidance on and assistance in methods for achieving a secondary school diploma or an equivalent or postsecondary education. Because TS is a less intensive program than UB, grantees need only provide connections to tutoring and connections to services designed to improve financial and economic literacy. The list of required services, as amended by the HEOA, requires TS grantees to provide a fuller range of services and more intensive services than prior to the HEOA. The average cost per TS participant increased from about $393 in FY2008-FY2010 to $434 in FY2011, the first year of a new grant cycle under the HEOA. For FY2017, the average cost per TS participant was $485.\nExamples of permissible activities are exposure to cultural events, academic programs not usually available to disadvantaged students, mentoring programs, tutoring, counseling, exposure to careers or higher education, and related programs and activities designed specifically for special populations. Program regulations permit grantees to pay for educational costs, such as tuition, transportation, meals, high school equivalency programs, and college applications, if necessary, for participants.", "All TS projects must annually report the extent to which they meet or exceed the goals approved in their application for the following statutory outcome criteria:\nthe number of participants served; the secondary school retention of participants; the graduation of participants with a regular secondary school diploma in the standard number of years; the graduation of participants having completed a rigorous secondary school curriculum; the postsecondary enrollment of participants; and the postsecondary education completion of participants.", "Like Upward Bound (UB) and Talent Search (TS), the EOC program also supports high school completion and postsecondary enrollment. EOC provides information on financial and academic assistance available to individuals who want to pursue postsecondary education; provides assistance in applying for admission to postsecondary education and assistance in completing financial aid applications; and improves the financial and economic literacy of students.", "Grants or contracts are available to IHEs; public and private agencies and organizations, including CBOs with experience in serving disadvantaged youth; secondary schools; and combinations of such institutions, agencies, and organizations.", "All participants must be at least 19 years of age, unless the age limitation defeats the purpose of the program. One prominent distinction between the TS and EOC programs is that EOC grantees generally serve an adult population; however, TS may serve adults and EOC may serve secondary-age students if the individuals cannot be appropriately served by the other program and if the individual's participation does not dilute the project's services. In addition, at least two-thirds of the program participants must be low-income, first-generation college students.", "EOC projects provide the least intensive services, as reflected by the $254 cost per participant in FY2017. Unlike the other student-serving TRIO programs, EOC statutory provisions do not establish activities required of all grantees. Grantees may provide such services as academic advice and assistance in course selection, tutoring, public information campaigns regarding postsecondary education opportunities, and counseling and guidance. The EOC projects may also provide programs and activities designed specifically for special populations. Program regulations allow spending on transportation, meals, and, with specific prior approval of the Secretary, lodging under limited circumstances because the EOC program is intended to have a low cost per participant. Program regulations also allow grantees to pay for college applications, college entrance examinations, and examination fees for alternative education programs.", "All EOC projects must annually report the extent to which they meet or exceed the goals approved in their application for the following statutory outcome criteria:\nthe total number of program participants; the completion of a secondary school diploma or its recognized equivalent by participants that did not have a secondary school diploma or its recognized equivalent; the enrollment of secondary school graduates who were served by the program in programs of postsecondary education; the number of participants completing financial aid applications; and the number of participants applying for college admission.", "The SSS program provides support services to college students with the aim of improving their retention, graduation rates, financial and economic literacy, and transfers from two-year to four-year schools. SSS programs are also intended to foster an institutional climate supportive of potentially disconnected students.", "Grants or contracts are available to IHEs and combinations of IHEs.", "All SSS participants must be enrolled, or accepted for enrollment, at the grantee and be in need of academic support to pursue education successfully beyond secondary school. At least two-thirds of participants must be either students with disabilities or low-income, first-generation college students. The remaining one-third of participants must be low-income students, first-generation college students, or students with disabilities. Also, at least one-third of the participating students with disabilities must be low-income.", "In FY2017, SSS projects expended $1,500 per participant, on average. All TRIO SSS programs must offer\nacademic tutoring, directly or through other institutional services; course selection advice and assistance; education or counseling services designed to improve financial and economic literacy; information on student financial aid opportunities and assistance in completing financial aid applications; and assistance in applying for admission to, and obtaining financial assistance for enrollment in, either graduate and professional programs to students enrolled in four-year IHEs or four-year programs of postsecondary education to students enrolled in two-year IHEs.\nIn addition to the required services, grantees may also provide services such as academic or career counseling, exposure to cultural events, academic programs not usually available to disadvantaged students, mentoring programs, temporary housing for homeless and foster care youth, related programs and activities designed specifically for special populations, and student aid stipends. Program regulations allow grantees to provide transportation and, with prior approval of the Secretary, meals and lodging for participants and staff during approved educational and cultural activities sponsored by the project. Program regulations limit expenditures on professional development travel to no more than 4% of staff salaries.\nProjects may provide student aid stipends to program participants who are in the first two years of postsecondary education and who are receiving Pell Grants. If the needs of Pell-recipient SSS program participants in the first two years of postsecondary education are fulfilled, projects may also provide student aid stipends to Pell-recipient SSS program participants who have completed the first two years of postsecondary education and who are at high risk of dropping out. Student aid stipends must be greater than 10% of the total maximum Pell Grant award amount but no more than the total maximum Pell Grant award amount as determined for each student. Grantees may not use more than 20% of their SSS award for student aid stipends and must match at least one-half of the federal funds used for SSS student aid stipends, in cash, from nonfederal sources unless the IHE is eligible for Title III-A, Title III-B, or Title V of the HEA. Title III-A, Title III-B, and Title V of the HEA provide institutional aid to IHEs with lower-than-average educational and general expenditures and high enrollments of needy students and to historically Black colleges and universities (HBCUs).", "All SSS projects must annually report the extent to which they meet or exceed the goals approved in their application for the following statutory outcome criteria:\nthe number of participants; participant postsecondary retention; the participants who remain in good academic standing; for two-year IHEs, the completion of a degree or certificate and the transfer to baccalaureate degree-granting IHEs; and for baccalaureate degree-granting IHEs, the percentage of students completing the degree programs in which enrolled.", "The TRIO McNair program helps prepare disadvantaged college students for subsequent doctoral study by providing research opportunities, internships, counseling, tutoring, and other preparatory activities.", "Grants or contracts are available to IHEs and combinations of IHEs.", "All participants must be enrolled in a nondoctoral degree program at the grantee. At least two-thirds of students served must be low-income, first-generation college students. The remaining one-third of participants must be from a group that is underrepresented in graduate education, including Alaska Natives, Native Hawaiians, and Native American Pacific Islanders.", "In FY2017, on average, McNair projects expended $8,766 per participant. All projects must provide academic tutoring, academic counseling, summer internships that prepare participants for doctoral study, opportunities for research or other scholarly activities, seminars and other educational activities designed to prepare students for doctoral study, and assistance in securing graduate program admissions and financial assistance. Projects may provide stipends of no more than $2,800 annually and the costs of summer tuition, summer room and board, and transportation to students engaged in summer research internships, provided that the student has completed the sophomore year before the internship begins. Projects may also provide services such as mentoring programs, exposure to cultural events and academic programs, and services designed to improve financial and economic literacy.", "All McNair projects must annually report the extent to which they meet or exceed the goals approved in their application for the following statutory outcome criteria:\nthe total number of program participants; the provision of appropriate scholarly or research activities for participants; the acceptance and enrollment of participants in graduate programs; the retention of prior participants in graduate study; and the attainment of doctoral degrees by prior participants.", "The TRIO Training program provides training to existing and potential TRIO program staff to improve project administration, operation, outcomes, and outreach.", "Two-year grants or contracts are available to IHEs and public and private nonprofit institutions and organizations.", "Program participants are staff and leadership personnel employed in, participating in, or preparing for employment in, TRIO programs and projects.", "Grantees provide annual training through conferences, internships, seminars, workshops, and manuals designed to improve TRIO programs. Allowable costs include transportation and lodging of participants, staff, and consultants and honorariums for speakers. Training is designed specifically for new TRIO project directors and designed to cover specific topics such as legislative and regulatory requirements, the use of educational technology, or strategies for recruiting disconnected students. ED establishes absolute priorities to ensure the desired populations and specific topics are covered in each grant competition. At least one grantee will train new TRIO project directors. At least one grantee will cover the specific topics listed in the application notice. ED also ensures that training is offered in every geographic region and customized to local needs.", "Unlike the student-serving TRIO programs, there are no statutorily defined outcome criteria for the Training program. Program regulations require all Training projects to annually report the extent to which they meet or exceed the goals approved in their application for the following outcome criteria:\nthe number of participants served; assisting participants in developing increased qualifications and skills to meet the needs of disadvantaged students; providing the participants with an increased knowledge and understanding of the TRIO programs; and the applicant meeting all administrative requirements.", "A comparison of program features and eligible participants across the TRIO programs follows.", "The Higher Education Act (HEA), as amended, authorized a total of $900 million for FY2009 and such sums as necessary for each of FY2010-FY2014. Of the TRIO authorization, McNair was authorized at least $11 million for each of FY2009-FY2014. The authorization of appropriations was intended to provide guidance regarding the appropriate amount of funds to carry out the authorized activities of a program. The authorization was extended through FY2015 under the General Education Provisions Act (GEPA), although the programs have continued to receive appropriations.\nThe annual discretionary appropriation is a single amount for all of the TRIO programs. The appropriation provides budget authority to the U.S. Department of Education to incur obligations and authorize payments for the specified programs. An examination of appropriations over the last decade shows that the annual appropriation increased from $828 million in FY2008 to $853 million in FY2010 before declining to $796 million in FY2013 and increasing to $950 million in FY2017. With the increased appropriation in FY2017, the actual FY2017 discretionary appropriation exceeds the FY2008 inflation-adjusted appropriation level of $943 million (in FY2017 dollars). The Secretary allocates the discretionary appropriation to the various TRIO programs. Table 4 displays appropriations and allocations over the latest 10-year period.\nThrough the College Cost Reduction and Access Act (CCRAA; P.L. 110-84 ), ED received a mandatory appropriation of $57 million for each of FY2008-FY2011 to make four-year awards to 186 unsuccessful UB applicants from the FY2007 competition that scored above 70. The mandatory funding was appropriated, in part, to fund several historically Black colleges and universities that lost their awards in the FY2007 competition.\nThe TRIO programs served over 820,000 participants in each of FY2008-FY2010 ( Table 5 ). In each of FY2011-FY2015, the TRIO programs served fewer than 790,000 participants primarily as a result of a reduction in the number of TS participants. The number of TS participants declined, in part, as a result of ED reducing the TS allocation from $142 million in FY2010 to $139 million in FY2011 and establishing $460 as the maximum cost per participant in the FY2011 competition in response to the HEOA amendments, which increased the intensity of TS services. In FY2016 and FY2017, with the increased appropriations levels, the number of participants also increased to more than 810,000 in each year. The FY2017 appropriations agreement instructed ED to increase grant amounts for continuation awards (TS, EOC, and SSS) and increase the number of grantees awarded in the FY2017 competitions (UB and McNair). TRIO participation data reflect the number of participants served by each program. The intensity of services received and the duration of participation differs for each program and among individuals in the same program.", "Several statutory provisions common to most of the TRIO programs were amended or added by the Higher Education Opportunity Act (HEOA; P.L. 110-315 ) of 2008. The HEOA made several important changes to the grant-making process, which impact the way the Department of Education administers the programs and the way grantees implement their funds. Through the HEOA, Congress also attempted to standardize the grant cycle and maximize the numbers of disadvantaged students participating.", "TRIO services support the goals of secondary school completion, college preparation, college enrollment, undergraduate completion, and graduate school preparation. Prior to the HEOA, statutory provisions identified only a list of permissible services for each of the programs. With the exception of EOC, the HEOA defined a list of required services and a list of permissible services for each program. The required services are expected to increase consistency across grantees, and it is hoped that this will increase program effectiveness. All of the required services must be made available to all program participants; however, not all participants may need or choose to avail themselves of the required services. In other words, the required services must be offered by the program, but participants have the ability to choose which services they receive. Grantees may offer services that are not listed explicitly as required or permissible as long as the services further the purpose of the program. The required activities are described in the relevant program sections above and presented for the student-serving programs in Table 3 .", "The TRIO programs have always been designed to reward successful grantees with new grants. In making new discretionary grants, ED employs peer reviewers who have relevant background and expertise to read and evaluate grant applications. The peer reviewers score each application up to 100 points based on a set of selection criteria. ED also calculates prior experience (PE) points based on each applicant's prior experience of service delivery.", "For the student-serving TRIO programs, statutory provisions require ED to consider each applicant's prior experience of service delivery by allowing prior grantees to earn additional prior experience (PE) points. Grants are then awarded in rank order on the basis of the applicant's total score─peer review score plus PE points.\nPE points are awarded according to the extent to which a student-serving TRIO program grantee meets or exceeds the objectives in its prior application. Program regulations prior to passage of the HEOA required that grantees propose ambitious but attainable objectives for the outcome criteria that were defined in regulations. The outcome criteria were primarily based on measures related to the number of participants served and their academic achievements or the services of which they took advantage. The extent to which the grantee met or exceeded its prior grant objectives determined how many of the 15 possible PE points applicants received in the competition.\nPrior to the HEOA during the FY2006 TS and EOC competitions, several applicants charged that they were denied funding because ED did not apply PE points uniformly and according to its regulations. ED's Office of Inspector General (OIG) found that ED had improperly awarded PE points by not complying with its regulations, awarding PE points to applicants that did not meet minimum requirements, making execution errors, and changing the process. The OIG also found that ED did not have a well-defined, transparent process for reviewing grantee performance and did not hold grantees responsible for serving fewer participants than funded to serve.\nCongress through the HEOA desired to increase the rigor, quality, effectiveness, and accountability of the TRIO student-serving programs by establishing outcome criteria on which to base PE points for each of the student-serving programs (see Table 6 ). The Secretary and applicant agree upon targets/objectives for each of the outcome criteria, as defined by statute and refined in regulations and Federal Register notices. Statutory provisions also require that the outcome criteria measure the quality and effectiveness of projects annually and over multiple years. By regulation, prior grantees that failed to serve at least 90% of the approved number of participants do not receive any PE points.\nSome of the outcome criteria raised program expectations above those established in regulations prior to the HEOA. For instance, prior to the HEOA, TS outcome criteria focused on participant numbers, participant demographics, high school retention and completion, and postsecondary enrollment. The HEOA added criteria for the completion of a rigorous secondary school program of education and postsecondary completion. Also prior to the HEOA, the Secretary awarded PE points for UB based on the number of participants served; participants' improvement on standardized achievement tests and grade point averages (GPAs); UB program retention; postsecondary enrollment; and postsecondary education success. The HEOA and regulations revised the criterion of improvement on standardized tests to achievement on standardized tests, revised the criterion of postsecondary success to postsecondary completion, and added a criterion for participants' completing a rigorous secondary program of education. Grant competitions for FY2011 and beyond, following passage of the HEOA and final regulations, use the outcome criteria established by the HEOA.", "TRIO Training uses a different process for PE points, and it was not amended by the HEOA. ED awards Training applicants based on the peer review score ranking compared to other applicants that address the same absolute priority (see the section on \" Required Program Activities \"). ED uses PE points in case of a tie in the peer review scores. PE points are awarded per regulations to prior grantees on the basis of their established outcome criteria.", "Also in response to the OIG report finding that ED improperly awarded PE points and evidence of other errors by ED in processing applications, the HEOA added provisions allowing certain unsuccessful applicants to request a second review of their application, sometimes referred to as an appeal. To be eligible for a second review, the applicant must have evidence of a specific technical, administrative, or scoring error made by ED or a peer reviewer with respect to the scoring or processing of a submitted application, and the applicant must have otherwise met all of the application submission requirements. According to statute to the extent feasible based on the availability of appropriations, the Secretary will fund applications with scores adjusted as a result of a second review if the scores are equal to or exceed the minimum cut score for the competition.\nPer regulations, the Secretary reserves a portion of the appropriation to award grants under the second review. Under ED regulations, the only applicants eligible for a second review are those that were not funded under the first review but that had an application score that could be funded if the Secretary had reserved 150% of the appropriation actually reserved to fund under the second review. During the FY2012 Regular UB competition, the Secretary reserved almost $9 million (3.5%) of the over $260 million allocation for the second review. In the FY2015 SSS competition, the Secretary awarded approximately $270 million to 968 institutions in approximately July 2015, and following the second review awarded an additional $23.4 million to more than 100 institutions in approximately August 2015.", "Statutory provisions establish a minimum grant award of $200,000 for the student-serving TRIO programs, unless the applicant requests a smaller amount, and $170,000 for the Training program. Per regulations for each new grant competition after 2010, the Secretary identifies the minimum number of participants and the minimum and maximum grant award amounts in the Federal Register notice inviting applications.\nFor example, for the FY2011 TS grant competition, the Secretary required all applicants to propose serving at least 500 participants for no more than $460 per participant. N ew grantees were eligible to receive an award of up to $230,000. Prior grantees were allowed a maximum award of the greater of $230,000 or 103% of their prior award amount.", "The student-serving TRIO program grants are awarded for a period of five years. Training grants are awarded for a period of two years. Prior to the HEOA, student-serving TRIO program grants were awarded for a period of five years to applicants scoring in the highest 10% and for a period of four years for all other applicants. The HEOA allowed the Secretary a one-time, limited extension of grants to synchronize all of the grants on the same schedule. The Secretary extended the SSS projects scheduled to end in 2009 until 2010; the TS and EOC projects scheduled to end in 2010 until 2011; and the UB and McNair projects scheduled to end in 2011 until 2012. These extensions, however, did not synchronize the grant periods.", "Some Members of Congress were concerned that ED regulations prevented the TRIO programs from serving the maximum number of disadvantaged students. The HEOA added a provision clarifying that grantees may receive more than one award if the additional awards serve different populations, target areas, target schools, or different campuses. The Secretary publishes the different populations for which an eligible entity may submit a separate application for each grant competition. Applicants that propose serving a different population from the prior grant do not receive PE points for the application serving a new population. Prior to the HEOA, this had been allowed to varying degrees by program regulations.\nIn the FY2010 SSS grant competition, the Secretary defined six different populations: (1) participants who meet the minimum SSS requirements; (2) participants with disabilities exclusively; (3) English as a second language (ESL) participants exclusively; (4) participants receiving services in the science, technology, engineering, and mathematics (STEM) fields; (5) participants receiving services in the health sciences fields; and (6) participants receiving teacher preparation services.\nTraining grantees may receive more than one award if the additional awards are intended to meet different absolute priorities established for the competition. ED includes an absolute priority in a grant competition to focus the competition on specific objectives or activities, and each applicant must address an absolute priority to be eligible for funding.", "Statutory provisions require the Secretary to report annually to Congress on the performance of the TRIO programs, including performance on the outcome criteria. In addition, the Secretary is expected to make grants to, or enter into contracts with, IHEs and other organizations for rigorous evaluations of effective practices of the programs. The results of such evaluations should be disseminated. Statutory provisions permit the Secretary to use no more than 0.5% of the TRIO appropriation for evaluations, the peer review of applications, grantee oversight, and technical assistance. This set-aside for evaluation and other activities has contributed to a large body of TRIO evaluations.\nThis section will highlight recent independent evaluations, ED analyses of grantee annual performance reports (APRs), and ratings from the now out-of-use Program Assessment Rating Tool (PART). Between 2002 and 2008, the Office of Management and Budget (OMB) assessed the effectiveness of federal programs through the PART. OMB reviewed the program's purpose and design, strategic planning, management, and results/accountability. PART was expected to drive program improvement and inform federal appropriations and the legislative process. Through PART, OMB rated not performing programs as ineffective or results not demonstrated and performing programs as adequate , moderately effective , or effective . The results of the PART reviews are included in this report because they informed some of the HEOA amendments, which sought to improve program effectiveness.\nAlso in partial response to the PART, ED published data based on APRs for 2013-2014 and earlier. The data provide grantee-level results for program performance measures such as participant retention, enrollment, and completion. The data are expected to inform improvements in ED program management and participant educational outcomes. ED cautions against comparing results between projects since differences in incoming student characteristics are not quantified. For the same reason, APR data do not allow simple comparisons to outcomes for students who did not participate in a TRIO program.\nAs a result of issues with independent, rigorous comparative evaluations, ED has not published such an evaluation since 2010. One issue is the difficulty in establishing a comparison or control group and ensuring the control does not limit the applicability of the findings. For instance, the comparison or control group may not have a similar risk profile to the TRIO participants, or the comparison or control group receives a treatment that is similar to that of the TRIO participants. Support services that mimic those provided by TRIO projects may supplement the TRIO services provided to TRIO participants and may be provided to the comparison or control group. Another issue is that the evaluations require many years for data collection─following students through secondary and postsecondary education, analysis, and review. For example, an SSS evaluation initiated in 1991 was published in 2010. The evaluation timeframe and legislative cycle are often not in sync.\nFinally, in general, the evaluation results across a series of studies indicate that the TRIO programs or similar services have a statistically significant positive effect on various academic outcome measures of subpopulation(s) of participants and, in some instances, all participants. For example, the recent SSS evaluation found that receiving supplemental services, including those from an SSS project, was associated with higher postsecondary persistence and degree completion. Also, for example, the recent Regular UB study found that the rate of postsecondary enrollment and the likelihood of earning a postsecondary credential increased significantly for the subgroup of participants who entered the program with lower educational expectations, although the program \"had no detectable effect on the rate of overall postsecondary enrollment\" compared to the control group.", "", "ED contracted a six-year longitudinal evaluation of AY1991-1992 freshman SSS participants and a matched comparison group. Despite efforts to select a similar comparison group, the comparison group students were less educationally and economically disadvantaged than the SSS participants. The three-year longitudinal interim evaluation, published in 1997, indicated that \"SSS showed a small but positive and statistically significant effect on all three measures of student outcomes,\" grade point averages, retention rates, and college credits earned.\nAn ED contractor published a study of promising practices in 1997 based on five projects identified in the aforementioned evaluation that had achieved positive, statistically significant results with respect to GPA, retention, or both. The most common practices at the five exemplary sites were providing a freshman experience, emphasizing academic support for developmental and popular freshman courses, maximizing student contact, recruiting selectively, providing incentives for participation, hiring dedicated staff, and having a prominent role on campus.\nIn 2010, the contractor published the final report of the six-year longitudinal evaluation. The study concluded that postsecondary supplemental services are associated with better student outcomes, generally. Participation in SSS as a freshman was associated with receiving more supplemental services from other sources as well and with a \"moderate\" increase in postsecondary persistence and degree completion. However, the study found that participation in SSS as a freshman was not associated with a change in the rate of transfer from two-year to four-year colleges. Receiving supplemental services from any source over the six-year period, particularly in the later years, was associated with higher postsecondary persistence and degree completion than receiving supplemental services from the SSS program during the freshman year only. Models comparing the SSS participants to students in the matched comparison group found that supplemental services were associated with a 12-19 percentage point increase in retention or degree completion, an 8-10 percentage point increase in degree attainment, and a 16 percentage point increase in transfers from two-year to four-year institutions. Models based on the number of hours of participation in various services found that supplemental services were associated with a 15-24 percentage point increase in retention or degree completion, an 11-13 percentage point increase in degree attainment, and a 10 percentage point increase in transfers from two-year to four-year institutions. The specificity of the results to SSS is limited because freshman SSS participants received supplemental services through SSS and other programs; the intensity and types of SSS services varied considerably; some individuals in the comparison group received supplemental services from non-SSS programs; and students must have persisted to receive supplemental services.\nThe study also found that a positive effect on student outcomes was associated with certain, specific supplemental services: home-based SSS programs, blended SSS programs, peer tutoring provided by the SSS grantee, services for disabled students provided by the SSS grantee, counseling, field trips or cultural enrichment, referrals to outside resources, services for the disabled and for those with limited English ability, college reentrance counseling, and any recent contacts with support services. Home-based SSS programs provide a home base on campus at which students may receive a broader range of services. In contrast to home-based programs, some SSS services were blended with other services on campus.", "ED initiated another study of SSS promising practices in 2006. The study did not meet methodological standards and thus will not be released.", "In August 2015, ED released a study of postsecondary persistence and completion rates, comparing students who first participated in the SSS program as college freshmen in AY2007-2008 to a sample of students who began college during AY2003-2004 and who were either low-income, first-generation college students, or students with disabilities who also demonstrated some form of academic need. The sample of AY2003-2004 beginning college students was drawn from ED's 2004/09 Beginning Postsecondary Students Longitudinal Study (BPS:04/09). Because of the difference in the timeframe of the students and resulting differences in student and institutional characteristics, the persistence and completion outcomes for the AY2007-2008 SSS participants and AY2003-2004 BPS:04/09 cannot be compared to determine the effectiveness of SSS.\nOverall this study noted that \"SSS participants appeared to have higher persistence and completion rates in postsecondary education at both two-year [and] four-year institutions.\" For students who first enrolled in two-year institutions, the SSS persistence rate (persistence includes continued enrollment or certificate/degree completion) to the following year was 86% and the three-year completion rate (completion includes transfer to a four-year institution or certificate/degree completion) was 41%. For SSS students who first enrolled in four-year institutions, the persistence rate to the following year was 93% and the six-year bachelor's degree completion rate was 48%. BPS:04/09 sample students who first enrolled in two-year institutions had a 65% persistence rate to the following year and a 21% three-year completion rate. Among BPS:04/09 sample students who first enrolled in four-year institutions, the persistence rate to the following year was 79% and the six-year bachelor's degree completion rate was 40%.", "A 2005 OMB PART review determined that the SSS program was moderately effective . Moderately effective programs had ambitious goals and were well-managed but needed to improve their efficiency or address other problems in the programs' design or management in order to achieve better results. According to the review, ED had not made grantee-level performance data available publicly, had not fully met its performance goals, and had not developed targets for its program efficiency measure.\nED has published APR data on program performance measures and efficiency for 2005-2006 through 2013-2014. Based on the 2010-2011 through 2013-2014 APRs, approximately 87% of participants who were enrolled in the SSS project for the first-time as first-time, full-time freshmen persisted, graduated, or transferred from a two-year to a four-year IHE by the beginning of the next year. The six-year graduation rate was approximately 50% for participants who were enrolled in the SSS project for the first-time as first-time, full-time freshmen at four-year IHEs. The three-year graduation/transfer rate was approximately 40% for participants who were enrolled in the SSS project for the first time as first-time, full-time freshmen at two-year IHEs.", "The most recent evaluation report of Regular UB was a nine-year impact study contracted by ED. The study analyzed randomly assigned treatment and control groups from nationally representative projects from 1992 to 2004. The official results determined that Regular UB \"had no detectable effect on the rate of overall postsecondary enrollment or the type or selectivity of postsecondary institution attended for the average eligible applicant.\" Postsecondary enrollment of the treatment group was 81% compared to 79% for the control group. However, the official results found that there was a five percentage-point increase in Regular UB participants earning postsecondary vocational certificates/licenses compared to nonparticipants, that the likelihood of the subgroup of Regular UB participants who entered the program with lower educational expectations earning a postsecondary degree/certificate/license increased by 12 percentage points, and that each additional year of participation in a Regular UB project resulted in a 5 percentage-point increase in the likelihood of receiving a bachelor's degree.\nA separate analysis of the study data was completed by the ED Contracting Officer's Technical Representative for the aforementioned study and published by the Council for Opportunity in Education (COE) without ED endorsement. The study was intended to address a number of perceived sampling design and nonsampling error issues in the official analysis. Examples of these issues included allowing one of the 67 projects sampled to represent 26% of the Regular UB universe of projects and a considerable proportion of the control group population receiving services similar to those offered through the Regular UB program, including participation in a UBMS program. The alternative analysis found a 10.9 percentage-point increase in postsecondary enrollment and a 50% increase in the probability of achieving a bachelor's degree for Regular UB and UBMS participants compared to the control group. However, the alternative analysis has its own limitations. For instance, the results do not represent the Regular UB universe since a project representing 26% of the Regular UB universe was removed from consideration. Additionally, the treatment and control groups become unequally weighted because individuals were reassigned from the control to the treatment group by the analyst in instances when the individual indicated exposure to UBMS.\nA component of ED's UB study evaluated a random sample of 1993-1995 UBMS participants and a comparison group of students with similar characteristics. Within four to six years of expected high school graduation, the study found that UBMS student outcomes were positive, showing an average 0.1 point GPA increase in math courses, higher enrollment in physics and chemistry courses in high school, a 10 percentage-point increase in enrollment in more selective four-year colleges, and a 6%-12% increase in the completion of math and science bachelor's degrees. Within seven to nine years of expected high school graduation, a second study found that participation in UBMS was associated with increased enrollment in selective four-year colleges and increased postsecondary degree completion, particularly in the social sciences.\nAs part of the FY2007 Regular UB competition, ED included an \"absolute priority\" that would allow it to initiate a random assignment, control group evaluation. The absolute priority set rules regarding which students would be given priority for participation in the program and called for an evaluation of the program using a control group of students who would not receive UB services. The evaluation design required all grantees to be prepared to recruit sufficient students for the control and treatment group and ensure the integrity of the control and treatment groups. Some Members of Congress and stakeholders opposed as unethical the recruiting of a control group of primarily low-income and minority students that would not receive services. In addition, the selection criteria were vigorously opposed by many grantees who also questioned ED's authority, repudiated the effectiveness of recruiting a greater number of younger students, and argued that serving more students who have a high academic risk for failure would change the program's focus and effectiveness. The TRIO UB \"absolute priority\" also required grantees to begin serving students who had completed the 8 th grade, but not the 9 th grade. This priority was established in response to the nine-year impact study (described earlier) that indicated that postsecondary enrollment rates increased for participants who were served multiple years. The HEOA eliminated the absolute priority for the TRIO UB program and amended the evaluation requirements to preclude excess recruiting and the denial of services as part of the evaluation methodology.\nED initiated a study of UB promising practices in 2006. The study did not meet methodological standards and thus will not be released.\nIn place of ED's intended evaluation, the HEOA required a rigorous evaluation of UB identifying practices that further the achievement of a program's outcome goals to be completed by June 30, 2010. ED initiated a five-year, $3.8 million study entitled \"A Study of Implementation and Outcomes in Upward Bound and Other TRIO Programs.\"\nED determined that statutory limitations on the study design would make it difficult to meet ED's program evaluation standards and would prevent achieving \"reliable results\" from a quasiexperimental evaluation of the efficacy of various implementation strategies in UB. In February 2016, an ED contractor concluded the study of common UB program and project practices. The resulting survey report of Upward Bound directors indicated the types of services that programs provide and when, where, and how the services are delivered. Four of UB's core services had predominant approaches present in projects across the board: for academic instruction requirements, 58% of projects indicated a focus on noncredit courses; for tutoring requirements, 69% indicated a focus on homework help; for college exposure requirements, 56% indicated a focus on assistance in researching colleges; and for college application assistance requirements, 50% indicated a focus on providing guidance to complete applications.\nIn 2014, approximately 200 UB projects volunteered to participate in the \"Study of Enhanced College Advising in Upward Bound.\" The study follows 11 th graders who participate in projects using a professional development package to provide semicustomized college advising to students. The demonstration study is intended to assess \"a low-cost, enhanced college advising approach ... designed to improve college fit and, therefore, persistence.\" The evaluation is estimated to cost $6.0 million through September 2018, with a final report expected in 2020.", "A 2002 OMB PART review determined that the UB program was ineffective . According to the PART ratings, ineffective programs are not using tax dollars effectively and have been unable to achieve results due to a lack of clarity regarding the program's purpose or goals, poor management, or some other significant weakness. The review determined that UB projects do not typically target the students, those with lower expectations and at higher risk, for which the program was most effective according to an independent evaluation. The review also found that ED had not regularly conducted independent program evaluations, that program performance results were not used to manage the program, that the awarding of PE points did not encourage first-time grantees, and that the program had not achieved its performance goals.\nED has published data on Regular UB and UBMS performance measures for 2004-2005 through 2013-2014. The 2009-2010 through 2012-2013 APRs show that the postsecondary enrollment rate of Regular UB participants expected to graduate high school in the prior year was approximately 82%, and the rate for UBMS was approximately 89%. In 2013-2014, ED modified the postsecondary enrollment calculation methodology to report that 85% and 87% of participants in Regular UB and UBMS, respectively, who graduated from high school in the prior year with a regular diploma enrolled in postsecondary education in 2013-2014.\nIn 2008, an ED contractor published an analysis of 2000-2006 academic progress data from UB and UBMS APRs matched with the students' federal financial aid files maintained by ED. In 2004-2006, Regular UB grantees served seven high schools, on average, and UBMS grantees served 17, on average. Over half (59% and 55%, respectively) of participants stayed in their UB or UBMS project until their expected high school graduation date. Of participants expected to graduate in 2004-2005, 77% of UB participants and 86% of UBMS participants enrolled in postsecondary education by 2005-2006. Postsecondary enrollment increased as the length of project participation increased. For instance of participants expected to graduate in 2004-2005, 55% of one-year UB participants enrolled in postsecondary education by 2005-2006 compared to 91% of three-year or longer than three-year UB participants. For UBMS participants expected to graduate in 2004-2005, 80% of less-than-one-year participants enrolled in postsecondary education by 2005-2006 compared to 87% of one-year or longer than one-year participants. Of the participants who enrolled in postsecondary education, 45% of participants served by two-year IHE grantees enrolled at their grantee institution, 33% served by public four-year IHE grantees enrolled at their grantee institution, and 11% served by private four-year IHE grantees enrolled at their grantee institution.", "In 2004, an ED contractor released the Final Report from Phase I of the National Evaluation . The report primarily described the program's history, grant recipients, program staff, program activities, and program participants through 1999. The evaluation also compared project outcomes to the goals established by the individual projects. In 1998-1999, the majority (87%) of projects achieved their secondary school graduation goal; 53% achieved their postsecondary admissions goal; and 38% achieved their postsecondary reentry goal. On average, 71% of high school graduates enrolled in postsecondary education compared to the average goal of 75%.\nPhase II of the National Evaluation culminated in a limited quasiexperimental study of 1995-1996 ninth graders in Florida, Indiana, and Texas. The study, released in 2006, found that TS participants applied for financial aid at rates 17, 14, and 28 percentage points higher than nonparticipant comparison students in Florida, Indiana, and Texas, respectively. The study also found that the rate of enrollment of TS participants in public colleges and universities was 14, 6, and 18 percentage points higher for Florida, Indiana, and Texas, respectively, than for the nonparticipant comparison groups. Postsecondary enrollment data were only available for public colleges in the states of Florida, Indiana, and Texas.", "A 2005 OMB PART review determined that the TS program was moderately effective . The review determined that ED still needed to make grantee-level performance data available publicly, meet all of its program performance goals, and develop targets for its program efficiency measure.\nED has published data on program performance measures and efficiency for 2006-2007 through 2013-2014. Since 2011-2012, approximately 84% of high school seniors applied for financial aid during their senior year. Also since 2011-2012, approximately 80% of college-ready participants enrolled in postsecondary education by the fall term following high school graduation or by the next academic term if the institution deferred the participant's enrollment. College-ready participants are high school seniors who received a regular diploma or alternative award (e.g., certificate of attendance). Participants were more likely to enroll in a college of the same level (two-year or four-year) as sponsored the TS program. For example since 2011-2012, approximately 55% of participants served by two-year IHEs enrolled in two-year IHEs compared to the 62% of participants served by four-year IHEs that enrolled in four-year IHEs. As a comparison since 2011-2012, approximately 54% of participants served by secondary schools and CBOs enrolled in four-year IHEs.", "The evaluation of TS in 2004 included an appendix describing EOC history, grant recipients, program staff, program activities, and program participants based on a 1999-2000 survey of project directors and 1998-1999 annual performance reports. Few data on student outcomes were available. Of the 16% of EOC projects that reported a goal for secondary school completion, the average goal was 58%, and the average completion rate was 93%. Of the 79% of EOC projects that reported a goal for postsecondary admissions, the average goal was 49%, and the average admissions rate was 51%. Finally, of the 67% of EOC projects that reported a goal for postsecondary reentry, the average goal was 46%, and the average reentry rate was 56%.\nCRS has not been able to identify any rigorous evaluations of EOC as of the date of this report.", "A 2007 OMB PART review rated the EOC program results not demonstrated . The score reflected a lack of a recent independent evaluation, missing baseline or targets for measuring and achieving efficiencies and cost effectiveness in program execution, a lack of grantee level performance analyses, and a failure to achieve annual performance goals.\nED has published data on program performance measures for 2006-2007 through 2013-2014. Since 2011-2012, 60% of college-ready participants enrolled in postsecondary education, and of those postsecondary enrollees, approximately 68% enrolled in two-year IHEs. College-ready participants are participants who received a high school diploma during the year or already had a high school diploma before receiving program services. The enrollment rate of college-ready participants was higher (63%) for participants served by two-year IHE grantees than for participants served by four-year IHEs (56%) or other organizations (59%).", "In 2008, an ED contractor released a report of educational and employment outcomes based on a descriptive analysis of prior McNair participants. The report found that 73% of McNair participants enrolled in graduate school within five to seven years of completing a bachelor's degree, compared to 30% of all bachelor's degree recipients. The report also found that 44% of McNair participants earned a master's degree, 14.4% earned a doctorate degree, and 12.1% earned a professional degree within 10 years of program participation. It is important to note that the findings presented in the report were not the result of a random assignment study design; there may be differences in the propensity to enroll in graduate school between McNair participants and all bachelor's degree recipients.", "A 2006 OMB PART review determined that the McNair program was moderately effective . The program was in the early stages of measuring and achieving efficiencies in program execution, and the program had not made grantee-level performance data available publicly.\nED has published program performance measure data for cohorts of students graduating from college in AY2005-2006 through AY2013-2014. On average, since the 2009-2010 cohort, 70% of McNair participants who received their bachelor's degree enrolled in graduate school within three years.", "A major evaluation of the program has not been conducted, and ED does not publish grantee-level performance results." ], "depth": [ 0, 1, 1, 2, 3, 3, 3, 3, 2, 3, 3, 3, 3, 2, 3, 3, 3, 3, 2, 3, 3, 3, 3, 2, 3, 3, 3, 3, 2, 3, 3, 3, 3, 2, 1, 1, 2, 2, 3, 3, 2, 2, 2, 2, 1, 2, 3, 3, 3, 2, 2, 2, 2, 2, 2, 2, 2, 2, 2 ], "alignment": [ "h0_title h2_title h1_title", "h0_full h2_full h1_full", "h0_full h1_title", "h1_full", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "h1_full", "", "", "", "", "", "h0_full", "h0_title h2_title h1_title", "", "h0_full h2_title", "h2_full", "", "h2_full", "", "", "h1_full", "", "", "", "", "", "", "", "", "", "", "", "", "", "", "" ] }

{ "question": [ "How did TRIO programs perform in FY2017?", "What are the TRIO programs designed to do?", "What demographics do the TRIO programs serve?", "How do TRIO programs encourage high-quality projects?", "What characterizes the different TRIO programs?", "What does the TRIO UB Program do?", "How does the TRIO TS Program differ from the UB program?", "Who does the TRIO EOC Program serve?", "What is the goal of the TRIO SSS Program?", "What population does the MacNair Program serve?", "What does the TRIO Training Program do?", "How did the HEOA affect TRIO programs?", "How did the first amendment affect TRIO programs?", "How will this affect grant competitions?", "How did the second amendment affect TRIO programs?", "How was the new review process introduced?" ], "summary": [ "In FY2017, the TRIO programs were funded at $950 million, and they served more than 800,000 secondary, postsecondary, and adult students.", "The TRIO programs have been designed to encourage and prepare qualified individuals from disadvantaged backgrounds for success throughout the educational pipeline from secondary school to undergraduate and graduate education.", "While the TRIO programs primarily serve low-income, first-generation college students, they also serve students with disabilities, veterans, homeless youth, foster youth, and individuals underrepresented in graduate education.", "The TRIO programs are also designed to award prior grantees that implement successful projects and propose high-quality projects with subsequent grants before awarding applicants without prior TRIO experience.", "There are now six TRIO programs, each serving a different demographic.", "The TRIO Upward Bound (UB) Program serves secondary school students, providing relatively intensive preparation services and encouragement to help students pursue education beyond secondary school.", "The TRIO Talent Search (TS) Program provides less intensive services than UB in support of the completion of high school and enrollment in postsecondary education, and it encourages primarily students and out-of-school youth.", "The TRIO Educational Opportunity Centers (EOC) Program primarily serves adults.", "The TRIO Student Support Services (SSS) Program aims to motivate undergraduate students to complete their undergraduate education.", "The Ronald E. McNair Postbaccalaureate Achievement (McNair) Program prepares undergraduate students for graduate school.", "Finally, the TRIO Staff Development (Training) Program trains TRIO project staff to be more effective.", "Several key TRIO program provisions were amended by the Higher Education Opportunity Act (HEOA; P.L. 110-315) in 2008. Two key HEOA amendments address issues pertaining to the application review process: scoring and second reviews (appeals).", "The first amendment defined outcome criteria that require the Secretary and each grantee to agree upon objectives/targets for the criteria.", "The extent to which grantees meet or exceed these objectives determines the number of prior experience (PE) points the grantee may earn as part of its application in the next grant competition. Earning more PE points increases the likelihood of funding.", "The second amendment established an application review process by which those unsuccessful applicants that can identify a specific technical, administrative, or scoring error may have their applications reviewed a second time (appealed).", "The FY2012 TRIO UB competition was the first to use the revised application review process." ], "parent_pair_index": [ -1, 0, 0, 0, -1, 0, 1, 0, 0, 0, 0, -1, 0, 1, 0, 3 ], "summary_paragraph_index": [ 1, 1, 1, 1, 2, 2, 2, 2, 2, 2, 2, 3, 3, 3, 3, 3 ] }

{ "title": [ "", "Introduction", "Most Recent Developments", "115th Congress Proposals", "Fresh Start Proposals", "S.J.Res. 6", "H.J.Res. 33", "Discussion", "Removing the ERA Ratification Deadline: The \"Three-State Strategy\"", "S.J.Res. 5", "H.J.Res. 53", "Discussion", "Recent Activity in the State Legislatures: Nevada and Illinois", "Nevada and Illinois Ratify the Equal Rights Amendment", "Contemporary Public Attitudes toward the Equal Rights Amendment", "An Equal Rights Amendment: Legislative and Ratification History, 1923-1972", "Five Decades of Effort: Building Support for an Equal Rights Amendment in Congress, 1923-1970", "Congress Approves and Proposes the Equal Rights Amendment, 1970-1972", "First Vote in the House, 91st Congress—1970", "Passage and Proposal by Congress, 92nd Congress—1971-1972", "Congress Sets a Seven-Year Ratification Deadline", "Ratification Efforts in the States", "Ratification Is Extended in 1978, but Expires in 1982", "Rescission: A Legal Challenge to the Ratification Process", "Renewed Legislative and Constitutional Proposals, 1982 to the Present", "\"Fresh Start\" Proposals", "\"Three-State\" Proposals", "Contemporary Viability of the Equal Rights Amendment", "Article V: Congressional Authority over the Amendment Process", "The Madison Amendment (the Twenty-Seventh Amendment): A Dormant Proposal Revived and Ratified", "Ratification of the Madison Amendment: A Model for the Proposed Equal Rights Amendment?", "The Role of the Supreme Court Decisions in Dillon v. Gloss and Coleman v. Miller", "Ancillary Issues", "Origins of the Seven-Year Ratification Deadline", "Rescission", "Congressional Promulgation of Amendments", "The Proposed District of Columbia Voting Rights (Congressional Representation) Amendment—Congress Places a Ratification Deadline in the Body of the Amendment", "Concluding Observations" ], "paragraphs": [ "", "On July 20, 1923, the National Woman's Party (NWP) met in Seneca Falls, New York, to commemorate the 75 th anniversary of the historic Seneca Falls Convention and celebrate the 1920 ratification of the Nineteenth Amendment, by which women won the right to vote. At the meeting, NWP leader Alice Paul announced her next project would be to develop and promote a new constitutional amendment, guaranteeing equal rights and equality under the law in the United States to women and men. Paul, a prominent suffragist, noted the recent ratification of the Nineteenth Amendment, which established the right of women to vote. She characterized an \"equal rights\" amendment as the next logical step for the women's movement. The proposed amendment was first introduced six months later, in December 1923, in the 68 th Congress. Originally named \"the Lucretia Mott Amendment,\" in honor of the prominent 19 th century abolitionist, women's rights activist, and social reformer, the draft amendment stated that, \"men and women shall have equal rights throughout the United States and every place subject to its jurisdiction.\"\nNearly half a century passed before the Mott Amendment, as amended and ultimately renamed the Alice Paul Amendment, was approved by Congress and proposed to the states for ratification in 1972. In common with the Eighteenth and Twentieth through Twenty-Sixth Amendments, the proposed ERA included a seven-year deadline for ratification; in this case the deadline was included in the proposing clause, or preamble, that preceded the text of the amendment. After considerable early progress in the states, ratifications slowed, and the process ultimately stalled at 35 states in 1977, 3 short of the 38 approvals (three-fourths of the states) required by the Constitution. As the 1979 deadline approached, however, ERA supporters capitalized on the fact that the seven-year time limit was incorporated in the amendment's proposing clause, rather than in the body of the amendment. Concluding that the amendment itself was, therefore, not time-limited, Congress extended the ratification period by 38 months, through 1982. No further states added their approval during the extension, however, and the proposed ERA appeared to expire in 1982.\nSince the proposed ERA's extended ratification period expired in 1982, Senators and Representatives have continued to introduce new versions of the amendment, beginning in the 97 th Congress. More recently, new analyses emerged that led ERA supporters to assert that the amendment remains viable, and that the period for its ratification could be extended indefinitely by congressional action. Resolutions embracing this thesis have been introduced beginning in the 112 th Congress. Their stated purpose is that of \"[r]emoving the deadline for ratification of the Equal Rights Amendment.\" If enacted, these measures would eliminate the 1979 and 1982 deadlines; reopen the proposed ERA for state ratification at the present count of 37 states; and extend the period for state ratification indefinitely.\nThis report examines the legislative history of the various proposals that ultimately emerged as the proposed Equal Rights Amendment. It identifies and provides an analysis of current legislative proposals and reviews contemporary factors that may bear on its present and future viability.", "", "As the 115 th Congress convened, resolutions were introduced in both the House and Senate that embraced two approaches to the Equal Rights Amendment. These include \"fresh start\" proposals that proposed a new constitutional amendment, separate from the amendment proposed by Congress in 1972 (H.J. Res. 208, 92 nd Congress), and proposals designed to reopen the ratification process by removing the deadline included in the resolution proposing the original ERA.", "Perhaps the most basic means of restarting an equal rights amendment would be by introduction of a new joint resolution, a \"fresh start.\" In 1982, even as the extended ratification deadline for the proposed ERA approached, resolutions proposing a new equal rights amendment were introduced in the 97 th Congress. New versions of the ERA have continued to be introduced in the House and Senate in each succeeding Congress. All have shared language identical or similar to the original proposed by Congress in 1982. Two fresh start amendments have been introduced to date in the 115 th Congress, as detailed below.", "The first fresh start ERA proposal to be offered in the 115 th Congress was S.J.Res. 6, introduced by Senator Bob Menendez of New Jersey on January 20, 2017. To date, Senator Menendez has been joined by 15 cosponsors. Senator Menendez's proposal incorporates the language of the original ERA, as proposed in the 92 nd Congress:\nSection 1. Equality of rights under the law shall not be denied or abridged by the United States or by any State on account of sex.\nSection 2. The Congress shall have the power to enforce, by appropriate legislation, the provisions of this article.\nSection 3. This article shall take effect 2 years after the date of ratification.\nS.J.Res. 6 has been referred to the Senate Committee on the Judiciary.", "H.J.Res. 33 was introduced in the House of Representatives by Representative Carolyn Maloney of New York on January 24, 2017. To date, Representative Maloney has been joined by 169 cosponsors. This measure is also a fresh start resolution, proposing a new ERA:\nSection 1. Women shall have equal rights in the United States and every place subject to its jurisdiction. Equality of rights under the law shall not be denied or abridged by the United States or by any State on account of sex.\nSection 2. Congress and the several States shall have the power to enforce, by appropriate legislation, the provisions of this article.\nSection 3. This amendment shall take effect two years after the date of ratification.\nThis version of the amendment includes Section 1 language that differs from the version of the ERA proposed by Congress in 1972. The new wording appeared initially in H.J.Res. 56 in the 113 th Congress. Specifically, Section 1 was amended by the addition of the following clause at its beginning: \"Women shall have equal rights in the United States and every place subject to its jurisdiction.\" In a press release issued at the time, Representative Maloney described this as a\n... new and improved Equal Rights Amendment.... Today's ERA would prohibit gender discrimination and for the first time, would explicitly mandate equal rights for women.... This ERA is different ... it's designed for the 21 st Century. This ERA expressly puts women in the Constitution for the first time.\nIt may also be noted that this language recalls the wording of the first version of the E R A, as drafted by suffragist Alice Paul in 1923 and introduced in the 68 th Congress in 1923:\nMen and women shall have equal rights throughout the United States and every place subject to its jurisdiction.\nCongress shall have power to enforce this article by appropriate legislation.\nFurther, the resolution expands enforcement authority for the amendment \"by appropriate legislation,\" extending it from Congress to include \"the several States.\"\nH.J.Res. 33 has been referred to the Subcommittee on the Constitution and Civil Justice of the House Committee on the Judiciary.", "As joint resolutions proposing an amendment to the Constitution, S.J.Res. 6 and H.J.Res. 33 would require approval in identical form by two-thirds of the Members present and voting in both chambers of Congress. Unlike a standard joint resolution that has the force of law, the President's approval is not necessary for joint resolutions that propose amendments. Both resolutions prescribe that the proposed amendment would be submitted to the legislatures of the states for ratification.\nNeither S.J.Res. 6 nor H.J.Res. 33 includes a time limit for ratification, either in their preambles, or in the body of the amendment. While a ratification deadline has been included in either the preamble or the text of the 18 th and 20 th through 26 th Amendments, it is a tradition dating to the early 20 th century, rather than a constitutional requirement. If Congress were to propose either of these resolutions to the states as a constitutional amendment, they would arguably be eligible for ratification indefinitely. In not setting a ratification deadline, these measures thus avoid the expiration issues associated with the original proposed Equal Rights Amendment. They also arguably embrace the assumption under which the 27 th Amendment was ratified in 1992, some 203 years after Congress sent it to the states for approval: proposed amendments remain constitutionally valid and eligible for ratification unless a deadline is specifically prescribed when the amendment is proposed. Opponents, however, might argue that the seven-year ratification deadline first included in the 18 th Amendment should not be lightly discarded. The inclusion of a \"sunset\" provision on proposed amendments, they might argue, is necessary to ensure that a contemporaneous majority of the people, and through them the state legislatures, favors the measure. This issue is examined at greater length later in this report.", "Two resolutions introduced in the 115 th Congress, one each in the House and Senate, are designed to reopen the ratification process for H.J. Res. 208, the Equal Rights Amendment proposed by the 92 nd Congress in 1972, and extend it indefinitely by removing the deadline set in the preamble to the proposed ERA. Both these measures are based on the \"three-state\" argument that (1) Congress has the constitutional authority to propose, alter, or terminate any limits on the ratification of amendments pending before the states; (2) all existing ratifications remain in effect and viable; and (3) rescissions of ratification passed by some states are invalid. The three-state argument is examined in detail later in this report.", "This resolution, designed to reopen the ERA ratification process, was introduced by Senator Ben Cardin of Maryland on January 17, 2017. To date, Senator Cardin has been joined by 36 cosponsors. The purpose of the resolution, as stated in its title is \"[r]emoving the deadline for ratification of the equal rights amendment.\" The text of the resolution states:\n[t]hat notwithstanding any time limit contained in House Joint Resolution 208, 92d Congress, as agreed to in the Senate on March 22, 1972, the article of amendment proposed to the States in that joint resolution shall be valid to all intents and purposes as part of the Constitution whenever ratified by the legislatures of three-fourths of the several States.\nS.J.Res. 5 has been referred to the Senate Judiciary Committee.", "This resolution was introduced by Representative Jackie Speier of California on January 31, 2017. To date, Representative Speier has been joined by 166 co-sponsors. The text of H.J.Res. 53 is identical to that of S.J.Res. 5.\nH.J.Res. 53 has been referred to the Subcommittee on the Constitution and Civil Justice of the House Committee on the Judiciary.", "Many ERA proponents claim that because the amendment as originally proposed by Congress in 1972 did not include a ratification deadline within the amendment text , it remains potentially viable and eligible for ratification indefinitely. They maintain that Congress possesses the authority both to remove the original 1979 ratification deadline and its 1982 extension, and to restart the ratification clock at the then-current 36-state level, with or without a future ratification deadline. In support, they assert that Article V of the Constitution gives Congress uniquely broad authority over the amendment process. They further cite the Supreme Court's decisions in Dillon v. Glo ss and Coleman v. Miller in support of their position. They also note the precedent of the Twenty-Seventh \"Madison\" Amendment, which was ratified in 1992, 203 years after Congress proposed it to the states. These issues are examined more fully later in this report.", "Although the ratification deadline for the proposed ERA expired in 1982, its proponents have continued to press for action in the legislatures of states that either failed to ratify it, or had previously rejected the amendment. Recent notable developments in the states include action by Nevada in 2017 and Illinois in 2018 to ratify the amendment. Also in 2018, however, proposals to ratify the ERA failed to reach the floor of state legislatures in both Arizona and Virginia, although supporters in the North Carolina Legislature assert the amendment may come to a vote in that state's legislature during the current session.", "The most widely-publicized recent ERA developments in the states occurred in March 2017, and May 2018, when Nevada and Illinois ratified the proposed amendment. Their actions raised the number of state ratifications to 37.\nOn March 22, 2017, the Nevada Legislature completed action on a resolution approving the ERA as proposed by H.J.Res. 208 in the 92 nd Congress. With this action, Nevada became the 36 th state to ratify the ERA, and the first state to do so since 1977. The ratification measure, introduced on February 17 as Senate Joint Resolution 2, (SJR2), passed the Nevada Senate on March 1 and the Nevada House of Representatives on March 20. The Senate's concurrence with a House amendment on March 22 completed the ratification process. The choice of dates had historical significance: H.J.Res. 208 was proposed by Congress on March 22, 1972, exactly 45 years earlier. Press accounts of the action noted that the ratification marked a reversal of earlier actions in Nevada. Efforts to secure ERA ratification in the legislature failed three times in the 1970s and failed once when placed on the ballot as an advisory ballot issue in 1978. With Nevada's ratification, the three-state strategy arguably changed to a \"two-state strategy,\" and the legislature's action was reported as \"being read by [ERA] supporters as an encouraging sign,\" while the Eagle Forum, an advocacy group historically opposed to ERA, restated its criticism of the amendment, noting the deadline for ratification had been passed in 1982.\nOn May 30, 2018, the Illinois legislature completed action on a resolution approving the ERA as proposed by H.J.Res. 208 in the 92 nd Congress. With this action Illinois became the 37 th state to ratify the amendment. The ratification measure, introduced as SJRCA (Senate Joint Resolution Constitutional Amendment 0004) on February 7, 2018, was adopted by the Senate as originally introduced on April 11 and in its final form by the Senate and House of Representatives on May 30. The governor's approval was not required.", "Public opinion polls showed support through the 1990s for an equal rights amendment. The first recorded survey on support for the proposal was a CBS News telephone poll conducted in September 1970, in which 56% of respondents approved of an equal rights amendment. Favorable attitudes remained steady in the 1970s and throughout the subsequent ratification period, during which time levels of support as reported by the Gallup Poll never dropped below 57%. A later ERA-specific survey conducted by CBS News in 1999 reported that 74% of respondents supported the proposed ERA, while 10% were opposed.\nThe ERA's expiration as a pending constitutional amendment was eventually followed by corresponding fall-off in related polling; there is little evidence of related activity by major survey research organizations after 1999, a development that is arguably due to the fact that the ERA was presumed to be a closed issue.\nMore recently, in 2017, the Harris Survey conducted a poll on women's status in American society. While it did not include a specific question concerning the ERA, the Harris Survey included the following query: \"There has been much talk recently about changing women's status in society today. On the whole, do you favor or oppose most of the efforts to strengthen and change women's status in society?\" Sixty-six percent of respondents favored strengthening and changing women's status in society, 7% were opposed, and 27% were not sure.", "Despite the efforts of women's rights advocates in every Congress, nearly 50 years passed between the time when the Mott Amendment was first introduced in 1923 and the Equal Rights Amendment was approved by Congress and proposed to the states in 1972.", "The first proposal for an equal rights amendment, drafted by Alice Paul, was introduced in the 68 th Congress in 1923. In its original form, the text of the amendment read as follows:\nMen and women shall have equal rights throughout the United States and every place subject to its jurisdiction.\nCongress shall have power to enforce this article by appropriate legislation.\nAlthough Alice Paul characterized the then-Lucretia Mott Amendment as a logical and necessary next step in the campaign for women's rights following the Nineteenth Amendment, the proposal made little progress in Congress over the course of more than two decades. During the years following its first introduction, an equal rights amendment was the subject of hearings in either the House or Senate in almost every Congress. According to one study, the proposal was the subject of committee action, primarily hearings, on 32 occasions between 1923 and 1946, but it came to the floor for the first time—in the Senate—only in the latter year. During this period, however, the proposal continued to evolve. In 1943, for instance, the Senate Judiciary Committee reported a version of an equal rights amendment incorporating revised language that remained unchanged until 1971:\nEquality of rights under the law shall not be denied or abridged by the United States or by any State on account of sex.\nCongress and the several states shall have power, within their respective jurisdictions, to enforce this article by appropriate legislation.\nThroughout this period, amendment proponents faced opposition from traditionalists, organized labor, and some leaders of the women's movement. According to one study of the amendment's long pendency in Congress, \"[t]he most persistent and most compelling trouble that crippled prospects for an ERA from its introduction in 1923 until a year after Congress initially passed it on to the states was opposition from most of organized labor during a period of ascending labor strength.\" A principal objection raised by organized labor and women's organizations that opposed the amendment was concern that the ERA might lead to the loss of protective legislation for women, particularly with respect to wages, hours, and working conditions. One historian notes that:\nThrough the years of the New Deal and the Truman administration, however, protective legislation for women held a firm place in organized labor's list of policy favorites. Since an ERA threatened protective laws, it and its supporters qualified as the enemy.\nThe nature of opposition from women's groups was illustrated by a 1946 statement issued by 10 prominent figures, including former Secretary of Labor Frances Perkins and former First Lady Eleanor Roosevelt, which asserted that an equal rights amendment would \"make it possible to wipe out the legislation which has been enacted in many states for the special needs of women in industry.\"\nThese attitudes toward the proposal persisted, even as women in great numbers entered the civilian workforce and the uniformed services during the four years of U.S. involvement in World War II (1941-1945), taking jobs in government, industry, and the service sector that had previously been filled largely by men. Congressional support for an equal rights amendment grew slowly in the late 1940s, but a proposal eventually came to the Senate floor, where it was the subject of debate and a vote in July 1946. Although the 39-35 vote to approve fell short of the two-thirds of Senators present and voting required by the Constitution, it was a symbolic first step.\nThe so-called Hayden rider, named for its author, Senator Carl Hayden of Arizona, was perhaps emblematic of the arguments ERA advocates faced during the early post-war era. First introduced during the Senate's 1950 debate, this proposal stated that:\nThe provisions of this article shall not be construed to impair any rights, benefits, or exemptions conferred by law upon persons of the female sex.\nAlthough the rider's ostensible purpose was to safeguard protective legislation, one source suggested an ulterior motive: \"Hayden deliberately added the riders in order to divide the amendment's supporters, and these tactics delayed serious consideration of the unamended version of the Equal Rights Amendment.\" Whatever the rider's intent, it was not welcomed by ERA supporters, and was opposed on the floor by Senator Margaret Chase Smith of Maine, at that time the only woman Senator.\nThe Senate ultimately passed an equal rights amendment resolution that included the Hayden rider twice in the 1950s. In the 81 st Congress, S.J. Res. 25, introduced by Senator Guy Gillette of Iowa and numerous co-sponsors, was approved by a vote of 63-19 on January 25, 1950, a margin that comfortably surpassed the two-thirds of Members present and voting required by the Constitution. An amendment came before the Senate again in the 83 rd Congress, when Senator John M. Butler of Maryland and co-sponsors introduced S.J. Res. 49. The resolution, as amended by the Hayden rider, passed by a vote of 73-11 on July 16, 1953. Over the next 16 years, the Senate considered various equal rights amendment resolutions in committee in almost every session, but no proposal was considered on the floor during this period. By 1964, however, the Hayden rider had lost support in the Senate as perceptions of the equal rights amendment concept continued to evolve. In the 88 th Congress, the Senate Judiciary Committee effectively removed it from future consideration when it stated in its report:\nYour committee has considered carefully the amendment which was added to this proposal on the floor of the Senate.... Its effect was to preserve \"rights, benefits, or exemptions\" conferred by law upon persons of the female sex. This qualification is not acceptable to women who want equal rights under the law. It is under the guise of so-called \"rights\" or \"benefits\" that women have been treated unequally and denied opportunities which are available to men.\nBetween 1948 and 1970, however, the House of Representatives took no action on an equal rights amendment. Throughout this period, Representative Emanuel Celler of New York had blocked consideration of the amendment in the Judiciary Committee, which he chaired from 1949 to 1953 and again from 1955 to 1973. A Member of the House since 1923, Chairman Celler had been a champion of New Deal social legislation, immigration reform, civil rights legislation, and related measures throughout his career, but his strong connections with organized labor, which, as noted earlier, opposed an equal rights amendment during this period, may have influenced his attitudes toward the proposal.", "Although proposals for an equal rights constitutional amendment continued to be introduced in every Congress, there was no floor consideration of any proposal by either chamber for almost two decades following the Senate's 1953 action. By the early 1970s, however, the concept had gained increasing visibility as one of the signature issues of the emerging women's movement in the United States. As one eyewitness participant later recounted:\nThe 1960s brought a revival of the women's rights movement and more insistence on changed social and legal rights and responsibilities. The fact of women's involvement in the civil rights movement and the anti-war movement and their changed role in the economy created a social context in which many women became active supporters of enhanced legislation for themselves.\nBy the time the concept of an equal rights amendment emerged as a national issue, it had also won popular support, as measured by public opinion polling. As noted earlier in this report, the first recorded survey on support for the proposal was a CBS News telephone poll conducted in September 1970, in which 56% of respondents favored an equal rights amendment. Favorable attitudes remained consistent during the 1970s and throughout the subsequent ratification period. Labor opposition also began to fade, and in April 1970, one of the nation's largest and most influential unions, the United Auto Workers, voted to endorse the concept of an equal rights amendment.\nIn actions that perhaps reflected changing public attitudes, Congress had also moved during the 1960s on several related fronts to address women's equality issues. The Equal Pay Act of 1963 \"prohibited discrimination on account of sex in payment of wages,\" while the Civil Rights Act of 1964 banned discrimination in employment on the basis of race, color, religion, sex , or national origin [emphasis added]. Although it remained pending, but unacted upon in Congress, proposals for an equal rights amendment had gained support in other areas. The Republican Party had endorsed an earlier version of the amendment in its presidential platform as early as 1940, followed by the Democratic Party in 1944. Both parties continued to include endorsements in their subsequent quadrennial platforms, and, by 1970, Presidents Eisenhower, Kennedy, Lyndon Johnson, and Nixon were all on record as having endorsed an equal rights amendment.", "Representative Martha Griffiths of Michigan is widely credited with breaking the legislative stalemate that had blocked congressional action on a series of equal rights amendment proposals for more than two decades. Against the background of incremental change outside Congress, Representative Griffiths moved to end the impasse in House consideration of the amendment. On January 16, 1969, she introduced H.J. Res. 264, proposing an equal rights amendment, in the House of Representatives. The resolution was referred to the Judiciary Committee where, as had been expected, no further action was taken. On June 11, 1970, however, Representative Griffiths took the unusual step of filing a discharge petition to bring the proposed amendment to the floor. A discharge petition \"allows a measure to come to the floor for consideration, even if the committee of referral does not report it and the leadership does not schedule it.\" In order for a House committee to be discharged from further consideration of a measure, a majority of Representatives (218, if there are no vacancies) must sign the petition . As reported at the time, the use of the discharge petition had seldom been invoked successfully, having gained the necessary support only 24 times since the procedure had been established by the House of Representatives in 1910, and Representative Griffiths' filing in 1970. By June 20, Representative Griffiths announced that she had obtained the necessary 218 Member signatures for the petition. Although the Judiciary Committee had neither scheduled hearings nor issued a report, the resolution was brought to the House floor on August 10. The House approved the motion to discharge by a vote of 332 to 22, and approved the amendment itself by a vote of 334 to 26.\nThe Senate had begun to act on a resolution proposing an equal rights amendment in the 91 st Congress in 1970, before the amendment came to the House floor. In May, the Judiciary Committee's Subcommittee on Constitutional Amendments held hearings on S.J.Res. 61, the Senate version of an amendment. These hearings were followed by hearings in the full committee in September, and consideration on the Senate floor in early October. Floor debate was dominated by consideration and adoption of two amendments that would have (1) exempted women from compulsory military service, and (2) permitted non-denominational prayer in public schools; and a final amendment that provided alternative language for the resolution. Thus encumbered, the Senate resolution was unacceptable to ERA supporters, but, in any event, the Senate adjourned on October 14 without a vote on the resolution as amended, and failed to bring it to the floor for final action in the subsequent lame-duck session.", "In the 92 nd Congress, Representative Griffiths began the process anew in the House of Representatives when she introduced H.J.Res. 208, proposing an equal rights amendment. Chairman Celler continued to oppose it, but no longer blocked committee action. After subcommittee and full committee hearings, the House Judiciary Committee reported an amendment on July 14, but the resolution as reported included amendments concerning citizenship, labor standards, and the exemption of women from selective service that were unacceptable to ERA supporters. When H.J.Res. 208 came to the floor in early October, however, the House stripped out the committee amendments, and, on October 12, it approved the resolution by a bipartisan vote of 354 to 24.\nThe Senate took up the House-passed amendment during the second session of the 92 nd Congress, in March 1972. On March 14, the Judiciary Committee reported a clean version of H.J. Res. 208 after rejecting several amendments, including one adopted by the Subcommittee on the Constitution, and several others offered in the full committee. The resolution was called up on March 15, and immediately set aside. The Senate began debate on the amendment on March 17, with Senator Birch Bayh of Indiana, a longtime ERA supporter, as floor manager. On the same day, President Richard Nixon released a letter to Senate Republican Leader Hugh Scott of Pennsylvania reaffirming his endorsement of the Equal Rights Amendment. After two days in which the Members debated the proposal, Senator Sam Ervin of North Carolina offered a series of amendments that, among other things, would have exempted women from compulsory military service and service in combat units in the U.S. Armed Forces, and preserved existing gender-specific state and federal legislation that extended special exemptions or protections to women. Over the course of two days, Senator Ervin's amendments were serially considered and rejected, generally by wide margins. On March 22, the Senate approved the House version of the amendment, H.J. Res. 208, by a vote of 84 to 8, with strong bipartisan support.\nThe text of H.J. Res. 208—the Equal Rights Amendment as proposed by the 92 nd Congress—follows:\nHouse Joint Resolution 208\nProposing an amendment to the Constitution of the United States relative to equal rights for men and women.\nResolved by the Senate and House of Representatives of the United States of America in Congress assembled (two-thirds of each house concurring therein), That\nThe following article is proposed as an amendment to the Constitution of the United States, which shall be valid to all intents and purposes as part of the Constitution when ratified by the legislatures of three-fourths of the several States within seven years of its submission by the Congress:\n\"Section 1. Equality of rights under the law shall not be denied or abridged by the United States or any State on account of sex.\n\"Section 2. The Congress shall have the power to enforce, by appropriate legislation, the provisions of this article.\n\"Section 3. This amendment shall take effect two years after the date of ratification.\"\nThe action of the two chambers in approving H.J. Res. 208 by two-thirds majorities of Members present and voting (91.3% in the Senate and 93.4% in the House) had the effect of formally proposing the amendment to the states for ratification.", "When it proposed the Equal Rights Amendment, Congress stipulated in the preamble of the joint resolution that the ERA was to be ratified by the constitutionally requisite number of state legislatures (38 then as now) within seven years of the time it was proposed, in order to become a valid part of the Constitution. A time limit for ratification was first instituted with the Eighteenth Amendment, proposed in 1917, and, with the exception of the Nineteenth Amendment and the Child Labor Amendment, all subsequent proposed amendments have included a ratification deadline of seven years.\nWith respect to the Child Labor Amendment, Congress did not incorporate a ratification deadline when it proposed the amendment in 1924. It was ultimately ratified by 28 states through 1937, 8 short of the 36 required by the Constitution at that time, the Union then comprising 48 states. Although the amendment arguably remains technically viable because it lacked a deadline when proposed, the Supreme Court in 1941 upheld federal authority to regulate child labor as incorporated in the Fair Labor Standards Act of 1938 (52 Stat. 1060) in the case of United States v. Darby Lumber Company (312 U.S. 100 (1941)). In this case, the Court reversed its earlier decision in Hammer v. Dagenhart (24 U.S. 251 (1918)), which ruled that the Keating-Owen Child Labor Act of 1916 (39 Stat. 675) was unconstitutional. The amendment is thus widely regarded as having been rendered moot by the Court's 1941 decision.\nIn the case of the Eighteenth, Twentieth, Twenty-First, and Twenty-Second Amendments, the \"sunset\" ratification provision was incorporated in the body of the amendment itself . For subsequent amendments, however, Congress determined that inclusion of the time limit within its body \"cluttered up\" the proposal. Consequently, all but one of the subsequently proposed amendments —the Twenty-Third, Twenty-Fourth, Twenty-Fifth and Twenty-Sixth, and the ERA—placed the limit in the preamble or authorizing resolution , rather than in the body of the amendment itself . This decision, seemingly uncontroversial at the time, was later to have profound implications for the question of extending the ratification window for the ERA.", "States initially responded quickly once Congress proposed the Equal Rights Amendment for their consideration. Hawaii was the first state to ratify, on March 22, 1972, the same day the Senate completed action on H.J. Res. 208. By the end of 1972, 22 states had ratified the amendment, and it seemed well on its way to adoption. Opposition to the amendment, however, began to coalesce around organizations like \"STOP ERA,\" which revived many of the arguments addressed during congressional debate. Opponents also broadly asserted that ratification of the amendment would set aside existing state and local laws providing workplace and other protections for women and would lead to other, unanticipated negative social and economic effects. In 1976, ERA supporters established a counter-organization, \"ERAmerica,\" as an umbrella association to coordinate the efforts of pro-amendment groups and serve as a high-profile national advocate for the amendment.\nOpposition to the proposed Equal Rights Amendment continued to gain strength, although, as noted earlier in this report, public approval of the amendment never dropped below 54% during the ratification period. Following the first 22 state approvals, 8 additional states ratified in 1973, 3 more in 1974, and 1 each in 1975 and 1977, for an ultimate total of 35, 3 short of the constitutional requirement of 38 state ratifications. At the same time, however, ERA opponents in the states promoted measures in a number of legislatures to repeal or rescind their previous ratifications. Although the constitutionality of such actions has long been questioned, by 1979, five states had passed rescission measures. The question of rescission will be addressed in detail later in this report.", "By the late 1970s, the ratification process had clearly stalled, and the deadline for ratification as specified in the preamble to H.J. Res. 208 was approaching. Reacting to the impending \"sunset\" date of March 22, 1979, ERA supporters developed a novel strategy to extend the deadline by congressional resolution. The vehicle chosen by congressional supporters was a House joint resolution, H.J.Res. 638 , introduced in the 95 th Congress on October 26, 1977, by Representative Elizabeth Holtzman of New York and others. In its original form, the resolution proposed to extend the deadline an additional seven years, thus doubling the original ratification period.\nDuring hearings in the House Judiciary Committee's Subcommittee on Civil and Constitutional Rights, legal scholars debated questions on the authority of Congress to extend the deadline; whether an extension vote should be by a simple majority or a supermajority of two-thirds of the Members present and voting; and if state rescissions of their ratifications were lawful. The full Judiciary Committee also addressed these issues during its deliberations in 1978. Continuing controversy in the committee and opposition to extending the ratification period a full seven years led to a compromise amendment to the resolution that reduced the proposed extension to three years, three months, and eight days. ERA supporters accepted the shorter period as necessary to assure committee approval of the extension. Two other changes, one that would have recognized the right of states to rescind their ratifications, and a second requiring passage of the extension in the full House by a two-thirds super majority, were both rejected by the committee when it reported the resolution to the House on July 30.\nThe full House debated the resolution during summer 1978, rejecting an amendment that proposed to recognize states' efforts to rescind their instruments of ratification. Another amendment rejected on the floor would have required votes on the ERA deadline extension to pass by the same two-thirds vote necessary for original actions proposing constitutional amendments. The House adopted the resolution by a vote of 233 to 189 on August 15, 1978. The Senate took up H.J.Res. 638 in October; during its deliberations it rejected amendments similar to those offered in the House and joined the House in adopting the resolution, in this case by a vote of 60 to 36 on October 6. In an unusual expression of support, President Jimmy Carter signed the joint resolution on October 20, even though the procedure of proposing an amendment to the states is solely a congressional prerogative under the Constitution.\nDuring the extended ratification period, ERA supporters sought unsuccessfully to secure the three necessary ratifications for the amendment, while opponents pursued rescission in the states with similarly unsuccessful results. A Gallup Poll reported in August 1981 that 63% of respondents supported the amendment, a higher percentage than in any previous survey, but, as one observer noted, \"The positive poll results were really negative, because additional ratifications needed to come from the states in which support was identified as weakest.\" On June 30, 1982, the Equal Rights Amendment deadline expired with the number of state ratifications at 35, not counting rescissions.", "As noted earlier, while ratification of the proposed Equal Rights Amendment was pending, a number of states passed resolutions that sought to rescind their earlier ratifications. By the time the amendment's extended ratification deadline passed in 1982, the legislatures of more than 17 states had considered rescission, and 5 passed these resolutions. Throughout the period, however, legal opinion as to the constitutionality of rescission remained divided.\nOn May 9, 1979, the state of Idaho, joined by the state of Arizona and individual members of the Washington legislature, brought legal action in the U.S. District Court for the District of Idaho, asserting that states did have the right to rescind their instruments of ratification. The plaintiffs further asked that the extension enacted by Congress be declared null and void.\nOn December 23, 1981, District Court Judge Marion Callister ruled (1) that Congress had exceeded its power by extending the deadline from March 22, 1979, to June 30, 1982; and (2) that states had the authority to rescind their instruments of ratification, provided they took this action before an amendment was declared to be an operative part of the Constitution. The National Organization for Women (NOW), the largest ERA advocacy organization, and the General Services Administration (GSA) appealed this decision directly to the Supreme Court, which, on January 25, 1982, consolidated four appeals and agreed to hear the cases. In its order, the High Court also stayed the judgment of the Idaho District Court. On June 30, as noted earlier, the extended ratification deadline expired, so that when the Supreme Court convened for its term on October 4, it dismissed the appeals as moot, and vacated the district court decision.", "Interest in the proposed Equal Rights Amendment did not end when its extended ratification deadline expired on June 30, 1982. Since that time, there have been regular efforts to introduce the concept as a \"fresh start\" in Congress, while additional approaches have emerged that would revive H.J. Res. 208, the amendment as originally proposed by the 92 nd Congress.", "One potential means of restarting an equal rights amendment would be by introduction of a new joint resolution, a \"fresh start.\" Even as the June 30, 1982, extended ratification deadline approached, resolutions proposing an equal rights amendment were introduced in the 97 th Congress. New versions of an ERA have continued to be introduced in the House and Senate in each succeeding Congress. For many years, Senator Edward Kennedy of Massachusetts customarily introduced an equal rights amendment early in the first session of a newly convened Congress; since the 111 th Congress, Senator Robert Menendez of New Jersey has introduced Senate fresh start proposals. In the House of Representatives, Representative Carolyn Maloney of New York introduced a fresh start equal rights amendment in the 105 th and all succeeding Congresses. Fresh start amendments introduced in the 115 th Congress, S.J.Res. 6 and H.J.Res. 33 , were discussed earlier in this report, under \"Most Recent Developments.\"", "In addition to \"fresh start\" proposals, alternative approaches to the ratification question have also emerged over the years. In 1994, Representative Robert E. Andrews of New Jersey introduced H.Res. 432 in the 103 rd Congress. His proposal sought to require the House of Representatives to \"take any legislative action necessary to verify the ratification of the Equal Rights Amendment as part of the Constitution when the legislatures of an additional 3 states ratify the Equal Rights Amendment.\" This resolution was a response to the three-state strategy proposed by a pro-ERA volunteer organization \"ERA Summit\" in the 1990s, which was called following adoption of the Twenty-Seventh Amendment, the Madison Amendment, in 1992. The rationale for H.Res. 432 , and a succession of identical resolutions offered by Representative Andrews in subsequent Congresses, was that, following the precedent of the Madison Amendment, the ERA remained a valid proposal and the ratification process was still open. Representative Andrews further asserted that the action of Congress in extending the ERA deadline in 1978 provided a precedent by which \"subsequent sessions of Congress may adjust time limits placed in proposing clauses by their predecessors. These adjustments may include extensions of time, reductions, or elimination of the deadline altogether.\" The influence of the Madison Amendment is examined at greater length later in this report.\nThe year 2012 marked the 30 th anniversary of the expiration of the proposed Equal Rights Amendment's extended ratification deadline. During that period, new analyses emerged that examined the question of whether the amendment proposed in 1972 remains constitutionally viable. As noted later in this report, one of the most influential developments opening new lines of analysis occurred when the Twenty-Seventh Amendment, originally proposed in 1789 as part of a package that included the Bill of Rights, was taken up in the states after more than two centuries and ultimately ratified in 1992. This action, and Congress's subsequent acknowledgment of the amendment's viability, bear directly on the issue of the current status of the proposed Equal Rights Amendment, and are examined later in this report.\nIn the 112 th Congress, for the first time since the proposed ERA's deadline expired, resolutions were introduced in both the House and Senate that sought specifically to (1) repeal, or eliminate entirely, the deadlines set in 1972 and 1978; (2) reopen the proposed ERA for state ratification at the then-current count of 35 states; and (3) extend the period for state ratification indefinitely. Current legislation proposing the three state/two state strategy in the 115 th Congress, S.J.Res. 5 and H.J.Res. 53 were discussed earlier in this report, under \"Most Recent Developments.\"", "Supporters of the ERA, and particularly the three-state strategy—now, arguably, the one-state strategy, assuming the validity of ratifications by Nevada and Illinois—identify a number of sources that they claim support their contention that the proposed Equal Rights Amendment remains constitutionally viable. Other scholars and observers, however, have raised concerns about, or objections to, these assertions.", "Proponents of the proposed Equal Rights Amendment cite the exceptionally broad authority over the constitutional amendment process granted to Congress by Article V of the Constitution as a principal argument for their case. The article's language states that \"[t]he Congress, whenever two thirds of both Houses shall deem it necessary, shall propose Amendments to this Constitution ... which ... shall be valid to all Intents and Purposes, as Part of this Constitution, when ratified by the Legislatures of three fourths of the several States or by Conventions in three fourths thereof....\" While the Constitution is economical with words when spelling out the authority extended to the three branches of the federal government, it does speak specifically when it places limits on these powers. In this instance, the founders placed no time limits or other conditions on congressional authority to propose amendments, so long as they are approved by the requisite two-thirds majority of Senators and Representatives present and voting.\nIn a 1992 opinion for the Counsel to the President concerning ratification of the Twenty-Seventh Amendment, Acting Assistant Attorney General Timothy Flanigan took note of the absence of time limits in Article V, and drew a comparison with their presence in other parts of the Constitution:\n... [t]he rest of the Constitution strengthens the presumption that when time periods are part of a constitutional rule, they are specified. For example, Representatives are elected every second year ... and a census must be taken within every ten year period following the first census, which was required to be taken within three years of the first meeting of Congress..... Neither House of Congress may adjourn for more than three days without the consent of the other ... and the President has ten days (Sundays excepted) within which to sign or veto a bill that has been presented to him.... The Twentieth Amendment refers to certain specific dates, January 3 rd and 20 th . Again, if the Framers had intended there to be a time limit for the ratification process, we would expect that they would have so provided in Article V.\nFurther, Article V empowers Congress to specify either of two modes of ratification: by the state legislatures, or by ad hoc state conventions. Neither the President nor the federal judiciary is allocated any obvious constitutional role in the amendment process. To those who might suggest the Constitutional Convention did not intend to grant such wide authority to Congress, ERA supporters can counter by noting that the founders provided a second mode of amendment, through a convention summoned by Congress at the request of the legislatures of two-thirds of the states. The suggestion here is that the founders deliberately provided Congress with plenary authority over the amendment process, while simultaneously checking it through the super-majority requirement, and balancing it with the Article V Convention alternative. In the case of the proposed Equal Rights Amendment, it has been inferred by ERA supporters that since neither ratification deadlines nor contemporaneity requirements for amendments appear anywhere in Article V, Congress is free to propose, alter, or terminate such ratification provisions at its discretion.\nAdvocates of congressional authority over the amendment process might also note the fact that Congress has acted on several occasions in the course of, or after, the ratification process by the states to assert its preeminent authority under Article V in determining ratification procedures. For instance, on July 21, 1868, Congress passed a resolution that declared the Fourteenth Amendment to have been duly ratified and directed Secretary of State William Seward to promulgate it as such. Congress had previously received a message from the Secretary reporting that 28 of 37 states then in the Union had ratified the amendment, but that 2 of the 28 ratifying states had subsequently passed resolutions purporting to rescind their ratifications, and the legislatures of 3 others had approved the amendment only after previously rejecting earlier ratification resolutions. Congress considered these issues but proceeded to declare the ratification process complete. Congress similarly exercised its authority over the process less than two years later when it confirmed the ratification of the Fifteenth Amendment by resolution passed on March 30, 1870. Congress exercised its authority over the amendment process again in 1992 when it declared the Twenty-Seventh Amendment, the so-called \"Madison Amendment,\" to have been ratified, an event examined in the next section of this report.\nOpponents of ERA extension, while not questioning the plenary authority of Congress over the amending process, raise questions on general grounds of constitutional restraint and fair play. Some reject it on fundamental principle; Grover Rees III, writing in T he T exas Law Review , asserted that\n... extension is unconstitutional insofar as it rests on the unsubstantiated assumption that states which ratified the ERA with a seven-year time limit also would have ratified with a longer time limit, and insofar as it attempts to force those states into an artificial consensus regardless of their actual intentions.\nERA supporter Mary Frances Berry noted a similar argument raised by the amendment's opponents:\n... some scholars pointed out that legally an offer and agreed-upon terms is required before any contract is valid. ERA ratification, according to this view, was a contract. Therefore, states could not be regarded as contracting not in the agreed upon terms. The agreed upon terms included a seven-year time limit. When seven years passed, all pre-existing ratifications expired.\nWriting in Constitutional Commentary , authors Brannon P. Denning and John R. Vile offered additional criticisms of efforts to revive the proposed Equal Rights Amendment, noting that ample time had been provided for ratification between 1972 and 1982. They further suggested that elimination of ratification deadlines would reopen the question of purported state rescissions of acts of ratification; that progress in women's equality in law and society may have \"seemed to render ERA superfluous\"; and that allowing the proposed amendment \"a third bite at the apple would suggest that no amendment to the U.S. Constitution ever proposed ... could ever be regarded as rejected.\"", "Supporters of the proposed Equal Rights Amendment cite another source in support of their argument for the proposed amendment's viability: the Twenty-Seventh Amendment to the Constitution, also known as the Madison Amendment, which originated during the first year of government under the Constitution, but fell into obscurity, and became the object of renewed public interest only in the late 20 th century. In 1789, Congress proposed a group of 12 amendments to the states for ratification. Articles III through XII of the proposals became the Bill of Rights, the first 10 amendments to the Constitution. They were ratified quickly, and were declared adopted on December 15, 1791. Articles I and II, however, were not ratified along with the Bill of Rights; Article II, which required that no change in Members' pay could take effect until after an election for the House of Representatives had taken place, was ratified by six states between 1789 and 1791 (the ratification threshold was 10 states in 1789), after which it was largely forgotten.\nAfter nearly two centuries, the Madison Amendment was rediscovered in 1978, when the Wyoming legislature was informed that as no deadline for ratification had been established, the measure was arguably still viable. Seizing on the opportunity to signal its disapproval of a March 3, 1978, vote by Congress to increase compensation for Representatives and Senators, the legislature passed a resolution approving the proposed amendment. In its resolution of ratification, the legislature cited the congressional vote to increase Member compensation, noting that:\n... the percentage increase in direct compensation and benefits [to Members of Congress] was at such a high level, as to set a bad example to the general population at a time when there is a prospect of a renewal of double-digit inflation; and ... increases in compensation and benefits to most citizens of the United States are far behind these increases to their elected Representatives.... \"\nThe Wyoming legislature's action went almost unreported, however, until 1983, when Gregory D. Watson, a University of Texas undergraduate student, studied the amendment and concluded that it was still viable and eligible for ratification. Watson began a one-person campaign, circulating letters that drew attention to the proposal to state legislatures across the country. This grassroots effort developed into a nationwide movement, leading ultimately to 31 additional state ratifications of the amendment between 1983 and 1992.\nIn 1991, as the number of state ratifications of the Madison Amendment neared the requisite threshold of 38, Representative John Boehner of Ohio introduced H.Con.Res. 194 in the 102 nd Congress. The resolution noted that, \"this amendment to the Constitution was proposed without a deadline for ratification and is therefore still pending before the States.\" The resolution went on to state \"the sense of the Congress that at least 3 of the remaining 15 States should ratify the proposed 2 nd amendment to the Constitution, which would delay the effect of any law which varies the compensation of Members of Congress until after the next election of Representatives.\" Although no further action was taken on the resolution, its findings anticipated Congress's response to the amendment.\nOn May 7, 1992, the Michigan and New Jersey legislatures both voted to ratify the \"Madison Amendment,\" becoming the 38 th and 39 th states to approve it. As required by law, the Archivist of the United States certified the ratification on May 18, and the following day an announcement that the amendment had become part of the Constitution was published in the Federal Register . Although the Archivist was specifically authorized by the U.S. Code to publish the act of adoption and issue a certificate declaring the amendment to be adopted, many in Congress believed that, in light of the unusual circumstances surrounding the ratification, positive action by both houses was necessary to confirm the Madison Amendment's legitimacy. In response, the House adopted H.Con.Res. 320 on May 20, and the Senate adopted S.Con.Res. 120 and S.Res. 298 on the same day. All three resolutions declared the amendment to be duly ratified and part of the Constitution.\nBy providing a recent example of a proposed amendment that had been inactive for more than a century, the Twenty-Seventh Amendment suggests to ERA supporters an attainable model for renewed consideration of the proposed Equal Rights Amendment.", "The example of the Madison Amendment contributed to the emergence of a body of advocacy scholarship that asserts the proposed Equal Rights Amendment has never lost its constitutional viability. One of the earliest expressions of this viewpoint was offered in an article that appeared in the William and Mary Journal of Women and the Law in 1997. The authors reasoned that adoption of the Twenty-Seventh Amendment challenged many of the assumptions about ratification generated during the 20 th century. Acceptance of the Madison Amendment by the Archivist and the Administrator of General Services, as advised by the Justice Department and ultimately validated by Congress, was said to confirm that there is no requirement that ratifications of proposed amendments must be roughly contemporaneous. The authors went on to examine the history of the seven-year time limit, concluding after a review of legal scholarship on the subject that this device was a matter of procedure, rather than of substance (i.e., part of the body of the amendment itself). As such it was \"separate from the amendment itself, and therefore, it can be treated as flexible.\" By extending the original ERA deadline, Congress based its action on the broad authority over the amendment process conferred on it by Article V.\nFinally, the authors asserted, relying on the precedent of the Twenty-Seventh Amendment, that \"even if the seven-year limit was a reasonable legislative procedure, a ratification after the time limit expired can still be reviewed and accepted by the current Congress.... \" In their view, even if one Congress failed to extend or remove the ratification deadline, states could still ratify, and a later Congress could ultimately validate their ratifications.\nOther observers question the value of the Madison Amendment as precedent. Writing in Constitutional Commentary , Denning and Vile asserted that the Twenty-Seventh Amendment presented a poor model for ERA supporters. Examining the amendment's origins, they suggested that \"the courts and most members of Congress have tended to treat the 27 th as a 'demi-amendment,' lacking the full authority of the 26 that preceded it.\" Reviewing what they characterized as unfavorable interpretations of the Madison Amendment in various legal cases, the authors asked whether what they referred to as the \"jury rigged ratification of the ERA might result in its similar evisceration by the judiciary that will be called upon to interpret it.\" Similarly, a commentary in National Law Journal asserted that, by blocking its own cost of living salary increases, Congress itself has also persistently failed to observe the Madison Amendment's requirements that \"[n]o law, varying the compensation for the services of the Senators and Representatives, shall take effect, until an election of Representatives shall have intervened.\"\nOn the other hand, supporters of the proposed ERA might claim that such criticism of the Twenty-Seventh Amendment refers more to what they might characterize as the flawed application of the amendment, rather than the intrinsic integrity of the amendment itself.\nConstitutional scholar Michael Stokes Paulsen further questioned use of the Twenty-Seventh Amendment as an example in the case of the proposed Equal Rights Amendment. He returned to the contemporaneity issue, suggesting that the amending process\n... should be occasions , not long, drawn-out processes. To permit ratification over a period of two centuries is to erode, if not erase the ideal of overwhelming popular agreement.... There is no assurance that the Twenty-seventh Amendment ever commanded, at any one time , popular assent corresponding to the support of two-thirds of the members of both houses of Congress and three-fourths of the state legislatures. (Emphases in the original.)\nIt could be further argued by opponents of proposed Equal Rights Amendment extension that, whatever the precedent set by Congress in declaring the Twenty-Seventh Amendment to have been regularly adopted, there is no precedent for Congress promulgating an amendment based on state ratifications adopted after two ratification deadlines have expired.", "By some measures, the action of the Archivist of the United States in announcing ratification of the Twenty-Seventh Amendment, followed by congressional confirmation of its viability, superseded a body of constitutional principle that had prevailed since the 1920s and 1930s. This body of theory and political consideration arguably originated with the Supreme Court's 1921 decision in Dillon v. Gloss , the case in which the Court first enunciated the principle that conditions of ratification for proposed constitutional amendments could be determined by Congress, and that the conditions should be roughly contemporaneous. The Court concluded that, relying on the broad grant of authority contained in Article V, Congress had the power, \"keeping within reasonable limits, to fix a definite period for the ratification.... \"\nAt the same time, the Court noted that nothing in the nation's founding documents touched on the question of time limits for ratification of a duly proposed constitutional amendment, and asked whether ratification would be valid at any time\n... within a few years, a century or even a longer period, or that it must be had within some reasonable period which Congress is left free to define? Neither the debates in the federal convention which framed the Constitution nor those in the state conventions which ratified it shed any light on the questions.\nUltimately, however, the Court concluded that proposal of an amendment by Congress and ratification in the states are both steps in a single process, and that amendments\n... are to be considered and disposed of presently.... [A] ratification is but the expression of the approbation of the people and is to be effective when had in three-fourths of the states, there is a fair implication that it must be sufficiently contemporaneous in that number of states to reflect the will of the people in all sections at relatively the same period, which of course ratification scattered through a long series of years would not do.\nThe need for contemporaneity was also discussed by the Court with regard to the congressional apportionment amendment and the Madison Amendment, both of which were pending in 1921. The Court maintained that the ratification of these amendments so long after they were first proposed would be \"untenable.\" Some scholars dispute the Court's position in Dillon , however; Mason Kalfus, writing in The University of Chicago Law Review , claimed that reference to the contemporaneity doctrine is to be found neither in the text of Article V nor in the deliberations of the Philadelphia Convention.\nIn Coleman v. Miller , the Supreme Court explicitly held that Congress had the sole power to determine whether an amendment is sufficiently contemporaneous, and thus valid, or whether, \"the amendment ha[s] lost its vitality through the lapse of time.\" In Coleman , the High Court refined its holdings in Dillon , ruling that when it proposes a constitutional amendment:\nCongress may fix a reasonable time for ratification; there was no provision in Article V that suggested a proposed amendment would be open for ratification forever; since constitutional amendments were deemed to be prompted by some type of necessity, they should be dealt with \"presently\"; it could be reasonably implied that ratification by the states under Article V should be sufficiently contemporaneous so as to reflect a nationwide consensus of public approval in relatively the same period of time; and ratification of a proposed amendment must occur within some reasonable time after proposal.\nThe Court additionally ruled, however, that if Congress were not to specify a reasonable time period for ratification of a proposed amendment, it would not be the responsibility of the Court to decide what constitutes such a period. The Court viewed such questions as essentially political and, hence, nonjusticiable, believing that the questions were committed to, and must be decided by, Congress in exercise of its constitutional authority to propose an amendment or to specify the ratification procedures for an amendment.\nThis \"political question\" interpretation of the contemporaneity issue is arguably an additional element supporting the fundamental constitutional doctrine of continued viability claimed by ERA advocates.\nAnother observer suggests, however, that the constitutional foundation of the Supreme Court's ruling in Coleman v. Miller , and hence the political question doctrine, may have been affected by the contemporary political situation. According to this theory, the Court in 1939 may have been influenced by, and overreacted to, the negative opinion generated by its political struggles with President Franklin Roosevelt over the constitutionality of New Deal legislation: \"A later court, bruised by its politically unpopular New Deal rulings, retreated somewhat from a dogmatic defense of ratification time limits (as enunciated in Dillon v. Gloss ).\" Michael Stokes Paulsen also questioned the Supreme Court's decision in Coleman v. Miller , suggesting that the \"political question\" doctrine could be interpreted to assert a degree of unchecked congressional authority over the ratification process that is arguably anti-constitutional.", "A range of subsidiary issues could also come under Congress's purview should it consider revival of the proposed Equal Rights Amendment or a signal to the states that it would consider additional ratifications beyond the expired ratification deadline in the congressional resolutions.", "One historical issue related to consideration of the proposed Equal Rights Amendment concerns the background of the seven-year deadline for ratification that originated with the Eighteenth Amendment (Prohibition). The amendment was proposed in 1917, proceeded rapidly through the state ratification process, and was declared to be adopted in 1919. During Senate consideration of the proposal, Senator and, later, President Warren Harding of Ohio is claimed to have originated the idea of a ratification deadline for the amendment as a political expedient, one that would \"permit him and others to vote for the amendment, thus avoiding the wrath of the 'Drys' (prohibition advocates), yet ensure that it would fail of ratification.\" As it happened, the law of unintended consequences intervened, as \"[s]tate ratification proceeded at a pace that surprised even the Anti-Saloon League, not to mention the calculating Warren Harding.\" Proposed on December 18, 1917, the amendment was declared to have been adopted just 13 months later, on January 29, 1919.\nERA supporters might cite this explanation of the origins of the seven-year ratification deadline in addition to their central assertions of the amendment's viability. They could claim that, far from being an immutable historical element in the amendment process, bearing with it the wisdom of the founders, the ratification time limit is actually the product of a failed political maneuver, and is, moreover, of comparatively recent origin.\nOpponents of extension might argue, however, that, whatever its origins, the seven-year ratification deadline has become a standard element of nearly all subsequent proposed amendments. They might further note that if ratification deadlines were purely political, Congress would not have continued to incorporate them in nine subsequent proposed amendments. In their judgment, these time limits not only ensure that proposed constitutional amendments enjoy both broad and contemporaneous support in the states, but they also arguably constitute an important element in the checks and balances attendant to the amendment process.", "In addition to this question, the constitutional issue of rescission would almost certainly recur in a contemporary revival of the proposed Equal Rights Amendment. As noted earlier in this report, five states enacted resolutions purporting to rescind their previously adopted ratifications of the proposed amendment. The U.S. District Court for the District of Idaho ruled in 1981 that states had the option to rescind their instruments of ratification any time in the process prior to the promulgation or certification of the proposed amendment, a decision that was controversial at the time. The Supreme Court agreed to hear appeals from the decision, but after the extended ERA ratification deadline expired on June 30, 1982, the High Court in its autumn term vacated the lower court decision and remanded the decision to the District Court with instructions to dismiss the case.\nIt may be noted by ERA supporters, however, that since the Supreme Court ruled in Coleman v. Miller that Congress has plenary power in providing for the ratification process, it may be inferred from this holding that Congress also possesses dispositive authority over the question as to the validity of rescission. Moreover, they might also note that its1868 action directing Secretary of State William Seward to declare the Fourteenth Amendment to be ratified, notwithstanding two state rescissions, further confirms Congress's broad authority over the amendment process.\nSpeculation on potential future court action on this question is beyond the scope of this report, but rescission arguably remains a potentially viable constitutional issue that could arise in response to a revival of the proposed Equal Rights Amendment.", "Some observers have noted that, while Congress passed resolutions declaring the Fourteenth, Fifteenth, and Twenty-Seventh Amendments to be valid, congressional promulgation of amendments that have been duly ratified is not necessary, and has no specific constitutional foundation. In his 1992 Memorandum for the Counsel to the President concerning the Twenty-Seventh Amendment, Acting Assistant Attorney General Timothy Flanigan, wrote that\nArticle V clearly delimits Congress's role in the amendment process. It authorizes Congress to propose amendments and specify their mode of ratification, and requires Congress, on the application of the legislatures of two-thirds of the States, to call a convention for the proposing of amendments. Nothing in Article V suggests that Congress has any further role. Indeed, the language of Article V strongly suggests the opposite: it provides that, once proposed, amendments \"shall be valid to all Intents and Purposes, as Part of this Constitution, when ratified by\" three-fourths of the States. (Emphasis original in the memorandum, but not in Article V.)\nThe same viewpoint has been advanced by constitutional scholar Walter Dellinger. Addressing the question shortly after the Twenty-Seventh Amendment was declared to have been ratified, he noted\nAn amendment is valid when ratified. There is no further step. The text requires no additional action by Congress or anyone else after ratification by the final state. The creation of a \"third step\"—promulgation by Congress—has no foundation in the text of the Constitution.\nSupporters of the proposed Equal Rights Amendment, however, might refer again to the Supreme Court's ruling in Coleman v. Miller . If plenary authority over the amendment process rests with Congress, advocates might ask, does it also presumably extend to other issues that arise, including provision for such routine procedures as promulgation of an amendment?", "Congress has proposed one constitutional amendment to the states since the proposed Equal Rights Amendment began the ratification process in 1972, the District of Columbia Voting Rights (Congressional Representation) Amendment. For this amendment, Congress returned to the earlier practice of placing a deadline for ratification directly in the body of the proposal itself. According to contemporary accounts, this decision was influenced by the nearly concurrent congressional debate over the ERA deadline extension.\nThe District of Columbia is a unique jurisdiction, part of the Union, but not a state, and subject to \"exclusive Legislation in all Cases whatsoever ... by Congress.\" Congress has exercised its authority over the nation's capital with varying degrees of attention and control, and through a succession of different governing bodies, beginning in 1800. By the 1950s, the long-disenfranchised citizens of Washington, DC, began to acquire certain rights. The Twenty-Third Amendment, ratified in 1961, established their right to vote in presidential elections. In 1967, President Lyndon Johnson used his reorganization authority to establish an appointed mayor and a city council, also presidentially appointed. In 1970, Congress provided by law for a non-voting District of Columbia Delegate to Congress, who was seated in the House of Representatives. In 1973, President Richard Nixon signed legislation that established an elected mayor and council, while reserving ultimate authority over legislation to Congress.\nAfter more than a decade of change, proponents asserted that voting representation in Congress proportionate to that of a state would be an important step in the progress toward full self-government by the District of Columbia. In 1977, Representative Don Edwards of California, chairman of the House Judiciary Committee's Subcommittee on Civil and Constitutional Rights, introduced H.J.Res. 554 (95 th Congress). The resolution, as introduced, comprised the following text:\nResolved by the Senate and the House of Representatives of the United States of America in Congress assembled (two thirds of each House concurring therein), That the following article is proposed as an amendment to the Constitution of the United States, which shall be valid to all intents and purposes as part of the Constitution when ratified by the legislatures of three fourths of the several states within seven years of the date of its submission by the Congress:\nArticle—\nSection 1. For purpose of representation in the Congress, election of the President, and Article V of this Constitution, the District constituting the seat of government of the United States shall be treated as though it were a state.\nSection 2. The exercise of the rights and powers conferred under this article shall be by the people of the District constituting the seat of government, and as shall be provided by the Congress.\nSection 3. The twenty-third article of amendment to the Constitution of the United States is hereby repealed.\nExtensive hearings were held in the subcommittee in 1977, and on February 15, 1978, the full Judiciary Committee reported the measure to the House. The committee, however, adopted an amendment offered by Representative M. Caldwell Butler of Virginia that incorporated the seven-year ratification deadline directly in the body of the resolution, rather than in the preamble. Congressional Quarterly reported that this provision\n... was intended to ensure that the deadline could not be extended by a simple majority vote of Congress. The Justice Department has said in the case of the Equal Rights Amendment that Congress could extend the deadline for ratification by a simple majority vote because the time limit was contained in the resolving clause rather than in the body of that amendment.\nSimilarly, writing in Fordham Urban Law Journal during the same period, Senator Orrin Hatch of Utah noted that:\nSection 4 of the D.C. Amendment requires that ratification of the necessary three-fourths of the states must occur within seven years of the date of its submission to the states. The inclusion of this provision within the body of the resolution will avoid a similar controversy to that which has arisen with respect to the time limit for ratification of the proposed \"Equal Rights Amendment.\"\nDuring consideration of H.J.Res. 554 in the full House, language setting the ratification deadline was deleted from the authorizing resolution, and the Butler amendment was incorporated in the body of the proposal by voice vote as a new section:\nSection 4. This article shall be inoperative, unless it shall have been ratified as an amendment to the Constitution by the legislatures of three-fourths of the States within seven years from the date of its submission.\nThe amendment passed the House on March 2, 1978, by a margin of 289 to 127, 11 votes more than the two-thirds constitutional requirement. The Senate took up the House-passed resolution on August 16, 1978. During four days of debate, it rejected a wide range of amendments, voting to adopt H.J.Res. 554 on August 22 by a margin of 67 to 32, one vote more than the constitutional requirement.\nThe District of Columbia Congressional Representation Amendment expired on August 2, 1985, seven years after it was proposed by Congress. It was ultimately ratified by 16 states, 22 short of the constitutionally mandated requirement that it be approved by three-fourths, or 38, of the states.", "The arguments and constitutional principles relied on by ERA supporters to justify the revival of the proposed Equal Rights Amendment include, but may not be limited to, the following:\nArticle V, they assert, grants exceptionally broad discretion and authority over the constitutional amendment process to Congress. In their interpretation, the example of the Twenty-Seventh Amendment suggests that there is no requirement of contemporaneity in the ratification process for proposed constitutional changes. ERA proponents claim that the Supreme Court's decision in Coleman v. Miller gives Congress wide discretion in setting conditions for the ratification process. Far from being sacrosanct and an element in the founders' \"original intent,\" the seven-year deadline for amendments has its origins in a political maneuver by opponents of the Eighteenth Amendment authorizing Prohibition. The decision of one Congress in setting a deadline for ratification of an amendment does not constrain a later Congress from rescinding the deadline and reviving or acceding to the ratification of a proposed amendment.\nAgainst these statements of support may be weighed the cautions of other observers who may argue as follows:\nThe Twenty-Seventh Amendment is a questionable model for efforts to revive the proposed Equal Rights Amendment; unlike the proposed amendment, it was not encumbered by two expired ratification deadlines. Moreover, it is argued that Congress has generally ignored its provisions since ratification. Even though the proposed Equal Rights Amendment received an extension, supporters were unable to gain approval by three-fourths of the states. Opponents suggest that a \"third bite of the apple\" is arguably unfair and, if not unconstitutional, at least contrary to the founders' intentions. Revivification opponents caution ERA supporters against an overly broad interpretation of Coleman v. Miller , which, they argue, may have been be a politically influenced decision . Congress implicitly recognized its misjudgment on the ratification deadline for the proposed Equal Rights Amendment when it incorporated such a requirement in the text of the proposed District of Columbia Voting Rights (Congressional Representation) Amendment. The rescission issue was not conclusively decided in the 1980s and remains potentially open to congressional or judicial action if the proposed Equal Rights Amendment is reopened for further ratifications.\nCongress could revisit the contending points raised by different analysts if it gives active consideration to legislation that would seek specifically to revive the proposed Equal Rights Amendment, or to accept the additional state ratifications.\nIn recent years, some supporters of the proposed ERA have embraced the three-state strategy, which maintains that Congress has the authority to effectively repeal the ratification deadlines provided in H.J. Res. 208, 92 nd Congress and H.J.Res. 638 , 95 th Congress. In the 115 th Congress, S.J.Res. 5 and H.J.Res. 53 incorporate this approach, which could be more accurately described as a \"one-state strategy\" following ratification by Nevada in 2017 and Illinois in 2018. Alternatively, Congress could propose a \"fresh start\" equal rights amendment; such proposals have been introduced regularly since the original ERA time limit expired in 1982. This approach might avoid the controversies that have been associated with repeal of the deadlines for the 1972 ERA, but starting over would present a fresh constitutional amendment with the stringent requirements provided in Article V: approval by two-thirds majorities in both houses of Congress, and ratification by three-fourths of the states. It would, however, be possible to draft the proposal without a time limit, as is the case with S.J.Res. 6 and H.J.Res. 33 in the 115 th Congress. If approved by Congress in this form, the proposed amendment would, as was the case with the Madison Amendment, remain current, viable, and thus eligible for ratification, for an indefinite period." ], "depth": [ 0, 1, 1, 2, 3, 4, 4, 3, 3, 4, 4, 3, 2, 3, 2, 1, 2, 2, 3, 3, 3, 2, 2, 2, 1, 2, 2, 1, 2, 2, 2, 2, 2, 3, 3, 3, 3, 1 ], "alignment": [ "h0_title h2_title h4_title h3_title h1_title", "h0_full h1_full", "h2_title h1_title h4_title", "h2_full h1_title h4_title", "h4_full h2_title", "h4_full", "h2_full", "", "h2_title h1_full", "h2_full", "h2_full", "", "h1_full", "h1_full", "", "h0_title", "", "h0_title", "", "h0_full", "h0_full", "", "", "", "h2_title", "h2_full", "", "h3_title", "h3_full", "", "", "", "", "", "", "", "", "h3_full h4_full" ] }

{ "question": [ "What is the ERA?", "What was the original deadline for ratification?", "What were the results of the ratification vote?", "How have Congressional advocates for the ERA renewed their support?", "What is this strategy referred to as?", "What is the goal of the ERA supporters?", "What approach did policymakers choose in the 115th Congress?", "Which bills focus on the \"fresh start\" approach?", "Which bills focus on removing the deadline?", "Why is reopening the amendment controversial?", "Why might opponents of the ERA reject the example of the 27th Amendment?", "How might the state ratifications pose an issue if reopened?", "What is the \"fresh start\" approach for the ERA?", "How does this differ from the approach of reopening the ratification process?" ], "summary": [ "The proposed Equal Rights Amendment to the U.S. Constitution (ERA), which declares that \"equality of rights under the law shall not be denied or abridged by the United States or any State on account of sex,\" was approved by Congress for ratification by the states in 1972.", "The proposal included a seven-year deadline for ratification.", "Between 1972 and 1977, 35 state legislatures, of the 38 required by the Constitution, voted to ratify the ERA. Despite a congressional extension of the deadline from 1979 to 1982, no additional states approved the amendment during the extended period, at which time the amendment was widely considered to have expired.", "Since 1982, Senators and Representatives who support the amendment have continued to introduce new versions of the ERA, generally referred to as \"fresh start\" amendments. In addition, some Members of Congress have also introduced resolutions designed to reopen ratification for the ERA as proposed in 1972, restarting the process where it ended in 1982.", "This was known as the \"three-state strategy,\" for the number of additional ratifications then needed to complete the process, until Nevada and Illinois ratified the amendment in March 2017 and May 2018, respectively, becoming the 36th and 37th states to do so.", "The ERA supporters' intention here is to repeal or remove the deadlines set for the proposed ERA, reactivate support for the amendment, and complete the ratification process by gaining approval from the one additional state needed to meet the constitutional requirement, assuming the Nevada and Illinois ratifications are valid.", "As the 115th Congress convened, resolutions were introduced in the House of Representatives and the Senate that embraced both approaches.", "H.J.Res. 33, introduced by Representative Carolyn Maloney, and S.J.Res. 6, introduced by Senator Robert Menendez, propose \"fresh start\" equal rights amendments.", "H.J.Res. 53, introduced by Representative Jackie Speier, and S.J.Res. 5, introduced by Senator Benjamin Cardin, would remove the deadline for ratification of the ERA proposed by Congress in 1972.", "Opponents of reopening the amendment process may argue that attempting to revive the ERA would be politically divisive, and that providing it with a \"third bite of the apple\" would be contrary to the spirit and perhaps the letter of Article V and Congress's earlier intentions.", "They might also reject the example of the Twenty-Seventh Amendment, which, unlike the proposed ERA, never had a ratification time limit.", "Further, they might claim that efforts to revive the ERA ignore the possibility that state ratifications may have expired with the 1982 deadline, and that amendment proponents fail to consider the issue of state rescission, which has never been specifically decided in any U.S. court.", "It consists of starting over by introducing a new amendment, similar or identical to, but distinct from, the original.", "A fresh start would avoid potential controversies associated with reopening the ratification process, but would face the stringent constitutional requirements of two-thirds support in both chambers of Congress and ratification by three-fourths of the states." ], "parent_pair_index": [ -1, 0, 1, -1, 0, 0, -1, 0, 0, -1, 0, 0, -1, 0 ], "summary_paragraph_index": [ 0, 0, 0, 1, 1, 1, 2, 2, 2, 5, 5, 5, 6, 6 ] }

{ "title": [ "", "Introduction", "Multilateral vs. Bilateral SOFAs", "Provisions of Status of Forces Agreements", "Civil/Criminal Jurisdiction", "Example of Exclusive Jurisdiction", "Example of Shared Jurisdiction", "Status Determinations", "Authority to Fight", "Other Provisions Such as Uniforms, Taxes, and Customs", "Security Arrangements and SOFAs", "Bilateral SOFAs: Historical Practice", "Afghanistan", "Germany", "Japan", "South Korea", "Philippines", "Iraq109", "Survey of Current Status of Forces Agreements", "North Atlantic Treaty Organization: Status of Forces Agreement", "North Atlantic Treaty Organization: Partnership for Peace - Status of Forces Agreement", "Treaty as Underlying Source of Authority for Status of Forces Agreement", "Congressional Action as Underlying Source of Authority for Status of Forces Agreement", "Base Lease Agreement Containing Status of Forces Agreement Terms", "Status of Forces Agreement in Support of Specified Activity/Exercises", "Status of Forces Agreement Not in Support of Specified Activity/Exercise and Not Based on Underlying Treaty/Congressional Action" ], "paragraphs": [ "", "The United States has been party to multilateral and bilateral agreements addressing the status of U.S. Armed Forces while present in a foreign country. These agreements, commonly referred to as Status of Forces Agreements (SOFAs), generally establish the framework under which U.S. military personnel operate in a foreign country. SOFAs provide for rights and privileges of covered individuals while in a foreign jurisdiction and address how the domestic laws of the foreign jurisdiction apply to U.S. personnel. SOFAs may include many provisions, but the most common issue addressed is which country may exercise criminal jurisdiction over U.S. personnel. The United States has agreements where it maintains exclusive jurisdiction over its personnel, but more often the agreement calls for shared jurisdiction with the receiving country.\nA SOFA is not a mutual defense agreement or a security agreement, and generally does not authorize specific exercises, activities, or missions. SOFAs are peacetime documents and therefore do not address the rules of war, the Laws of Armed Conflict, or the Laws of the Sea. The existence of a SOFA does not affect or diminish the parties' inherent right of self-defense under the law of war. In the event of armed conflict between parties to a SOFA, the terms of the agreement would no longer be applicable.\nThe United States is currently party to more than 100 agreements that may be considered SOFAs. While a SOFA as a stand-alone document may not exist with a particular country, that does not necessarily mean that the status of U.S. personnel in that country has not been addressed. Terms commonly found in SOFAs may be contained in other agreements with a partner country and a separate SOFA not utilized. As contracts, SOFAs may be subject to amendment or cancellation.", "With the exception of the multilateral SOFA among the United States and North Atlantic Treaty Organization (NATO) countries, a SOFA is specific to an individual country and is in the form of an executive agreement. The Department of State and the Department of Defense, working together, identify the need for a SOFA with a particular country and negotiate the terms of the agreement. The NATO SOFA is the only SOFA that was concluded as part of a treaty. The Senate approved ratification of the NATO SOFA on March 19, 1970, subject to reservations. The resolution included a statement\nthat nothing in the Agreement diminishes, abridges, or alters the right of the United States to safeguard its own security by excluding or removing persons whose presence in the United States is deemed prejudicial to its safety or security, and that no person whose presence in the United States is deemed prejudicial to its safety or security shall be permitted to enter or remain in the United States.\nThe Senate reservations to the NATO SOFA include four conditions: (1) the criminal jurisdiction provisions contained in Article VII of the agreement do not constitute a precedent for future agreements; (2) when a servicemember is to be tried by authorities in a receiving state, the commanding officer of the U.S. Armed Forces in that state shall review the laws of the receiving state with reference to the procedural safeguards of the U.S. Constitution; (3) if the commanding officer believes there is danger that the servicemember will not be protected because of the absence or denial of constitutional rights the accused would receive in the United States, the commanding officer shall request that the receiving state waive its jurisdiction; and, (4) a representative of the United States be appointed to attend the trial of any servicemember being tried by the receiving state and act to protect the constitutional rights of the servicemember.\nThe NATO SOFA is a multilateral agreement that has applicability among all the member countries of NATO. As of June 2007, 26 countries, including the United States, have either ratified the agreement or acceded to it by their accession into NATO. Additionally, another 24 countries are subject to the NATO SOFA through their participation in the NATO Partnership for Peace (PfP) program. The program consists of bilateral cooperation between individual countries and NATO in order to increase stability, diminish threats to peace, and build strengthened security relationships. The individual countries that participate in the PfP agree to adhere to the terms of the NATO SOFA. Through the NATO SOFA and the NATO PfP, the United States has a common SOFA with approximately 58 countries. Then-Secretary Rice and Secretary Gates stated that the United States has agreements in more than 115 countries around the world. The NATO SOFA and NATO PfP SOFA account for roughly half of the SOFAs to which the United States is party.\nDepartment of Defense Directive 5525.1 provides policy and information specific to SOFAs. The Department of Defense policy is \"to protect, to the maximum extent possible, the rights of U.S. personnel who may be subject to criminal trial by foreign courts and imprisonment in foreign prisons.\" The directive addresses the Senate reservations to the NATO SOFA by stating even though the reservations accompanying its ratification only apply to NATO member countries where it is applicable, comparable reservations shall be applied to future SOFAs. Specifically, the policy states that \"the same procedures for safeguarding the interests of U.S. personnel subject to foreign jurisdiction\" be applied when practicable in overseas areas where U.S. forces are stationed.", "There are no formal requirements governing the content, detail, and length of a SOFA. A SOFA may address, but is not limited to, criminal and civil jurisdiction, the wearing of uniforms, taxes and fees, carrying of weapons, use of radio frequencies, license requirements, and customs regulations. The United States has concluded SOFAs as short as one page and in excess of 200 pages. For example, the United States and Bangladesh exchanged notes providing for the status of U.S. Armed Forces in advance of a joint exercise in 1998. The agreement is specific to one activity/exercise, consists of five clauses, and is contained in one page. The United States and Botswana exchanged notes providing for the status of forces \"who may be temporarily present in Botswana in conjunction with exercises, training, humanitarian assistance, or other activities which may be agreed upon by our two governments.\" The agreement is similar in its scope to the agreement with Bangladesh and is contained in one page. In contrast, in documents exceeding 200 pages, the United States and Germany entered into a supplemental agreement to the NATO SOFA, as well as additional agreements and exchange of notes related to specific issues.", "The issue most commonly addressed in a SOFA is the legal protection from prosecution that will be afforded U.S. personnel while present in a foreign country. The agreement establishes which party to the agreement is able to assert criminal and/or civil jurisdiction. In other words, the agreement establishes how the domestic civil and criminal laws are applied to U.S. personnel while serving in a foreign country. The United States has entered agreements where it maintains exclusive jurisdiction, but the more common agreement results in shared jurisdiction between the United States and the signatory country. Exclusive jurisdiction is when the United States retains the right to exercise all criminal and disciplinary jurisdiction for violations of the laws of the foreign nation while the individual is present in that country. Shared jurisdiction occurs when each party to the agreement retains exclusive jurisdiction over certain offenses, but also allows the United States to request that the host country waive jurisdiction in favor of the United States exercising criminal and disciplinary jurisdiction. The right to exert jurisdiction over U.S. personnel is not solely limited to when an individual is located on a military installation. It may cover individuals off the installation as well. The right to exert jurisdiction can result in complete immunity from the laws of the receiving country while the individual is present in that country.", "The United States entered into an agreement regarding military exchanges and visits with the Government of Mongolia. As part of the agreement, Article X addresses criminal jurisdiction of U.S. personnel located in Mongolia. The language of the agreement provides, \"United States military authorities shall have the right to exercise within Mongolia all criminal and disciplinary jurisdiction over United States [p]ersonnel conferred on them by the military laws of the United States. Any criminal offenses against the laws of Mongolia committed by a member of the U.S. forces shall be referred to appropriate United States authorities for investigation and disposition.\" The agreement allows the Government of Mongolia to request the United States to waive its jurisdiction in cases of alleged criminal behavior unrelated to official duty. There is no requirement for the United States to waive jurisdiction, only to give \"sympathetic consideration\" of any such request.", "The NATO SOFA, applicable to all member countries, is an example of shared jurisdiction. Article VII provides the jurisdictional framework. The SOFA allows for a country not entitled to primary jurisdiction to request the country with primary jurisdiction waive its right to jurisdiction. There is no requirement for the country to waive jurisdiction, only that it gives \"sympathetic consideration\" of the request. Under the shared jurisdiction framework, each of the respective countries is provided exclusive jurisdiction in specific circumstances, generally when an offense is only punishable by one of the country's laws. In that case, the country whose law has been offended has exclusive jurisdiction over the offender. When the offense violates the laws of both countries, concurrent jurisdiction is present and additional qualifications are used to determine which country will be allowed to assert jurisdiction over the offender.", "While the NATO SOFA provides extensive language establishing jurisdiction, the United States has entered numerous SOFAs that appear to have a very basic rule for determining jurisdiction. Some agreements contain a single sentence stating that U.S. personnel are to be afforded a status equivalent to that accorded to the administrative and technical staff of the U.S. Embassy in that country. The Vienna Convention on Diplomatic Relations of April 18, 1961 establishes classes of personnel, each with varying levels of legal protections. Administrative and technical staff receive, among other legal protections, \"immunity from the criminal jurisdiction of the receiving State.\" Therefore, a SOFA which treats U.S. personnel as administrative and technical staff confers immunity from criminal jurisdiction while in the receiving country.", "SOFAs do not generally authorize specific military operations or missions by U.S. forces. While SOFAs do not generally provide authority to fight, the inherent right of self-defense is not affected or diminished. U.S. personnel always have a right to defend themselves, if threatened or attacked, and a SOFA does not take away that right. Language is often found within the SOFA that defines the scope of applicability of the agreement. For example, the SOFA with Belize expressly applies to U.S. personnel \"who may be temporarily in Belize in connection with military exercises and training, counter-drug related activities, United States security assistance programs, or other agreed purposes.\" The United States had previously entered into two different agreements with Belize related to military training and the provision of defense articles. The SOFA itself does not authorize specific operations, exercises, or activities, but provides provisions addressing the legal status and protections of U.S. personnel while in Belize. Under the terms of the agreement, U.S. personnel are provided legal protections as if they were administrative and technical staff of the U.S. Embassy.", "While understandings regarding the assertion of legal jurisdiction are generally a universal component of a SOFA, more detailed administrative and operational matters may be included as well. A SOFA may address, for example, the wearing of uniforms by armed forces while away from military installations, taxes and fees, carrying of weapons by U.S. personnel, use of radio frequencies, driving license requirements, and customs regulations. A SOFA provides the legal framework for day-to-day operations of U.S. personnel while a foreign country. Most SOFAs are bilateral agreements; therefore they may be tailored to the specific needs of the personnel operating in that country.", "In support of U.S. foreign policy, the United States has concluded agreements with foreign nations related to security commitments and assurances. These agreements may be concluded in various forms including as a collective defense agreement (obligating parties to the agreement to assist in the defense of any party to the agreement in the event of an attack upon it), an agreement containing a consultation requirement (a party to the agreement pledges to take some action in the event the other country's security is threatened), an agreement granting the legal right to military intervention (granting one party the right, but not the duty, to militarily intervene within the territory of another party to defend it against internal or external threats), or other non-binding arrangements (unilateral pledge or policy statement). SOFAs are often included, along with other types of military agreements (i.e., basing, access, and pre-positioning), as part of a comprehensive security arrangement. A SOFA may be based on the authority found in previous treaties, congressional action, or sole executive agreements comprising the security arrangement.", "The following sections provide a historical perspective on the inclusion of a SOFA as part of comprehensive bilateral security arrangements by the United States with Afghanistan, Germany, Japan, South Korea, and the Philippines. The arrangements may include a stand-alone SOFA or other agreements including protections commonly associated with a SOFA.", "Following the terrorist attacks of September 11, 2001, the United States initiated Operation Enduring Freedom to combat Al Qaeda and prevent the Taliban regime in Afghanistan from providing them with safe harbor. Shortly thereafter, the Taliban regime was ousted by U.S. and allied forces, and the United States thereafter concluded a number of security agreements with the new Afghan government. In 2002, the United States and Afghanistan, by an exchange of notes, entered into an agreement regarding economic grants under the Foreign Assistance Act of 1961, as amended. Additionally, the agreement allows for the furnishing of defense articles, defense services, and related training, pursuant to the United States International Military and Education Training Program (IMET), from the U.S. government to the Afghanistan Interim Administration (AIA).\nThe Foreign Assistance Act of 1961 is \"an act to promote the foreign policy, security, and general welfare of the United States by assisting peoples of the world in their efforts toward economic development and internal and external security, and for other purposes.\" Part I of the act, addressing international development, established policy \"to make assistance available, upon request, under this part in scope and on a basis of long-range continuity essential to the creation of an environment in which the energies of the peoples of the world can be devoted to constructive purposes, free of pressure and erosion by the adversaries of freedom.\" Part II of the act, addressing international peace and security, authorizes \"measures in the common defense against internal and external aggression, including the furnishing of military assistance, upon request, to friendly countries and international organizations.\" The act authorizes the President \"to furnish military assistance on such terms and conditions as he may determine, to any friendly country or international organization, the assisting of which the President finds will strengthen the security of the United States and promote world peace and which is otherwise eligible to receive such assistance.\" The authorization to provide defense articles and services, noncombatant personnel, and the transfer of funds is codified at 22 U.S.C. Section 2311. While this authorization permits the President to provide military assistance, it limits it to \"assigning or detailing members of the Armed Forces of the United States and other personnel of the Department of Defense to perform duties of a noncombatant nature .\"\nAn agreement exists regarding the status of military and civilian personnel of the U.S. Department of Defense present in Afghanistan in connection with cooperative efforts in response to terrorism, humanitarian and civic assistance, military training and exercises, and other activities. Such personnel are to be accorded \"a status equivalent to that accorded to the administrative and technical staff\" of the U.S. Embassy under the Vienna Convention on Diplomatic Relations of 1961. Accordingly, U.S. personnel are immune from criminal prosecution by Afghan authorities, and are immune from civil and administrative jurisdiction except with respect to acts performed outside the course of their duties. In the agreement, the Islamic Transitional Government of Afghanistan (ITGA) explicitly authorized the U.S. government to exercise criminal jurisdiction over U.S. personnel, and the Government of Afghanistan is not permitted to surrender U.S. personnel to the custody of another State, international tribunal, or any other entity without consent of the U.S. government. Although the agreement was signed by the ITGA, the subsequently elected government of the Islamic Republic of Afghanistan assumed responsibility for ITGA's legal obligations and the agreement remains in force. The agreement does not appear to provide immunity for contract personnel.\nThe agreement with Afghanistan does not expressly authorize the United States to carry out military operations within Afghanistan, but it recognizes that such operations are \"ongoing.\" Congress authorized the use of military force there (and elsewhere) by joint resolution in 2001, for targeting \"those nations, organizations, or persons [who] planned, authorized, committed, or aided the terrorist attacks that occurred on September 11, 2001.\" The U.N. Security Council implicitly recognized that the use of force was appropriate in response to the September 11, 2001, terrorist attacks, and subsequently authorized the deployment of an International Security Assistance Force (ISAF) to Afghanistan. Subsequent U.N. Security Council resolutions provide a continuing mandate for ISAF, calling upon it to \"work in close consultation with\" Operation Enduring Freedom (OEF—the U.S.-led coalition conducting military operations in Afghanistan) in carrying out the mandate. While there is no explicit U.N. mandate authorizing the OEF, Security Council resolutions appear to provide ample recognition of the legitimacy of its operations, most recently by calling upon the Afghan government, \"with the assistance of the international community, including the International Security Assistance Force and Operation Enduring Freedom coalition, in accordance with their respective designated responsibilities as they evolve, to continue to address the threat to the security and stability of Afghanistan posed by the Taliban, Al-Qaida, other extremist groups and criminal activities.\"\nIn 2004, the United States and Afghanistan entered an acquisition and cross-servicing agreement, with annexes. An acquisition and cross-servicing agreement (ACSA) is an agreement providing logistic support, supplies, and services to foreign militaries on a cash-reimbursement, replacement-in-kind, or exchange of equal value basis. After consultation with the Secretary of State, the Secretary of Defense is authorized to enter into an ACSA with a government of a NATO country, a subsidiary body of NATO, or the United Nations Organization or any regional international organization of which the United States is a member. Additionally, the Secretary of Defense may enter into an ACSA with a country not included in the above categories, if, after consultation with the Secretary of State, a determination is made that it is in the best interests of the national security of the United States. If the country is not a member of NATO, the Secretary of Defense must submit notice, at least 30 days prior to designation, to the Committee on Armed Services and the Committee on Foreign Relations of the Senate and the Committee on Armed Services and the Committee on Foreign Affairs of the House of Representatives.\nOn May 23, 2005, President Hamid Karzai and President Bush issued a \"joint declaration\" outlining a prospective future agreement between the two countries. It envisions a role for U.S. military troops in Afghanistan to \"help organize, train, equip, and sustain Afghan security forces\" until Afghanistan has developed its own capacity, and to \"consult with respect to taking appropriate measures in the event that Afghanistan perceives that its territorial integrity, independence, or security is threatened or at risk.\" The declaration does not mention the status of U.S. forces in Afghanistan, but if an agreement is concluded pursuant to the declaration, it can be expected a status of forces agreement would be included. In August 2008, shortly after U.S. airstrikes apparently resulted in civilian casualties, President Karzai called for a review of the presence of all foreign forces in Afghanistan and the conclusion of formal SOFAs with the respective countries. However, to date, it appears unclear whether the parties have entered into formal negotiations that might lead to an updated SOFA.\nOn December 16, 2010, the Obama Administration, as part of its Afghanistan-Pakistan annual review, stated that it, as part of the NATO coalition, remains committed to a long-term partnership with Afghanistan. As such, the Administration maintained that U.S. forces would commence a transfer of security responsibility to the Afghan government in 2011 and conclude the transfer in 2014. It remains unclear if the United States intends to enter into strategic and security agreements, like those utilized in Iraq, during the announced period of transition.\nOn February 10, 2011, Representative Lynn Woolsey introduced H.R. 651 , the United States-Afghanistan Status of Forces Agreement (SOFA) Act of 2011. The bill requires, 90 days after enactment, the President to \"seek to negotiate and enter into a bilateral status of forces agreement\" with Afghanistan. Additionally, if enacted, the bill requires that the concluded agreement must explicitly state that the presence of U.S. forces in Afghanistan is temporary, permanent basing is prohibited, and all troops must withdraw from the country within one year of the agreement.", "In 1951, prior to Germany becoming a member of NATO, the United States and Germany entered into an agreement related to the assurances required under the Mutual Security Act of 1951. Germany subsequently joined NATO in 1955 and, in the same year, concluded an agreement related to mutual defense assistance, obligating the United States to provide \"such equipment, materials, services, or other assistance as may be agreed\" to Germany.\nFour years after Germany joined NATO, the countries entered into an agreement implementing the NATO SOFA of 1953. The agreement provided additional supplemental agreements, beyond those contained in the NATO SOFA, specific to the relationship between the United States and Germany. The implementation and supplemental agreements to the NATO SOFA are in excess of 200 pages and cover the minutiae of day-to-day operations of U.S. forces and personnel in Germany.", "Prior to the current security arrangements between the United States and Japan, the countries, in 1952, concluded a security treaty and an accompanying administrative agreement. The administrative agreement covered, among other maters, the jurisdiction of the United States over offenses committed in Japan by members of the U.S. forces, and provided that the United States could waive jurisdiction in favor of Japan. One provision established that the United States retained jurisdiction over offenses committed by a servicemember arising out of any act or omission done in the performance of official duty.\nIn 1957, a member of the U.S. Army was indicted in the death of a Japanese civilian while participating in a small unit exercise at Camp Weir range area in Japan. The United States claimed that the act was committed in the performance of official duty, but Japan insisted that it was outside the scope of official duty and therefore Japan had primary jurisdiction to try the member. After negotiations, the United States acquiesced and agreed to turn the member over to Japanese authorities. In an attempt to avoid trial in the Japanese Courts, the member sought a writ of habeas corpus in the United States District Court for the District of Columbia. The writ was denied, but the member was granted an injunction against delivery to Japanese authorities to stand trial. The United States appealed the injunction to the U.S. Supreme Court.\nIn Wilson v. Girard, the Supreme Court first addressed the jurisdictional provisions contained in the administrative agreement. The Court determined that by recommending ratification of the security treaty and subsequently the NATO SOFA, the Senate had approved the administrative agreement and protocol (embodying the NATO provisions) governing jurisdiction to try criminal offenses. The Court held that \"a sovereign nation has exclusive jurisdiction to punish offenses against its laws committed within its border, unless it expressly or impliedly consents to surrender its jurisdiction\" and that Japan's \"cession to the United States of jurisdiction to try American military personnel for conduct constituting an offense against the laws of both countries was conditioned\" by provisions contained in the protocol calling for \"sympathetic consideration to a request from the other State for a waiver of its right in cases where that other State considers such waiver to be of particular importance.\" The Court concluded that the issue was then whether the Constitution or legislation subsequent to treaty prohibited carrying out of the jurisdictional provisions. The Court found none and stated that \"in the absence of such encroachments, the wisdom of the arrangement is exclusively for the determination of the Executive and Legislative Branches.\"\nThe Treaty of Mutual Cooperation and Security Between the United States of America and Japan was concluded in 1960 and subsequently amended on December 26, 1990. Under Article VI of the Treaty, the United States is granted \"the use by its land, air and naval forces of facilities and areas in Japan\" in order to contribute \"to the security of Japan and maintenance of international peace and security in the Far East[.]\" Article VI provides further that the use of facilities and the status of U.S. Armed Forces will be governed under a separate agreement, much like the previous security treaty concluded in 1952.\nA SOFA, as called for under Article VI of the Treaty, was concluded as a separate agreement pursuant to and concurrently with the Treaty in 1960. The SOFA addresses the use of facilities by the U.S. Armed Forces, as well as the status of U.S. forces in Japan. The agreement has been modified at least four times since the original agreement.", "In 1954 the United States and the Republic of Korea entered into a mutual defense treaty. As part of the treaty the countries agree to attempt to settle international disputes peacefully, consult whenever the political independence or security of either party is threatened by external armed attack, and that either party would act to meet the common danger in accordance with their respective constitutional processes. Article IV of the treaty grants the United States \"the right to dispose.... land, air and sea forces in and about the territory\" of South Korea. Pursuant to the treaty, specifically Article IV, the countries entered into a SOFA with agreed minutes and an exchange of notes in 1966; it was subsequently amended January 18, 2001.\nIn 1968, two years after the SOFA was signed between the countries, a member of the U.S. Army asserted in Smallwood v. Clifford that U.S. authorities did not have legitimate authority, under the jurisdictional provisions contained in the agreement, to release him to the Republic of Korea for trial by a Korean court on charges of murder and arson. The servicemember asserted that the agreement was not approved in a \"constitutionally acceptable manner.\" He maintained that U.S. domestic law requires international agreements pertaining to foreign jurisdiction over U.S. forces stationed abroad be approved \"either expressly or impliedly by the [U.S.] Senate.\" The court found that the SOFA resulted in a diminished role for the Republic of Korea in enforcing its own laws and that the United States did not waive jurisdiction over offenses committed within its own territory. Therefore, ratification by the Senate was \"clearly unnecessary\" because Senate approval would \"have no effect on a grant of jurisdiction by the Republic of Korea, [of] which the United States could not rightfully claim.\"\nAdditionally, the servicemember asserted that the Constitution and the Uniform Code of Military Justice (UCMJ) provide the sole methods for trying servicemen abroad and that they can not be changed by an executive agreement. The court held that the premise is true only when there has not been a violation of the laws of the foreign jurisdiction. When a violation of the foreign jurisdiction's criminal laws occurs, the primary jurisdiction lies with that nation and the provisions of the UCMJ only apply if the foreign nation expressly or impliedly waived its jurisdiction. In support of its decision the court cited the principle, stated in Wilson , that the primary right of jurisdiction belongs to the nation in whose territory the servicemember commits the crime.", "In 1947 the United States and the Republic of the Philippines entered into an agreement on military assistance. The agreement was for a term of five years, starting July 4, 1946, and provided that the United States would furnish military assistance to the Philippines for the training and development of armed forces. The agreement further created an advisory group to provide advice and assistance to the Philippines as had been authorized by the U.S. Congress. The agreement was extended, and amended, for an additional five years in 1953.\nA mutual defense treaty was entered into by the United States and the Philippines in 1951. The treaty publicly declares \"their sense of unity and their common determination to defend themselves against external armed attack, so that no potential aggressor could be under the illusion that either of them stands alone in the Pacific Area[.]\" The Treaty does not address or provide for a SOFA.\nIn 1993, the countries entered into a SOFA. The agreement was subsequently extended on September 19, 1994; April 28, 1995; and November 29, December 1, and December 8, 1995. The countries entered into an agreement regarding the treatment of U.S. Armed Forces visiting the Philippines in 1998. This agreement was amended on April 11 and 12, 2006. The distinction between this agreement and the SOFA originally entered into in 1993 is that this agreement applies to U.S. Armed Forces visiting, not stationed in the Philippines. The countries also entered into an agreement regarding the treatment of Republic of Philippines personnel visiting the United States (counterpart agreement).\nThe counterpart agreement contains provisions addressing criminal jurisdiction over Philippine personnel while in the United States. The agreement was concluded as an executive agreement and not ratified by the U.S. Senate. Arguably, following the logic of the U.S. District Court for the District of Columbia in Clifford , because the agreement arguably diminishes the impact of U.S. jurisdiction, it would need to be ratified by the Senate in order to be constitutionally valid. But, the counterpart agreement can be distinguished from the SOFA with the Republic of Korea, and SOFAs with other foreign jurisdictions, in that the United States is not fully waiving jurisdiction over offenses committed within U.S. territory. Rather, the agreement states that U.S. authorities will, at the request of the Government of the Philippines, request that the appropriate authorities waive jurisdiction in favor of Philippine authorities. However, the U.S. Department of State and Department of Defense retain the ability to determine that U.S. interests require that the United States exercise federal or state jurisdiction over the Philippine personnel.", "Between March 2003 and August 2010, the United States engaged in military operations in Iraq, first to remove the Saddam Hussein regime from power, and then to combat remnants of the former regime and other threats to the stability of Iraq and its post-Saddam government. In late 2007, the United States and Iraq signed a Declaration of Principles for a Long-Term Relationship of Cooperation and Friendship Between the Republic of Iraq and the United States of America. The strategic arrangement contemplated in the Declaration was intended to ultimately replace the United Nations mandate under which the United States and allied forces are responsible for contributing to the security of Iraq, which terminated on December 31, 2008. The Declaration was rooted in an August 26, 2007, communiqué, signed by five top political leaders in Iraq, which called for a long-term relationship with the United States. Pursuant to the Declaration, the parties pledged to \"begin as soon as possible, with the aim to achieve, before July 31, 2008, agreements between the two governments with respect to the political, cultural, economic, and security spheres.\" Among other things, the Declaration proclaimed the parties' intention to negotiate a security agreement:\nTo support the Iraqi government in training, equipping, and arming the Iraqi Security Forces so they can provide security and stability to all Iraqis; support the Iraqi government in contributing to the international fight against terrorism by confronting terrorists such as Al-Qaeda, its affiliates, other terrorist groups, as well as all other outlaw groups, such as criminal remnants of the former regime; and to provide security assurances to the Iraqi Government to deter any external aggression and to ensure the integrity of Iraq's territory.\nThis announcement became a source of congressional interest, in part because of statements by Bush Administration officials that such an agreement would not be submitted to the legislative branch for approval, despite potentially obliging the United States to provide \"security assurances\" to Iraq. In the 110 th Congress, multiple hearings were held which addressed the proposed security agreement. In late 2007, Congress passed the Emergency Supplemental Appropriations Act for Defense, 2008, which contained a provision limiting the funds it made available from being used by U.S. authorities to enter into an agreement with Iraq that subjected members of the U.S. Armed Forces to the criminal jurisdiction of Iraq. In October 2008, Congress passed the Duncan Hunter National Defense Authorization Act for Fiscal Year 2009, which requires a report from the President to the House Foreign Affairs and Armed Services Committees, and the Senate Foreign Relations and Armed Services Committees, on any completed U.S.-Iraq agreement addressing specified subjects, including security assurances or commitments by the United States, basing rights, and the status of U.S. forces in Iraq. Several legislative proposals were introduced which would have required any such agreement to either be submitted to the Senate for its advice and consent as a treaty or authorized by a statutory enactment.\nOn November 17, 2008, after months of negotiations, U.S. Ambassador to Iraq Ryan Crocker and Iraq Foreign Minister Hoshyar Zebari signed two documents: (1) the Strategic Framework Agreement for a Relationship of Friendship and Cooperation between the United States and the Republic of Iraq (Strategic Framework Agreement), and (2) the Agreement Between the United States of America and Republic of Iraq On the Withdrawal of United States Forces from Iraq and the Organization of Their Activities during Their Temporary Presence in Iraq (Security Agreement). In some ways, the concluded agreements differ from the long-term security arrangement originally contemplated by the Declaration of Principles. Perhaps most significantly, the concluded agreements require the withdrawal of U.S. forces from Iraq by December 31, 2011.\nThe concluded agreements cover different issues and are intended by the parties to have different legal significance. The Strategic Framework Agreement is a nonlegal, political agreement under which the parties pledge to work cooperatively in a number of fields, including on diplomatic, security, economic, cultural, and law enforcement matters. In the area of security, the Agreement provides that the United States and Iraq shall \"continue to foster close cooperation concerning defense and security arrangements,\" which are to be undertaken pursuant to the terms of the Security Agreement. The Strategic Framework Agreement also states that \"the temporary presence of U.S. forces in Iraq is at the request and invitation of the sovereign government of Iraq,\" and that the United States may not \"use Iraqi land, sea, or air as a launching or transit point for attacks against other countries[,] nor seek or request permanent bases or a permanent military presence in Iraq.\"\nThe Security Agreement is a legally binding agreement that terminates within three years, unless terminated at an earlier date by either Party. The Security Agreement contains provisions addressing a variety of military matters. As previously mentioned, it establishes a deadline for the withdrawal of all U.S. forces from Iraq by December 31, 2011. The Agreement also contains numerous provisions resembling those regularly contained in SOFAs concluded by the United States. Specifically, the Agreement contains provisions concerning the parties' right to assert civil and criminal jurisdiction over U.S. forces, as well as provisions which establish rules and procedures applicable to U.S. forces relating to the carrying of weapons, the wearing of uniforms, entry and exit into Iraq, taxes, customs, and claims.\nThe Security Agreement contains other rules and requirements which have traditionally not been found in SOFAs concluded by the United States, including provisions addressing combat operations by U.S. forces. Operations by U.S. forces pursuant to the Agreement must be approved by the Iraqi government and coordinated with Iraqi authorities through a Joint Military Operations Coordination Committee. U.S. forces are also permitted to arrest or detain persons in the course of operations under the Agreement. More broadly, the Security Agreement provides for \"strategic deliberations\" between the parties in the event of external or internal threat or aggression against Iraq, and provides that, as mutually agreed by the parties, the United States \"shall take appropriate measures, including diplomatic, economic, or military measures\" to deter the threat.\nThe Security and Strategic Framework Agreements entered into force on January 1, 2009, following an exchange of diplomatic notes between the United States and Iraq. Although the agreements required approval on multiple levels by the Iraqi government, the Bush Administration did not submit the agreements to the Senate for its advice and consent as a treaty or request statutory authorization for the agreements by Congress.\nThere has been some controversy regarding whether these agreements could properly be entered on behalf of the United States by the Executive without the participation of Congress. Security agreements authorizing the United States to take military action in defense of another country have typically been ratified as treaties. It could be argued that the Security Agreement, which contemplates the United States engaging in military operations in Iraq and potentially defending the Iraqi government from external or internal security threats, requires congressional authorization for it to be legally binding under U.S. law. On the other hand, because Congress has authorized the President to engage in military operations in Iraq, both pursuant to the 2002 Authorization to Use Military Force Against Iraq and subsequent appropriations measures, it has impliedly authorized the President to enter short-term agreements with Iraq which facilitate these operations.\nAs of August 31, 2010, the United States withdrew the last major combat unit, the U.S. Army's 4 th Stryker Brigade Combat Team, 2 nd Infantry Division, allowing Iraq to officially take over combat operations within the country. The post-combat phase of operations, Operation New Dawn, included the presence of approximately 50,000 U.S. troops conducting stability operations, focusing on advising, assisting, and training Iraqi Security Forces in how to handle their own security. As of December 18, 2011, the United States completed the withdrawal of U.S. forces, transitioning responsibility for security within Iraq to the Iraqi government.", "The charts below provide a list of current agreements according to the underlying source of authority, if any, for each of the SOFAs. Within each category the agreements are arranged alphabetically by partner country. The categories are defined as follows:", "The NATO SOFA is a multilateral agreement that has applicability among all the member countries of NATO. As of June 2007, 26 countries, including the United States, have either ratified the agreement or acceded to it by their accession into NATO. The NATO SOFA is the only SOFA that was concluded as part of a treaty.", "There are currently 24 countries, non-members of NATO, subject to the NATO SOFA through their participation in the NATO Partnership for Peace (PfP) program. The program consists of bilateral cooperation between individual countries and NATO in order to increase stability, diminish threats to peace, and build strengthened security relationships. The individual countries that participate in PfP agree to adhere to the terms of the NATO SOFA.", "The United States has concluded SOFAs where the underlying authority for the agreement is a treaty ratified by the U.S. Senate. The United States entered into a SOFA with Japan in 1960 under the authority contained in Article VI of the Treaty of Mutual Cooperation and Security previously concluded between the countries. Additionally, the United States entered into a SOFA with Korea in 1967 under the authority in Article V of the Mutual Defense Treaty previously concluded between the two countries.\nThe United States entered into SOFAs with Australia and the Philippines after concluding treaties with the respective countries. In the case of Australia, the U.S. Senate advised ratification of the ANZUS Pact in 1952. In 1963, nine years after ratification of the Pact, Australia and the United States entered into an agreement concerning the status of U.S. forces in Australia. The United States entered into a SOFA with the Philippines in 1993 after concluding a mutual defense treaty with the country in 1952. The agreements with Australia and the Philippines can be distinguished from the agreements with Japan and Korea in that they cite general obligations under the previously concluded treaty, while the agreements with Japan and Korea cite to a specific authority (i.e., Article VI and Article V, respectively) contained in the underlying treaty.\nThe United States is a party to the Inter-American Treaty of Reciprocal Assistance (Rio Treaty), for which the U.S. Senate advised ratification December 8, 1947. The United States then entered into military assistance agreements with Guatemala, Haiti, and Honduras. The agreements cite obligations created under the Rio Treaty and address status of U.S. personnel in each of the countries. The United States expanded on the status protections contained in the military assistance agreements by later concluding SOFAs with each of the countries. In all three, the military assistance agreements were cited as the basis of the new agreement.", "As previously discussed, Congress approved compacts changing the status of the Marshall Islands, Micronesia, and Palau from former territories and possessions to that of being Freely Associated States (FAS). The language of the compacts calls for a SOFA to be concluded between the respective parties. The Marshall Islands and Micronesia entered into SOFAs with the United States in 2004. Palau entered into a SOFA with United States in 1986.", "In 1941, the United States entered into an agreement with the United Kingdom regarding the lease of naval and air bases in Newfoundland, Bermuda, Jamaica, St. Lucia, Antigua, Trinidad, and British Guiana. The agreement not only described the physical location being leased, but provided for status of U.S. personnel present in the leased location. The lease agreement, while not a stand-alone SOFA, served the purpose of a SOFA in the specified locations. The United States and the United Kingdom concluded additional lease agreements in the 1950s, 1960s, and 1970s that contained status protection provisions in the leased locations.", "The United States has entered into SOFAs with countries in support of specific activities or exercises. Generally, these agreements are entered in order to support a joint military exercise or a humanitarian initiative. The SOFA will contain language limiting the scope of the agreement to the specific activity, but sometimes language is present expanding the agreement to cover other activities as agreed upon by the two countries. The agreements are not based upon a treaty or congressional action; rather, they are sole executive agreements.\nFor example, the African Crisis Response Initiative (ACRI) was a bilateral training program introduced by the Clinton Administration in 1997. The United States entered into SOFAs with many African countries specifically addressing the ACRI. Each of the SOFAs contained language limiting the agreements to U.S. personnel temporarily in the country in connection with ACRI activities or other activities as agreed upon by the countries. While the agreement may have been entered as a result of the ACRI, language allowing for other activities, as agreed between the two countries, allows for the SOFA remain in force even though the ACRI does not currently exist.", "The last group of SOFAs discussed are agreements entered as sole executive agreements without a specified activity or exercise. These agreements contain broad language of applicability. Some of the agreements apply to U.S. personnel \"present\" in a country, others apply to U.S. personnel \"temporarily present\" in a country. In addition to time limitations, most of the agreements contain language which attempts to frame the scope of activities. The activities described may be as broad as \"official duties\" or specific to a particular class of activities (i.e., humanitarian, exercises, and/or training)." ], "depth": [ 0, 1, 1, 1, 2, 3, 3, 2, 2, 2, 1, 1, 2, 2, 2, 2, 2, 2, 1, 2, 2, 2, 2, 2, 2, 2 ], "alignment": [ "h0_title h2_title h1_title", "h0_full h1_full", "", "h0_full h1_title", "", "", "", "", "h1_full", "h0_full", "h1_full", "h0_title h2_title", "h2_full", "", "", "", "h0_full", "", "h1_full", "", "", "", "", "", "", "" ] }

{ "question": [ "What are the ways in which a SOFA can be written?", "How are SOFAs typically presented?", "Why might a SOFA cover topics that are not just about provisions?", "What topics are typically covered in a SOFA?", "How are SOFAs presented?", "What is the relationship between SOFAs and the rights and privileges of U.S. personnel?", "What are some ways in which SOFAs can be entered?", "How many current SOFAs are related to the United States?", "How are these agreements categorized for people to view?", "What does the SOFA provide in the case of Afghanistan?", "What rights does this confer on U.S. personnel?", "According to the SOFA, what has the Government of Afghanistan granted?", "How does this authorization affect the United States jurisdiction?" ], "summary": [ "Formal requirements concerning form, content, length, or title of a SOFA do not exist. A SOFA may be written for a specific purpose or activity, or it may anticipate a longer-term relationship and provide for maximum flexibility and applicability.", "It is generally a stand-alone document concluded as an executive agreement.", "A SOFA may include many provisions, but the most common issue addressed is which country may exercise criminal jurisdiction over U.S. personnel.", "Other provisions that may be found in a SOFA include, but are not limited to, the wearing of uniforms, taxes and fees, carrying of weapons, use of radio frequencies, licenses, and customs regulations.", "SOFAs are often included, along with other types of military agreements, as part of a comprehensive security arrangement with a particular country.", "A SOFA itself does not constitute a security arrangement; rather, it establishes the rights and privileges of U.S. personnel present in a country in support of the larger security arrangement.", "SOFAs may be entered based on authority found in previous treaties and congressional actions or as sole executive agreements.", "The United States is currently party to more than 100 agreements that may be considered SOFAs.", "A list of current agreements included at the end of this report is categorized in tables according to the underlying source of authority, if any, for each of the SOFAs.", "In the case of Afghanistan, the SOFA, in force since 2003, provides that U.S. Department of Defense military and civilian personnel are to be accorded status equivalent to that of U.S. Embassy administrative and technical staff under the Vienna Convention on Diplomatic Relations of 1961.", "Accordingly, U.S. personnel are immune from criminal prosecution by Afghan authorities and are immune from civil and administrative jurisdiction except with respect to acts performed outside the course of their duties.", "The Government of Afghanistan has further explicitly authorized the U.S. government to exercise criminal jurisdiction over U.S. personnel.", "Thus, under the existing SOFA, the United States would have jurisdiction over the prosecution of the servicemember who allegedly attacked the Afghan civilians." ], "parent_pair_index": [ -1, -1, -1, 2, -1, -1, -1, -1, 3, -1, 0, 0, 2 ], "summary_paragraph_index": [ 1, 1, 1, 1, 2, 2, 2, 2, 2, 3, 3, 3, 3 ] }

{ "title": [ "Background", "CHCOs are Implementing Leading Practices Related to Training Delivery, but Not Practices that Support Making More Cost-Effective Training Investments", "CHCOs Reported Implementing Leading Practices that Support Making Strategic Training Delivery Decisions", "Have Criteria for Determining Whether to Design Training and Development Programs in- house or to Obtain These Services from a Contractor or Other External Source", "Many CHCOs are Not Implementing the Leading Practices that Support More Cost-Effective Training Investment Decisions", "OPM Guidance and Assistance to Agencies on Federal Training Investments Addresses Many Leading Practices that We Identified, But Could be Improved in Areas That Are Challenges to Agencies", "OPM Does Not Provide Guidance and Assistance on Three Leading Training Investment Practices", "Agency Officials Identified a Need for OPM to Provide More Assistance in Improving the Effectiveness and Efficiency of Training and Development Investments Government-wide", "Conclusions", "Recommendations for Executive Action", "Agency Comments and Our Evaluation", "Appendix I: Objectives, Scope, and Methodology", "Appendix II: Table of Statutes, Regulations, and Executive Orders Related to Leading Practices", "Appendix III: Illustrations of Building a Business Case for Training from OPM’s Guide to Strategically Planning Training and Measuring Results", "Appendix IV: Comments from the Office of Personnel Management", "Appendix V: GAO Contact and Staff Acknowledgments", "GAO Contact", "Staff Acknowledgments" ], "paragraphs": [ "The federal government has established a policy to develop its employees through training programs, to improve public service, increase efficiency and economy, and build and retain a force of skilled and efficient employees, among other things. In 1967, President Johnson signed Executive Order No. 11348, to provide agency heads and OPM with presidential direction on how training is to be carried out. Under Executive Order No. 11348, OPM is responsible for planning and promoting the development, improvement, coordination, and evaluation of training in accordance with chapter 41 of title 5 of the U.S. Code and the established policy. Chapter 41 of title 5 sets forth the statutory framework for federal government training and development. The executive order further requires OPM to identify functional areas in which new or expanded interagency training activity is needed and either conduct such training or arrange for agencies having the substantive competence to do so; as well as to coordinate interagency training conducted by and for agencies. It also requires OPM to assist agencies in developing sound programs and financial plans for training and provide advice, information, and assistance to agencies on planning, programming, budgeting, operating, and evaluating training programs. In addition to these activities, OPM provides advice and assistance to agencies on training and development programs. OPM’s Training and Executive Development (TED) group (a subcomponent within the Office of Executive Resources) is the primary office that provides policy direction and leadership to agencies in developing plans and strategies to implement training and development programs. It also provides agency guidance to ensure the government’s training and development programs support strategic human capital investments. The TED group provides assistance through two main mechanisms: guidance documents and technical assistance. OPM has developed five guides that agencies can use as references for different aspects of making or reporting training investment decisions in the planning, designing, implementation, and evaluation phases of their training and development programs (see table 2).\nThe TED group also provides technical assistance on agency training investments through facilitating discussions and forums, and providing training to agencies’ human resources (HR) staff. For example, the TED group uses various web-based mechanisms—such as OPM’s website, OPM LISTSERV, OPM Federal Training and Development web site and OPM Federal Training and Development Wiki—to facilitate discussions between agencies on training investments and to share guidance with agencies. In addition to these facilitated discussions and forums, the TED group provides training to federal HR professionals in various areas, including activities that support making training investment decisions. For example, OPM provides training to HR staff through its partnership with the CHCO Council to operate HR University, which OPM officials and the HR University website report is the federal government’s single “one stop” training resource center for the HR professional throughout the federal government. HR University is an effort that is intended to achieve government-wide savings through pooling and sharing training resources and identifying the best HR training across government.\nAgencies have the primary responsibility for establishing, operating, maintaining, and evaluating their training programs in support of achieving their mission and goals. OPM regulations specify that agency employee developmental plans and programs should be designed to build or support an agency workforce capable of achieving agency mission and performance goals and facilitating continuous improvement of employee and organizational performance. Furthermore, Executive Order No. 11348 states that agency heads must undertake several activities in support of developing employees, including:\nReview periodically, but not less often than annually, the agency’s program to identify training needed to bring about more effective performance at the least possible cost;\nConduct periodic reviews of individual employee’s training needs as related to program objectives;\nConduct research related to training objectives required for program\nPlan, program, and evaluate training for both short and long-range program needs by occupations, organizations, or other appropriate groups;\nEstablish priorities for needed training, and provide for the use of funds and man-hours in accordance with these priorities;\nEstablish training facilities and services as needed;\nExtend agency training programs to employees of other agencies and assign his employees to interagency training whenever this will result in better training, improved service, or savings to the government.\nThe CHCO Council, established under the Chief Human Capital Officers Act of 2002, provides assistance to OPM and agencies in accomplishing federal human capital goals. The 25-member CHCO Council is composed of the Director of the OPM, who serves as chairman; the Deputy Director for Management of the Office of Management and Budget (OMB), who acts as vice chairman; the CHCOs of the 15 executive departments; and the CHCOs of 8 additional agencies designated by the OPM Director. Additionally, the CHCO Council has an Executive Director from OPM who coordinates and oversees the activities of the council. The CHCO Council supports OPM in leading federal agencies in the strategic management of human capital, providing a forum for senior management officials to exchange HR best practices, and informing the dialogue on civil service reform in order to build and maintain an outstanding Federal workforce for the Nation. According to the CHCO Council’s charter, among other purposes, the council is to: advocate and assure a culture of continuous learning and high performance, developing and implementing effective strategies to attract, develop, manage, and retain employees with superior abilities; identify human capital best practices and benchmarks, and apply those exemplars to their agencies and the federal government as a whole; and provide leadership in identifying and addressing the needs of the federal government’s human capital community, including training and development.\nTo help CHCOs implement their training goals, many of the 24 Chief Financial Officers Act agenciesLearning Officers (CLOs). These officers subsequently formed an informal Chief Learning Officers (CLO) Council, which is a community of and smaller agencies established Chief practice composed of federal CLOs or their equivalents who meet periodically to share best practices and create learning opportunities for agencies and organizations. The purpose of the CLO Council is to provide a regular forum for CLOs to discuss and collaborate on high-level agency strategic and operational issues affecting the Federal learning and workforce development community of the federal government. These two Councils, in partnership with OPM are to play a key role in assisting agencies in the implementation of federal training and development efforts.", "Many CHCOs reported that they are implementing leading practices we identified as being important to making strategic training and development investment decisions, especially regarding the delivery of training. These practices include determining the best mix of decentralized and centralized training, considering government-wide reforms when identifying their training needs, and measuring employee satisfaction with training, among other things. However, many CHCOs reported that they are not implementing the leading practices that would allow them to make more cost-effective training decisions, such as having an agency-wide process for prioritizing training investments so that the most important training needs are addressed first and comparing the merits of different delivery mechanisms (e.g. classroom or computer-based training) to determine what mix of mechanisms will be most efficient and cost- effective. All of these practices are important to ensuring that training investments will be both effective and efficient in equipping federal employees to accomplish their agencies’ goals.", "Many CHCOs reported that they are implementing six of the leading practices that we identified as being important to making strategic training and development investment decisions, especially regarding the delivery of training, as shown in Table 3. However, regarding the leading practice related to tracking training investments agency-wide, we found that even those who reported that they track training agency-wide did not do so completely or reliably.\nAll CHCOs reported that their agencies have implemented this practice. We have previously reported that, while neither approach fits every situation, agencies need to consciously think about the advantages and disadvantages of using centralized and decentralized approaches, particularly for the design of training and development programs.\nCentralizing design can enhance consistency of training content and offer potential cost savings. A decentralized approach to training design can enable agencies to tailor training programs to better meet local and organizational unit needs. Agencies with decentralized approaches often embed training representatives within their business lines and field structures to assist in coordination of training efforts, including design and development. Nineteen of the 27 agencies reported that they have both centralized and decentralized training processes, while eight reported having completely decentralized training processes. Most of these agencies reported that their CHCOs or CHCO staff typically make centralized training decisions, while the leadership within the components, subagencies or offices make mission-specific training decisions. In the questionnaire responses, CHCOs identified a range of officials who are involved in making training investment decisions at the corporate and sub-agency level, including CHCOs and their staff, chief management officers, chief executive officers, budget officers, chief information officers, and others. A number of agencies also reported that advisory or oversight boards or training universities within their agency are involved in making training investment decisions.\nIn the four agencies that we selected for review to obtain illustrative examples of how they implemented the training investment practices, the CHCOs or their representatives reported that their agencies made a decision to have both centralized and decentralized processes because they believe that the components or sub-agencies are more knowledgeable about their mission-specific training needs, while the central human capital staff can add the most value by managing investment decisions for more general training across the department. VA—which was one of the four agencies that we selected—established a corporate university known as the Veterans Affairs Learning University (VALU) to provide training to all VA employees. VALU provides training primarily in general areas such as leadership, management and supervision, as well some career and technical training. VALU offers training to the administrations and staff offices through a request process that is based on the training needs that the administrations and staff offices identify. Those training needs are required to be aligned to VA critical training areas. An Enterprise Training Advisory Board, established in April 2012, also advises the Dean of VALU on the impact of training, potential training development, and methods of delivery.\nHowever, another tier of training is also provided within VA’s three administrations—the Veterans Health Administration (VHA), Veterans Benefits Administration (VBA), and National Cemetery Administration. Each administration independently makes training investment decisions and provides training to its employees in mission-specific and some general and mandatory areas. The leadership of each administration makes decisions about the level and prioritization of these training investments. For example, at the VHA the Associate Deputy Under Secretary for Health (or equivalent) and, subsequently, the Deputy Under Secretary for Health assess the training requested by their offices against various criteria, including whether training requests are aligned with and support VA and VHA strategic goals, objectives, strategies, initiatives, and performance improvement goals. During each review these officials prioritize the requests through a voting process, and forward selected training to the next level. Ultimately, the training is sent for approval to the Under Secretary for Health and the VA Chief of Staff. The other three agencies that we met with also reported having both centralized and decentralized processes for making mission-specific training investment decisions. However, most often, decentralized training decisions were not required to be vetted with department level leadership for these three agencies.\nNearly all CHCOs in our review reported that they have a process for these considerations. We have previously reported that when planning training and development efforts, agencies should look to the actions of the administration, Congress, and internal and external auditors by considering administration priorities, legislative reforms, and major management challenges that might shape agency priorities and strategies for training and development. As an administration focuses its efforts on addressing its priorities, agencies can benefit by having mechanisms or processes for considering whether and to what extent these initiatives could be linked to employees’ skills and competencies and the related training and development approaches that might be needed. Twenty- three of the 27 CHCOs who responded to our questionnaire reported having such a process in place. For example, 16 of the CHCOs reported that they are already setting investment allocations or training priorities to implement GPRAMA.\nAt DOE, another agency we selected for review to obtain illustrative examples, officials reported that they have identified the training that the department currently offers and will need to offer to implement GPRAMA. The Secretary issued a memo to DOE employees on GRPAMA’s implementation and is holding town hall meetings on improving organizational performance. Another effort that DOE expects to support the implementation of GPRAMA is the Goals-Engagement-Accountability- Results (GEAR) model that OPM and OMB are helping to pilot in DOE and four other federal agencies, which includes efforts to improve employee performance, among other things. and related documentation, DOE’s GEAR implementation plan includes aligning employee performance management with organization performance management and developing training to support these goals, which along with initiating knowledge sharing activities, will promote improvement of DOE’s organizational performance.\nBeginning in late May 2011, a workgroup of the National Council on Federal Labor- Management Relations (LMR) partnered with members of the CHCO Council to develop a new model of employee performance management, referred to as GEAR. GEAR focuses on articulating a high-performance culture, aligning employee performance engagement with organizational performance management, implementing accountability at all levels, and create a culture of engagement. OPM is piloting GEAR at five agencies—the Housing and Urban Development, the DOE, the Coast Guard, OPM and VA.", "Many of the CHCOs in our review reported having criteria for this purpose. Training can be provided by the agency itself, another government agency, a school, a manufacturer, a professional association, or other competent persons or groups in or outside of government. To aid in making these decisions, agencies should try to develop clear criteria for determining when to contract for training and development services. We have previously stated that factors that agencies should consider in these decisions include the capability of in-house staff to develop and implement the training; the prior experience, capability, and stability of possible providers in the marketplace; and agency limitations on cost, time, and resources Of the 27 CHCOs included in our questionnaire, 15 reported that they have criteria for determining whether to design training and development programs in-house or obtain these services from a contractor or other external source.\nOne agency that we selected for review to obtain illustrative examples was DOI, which reported implementing this practice, however, the extent to which this decision-making process is implemented agency-wide is unclear. In its questionnaire response, DOI’s CHCO reported that DOI’s Office of Strategic Employee and Organizational Development has responsibility for offering corporate training through DOI’s university. This office decides whether to “make or buy” departmentwide training. When we met with DOI officials in the course of our review, they explained that although almost all courses are delivered by vendors because DOI has no internal trainers, they do have a small cadre of instructional designers who can develop some e-Learning courses. Decisions on whether to develop the courses internally are based on various criteria, including whether a course can be developed quickly, does not require a significant amount of content development, and subject matter experts can be provided to support the course development. Although this department level process is useful, DOI officials did not know if the bureaus within the department consistently use a “make or buy” approach. They reported that the larger bureaus have some capacity for in-house development while the smaller bureaus do not have this capability.\nMany CHCOs reported that their agencies implement this practice, although most of the CHCOs who reported that they do not track training investments agency-wide were leaders of the agencies with the largest workforces. We have previously reported that to obtain a comprehensive determination of the costs of these initiatives, agencies need to find ways around barriers that prevent them from fully and accurately identifying the expenses associated with all components of their training and development processes. These costs can include expenses for instructional development; participant and instructor attendance; facility, material, and equipment costs, and travel and per diem expenses. To track the cost and delivery of training and development programs, agencies need credible and reliable data from learning management systems as well as accounting, financial, and performance reporting systems. To the extent possible, agencies also need to ensure data consistency across the organization (such as having data elements that are pulled from various systems representing the same type of information). Variation in the methods used to collect data can greatly affect the analysis of uniform, quality data on the cost and delivery of training and development programs. In response to our questionnaire, 16 CHCOs reported that they track training investments agency-wide.\nA learning management system is a software application that automates the administration, tracking, and reporting of training events. and stated that they could not provide reliable training data to OPM, which requests these data to address its government-wide training responsibilities. Under OPM regulations, agencies are required to maintain data on training activities and expenditures and submit these data to OPM.\nAs an example of challenges tracking training investments, DHS reported that it is unable to track or better leverage training investments across the department because of the nine, major incompatible Learning Management Systems that it uses to track training throughout the agency. We highlighted these same challenges in a 2005 report on DHS training, noting that the lack of common management information systems and the absence of commonly understood training terminology across components, among other things, may impede the agency’s ability to achieve its training goals. According to more recent documentation on the limitations of DHS’ tracking systems, the components’ disparate systems currently limit them from sharing useful training information across the department, effectively aggregating training data agency-wide, and reporting complete training investment information to OPM. As a result, DHS is seeking to purchase a single learning management system.\nEven when agencies had a single training information system, the components may not consistently use them to track training investments because of inconsistent coding schemes for tracking similar training activities. For example, even though DOI has a single system for tracking training information, officials reported that their human capital office must rely on employees or data stewards to input their training data and some cost data may not be included, such as training travel costs, or certain types of training may not be entered, such as conferences. Such costs are sometimes paid directly by an employee’s immediate office using a government credit card and are not tracked as training. In addition, learning management system training data are often not reconciled with DOI’s financial expenditure data because, until recently, their financial systems have not captured education tuition and training fees, and are still unable to track training travel costs. Therefore DOI’s cost data are most likely incomplete. Similarly, officials from DOE, DHS, and VA reported that they are aware of some inconsistencies in whether some types of training, such as conferences, are entered into their learning management systems. They also stated that there are inconsistencies in how agency components capture and code workforce training into their system because they lack a common definition for what types of activities should be considered training or have varying coding schemes or tools for capturing the cost. For example, some organizations use a procurement request or obtain a contractor to deliver training and do not document these costs using the standard government form for tracking data or in their learning management systems. In other cases, training investment data are captured using different coding in various learning management systems and financial systems. Some officials report that reconciling these data would be difficult. For example, DOE’s chief financial officer reported that it takes a couple of months to gather training investment data from DOE’s various systems, partly because the systems have inconsistent coding for these data. DOE’ officials reported that changing financial codes to reconcile training data would be time consuming and expensive because their financial systems are 20 years old. However, after years of highlighting this challenge, they are seeking approval to make such changes. Officials from the four agencies generally reported that, as a result of all of these factors, there is no overarching awareness or oversight of how much is spent on training investments and for which activities .\nNearly all CHCOs reported having a formal process to evaluate employee satisfaction with training, but fewer had processes to evaluate the impact of training on employees or agency performance. We have previously reported that it is increasingly important for agencies to be able to evaluate their training and development programs and demonstrate how these efforts help develop employees and improve the agencies’ performance because it can aid decision makers in managing scarce resources, and provide credible information on how training and development programs have affected organizational performance. To do so agencies need to develop evaluation processes that systematically track the cost and delivery of training and development efforts and assess the benefits of these efforts. Training and development programs can be assessed by measuring (1) participant reaction to the training program, (2) changes in employee behavior or performance; and (3) the impact of the training on program or organizational results, which may include a return on investment assessment that compares training costs to derived benefits. Some of these methods can help provide better value through identifying areas for continuous improvement in training programs. We consider the processes for conducting these evaluations to be formal when they are systematically conducted throughout the agency, have established guidelines and criteria that govern how they are implemented and are documented. However, CHCOs may also have other criteria for determining what is considered a formal process, based on their agencies’ environment. We asked CHCOs about their formal processes for conducting the three levels of evaluation listed earlier, which are the common types of evaluations. Many CHCOs reported routinely implementing the first two, but not the third (which we discuss later in this report). Twenty-five of the 27 CHCOs included in our questionnaire reported that they measure employee satisfaction; and a little more than half reported that they measure improvement in employee performance.\nOfficials from the four agencies that we interviewed reported that they all assess employee’s reaction to training and sometimes assess changes in employee performance. For example, officials from DOE reported that they evaluate all the training that they offer by surveying participants’ reactions to the training—which can include their feedback on the effectiveness of the instructor, the topics, the presentation style, the schedule, audiovisuals, and other subjects—and use this information to make revisions to the program courses. Documents that we reviewed on training evaluations identified updates or revisions made to course materials and tests to improve their effectiveness, based on training feedback and policy updates. As an example of evaluating the impact of training on employee performance, DOI officials stated that, while they do not have an agency-wide process, some of their organizations—such as those within the Bureau of Land Management and National Park Service use an online evaluation tool to assess the impact of training courses on employees’ abilities to perform tasks, about 6 weeks after a course has been completed. According to the official, at this time, the process is not used department-wide, but the agency is looking into how it may be able to do so starting in fiscal year 2013. According to DOI’s CLO, establishing this link between training, employee competencies and mission critical occupation work is one that DOI is targeting for improvement.\nNearly all CHCOs reported that they implement this practice. We have previously reported that there are many ways to help improve performance, so it is important for agencies to continually look to others to identify innovative approaches that may relate to their training and development efforts. Within the context of that agency’s unique environment and situation, an agency can compare its investments, approaches, and outcomes with those of public and private organizations that are undertaking notably innovative and effective training and development efforts. Agencies can uncover weaknesses in their training and development strategies that need improvement and identify new ideas, mechanisms, and metrics that they could employ. Twenty-four of the 27 CHCOs included in our questionnaire reported that they compare training investments, methods, or outcomes with those of other organizations to identify innovative approaches or lessons learned.\nOfficials from the two agencies we asked to provide examples of this practice described this process as occurring informally through interactions with other CLO Council members. For example, DHS officials that we met with reported that they meet with other agencies to share best practices and recommend vendors during breaks or after the CLO meetings. The officials said that examples of sharing ideas on new training programs included recent discussions by OPM and agencies on the GEAR pilot program lessons learned and new courses for developing supervisors. While two agencies reported having informal interactions with other agencies to share and compare training information, none of the agencies that we met with described efforts to benchmark their practices with agencies or other relevant entities. We have previously reported that benchmarking can help agencies determine who is the very best, who sets the standard, and what that standard is.", "Many CHCOs reported that they are not implementing the leading practices that would allow them to make more cost-effective training decisions, as shown in Table 4.\nMany CHCOs included in our review reported that they have not implemented this practice. We have previously stated that, to determine the best ways to leverage investments and establish priorities, agencies can develop an annual training plan that targets developmental areas of greatest need and that outlines the most cost-effective training approaches to address those needs. When assessing investment opportunities for its training plan, the agency ought to consider the competing demands confronting the agency, the limited resources available, and how those demands can best be met with available resources. If training is identified as a solution to improve agency performance, agencies can prioritize training using criteria, such as expected demand for the investment from internal sources, availability of resources to support the effort, potential for increased revenue, and risk of unfavorable consequences if investments are not made. Given current budget constraints, agencies may also want to prioritize training that has the potential to improve their efficiency. Developing a business case for training and development that includes this information sets forth the expected costs and benefits of the investments and provides decision makers with essential information they need to allocate necessary resources. Furthermore, under Executive Order No.11348 and OPM regulations, agencies are to establish training priorities, although agencies are not specifically instructed to establish an agency-wide process to do so. Of the 27 CHCOs questionnaire responses, 16 CHCOs reported that they do not set a level of investment agency-wide and 15 CHCOs reported that they do not prioritize training agency-wide.\nIn our meetings with officials from the DOE, DOI, DHS, and VA as well as the CLO council, agency officials cited several reasons for why they do not establish a level of training investment agency-wide or prioritize training agency-wide. Some of the reasons were described as purposeful decisions not to do so and other reasons were described as limitations in their ability to do so. First, CHCOs elect to establish and prioritize training investments for centralized training and are often not involved in the investment decisions made for specific training within the components or offices, as we previously described. In addition, large components or sub- agencies often have autonomy over their training budgets because the budgets are appropriated directly to them from Congress. As a result, CHCOs and their staff are often unaware of how much these components spend for training and do not have input into these decisions. Component and sub-agency heads often act autonomously and are not required to communicate with the CHCO about these decisions. Further, because of limitations in internal tracking systems for training (which we discussed earlier in this report), CHCOs do not have information on all of the training that is completed in their agency and the related costs.\nOfficials from various agencies involved in the CLO Council and three of the four agencies that we individually met with reported having a lack of visibility into the prioritization and level of training investments throughout their agencies, which they reported limits their ability to better leverage and reduce duplication in training investments their agencies. Officials in the agencies that we met with reported that, although they believe that their components or organizational elements are more capable of making training decisions related to their specific missions, the lack of coordination and communication on training investments and priorities has led to some duplicative and ineffective training investments in their departments. For example, senior human capital officials in DOI reported that the department’s leadership, including the CHCO are not aware of the department’s overall training investments agency-wide and have no formalized mechanism for ensuring accountability for how the funds are used. They are aware that bureaus are buying duplicative training or offering similar training classes that are of varying effectiveness—which is resulting in inefficient training investments. For example, one bureau recently independently contracted with an external provider for mid-level manager leadership training that was already offered at DOI’s university and paid $50,000 more than DOI University charges. According to officials, this is a common problem. In addition to duplicative training courses, in some cases, bureaus are duplicating the creation of new training facilities. For example, a regional director of an DOI bureau built a training classroom with a computer lab, despite having access to existing computer labs within the complex where he worked and also at DOI facilities a few miles way. Further, according to the officials, because it is common practice for each bureau to independently secure training, there is no consistency, little quality control, and no maximization of procurement tools (such as blanket purchase agreements) across DOI. In order to address these challenges, DOI has formed a one-time departmentwide task force known as the Department Innovation and Efficiency Team for Training. This task force was expected to identify: potential duplication in training, funds expended in training delivery, and the cost of travel and facilities, among other things. In July 2012, the committee made recommendations to the CLO on opportunities to generate efficiencies and savings in training operations. DOI’s Office of Strategic Employee and Organization Development is developing action plans to address the committee’s recommendations.\nOfficials from DHS also reported experiencing similar challenges with duplicative or ineffective training investments in their agencies. Some of these challenges are long standing. For example, seven years ago we reported that DHS’s two-tier training process (component and departmentwide) and lack of communication throughout the department on the availability of some training programs and resources were challenges that could impede its ability to achieve departmental training goals and efficiencies. DHS is still taking steps to address this on-going challenge. In June 2005, DHS formally chartered a Training Leaders Council (TLC) and recently revised its charter in June 2011. The TLC is made up of senior training leaders from each component, and representatives from headquarters to serves as an advisory and collaborative community of practice to promote effective and efficient training, education, and professional development opportunities to DHS employees. According to DHS’ Human Capital leaders, while this group does not set or prioritize training investments, it provides a forum for exchanging useful information about common challenges and training practices, which helps in making more efficient use of existing agency resources. DHS also established the Human Resource Information Technology Executive Steering Committee, made up of management chiefs and HR and information technology leadership across DHS in 2010, and included TLC leadership as members in July 2011. This group makes some funding decisions related to some training investments, such as their recent decision to fund the purchase of a single learning management system for the entire department. However, according to DHS officials, because DHS has multiple congressional committees and subcommittees from which the components receive funding and training direction, coordinating training investments remains challenging.\nMany CHCOs that responded to our questionnaire reported that they do not compare the merits of different training delivery mechanisms. Our past research and that of others has shown that agencies should deliberatively consider the options for delivering training and consider essential issues, such as the goals and objectives for the training, the type of audience intended for the training, the nature of the training content, the availability of technology and resources, and the timing for delivering the training. Agencies can use a variety of instructional approaches to achieve learning—in the classroom, through distance learning, or in the workplace. When warranted, agencies should also consider blended learning that combines different teaching methods (e.g. Web-based and instructor-led) within the same training effort and provide trainees with the flexibilities to choose among different training delivery methods while leveraging resources in the most efficient way possible. When assessing delivery options, agencies can try to achieve economies of scale and avoid duplication of effort by taking advantage of existing course content or training, such as sharable on-line courses or multiagency training programs. However, In the responses to our questionnaire, 16 of the 27 CHCOs reported that they do not compare the merits of the different training delivery mechanisms in their agency.\nIn our meetings with DHS and VA to obtain illustrative examples, DHS officials reported that their current learning management systems do not allow them to mine information on the different delivery mechanisms used throughout the department and to assess and compare their effectiveness. According to the officials, they could obtain this information manually, but it would be a very labor intensive process. Therefore, it is not done. In contrast, VA officials informed us that they are assessing different delivery mechanisms for training and conferences offered by VALU because they recognize that opportunities exist to offer more efficient mechanisms (such as e-learning). Moreover, VHA, which has the largest workforce in the department, builds into its initial investment decision-making process considerations of which delivery methods will be most effective and efficient, and subsequently evaluates employee satisfaction with the various delivery methods to inform future investment decisions. Without processes such as these, agencies that do not compare the merits of different training delivery mechanisms have limited information for determining what mix of methods provides the most efficient and effective delivery of federal training.\nMost CHCOs reported that their agencies do not have a routine formal process to implement this practice. As we previously mentioned, it is increasingly important for agencies to be able to evaluate their training and development programs and demonstrate how these efforts help to improve the agencies’ performance, and to assist them in making more effective decisions about how to allocate scarce resources. Agencies are required by statute and OPM implementing regulations to evaluate how well training programs contribute to mission accomplishment and meet organizational performance goals. We have identified having a formal process for this evaluation as a leading practice. However, there are some understandable limitations to regularly and formally implementing this practice. For example, some agency officials that we met with reported that the cost and time required can be significant for obtaining results of evaluations of training that measure the impact on agency performance goals. As a result, they can only conduct this level of review for training that they identify as highly important to key areas of their mission. We have previously reported that not all training and development programs require, or are suitable for, higher levels of evaluation.For example, it may be ineffective to try to measure the impact of training in an area that is still undergoing other significant changes that could affect relevant performance goals, such as changes in related policy and management structure. We recognize that higher levels of evaluation (such as evaluating the impact on organizational performance or return on investment) can be challenging to conduct because of the difficulty and costs associated with data collection and the complexity in directly linking training and development programs to improved individual and organizational performance. Factors to consider when deciding the appropriate level of evaluation include estimated costs of the training effort, size of the training audience, management interest, program visibility, and the anticipated “life span” of the effort. Each agency will need to consider the feasibility and cost-effectiveness of conducting these in-depth evaluations, along with budgetary and staffing circumstances that may limit the agency’s ability to complete such evaluations. Given the current budget constraints that agencies face, making thoughtful tradeoffs regarding how to target costly evaluation reviews is a sensible approach. While it is important to prioritize reviews of training, 8 of the 27 CHCOs that responded to our questionnaire reported that they do not have a formal process for evaluating the impact of their training on their agency’s performance.\nFor example, the CHCO at DOE reported in our questionnaire that DOE does not implement this practice. We met with the CLO from DOE who informed us that DOE does not have a formal process for implementing this practice because the agency does not have a systematic documented approach for conducting this level of review. Moreover, evaluation data are not collected in a way that allows it to be aggregated into a comprehensive assessment of its impact on the agency’s overall mission. For example, different organizations within DOE conduct reviews to assess the impact of training on their goals, but they are not captured in an automated system and the methodologies that DOE organizations use to conduct these reviews vary. As an illustration, DOE organizations that work with nuclear material evaluate the technical training that they provide to their employees against required certification and mission goals. However, the organizations conduct these evaluations differently, and because of these varied methodologies and lack of automated results data, it is difficult to aggregate the reviews into an assessment of how training has affected DOE’s overall training and mission goals. Similarly, the CLO’s office evaluates cross-cutting training for employee satisfaction and employee performance at DOE, but does not effectively or consistently evaluate its impact on agency goals. According to the CLO, to assist them in developing a more systematic formal process, they are participating in OPM training on developing training evaluations and in the GEAR pilot program—which is intended to better link employee performance to organizational goals.\nIn contrast, VA’s training review processes illustrate that agencies that have a formal process for assessing the impact of training on their performance mission and goals can use it to make better training investment decisions. VA recently assessed the return on investment of its corporate training and, the department’s Administrations recently evaluated the impact of mission-specific training on their performance goals. In January 2012, VA evaluated the monetary and mission-related benefits of training that was implemented under its Human Capital Investment Plan. According to the return on investment assessment and report developed by VALU and VHA’s National Center for Organization Development, VA’ s two-year $577 million investment in training and development under VA’s Human Capital Investment Plan has resulted in $604 million dollars in savings that are tied to reductions in costly VA turnovers, fewer overdue accounts renewable, and fewer equal employment opportunity complaints. The report also states that VA has gained non-financial returns, such as faster benefits processing, increased veteran hiring programs, and improved patient satisfaction. According to VALU officials, they have used details in this report along with other factors to make decisions about future training and development investments. Similarly, for its mission-specific training, VHA recently conducted an in-depth review of training provided to Patient Aligned Care Teams to improve their collaborative delivery of care to patients. The evaluation assessed the training participants’ satisfaction, skill acquisition, application on the job, and impact on VHA’s business. The assessment ultimately determined that the training was successful in addressing the desired behavior changes in the work place and that key organizational results were influenced by the training, but it also identified some improvements that VHA could make.", "OPM guidance and assistance to agencies on federal training investments are in line with five of the eight leading practices, but OPM lacks guidance and assistance in some areas that are challenges to agencies, as shown in table 5.\nOPM guidance or assistance to agencies on federal training investments addresses five of the eight leading practices for federal agency training investment decision-making processes. OPM’s five primary guidance documents that relate to making training investment decisions include the Guide to Human Resources Reporting, Training Evaluation Field Guide, Draft Training Policy Handbook, Guide for Collection and Management of Training Information, and Guide to Strategically Planning Training and Measuring Results. (See table 2 for a brief description of these guides). In addition, OPM provides technical assistance to agencies via facilitated forums, discussion, and training.\nOur review of OPM’s guidance documents and assistance shows that OPM has provided some technical assistance to agencies on this practice, although OPM does not have guidance documents that provide specific advice on this topic. For example, because of requirements in GPRAMA, OPM is providing assistance to agencies in considering this government-wide reform when planning their training and development programs. GPRAMA required OPM to identify the competencies needed to perform the following three functions: developing goals, evaluating programs, and analyzing and using performance information for the purpose of improving government efficiency and effectiveness. OPM, working with subject matter experts developed a competency model for the three new roles required by GPRAMA—performance improvement officer, performance improvement staff, and goal leader. Earlier this year OPM advised agencies that it would provide guidance on how to incorporate the skills and competencies into these position descriptions, as specified in the GPRAMA. The Director of OPM stated that the agency would work with the CLOs to incorporate the key skills and competencies into agency training programs.\nOPM has begun providing this assistance to agencies by facilitating sessions for agencies to develop training requirements for implementing the new positions and roles required by GPRAMA. For example, OPM worked with OMB to gather information on existing training, provide learning opportunities, and consolidate new and existing training courses and materials to support this effort. Using this information, OPM and OMB led two working group meetings with agencies to discuss GPRAMA training needs and next steps. In a working group meeting in February 2012, OPM and agencies discussed which competencies identified in GPRAMA could be improved readily through training. OPM provided participants with a chart developed from an OPM and the Merit System Protection Board 2011 Trainability Study on which competencies for the three new roles required by GPRAMA were highly trainable versus those that were less trainable. After the discussion, OPM and participants identified the most critical and manageable next steps, including: create a common competency assessment tool to assess competency gaps within agencies; create a course on writing results-oriented goals and standards— while also gathering existing training; create a working group to assess the needs and create a solution to satisfy the training requirement for the Organizational Performance Analysis, Planning and Evaluating, and Performance Measurement competencies and to collect relevant case studies, as well as to identify opportunities to leverage agency resources; identify existing subject matter experts in the agencies and create forums, workshops, training sessions, etc. where they can share their expertise and possibly engage in peer-to peer coaching; create working groups where necessary; and consider the development of a career path after OPM’s classification study.\nIn addition to this assistance, although not specific to government-wide reforms, OPM’s Training Policy Handbook advises agencies to conduct a training needs assessment that includes an evaluation of organization needs, which should take into consideration changing demographics, political trends, technology, and the economy.\nOPM’s TED group advises agencies in its Training Policy Handbook and 2000 Guide to Strategically Planning Training and Measuring Results to use multiple delivery methods, or combine them, when providing training to employees. For example, the Training Policy Handbook maintains that agencies should decide which delivery option is best to achieve the instructional goals of the training, highlighting that some methods are more effective for certain courses. It states that a performance management course may include role play scenarios which may not be suited for an e-learning course. Further, the guide states that agencies need to develop training delivery mechanisms that effectively limit unnecessary overlap and duplication of efforts. Similarly, we have previously reported that agencies need to consider essential issues such as the goals and objectives for the training, the type of audience for which the training is intended, the nature of the training content, the availability of technology and resources, and the timing for delivering the training when identifying the most effective and efficient delivery mechanism. Agency officials who have implemented this practice reported seeing positive results. For example, VHA officials that we met with and agencies that have publically discussed their efforts to assess the different delivery mechanisms at a March 2012 Partnership for Public Service Forum on: Going Virtual- Maximizing the Return On Investment of Online Training reported significant savings and increases in the effectiveness of their training by assessing and changing their training delivery mechanisms. Specifically, VHA officials reported achieving several non-financial and financial benefits as a result of moving from in-person meetings and audio and video conferencing to providing training on-line for one of its leadership training programs. According to a VHA assessment report, the benefits included: consistent curriculum across eight medical centers in three states; easier accessibility to course materials and job aids; immediate access to feedback on courses from learners; easier reproduction of courses for instructors; a return on investment of 140 percent since implementation; and $116,000 saved in travel costs, facilitation, and facilities; among other things.\nOPM guidance informs agencies that they should implement this practice. However, the guidance does not include methodologies for how to implement it. Officials from DHS—an agency that reported that it does not implement this practice—stated that tools provided by OPM could be strengthened to assist them in comparing training delivery mechanisms. For example, DHS officials reported that they have difficulty implementing this practice partly because their components do not track comparative data on the different delivery mechanisms. According to the DHS officials, the standard government form for tracking training data (Standard Form- 182) does have a category for tracking training delivery type, but filling out this block is not mandatory and is often not used. The DHS officials reported that an OPM requirement to capture these data would improve their ability to gather the information needed from DHS components to effectively implement this practice. As noted earlier, 15 of the 27 CHCOs included in our review, reported that they do not implement this practice, which indicates that they may also benefit from additional guidance and tools on ways to do so.\nOPM’s TED group provides guidance and assistance to agencies on tracking and reporting the cost and delivery of training and development programs in four of its five guides. For example, OPM’s 2000 Guide to Strategically Planning Training and Measuring Results advises agencies to calculate the cost of the expenses associated with designing, developing, implementing, and evaluating their training programs and provides a list of the most common types of training costs. OPM’s Guide for Collection and Management of Training Information also outlines agency requirements to track various types of data training and provides a list of several data sources (e.g. Standard Form-182, agency personnel records, procurement documents, financial and performance records, training evaluation forms, etc.) that agencies could use to collect this information. Similarly, the Training Policy Handbook also incorporates guidance on tracking the cost and delivery of agencies’ training and development. In the more recent 2012 Guide to Human Resources Reporting, OPM outlines requirements for agencies to track training data and describes the requirement to use certain standard tracking forms, such as the standard “Authorization, Agreement, and Certification of Training” (Standard Form-182) to track data. The guide also instructs agencies to provide all training information included in this form for submission to OPM’s Enterprise Human Resources Integration (EHRI) database systems.\nAlthough OPM provides several guidance documents and assistance on tracking the cost and delivery of training, we found that this practice continues to be a challenge for many agencies to implement. Agency officials that we met with reported that they could benefit from additional assistance from OPM in developing a common definition of what should be tracked as training, developing policies to strengthen the utilization of Standard Form -182 to document and report all training costs, and encouraging agencies through guidance and technical assistance, to routinely report training cost data to agency learning management systems.\nIn addition, to providing guidance on tracking data, OPM facilitates the collection of federal training data government-wide. Executive Order No. 11348 requires OPM to develop, install, and maintain a system to provide the training data needed to carry out its own functions and to provide staff assistance to the President. OPM’s EHRI is the government-wide repository for these training data. As noted above, agencies have been required since 2006 to report training data to OPM monthly via this system. However, according to OPM officials, they consider the data to be unreliable because they are incomplete. Therefore, OPM officials have not used it to inform their training guidance and assistance to agencies, to counsel heads of agencies and other agency officials regarding federal training needs or investments or to assist agencies in developing sound programs and financial plans for training programs.\nAccording to OPM officials and documents, OPM should assess EHRI training data for technical compliance and data quality validation. Technical compliance is the testing and approving of agency systems for data quality (i.e. correct formatting, adherence to edit rules). Once systems are technically compliant, agencies are required to send monthly data feeds of completed training events to OPM. Once agencies are reporting these data for all major components, all employees, all types of training (e.g. conferences, on-line, classroom), and training cost data, OPM are to evaluate the data quality to determine if it presents an accurate picture of all training in the agency. However, OPM officials told us that they have not assessed the quality of data or developed a report on its reliability because no agency is sending information on all training events. According to OPM officials, when agencies request assistance or when OPM finds that an agency has been grossly delinquent in providing data, OPM officials will inquire further and offer assistance to the agencies. However, they typically do not document reliability issues or the agreed upon action plans to address the problems. The officials agreed that this is a problem, but stated that they would need more staff resources to provide this level of assistance and oversight.\nWe believe that the current reliability of agency training investment data is unknown because OPM officials have not internally assessed improvements in the completeness of the data over the last 3 years or the quality of the data in the six years that agencies have been required to submit it. The two internal reviews that OPM conducted of training data were in 2008 and September 2009. In the 2009 review, OPM reported that there was an increase from fiscal year 2008 in the amount of training data being reported by agencies, but that the quality of the data was still less than what was necessary to provide an accurate picture of federal training investments. According to the 2009 report, over half of all agencies were reporting data for the entire agency, 86 percent were reporting on a regular basis, but only 7 percent were reporting cost data. The report identified several of the same reasons that we previously described as limitations to agencies reporting training investment data. Although the report stated that OPM would continue to work with agencies to assess the quality/validity of training investment data and determine whether agencies are reporting all training events, as noted above, OPM officials informed us that they have not assessed the quality of the data because the data are not 100 percent complete.\nWhile it is important to have complete data, we do not believe that having incomplete data necessarily prevents OPM from assessing the overall reliability of the data, if it meets standards for sufficiency. In our guidance on assessing the reliability of computer based data, we have stated that agencies can assess data if it is sufficiently complete. Data are sufficiently reliable when testing and reviews of the existing information provide assurance that (1) the likelihood of significant errors or incompleteness is minimal and (2) the use of the data would not lead to an incorrect or unintentional message. Further, we consider the data not to be sufficiently reliable when there are significant errors or incompleteness in some of or all the key data elements and if using the data would probably lead to an incorrect or unintentional message. Because OPM has not conducted an assessment of improvements in agency training data in three years, it is unknown whether it is currently complete enough to test other aspects of its quality and reliability. According to the officials, although they have not conducted a formal review of the data, they are able to visually look at the EHRI data base and tell that the data are significantly more complete than in past years.\nOPM also previously identified several steps that its officials would take to assist agencies in improving their data, but have not yet implemented all of them. According to OPM’s 2009 report assessing EHRI data, OPM planned to assist agencies in improving training investment data, by: (1) working with agencies to fully report all training investment data— including costs; (2) working with agencies to decrease errors in reporting; and (3) providing individual agencies with summary reports of the data that they submitted to OPM for their review and verification. We found that OPM has initiated some related efforts, but has not fully addressed two of these issues. In order to decrease errors in reporting, OPM officials and EHRI reports show that OPM has worked with agencies to identify technical errors in their training data submission. However, to improve reporting on cost data—which is currently a challenge for agencies— OPM held one focus group with agencies in 2007, which it used to updated it’s guidance on tracking training data in 2008. OPM also has not followed through on plans to annually provide agencies with reports of their training data for verification and correction. According to OPM, the purpose of the training data report is to (1) inform agencies of the training data OPM had received (2) offer them the opportunity to work closely with OPM in correcting any identified deficiencies and (3) to make note of the progress they have made in addressing OPM’s training reporting requirement. OPM officials said that they sent one report to agencies (in fiscal year 2010) summarizing their training data and requesting verification and this report was provided in response to expectations that the data would be posted on the government-wide website Data.gov. In our review of examples of agency responses, we found that agencies identified important discrepancies in their data, including significant underestimates of the costs spent on training, and reported that they would take steps to address incorrect data. However, OPM officials informed us that they do not have a process for documenting whether agencies have taken steps to correct their data.\nAlthough OPM has only provided one summary of EHRI data to agencies, agency officials that we met with stated that they could benefit from using this type of data summary to improve their training data. Further, OPM officials stated that using these summaries to improve EHRI data could help agencies measure the return of investment on their training and assist agencies’ stakeholders in making more informed decisions on the best use of training dollars. During our review, OPM officials reported that they began developing a report to send to agencies with fiscal year 2011 training data.\nThe TED group provides guidance and assistance to agencies in evaluating training programs through three of its guides and in workshops. OPM’s Training Evaluation Field Guide is the primary guide through which OPM advises agencies on how to evaluate training. The guide instructs agencies to define the results they want to achieve from training and to align training with the agency mission and goals. Further, the Guide discusses useful models for evaluating training and describes Return on Expectations as the ultimate indicator to demonstrate the training value to stakeholders. The guide also provides information on evaluation requirements outlined in laws and regulations, and provides practical instruction by identifying common challenges and solutions related to identifying the most cost-effective methods to train and develop employees. In addition to this guidance, OPM’s Training Policy Handbook instructs agencies to evaluate all training to determine whether or not it provides meaningful contributions to agency results. Similarly, in its Guide for Collection and Management of Training Information, OPM highlights the importance of collecting accurate, comprehensive training information and making it available to decision-makers and others who have a vested interest in the training activities of the federal government. This guide discusses the two basic types of performance measures for measuring training and development program effectiveness: process indicators and outcome indicators.\nIn addition to its guides, OPM has made evaluation tools available to agencies on its website and held workshops on training evaluation in order help agencies identify and share best practices on evaluating training. For example, OPM’s website contains a Training Evaluation Tool that describes the levels of training evaluation and provides agencies with evaluation questions to be answered in each of the four levels and the types of information typically collected.\nAs previously mentioned, some agency officials reported that it is difficult to conduct these reviews because their cost and time demands can be significant. As a result, some agencies only conduct them for the most critical training and others reported that they do not have a formal process for conducting these reviews at all. While we agree that it is appropriate to target costly evaluations to the most important training, those who do not implement this practice at all could benefit from using OPM’s comprehensive guidance and assistance on training evaluations.\nOPM does not have a guidance document that advises agencies on how to compare training investment methods and outcomes with other agencies, but provides some support to agencies in this area through technical assistance. For example, the TED group uses various web- based mechanisms such as OPM’s website, OPM LISTSERV, OPM Federal Training and Development web site and OPM Federal Training and Development Wiki to facilitate discussions between agencies on training investments. We observed the exchange and sharing of information among agencies through OPM’s LISTSERV, which is used by 950 employees from various federal agencies to share training practices and advice. At times, agencies requested and shared information with each other on the most effective or efficient ways to implement specific training programs or requested models for which to compare their activities. Similarly, OPM’s wiki page contains examples and models of training programs for others to use when developing their training programs. According to OPM officials, the TED group also provides best practice forums on topics when they believe agencies need additional assistance. For example, OPM officials reported that they have held forums with agencies on the Training Evaluation Field Guide to share best practices and tools among agencies. OPM is working on a similar forum for developing supervisory training.", "OPM does not have guidance and assistance for three leading training investment practices, two of which are areas in which agencies reported experiencing challenges. We examined the five guidance documents that OPM provides related to making training investment decisions and documentation on OPM’s technical assistance and did not find support for the following three practices. OPM officials confirmed that that the agency does not provide direct guidance or assistance in some of these areas.\nIn our review of OPM guidance and documentation on its technical assistance, we found that OPM provides some guidance to agencies regarding steps to identify training and development investment needs and related training strategies, but we did not find guidance on prioritizing these investments so that the most important training needs are addressed first. According to TED officials, each agency must assess its own needs as the primary driver for investment determinations. To that end, OPM officials provide guidance and tools for conducting training needs assessments in OPM’s training policy guide and on OPM’s website and also direct agencies to review benchmarks in American Society for Training & Development’s State of the Industry reports. OPM officials also reported that they use the Human Capital Assessment Accountability Framework and related efforts to emphasize the importance of considering training as a solution to addressing mission critical competencies and skill gaps, but acknowledged that OPM does not provide specific guidance on prioritizing training investments through these processes.\nOPM officials identified guidance that they believe addresses the leading practice of prioritizing training investments; however, we found that the guidance does not address prioritization. As we previously mentioned, it is a leading practice for agencies to prioritize their training investments using criteria, such as expected demand for the training from internal sources, availability of resources to support the effort, potential for increased revenue, and risk of unfavorable consequences if investments are not made, or their potential to improve their efficiency. TED officials identified OPM’s 2000 Guide to Strategically Planning Training and Measuring Results as the source of guidance to agencies on this practice.guidance to agencies on prioritizing training investments. Instead, the guide advises agencies to build a business case for their training strategies. OPM defines a business case as a method for projecting and documenting the benefits to be gained as a result of investing resources in a training intervention. The guide encourages agencies to consider questions that are important to building a business case and provides an example of how to build a business case using this information (see Appendix III for diagrams from the guide on building a business case for training). These steps are consistent with our identified leading practice. However, the guide does not take the additional step of advising agencies on how to prioritize training investments selected from their business case(s) relative to each other. We have previously reported that, when budgets are constrained, training is often one of first investments that agencies reduce. Therefore, it is increasingly important for agencies to prioritize their selected training activities, so that the most important training is identified. Moreover, they need to communicate those priorities agency-wide, in order to identify common needs and potential areas for consolidated investments. As previously noted in our review, this is a practice that most CHCOs reported that they do not implement, which, as illustrated by our case example agencies, has resulted in costly duplicative and inefficient training investments at some agencies.\nIdentify the most appropriate mix of centralized and decentralized approaches for its training and development programs.\nIn our review of OPM guidance and documentation on its technical assistance, we did not identify specific guidance or assistance to agencies on this practice. As we previously noted, while neither approach fits every situation, agencies need to consciously think about the advantages and disadvantages of using centralized and decentralized approaches, particularly for the design of training and development programs. Although OPM officials confirmed that they do not provide guidance and assistance to agencies in this area, OPM officials agreed with this leading practice. We found that most agencies included in our review reported that they already implement the practice, so additional guidance may not be necessary.\nHave criteria for determining whether to design training and development programs in- house or obtain these services from a contractor or other external source.\nTED officials agreed that they do not provide guidance or assistance to agencies on this practice. TED officials stated that agencies need to incorporate this leading practice into their training investment decision- making process. As we previously noted, once an agency has identified its training and development needs, it should make informed decisions about whether to design and develop training and development programs in-house or buy these services from a contractor or other external source. Factors that they should consider include the capability of in-house staff to develop and implement the training; the prior experience, capability, and stability of possible providers in the marketplace; and agency limitations on cost, time, and resources. As previously mentioned, 12 of the 27 CHCOs reported that they do not implement this leading practice, and our discussion with DOI officials, one of the four agencies that we interviewed for this review, illustrates that even those agencies that reported implementing this practice may not be doing so for all training in the agency.", "Agency officials reported they could use more OPM assistance in leveraging federal training investments across the government. Part of OPM’s role is to identify functional areas in which new or expanded interagency training activity is needed and either conduct such training or arrange for agencies having the substantive competence to do so; as well as to coordinate interagency training conducted by and for agencies. Members of the CLO council emphasized that they could benefit from more OPM assistance in achieving greater interagency collaboration on training to reduce duplicative training investments. All four agencies that we interviewed reported concerns similar to the Council’s. For example, DOI officials noted that OPM’s knowledge and expertise could help agencies identify one basic approach to competency management (e.g., establishing levels of proficiency and competency validation processes) that can be used across government rather than using multiple approaches at various agencies. At the present, each agency individually identifies training needed for these competencies, which results in duplication and variation in the quality of training provided throughout the government. DOI officials stated it could be more efficient if agencies would use a standard set of Knowledge, Skills, and Abilities to hire and identify training and development investment priorities. The officials also suggested that OPM’s HR University could be used to provide training for other mission-critical occupations. Further, VA officials stated that it would assist agencies if OPM established government-wide courses for mandatory training and cross-cutting areas. As an example, the officials stated the federal government has 17 different versions of No Fear Act training. The officials suggested that OPM could establish one government wide training for such subjects which would help agencies save federal time and money. Officials from DHS and DOE expressed similar views.\nIn contrast, the shared training efforts that are being implemented by the Federal Healthcare Training Partnership collaborative, which consists of 14 federal agencies that provide clinical health care or related training to support their mission, illustrate the potential magnitude of savings that could be achieved by leveraging training across agencies. The Federal Healthcare Training Partnership was created by its members to share training programs and resources across the agencies to speed up the provision of employee learning and reduce training costs. According to VA officials—who lead the effort, the agencies formed this group because they saw the unaddressed need and opportunity to save costs in common training areas. Documentation provided by VA on the collaborative group states that in fiscal 2011, Federal Healthcare Training Partnership partner organizations shared more than 2,300 programs, generating a total cost avoidance of more than $82 million. They did so by utilizing the partner organizations’ existing learning systems to share training that was originally developed for a single agency’s internal use and making it available to all federal learners, as well as by coordinating the joint development or purchase of training needed by two or more partner agencies. VA officials stated that, while this has been a valuable effort to specifically improve healthcare-related training investments for the agencies involved, all federal agencies would benefit from an expansion of leveraging training investments across the government.\nOPM officials agreed that increased coordination of mandatory and common training across the government could reduce duplication and improve the efficiency of federal training investments. The officials reported that OPM has already engaged in some efforts to partner with or support CLO and CHCO Council efforts to share specific training across agencies. For example, the officials worked with the Social Security Administration to share a “Plain-Language” writing course developed by the Social Security Administration with other agencies, by placing it on OPM’s Training and Development Wiki page. In addition, OPM officials stated that in 2010, the CHCO Council and OPM collaborated to establish HR University, which is aimed at addressing the competency and skill gaps within the HR community and achieve savings government-wide by identifying and sharing the best HR training with all agencies. While the system was initially designed to provide training to the HR community, it has also been used to provide some mandatory training and HR training to other supervisors and managers. For example, officials reported that they recently added a mandated Uniformed Services Employment and Reemployment Rights Act training to HR University. The CHCO Council and OPM have also developed a formula to calculate cost savings resulting from the shared courses, which agencies can use to track their savings and return on investment. According to the OPM Executive Director of the CHCO Council and HR University’s website, in its first year, HR University has saved the government $14.5 million as a result of the shared training, and OPM officials expect that it could produce significantly more savings, when other courses are added. According to OPM officials, while HR University primarily serves the needs of the HR community, OPM would support using the HR University model to centralize training in other occupations or functional areas.", "The federal government’s efforts to build and retain a workforce of skilled and efficient employees are essential to addressing skill gaps in critical fields and effectively and efficiently deliver services to the public. Training and development programs play a vital role in fulfilling these goals. However, agency leaders need to be as strategic about how they invest resources in this area as they are in other key areas of agency operations. Training investment decisions should be based on an assessment of the appropriate level of training investments and the prioritization of those investments, as well as an evaluation of the most cost-effective delivery mechanisms, and the known costs and benefits of their training investments. CHCOs and OPM each play a vital role in ensuring that these investment decisions are effectively made.\nWhile CHCOs report that they are implementing leading practices that support the successful delivery of training, they could do more to ensure that these investments are more cost effective. Because many CHCOs do not have the information that they need from component or subagency leaders regarding the level of training investments and mechanisms for setting priorities agency-wide, their agencies are duplicating some internal training investments and missing opportunities to leverage economies of scale and share the most effective training across their agencies. Many CHCOs are also limiting their opportunities to make training more cost effective and accessible because they are not comparing the merits of different training delivery mechanisms. OPM’s guidance and assistance in these three areas are minimal or absent and could be strengthened to assist agencies in implementing these leading practices. In addition to these limitations, some CHCOs do not have a formal process to evaluate the impact of training on their mission. While not all training and development programs require, or are suitable for, higher levels of evaluation, those who do not implement this practice for any training are missing information that could help them make more effective investment decisions and could benefit from using OPM’s existing guidance and assistance on conducting such evaluations.\nFederal agencies and OPM also need reliable information on how much agencies spend on training and for what purposes, in order to make effective training investment decisions. However, CHCOs do not completely and reliably track training costs agency-wide and, therefore, are unable to provide OPM with the reliable information that it needs to more effectively guide government-wide training policies. OPM has responsibility for providing regulations for maintenance of agency training data, assessing the completeness and quality of those data when agencies submit it, and using it to target its assistance to agencies. But OPM does not know the extent of the reliability of federal training investment data because they have not compared improvements in the completeness of the data over last 3 years and determined if it meets the standards of sufficiency for data assessment and have not assessed the quality of the data in the 6 years that agencies have been required to submit it.\nGiven the fiscal challenges facing the nation, the federal government needs to take advantage of every opportunity to better leverage resources and investments across agencies. However, at present many agencies independently purchase or develop training for the same government-wide mandated courses. OPM has an opportunity to reduce duplicative and inefficient training investments by leveraging existing training resources government-wide. Agency leaders and OPM recognize that this has led to redundant and inefficient federal training investments. HR University—the one-stop-shop training platform administered by OPM for many courses mostly related to the HR community—provides a model that can result in cost savings and help standardize some mandatory training courses across government.", "To improve federal training investment decision-making processes, the Director of OPM should take the following five actions: 1. Include in existing or new OPM guidance or technical assistance additional information in the following areas:\nSteps agencies should take and factors they should consider when prioritizing federal training investments agency-wide, including developing a process to rank training using criteria, such as expected demand for the investment from internal sources, availability of resources to support the effort, potential for increased revenue, and risk of unfavorable consequences if investments are not made.\nSteps agencies should take and factors they should consider for comparing the merits of different delivery mechanisms and determining the mix of mechanisms to use, in order to ensure efficient and cost-effective delivery of federal training. Such guidance could include requesting that agencies consistently utilize Standard Form-182 to document and report training costs associated with the different delivery mechanisms employed. 2. In line with statutory and regulatory provisions on maintenance and reporting of training information, work with the CHCO Council to improve the reliability of agency training investment information by: ensuring that agencies are familiar with and follow guidance outlined in OPM’s Guide for the Collection and Management of Training Information regarding which training events should be documented as training and reported to OPM; developing policies to strengthen the utilization of Standard Form- 182 to document and report training costs; encouraging agencies through guidance and technical assistance, to develop policies that require consistent reporting of training data to their learning management systems; and encouraging each agency to assess its existing training information system(s) and identify whether it is providing complete and reliable data and, if not, to develop approaches to improve the system(s), in order to do so. 3. Provide regular report summaries to agencies on EHRI training investment data and its reliability, in order to improve the transparency and reliability of federal training investment data. 4. Once federal training data reliability has been sufficiently improved, consistent with Executive Order No. 11348, use EHRI data to: a) counsel heads of agencies and other agency officials on the improvement of training, and b) assist agencies in developing sound programs and financial plans for training and provide advice, information, and assistance to agencies on planning and budgeting training programs.\nIn collaboration with the CHCO and CLO Councils, identify the best existing courses that fulfill government-wide training requirements, such as mandatory Equal Employment Opportunity training, or training in common federal occupations, such as basic training in financial management, and offer them to all agencies through HR University or other appropriate platform to reduce costly and duplicative federal training investments.", "We provided a draft of this report to the departments of OPM, DHS, DOE, DOI, and VA for review and comment. OPM commented on our five recommendations to their agency, concurring with one recommendation, partially concurring on three recommendations and not concurring with a portion of one recommendation. OPM’s official comments are reprinted in appendix IV. OPM, DOI, and VA provided technical comments, which we incorporated into our report, as appropriate. DOE and DHS had no comments.\nOPM partially concurred with our first recommendation that it should provide in existing or new guidance information on prioritizing federal training investments agency-wide and factors agencies should consider for comparing the merits of different delivery mechanisms. OPM stated that its publications mentioned in our report already provide guidance on necessary steps and specific factors agencies should consider when prioritizing training investments. However, none of the guides that we obtained or that OPM provided for our review contain a specific discussion about ranking training investments based on key factors that should be considered, such as expected demand for the investment from internal sources, availability of resources to support the effort, potential for increased revenue, risk of unfavorable consequences if investments are not made or the potential to improve efficiency. OPM stated that, as part of its effort to revise the Human Capital Assessment Framework resources that it provides to agencies, OPM plans to include tools and guidance on steps agencies can take to prioritize learning investments as part of its strategic human capital planning. We did not change our recommendation, which is based on OPM’s current guidance and assistance. OPM’s reported future plan to provide more specific guidance on prioritization has the potential to address our recommendation, when implemented. OPM also agreed to provide further guidance regarding what steps agencies should take and what factors they should consider in comparing the merits of different delivery mechanisms and determining the mix of mechanisms to use to ensure efficient and cost-effective delivery of federal training.\nOPM did not concur with the portion of our second recommendation regarding working with the CHCO council to improve the reliability of agency training investments by developing a common definition of what should be documented as training. OPM stated that the definition of training is clearly stated in 5 U.S.C Chapter 41 and OPM’s Draft Training Policy Handbook and Guide for the Collection and Management of Training Information outlines which training events should be documented as training and reported to OPM. Consequently, OPM recommended that we delete this task for OPM. OPM’s Guide for the Collection and Management of Training Information states that all courses, workshops and conferences paid for by the government; all federally mandated training; and, all agency required training should be reported to OPM’s EHRI system. It further states that agencies do not have to report training that occurs spontaneously or casually/incidentally (e.g., reading a book, having a discussion, web casts, briefings, etc.); training that has no specified training goals; training where there are no ways to evaluate if the training improved knowledge, skills, abilities or competencies; and, training that was not paid for by the government. We agree that this guidance should assist agencies in knowing which training to track and report, and therefore have removed this task from the recommendation. However, given the concerns raised by officials in our case example agencies regarding inconsistencies in whether conferences and other trainings are actually tracked, and recent events regarding spending at such training, we modified our recommendation to suggest that OPM work closely with CHCOs to ensure that this guidance is followed as it addresses the other actions we recommend to improve reliable reporting. OPM concurred with the other actions identified in the recommendation which included working with the CHCO council to: develop policies to strengthen the utilization of Standard Form-182 to document and report training costs; encourage agencies through guidance and technical assistance, to develop policies that require consistent reporting of training data to their learning management systems; and encourage each agency to assess its existing training information system(s) and identify whether it is providing complete and reliable data and, if not, to develop approaches to improve the system(s), in order to do so.\nOPM partially concurred with our third recommendation that it should provide regular report summaries to agencies on EHRI training investment data and its reliability, in order to improve the transparency and reliability of federal training investment data. OPM stated that it will provide regular summaries to agencies on the training investment data submitted to OPM to improve transparency. However, OPM stated that these summaries will not directly lead to improved reliability of the data because agencies must take action to improve the data in order to have an effect on data reliability. OPM also noted that agencies currently have the option of working with OPM to secure a subscription to Business Objects—a reporting tool that will allow agencies to run reports of the data they have provided to OPM and determine whether those data accurately reflect what is occurring in their agencies. OPM recommended that we revise our recommendation to read, “Provide regular report summaries to agencies on EHRI training investment data in order to improve the transparency of federal training investment data.” We agree that agencies are ultimately responsible for making changes to their data to improve its reliability. However, OPM plays an important role in the first step of that process by reporting the current information that it has, so that agencies can make corrections. We believe that this recommendation along with our prior recommendation on steps OPM and CHCOs can take to improve reliability will contribute to improving the transparency and reliability of agency training data. Therefore, we did not make changes to this recommendation.\nOPM concurred with our fourth recommendation that it should counsel heads of agencies and other agency officials on the improvement of training; assist agencies in developing sound programs and financial plans for training; and provide advice, information, and assistance to agencies on planning and budgeting training programs using EHRI data, once federal training data reliability has been sufficiently improved. OPM stated that it will consult with agencies on possible improvements and assistance on planning training programs once federal training data are reliable.\nOPM partially concurred with our fifth recommendation that it should, in collaboration with the CHCO and CLO Councils, identify the best existing courses that fulfill government-wide training requirements, such as mandatory Equal Employment Opportunity training, or training in common federal occupations, such as basic training in financial management, and offer them to all agencies through HR University or another appropriate platform to reduce costly and duplicative federal training investments. OPM stated that it agrees and is already collaborating with the CHCO and CLO Councils to identify, collect, and share existing mandatory courses that fulfill government-wide training requirements (e.g., Plain Writing, Telework. USERRA, Veterans Employment, Constitution Day) through HR University or on OPM’s Federal Training and Development Wiki. Therefore, OPM recommended that we revise the recommendation to recognize that the expansion of mandatory training by HR University would be a continuation of efforts they have started. We have revised the recommendation to reflect this comment.\nWe are sending copies of this report to the Director of OPM. In addition, this report will be available at no charge on the GAO website at www.gao.gov. If you have any questions about this report, please contact me at 202-512-2717 or jonesy@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix V.", "To better understand how federal training investment decisions are made and whether improvements are needed, you asked us to review the methods that agencies are using to establish their training investment strategies and Office of Personnel Management’s (OPM) training investment guidance to agencies. Accordingly, this review assesses the extent to which (1) chief human capital officers (CHCOs) of selected federal agencies have established processes to set and prioritize training investments that are aligned with leading practices; and (2) OPM’s guidance and assistance for developing training investment strategies align with these leading practices.\nFor the purposes of this review, we define the key terms “training”, “development” and “agency-wide” in the following ways:\nTraining is making available to employees planned and coordinated educational programs of instruction in professional, technical, or other fields that are or will be related to the employee’s job responsibilities. Training can be accomplished through a variety of approaches, such as classroom training, e-learning, and professional conferences that are educational or instructional in nature.\nDevelopment is generally considered to include training, structured on-the-job learning experiences, and education. Developmental programs can include experiences such as coaching, mentoring, or rotational assignments.\nAgency-wide includes all components, sub-agencies or offices within a cabinet department or independent agency.\nFor both objectives of the review, we compared OPM and CHCO practices against eight federal training investment leading practices, which are based on our prior studies, other expert studies, and statutory, regulatory, and executive order training requirements. (See table 1 at the beginning of this report). OPM reviewed these criteria and agreed that they are practices that agencies should be implementing to support effective training investment decisions. They also informed us that, while some leading practices are related to training program requirements contained in statutory, regulatory, or executive order provisions, responses to our questions about the leading practices are not an indication of whether agencies are in compliance with these laws and regulations.\nTo obtain government-wide information on agency training investment practices, through a questionnaire on their training investment practices and processes, we obtained high-level information from members of the 27 agencies represented on the CHCO Council. We provided a standard set of questions to each CHCO to ensure we consistently captured their responses to our questions on their training investment practices. We then analyzed the results of the questionnaire to identify the main themes and develop summary findings. Two of our analysts conducted this analysis, placed CHCO responses into categories, and tallied the number of responses in each category. A third analyst traced the responses back to the original questionnaire and verified the appropriate categorization of CHCOs’ responses. To characterize CHCOs views throughout this report, we defined modifiers (e.g., “many”) to quantify users’ views as follows: “nearly all” users represents 23 to 27 users, “most” users represents 18 to 22 users, “many” users represents 13 to 17 users, “several” users represents 8 to 12 users, “some” users represents 3 to 7 users, and “few” users represents 0 to 3 users.\nTo obtain additional perspective and insights on the training investment practices identified in the questionnaire, we discussed the responses with CHCO and chief learning officers (CLO) councils. In addition, based on the responses to the questionnaire and workforce size, we selected four agencies (the Department of Homeland Security, Department of Veterans Affairs, Department of the Interior, and Department of Energy) from which to obtain illustrative examples of how they implemented the training investment practices identified in the questionnaire. (See table 6 for selection traits). As part of our review of agency practices, we also obtained information on the steps that agencies are taking to identify and prioritize investment allocations for training required to implement the GPRA Modernization Act of 2010 (GPRAMA).\nTo identify and assess OPM’s oversight and guidance to agencies on training investment strategies, we reviewed OPM training guidance, relevant documentation on forums, workshop or other assistance, and oversight activities. In addition, we interviewed officials from OPM offices with primary responsibility for providing training policy guidance and technical assistance to agencies. We compared this information to the leading practices identified in table 6. We also identified and described the steps, that OPM has taken to identify the skills and training needed to implement performance management improvements, such those required by GPRAMA, as a foundation for future agency training investments. However, we did not assess the effectiveness of OPM’s efforts to identify GPRAMA-related skills and actions to develop related training Based on information obtained from agencies and OPM, we assessed which leading training investment practices were being implemented by agencies and addressed by OPM guidance and assistance. We also identified the challenges or limitations reported by agencies to implementing the practices, and opportunities for improvement in agency processes and related OPM guidance.\nWe conducted this performance audit from December 2011 to September 2012, in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.", "Exec. Order No. 11348, section 303(e) requires agency heads to establish priorities for needed training, and provide for the use of funds and man-hours in accordance with these priorities. 5 C.F.R. § 410.201(c), in implementing the E.O., requires agency heads (or designee(s)) to establish priorities for training employees and allocate resources according to those priorities.\nThere are no statutory, regulatory, or Executive Order requirements directly related to this practice.\nThere are no statutory, regulatory, or Executive Order requirements directly related to this practice.\nThere are no statutory, regulatory, or Executive Order requirements directly related to this practice.\nThere are no statutory, regulatory, or Executive Order requirements directly related to this practice.\n6. Agencies should track the cost and delivery of its 5 U.S.C. 4118 authorizes OPM to prescribe regulations—and in doing so—to specifically provide for the maintenance of necessary information concerning the general conduct of the training activities of each agency, and such other information as is necessary “to enable the President and Congress to discharge effectively their respective duties for supervision, control and review of these training programs.” The submission of reports by agencies on results and effects of training programs and plans and economies resulting therefrom, including estimates of costs of training. 5 C.F.R. § 410.601(a) requires agencies to maintain records of training plans, expenditures, and activities in such form and manner as necessary to submit to OPM. Subsection (b) provides that beginning December 31, 2006, agencies are to report training data at such times and in such form as required for OPM’s government- wide Electronic Data Collection System.\nAgencies should evaluate the benefits achieved through training and development programs, including improvements in individual and agency performance 5 U.S.C . § 4103(c) requires the head of an agency to evaluate, on a regular basis, each program or plan established, operated, or maintained under subsection (a)\nThere are no statutory, regulatory, or Executive Order requirements directly related to this practice.\nThese key training investment practices are part of the framework outlined in the GAO’s guide GAO, Human Capital: A Guide for Assessing Strategic Training and Development Efforts for the Federal Government, GAO-04-546G (Washington, D.C.: March 2004). This guide summarizes attributes of effective training and development programs and it is based on the GAO analysis of prior work, other related expert studies, and federal training requirements. 5 USC 4103(a) requires agency head to establish, operate, maintain, and evaluate a program or programs, and a plan or plans there under, for the training of employees.", "", "", "", "", "In addition to the contact named above, William Doherty (Assistant Director), Latesha Love, Angela Leventis, and Karin Fangman made key contributions to this report. Also contributing to this report were Benjamin Crawford, Eric Gorman, and Natalie Maddox." ], "depth": [ 1, 1, 2, 3, 2, 1, 2, 2, 1, 1, 1, 1, 1, 1, 1, 1, 2, 2 ], "alignment": [ "", "h0_full h1_title", "h0_full h1_title", "h1_full", "h0_full", "h2_title h1_full", "", "h2_full h1_full", "h0_full h1_full", "", "h3_full", "h2_full", "", "", "", "", "", "" ] }

{ "question": [ "What how have CHCOs dealt training delivery?", "Why are some CHCOs not implementing certain practices?", "What information is lacking, according to the CHCOs?", "How does this affect federal agencies?", "To what extent do CHCOs track training costs?", "What is included in the role of the OPM?", "Why might there be limited guidance to some agencies?", "To what extent do agencies track training investment data?", "How well do OPM officials assess this data?", "How could OPM help agencies improve their investments?", "What opprotunities have emerged regarding redundancy?", "How does HR University serve as a model of such savings?", "What is the relationship between OPM and agency CHCOs?", "Why did GAO examine the CHCOs of selected federal agencies and the OPM?", "What was included in the GAO's report?", "How were the CHCO and OPM practices further examined?", "What are all the aspects of GAO's recommendation for the OPM?", "How did the OPM respond to the GAO's recommendation?", "How did other groups respond?" ], "summary": [ "Many Chief Human Capital Officers (CHCOs) reported that they are implementing several leading practices important to making strategic decisions about training delivery, such as determining the best mix of decentralized and centralized training and considering government-wide reform when planning training.", "However, many CHCOs reported they are not implementing some practices that support making more cost-effective training investment decisions, such as prioritizing training so that the most important needs are met first and evaluating the benefits of training.", "In addition, many CHCOs do not have information from component or sub-agency leaders regarding their level of investments and priorities.", "Consequently, some agencies are duplicating internal across their agencies. Federal agencies also need reliable information on how much they spend on training and for what purposes.", "However, several CHCOs reported they do not completely and reliably track training costs agency-wide.", "The Office of Personnel Management (OPM) provides guidance and assistance to agencies on a number of the leading practices, such as evaluating the benefits of training in three of its guides and in workshops.", "In some practice areas thatare challenges to agencies, such as prioritization of investments and determining whether to design training and development programs in-house or obtain these services from a contractor, guidance is minimal or absent.", "OPM also requires agencies to submit training investment data and provides guidance on how to do so, but considers this data to be unreliable because it is incomplete.", "However, OPM officials have not internally assessed improvements in the completeness of the data over the last 3 years or the quality of the data in the six years that agencies have been required to submit it, and have only provided agencies with one summary of their data for correction.", "Agencies and OPM reported there are also opportunities for OPM to help agencies reduce duplicative investments across agencies. For example, currently, agencies independently purchase or develop training for the same mandated or common occupational training.", "Agency leaders and OPM recognize that this has led to redundant and inefficient federal training investments. Several agencies and OPM officials reported that HR University could be expanded to provide mandatory training and serve as a model for centralizing training in other occupations or functional areas, which could save millions more and help standardize training.", "According to OPM officials, HR University—which is a website currently administered by OPM to provide training for the HR community—has already resulted in a cost savings of $14.5 million as a result of sharing the best HR training government-wide. Several agencies and OPM officials reported that HR University could be expanded to provide mandatory mtraining and serve as a model for centralizing training in other occupations or functional areas, which could save millions more and help standardize training.", "OPM and agency CHCOs play an important role in ensuring that federal training dollars are invested effectively.", "GAO was asked to review the extent to which: (1) CHCOs of selected federal agencies have established processes to set and prioritize training investments that are aligned with leading practices; and (2) OPM’s guidance and assistance for developing training investment strategies align with these leading practices.", "GAO obtained information from 27 CHCOs on their training investment practices through a questionnaire, and selected four agencies—the Departments of Energy (DOE), Homeland Security (DHS), the Interior (DOI) and Veterans Affairs (VA)—to provide illustrative examples.", "We compared both CHCO and OPM practices to leading practices, identified through past GAO and expert studies.", "GAO recommends, among other things, that OPM improve guidance and assistance to agencies in establishing a process for setting and prioritizing training investments; improve the reliability of agency training investment information; and identify the best existing courses that fulfill governmentwide training requirements, and offer them to all agencies through the HR University or other appropriate platforms.", "OPM fully or partially concurred with four recommendations and did not concur with a portion of another.", "OPM, DOI and VA provided technical comments, which GAO incorporated, as appropriate, into the report. DOE and DHS had no comments." ], "parent_pair_index": [ -1, 0, 0, 2, 2, -1, -1, -1, 2, -1, 4, 4, -1, -1, -1, -1, -1, -1, 1 ], "summary_paragraph_index": [ 1, 1, 1, 1, 1, 2, 2, 2, 2, 2, 2, 2, 0, 0, 0, 0, 3, 3, 3 ] }

{ "title": [ "Background", "Commission’s Programs and Funding", "Inspector General’s Role and Responsibilities", "OIG Budgeted Resources, Expenditures, and Work Products", "OIG Budgeted Resources and Actual Expenses", "Commission OIG’s Reported Work Products", "OIG Provided Limited Oversight of the Commission’s Major Programs and Operations", "OIG Conducted Limited Inspections of the Commission’s Programs", "OIG Oversaw the Commission’s Annual Financial Statement Audit but Did Not Conduct Audits or Investigations of Commission Programs", "OIG Did Not Have Documented Policies and Procedures for Office Operations and Management, and Its Work Products Did Not Fully Adhere to Professional Standards", "Policies and Procedures for OIG Office Operations and Management Were Not Documented and Did Not Fully Adhere to Professional Standards", "OIG Inspection and Semiannual Reports Generally Did Not Fully Adhere to Professional Standards", "OIG Inspection Policies and Procedures and Inspection Reports Did Not Generally Adhere to CIGIE Standards", "Standards Not Included in the OIG’s Policies and Procedures for Inspections", "Standards Included in the OIG’s Policies and Procedures for Inspections", "OIG Did Not Include Some Required Information in Its Semiannual Reports to the Congress", "Alternate IG Oversight Structures at Other Federal Agencies", "Consolidation into a Larger IG Office", "Consolidation with a Regional Commission OIG", "Divide OIG Oversight Responsibilities", "Conclusions", "Recommendations for Executive Action", "Agency Comments", "Appendix I: Objectives, Scope, and Methodology", "Appendix II: Comments from the Denali Commission", "Appendix III: GAO Contact and Staff Acknowledgments", "GAO Contact", "Staff Acknowledgments" ], "paragraphs": [ "The Commission acts as a regional partner with state and local governments focusing on basic infrastructure needs and promoting economic growth for rural Alaska. Since the Commission’s inception in 1998, programs focused on developing transportation, energy, health facilities, economic development, training, and community facilities have received funding for infrastructure projects and to promote economic growth. Although congressional priorities have changed recently, as have funding levels, four major programs—energy, transportation, health facilities, and training—continued to receive grant funds. The Commission has historically received federal funding from several sources, including an annual appropriation, and is a party to allocation transfers with other federal agencies, such as transfers from the Federal Highway Administration under the Department of Transportation (DOT). The Commission also receives funds from the Trans-Alaska Pipeline Liability Fund.", "The Commission implements its major programs and operations by awarding grants for implementing specific projects in rural Alaska.\nIn fiscal year 2013, the Commission’s energy program—which is focused on bulk fuel storage tank upgrades; community power generation and rural power systems upgrades; energy cost reduction projects; renewable, alternative, and emerging energy technologies; and power line interties—received approximately $14 million in federal funding, or 78 percent of the Commission’s budgetary authority. The purpose of the program is to provide code-compliant bulk fuel storage and electrification with a goal of improving energy efficiency and decreasing energy costs. In fiscal year 2013, the energy program funded the completion of three bulk fuel facilities, two rural power system upgrades, energy efficiency upgrades in 13 communities, and one emerging energy technology project.\nThe transportation program divides funds between the roads and waterfront components of the program. One major objective of the roads component is to improve roads between rural communities. The waterfront component addresses port and harbor needs, such as regional port reconstruction and boat launch ramp construction. Since its establishment in fiscal year 2005, the transportation program has completed 86 road projects and 97 waterfront development projects. In addition, the Commission reported that as of March 2014, 24 road and waterfront development projects were in the planning, design, or construction phase. The transportation program was not included in the fiscal year 2013 Commission budget; however, approximately $15 million in previously awarded program grants were disbursed in fiscal year 2013.\nThe health facilities program provides technical assistance as well as business planning for the facilities. This program was initially established to improve Alaska’s health infrastructure through investments in renovations, repairs, and replacement of health facilities. Since the program’s inception in fiscal year 1999, the Commission reported that in conjunction with the Department of Health and Human Services, it has contributed to 140 primary care clinics, 20 elder supportive housing facilities, 49 primary care projects, and 20 behavioral health facilities. The health facilities program was not included in the fiscal year 2013 Commission budget; however, approximately $7 million in previously awarded program grants were disbursed in fiscal year 2013.\nThe training program was established to provide training and employment opportunities to rural residents employed in the construction, maintenance, and operation of Commission projects. Program funds paid for courses, books, tools, tuition, lodging, and transportation. In fiscal year 2013, the Commission reported that 137 people completed training courses or received certificates in construction, maintenance, and operation of Commission projects; 53 obtained certificates in construction education; and 17 were placed in construction apprenticeships. In addition, the Commission partnered with the University of Alaska to assist 402 students in completing course work in community health aide, dental assistance, medical office/health care reimbursement, and medical lab-related skills. The training program was not included in the fiscal year 2013 Commission budget; however, approximately $1 million in previously awarded program grants were disbursed in fiscal year 2013.", "The IG Act establishes that one of the primary responsibilities of a federal agency’s OIG is to keep the agency head and the Congress informed about problems and deficiencies related to the administration of the agency’s programs and operations, corrective actions needed, and the progress of those corrective actions. The IG Act created independent IG offices at major departments and agencies with IGs who are appointed by the President, are confirmed by the Senate, and may be removed only by the President with advance notice to the Congress stating the reasons. In 1988, the IG Act was amended to establish IG offices in DFEs. OIGs of DFEs have many of the same authorities and responsibilities as the OIGs originally established by the IG Act, but with the distinction that IGs are appointed by and may be removed by their agency heads rather than by the President and that their appointment is not subject to Senate confirmation.\nThe IG Act addresses the qualifications and expertise of the IGs, specifying that each IG appointment is to be made without regard to political affiliation and solely on the basis of integrity and demonstrated ability in accounting, auditing, financial analysis, law, management analysis, public administration, or investigation. The fields in which an IG can have experience are intended to be sufficiently diverse so that many qualified people could be considered but are also limited to areas relevant to the tasks considered necessary.\nThe Inspector General Reform Act of 2008 (Reform Act) amended the IG Act by adding requirements related to OIG independence and effectiveness. The Reform Act includes a provision intended to provide additional OIG independence through the transparent reporting of OIG budget requests. This provision requires an agency’s submission for the President’s budget to separate the OIG’s budget request from the agency’s and include any comments provided by the OIG with respect to the proposal.\nThe Dodd-Frank Wall Street Reform and Consumer Protection Act of specifying that for 2010 (Dodd-Frank Act) further amended the IG Act, DFEs with a board or commission, the board or commission is the head of the DFE for purposes of IG appointment, general supervision, and reporting under the IG Act. Furthermore, if the DFE has a board or commission, the IG Act requires the OIG to report organizationally to the entire board or commission as the head of the DFE. In addition, the Dodd-Frank Act requires the written concurrence of a two-thirds majority of the board or commission to remove an IG. Prior to this provision, most OIGs at commission or board led DFEs reported to, and were subject to removal by, the individual serving as head of the commission or board.", "", "Our analysis of the budget information provided by the Commission’s Chief Financial Officer (CFO) showed that the Commission allocated budgetary funds for the OIG of approximately $1 million over the 3-year period from fiscal years 2011 through 2013. The total budgetary resources of the Commission OIG increased from fiscal years 2011 through 2013, from $310,000 to $331,000, for an increase of about 7 percent (see fig. 1). During this 3-year period, the OIG consisted of one full-time employee, the IG, who obtained additional support through contracts with both auditors and others to assist with his oversight responsibilities, such as interviews related to ongoing inspections, and to mediate disputes between Commission officials and grant recipients regarding grant payments. Based on the budget and expenditure information we received from the Commission, we found that during fiscal years 2011 through 2013, the OIG spent an average of 84 percent per fiscal year of the budgetary resources provided to his office. The Commission reported that the budgeted amounts not used by the OIG within the fiscal year to which they were allocated were returned to the Commission and were available for the Commission’s use. The OIG did not carry over unused funding into the next fiscal year.\nOur review of the OIG’s use of the resources provided in fiscal years 2011 through 2013 showed that about 59 percent of the OIG’s annual budget was for salary and benefits for the IG. The rest of the annual budget was for the Commission’s annual financial statement audit (13.4 percent), travel (12.4 percent), other contract services (11.7 percent), training (3.1 percent), supplies (0.3 percent), and the CIGIE assessment (0.2 percent). (See fig. 2.)", "During fiscal years 2011 through 2013, the Commission OIG issued six semiannual reports to the Congress, as required by the IG Act, and conducted 12 inspections. The 12 inspections conducted by the Commission OIG reviewed various issues, such as management policies and practices and compliance with applicable laws. The OIG did not perform any audits or investigations. The IG told us that for the 12 inspections he conducted, he used the following methods to communicate the results of completed inspections: written inspection reports available on the OIG’s website, inspection results included in the semiannual reports to the Congress, and inspection results included in the Commission’s annual agency financial reports (see fig. 3).", "During fiscal years 2011 through 2013, the OIG provided limited oversight of the Commission’s major programs and operations. Per the IG Act, OIG oversight includes assessing the effectiveness and efficiency of agency programs and operations; providing leadership and coordination to detect fraud and abuse; and making recommendations to management to promote the economy, efficiency, and effectiveness in the administration of these programs. It also includes providing a means for keeping the head of the agency and the Congress informed about problems and deficiencies relating to program administration and agency operations and the necessity for, and progress of, corrective action. The 12 OIG inspections provided oversight of less than 1 percent of the total grant dollars the Commission awarded during fiscal years 2011 through 2013. The OIG contracted with an independent public accountant (IPA) to conduct the Commission’s annual financial statement audit but did not follow up on the IPA’s concerns related to grant monitoring.\nFurthermore, the OIG did not have a risk-based annual work plan or policies and procedures to identify the Commission’s major programs and operations that needed OIG oversight. Without adequate OIG oversight of the Commission’s programs and operations, including grants, the OIG is unable to reasonably ensure accountability over federal funds. The OIG is also limited in its ability to minimize the Commission’s risk of fraud, waste, and abuse occurring in its major programs and operations.", "The Commission’s OIG oversight covered a small percentage of the Commission’s programs. During fiscal years 2011 through 2013, the Commission’s major programs were energy, transportation, health facilities, and training. These programs represent approximately 84 percent of funds granted by all Commission programs. According to the Commission’s CFO, during fiscal years 2011 through 2013, the agency awarded grants totaling $56 million and disbursed $167 million on both new and previously awarded grants.\nOur analysis of the 12 inspections completed by the OIG over that period found that 5 of these inspections focused on the Commission’s grant administration and 7 focused on the agency’s operations. Of the 5 grant- related inspections, only 2 of these inspections clearly identified specific grant amounts disbursed by the Commission that were examined by the OIG. In these 2 inspections, the OIG provided oversight for $150,000 of grant funds disbursed for training programs, all of which were reported in fiscal year 2012. The $150,000 of grant funds inspected by the OIG represented less than 1 percent of the total grants awarded by the Commission during fiscal years 2011 through 2013. We found that 3 of the OIG’s inspection reports examined various complaints and issues related to the grants process, such as assessing whether a grant applicant was improperly denied a subaward (grant preaward stage), assessing whether certain agency policy resulted in the unfair treatment of a grantee (grant implementation stage), and determining whether a grantee was treated unfairly because of a specific Commission policy and legal requirements that were attached to a grant (grant implementation stage). However, the OIG did not conduct any inspections that assessed the effectiveness and efficiency of the agency’s other major programs— energy, transportation, and health facilities—or make recommendations to management promoting the economy, efficiency, and effectiveness in the administration of these programs, which is one of the major OIG goals established in the IG Act.\nThe other 7 inspections completed by the OIG over that period focused on (1) whether agency operations complied with applicable laws and regulations, (2) the Commission’s authority for accepting funds from nonfederal sources, and (3) potential agency restructuring.\nAccording to the IG, his workload was driven by requests from four sources: the Federal Cochair, aided by the CFO; Office of Management and Budget (OMB) officials; the House Committee on Oversight and Government Reform; and three Senate Oversight Committees (Finance, Budget, and Homeland Security and Governmental Affairs). The training grants he inspected were based on referrals from the Federal Cochair.\nUnder the IG Act, OIGs are responsible for coordinating audits and investigations. Further, OIGs are required by the IG Act to adhere to professional standards developed by CIGIE, to the extent permitted by law and not inconsistent with applicable auditing standards. The Commission OIG’s primary vehicle for oversight was the inspection. CIGIE’s Quality Standards for Inspection and Evaluation defines an inspection as a systematic and independent assessment of the design, implementation, or results of an agency’s operations, programs, or policies. The inspection function at each agency is tailored to its unique mission; is not overly prescriptive; and may be used by the agency to provide factual and analytical information, measure performance, identify savings and funds put to better use, or assess allegations of fraud, waste, abuse and mismanagement. The Commission OIG’s policies and procedures for inspections specifically stated that the Commission OIG “will conduct its interviews of agency issues through an ‘inspection’ methodology that conforms to the CIGIE quality standards for that procedure.”12 inspections.", "As part of its oversight duties, the OIG is responsible for selecting and overseeing the IPA responsible for performing the Commission’s annual financial statement audit. These responsibilities include providing technical advice, serving as the agency liaison to the IPA, and ensuring that the audit was completed timely and in accordance with generally accepted government auditing standards. As the agency’s Contracting Officer’s Technical Representative (COTR) for the Commission’s annual financial statement audit, the IG developed detailed policies and procedures and completed a detailed audit monitoring plan documenting the OIG’s oversight activities. The IG also reviewed the IPA’s workpapers at key phases during the audit process to determine whether the fieldwork completed supported the IPA’s conclusions. We found that the OIG had practices in place to effectively monitor the annual financial statement audit conducted by the IPA.\nIn fiscal years 2011 through 2013, the IPA reported several concerns to the Commission about the agency’s grants monitoring activities. A sample of grant-funded projects reviewed by the IPA found that the Commission did not (1) have a follow-up process to determine whether grants were used as intended; (2) include the review of the grantee’s single audit reports as part of its grants monitoring practices; (3) review past performance (and current status of previous projects) to ensure that the grant was used as intended, prior to approval of new grants; and (4) assess the extent to which it could recapture grant amounts from grantees as a result of substantial changes in the use of these grants. Although the OIG effectively monitored the IPA performing the Commission’s annual financial statement audit, we found that the OIG did not focus its oversight efforts after the audit had been completed to ensure that the Commission addressed the IPA’s concerns with the agency’s grants monitoring practices.\nWe found that the OIG issued inspections related to some of the Commission’s major programs and operations; however, the OIG did not conduct any performance audits related to these same programs and operations. There are fundamental differences between inspections and audits. Inspections are narrower and more focused in scope than audits and they are also significantly less rigorous than an audit conducted in accordance with Government Auditing Standards. Audits provide essential accountability and transparency over government programs.\nAccording to the IG, he leveraged his resources (one full-time employee) to do the most good. The IG stated that his office was not staffed at a level that would support audits; he decided inspections were an effective method for leveraging what he had and responding to very specific issues that were often complaint driven. However, because the OIG did not conduct audits of the agency’s programs and operations, the Commission did not have the benefit of the broader scope and more rigorous standards of audits to help ensure effective grant oversight, accountability for grant funds, and the proper use of taxpayer dollars.\nWe also found that the OIG did not conduct investigations. OIG investigations help federal agency managers strengthen program integrity and use funds more effectively and efficiently. Investigations vary in purpose and scope and may involve alleged violations of criminal or civil laws as well as administrative requirements. The focus of an investigation can include the integrity of programs, operations, and personnel in agencies at federal, state, and local levels of government. According to CIGIE’s Quality Standards for Investigations, areas investigated by the OIG may also focus on issues related to procurement and grant fraud schemes; environment, safety, and health violations; benefits fraud; the background and suitability of individuals for employment or a security clearance designation; whistle-blower retaliation; and other matters involving alleged violations of law, rules, regulations, and policies. Some investigations address allegations of both civil and criminal violations, ranging in significance from a misdemeanor to a felony, while others could involve administrative misconduct issues. CIGIE’s Quality Standards for Investigations also state that investigations can lead to criminal prosecutions and program exclusions; recovery of damages and penalties through criminal, civil, and administrative proceedings; and corrective management actions. Without conducting investigations, the Commission OIG was limited in its ability to identify criminal, civil, and administrative activities of fraud or misconduct related to Commission programs and operations.", "Our review of the OIG’s policies and procedures in place during fiscal years 2011 through 2013 found that the OIG did not document its policies and procedures for its management and operations as an OIG. CIGIE’s Quality Standards for Federal Offices of Inspector General sets forth the overall quality framework to which OIGs must adhere, to the extent permitted under law. Although the OIG did not document its policies and procedures for managing and operating its office, we identified some quality standards that were implemented, while others were not.\nOur review of the OIG’s inspections issued during fiscal years 2011 through 2013 found that the inspections did not fully adhere to CIGIE’s Quality Standards for Inspection and Evaluation. While the OIG had documented policies and procedures for inspections, we found that the design and implementation of the inspection policies and procedures did not fully adhere to professional standards. Our review also found that the semiannual reports submitted to the Congress by the IG did not include required information in accordance with the reporting requirements of the IG Act.", "The Commission OIG did not have documented policies and procedures for conducting office operations that adhered to CIGIE’s Quality Standards for Federal Offices of Inspector General. These quality standards are used as guidance by OIGs in the operation of federal OIGs and consist of (1) ethics, independence, and confidentiality; (2) professional standards; (3) ensuring internal control; (4) maintaining quality assurance; (5) planning and coordinating; (6) communicating the results of OIG activities; (7) managing human capital; (8) reviewing legislation and regulations; and (9) receiving and reviewing allegations.\nAlthough the Commission OIG did not document its policies and procedures for its operations and management, we found that the OIG did implement, to some extent, certain standards in CIGIE’s Quality Standards for Federal Offices of Inspector General. Specifically, the Commission OIG implemented, to some extent, the following five quality standards: ethics, independence, and confidentiality; professional standards; communicating results of OIG activities; managing human capital; and reviewing legislation and regulations. However, the Commission OIG did not implement the following four quality standards that are critical for the management and operations of the OIG: planning and coordinating, maintaining quality assurance, ensuring internal control, and receiving and reviewing allegations. The extent to which the IG implemented these quality standards is discussed below.\nEthics, independence, and confidentiality. The CIGIE quality standard for ethics, independence, and confidentiality states that the IG and OIG staff shall adhere to the highest ethical principles by conducting their work with integrity. Objectivity, independence, professional judgment, and confidentially are all elements of integrity.\nWe found no evidence to indicate that the IG did not adhere to CIGIE’s quality standard to ethically conduct his work and no evidence to indicate the IG did not adhere to CIGIE’s quality standards for independently performing his duties. We also found no evidence to indicate that the IG did not safeguard the identity of confidential sources and protect privileged, confidential, and national security or classified information in compliance with applicable laws, regulations, and professional standards.\nProfessional standards. The CIGIE quality standard for professional standards states that each OIG shall conduct, supervise, and coordinate its audits, investigations, and inspections in compliance with applicable professional standards. We found that the Commission OIG provided some evidence for adhering to professional standards. Although the Commission OIG’s inspection reports did not always adhere to CIGIE’s Quality Standards for Inspection and Evaluation, we found that the IG did complete inspections. Also, the OIG’s monitoring of the contract with the IPA hired to conduct the Commission’s annual financial statement audit documented the OIG’s detailed oversight and coordination of this agency requirement, providing evidence of adherence to Government Auditing Standards.\nEnsuring internal control. The CIGIE standard for ensuring internal control states that each IG and OIG staff shall direct and control OIG operations consistent with Standards for Internal Control in the Federal Government. These standards require that internal control be part of the OIG’s management infrastructure, serve as a continuous built-in component of operations effected by people, and provide reasonable assurance that the OIG’s objectives are met. The internal control structure includes the control environment, risk assessment, control activities, information and communication, and monitoring. Control activities are policies, procedures, techniques, and mechanisms that help ensure that the OIG’s directives are carried out.\nEffective internal control also assists the OIG in managing change to cope with shifting environments and evolving demands. An internal control structure is continually assessed and evaluated to ensure that it is well designed and operated, is appropriately updated to meet changing conditions, and provides reasonable assurance that objectives are being achieved. The OIG should design internal control activities to contribute to its mission, goals, and objectives. Specifically, control activities include a wide range of diverse activities, such as approvals, authorizations, verifications, reconciliations, performance reviews, security activities, and the production of records and documentation.\nWe found that the Commission OIG lacked critical elements of an effective internal control structure. For example, the OIG did not conduct a risk assessment to determine which agency programs or operations to evaluate. Instead, the IG relied on the input from Commission officials and congressional staff to determine which programs and operations to evaluate. The OIG also lacked policies and procedures for managing and operating its office, which would have provided the needed guidance to ensure that the OIG’s directives were carried out efficiently and effectively. While we acknowledge that the OIG is an office of one, independently determining which programs or agency operations to evaluate as well as developing policies and procedures for the OIG’s management and operations are elements of internal control that are still achievable by a small office. Without an effective internal control structure, it is difficult for an OIG to ensure its own effective and efficient management and operations and safeguard its assets.\nMaintaining quality assurance. The CIGIE standard for maintaining quality assurance states that each OIG shall establish and maintain a quality assurance program to ensure that work performed adheres to established OIG policies and procedures; meets applicable professional standards; and is carried out economically, efficiently, and effectively. Because OIGs evaluate how well agency programs and operations are functioning, they have a special responsibility to ensure that their own operations are as effective as possible. The OIG quality assurance program is an evaluative effort conducted by reviewers external to the units or personnel being reviewed to ensure that the overall work of the OIG meets appropriate standards. The quality assurance program has an internal and an external component. Furthermore, organizations that perform audits are subject to a peer review at least once every 3 years. Audits performed in accordance with Government Auditing Standards must provide reasonable assurance that the audit organization and its personnel are consistent with professional standards and applicable legal and regulatory requirements.\nInternal quality assurance reviews can include reviews of all aspects of the OIG’s operations and are distinct from regular management and supervisory activities, comparisons, and other activities by OIG staff performing their duties. External quality assurance reviews provide OIGs with added assurance regarding their adherence to prescribed standards, regulations, and legislation through a formal objective assessment of OIG operations. OIGs are strongly encouraged to have external quality assurance reviews of audits, investigations, inspections, evaluations, and other OIG activities. While the nature and extent of an OIG’s quality assurance program depends on a number of factors—such as the OIG size, the degree of operating autonomy allowed its personnel and its offices, the nature of its work, its organization structure, and appropriate cost-benefit considerations—CIGIE standards state that each OIG shall establish and maintain a quality assurance program.\nThe Commission OIG did not have a quality assurance program and had not developed policies and procedures to help ensure quality assurance. The Commission IG told us that peer reviews were only required if an OIG had conducted audits, and because his office did not perform audits, it was not subject to this quality assurance requirement. Conversely, the Commission OIG inspection and semiannual reports could have been subjected to an internal quality assurance review, an external quality assurance review, or both. The Commission OIG provided draft inspection and semiannual reports to the Federal Cochair and the other commissioners, providing management an opportunity to comment on the drafts prior to final issuance. However, the Federal Cochair and commissioners do not qualify as external quality assurance reviewers because they are directly involved in the activities or programs being reviewed. In addition, they may not be familiar with applicable professional standards that govern OIG-issued work products.\nWithout documented policies and procedures for maintaining a quality assurance program, the OIG could not ensure that its management and operations adhered to the CIGIE standards or complied with the IG Act. In addition, the risk is significantly increased that issued work will not meet established standards of performance, including applicable professional standards, or be carried out economically, efficiently, and effectively. While we acknowledge that the Commission OIG is an office of one and maintaining quality assurance under these circumstances presents challenges, adherence to this quality standard is required.\nPlanning and coordinating. The CIGIE standard for planning and coordinating states that each OIG shall maintain a planning system assessing the nature, scope, and inherent risks of agency programs and operations. strategic and performance plans, including goals, objectives, and performance measures to be accomplished by the OIG within a specific time period. Some of the elements of the planning process include (1) using a strategic planning process that carefully considers current and emerging agency programs, operations, risks, and management challenges; (2) developing a methodology and process for identifying and prioritizing agency programs and operations as potential subjects for audit, investigation, inspection, or evaluation; and (3) using an annual performance planning process that identifies the activities to audit, investigate, inspect, or evaluate and translates these priorities into outcome-related goals, objectives, and performance measures. Strategic and annual work plans are useful tools in documenting the IG’s strategic vision for providing leadership for activities designed to promote economy, efficiency, and effectiveness for an entity’s programs and operations.\nCouncil of the Inspectors General on Integrity and Efficiency, Quality Standards for Federal Offices of Inspector General (Washington, D.C.: August 2012).\nWe found that the OIG did not prepare an annual work plan or strategic plan. Instead, an informal and undocumented planning process was used by the IG and Federal Cochair that involved routine meetings, e-mails, and conversations. Without an annual work plan or strategic plan, the Commission OIG is limited in its ability to ensure that the oversight it provided was relevant, timely, and responsive to the priorities to the Commission. Further, without a risk-based approach for oversight that includes identifying and prioritizing agency programs and operations as potential subjects for audit, investigation, inspection, or evaluation, the OIG did not have a road map to help guide the general direction and focus of its work to ensure appropriate oversight of the Commission’s major programs.\nCommunicating results of OIG activities. The CIGIE quality standard related to communicating the results of OIG activities states that the OIG shall keep agency management, program managers, and the Congress fully and currently informed about appropriate aspects of OIG operations and findings. The OIG should also assess and report to the Congress, as appropriate, the OIG’s strategic and annual performance, as well as the performance of the agency it oversees. Furthermore, the OIG is responsible for reporting promptly to the Attorney General whenever the IG has reasonable grounds to believe there has been a violation of federal criminal law. The IG and Federal Cochair told us that they did discuss the areas the IG planned to inspect. The OIG communicated the results of its activities by submitting semiannual reports to the Congress, ensuring that inspection reports were available on the OIG’s website, and meeting with congressional staff to discuss various issues.\nManaging human capital. The CIGIE quality standard for managing human capital states that the OIG should have a process to ensure that OIG staff possess the core competencies needed to accomplish the OIG’s mission. Because the Commission OIG consisted of the IG and no staff, standards for managing human capital are applicable only to the Commission IG. The IG provided documentation verifying that as a certified public accountant and attorney in the state of Alaska, he had met the continuing education requirements for these designations and possessed the core competencies needed to accomplish the OIG’s mission.\nBecause the Commission OIG was an office of one, the IG used the services of others to assist with his oversight duties. As discussed earlier, he contracted with an IPA for the agency’s annual financial statement audit and contracted with a retired investigator to assist with inspections.\nWe found that the OIG had a process to ensure that these contractors possessed the needed skills for the services they provided.\nReviewing legislation and regulations. The CIGIE quality standard for reviewing legislation and regulations states that the OIG shall establish and maintain a system for reviewing and commenting on existing and proposed legislation, regulations, and directives that affect both the program and operations of the OIG’s agency or the mission and functions of the OIG. While the OIG had not established a documented system for the steps it followed for reviewing legislation and regulations, we found an assessment of relevant Commission-related legislation and regulations in the OIG’s semiannual reports to the Congress.\nReceiving and reviewing allegations. The CIGIE quality standard for receiving and reviewing allegations states that the OIG shall establish and follow policies and procedures for receiving and reviewing allegations. This process should ensure that appropriate disposition, including appropriate notification, is made for each allegation. Furthermore, the IG Act requires each OIG to establish a direct link on the OIG website for individuals to anonymously report fraud, waste, and abuse.\nThe Commission OIG did not have an OIG hotline link on its website to serve as a mechanism for receiving and reviewing allegations, as appropriate. The IG provided his e-mail address and telephone number on the Commission’s OIG website. He reported that there was no OIG hotline link on the website because the Commission only had about 15 employees and a tip through an OIG hotline was not necessarily how employees made contact with the OIG. According to the IG, contact with the Commission’s small workforce was primarily through e-mails, phone calls, and group teleconferences.\nOIG hotlines exist to elicit information from federal employees, contractors, and the general public that furthers an OIG’s mission to (1) promote effectiveness, efficiency, and economy in its organization’s programs and operations and (2) prevent and detect fraud, waste, and abuse in such programs and operations. Accordingly, hotlines play a critical role in the work of OIGs, because an OIG can only investigate, refer, or otherwise handle matters of which it is aware. Agency employees, contractors, and members of the public who make reports to an OIG via its hotline are an important resource because they can provide the OIG with notification of or insider information about potential problems.\nHotlines have been used in organizations as a means for individuals fearing retaliation to seek remedies for problems anonymously within the organization. In recent years, there has been increased interest in the use of OIG hotlines as the principal mechanism for reporting and detecting fraud, waste, and abuse. Entities both within and outside the IG community have studied OIG hotlines and their important impact on the effectiveness of the IG community. In addition to detecting fraud, waste, and abuse, hotlines are used by some OIGs to identify agency programs or operations as potential subjects for audit or investigation. However, the Commission OIG did not conduct any investigations for criminal prosecution, and there was no supporting evidence of the disposition of referrals or tips received.\nWithout an established OIG hotline, with its protection of anonymity, it may be difficult for agency employees, contractors, and the general public to report insider information about potential problems at the Commission.", "We reviewed the OIG’s work products, which consisted of inspection reports and semiannual reports issued during fiscal years 2011 through 2013, and their associated policies and procedures. Our evaluation of the OIG’s written policies and procedures for inspections found that they did not include guidance for all of the 14 CIGIE inspection standards and that there were deficiencies in the guidance that was included. In addition, we found that the inspection reports the OIG issued during fiscal years 2011 through 2013 did not fully adhere to applicable CIGIE inspection standards. Finally, we found that the semiannual reports issued by the OIG during fiscal years 2011 through 2013 did not fully comply with the reporting requirements per the IG Act.", "CIGIE’s Quality Standards for Inspection and Evaluation promulgates 14 sets of criteria for performing inspections: (1) competency; (2) independence; (3) professional judgment; (4) quality control; (5) planning; (6) data collection and analysis; (7) evidence; (8) records maintenance; (9) timeliness; (10) fraud, other illegal acts, and abuse; (11) reporting; (12) follow-up; (13) performance management; and (14) working relationships and communication. CIGIE inspection standards state that it is the responsibility of each OIG that conducts inspections to develop internal written policies and procedures to ensure that all work adheres to the standards and is in compliance with the IG Act. The IG Act requires OIGs to adhere to these standards to the extent permitted under law and not inconsistent with applicable auditing standards. The Commission OIG had established written policies and procedures that provide guidance for 7 of the 14 CIGIE standards; however, our review of the guidance found deficiencies.\nRegarding implementation of the CIGIE inspection standards, we reviewed the OIG’s 12 inspections reported from fiscal years 2011 through 2013 and found documentary evidence that some CIGIE standards, including some that were not included in the OIG’s policies and procedures, were implemented. However, inspections were not conducted in full accordance with the standards.", "The following standards were not included in the OIG’s policies and procedures but were implemented to some extent in the conduct of inspections.\nData collection and analysis. CIGIE inspection standards state that the collection of information and data focuses on the function being inspected, consistent with inspection objectives and sufficient to provide a reasonable basis for reaching conclusions.\nThe Commission OIG did not have policies and procedures for data collection and analysis that adhered to CIGIE’s standards for inspections. However, the supporting documentation for the inspections we reviewed did have information to support data collection for the inspections. Specifically, we found that 9 of the 12 inspections completed had supporting documentation sufficient in detail for reaching the identified findings in the inspection reports. We also found that the methods used to collect supporting documentation for the inspections were reliable and valid. The supporting documentation collected consisted of source documents such as interview write-ups by the contracted investigator, relevant excerpts from the laws and regulations referenced in the inspection reports, and other information. Supporting documentation for 5 of the 12 inspections showed evidence that the information had been reviewed for accuracy and reliability, and another 4 of 12 inspections showed evidence of partial review by the Commission IG. The remaining 3 inspection reports did not show evidence of supporting documentation being reviewed for accuracy and reliability.\nEvidence. CIGIE’s standards for inspections state that evidence to support findings, conclusions, and recommendations should be sufficient, competent, and relevant and should provide a basis for bringing a reasonable person to the reported conclusions and findings. Furthermore, evidence may take many forms, such as physical, testimonial, documentary, and analytical, which includes computations, comparisons, and rational arguments.\nThe Commission OIG did not have policies and procedures for evidence that adhered to CIGIE’s standards for inspections. Although the OIG’s policy and procedure stated that “the Denali IG’s basic documentation will include the inspection plan, a cross-referenced copy to work papers, and detailed footnotes,” the policy and procedure did not adhere to the CIGIE inspection standard. Additionally, we found no documented evidence in the OIG’s workpapers to support the inspection conclusions and recommendations for its reports. For example, we did not find any workpapers containing the Commission IG’s analysis of the supporting documentation or that linked the Commission IG’s processes or methods used to the reported findings, conclusions, or recommendations for all 12 of the inspection reports we reviewed.\nRecords maintenance. CIGIE inspection standards state that all relevant documentation generated, obtained, and used in supporting inspection findings, conclusions, and recommendations should be retained for an appropriate amount of time.\nThe Commission OIG did not have policies and procedure for records maintenance that adhered to CIGIE’s standards for inspections. Although the Commission OIG’s policies and procedures did not address records maintenance, the OIG did maintain supporting documentation in its workpaper files. We found that the OIG retained documentation for 9 of the 12 inspection reports completed. However, for the 2 inspection reports included in the Commission’s agency financial report, the OIG did not have any workpapers. For the remaining inspection report, the supporting documentation that was maintained was incomplete.\nTimeliness. CIGIE inspection standards state that inspections should strive to deliver significant information to appropriate management officials and customers in a timely manner.\nThe Commission OIG did not have policies and procedures for timeliness that adhered to CIGIE’s standards for inspections. Although the Commission OIG’s policies and procedures did not address timeliness, we found no evidence to suggest that the inspection reports were not in accordance with the timeliness standard. This is based on the time the inspections began and the inspection report dates, which ranged from 1 month to about 2 years.\nFraud, other illegal acts, and abuse. CIGIE standards for inspections state that inspectors should be alert to any indicator of fraud, other illegal acts, or abuse. They also state that inspectors should be aware of vulnerabilities to fraud and abuse associated with the area under review to facilitate identifying potential or actual illegal acts or abuse that may have occurred.\nThe Commission OIG did not have policies and procedures for considering fraud, other illegal acts, and abuse that adhered to CIGIE’s standards for inspections. We also found that the OIG did not conduct a fraud assessment for any of the 12 inspections the OIG conducted.\nFollow-up. CIGIE standards for inspections state that appropriate follow- up will be performed to ensure that any inspection recommendations made to department or agency officials are adequately considered and appropriately addressed.\nThe Commission OIG did not have policies and procedures related to following up on report recommendations to determine whether corrective actions had been taken. We found that the OIG did not perform follow-up for any of the 12 inspection reports. Of the 5 published inspection reports, the OIG did not follow up on the three recommendations made in those reports. In addition, of the 5 inspections mentioned in the OIG’s semiannual reports to the Congress, the OIG did not follow up on the 13 recommendations made as a result of those inspections. The remaining 2 inspections published in the agency financial report did not contain any recommendations.\nPerformance measurement. CIGIE standards for inspections state that mechanisms should be in place to measure the effectiveness of inspection work. CIGIE standards describe the importance of being able to demonstrate the positive results that inspections contribute to the more effective management and operation of federal programs. Performance measures for OIG inspections, for example, could focus on the number of implemented recommendations and outcomes or changes in policy.\nThe Commission OIG did not have policies and procedures related to performance measurement that adhered to CIGIE’s standards for inspections. We also found that the OIG did not establish performance measures to determine the effectiveness of inspections completed.", "The following standards were included in the OIG’s policies and procedures and were implemented to some extent in the conduct of inspections.\nCompetency. CIGIE’s competency standard states that inspection organizations need to ensure that the personnel conducting an inspection collectively have the knowledge, skills, abilities, and experience necessary for the assignment.\nThe Commission OIG’s policies and procedures for competency adhered to CIGIE’s standards for inspections. They state that the Commission IG will, as a condition of employment, maintain his or her competency to multitask as a one-person OIG. In addition, the OIG’s policies and procedures state that the IG will take a minimum of 40 hours of training per fiscal year, which is in accordance with CIGIE standards.\nThe Commission IG was a licensed attorney and certified public accountant, and he provided us documents of his current continuing professional education credits. Thus, we considered the Commission IG’s qualifications to be consistent with CIGIE inspection standards.\nIndependence. The CIGIE inspection standard for independence states that in all matters relating to inspection work, the inspection organization and each individual inspector should be free both in fact and appearance from personal, external, and organizational impairments to independence.\nThe Commission OIG’s policies and procedures adhered to CIGIE inspection standards for independence. They state the Commission IG will maintain strict political neutrality and an appropriate level of social detachment from the Commission’s management and beneficiaries as a critical element of OIG independence. We did not find any impairment, in fact or appearance, with the independence of the Commission OIG.\nProfessional judgment. The CIGIE inspection standard for professional judgment states that due professional judgment should be used in planning and performing inspections and in reporting the results.\nThe Commission OIG’s policies and procedures addressed professional judgment but did not address the broader intent of the CIGIE inspection standard for professional judgment. The OIG’s policy states that it will conduct interviews of agency officials through an inspection methodology that conforms to the CIGIE quality standards for that inspection procedure, which is in accordance with the CIGIE inspection standard for professional judgment. The OIG’s policy only addresses the intent to interview agency officials in accordance with these standards instead of the OIG’s intent to use professional judgment when performing all aspects of inspection procedures. This would include the intent to use professional judgment in selecting the type of inspections to perform, defining the scope and methodology, and determining the type and amount of evidence to gather. In addition, the problems with the OIG’s inspection plans and lack of evidence and analysis in the workpapers, as discussed in this report, are indications that the OIG’s professional judgment did not adhere to CIGIE standards.\nQuality control. CIGIE standard for quality control states that each OIG organization that conducts inspections should have internal quality controls for its processes and work.\nThe Commission OIG’s policies and procedures addressed quality control but did not fully adhere to CIGIE’s inspection standards. The Commission OIG’s policy for quality control states that the OIG will arrange for feedback from an external expert for at least 50 percent of its published reports. However, the Commission OIG did not have procedures established to provide for an independent assessment of its inspection processes or inspection reports. Consequently, none of the 12 inspection reports we reviewed had an independent assessment for quality control completed. While the Commission OIG is an office of one full-time employee, which created challenges in instituting extensive quality control, the IG did not take the necessary steps to mitigate this challenge by implementing control procedures that provide an independent assessment of inspection processes and work.\nPlanning. The CIGIE standard states that inspection planning is intended to ensure that appropriate care is given to selecting inspection topics and should be developed to clearly define the inspection objective, scope, and methodology. It may also include time frames and work assignments. Additionally, the CIGIE inspection standard for planning states that research, work planning, and coordination should be thorough enough to ensure that the inspection objectives are met.\nThe Commission OIG’s policies and procedures addressed planning but did not fully adhere to CIGIE’s inspection standards. We found that the Commission OIG’s policy for planning inspections did not adhere to the CIGIE standards for inspections related to planning. The Commission OIG’s policy for planning states that the basic documentation for an inspection will include (1) an inspection plan, (2) a copy of the report with cross-references to the evidence workpapers, and (3) detailed footnotes in the report itself. This policy does not address the purpose or contents of the plan as described in the CIGIE inspection standard.\nRegarding implementation, we found that the OIG’s inspection plans were not adequately developed. Specifically, we found that none of the 12 inspections included clearly defined descriptions of the objective, scope, and methodology. In addition, 9 of the 12 inspection plans were not planned sufficiently to reach reasonable conclusions about the topic inspected because of a lack of detailed procedures in the inspection plan to perform the inspection. The remaining 3 inspections plans, despite not having documented the objective, scope, and methodology, did have sufficient planned steps to reach reasonable conclusions as reported in the inspection report.\nReporting. The CIGIE standard states that inspection reporting shall present factual data accurately, fairly, and objectively, and present findings, conclusions, and recommendations in a persuasive manner. Additionally, the standard states that inspection reports must include the objective, scope, and methodology of the inspection and a statement that the inspection was conducted in accordance with CIGIE standards for inspection.\nThe Commission OIG’s policies and procedures addressed reporting but did not fully adhere to CIGIE’s inspection standards. The Commission OIG’s policy for reporting states that published inspection reports will emphasize plain language, readability to a nationwide audience, and usefulness to decision makers. However, the OIG’s policies and procedures do not require that reports include the objective, scope, and methodology of the inspection or a statement that the inspection was conducted in accordance with CIGIE standards for inspections. Despite these omissions in the Commission OIG’s policies and procedures, we found that 1 of the 12 inspections clearly listed the objective, scope, and methodology, and 4 of 12 reports stated that the inspection was conducted in accordance with CIGIE standards for inspections.\nWorking relationships and communication. The CIGIE standard for inspections related to working relationships and communication states that each inspection organization should seek to facilitate positive working relationships and effective communication with those entities inspected and other interested parties.\nThe Commission OIG’s policies and procedures adhered to CIGIE’s inspection standards for working relationships and communication. The Commission OIG policy states that its key inspection procedure is management’s feedback regarding the draft report, which the Commission OIG seeks at several levels: (1) oral conversation, (2) e- mailed comments, and (3) a formal response letter for publication with the OIG’s final report. We found evidence of OIG communication with the Commission through e-mail correspondence for all published inspection reports. In addition, the OIG reported and communicated the results of OIG activities related to issued work products to agency management officials and the Congress.", "Section 5 of the IG Act requires that each IG shall, not later than April 30 and October 31 of each year, prepare and submit to the Congress semiannual reports summarizing the activities of the office during the immediately preceding 6-month periods ending March 31 and September 30. These reports are intended to keep the Congress informed by highlighting, among other things, the OIG’s review of existing and proposed legislation and regulations affecting an agency’s programs and operations to foster economy and efficiency and detect fraud, waste, and abuse. These reports are also intended to keep the Congress informed about significant problems, abuses, and deficiencies in an agency’s programs and operations and the status of recommendations for corrective actions. While the IG Act requires that semiannual reports include a summary of matters referred to prosecutive authorities and resulting convictions, the Commission IG told us that he is not aware of anyone who has been charged in a criminal court case as a result of his work. Section 5 of the IG Act also establishes a uniform set of statistical categories under which OIGs must report the quantitative results of their audit, investigation, inspection, and evaluation activities. The statistical information reported in an OIG’s semiannual report must show the total dollar value of questioned costs and the dollar value of recommendations that funds be put to better use.\nThe Commission OIG submitted semiannual reports as required by the IG Act; however, we found that the reports did not fully comply with the reporting requirements of the IG Act. Specifically, we found that for the six semiannual reports we reviewed, the OIG did not provide statistical information showing the dollar value of recommendations that funds be put to better use or the total value of questioned costs (including a separate category for the dollar value of unsupported costs). We understand that that there may not have been any amounts identified by the OIG of funds that could be put to better use or questioned costs for the reporting period. However, if the OIG does not state this in the semiannual reports to the Congress, both management and the Congress do not have the necessary information to take appropriate actions to enhance management practices and procedures, which would result in more efficient and effective use of Commission funds. Furthermore, this statistical information is required by the IG Act and should be included in the OIG’s semiannual reports to the Congress.\nWe also found that for five of the semiannual reports we reviewed, the OIG did not identify the significant recommendations described in previous semiannual reports for which corrective action had not been completed by agency management. While the OIG provided this information in its May 2011 semiannual report, the OIG did not provide the status of the 48 open recommendations identified in this report in subsequent semiannual reports. The IG Act requires the OIG to identify each significant recommendation described in previous semiannual reports on which corrective action has not been completed by management. Not knowing the current status of the recommendations for which corrective actions are needed limits both the agency’s and the Congress’s awareness of outstanding actions that may still need to be taken.\nWe found that the OIG did not have written policies and procedures to guide the preparation of its semiannual reports to the Congress. We did find that for one of the semiannual reports we tested (the report for the first half of fiscal year 2011) at the request of the Federal Cochair, the OIG included an appendix that identified and provided the status of recommendations from all the semiannual reports issued by the OIG in fiscal year 2006 through the first half of fiscal year 2011. The information in the appendix identified 159 recommendations made by the OIG during fiscal years 2006 through 2010 and the first half of fiscal year 2011.\nWhile the IG provided the status of recommendations in fiscal year 2011, he did not provide updated information on the status of these recommendations in the semiannual reports issued going forward, in compliance with the IG Act. According to the IG, he received a request at least annually from the House Committee on Oversight and Government Reform requesting an update on the status of open recommendations. The IG also told us that a common focus of his meetings with OMB and congressional committee staff was to discuss the status of open recommendations.", "As we recently testified, GAO has long supported the creation of independent IG offices in appropriate federal departments, agencies, and entities, and we continue to believe that significant federal programs and entities should be subject to oversight by independent IGs. At the same time, we have reported some concerns about creating and maintaining small IG offices with limited resources, where an IG might not have the ability to obtain the technical skills and expertise needed to provide adequate and cost-effective oversight. Although the limitations of a single- person office can create challenges to developing and implementing policies and procedures to ensure effective oversight, if corrective actions are taken to address the issues identified in this report, the current DFE OIG structure can provide a viable option for oversight of the Commission. Nevertheless, there are alternative structures that may also facilitate effective OIG oversight of the Commission.\nWe identified examples of alternative approaches that exist in other federal agencies that may also provide effective OIG oversight for the Commission. Three alternative IG oversight structures and their respective advantages and disadvantages are summarized in figure 4 and more fully described in the paragraphs that follow.", "The Commission OIG could be consolidated into a larger IG office. Specifically, OIGs with presidentially appointed IGs would assume the operational responsibilities of the Commission OIG as established under the IG Act. This includes reporting to the Congress semiannually; performing audits, investigations, inspections, and evaluations of program areas; as well as conducting and overseeing the agency’s annual financial statement audit. This alternative could strengthen the quality of work and use of resources through the implementation of best practices usually employed at larger, presidentially appointed and Senate- confirmed IGs and their related offices.\nThis oversight structure exists at the Department of State OIG. For example, the Department of State OIG has oversight authority over the Broadcasting Board of Governors (BBG), which had a budget of $712 million for fiscal year 2013. The Department of State OIG had an average annual budget of $61 million for fiscal years 2011 through 2013 and employed approximately 270 full-time and 16 part-time employees. The Department of State OIG conducts independent performance and financial statement audits, inspections, and investigations that advance the missions of the Department of State and BBG. The Department of State OIG prepares an annual performance plan (including audits, inspections, and evaluations) and a 5-year strategic plan for oversight of the Department of State and BBG using Department of State management challenges as a baseline, along with input collected from the Department of State, BBG management, and other sources of information. The Department of State OIG also uses a risk-based approach to determine which posts and bureaus should be inspected based on the most recent inspection and other data collected during the course of its oversight work. In addition, when possible, the Department of State OIG performs a review of BBG foreign offices during Department of State site visits, allowing it to leverage efficiencies and resources when performing other oversight work.\nIn another example, the U.S. Agency for International Development Office of Inspector General (USAID OIG) provides oversight to several small entities, including the Millennium Challenge Corporation, U.S. African Development Foundation, Inter-American Foundation, and Overseas Private Investment Corporation, with budgets of $898 million, $30 million, $22 million, and approximately $75 million to 100 million, respectively, for fiscal year 2013. USAID OIG has approximately 230 employees and had an average budget of approximately $45.6 million for fiscal years 2011 through 2013. USAID OIG prepares annual performance (i.e., audit) plans for oversight of these entities that are aligned with its 5-year strategic plan following consultations with stakeholders and OIG personnel. In addition to these consultations, annual performance plans are developed based on a risk assessment of the portfolios they monitor. USAID OIG audits activities relating to the worldwide foreign assistance programs and agency operations of these entities and considers several factors when assessing agency program risk, such as inherent risk, fraud and corruption risk, and control risk. Audit activities include performance audits and reviews of programs and management systems, financial statement audits, and audits related to financial accountability of grantees and contractors. The USAID OIG also investigates allegations of fraud, waste, and abuse relating to the foreign assistance programs and operations.\nThe quality of an OIG’s work is a critical element of IG effectiveness. Consolidation with a larger OIG could improve the quality of work at the Commission OIG. This could be accomplished by using a strategic, risk- based approach for auditing and increasing staffing resources with the requisite technical auditing and accounting expertise necessary to improve program efficiency and effectiveness. As we noted earlier, audits performed in accordance with generally accepted government auditing standards (GAGAS) provide information used for oversight, accountability, transparency, and improvements of government programs and operations. When auditors comply with GAGAS in reporting the results, their work can lead to improved management, better decision making and oversight, effective and efficient operations, accountability, and transparency for resources. In addition, consolidation with a larger OIG could increase the OIG’s ability to effectively plan for work, including implementing a strategic and risk-based approach to auditing agency programs and operations of high risk. Routine access to staff resources with the requisite subject matter expertise, such as information technology personnel, payroll services personnel, and a highly trained financial management workforce, could also be an advantage of consolidating with a larger OIG.\nHowever, consolidation with larger OIGs could also result in disadvantages, such as limited contact with agency program management officials who have the institutional knowledge pertaining to agency missions and priorities. There may also be management challenges in determining the appropriate amount of resources to dedicate toward performing sufficient oversight of the Commission’s programs. For example, the Commission may not be a material entity when compared to the larger agency; therefore, when using a risk-based approach, the Commission may not get the necessary OIG oversight with respect to its critical programs and operations from the larger OIG.", "Consolidation with a single regional commission OIG could serve as another alternative structure. This option would consolidate the Commission OIG with a regional commission OIG. As under the consolidation with a larger IG office alternative, the regional commission OIG would assume the oversight responsibilities of the Commission OIG.\nThere are currently seven regional commissions; however, only the Appalachian Regional Commission (ARC) and the Denali Commission have their own OIGs. Legislation enacted in 2008 directed that a single IG be appointed by the President, in accordance with the IG Act, for three of the other regional commissions, but it has not been implemented. The regional commissions are as follows: (1) Northern Border Regional Commission, (2) Southwest Border Regional Commission, (3) Southeast Crescent Regional Commission, (4) Delta Regional Authority, (5) Appalachian Regional Commission, (6) Northern Great Plains Regional Authority, and (7) Denali Commission.\nRegional commissions are regional development agencies that focus on developing infrastructure and targeting new resources to promote wealth generation and economic growth to distressed portions of specific geographical areas within their regions. For example, the ARC is a regional economic development agency that represents a partnership of federal, state, and local governments. Established by the Congress in the Appalachian Regional Development Act of 1965, the ARC was established to assist the region in promoting economic development and establishing a framework for joint federal and state efforts to provide the basic facilities essential to its growth on a coordinated and concerted regional basis. The ARC is composed of the governors of the 13 Appalachian states and a Federal Cochair, who is appointed by the President. Local participation is provided through multicounty local development districts.\nThe ARC OIG reported that it has three full-time employees, has an annual budget of approximately $634,000, and has performed 81 audits and inspections during fiscal years 2011 to 2013. According to the ARC OIG website, the ARC OIG provides independent and objective audits, inspections, and evaluations relating to agency programs and operations. The ARC prepares a 5-year strategic plan and annual work plans to identify grant audits that represent the most significant aspect of the ARC’s programs. The ARC OIG’s grant audits are based on factors such as the value of the grant, location, type of grant, and prior history. The ARC OIG also provides a means for keeping the ARC Federal Cochair, the other commissioners, and the Congress fully informed about problems and deficiencies at the ARC.\nConsolidation of the Commission OIG with another regional commission OIG could serve to (1) strengthen institutional knowledge regarding agency programs and operations and (2) achieve economies of scale. Since regional commissions are focused on building the infrastructure and targeting economic growth to distressed areas in specific rural geographic locations, consolidation of the Commission OIG with another regional OIG could improve institutional knowledge at the Commission OIG. Given the similarities in their scope and mission, efficiencies may be achieved by leveraging resources between the two regional commissions. In addition, consolidation could serve to increase the availability of investigative resources to detect fraud, waste, and abuse while achieving other efficiencies. A disadvantage to this approach could be that resources become strained, limiting the effectiveness of the OIG to perform its duties for both agencies.", "The Commission IG stated that he spent approximately 25 percent of his time overseeing the contracted auditor for the Commission annual financial statement audit and therefore used inspections to leverage the time he had to perform oversight. Another alternative is to divide OIG oversight responsibilities for the agency performance audits, investigations, and inspections and the agency financial statement audits between two separate federal OIGs, such as a regional commission OIG or a larger OIG. The regional commission OIG would perform the audits, investigations, and inspections of agency programs and operations based on its similar mission and scope. The larger OIG would conduct and oversee the agency’s annual financial statement audit. A current example of this structure exists at the Department of Transportation (DOT) OIG. The DOT OIG has the authority to review the financial statement audit, property management, and business operations of the National Transportation Safety Board (NTSB), including internal accounting and administrative control systems, to determine whether they comply with applicable laws, rules, and regulations. GAO conducts broad management reviews on behalf of the NTSB. In addition, Amtrak is a DFE under the IG Act and has an OIG, but Amtrak itself, rather than the OIG, is required to engage an IPA to audit its annual financial statements. In fiscal year 2011, the Amtrak OIG began monitoring the IPA that performed the financial statement audit for Amtrak. Further, the DOT OIG is required by statute to conduct certain oversight of Amtrak operations, including an annual review of Amtrak’s budget and 5-year financial plan.\nThis divided approach could reduce the strain of oversight responsibilities on one OIG by providing a shared responsibility between two OIGs while potentially providing sufficient agency oversight. In addition, dividing responsibilities between two OIGs would serve to leverage the OIGs’ expertise (i.e., similar mission, subject matter experts, etc.) in conducting performance audits, investigations, inspections, and evaluations for one OIG assuming oversight responsibilities. The other OIG’s expertise could also be leveraged for conducting the annual financial statement audit.\nHowever, disadvantages in this approach could be a lack of effective communication and coordination between the two OIGs. For example, internal control deficiencies and recommendations resulting from the financial statement audit may not be communicated in a timely manner to the OIG with program and operational oversight responsibilities of the agency. This could delay the implementation and preparation of corrective action plans to address and correct deficiencies found during the financial statement audit in a timely manner, which could also have a programmatic or operational impact. In addition, this approach could require the agencies to coordinate activities such as requests for financial statement audit documents and requests for documentation for performance audits and investigations. This could put additional stress on the smaller OIG to fulfill requests for documentation and meetings while still performing daily duties required at the agency.\nFigure 5 demonstrates how various responsibilities could be divided among various IG offices.\nWhile there is no clear-cut option with respect to the alternative OIG structures presented above, any specific decision concerning consolidations of IG offices should result from dialogue among the affected agencies, CIGIE, and the Congress.", "OIG’s are responsible for coordinating audits, inspections, and investigations. While the Commission OIG conducted limited oversight through inspections, it did not conduct performance audits or investigations and many of the critical standards in CIGIE’s Quality Standards for Federal Offices of Inspector General, such as planning and coordination, ensuring internal control, maintaining quality assurance, and receiving and reviewing allegations, were not addressed in the policies and procedures or the operations of the Commission OIG. For example, planning and coordination would include a risk-based approach to assessing the nature, scope, and inherent risk of Commission programs and operations. A risk-based approach for oversight would guide the general direction and focus of OIG work to ensure effective oversight of the Commission’s major programs and operations. Furthermore, it is important that OIG work products provide reliable information and adhere to CIGIE professional standards and the IG Act. However, we found no documented evidence in the OIG’s workpapers to support the inspection conclusions and recommendations for its reports. These OIG work products are used by the Congress and others to assess whether the Commission’s major programs and operations are achieving their desired results.", "We are making the following nine recommendations to the Commission IG, or to the individual or entity that ultimately assumes IG oversight responsibilities for the Commission under an alternate structure, in order to ensure that the Commission receives effective oversight of its major programs and operations.\nDevelop and implement a risk-based approach that adheres to professional standards to help ensure effective oversight of the major Commission programs and operations in the form of audits and investigations.\nDevelop policies and procedures for OIG office operations and management activities in accordance with CIGIE’s Quality Standards for Federal Offices of Inspector General. Implement the OIG’s policies and procedures developed in accordance with CIGIE’s Quality Standards for Federal Offices of Inspector General to ensure that the OIG’s management and operation of its office includes the following: annual work and strategic plans that identify goals, objectives, and performance measures to be accomplished by the OIG within a specific period; a quality assurance framework that includes both internal and external quality assurance reviews; an internal control structure that includes all elements of internal control, such as the control environment, risk assessment, control activities, information and communication, and monitoring; and an OIG hotline to receive and review anonymous tips, referrals, and allegations to help prevent and detect potential fraud, waste, and abuse.\nUpdate the OIG’s policies and procedures for inspections to ensure that they are fully in accordance with CIGIE’s Quality Standards for Inspection and Evaluation.\nConduct inspections that are fully in accordance with CIGIE’s Quality Standards for Inspection and Evaluation and the OIG’s policies and procedures.\nPrepare semiannual reports to the Congress that fully comply with the reporting requirements of the IG Act.", "We provided a draft of this report to the Denali Commission for review and comment. The Commission concurred with the report’s conclusions and recommendations, and provided its perspective of the IG’s performance as well as the challenges for a one-person DFE OIG. The Commission’s letter is reprinted in appendix II.\nWe are sending copies of this report to the appropriate congressional committees, the Federal Cochair and Commissioners of the Denali Commission, the Office of the Inspector General for the Department of Commerce, the Assistant Secretary for Economic Development for the Department of Commerce, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov.\nIf you or your staff have any questions about this report, please contact me at (202) 512-2623 or davisbh@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III.", "To determine the resources appropriated to and expensed by the Denali Commission’s (Commission) Office of Inspector General (OIG) for fiscal years 2011 through 2013, we reviewed OIG-related budget justification documents and expenditure reports for the OIG’s salary and benefits, contracts, training, and travel. We reviewed the cost elements used to develop the OIG’s annual budget estimate, as well as the contract types and contract payments made to assist with OIG-related activities. We interviewed the commissioners and agency management to determine whether the OIG obtained their input for program or operation areas of concern for which they wanted assistance. We also interviewed Commission staff to gain an understanding of the resources provided to the OIG from the Commission and from other federal agencies.\nTo determine the number of work products issued by the OIG, we reviewed the Inspector General’s (IG) activity log and the OIG’s website to identify which publications were within our scope and provided the list to the IG for confirmation that the list was complete. We requested copies of the OIG’s annual work plan and strategic plan and interviewed commissioners and Commission staff to determine the extent to which they provided input to the OIG’s annual work and strategic plans. However, the IG did not prepare written annual work and strategic plans. Therefore, we had to rely on the interviews we conducted with the commissioners and Commission staff to determine the extent to which they provided input to the IG on areas the IG evaluated.\nTo determine the extent to which the IG provided oversight of the Commission’s major programs and operations, we compared the grant funds awarded and disbursed by the Commission for fiscal years 2011 through 2013 to the work products issued by the OIG. We obtained the grant funds awarded and disbursed information from the Commission (including the program descriptions for these grants) and performed procedures that allowed us to determine that the grant information provided by the Commission was sufficient for our purposes. We did compare these grant amounts to the total grant funds reviewed by the OIG in its work products. We analyzed all of the OIG’s work products issued in fiscal years 2011 through 2013, noting the objectives, scope, and methodology of the reports to determine the extent to which these work products reviewed Commission programs or operations. We reviewed the Commission’s fiscal year 2015 budget justification to identify accomplishments by program, and we also reviewed the Commission’s annual financial report to identify the budgetary authority amounts by program. We compared the fiscal year budgeted amounts reported in the Commission’s audited annual financial statements with the amounts reported in the President’s budget, which allowed us to determine that the budget amounts provided by the Commission were sufficient for our purposes.\nTo determine whether the design of the OIG’s policies and procedures adhered to applicable professional standards, we reviewed the Inspector General Act of 1978, as amended (IG Act), and the Council of the Inspectors General on Integrity and Efficiency’s (CIGIE) Quality Standards for Federal Offices of Inspector General and Quality Standards for Inspection and Evaluation, and compared the OIG’s inspection policies and procedures to these professional standards. To determine the extent to which the OIG implemented the CIGIE standards and its inspection policies and procedures, we prepared a data collection instrument using the CIGIE inspection standards and the OIG’s policies and procedures. We tested all of the OIG’s work products issued during fiscal years 2011 through 2013 to determine whether the OIG’s work products adhered to the CIGIE standards and were consistent with the OIG’s inspection policies and procedures. We reviewed the OIG’s inspection reports and supporting case files and compared them to the OIG’s policies and procedures and applicable CIGIE standards, including those related to quality control, planning, evidence, and reporting.\nWe reviewed all of the semiannual reports issued by the OIG during fiscal years 2011 through 2013 to determine whether these reports were prepared in accordance with the reporting requirements of the IG Act. We reviewed the OIG’s semiannual reports and supporting case files and compared them to the IG Act reporting standards.\nTo determine alternatives for OIG oversight structures that exist in federal agencies that could be applied at the Commission, we used previous GAO work to identify federal OIGs that provide (or have provided) OIG oversight for smaller agencies, and also identified other regional commissions with similar missions to that of the Commission. In addition, because the Denali Commission Federal Cochair is appointed by the Secretary of Commerce, we consulted with officials from the Department of Commerce to gain an understanding of their relationship and roles and responsibilities to the Commission. We conducted structured interviews with officials from these other OIGs with structures we considered to be potential alternative OIG oversight structures to gain an understanding of how they are organized and operate. We analyzed prior GAO reports to review recommendations made regarding alternatives for providing OIG oversight and Congressional Research Service reports and other relevant reports to identify applicable criteria for OIG oversight.\nWe conducted this performance audit from May 2013 to September 2014 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.", "", "", "", "In addition to the contact named above, Chanetta Reed (Assistant Director), Matthew Frideres, Maxine Hattery, Jason Kirwan, Carroll M. Warfield Jr., and Doris Yanger made key contributions to this report." ], "depth": [ 1, 2, 2, 1, 2, 2, 1, 2, 2, 1, 2, 2, 2, 3, 3, 2, 1, 2, 2, 2, 1, 1, 1, 1, 1, 1, 2, 2 ], "alignment": [ "h2_full", "", "h2_full", "", "", "", "h0_full h2_full h1_title", "h0_full", "h1_full", "h1_title", "h1_full", "", "", "", "", "h1_full", "", "", "", "", "h2_full", "", "", "h1_full", "", "", "", "" ] }

{ "question": [ "What was the role of the OIG in terms of the Denali Commission?", "What were the results of the GAO's analysis of the OIG's inspections?", "To what extent did the OIG conduct audits or investigations?", "What was discovered about the OIG's documentation process?", "What specific quality standards did the OIG fail to implement?", "What are some examples that illustrate the OIG's lack of standards implementation?", "Why was the Denali Commission created?", "How is the Commission labeled under the IG Act?", "What is included in IG oversight?", "What was GAO asked to review?", "What were the features of GAO's review of the OIG?" ], "summary": [ "The OIG provided limited oversight of the Commission's major programs (energy, transportation, health facilities, and training) and operations.", "GAO's analysis of the 12 inspections completed by the OIG found that the OIG provided oversight for $150,000 of the $167 million in grant funds disbursed during fiscal years 2011 through 2013. The $150,000 of grant funds inspected by the OIG represented less than 1 percent of total grants awarded by the Commission during this period.", "While the OIG oversaw the Commission's annual financial statement audit, it did not conduct any performance audits or investigations related to the Commission's major programs and operations.", "The OIG did not have documented policies and procedures for its office operations and management that adhered to the Council of the Inspectors General on Integrity and Efficiency's Quality Standards for Federal Offices of Inspector General .", "The OIG did not implement the following four quality standards that are critical for the management and operations of the OIG: planning and coordinating; maintaining quality assurance; ensuring internal control; and receiving and reviewing allegations of potential fraud, waste, and abuse.", "For example, the OIG did not conduct any investigations for potential criminal prosecution. Also, the OIG did not prepare an annual work or strategic plan to document the office's planned activities. Additionally, the OIG's work products were not fully consistent with applicable professional standards, its own policies and procedures for inspections, or section 5 of the Inspector General Act of 1978, as amended (IG Act). For example, there was insufficient evidence in the OIG's inspection case files to support the conclusions and recommendations reported, and the semiannual reports prepared by the OIG did not provide information on the status of OIG recommendations as required by the act.", "The Commission was established to promote sustainable infrastructure improvement, job training, and other economic development services in Alaska.", "The Commission is a designated federal entity under the IG Act and is required to have an IG.", "IG oversight includes assessing the effectiveness and efficiency of agency programs and operations; providing leadership and coordination to detect fraud and abuse; and making recommendations to management to promote the economy, efficiency, and effectiveness of program and agency operations.", "GAO was asked to review the management and operations of the Commission's OIG.", "GAO's objectives were to (1) identify the resources appropriated to and expensed by the OIG and the OIG's work products reported for fiscal years 2011 through 2013, (2) assess the extent to which the OIG provided oversight of the Commission's programs and operations, (3) determine the extent to which the design and implementation of the OIG's policies and procedures and its work products were consistent with professional standards, and (4) identify alternatives for OIG oversight of the Commission." ], "parent_pair_index": [ -1, -1, -1, -1, 0, 0, -1, -1, 1, -1, 3 ], "summary_paragraph_index": [ 2, 2, 2, 3, 3, 3, 0, 0, 0, 0, 0 ] }

{ "title": [ "Background", "Solid Rocket Motors (SRM)", "SRM Supply Chain", "MIBP’s Role in Identifying Industrial Base Risks", "Industry Trends Create Uncertainty for U.S. Solid Rocket Motor Suppliers", "Single Source Suppliers Drive Material Availability Risks but Mitigation Actions Underway", "Single Source SRM Suppliers Increase Risk", "Industry’s Efforts to Manage Its Supply Chain", "DOD Efforts to Respond to Supply Chain Risks", "Manufacturing Engineers’ Solid Rocket Motor Design Skills Declining but Workforce Project Initiated", "Agency Comments", "Appendix: GAO Contact and Staff Acknowledgments", "GAO Contact", "Staff Acknowledgments" ], "paragraphs": [ "", "SRMs are the propulsion systems that propel various types of missiles and are also used in space launch activities, including the National Aeronautics and Space Administration’s (NASA) Space Shuttle program. Across the military departments, DOD has approximately 40 missile programs that currently use SRMs, including tactical programs such as the Army’s Guided Missile Launch Rocket System and the Navy and Air Force AIM-9X Sidewinder.\nAs shown in figure 1, an SRM consists of a casing filled with solid propellant that, when ignited, expels hot gases through a nozzle to produce thrust. DOD describes the overall SRM components as being consistent among the missile types, although size and scale of propellant requirements vary. For example, tactical missiles use the smallest SRMs—ranging from about 3 inches up to 24 inches in diameter—and require between 3 and almost 1,600 pounds of propellant. Strategic missiles use large SRMs that exceed 40 inches, while missile defense systems utilize both small and large SRMs. Space launch SRMs can exceed 150 inches and can require more than a million pounds of propellant.\nIn order to be used in a missile, the SRM and its components, such as the propellant ingredients or casing materials, are subject to testing to demonstrate that they meet DOD’s technical specifications and requirements. For instance, this testing can confirm that the construction of the SRM allows it to function at certain altitudes or in certain temperatures or environments required by the missile. The SRM is tested as a stand-alone item and as part of the overall missile system before production begins. By successfully completing testing, the missile becomes qualified, and the SRM and its components are deemed suitable to meet the missile’s specific requirements going forward. Any changes in the SRM or its components may require additional testing and, if the changes are significant or if there are multiple changes, may require the missile to be retested and thus, requalified—which DOD has noted is an expensive and time-consuming process that can take years and cost millions of dollars.", "DOD relies on a multi-tiered supply chain to provide the SRMs that are used for missile propulsion. Industry representatives we spoke to estimate the supply chain extends to more than 1,000 suppliers that provide the raw materials, components, and sub-systems needed to manufacture the SRM. The missile’s prime contractors are ultimately responsible for delivering the missiles and for selecting and managing the subcontractors that manufacture the SRM. The SRM manufacturers then subcontract with suppliers that provide the components and materials used to manufacture the SRM. Those suppliers might, in turn, work with another tier of suppliers to meet their needs. For example, an SRM manufacturer may obtain the materials needed for the casing from a first- tier supplier. The first-tier supplier may obtain the materials and components it needs from multiple second-tier suppliers, and so on. According to DOD reports, the SRM supplier base, including the sub-tier suppliers, is nearly identical across missile defense, tactical, and strategic missile systems that use SRMs. Figure 2 is an illustrative version of the SRM supply chain.\nHistorically, the demand for SRMs was mostly driven by their use in solid rocket boosters for NASA space programs, such as the Space Shuttle program. DOD has reported that NASA’s retirement of the Space Shuttle program in 2011 had a negative impact on the SRM supply chain as it led to decreased demand for SRMs and the related raw materials and components. Similarly, we reported in August 2017 that the demand for solid rocket motor propellant had dropped by more than 75 percent, from 20 million pounds to 5 million pounds, since the end of the Space Shuttle program. DOD has reported that these changing market conditions have resulted in excess capacity, where production demand is less than what is optimal to sustain the suppliers. Thus, excess capacity keeps SRM manufacturers from being cost competitive, which can jeopardize the viability of the manufacturers as well as their sub-tier suppliers.", "MIBP, which is part of the Under Secretary of Defense for Acquisition, Technology, and Logistics, is DOD’s primary representative for issues affecting the defense industrial base. MIBP officials told us they conduct analyses of risks affecting defense supply chains and provide information to decision makers, including required annual reports to Congress. These reports cover a wide range of industrial capabilities for various types of systems, including missiles. For example, in fiscal year 2014, MIBP assessed the fragility and criticality risks facing missile production, by analyzing factors that would cause potential disruptions and would be difficult to replace if disrupted. This assessment identified solid rocket motors as one of the key risks.\nWhile individual program offices and military departments are generally responsible for identifying risks within their own areas, MIBP officials stated that they coordinate and share information with relevant stakeholders for issues that affect multiple programs within or across the military departments. MIBP’s coordination role, according to these officials, includes participating in or leading various coordinating bodies within DOD or other federal departments. For example, MIBP leads the Joint Industrial Base Working Group, which shares industrial base information across DOD agencies and military departments. In addition, MIBP co-leads the Critical Energetic Materials Working Group, a DOD- sponsored entity that focuses on ensuring the near- and long-term availability of energetic materials such as those used in SRMs, and suggesting risk mitigation strategies.\nMIBP officials told us that they also conduct an annual data collection effort among the military departments and other DOD agencies to identify defense industrial base areas of risk and to learn about ongoing issues across the industrial base. In addition, they noted that MIBP works closely with the Industrial Analysis Group within the Defense Contract Management Agency (DCMA), which conducts assessments to identify industrial base risks facing individual acquisition programs at various points in the program’s life cycle and makes recommendations to program offices to help sustain a resilient and innovative defense industrial base. Additionally, DOD officials we spoke to said weapon program-specific risks are communicated through the military departments and to MIBP, which tracks them and determines their implications for the industrial base.", "Over the last 20 years, the SRM industrial base has consolidated from six to two U.S. manufacturers—Aerojet Rocketdyne and Orbital ATK. Both manufacturers produce the small and large SRMs used in tactical and missile defense systems, and Orbital ATK also produces SRMs for strategic missiles. A senior MIBP official told us that current DOD needs require two SRM manufacturers, but there is not enough demand to keep three companies economically viable.\nIn DOD’s industrial base reports to Congress, MIBP has reported that, while other industrial sectors are supported by commercial markets in addition to government needs, SRM manufacturers cater largely to the defense and space missions of the government and generally do not have a commercial base that can sustain production when the federal government’s demand fluctuates. As a result, similar to the impact of NASA’s Space Shuttle retirement on the SRM supplier base, trends or decisions made in a particular program area can have broader effects and potentially result in cost increases for other programs. For example, we found that a company that is supporting space launch has decided to source its SRMs from Orbital ATK instead of Aerojet Rocketdyne, which had previously produced the motors. This arrangement will take effect in 2019, and Aerojet Rocketdyne officials said that it is consolidating its facilities to reduce costs due to excess production capacity for these types of large SRMs. According to DOD, the resulting impact may affect costs in Aerojet Rocketdyne’s remaining business units, including those that provide the smaller SRMs used for tactical missiles. DOD says that these costs would likely be passed on to the missile systems programs. Additionally, if Aerojet Rocketdyne decides to exit the large SRM market altogether, the lack of competition is likely to result in increased costs for other DOD programs that use large SRMs.\nWhen there is limited demand, then a small supplier base can also be impacted by competition from foreign suppliers. Specifically, in the past several years, the two U.S. manufacturers have faced competition from a foreign supplier, Nammo Raufoss, and, more recently in 2017, a newly established U.S. corporation, Nammo Energetics Indian Head, Inc. (NEIH). These two new entrants are both ultimately wholly owned by the same Norwegian parent company and, according to an MIBP official, have the potential to take away market share from the two longstanding domestic SRM manufacturers. Figure 3 shows the industry trends among SRM manufacturers.\nNammo Raufoss, the foreign SRM manufacturer, began providing SRMs for the AMRAAM program in 2012, after the U.S. SRM manufacturer had encountered production challenges. According to an MIBP official, no U.S. SRM manufacturer, including the supplier at the time, was offered the opportunity to design a new SRM, which would have solved the production issues. Further, according to the MIBP official, the Norwegian government contributed funding to this effort. Additional funding was provided by the prime contractor—Raytheon—and the program offices, to develop, test, and produce the new SRM for AMRAAM.\nCurrently, Nammo Raufoss provides SRMs for two tactical missile programs used by DOD—Evolved Sea Sparrow Missile and AMRAAM. The programs for which Nammo Raufoss provides SRMs accounted for approximately 4 percent of the tactical missiles procured by DOD in fiscal year 2017, a slight increase over the 3 percent share since it first provided SRMs for the AMRAAM missiles in fiscal year 2012. The remaining missile programs use SRMs produced by Aerojet Rocketdyne and Orbital ATK.\nWhile the missile prime contractor found it viable to turn to a foreign source for the AMRAAM program, Congress and DOD have been concerned about the potential negative impacts the addition of a foreign supplier could have on a fragile domestic SRM industrial base. For example, the Senate Appropriations Committee recently noted concerns about reduced spending and the use of foreign suppliers. Similarly, even though DOD recognizes that access to global markets provides the necessary competitive pressures to incentivize U.S. suppliers to remain competitive and control costs, it has also noted that there needs to be a commitment to investing in the U.S. SRM industrial base to develop and produce critical technologies for the next generation of weapon systems. Further, by law, DOD must limit specific conventional ammunition procurements to sources within the industrial base if it determines such limitation is necessary to maintain a facility, producer, manufacturer, or other supplier available for furnishing an essential item of ammunition or ammunition component in cases of national emergency or to achieve industrial mobilization. According to MIBP officials, the current threat to the existing U.S. SRM manufacturer from a foreign supplier is not great enough to force it from the market. Therefore, it is difficult to restrict SRM procurements to the U.S. industrial base. Instead, an MIBP official told us they have raised concerns to DOD program offices and missile prime contractors about expanding the use of the Norwegian SRM supplier, Nammo Raufoss, as this potentially could have a negative impact on the near- or long-term survivability of U.S. manufacturers.\nMoreover, our review found that the newly established NEIH as a U.S. SRM manufacturer also creates competition within the existing domestic supplier base and also raises uncertainty for Aerojet Rocketdyne and Orbital ATK. Specifically, NEIH is in the early stages of establishing its production capabilities, which includes remodeling the manufacturing facility at Indian Head, over the next three years. Further, an MIBP official told us that MIBP plans to monitor the competitive landscape among the three companies, but as NEIH is a U.S. company, it is considered a part of the domestic industrial base and would not be subject to DOD restrictions on foreign suppliers. At this stage, it is too early to tell how, if at all, the newest competitor, whose product line is focused on small SRMs, will disrupt the business of the two long-standing U.S. SRM manufacturers that produce large and small SRMs.", "During our review, we found that the decreased demand for SRMs has resulted in a loss of suppliers in the supply chain, increasing the risk that key components and materials are only available from single sources. Should such components and materials become unavailable, production delays could result. MIBP’s industrial base reports to Congress and our discussions with industry representatives showed increased awareness of supply chain risks and steps taken to identify and mitigate risks before they affect SRM production, including coordination of efforts to address key chemicals needed for SRM propulsion.", "As decreased demand for SRMs has contributed to the consolidation of manufacturers, a main concern for DOD and industry is the impact of similar reductions among the manufacturers’ sub-tier suppliers. According to MIBP’s reports to Congress, relying on a decreased number of sub-tier suppliers exacerbates the risk that needed SRM materials become unexpectedly unavailable and disrupt missile production. MIBP emphasizes that in the current lower-production environment, sub-tier suppliers who are primarily supporting defense and space missions rather than commercial businesses, must determine how to remain viable or decide to exit the SRM market. SRMs contain few commercial off-the- shelf components and a great number of defense-unique components, which leads to an extensive reliance on sole-source suppliers.\nFurther, DOD reported that the missiles that are powered by SRMs experience rapid production during times of conflict. While surge production can create additional business opportunities, it is greatly impacted by the availability of materials and components that comprise the SRM for the missile. Industry representatives told us that managing complex supply chains is a part of their business, but noted that there has been a great deal of consolidation among SRM suppliers in recent years. One SRM manufacturer estimated that the supply chain has dropped from approximately 5,000 sub-tier suppliers to about 1,000 suppliers over the last 20 years. As a result, manufacturers are heavily dependent on only one supplier for some of the raw materials and key components of the SRM. For example, manufacturers provided us with information showing that they rely on a single company for ignition components for most of the tactical missiles they produce.\nSingle Source Supplier Issues for the Advanced Medium-Range Air-to-Air Missile (AMRAAM) A U.S. manufacturer experienced problems with the propellant mixture used in the AMRAAM solid rocket motor (SRM). The root cause was not discovered, but experts believe that variation in the raw material for a particular propellant ingredient resulted in the SRM functioning differently than intended. As a result, Raytheon, the prime missile contractor, stopped accepting the manufacturer’s SRMs in 2010 and AMRAAM production was disrupted for about 2 years. At the time, Raytheon had been working to qualify a second SRM supplier. According to DOD, the qualification process was accelerated to speed up production of the missiles that were needed to support military operations. AMRAAM production resumed approximately 2 years after the SRM issues occurred.\nThese dependencies increase as they move into the lower tiers of the supply chain. Components can be available from one source for either of the following two instances: (1) only one sole source is available for the material, component, or chemical and no other alternative exists; or (2) other suppliers exist, but only one single source supplier has been qualified or chosen to produce the item. Either situation poses a risk of disrupting the supply of SRMs and ultimately, the production of the missile. DOD officials noted that, even if other suppliers exist, it can be costly and time-consuming for them to be qualified as alternative sources. For example, in its assessments, DCMA has stated that energetic materials—which are used in SRM propellants—are among the most expensive components to requalify. As there are approximately 25 to 30 ingredients in the typical SRM’s propellant, changes in any of the ingredients require that the propellant be retested for effectiveness.\nFurther, disruptions among single source suppliers can take place for other reasons besides leaving the market. Production changes, such as altering manufacturing processes or even relocating production facilities, can affect the material or component produced in unexpected ways. In addition, there has been a long-standing concern that SRM manufacturers are dependent on a single source supplier for an SRM propellant ingredient—ammonium perchlorate—as only one U.S. company is certified to provide this ingredient. The House version of the Fiscal Year 2018 National Defense Authorization Act calls for DOD to study the future costs and availability of ammonium perchlorate. MIBP officials told us they have conducted extensive analysis of the issues for this critical component, including two studies conducted in 2016.", "Industry representatives from missile prime contractors and SRM manufacturers we spoke with said that managing their supply chain to ensure the availability of needed materials is a primary concern. Prime contractor representatives said that SRM subcontractors are generally expected to manage their suppliers and ensure that they suppliers can meet their contract requirements. However, the prime contractors said they are particularly involved when the risks relate to material availability. While losing a supplier is always a risk, they try to mitigate this through increased awareness of their supply chains and taking quick actions when risks are identified.\nTo increase awareness, prime contractor representatives said they consider potential availability issues before contracts are awarded and include requirements that they be notified of these issues in their subcontracts, which the SRM manufacturers apply to their subcontract suppliers, in order to minimize surprises. One SRM manufacturer confirmed that it includes subcontract requirements for its own sub-tier suppliers to report any changes in the product, materials, or production location as soon as the change is known.\nIn addition, both of the U.S. SRM manufacturers noted that they have staff dedicated to monitoring potential issues with supply chain availability. In one case, a manufacturer conducted a business continuity study that analyzed suppliers’ business plans for the next 5 years to identify potential problems.\nAfter issues—such as a financially fragile supplier—are identified, representatives said the key factor is the amount of time they have to mitigate the issue. In this respect, the U.S. SRM manufacturers we spoke with said their processes have improved in recent years and they receive more advanced notice when suppliers plan to exit the market, allowing them to take steps such as stockpiling supplies or making last buys while additional suppliers are identified. Taking such steps also allows time to more fully assess and take necessary steps—including qualifying a new supplier, if needed.", "MIBP officials told us that they coordinate regularly with industry and the affected DOD program offices to be informed of potential issues in the supply chains, but noted that it can be challenging to be aware of SRM suppliers beyond the initial tiers. However, the officials said that through their coordination efforts—which include participating in multiple working groups with the military departments and DOD components, as well as NASA and industry—they are aware of the SRM sub-tier suppliers that are at the greatest risk. For example, MIBP co-leads the Critical Energetic Materials Working Group to track availability issues with the chemicals that DOD relies on, including SRM propellant ingredients. Officials said that MIBP also works closely with DCMA, which conducts industrial base assessments that provide additional insights into contractors’ supply chains. Further, officials said that MIBP is in the early stages of developing a business analytics tool to help them better understand the interdependencies in the sub-tier supplier base. Their hope is to be able to proactively identify risks, rather than wait for program offices or DCMA to elevate concerns to MIBP.\nDOD officials and industry representatives identified cases in which actions were taken when essential materials—typically chemicals—were at risk of becoming unavailable. For example, MIBP coordinated with other DOD stakeholders and industry to mitigate risks in the cases summarized in table 1.\nAdditionally, an official said that MIBP is conducting a munitions industrial base resiliency study in 2017 that addresses, among other issues, how DOD plans for risks in the missile sector, particularly those related to the loss of qualified suppliers, including for SRMs.\nIn September 2017, we reported that DOD program offices have limited information from contractors that would help them to identify and proactively manage risks stemming from a single source of supply for missile systems, among other items. We recommended that DOD develop a mechanism to ensure that program offices, such as those for missile programs, obtain information from contractors on single sources of supply risks. DOD concurred with this recommendation and indicated that modifications to current contractual regulations and policy would be beneficial. In light of DOD’s planned actions in response to our previous recommendation, we are not making any additional recommendations at this time.", "MIBP’s annual industrial capabilities reports to Congress have consistently stated that the limited number of new missile development programs inhibits DOD’s ability to provide opportunities that maintain the workforce capabilities SRM manufacturers need to meet current and future national security objectives. These capabilities include engineering skills related to SRM concept designs, system development, and production, which are critical to meeting potential requirements for new SRM designs. With few new-start missile programs being initiated and decades-old programs having reached a steady state of design, SRM engineers are not typically engaged at the early stages of development and newer engineers have not fielded new SRM designs, thus creating a skills gap. According to reports from DOD, the lack of new programs for missiles has also limited opportunities to recruit and train the next generation of SRM scientists and engineers. The SRM manufacturers we spoke with also acknowledged experiencing attrition among workers with the requisite experience, as design experts are at or near eligibility for retirement. Industry representatives noted that engineers and chemists do not typically go to school to become SRM engineers, but must be trained by the SRM manufacturers. In a report to Congress, MIBP stated that one SRM manufacturer estimated that it can take up to 5 years to fully train SRM engineers or production workers.\nKey to this issue is the limited number of new missile programs or updates requiring new SRM designs, which would provide the workforce with development opportunities that DOD and industry find to be critical. Current research and development efforts are generally limited to updates or modifications for legacy missile programs, rather than for new missile programs. For example, the Joint Air-to-Ground Missile, a tactical missile program that officials said has started and stopped development several times since the late 1990s, had planned to incorporate a new SRM design. However, due to budget limitations and affordability concerns related to the SRM, the program opted to use a legacy SRM from the Hellfire missile, which has been in production since 1982. While the legacy SRM requires some modifications to change the casing material from steel to composite materials that are stable enough to withstand fire, mechanical shocks, and shrapnel, yet still burn correctly to propel the warhead and destroy the intended target, it does not involve the same level of skill as is needed to design new SRMs. Similarly, a DOD official said the AIM-9X program proposed designing a new SRM, but this plan was later abandoned due to concerns about the overall program costs. There are currently only two missile programs—Army’s Long Range Precision Fire missile and the Navy’s Advanced Anti-Radiation Guided Missile Extended Range—planning to use new solid rocket motor designs. Although these programs present opportunities for industry to develop SRM design skills, MIBP does not believe it will close the current skills gap. Further, MIBP officials said they have raised concerns that the use of foreign SRM suppliers results in fewer opportunities for domestic SRM manufacturers such as exercising their design skills. For example, MIBP noted that domestic engineers did not have the chance to design the new SRM used by AMRAAM.\nIn its reports to Congress, MIBP has stated that the loss of design capabilities could result in costly delays and unanticipated expenses and impair DOD’s readiness to support existing systems and field new capabilities. One of the elements that heighten SRM criticality for missile systems is the long lead time for restarting production in the event of stoppage. Specifically, one MIBP report stated that SRM manufacturers estimated that it can take from 3 to 5 years to fully restart if there is some ongoing production, and up to 8 years if production has completely ceased. In addition, according to MIBP, restarting production processes would incur costs, including those associated with retraining engineers. MIBP also indicated that the loss of SRM capabilities could delay future development of missile programs by 5 to 10 years.\nMIBP has an effort underway intended to address these diminishing design skills. According to MIBP officials, in 2016 they awarded a 4-year risk mitigation project that will provide approximately $14 million to Orbital ATK and Aerojet Rocketdyne during the course of the project. The purposes of the project are to provide opportunities for the SRM manufacturers to develop new SRM design skills for less experienced engineers and mature advanced technologies. The engineers will incorporate technology into a new SRM as designed by each company. According to an official, MIBP provided general guidelines for the resulting SRM, but purposely did not provide strict specifications in an effort to allow engineers to identify their own solutions for a new motor design.", "We are not making recommendations in this report. We provided a draft of this report to DOD for comment. DOD reviewed the draft and offered technical comments, which we incorporated as appropriate.\nWe are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov.\nIf you or your staff have any questions about this report, please contact me at (202) 512-4841 or makm@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in the appendix.", "", "Marie A. Mak, (202) 512-4841 or makm@gao.gov.", "In addition to the contact named above, Candice Wright (Assistant Director), Alyssia Borsella, Jennifer Dougherty, Leigh Ann Haydon, Emily Bond, Lorraine Ettaro, Kurt Gurka, and Roxanna Sun made key contributions to this report." ], "depth": [ 1, 2, 2, 2, 1, 1, 2, 2, 2, 1, 1, 1, 2, 2 ], "alignment": [ "h3_title", "", "h3_full", "", "h0_full h3_full h4_full", "h4_title h1_full", "h4_full h1_full", "", "h1_full", "h4_full h2_full", "", "", "", "" ] }

{ "question": [ "What changes taken place in the solid rocket motor industrial base?", "What were some of the effects of the expansion?", "Why are there only two manufacturers affiliated with SRM?", "Why is there not much known about these two manufacturers at this moment?", "What else has been affected by the consolidation in the SRM base?", "What is the potential trajectory of this decrease?", "How does the limiting of supplies impact the base?", "What is being done to offset these risks?", "What is hindering the new missile dvelopment programs?", "How does the reduction of these programs in turn affect other employees affiliated with these programs?", "What steps are being taken to help accommodate less experienced engineers?", "How does the DOD provide SRMs?", "What is the makeup of the SRM industrial base?", "What is DOD's strategy for this base?", "What was included in the GAO's review of the U.S. industrial base?", "How did GAO obtain information for the report?", "What other steps were taken by GAO in order to create their review?" ], "summary": [ "Over the past two decades, the solid rocket motor (SRM) industrial base has undergone various changes including consolidation and recent expansion. Specifically, since 1995, the industry has consolidated from six U.S. manufacturers to two U.S. manufacturers.", "With regard to expansion, a foreign supplier entered the market in 2012, and in 2017, a U.S. firm, which is ultimately foreign-owned, was also established.", "According to the Department of Defense (DOD) while it supports competition, its current demand for SRMs can only sustain two manufacturers.", "Although at this stage it is too early to know how, or if, these new entrants will impact the economic viability of the more long-standing U.S. manufacturers.", "The consolidation in the SRM industrial base has also been accompanied by a decrease of suppliers throughout the supply chain.", "or example, one SRM manufacturer estimated a decrease in suppliers, from approximately 5,000 to 1,000, over the last 20 years.", "This increases the risk of production delays and disruptions in the event that key components and materials available from a single source become unavailable from that source.", "GAO found that DOD and industry are taking steps to identify and mitigate these risks, such as by establishing alternative sources and requiring advance notice when suppliers are considering exiting the market.", "In its annual industrial capabilities reports to Congress, DOD has consistently stated that the limited number of new missile development programs inhibits its ability to provide opportunities to help SRM manufacturers maintain their workforce capabilities.", "Specifically, with few new missile programs being initiated, engineers have had fewer opportunities to develop their engineering skills related to SRM concept designs, system development, and production, which are critical if SRM performance issues arise.", "However, in 2016, DOD funded a 4-year project to enhance engineering design skills for less experienced engineers working for the two U.S. manufacturers and help them develop advanced SRM technologies.", "DOD relies on a multi-tiered supply chain to provide SRMs, the propulsion systems behind the various missile systems that provide defense capabilities to meet U.S. national security objectives.", "The SRM industrial base includes manufacturers that turn to an extensive network of suppliers that provide the raw materials, components, and subsystems needed to build SRMs.", "DOD is responsible for developing a strategy for the national industrial base that ensures that defense contractors and their suppliers are capable of providing the goods and services needed to achieve national security objectives.", "GAO was asked to review the state of the U.S. industrial base for SRMs. This report addresses (1) SRM industry trends, (2) single source supplier risks, and (3) opportunities for SRM manufacturers' engineering workforce development.", "GAO analyzed DOD's annual industrial capabilities reports to Congress for fiscal years 2009 through 2016, which reflect DOD's most current information on SRM risks, and reviewed DOD budget data and information from missile prime contractors and SRM manufacturers.", "GAO also interviewed missile prime contractors, SRM manufacturer representatives, and officials from DOD and the military departments." ], "parent_pair_index": [ -1, 0, -1, 2, -1, 0, 0, 2, -1, -1, 1, -1, -1, 1, -1, -1, 1 ], "summary_paragraph_index": [ 2, 2, 2, 2, 3, 3, 3, 3, 4, 4, 4, 0, 0, 0, 1, 1, 1 ] }

{ "title": [ "Background", "Army Not Taking Full Advantage of Potential Knowledge from NIEs", "NIEs Provide Several Advantages and Produce Volumes of Potentially Useful Information", "Army Accepting Risk by Buying and Fielding Systems with Poor Operational Test Results During the NIEs", "Army Working to Address Performance and Reliability Issues Identified During NIE", "Army Buying Few Systems under Evaluation, Despite Positive Soldier Feedback", "Army Not Using NIE to Evaluate Overall Network Performance and Effectiveness of Investments", "Army Actions and Additional Opportunities to Enhance the NIE Process", "Army Is Implementing Corrective Actions to Improve NIE Process and Network Modernization", "Army Efforts to Reduce Barriers to Rapid Procurement of Successful Emerging Technologies", "DOD Has Begun to Define Network Outcome-based Performance Metrics", "Opportunities for Additional Collaboration between Army and Test Community", "Conclusions", "Recommendations for Executive Action", "Agency Comments and Our Evaluation", "Appendix I: Scope and Methodology", "Appendix II: Comments from the Department of Defense", "Appendix III: GAO Contact and Staff Acknowledgments", "GAO Contact", "Staff Acknowledgments" ], "paragraphs": [ "As the Army transitions away from major wartime operations, it faces fiscal constraints and a complex and growing array of security challenges. The Army will be smaller and senior leaders recognize that the core of a smaller yet still highly capable force is having a capable tactical information network.\nOver the last decade, the Army focused most of its decisions to field network improvements on supporting operations in Iraq and Afghanistan, an effort that was both expensive and time consuming. The Army did not synchronize the development and fielding efforts for network technologies. Funding and time lines for network-related programs were rarely, if ever, aligned. The Army fielded capabilities in a piecemeal fashion and the user in the field was largely responsible for integrating them with existing technology.\nIn December 2011, Army leaders finalized the Network-enabled Mission Command Initial Capabilities Document, a central document that describes the essential network capabilities required by the Army as well as scores of capability gaps. These capabilities support an Army mission command capability defined by a network of command posts, aerial and ground platforms, manned and unmanned sensors, and dismounted soldiers linked by an integrated suite of mission command systems. A robust transport layer capable of delivering voice, data, imagery, and video to the tactical edge (i.e., the forward battle lines) connects these systems.\nTo achieve the objectives of its network modernization strategy, the Army is changing the way it develops, evaluates, tests, and delivers networked capability to its operating forces, using an approach called capability set management. A capability set is a suite of network components, associated equipment, and software that provides an integrated network capability. A requirement is an established need justifying the allocation of resources to achieve a capability to accomplish military objectives. Instead of developing an ultimate capability and buying enough to cover the entire force, the Army plans to buy only what is currently available, feasible, and needed for units preparing to deploy. Every year, the Army will integrate another capability set that reflects changes or advances in technology since the previous set. To support this approach, the Army is implementing a new agile process that identifies capability gaps and solicits solutions from industry and government to evaluate during the NIEs.\nNIEs are a significant investment. Since 2011, the Army has conducted five of them, and has projected the cumulative cost of the events at $791 million. The Army conducts NIEs twice a year. Each NIE typically involves around 3,800 soldiers and 1,000 vehicles, and up to 12,000 square kilometers of territory, and approximately 6 weeks in duration. The two categories of the key participating systems during the NIEs are Systems under Test (SUT) and Systems under Evaluation (SUE), and each is subject to differing levels of scrutiny.\nSUTs are from an ongoing acquisition program (sometimes referred to as a program of record) that are formally determined to be ready for operational testing in order to inform an acquisition decision. This operational testing is subject to review and is conducted with the production or production-like system in realistic operational environments, with users that are representative of those expected to operate, maintain, and support the system when fielded or deployed.\nSUEs are provided by either industry or the government. They are either (1) developing capabilities with sufficient technology, integration, and manufacturing maturity levels to warrant NIE participation; or (2) emerging capabilities that are seen as next generation war-fighting technologies that have the potential to fill a known gap or improve current capabilities. SUEs are not subject to formal test readiness reviews, nor the same level of testing as the SUTs. SUEs are operationally demonstrated and receive a qualitative user evaluation, but are not operationally tested and are not the subject of a formal test report (as SUTs are).\nAside from their role in the agile process, NIEs also provide the Army with opportunities for integration, training, and evaluation that leads to doctrine, organization, training, materiel, leadership and education, personnel, and facilities recommendations; and the refinement of tactics, techniques, and procedures related to the systems tested.\nThe Army believes that traditional test and evaluation processes frequently result in fielding outdated technologies and expects to improve on those processes through the NIEs. The Army’s test community members, including the Brigade Modernization Command (BMC) and the Army Test and Evaluation Command (ATEC), conduct the testing during the NIEs. The BMC is a headquarters organization within the Training and Doctrine Command. It has an attached operational 3,800-soldier brigade combat team dedicated to testing during the NIEs. BMC soldiers use systems during the NIE in simulated combat scenarios for testing and evaluation purposes, resulting in qualitative evaluations based on their observations. The BMC also recommends whether to field, continue developing, or stop developing each solution and to improve the integration of capabilities into deploying brigades. ATEC has overall responsibility for the planning, conduct, and evaluation of all Army developmental and operational testing. ATEC also produces a qualitative assessment of the overall performance of the current capability set of network equipment.\nTwo test offices within the Office of the Secretary of Defense that help inform Defense Acquisition Executive decisions also provide oversight on testing related to major defense acquisition programs. The Director, Operational Test and Evaluation (DOT&E) provides oversight of operational testing and evaluation for SUTs. The Deputy Assistant Secretary of Defense for Developmental Test and Evaluation (DT&E) provides oversight of developmental testing that precedes operational testing of SUTs. DOT&E and DT&E roles are limited to the SUTs selected for operational testing during the NIEs.\nTest and evaluation is a fundamental aspect of defense acquisition. DOD, under its Defense Acquisition System, requires the integration of test and evaluation throughout the defense acquisition process to provide essential information to decision makers; assess attainment of technical performance parameters; and determine whether systems are operationally effective, suitable, survivable, and safe for intended use. Testers generally characterize test and evaluation activities as either developmental or operational. Developmental testing is a generic term encompassing modeling and simulation and engineering type tests that are used to verify that design risks are minimized, that safety of the system is certified, that achievement of system technical performance is substantiated, and that readiness for operational test and evaluation is certified. The intent of developmental testing is to demonstrate the maturity of a design and to discover and fix design and performance problems before a system enters production.\nOperational testing is a field test of a system or item under realistic operational conditions with users who represent those expected to operate and maintain the system when it is fielded or deployed. Specific operational tests include limited user tests, initial operational tests, and customer tests. Before operational tests occur for major acquisition programs, DT&E completes an independent Assessment of Operational Test Readiness. Each Assessment of Operational Test Readiness considers the risks associated with the system’s ability to meet operational suitability and effectiveness goals. This assessment is based on capabilities demonstrated in developmental testing. The Defense or Component Acquisition Executive considers the results of the Assessment of Operational Test Readiness, among other inputs, in making decisions on a major acquisition program proceeding to operational testing.", "The Army has made steady improvements in the NIE process since its inception and the evaluations continue to give the Army useful information and helpful insights into current and emerging networking capabilities. However, some resulting Army decisions are at odds with knowledge produced during the NIEs. Most importantly, despite poor operational test results for a number of SUTs during the NIEs, the Army has sought approval to buy additional quantities and field several major networking systems. While many of the SUEs received favorable reviews, the Army lacked a strategy that addresses a number of procurement barriers—such as funding availability and requirements—when it began the NIE process, which precluded rapid procurement of successful SUEs. Additionally, as we reported previously, the Army has not yet tapped into the potential to use the NIE to gain insight into the effectiveness and performance of the overall tactical network.", "To date, the Army has conducted five NIEs, costing an average of $158 million to plan and execute. Through those five NIEs, the Army has operationally tested 19 SUTs and evaluated over 120 SUEs.\nNIEs have helped the Army in a number of ways. The NIEs allowed the Army to formulate a network architecture baseline that will serve as the foundation upon which the Army plans to add networking capabilities in the future; evaluate industry-developed systems that may help address Army- identified capability gaps in the future; integrate the new capability sets into operational units and to create new tactics, techniques, and procedures for using the new systems in operations; and provide soldiers with an opportunity to both provide input into the designs of networking systems and to integrate the systems before the Army fields them to operational brigades.\nAccording to Army officials, testing during each NIE generates a large volume of potentially useful information. There are detailed operational test and evaluation reports for each of the SUTs, user evaluations for each of the SUEs, an integrated network assessment of the current capability set, and general observations on the NIE event itself.\nThe DOT&E has reported observations of the NIEs in its fiscal years 2011 and 2012 annual reports, including an overall assessment, operational scenarios and test design, threat information operations, and logistics. According to DOT&E, the intended NIE objective to test and evaluate network components together in a combined event is sound, as is the opportunity to reduce overall test and evaluation costs by combining test events. NIEs also offer the opportunity for a more comprehensive evaluation of a mission command network instead of piecemeal evaluation of individual network components. In addition, the DOT&E generally reported overall improvements in the execution of the NIEs, realistic and well-designed operational scenarios, and improvements in threat information operations.\nATEC, in addition to preparing operational test reports for specific systems, also prepares an integrated network assessment after each NIE. The reports attempt to characterize how well the current capability set performed with respect to several essential capabilities the Army needs for improved mission command. Based on the performance characterizations presented in the available reports for all NIEs, it appears the Army is making progress in improving its networking capabilities. For instance, the integrated network assessments for NIEs 12.2 and 13.1 cited improvements in an essential capability called network operations. These reports also showed improvements in the common operating picture, which is a capability that enables the receipt and dissemination of essential information to higher echelon command posts. As the Army has modified the reports to improve how they present both capability set performance and essential capabilities, the reports have become tools that are more useful for decision makers.", "Four SUTs that the Army plans to buy and field as part of capability set 13—Warfighter Information Network-Tactical (WIN-T) Increment 2, Joint Tactical Radio System Manpack Radio, Joint Tactical Radio System Rifleman Radio, and Nett Warrior—have demonstrated continued poor performance and/or reliability in both developmental tests before NIEs and operational tests during the NIEs. According to the DOT&E, system development best practices dictate that a system should not proceed to operational testing until it has completed developmental testing and corrected any identified problems. To address these problems, the Army has taken steps to implement design changes and schedule additional testing to verify performance after it has implemented those changes. However, in doing so, the Army faces the risk of making system design changes during the production phase or fielding systems with less than required performance or reliability.\nTwo of these SUTs performed poorly during developmental testing. Developmental testers, through their Assessment of Operational Test Readiness reports, recommended that the Manpack Radio and the Rifleman Radio not proceed into operational testing. Despite these recommendations, the Army proceeded with initial operational testing for these systems during NIEs while reclassifying the participation of other systems as either limited user tests or customer tests. The outcomes were predictably poor, according to DOT&E. See table 1 for operational test results from ATEC and DOT&E reports.\nIn its 2012 annual report, DOT&E pointed out that proceeding to operational testing only confirmed the deficiencies identified in developmental testing. For example, the WIN-T Increment 2 system’s reliability was troublesome enough in a limited user test to warrant a reduction in the reliability requirement. However, WIN-T Increment 2 was unable to meet the reduced requirement. The Rifleman Radio also demonstrated poor reliability during developmental testing in 2011 and even worse reliability in operational testing due to the enhanced stress of an operational environment. The DOT&E stated in its 2012 annual report that, according to system development best practices, the Army should not proceed to an Initial Operational Test and Evaluation with a system until it has completed developmental testing and the program has corrected any identified problems. Otherwise, the Army may conduct costly operational tests that simply confirm developmental testing conclusions about poor system performance and reliability rather than taking action to fix system shortfalls. Further, DOT&E’s 2012 annual report was critical of the Army’s NIE schedule-driven approach, which elevates meeting a schedule above adequately preparing a system to achieve success in operational testing. An event-driven approach, conversely, would allow systems to participate in a test event after the systems have satisfied certain criteria. Under the Army’s schedule-driven approach, the NIEs are held twice a year and SUTs must align their operational testing to coincide with the next available NIE. An event driven-approach—versus a schedule-driven approach—is the preferred method of test scheduling. Using a schedule-driven approach can result in fielding systems that do not provide adequate utility for soldiers and require costly and time-consuming modification in theater.", "In light of poor operational test results during previous NIEs, the Army now must pay for and conduct additional, unanticipated, tests to improve system performance and reliability. The extent to which the additional tests corrected all of the identified problems is unknown at this time as the Army awaits the results of the operational testing conducted at the most recent NIE. Ideally, the Army would demonstrate greater levels of operational effectiveness and suitability prior to making production and fielding decisions. Both GAO and DOT&E have acknowledged the risks of proceeding through testing, and to procurement, with systems that perform poorly. Such systems often require design changes that frequently happen when systems are already in production, which can be more costly and technically challenging. Table 2 summarizes the additional activities required of selected systems.\nIn addition to the unplanned testing summarized in Table 2 above, several systems have operational test and evaluation events scheduled. See table 3.\nDespite the poor test results and unplanned activities intended to improve SUT performance, the Army has begun fielding SUTs for capability set 13, including WIN-T Increment 2, Joint Tactical Radio System (JTRS) Manpack radio, Rifleman Radio, and Nett Warrior. Without disputing the test findings and their implications, Army leadership indicates that this equipment addresses critical capability shortfalls and operational needs by providing some level of capability that is otherwise unavailable. For example, most deployed units previously had no or very limited capabilities other than voice communications. Consequently, the Army believes it is urgent to modernize deploying units as quickly as possible, with the equipment in capability set 13.\nThe Army’s approach carries risk. DOT&E has indicated that the principal way of operating a less reliable system is to invest more in recurring maintenance, which will enable the system to function, but will add to the program’s life-cycle costs and increase its logistical support needs. As a result, the Army will likely have to work with a system that is less reliable than originally envisioned, and develop a new life-cycle cost estimate that reflects the added costs associated with the increased contractor support to keep this less reliable system operating. In addition, ATEC officials state that the negative impact of an individual system falling short of its reliability target is magnified in the capability set. This approach can result in fielded systems that do not provide adequate utility for soldiers and require costly and time-consuming modification in theater as well as additional testing. Our past work as well as reports from DOT&E and DT&E have all found benefits from adequate developmental testing prior to fielding to prove system performance.", "Since the first NIE in 2011, the Army has evaluated more than 120 SUEs from both industry and government, many of which have received positive reviews and recommendations for fielding from the soldiers. However, the Army has been unable to buy many of these systems because it did not have a strategy in place to rapidly buy promising technologies. Army officials explained that existing DOD acquisition processes would not allow the Army to quickly acquire SUEs that could immediately address networking capability gaps. Even so, Army officials did not develop alternative acquisition approaches before they began the NIE process. It is unclear how long industry will continue to participate in the NIEs if the Army is unable to begin buying systems. As discussed later in this report, the Army has now developed new approaches to address barriers to its ability to quickly buy and field SUEs that have successful demonstrations during the NIEs.\nMany SUEs have received positive reviews from soldiers at the NIEs— about five out of every six SUEs were recommended for fielding, field and continue development, or potential for follow-on assessment. Table 4 shows the range of soldiers’ recommendations.\nTo date, the Army has decided to buy only three SUEs—a company command post, which is a collection of capabilities that enhances a company commanders’ ability to plan, execute, and monitor operations; a touch screen-based mission command planning tool; and an antenna mast. The Army will field only one of these systems in capability set 13— the company command post. While Army officials tell us they would like to buy more systems, a number of factors—such as available funds, deployment schedules, system maturity, and requirements—determine which systems they can buy and when they can buy them. Because it did not have a strategy during the NIEs to address these factors, the Army has been limited in its ability to buy successfully demonstrated SUEs.\nThe Army expects industry participants to fund fully their own involvement and initial participation in the process and NIEs, which can be a costly endeavor. Army officials have said it can cost up to $250,000 for an interested contractor to provide a whitepaper for consideration. These whitepapers, which interested contractors submit to the Army in response to a sources sought notice, are the industry contractor’s first opportunity to explain both their system and how it addresses a particular capability gap. The Army releases a sources sought notice to industry to solicit candidate commercial solutions for network/non-network capability gaps and the notice informs potential responders of evaluation criteria and subsequent NIE participation criteria. Participation in later phases of the agile process, and ultimately the participation in a NIE can cost the contractor an estimated million dollars, depending on the system the Army is evaluating. Because of the limited number of successfully demonstrated SUEs that the Army has purchased to date, and the cost associated with industry participation, there is concern that industry may lose interest. This could be especially problematic for the Army’s agile process which, according to the Army, is heavily dependent on industry participation for success. Army officials remain confident in the continued support of industry, but the depth and longevity of this support is unclear at this time.", "While the NIEs are a good source of knowledge for the tactical network as a whole, the Army has not yet tapped into that potential. In January 2013, we reported the Army had not yet set up testing and associated metrics to determine how network performance has improved over time,which limited the evaluation of the cost-effectiveness of its network investments. After completing each NIE, ATEC has provided an integrated network assessment of how well the current capability set enables the execution of the mission command essential capabilities. This qualitative assessment includes only the impact of the current capability set—and not the entire network—on the essential capabilities and does not attempt to evaluate the cost-effectiveness of the current capability set. The Army and DOD consider the fielding of capability set 13 as the initial output from the Army’s network modernization portfolio, but the Army has yet to define fully outcome-based performance measures to evaluate the actual contributions of the capability set. Establishing outcome-based performance measures will allow the Army and DOD to assess progress of network development and fielding and be in a position to determine the cost-effectiveness of their investments in capability set 13. We recommended that, among other things, the Secretary of Defense direct the Secretary of the Army to define an appropriate set of quantifiable outcome-based performance measures to evaluate the actual contributions of capability set 13 and future components under the network portfolio. As discussed later in this report, DOD has started to develop metrics in response to our earlier recommendation.", "The Army is taking action to correct inefficiencies and other issues based on lessons learned from previous NIEs. The Army is also planning to address potential barriers to rapid procurement of successful SUEs, and DOD has started the process to implement our earlier recommendations on network metrics. Many of the initiatives are in the early stages of implementation so outcomes are not certain. The Army also has an opportunity to work more closely with the test community to further improve NIE execution and results.", "The Army has identified inefficiencies or less-than-optimal results in its network modernization and the NIE process and has begun implementing corrective actions to mitigate some of them. Table 5 shows some of the major issues identified by the Army and the corrective actions, which are in early stages of implementation.\nThe Army’s lab-based risk reduction, currently under way, seeks to address concerns over too many immature SUEs sent to past NIEs. Through this initiative, the Army performs technology evaluations, assessments, and integration of vendor systems. Officials test systems individually and as part of an integrated network so that problems can be identified before proceeding to an NIE. In some cases, Army officials identify changes for these systems to increase the likelihood of their success during an NIE, while it drops others when they do not perform well enough in lab testing. Since this effort began, the Army has reduced the number of systems it evaluates during the NIEs, indicating the Army may be making soldiers’ NIE workloads more manageable.\nWhile Army officials acknowledge that lab-based risk reduction does not eliminate all risks, this early evaluation of new systems seems to address some concerns. It may reduce the number of immature systems in the NIE, which could help the Army train soldiers for the new systems. Sending only mature SUEs that have gone through integration testing to NIEs could also help avoid certain test costs.\nAdditionally, to reduce costs, improve the results of NIEs, and better support rapid fielding of new network capabilities, the test community has reported on several issues requiring corrective action by the Army. Additionally, the testers have also taken actions to help reduce redundancies in test data collection processes, among other things. Implementation of these corrective actions, which testers identified during earlier NIEs, could help prevent negative impacts to NIE testing and modernization. Table 6 describes a number of major issues identified by the test community and corrective actions, which are in early stages of implementation.\nMost of the corrective actions to address test community concerns are in early stages of implementation. Below are additional details about the status of a few of the key initiatives.\nArmy test officials anticipate avoiding $86 million in NIE costs due to implementation of a dozen different efficiency initiatives, including making NIEs more efficient by eliminating duplicative surveys, consolidating data systems, refining SUE test data delivery processes, reducing reliance on contractor data collectors by using military personnel more, and automating data collection. Additionally, BMC officials indicated they intend to incorporate additional testing and reduce the number of soldiers involved in future NIEs to help reduce testing costs. Over time, as the Army conducts NIEs more efficiently, it plans to reduce the number of test personnel, realize commensurate salary savings, and reduce engineering expenses.\nTraining and guidance for soldiers using new systems during the NIE is another area receiving attention from the test community and the Army. Army test officials reported that there were gaps in soldier training for the SUEs to be evaluated in NIE 13.1. The training issues, in turn, affected the usefulness of the subsequent system evaluations. DT&E officials also expressed concerns about soldier training, and said problems exist in the rehearsal phase of the NIE process. Brigade Combat Team officials said they have also experienced a lack of training resources as they prepare to deploy overseas. According to Army officials, a lack of complete training information, tactics, techniques, and procedures is hampering soldier training on new network systems. That experience was somewhat mitigated, however, by help from soldiers who had used these systems during earlier NIE events. It will be important for the Army to resolve training issues before operational testers qualify systems as fully suitable for combat use following operational testing. Given that operations and support can often comprise about two-thirds of life-cycle costs, a good understanding of these requirements and costs will be necessary for the Army to make well-informed investment decisions for new equipment.\nAssessing and using lessons learned from experience can help in planning and implementing future activities. The Army’s efforts to reduce costs and implement corrective actions may take several years; therefore, a continued focus on making NIE processes more efficient and effective, as well as documenting the results of corrective actions would better support the Army’s business case for conducting future NIEs.", "The Army is developing a two-pronged approach to address barriers to its ability to quickly buy and field SUEs that have successful demonstrations during the NIEs. According to Army officials, these barriers included a lack of well-defined requirements for the network system (instead of the more general capability gaps); a lack of funding; and lengthy time frames needed to complete the competitive procurement process. The Army found that the processes for translating capability gaps into requirements, identifying specific funding, and completing a competitive procurement can be very time consuming and challenging.\nThe Army is now developing a strategy to address these barriers. After the NIE, if the Army decides to buy and field a SUE, the Army plans to align that capability with a suitable existing requirement within an ongoing program of record. The selected program manager would then identify buying options for the capability, including the feasibility of using an existing contract, and would determine whether (1) funding is available, (2) the Army should identify the capability as an unfunded requirement, or (3) the Army needs an above-threshold reprogramming action. The program manager would also determine if the Army can buy and field the capability in the capability set or identify what capability is achievable. Army officials plan to implement this new strategy in the coming months.\nIn cases where the Army cannot align the successful SUE with an existing program of record, it could develop a new requirement for the system. Army officials have indicated that in a small number of cases, the Army could utilize a directed requirement. The Army generally develops and approves directed requirements to fill urgent needs that the Army believes should be fielded as soon as possible. This allows for essentially bypassing the regular requirements processes, which require additional time to complete.\nIn addition to this strategy, the Army has developed a new NIE acquisition plan that features an alternative means to buy successful SUEs rapidly.\nUnder this new plan, the Army is using a combined sources sought notice and a request for proposals approach to better shape requirements and allow for buying SUEs in less time than under normal acquisition processes. With two NIEs per year, the Army will continue to use a sources sought notice to solicit government and industry solutions to broadly defined capability gaps and will assess those solutions during a NIE. Then, the Army will use lessons learned and soldier feedback from the first NIE to validate and refine the requirement and issue a request for proposal for participation in a future NIE. Using a request for proposal differs from using sources sought notices because the request for proposals approach culminates in the award of indefinite-delivery, indefinite-quantity contracts for industry SUEs to participate in a future NIE. Using an indefinite-delivery, indefinite-quantity contract allows the Army to place production orders for industry SUEs following the NIE. The Army released the first request for proposals supporting a NIE on December 20, 2012, to solicit vehicle tactical routers for NIE 14.1. Vehicle tactical routers would allow users and systems located nearby to access networks securely.\nFor SUEs that already have a defined requirement, the Army plans to issue a request for proposals for participation in one NIE, without using a sources sought notice first. However, Army officials concede that a defined requirement is not usually available prior to the NIE. In those cases, the Army plans to continue issuing sources sought notices for industry proposed solutions that the Army will evaluate during a NIE, as a precursor to issuance of a request for proposals in the future.\nThe Army expects to comply with current DOD acquisition policy when it decides to buy systems that proceed through the agile process. However, the Army may propose changes to existing policy and processes that inhibit realization of the full benefits of the agile process.\nAs the Army implements this strategy over the coming months, it will be important to gather information on how well the strategy works and how rapidly the Army can procure and field a SUE after its successful demonstration during an NIE. At the same time, the Army will be in a better position to determine how much of its constrained budget it can devote to the procurement of SUEs. As recommended under internal control standards, it will be important for the Army to establish specific measures and indicators to monitor its performance and validate the propriety and integrity of those performance measures and indicators.This type of information—on how many SUEs the Army can buy and how rapidly—would be helpful for industry as it makes decisions on its future participation in the NIE process.", "In our initial report on the Army’s tactical network, we concluded that it will also be important for the Army to assess the cost effectiveness of Moreover, to individual initiatives before and during implementation.facilitate oversight, we concluded that it is important for the Army and DOD to develop metrics to assess the actual contributions of the initial capability set the Army will field in fiscal year 2013 and use the results to inform future investments.\nAccording to a key DOD oversight official reporting on Army networks to the Under Secretary of Defense, Acquisition, Technology, and Logistics, DOD has started work to define quantifiable outcome-based performance measures for the Army tactical network. In addition, both DOD and Army officials indicated they are planning to develop a preferred end-to-end performance projection for the Army tactical communications network and intend to quantify the performance needed in terms of voice, data, and so forth, and by network tier, sector, and subnet. Officials plan to define levels of performance for benign and conflict environments and the waveforms and radios soldiers will need for each tier as well as their specific performance characteristics. Although this effort is in its early stages, this DOD oversight official stated that it is expected that the NIE will generate data on performance of the network as a whole, which could then be compared to the expected performance demand.\nSeparately, the Army is also beginning to prepare qualitative assessments of the progress the Army is making in filling capability gaps related to mission command essential capabilities. For example, ATEC has prepared an integrated network assessment after each NIE, which characterizes the level of capability achieved against the mission command essential capabilities. In addition, the Army has prepared a limited assessment of how capability set 13 will meet mission command essential capabilities.\nOnce the performance measures are in place and the Army evaluates the delivered capabilities against those measures, the Army will have the tools to evaluate the progress it is making and make any necessary adjustments to its investment strategy.", "The Army’s network strategy features a variety of different approaches to testing and evaluation to accommodate the rapid pace of technology change and to reduce the cost and time of acquisition. The Army has worked closely with the test community to plan, conduct, and evaluate the NIEs. Also, as mentioned earlier, the test community has taken a number of actions to reduce the costs of planning and executing the NIEs. At the same time, the test community has been meeting its responsibility to objectively report on the tests and the results. However, test results for several network systems at the NIEs that did not meet operational and other requirements will result in added time and expense to address identified issues. An inherent value of testing is pointing out key performance, reliability, and other issues that need to be addressed as soon and as economically as possible, but not after fielding. DOT&E has stated that the schedule-driven nature of the NIEs contribute to systems moving to testing before they have met certain criteria.\nTension between the acquisition and testing communities has been long- standing. In that regard, the Defense Acquisition Executive recently chartered an independent team to assess concerns that the test community’ approach to testing drives undue requirements, excessive cost, and added schedule into programs and results in a state of tension between program offices and the testing community.\nOne area the Defense Acquisition Executive assessment identified for improvement was the relationship and interaction among the testing, requirements, and program management communities. In that regard, the memorandum reporting the results called attention to four specific issues those communities need to address the need for closer coordination and cooperation among the requirements, acquisition, and testing communities; need for well-defined testable requirements; alignment of acquisition strategies and test plans; and need to manage the tension between the communities.\nConcurrently, a systematic review of recent programs by DOT&E and DT&E examined the extent to which testing increases costs and delays programs. The results of both efforts indicated that testing and test requirements by themselves do not generally cause major program delays or increase costs. In addition, the Defense Acquisition Executive found no significant evidence that the testing community typically drives unplanned requirements.\nFurther, according to the DOT&E fiscal year 2012 annual report, three specific areas exist where increased test community interactions could result in improved test outcomes, which can result in systems with needed and useful combat capability being delivered to our forces more quickly. These include developing mission-oriented metrics to evaluate each system within the context within which it will operate; leveraging test and evaluation knowledge in setting requirements; and evaluating the multiple conditions in which the system is likely to be operated.\nAdditional opportunities exist for leadership of the Army and the test community to work together to further improve NIE execution and results. A good starting point would be for the Army to consider addressing the test community observations and recommendations from previous NIEs. Those included the schedule driven nature of NIEs, the lack of well- defined network requirements, and the lack of realistic battlefield maintenance and logistical support operations for SUTs during the NIEs. The Army is not required to and has not directly responded to the test community about its NIE observations and recommendations. Nevertheless, per internal control standards, managers are to, among other things, promptly evaluate findings from audits and other reviews, including those showing deficiencies and recommendations reported by auditors and others who evaluate agencies’ operations. In doing so, the Army may not only improve NIE execution and results but also reduce the tensions with the test community.", "Within a sizable investment of an estimated $3 billion per year to modernize its tactical network, the Army is investing over $150 million per NIE to help ensure that those planned development and procurement investments result in the expeditious delivery of increased capabilities to the warfighter.\nThe main product of the NIEs is knowledge. The Army has not consistently recognized, accepted, and acted upon the knowledge gained from the NIEs. On the one hand, the Army’s fielding decisions to date seem driven by a pre-determined schedule rather than operational test results. Fielding individual systems that have done poorly during operational tests carries risk of less than optimal performance with the potential of costly fixes after fielding and increased operating and sustainment costs. Moreover, performance and reliability issues of individual systems could be magnified when these systems become part of an integrated network. On the other hand, even with a new strategy for procurement of emerging capabilities to fill capability gaps, the Army may still face an expectation gap with industry. The current constrained budget environment and the level of funding already allocated to ongoing network acquisition programs, may leave little funding to procure new networking technologies. Until it has clearly demonstrated the means to rapidly buy and field emerging capabilities and provided this information to industry, the Army may need to manage industry expectations of how many new networking systems it can buy and how rapidly.\nThe Army has implemented some lessons learned from planning and executing the NIEs. However, as part of a knowledge-based approach to its broader network modernization strategy, the Army should also be open to consideration of observations from all sources to improve process efficiency and achieve improved outcomes. We believe that the Army can and should collaborate more extensively with the test community on a variety of issues that could improve NIE outcomes. For example, as part of its responsibility to objectively conduct tests and report on their results, the test community has provided reports, observations, and recommendations before and following NIEs. To date, the Army has not directly responded to the test community’s observations and recommendations on the NIEs.", "To improve outcomes for its entire network modernization strategy, we recommend that the Secretary of Defense direct the Secretary of the Army to take the following four actions:\nRequire that network systems from major defense acquisition programs obtain a positive Assessment of Operational Test Readiness (now called a Developmental Test and Evaluation Assessment) recommendation before being scheduled for operational testing during the NIE;\nCorrect network system performance and reliability issues identified during the NIEs before moving to buy and field these systems;\nProvide results to industry on the Army’s actual experience in buying and fielding successfully demonstrated systems under evaluation and the length of time it has taken to date; and\nCollaborate with all network stakeholder organizations to identify and correct issues that may result in improved network outcomes, including addressing the observations and recommendations of the test community related to the NIEs.", "DOD’s written response to this draft is reprinted in appendix II. DOD also provided technical comments that were incorporated as appropriate.\nDOD partially concurred with our recommendations that the Army (1) require network systems obtain a positive Assessment of Operational Test Readiness (now called a Developmental Test and Evaluation Assessment) recommendation before being scheduled for operational testing during the NIE and (2) correct network system performance and reliability issues identified during the NIEs before moving to buy and field these systems. In both cases, DOD states that processes are already in place to address these issues and that the recommendations as written take flexibility away from the Department. We disagree. Our findings indicate that DOD is not using its current processes effectively to evaluate a system’s readiness to begin operational testing. While there may be instances where the Army uses operational testing to obtain feedback on system performance, DOD’s system development best practices dictate that a system should not proceed to operational testing until it has completed developmental testing and corrected any identified problems.\nThe NIEs are a good forum for the Army to generate knowledge on its tactical network. However, NIEs are a large investment and DOD and the Army should strive to optimize their return on that investment. Approving network systems for operational testing at the NIEs after having poor developmental test results may not be the best use of NIE resources because of the strong correlation between poor developmental test results and poor operational test results. Moreover, it is much more cost effective to address performance and reliability issues as early as possible in the system development cycle and well in advance of the production and fielding phases. As we note in the report, DOD and the Army have been pursuing a schedule-based strategy for network modernization rather than the preferred event-based strategy where participation in a test event occurs after a system has satisfied certain criteria.\nDOD concurred with our recommendation that the Army provide results to industry on how many successfully demonstrated systems under evaluation have been procured to date and how long it has taken for the procurements. However, DOD did not offer specific steps it would take to provide this information or a proposed timeframe. Because of the importance of continued industry participation in the development of the Army network, we think that it is important for industry to have a clear picture of the Army’s success in rapidly buying and fielded emerging technologies. Finally, DOD concurred with our recommendation that the Army collaborate with all network stakeholder organizations to identify and correct issues that may result in improved network outcomes, including addressing the observations and recommendations of the test community related to the NIEs. DOD states that a collaborative environment with all stakeholders will assist in identifying and correcting issues and that the forum for doing so is the semiannual Network Synchronization Working Group. We agree that a collaborative environment is important in responding to previous test community observations and recommendations and would expect the Working Group to address these issues.\nWe are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, the Secretary of the Army, and other interested parties. In addition, the report will be available at no charge on GAO’s website at http://www.gao.gov.\nIf you or your staff have any questions about this report, please contact Belva Martin at (202) 512-4841 or martinb@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III.", "Our objectives were to evaluate (1) the results of the Network Integration Evaluations (NIE) conducted to date and identify the extent to which the Army has procured and fielded proposed network solutions; and (2) Army actions and additional opportunities to enhance the NIE process. To address these objectives, we interviewed officials from the Army’s System of Systems Integration Directorate; the Deputy Chiefs of Staff, G-3/5/7 and G-8; the Army Brigade Modernization Command, and the Army Test and Evaluation Command. We met with representatives of Army Brigade Combat Teams preparing for deployment. We also interviewed officials from the Deputy Assistant Secretary of Defense for Developmental Test and Evaluation; the Director, Operational Test and Evaluation; and the Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics. We visited the Lab Based Risk Reduction facility at Aberdeen Proving Ground, Maryland and the NIE test site at White Sands Missile Range, New Mexico to meet with soldiers and civilian officials conducting testing.\nTo examine the results of NIEs conducted to date, we attended Network Integration Evaluations and reviewed test reports from the Brigade Modernization Command, U.S. Army Test and Evaluation Command, the Director of Operational Test and Evaluation, and the Deputy Assistant Secretary of Defense for Developmental Test and Evaluation. We reviewed briefing presentations for Army leadership that discuss test results and recommendations, and we toured lab facilities to understand how the Army is validating and selecting technologies for network evaluations. We reviewed Army programmatic and budget documentation to understand cost projections for testing and procuring network equipment under the new approach and we reviewed Army plans for resourcing this approach.\nTo identify actions and opportunities to enhance the NIE process, we interviewed Army officials to identify other networking challenges the Army is addressing concurrent with implementation of the agile process. We reviewed test results from both the Army and Department of Defense. We reviewed Army documentation identifying cost avoidance opportunities. We reviewed briefing information regarding lessons learned from activities related to the NIE, such as the screening and lab testing of candidate systems and soldier training. We spoke with officials at both Army and Department of Defense knowledgeable of lessons learned for the testing and fielding of new network capabilities.\nWe conducted this performance audit from September 2012 to August 2013 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.", "", "", "", "In addition to the contact named above, William R. Graveline, Assistant Director; William C. Allbritton; Marcus C. Ferguson; Kristine Hassinger; Sean Seales; Robert S. Swierczek; and Paul Williams made key contributions to this report." ], "depth": [ 1, 1, 2, 2, 2, 2, 2, 1, 2, 2, 2, 2, 1, 1, 1, 1, 1, 1, 2, 2 ], "alignment": [ "h2_full", "h0_full h2_title", "h0_full", "h0_full", "h0_full h2_full", "h0_full", "h0_full", "h1_full", "h1_full", "h1_full", "h1_full", "h1_full", "h2_full", "h1_full", "h3_full", "h0_full h2_full h1_full", "", "", "", "" ] }

{ "question": [ "What is the purpose of the Network Integration Evaluations conducted by the Army?", "How sound is the NIE objective?", "To what extent are the NIEs being utilized to their full extent?", "What decision could exacerbate this problem?", "What is the risk of such a plan?", "What has characterized the Army's relationship to emerging network capabilities thus far?", "What factor determines the success of network modernization?", "How well has Army evaluated network performance metrics?", "How has the Army attempted to address the NIE process?", "What are some specific examples that illustrate the Army's efforts?", "Why does the Army need to validate their new strategy?", "How has it started to do so?", "What is the purpose of the DOD's evaluation of the network metrics?", "What concerns has the test community raised about this process?", "How can the Army improve these relationships?", "Why did the Army attempt to modernize their tactical network?", "How does this network affect the Army monetarily?", "Why did GAO examine the Army's network?", "What are the contents of GAO's report?", "How was this report conducted by GAO?", "What measures did GAO recommend in order to augment the Army's network modernization strategy?", "How did the DOD respond to these recommendations?", "What is GAO's stance on this response?" ], "summary": [ "Since 2011, the Army has conducted five Network Integration Evaluations (NIE), which have provided extensive information and insights into current network capabilities and potential solutions to fill network capability gaps.", "According to senior Department of Defense (DOD) test officials, the NIE objective to test and evaluate network components together in a combined event is sound, as is the opportunity to reduce overall test and evaluation costs by combining test events. Further, the NIEs offer the opportunity for a more comprehensive evaluation of the broader network instead of piecemeal evaluation of individual network components.", "However, the Army is not taking full advantage of the potential knowledge that could be gained from the NIEs, and some resulting Army decisions are at odds with knowledge accumulated during the NIEs. For example, despite poor results in developmental testing, the Army moved forward to operational testing for several systems during the NIEs and they demonstrated similarly poor results.", "Yet the Army plans to buy and field several of these systems.", "Doing so increases the risk of poor performance in the field and the need to correct and modify deployed equipment.", "On the other hand, the Army has evaluated many emerging network capabilities--with generally favorable results--but has bought very few of them, in large part because it did not have a strategy to buy these promising technologies.", "Army officials have stated that the success of network modernization depends heavily on industry involvement but, with few purchases, it is unclear whether industry will remain interested.", "Finally, the Army has not yet developed metrics to determine how network performance has improved over time, as GAO recommended in an earlier report.", "The Army has several actions under way or planned to enhance the NIE process and has further opportunities to collaborate with the test community. The Army has identified issues in the NIE process and its network modernization strategy that were causing inefficiencies or less-than-optimal results and has begun implementing actions to mitigate some of those issues.", "For example, the Army has begun performing technology evaluations, and integration of vendor systems in a lab environment to weed out immature systems before they get to the NIE. The Army has also developed a strategy and has an acquisition plan to address requirements, funding, and competition issues that will help enable it to buy emerging capabilities rapidly.", "However, the Army will need to validate the new strategy and plan and provide results to industry, which could help to manage industry expectations about how many of and how quickly it can buy these capabilities.", "DOD has started to identify and evaluate network metrics and to re-focus NIEs to gather additional data and insights.", "Taking these actions will ultimately allow the periodic review and evaluation of the actual effectiveness of network capabilities and the likely effectiveness of proposed investments.", "The test community has worked closely with the Army on the NIEs but has also voiced various concerns about the NIEs including their being a schedule-driven event. Tension between the acquisition and test communities has been long-standing.", "Additional opportunities exist for Army leadership and the test community to work together to further improve NIE execution and results and to reduce tensions between the two communities. A good starting point for the Army would be to take a fresh look at the test community observations and recommendations from previous NIEs.", "In 2011, the Army began a major undertaking to modernize its tactical network to improve communication and provide needed information to soldiers on the battlefield.", "The Army has identified the network as its number one modernization priority requiring approximately $3 billion per year indefinitely.", "Given the importance of the network, GAO was asked to examine elements of the process the Army is using to acquire network capabilities.", "This report examines (1) the results of the NIEs conducted to date and the extent to which the Army has procured and fielded network solutions, and (2) Army actions to enhance the NIE process.", "To conduct this work, GAO analyzed key documents, observed testing activities, and interviewed acquisition and testing officials.", "To improve outcomes for the Army’s network modernization strategy, GAO recommends that the Secretary of Defense direct the Army to (1) require successful developmental testing before moving to operational testing at an NIE, (2) correct issues identified during testing at NIEs prior to buying and fielding systems, (3) provide results to industry on Army’s efforts to rapidly acquire emerging capabilities, and (4) pursue additional opportunities for collaboration with the test community on the NIEs.", "DOD agreed with the recommendations to varying degrees, but generally did not offer specific actions to address them.", "GAO believes all recommendations remain valid." ], "parent_pair_index": [ -1, 0, -1, 2, 3, 2, 2, 2, -1, 0, 0, 2, 3, 0, 5, -1, 0, -1, 2, 2, -1, 0, 1 ], "summary_paragraph_index": [ 1, 1, 1, 1, 1, 1, 1, 1, 2, 2, 2, 2, 2, 2, 2, 0, 0, 0, 0, 0, 3, 3, 3 ] }

{ "title": [ "", "Administration and Congressional Action", "115th Congress", "116th Congress", "Financial Regulatory Agencies and FSGG Appropriations", "Committee Structure and Scope", "CRS FSGG Appropriations Experts" ], "paragraphs": [ "T he Financial Services and General Government (FSGG) appropriations bill includes funding for the Department of the Treasury (Title I), the Executive Office of the President (EOP; Title II), the judiciary (Title III), the District of Columbia (Title IV), and more than two dozen independent agencies (Title V). The bill typically funds mandatory retirement accounts in Title VI, which also contains additional general provisions applying to the funding provided to agencies through the FSGG bill. Title VII typically contains general provisions applying government-wide. The FSGG bill has also often contained provisions relating to the U.S. policy toward Cuba.\nThe House and Senate FSGG bills fund the same agencies, with one exception. The Commodity Futures Trading Commission (CFTC) is funded through the Agriculture appropriations bill in the House and the FSGG bill in the Senate. Where the CFTC is funded upon enactment depends on which chamber originated the law, which typically alternates annually. Thus, the enacted amounts for the CFTC typically are in the Agriculture appropriations bill one year and FSGG the following year.\nThis structure has existed in its current form since the 2007 reorganization of the House and Senate Committees on Appropriations. Although financial services are a major focus of the bill, the FSGG appropriations bill does not include funding for many financial regulatory agencies, which are instead funded outside of the appropriations process. It is not uncommon for legislative provisions addressing various financial regulatory issues to be included in titles at the end of the bill.", "", "President Trump submitted his FY2019 budget request on February 12, 2018. The request included a total of $49.1 billion for agencies funded through the FSGG appropriations bill, including $282 million for the CFTC. This total included a proposed legislative provision on government-wide transfer authority in Section 737, which was estimated at $3 billion by the appropriations committees.\nThe House Committee on Appropriations reported a Financial Services and General Government Appropriations Act, 2019 ( H.R. 6258 , H.Rept. 115-792 ) on June 15, 2018. Total FY2019 funding in the reported bill would have beeen $45.7 billion, with another $255 million for the CFTC included in the Agriculture appropriations bill ( H.R. 5961 , H.Rept. 115-706 ). The combined total of $45.9 billion would have been about $3.2 billion below the President's FY2019 request, with the largest differences in the funding for the General Services Administration (GSA) and in language relating to government-wide transfers that was requested by the President but not included in the legislation (Section 737).\nH.R. 6258 was included as Division B of H.R. 6147 , the Interior appropriations bill, when it was considered by the House of Representatives beginning on July 17, 2018. The bill was amended numerous times, shifting funding among FSGG agencies but not changing the FSGG totals. H.R. 6147 passed the House on July 19, 2018.\nThe Senate Committee on Appropriations reported a Financial Services and General Government Appropriations Act, 2019 ( S. 3107 , S.Rept. 115-281 ) on June 28, 2018. Funding in S. 3107 totaled $45.9 billion, about $3.2 billion below the President's FY2019 request, with the largest differences in the funding for the GSA and in the government-wide transfers requested language (Section 737).\nThe Senate began floor consideration of H.R. 6147 on July 24, 2018, including the text of S. 3107 as Division B of the amendment in the nature of a substitute ( S.Amdt. 3399 ). The amendment also included three other appropriations bills. The amended version of H.R. 6147 was passed by the Senate on August 1, 2018.\nThe conference committee on H.R. 6147 convened on September 13, 2018. No conference report was reported, however, prior to the end of the fiscal year. Instead, Division C of P.L. 115-245 , enacted on September 28, 2018, generally provided for continuing appropriations at FY2018 levels for the FSGG agencies through December 7, 2018. A further continuing resolution ( P.L. 115-298 ) was passed providing funding through December 21, 2018. No additional appropriations were passed in the 115 th Congress, leading to a funding lapse for the FSGG agencies as well as those funded in six other appropriations bills beginning on December 22, 2018.", "The House of Representatives passed two consolidated appropriations bills in January 2019. H.R. 21 —which contained six full FY2019 appropriations bills, including FSGG provisions nearly identical to those passed by the Senate in the 115 th Congress—passed on January 3, 2019. H.R. 21 would have provided a total of $45.9 billion for the FSGG agencies, with the CFTC funding included with FSGG funding in Division B, following the Senate structure. On January 23, 2019, the House passed H.R. 648 , also containing the same six full FY2019 appropriations bills, which was reportedly based on a potential conference report from the 115 th Congress. H.R. 648 would have provided $46.0 billion for the FSGG agencies, with the FSGG portion—including CFTC funding—in Division C. Neither of these bills included the financial regulatory provisions in Title IX of the House-passed bill in the 115 th Congress. The Senate did not act on either of these bills.\nOn February 14, 2019, the House and the Senate agreed to a conference report ( H.Rept. 116-9 ) on H.J.Res 31 , the Consolidated Appropriations Act, 2019, containing seven appropriations bills. This act provides full FY2019 funding for the government's operations that had not been previously funded, including FSGG provisions nearly identical to H.R. 648 , but located in Division D. The primary substantive differences were in the Department of the Treasury Forfeiture Fund and in funding for GSA. The President signed the resolution on February 15, 2019, enacting it into law as P.L. 116-6 .\nP.L. 116-6 included $45.7 billion in FSGG funding, including the CFTC. It did not include the Title IX financial regulatory provisions passed by the House in the 115 th Congress. The final total was approximately $3.4 billion less than the President's request, with most of the difference coming from the Section 737 transfer authority, which was not included by Congress. Other notable differences included the funding for the GSA and the Executive Office of the President.\nTable 1 below reflects the status of FSGG appropriations measures at key points in the appropriations process across the 115 th and 116 th Congresses. Table 2 lists the broad amounts requested by the President and included in the various FSGG bills, largely by title, and Table 3 details the amounts for the independent agencies. Specific columns in Table 2 and Table 3 are FSGG agencies' enacted amounts for FY2018, the President's FY2019 request, the FY2019 amounts from the 115 th Congress bills ( H.R. 6147 as passed by the House and H.R. 6147 as passed by the Senate), the FY2019 amounts from the 116 th Congress House-passed bills ( H.R. 21 and H.R. 648 ), and the final FY2019 enacted amounts from P.L. 116-6 .", "Although financial services are a focus of the FSGG bill, the bill does not actually include funding for the regulation of much of the financial services industry. Financial services as an industry is often subdivided into banking, insurance, and securities. Federal regulation of the banking industry is divided among the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), the Office of Comptroller of the Currency (OCC), and the Bureau of Consumer Financial Protection (generally known as the Consumer Financial Protection Bureau, or CFPB). In addition, credit unions, which operate similarly to many banks, are regulated by the National Credit Union Administration (NCUA). None of these agencies receives its primary funding through the appropriations process, with only the FDIC inspector general and a small NCUA-operated program currently funded in the FSGG bill.\nInsurance is generally regulated at the state level, with some Federal Reserve oversight at the holding company level. There is a relatively small Federal Insurance Office (FIO) inside the Treasury, which is funded through the Departmental Offices account, but FIO has no regulatory authority.\nFederal securities regulation is divided between the Securities and Exchange Commission (SEC) and the CFTC, both of which are funded through appropriations. The CFTC funding is a relatively straightforward appropriation from the general fund, whereas the SEC funding is provided by the FSGG bill, but then offset through fees collected by the SEC.\nAlthough funding for many financial regulatory agencies may not be provided by the FSGG bill, legislative provisions affecting financial regulation in general and some of these agencies specifically have often been included in FSGG bills. In the 115 th Congress, H.R. 6258 and H.R. 6147 as passed by the House included many provisions, particularly in Title IX, that would have amended the 2010 Dodd-Frank Act and other statutes relating to the regulation of financial institutions and the authority and funding of financial regulators. Many of these provisions were included in other legislation, notably H.R. 10 , which passed the House on June 8, 2017, and S. 488 as amended by the House, which passed the House on July 17, 2018, though neither of these bills were enacted in the 115 th Congress. Of particular interest from the appropriations perspective, H.R. 6258 and H.R. 6147 as passed by the House would have brought the CFPB under the FSGG bill instead of receiving funding from outside of the appropriations process, as is currently the case. S. 3107 and H.R. 6147 as passed by the Senate did not include similar provisions affecting the CFPB or other aspects of financial regulation as in Title IX of the House bills.\nIn the 116 th Congress, the bills passed by the House ( H.R. 21 and H.R. 648 ) did not include financial regulatory provisions similar to those in the 115 th Congress House-passed bill, and neither did the enacted P.L. 116-6 .", "The House and Senate Committees on Appropriations reorganized their subcommittee structures in early 2007. Each chamber created a new Financial Services and General Government Subcommittee. In the House, the FSGG Subcommittee's jurisdiction is primarily composed of agencies that had been under the jurisdiction of the Subcommittee on Transportation, Treasury, Housing and Urban Development, the Judiciary, the District of Columbia, and Independent Agencies, commonly referred to as TTHUD. In addition, the House FSGG Subcommittee was assigned four independent agencies that had been under the jurisdiction of the Science, State, Justice, Commerce, and Related Agencies Subcommittee: the Federal Communications Commission (FCC), the Federal Trade Commission (FTC), the SEC, and the Small Business Administration (SBA).\nIn the Senate, the new FSGG Subcommittee's jurisdiction is a combination of agencies from the jurisdiction of three previously existing subcommittees. Most of the agencies that had been under the jurisdiction of the Transportation, Treasury, the Judiciary, and Housing and Urban Development, and Related Agencies Subcommittee were assigned to the FSGG subcommittee. In addition, the District of Columbia, which had its own subcommittee in the 109 th Congress, was placed under the purview of the FSGG Subcommittee, as were four independent agencies that had been under the jurisdiction of the Commerce, Justice, Science, and Related Agencies Subcommittee: the FCC, FTC, SEC, and SBA. As a result of this reorganization, the House and Senate FSGG Subcommittees have nearly identical jurisdictions, except that the CFTC is under the jurisdiction of the FSGG Subcommittee in the Senate and the Agriculture Subcommittee in the House.", "Table 4 below lists various departments and agencies funded through FSGG appropriations and the CRS experts' names pertaining to these departments and agencies." ], "depth": [ 0, 1, 2, 2, 1, 1, 1 ], "alignment": [ "h0_title h2_title h4_title h3_title h1_title", "h0_title h2_title h4_title h3_title h1_title", "h0_full h4_full h1_full", "h3_full h2_full h1_full", "h4_full h2_full h1_full", "h0_full", "" ] }

{ "question": [ "What is the role of the Financial Services and General Government appropriations bill?", "What is the difference between the Senate and House versions of the bill?", "What accounts of this exception?", "What is included in the FSGG bills report?", "How did the House-passed H.R. bill compare to the Senate-passed H.R. bill?", "What was the similarity between the two bills?", "What else occurred during the 115th Congress timespan in relation to the FSGG agencies?", "What was the end result for the bill?", "What are the components of H.R. 21?", "How does H.R. 648 compare to the measures placed by the 115th Congress?", "To what extent did these bills impact the Department of Homeland Security?", "How did the Senate respond to the bills?", "What are the components of the conference report passed in 2019?", "How did the President respond to this report?", "What does the law provide?", "How does this law compare to the President's request?", "What other differences took place in the law?", "What is the relationship between financial services and the FSGG appropriations bills?", "How have the bills addressed the agencies?" ], "summary": [ "The Financial Services and General Government (FSGG) appropriations bill includes funding for the Department of the Treasury, the Executive Office of the President (EOP), the judiciary, the District of Columbia, and more than two dozen independent agencies.", "The House and Senate FSGG bills fund the same agencies, with one exception.", "The Commodity Futures Trading Commission (CFTC) is usually funded through the Agriculture appropriations bill in the House and the FSGG bill in the Senate.", "The 115th Congress House and Senate Committees on Appropriations reported FSGG appropriations bills (H.R. 6258, H.Rept. 115-792 and S. 3107, S.Rept. 115-281) and both houses passed different versions of a broader bill (H.R. 6147) that would have provided FY2019 appropriations.", "The House-passed H.R. 6147 would have provided a combined total of $45.9 billion for the FSGG agencies, while the Senate-passed H.R. 6147 would have provided $45.7 billion.", "In both cases, the largest differences compared to the President's request were in the funding for the General Services Administration (GSA), the funding for the Executive Office of the President, and the absence of the Section 737 provision on government-wide transfers in both bills.", "No full-year FY2019 FSGG bill was enacted prior to the end of FY2018. The FSGG agencies were provided continuing appropriations until December 7, 2018, in P.L. 115-245 and until December 21, 2018, in P.L. 115-298.", "No final bill was enacted, and funding for FSGG agencies, along with much of the rest of the government, lapsed on December 22, 2018.", "In the 116th Congress, the House of Representatives passed H.R. 21, which contained six full FY2019 appropriations bills, including FSGG provisions nearly identical to those passed by the Senate in the 115th Congress on January 3, 2019.", "On January 23, 2019, the House passed H.R. 648, also containing six appropriations bills, which was reportedly based on a potential conference report from the 115th Congress and would have provided $46.0 billion for FSGG appropriations.", "(Neither of these bills provided full-year funding for the Department of Homeland Security.)", "The Senate did not act on either of these bills.", "On February 14, 2019, both the House and the Senate passed a conference report (H.Rept. 116-9) for H.J.Res. 31, containing seven appropriations bills providing full FY2019 funding for the government's operations that had not been previously funded, including FSGG provisions nearly identical to H.R. 648.", "The President signed the resolution on February 15, 2019, enacting it into law as P.L. 116-6.", "The law provides $45.7 billion in the FSGG appropriations portion (Division D), which includes the funding for the CFTC.", "This is $3.4 billion less than the President's request, with the bulk of this due to the absence of the Section 737 transfer authority in P.L. 116-6.", "Other notable differences include the funding for GSA and the Executive Office of the President.", "Although financial services are a major focus of the FSGG appropriations bills, these bills do not include funding for many financial regulatory agencies, which are funded outside of the appropriations process.", "The FSGG bills have, however, often contained additional legislative provisions relating to such agencies, as is the case with H.R. 6258/H.R. 6147 in the 115th Congress, whose Title IX contained language from a number of different bills relating to financial regulation. P.L. 116-6 did not contain this language." ], "parent_pair_index": [ -1, 0, 1, -1, 0, 1, -1, 3, -1, -1, 1, -1, -1, 0, 0, 0, 0, -1, 0 ], "summary_paragraph_index": [ 0, 0, 0, 2, 2, 2, 2, 2, 3, 3, 3, 3, 4, 4, 4, 4, 4, 5, 5 ] }

{ "title": [ "", "Introduction", "Background", "Immigrant Investors", "Goals", "Requirements", "Regional Center Pilot Program", "LPR Investor Visa Numbers", "Nonimmigrant Investor Visas", "E-1 Treaty Trader63", "E-2 Treaty Investor", "Nonimmigrant Investor Visa Numbers", "U.S. and Canadian Comparisons", "Analysis of the Relationship Between Investments and Migration", "Less Economically Developed Countries", "Temporary and Permanent Investors", "Multiplier Effects", "Administrative Efforts", "Fraudulent Investments", "IRCU Expansion", "New Orleans", "Current Legislation and Potential Issuesfor Congress", "South Dakota International Business Institute", "CanAm Enterprises" ], "paragraphs": [ "", "With the current economic downturn, Members of the 111 th Congress are likely to be faced with many policy options aimed at economic improvement. A focus of past debates has been on the impact immigrants have on jobs and wages. Yet, these discussions frequently take on a different focus when it comes to foreign investors, in part because such visas are targeted at immigrants that are poised to inject capital into the economy and create employment. Foreign investors are often viewed as providing employment opportunities for U.S. citizens rather than displacing native workers. Thus, Congress has in previous years been willing to set aside both temporary and permanent visas for foreign investors with the goal that this visa distribution would net positive economic effects. Yet, extending foreign investor visas provides several potential risks as well, such as visa abuses and security concerns.\nWith the extension of the immigrant investor visa pilot program—a program aimed at granting permanent immigrant visas for investments into certain limited liability corporations—until September 30, 2012, Members of Congress will have to decide if the current policy towards foreign investors should be maintained, or if a different set of policies should be implemented. The central policy question surrounding foreign investors—and particularly legal permanent resident (LPR) investors—is whether the benefits reaped from allocating visas to foreign investors outweigh the costs of denying visas to other employment-based groups. The subsequent analysis provides a background and contextual framework for the consideration of foreign investor visa policy. After a brief legislative background, this report will provide discussions of immigrant and nonimmigrant investors visas, a comparison of U.S. and Canadian immigrant investor programs, an analysis of the relationship between investment and migration, and finally a review of current issues.", "Since the Immigration Act of 1924 the United States has expressly granted visas to foreign nationals for the purpose of conducting commerce within the United States. Although foreign investors had previously been allowed legal status under several Treaties of Friendship, Commerce and Navigation treaties, the creation in 1924 of the nonimmigrant treaty trader visa provided the first statutory recognition of foreign nationals as temporary traders. With the implementation of the Immigration and Nationality Act of 1952 (INA), the statute was expanded to include nonimmigrant treaty investors—a visa for which trade was no longer a requirement. Nonimmigrant visa categories for traders and investors have always required that the principal visa holder stems from a country with which the United States has a treaty. The nonimmigrant visa classes are defined in §101(a)(15) of the INA. These visa classes are commonly referred to by the letter and numeral that denotes their subsection in §101(a)(15) of the INA, and are referred to as E-1 for nonimmigrant treaty traders and E-2 for nonimmigrant treaty investors.\nUnlike nonimmigrant investors, who come to the United States as temporary admissions, immigrant investors are admitted into the United States as LPRs. With the Immigration Act of 1990, Congress expanded the statutory immigrant visa categories to include an investor class for foreign investors. The statute developed an employment-based (EB-5) investor visa for LPRs, which allows for up to 10,000 admissions annually and generally requires a minimum $1 million investment. Through the Regional Center Pilot Program, investors may invest in targeted regions and existing enterprises that are financially troubled. This pilot program was extended by the Basic Pilot Program Extension and Expansion Act of 2003 to continue through FY2008.\nForeign investors are generally considered to help boost the United States economy by providing an influx of foreign capital into the United States and through job creation. For investor immigrants, job creation is an explicit criterion, while with the nonimmigrant visa categories economic activity is assumed to spur job growth. Additionally, foreign investors are often associated with entrepreneurship and increased economic activity. Critics, however, believe that such investors may be detrimental since they potentially displace potential entrepreneurs that are United States citizens.", "There is currently one immigrant class set aside specifically for foreign investors coming to the United States. Falling under the employment-based class of immigrant visas, the immigrant investor visa is the fifth preference category in this visa class. Thus, the immigrant investor visa is commonly referred to as the EB-5 visa.", "The basic purpose of the LPR investor visa is to benefit the United States economy, primarily through employment creation and an influx of foreign capital into the United States. Although some members of Congress contended during discussions of the creation of the visa that potential immigrants would be \"buying their way in,\" proponents maintained that the program's requirements would secure significant benefits to the U.S. economy. Proponents of the investor provision offered predictions that the former-Immigration and Naturalization Service (INS) would receive approximately 4,000 applications annually. These petitioners' investments, the drafters speculated, could reach an annual total of $4 billion and create 40,000 new jobs. The Senate Judiciary Committee report on the legislation states that the provision \"is intended to provide new employment for U.S. workers and to infuse new capital into the country, not to provide immigrant visas to wealthy individuals\" (S.Rept. 101-55, p.21).", "As amended by the Immigration Act of 1990, the Immigration and Nationality Act (INA) provides for an employment-based LPR investor visa program designated for individuals wishing to develop a new commercial enterprise in the United States (INA §203(b)(5)). The statute stipulates that\nThe enterprise must employ at least 10 U.S. citizens, legal permanent residents (LPRs), or other work-authorized aliens in full time positions. These employees may not include the foreign investor's wife or children. The investor must further invest $1 million into the enterprise, such that the investment goes directly towards job creation and the capital is \"at risk.\" However, if an investor is seeking to invest in a \"targeted area\" then the required capital investment may be reduced to $500,000. For each fiscal year, 7.1% of the worldwide employment-based visas (roughly 10,000 visas) are set aside for EB-5 investors, of which 3,000 are reserved for entrepreneurs investing in \"targeted areas.\" The business and jobs created must be maintained for a minimum of two years.\nAccording to regulations, enterprises being proposed need not be backed by a single applicant. Multiple applicants may provide financial backing in the same enterprise, provided that each applicant invests the required minimum sum and each applicant's capital leads to the creation of 10 full-time jobs. The applicant may also combine the investment in a new enterprise with a non-applicant who is authorized to work in the United States. Furthermore, each individual applicant must demonstrate that he or she will be actively engaged in day-to-day managerial control or as a policymaker. Petitions as a passive investor will not qualify. However, since limited partnership is acceptable, regulations do not prevent the investor from living in another location or engaging in additional economic activities.", "The Regional Center Pilot Program differs in certain ways from the standard LPR investor visa. Established by §610 of P.L. 102 - 395 (October 6, 1992), the pilot program was established to achieve the economic activity and job creation goals of the LPR investor statute by encouraging investors to invest in economic units known as \"Regional Centers.\" Regional Center designation must be approved by the Department of Homeland Security's (DHS) United States Citizenship and Immigration Service (USCIS), and is intended to provide a coordinated focus of foreign investment towards specific geographic regions. Areas with high unemployment are especially likely to receive approval as a Regional Center, since they are less likely to receive foreign capital through foreign direct investment (FDI) (although the basic requirements apply to all regional petitions). Up to 5,000 immigrant visas may be set aside annually for the pilot program. These immigrants may invest in any of the Regional Centers that currently exist to qualify for their conditional LPR status.\nThe Basic Pilot Program Extension and Expansion Act of 2003 scheduled the program to sunset in FY2008. However, the Department of Homeland Security Appropriations Act, 2010 ( P.L. 111-83 , §548), extends the authorization of the Regional Center Pilot Program through September 30, 2012. Following the 2003 legislation, USCIS decided to develop a new unit to govern matters concerning LPR investor visas and investments. On January 19, 2005, the Investor and Regional Center Unit (IRCU) was created by the USCIS, thereby establishing a nationwide and coordinated program. USCIS believes that the IRCU will serve the dual purpose of guarding against EB-5 abuse and encouraging investment.\nThe USCIS approximates that between 75-80% of EB-5 immigrant investors have come through the pilot program since it began, and that limited partnerships constitute the most significant portion of this group.", "In contrast to the high number of applications for other employment-based LPR visas, the full allotment of almost 10,000 LPR investor visas per fiscal year has never been used. As Table 1 below shows, the number of LPR investor admissions reached 1,361 admissions in FY1997, or 13.6% of the program's visa supply. In subsequent years, the program declined markedly, before increasing up to 1,360 in FY2008. Despite the low numbers of overall investor admissions, the program has seen a marked increase since the implementation of the Regional Center Pilot Program expansion in 2004.\nFrom FY1992 to FY2004, the cumulative total amount invested into the United States by LPR investor visa holders was approximately $1 billion and the cumulative number of LPR investor visas issued was 6,024. Since FY2004, an additional 1,901 immigrant investor visas have been issued. In the earlier years of the program, it attracted a relatively higher rate of derivatives than principals. However, in the last three years the distribution of visas between principals and derivatives has more closely approximated parity. Derivatives have historically accounted for approximately 66% of immigrant investor visa recipients, while principals account for 34%.\nAccording to data from DHS, in the time span of FY1992 through May 2006, authorities had received a cumulative total of 8,505 petitions for immigrant investor visas. Of these petitions, 4,484 petitions had been granted while 3,820 had been denied —an approval rate of 52.7%. Furthermore, in this same time span, officials received 3,235 petitions for the removal of conditional status from the LPRs of immigrant investors. These petitions were granted in 2,155 cases (a 66.6% approval rate), while the remaining 910 petitions for the removal of conditional status were denied.\nAlthough numerous possible explanations for the overall low admission levels of LPR investor visas exist, the notable drop in admissions in FY1998 and FY1999 is due in part to the altered interpretations by the former-INS of the qualifying requirements that took place in 1998. The 21 st Century Department of Justice Appropriations Act (2002) provided remedies for those affected by the former-INS' 1998 decision, and provided some clarification to the requirements to promote an increase in petitions.\nA 2005 report from GAO listed a number of contributing factors to the low participation rates, including the rigorous nature of the LPR investor application process and qualifying requirements; the lack of expertise among adjudicators; uncertainty regarding adjudication outcomes; negative media attention on the LPR investor program; lack of clear statutory guidance; and the lack of timely application processing and adjudication. It is unknown how many potential investors opted to obtain a nonimmigrant investor visa or pursued other investment pathways. A recent law journal article on investor visas suggested that the two year conditional status of the visa and the alternate (and less expensive) pathways for LPR status often dissuaded potential investors from pursuing LPR investor visas. Yet, since FY2003, the number of immigrant investor visas issued has increased on an annual basis.\nAccording to the GAO study, of the LPR visas issued to investors, 653 had qualified for removal of the conditional status of LPR visa (not including dependents). GAO estimates that these LPR investors invested approximately $1 billion cumulatively into their collective enterprises and 99% kept their enterprise in the same state where it was established. The types of enterprises these investors established were often hotels/motels, manufacturing, real estate, or domestic sales, with these four categories accounting for 61% of the businesses established by LPR-qualified investors. Furthermore, an estimated 41% of the businesses by LPR-qualified investors were set up in California. The subsequent states with the highest percentages of established enterprises were Maryland, Arizona, Florida and Virginia with 11%, 8%, 7%, and 7% respectively (for examples of current investment projects see Appendix B ).\nAs Figure 1 shows, persons obtaining LPR investor visas to the United States between FY1998 and FY2007 has fluctuated in number. While 824 persons obtained such LPRs in FY1998, the total for FY2003 was 64. From FY2003 through FY2008, the total number grew by 2,125% to a total of 1,360. Thus, despite a notable recent upward trend in growth, the issuance of LPR investor visas has not yet recovered to the levels of the mid-to-late 1990s. Additionally, during the time period depicted in Figure 1 , 38.9% of the 3,754 visas issued were for individuals adjusting status. The remaining 61.1% were issued to new arrivals. The majority of these new arrivals occurred in FY2006-FY2008.", "When coming to the United States as a temporary investor, there are two classes of nonimmigrant visas which a foreign national can use to enter: the E-1 for treaty traders and the E-2 for treaty investors. An E-1 treaty trader visa allows a foreign national to enter the United States for the purpose of conducting \"substantial trade\" between the United States and the country of which the person is a citizen. An E-2 treaty investor can be any person who comes to the United States to develop and direct the operations of an enterprise in which he or she has invested, or is in the process of investing, a \"substantial amount of capital.\" Both these E-class visas require that a treaty exist between the United States and the principal foreign national's country of citizenship.\nIn the majority of cases, a commerce or navigation treaty serves as the basis for the E-class visa extension (though other bilateral treaties and diplomatic agreements can also serve as a foundation). A number of countries offer both the E-1 and E-2 visas as a result of reciprocal agreements made with the United States, although many countries only offer one. Currently there are 75 countries who offer the treaty class visas. Of these countries, 28 offer only the E-2 treaty investor visa while 4 countries offer only the E-1 treaty trader visa (see Appendix A ). In the cases where a country offers both types of visas, an applicant who qualifies for both types of visa may choose based upon his or her own preference. Such decisions, however, would depend upon the specific nature of the business as the E category visas carry different qualifying criteria for renewal.\nAlthough each category has some unique requirements, other requirements cut across all categories of nonimmigrant investor visas. An applicant for any of the nonimmigrant investor categories must satisfy the following criteria:\nthe principal visa recipient must be a national of a country with which the United States has a treaty. the principal visa recipient must be in some form of executive or supervisory role in order to qualify as a treaty trader or investor the skills the principal visa recipient possesses must be essential and unique to the enterprise under consideration the visa holder must show an intent to depart the United States at the end of the visa's duration of status if investing in an existing enterprise, the applicant must show that the employer of the treaty trader or investor must be at least 50% owned by nationals of the treaty country.\nA person granted an E-class visa is eligible to stay in the United States for a period of two years. Although an applicant is obligated to show intent of departing the United States at the end of the visa duration, the E-class visas may be renewed for an indefinite number of two year periods provided that the individual still qualifies. Spouses and child dependents are granted the same visa status and renewal as the principal visa holder so long as the child is under the age of 21, after which the child must apply and qualify for his or her own visa.\nGenerally with the E-class visas, the individual may not engage in other employment than that which is stipulated, although incidental activities are generally allowed. If any E-class individual wishes to change employer, he or she is under obligation to contact the Department of State (DOS) and apply for adjustment of status.", "The E-1 formally traces back to the 1924 Immigration Act, although merchants working under treaty terms were recognized visa holders prior to this act. Under current law, the E-1 visa is to be issued to an individual who engages in substantial trade between the United States and his or her country of nationality. According to immigration regulations, trade is defined as \"the exchange, purchase or sale of goods and/or services. Goods are tangible commodities or merchandise having intrinsic value. Services are economic activities whose outputs are other than tangible goods.\" This expanded definition of trade into the service sector allows for a fairly broad understanding of what trade may entail.\nThe term \"substantial trade\" has never been explicitly defined in terms of monetary value. Rather, the term is meant to indicate that there is an amount of trade necessary to ensure a continuing flow of international trade items. For smaller businesses, regulatory qualification for treaty trader status may be derived from demonstrating that the trading activities would generate an income sufficient to support the trader and his or her family. The qualifications for sufficient volume or transaction have not been explicitly set in the regulations, but a minimum qualification is that more than 50% of the business's trade must flow between the United States and the treaty country from which the E-1 visa holder stems.", "The E-2 investor visa is a visa category that stems from the 1952 Immigration and Nationality Act (INA). The qualifying applicant for such a visa is coming to the United States in order to \"develop or direct the operations of an enterprise in which he has invested, or is in the process of investing a substantial amount of capital.\" Unlike the E-1 visa, the business need not be engaged in trade of any kind. However, the same rules concerning ownership are still applicable. In cases of ownership of an enterprise, the regulations require that the E-2 visa holder control at least a 50% interest in an enterprise. The burden of proof for E-2 qualification lies with the applicant in the same manner as with the other E-class visas.\nThere is no explicit monetary amount for what constitutes a \"significant amount of capital.\" The DOS has operated under a regulatory proportionality principle that dictates that the amount an individual invests must be enough to ensure the successful establishment and growth of an enterprise, and there must be some level of investment risk assumed by the treaty investor. Because of this proportionality regulation, an investment in a small to medium-sized enterprise is acceptable. For smaller sized investments, the DOS generally requires that the investment amount be a higher percentage of the enterprise value. For higher valued enterprises the investment percentage becomes less relevant, provided that the monetary amount is deemed substantial.\nAs further grounds for regulatory qualification for an E-2 investor visa, investments in marginal enterprises are not eligible for acceptance. Consequently, the DOS applies a two-pronged test for marginality. On the one hand, the enterprise in which the applicant seeks to make an investment must be capable of providing more than a minimal living for the investor and his or her family. However, the rules are capable of recognizing that some businesses need time to establish themselves and become viable. Consequently, as a second prong of the test, the investor's enterprise must be deemed capable of making a significant economic impact within five years of starting normal business activity. If neither of these prongs is successfully passed, the enterprise is deemed marginal and the application is rejected.\nAn additional category of E-class nonimmigrant visa—the E-3 visa for Australian nationals—does exist, but it is set aside for use by specialized workers, and not for investors or traders.", "E-class visas are largely distributed to foreign nationals from the regions of Asia and Europe. This result is not surprising since the majority of treaty countries are in these two regions. Furthermore, one could reasonably expect that the financial requirements embedded in nonimmigrant investor visa categories would result in a high correlation between the nationality of qualifying applicants and country membership in the Organization for Economic Cooperation and Development (OECD)—an organization of capital abundant countries.\nAs Figure 2 shows, the Asian region was issued the highest number of E-class visas in FY2009, with a total of 14,843 visas issued. These Asian issuances constitute more than any other region, and represent 45.5% of the worldwide total. Within the Asian region, the biggest user of the E-class visa is Japan, whose nationals accounted for 9,533 of the visa issuances in FY2009, a figure representing 29.2% of the 32,655 worldwide E-class visas issued that fiscal year. Europe's 10,943 E-Class visas accounted for 33.5% of the worldwide total, while the North American share of 3,897 visas represented 11.9%. Oceania's issuance accounted for 2,387 visas, or 7.3% of the total. South America and Africa each accounted for less than 1.7% of the worldwide total, and combined their nationals represented approximately 1.8% of the worldwide E-class visa issuances for FY2009.\nThe admissions data on nonimmigrant investors offers more detailed insights into the origins of the visa holders. Table 2 provides cumulative totals of E-class visa admissions into the United States in FY2008 by region of origin, with a detailed breakdown of the Asian region. The figures listed in Table 2 show that the Asian region accounted for approximately 47.7% of the nonimmigrant investor visa admissions into the United States. In FY2008, Japan accounted for the majority of nonimmigrant investor admissions with 85,175 admissions. South Korea's 13,801 nonimmigrant investors admitted account for 6.0% of the United States total for FY2008. It is worth noting that the fast growing markets of China and India (the world's two largest population centers) combined for slightly less than 900 admissions. The second largest region of origin for nonimmigrant investor admissions was Europe, with slightly more investors admitted than Japan. And while Europe's 87,787 admissions accounted for 38.1% of the total U.S. nonimmigrant investor admissions in FY2008, the 276 admissions of nationals from African countries accounted for approximately one-tenth of 1% of this same total.\nThe Department of Homeland Security (DHS) offers statistics on the admissions of nonimmigrants and their destination state. Table 3 indicates the destination states of nonimmigrant treaty trader and investor visa admissions into the United States for FY2008. The state with the highest number of nonimmigrant investors as their destination in FY2008 was California with 46,835 admissions, accounting for 20.3% of the admissions total. Following California, the next three biggest recipients of nonimmigrant investors were New York, Florida, and Texas with 27,252, 24,668, and 22,126 admissions each, respectively. In the respective order, these state admissions accounted for 11.8%, 10.7% and 9.6% of the admissions total in FY2008. The only other states with a combined total of more than 10,000 nonimmigrant treaty trader and investor visa admissions were Michigan and New Jersey. Michigan was the destination state of 12,331 nonimmigrant investors admitted, while New Jersey attracted 11,748 admissions. These totals accounted for 5.3% and 5.1% of the United States admissions total, respectively. The remaining states represented the destination states for approximately 37.2% of nonimmigrant traders and investors.\nHistorically, more investors have applied to enter the United States as nonimmigrants than immigrants, possibly because the less stringent requirements for the nonimmigrant investor visa make it easier to obtain. However, relative to other nonimmigrant categories, the admission levels of investor nonimmigrants are low. With the ease of movement, technological advances, and ease of trade restrictions, many investors may be choosing to invest in the United States from abroad and enter the United States on B-1 temporary business visas or visa waivers.", "Although there are many countries with investor visa programs—including the United Kingdom, Australia, and New Zealand—the Canadian investor program has the strongest parallels to those of the United States. These parallels are in part due to the fact that the U.S. immigrant investor program was modeled after its Canadian counterpart. The Canadian program allows investors who have a net worth of at least $800,000 (Cdn) to make a $400,000 (Cdn) investment through Citizenship and Immigration Canada (CIC). The Canadian government additionally offers an entrepreneurial visa for foreign nationals with a net worth of $300,000 (Cdn). These nationals are required to invest and participate in the management of a certain sized business, and they must produce at least one new full-time job for a non-family member. Between 1986 and 2002, the Canadian investor visa program attracted more than $6.6 billion (Cdn) in investments. From FY1992 through FY2004, United States LPR investor immigrants had invested an estimated $1 billion in U.S. businesses.\nAccording to published accounts, the Canadian investor visa was developed initially to attract investors from the British colony of Hong Kong. The visa was created in 1986 in response to the significant numbers of investors seeking to migrate from Hong Kong in anticipation of the transfer of the colony from British to Chinese control. For these investors, the visa offered an opportunity to establish legal permanent residence in a country that was perceived to be more embracing of individual property rights and open markets. These immigrant investors from Hong Kong, along with other immigrant investors, have cumulatively invested over $3 billion in the Canadian economy.\nAs Figure 3 demonstrates, the annual number of immigrant investor visas issued over the past decade has remained multiple times higher than that of its United States counterpart. The margin between these two programs was closest in 1997, when the Canadian issuance of 5,595 immigrant investor visas was approximately 400% higher than the U.S. total of 1,361 immigrant investor visas issued. Although these ratios have fluctuated, the sizable Canadian advantage in this measure has remained. In terms of the absolute levels, the Canadian immigrant visa level for 2008 represented a 13-year high, while the U.S. level for the same time period roughly equaled its 13-year high. Both countries have shown an upward trend in immigrant investor visas since 2003.\nWhat is unclear from the data is whether the competition between the U.S. and Canadian program (as well as investor programs in other countries) constitutes a zero-sum game. There are no data available showing the motive for migration among investors, or if they perceive the United States and Canada as interchangeable investment locations. If the investors are motivated purely by the economic returns, then economic theory suggests that equalizing the program financial requirements should result in more equal rates of petitions. Furthermore, a lowering of the financial requirements should increase the supply for both countries. However, if the immigrant investors are motivated to migrate by non-financial considerations, then equalizing the United States program requirements with its Canadian counterpart is likely to have little impact on the current trends.", "Classical economic theory has posited that trade liberalization (including the reduction of investment restrictions) establishes a conditional inverse theoretical relationship between foreign direct investment (FDI) and migration. In other words, as trade increases, migration pressures decrease. The theory posits that an increased level of FDI should reduce migratory pressures through growth in the targeted economy. As economic growth produces a higher demand for labor, workers in that economy feel less pressure to seek employment in foreign economies, provided that the new jobs complement the workforce's skills. For example, if economic growth creates demand for skilled labor, then an unskilled labor force should not experience any reduced migration pressures. Thus, while FDI increases host-country growth, there is not necessarily a direct reduction in host-country migration pressures.\nThe investor visas offered by the United States operate on the principal that FDI into the United States should spur economic growth in the United States. According to the classical theory, if these investments are properly targeted towards the U.S. labor force's skill sets, it should reduce the migration pressures on U.S. workers. Such economic growth from FDI should further spur greater demand for trade. In FDI between capital abundant countries such as the OECD member states (between whom a marked majority of FDI flows), the empirical evidence has largely supported this notion. Furthermore, it has provided an increased per capita income in these states, as well as boosted the general standard of living.\nWhat is less clear from the empirical research is the degree to which potential migration provides any additional incentive for investment activity in the United States. The classical trade theory asserts that trade and migration are substitutes, and that trade liberalization should reduce migratory pressures. These basic propositions are generally agreed to hold in the long term. Consequently, in the long term classical trade theory suggests there should be little migration of investors from countries with liberalized trade arrangements with the United States. Instead, these investors would achieve their investments through conventional FDI. Furthermore, the theory suggests that investors would be more likely to migrate from countries with restrictive trade policies (a policy more highly correlated with less economically developed countries).\nCritics of the classical economic models contend that despite elegant predictions, the models produced by the theory frequently do not capture the costs of international finance. Such critics argue that foreign investments often occur at the expense of local businesses, and result in exploitive practices of local labor. These criticisms are particularly common when critiquing the economic relationship between capital abundant countries and less economically developed countries (LEDC). According to the argument, more powerful countries can leverage their power to construct investment relationships that shift a disproportionate amount of profits to the capital abundant countries. Simultaneously, a greater share of the costs are shouldered by the less powerful country. Classical economists generally respond by noting that these investments are still producing growth in the LEDCs, making the countries better off than without the investments. However, LEDCs remain a source of contention between the classical economic theorists and their critics.", "Some scholars have expressed doubt about the posited trade/migration substitutability, suggesting that the relationship in the short or medium term could look different from the long term. One of the arguments put forward is that trade and migration are complementary for countries with different levels of development. Under such a scenario, economic growth in a sending country would provide potential migrants with the economic means to overcome relatively high migration costs. Other observers point to such factors as imperfect credit markets and currency fluctuations as significant \"push\" factors for potential migrants. These latter factors, however, are generally more highly correlated with LEDCs. Therefore, both the complementary and substitutability theories of trade and migration suggest that higher demand for investor out-migration should currently lie in the populations of LEDCs. However, as noted earlier, investor visas issued to regions with LEDCs are relatively few.\nWhat makes the visa program distinct from conventional FDI is that it involves trade through the import of human capital. Consequently, these visas have potential for creating a so-called \"brain drain\" migration out of less-developed sending-countries. LEDCs are by definition limited in their capital levels, and economic theory would suggest that exporting capital from a capital scarce country would inhibit its growth and development. Classical theorists would argue that the United States would be better served by sending FDI into LEDCs, thereby promoting economic growth in LEDCs and a subsequent higher demand for U.S. goods. Such investment, the theory dictates, would promote job growth both in the United States and abroad. Instead, targeting investors from capital abundant countries for sector specific investments would serve a more complementary role for the global market. By attracting capital abundant country investors, the United States' economic growth and productivity could be stimulated without adversely affecting the consumption and trade potential of the investor's country of origin.", "Some recent scholarly work has drawn a distinction between the decision-making factors of potential temporary and permanent migrants. Amongst temporary migrants, it is the employment prospects and wage differentials that are significant variables in deciding whether to migrate. Differences in both gains and price levels should affect the cost/benefit calculation of the potential migrants, as these variables will affect potential levels of consumption and savings. For permanent migrants, however, the prospects for professional and social mobility are the main motivating factors.\nThe distribution of visas among Asian countries shows marked country-specific tendencies among investor visa petitioners. Specifically, the polarization among petitioners towards either immigrant (permanent) or nonimmigrant (temporary) visas suggests that a significant proportion of applicants are substituting immigrant visas for nonimmigrant visas, or vice versa. For example, while Japan accounted for 36.9% of all the foreign nationals arriving on nonimmigrant treaty trader and investor visas in FY2008 ( Table 2 ), its nationals represented only 1% of all the LPR investor visas issued since FY1992. Conversely, nationals of Taiwan accounted for roughly 40% of immigrant investors issued since FY1992, but only 1.5% of nonimmigrant arrivals in FY2008. In the context of the aforementioned theory, these opposite behaviors suggest that Japanese investors are seeking to capitalize on wage differentials, while Taiwanese, Chinese, and (to some extent) South Korean investors are pursuing professional and social mobility.\nAlthough some considerations weigh more heavily on the decisions of immigrant and nonimmigrant investors, no single explanation accounts for the behavior of investor visa petitioners. Japan, for example, has some trade restrictions with the United States through voluntary export restraint agreements limiting auto and steel exports to the United States, suggesting from the theoretical standpoint that Japanese investors would choose to temporarily migrate. The Japanese governments have also complained that the post-9/11 customs regulations and practices of the United States inhibit U.S./Japanese trade. Despite the suggestion by these factors that Japanese investors are temporarily substituting trade with migration, it is also plausible that Japan's weak economic performance has reduced the professional mobility opportunities—a motivation associated with permanent migration. From 1991-2000, Japan's real (adjusted for inflation) average GDP growth rate was 1.4%, and it fell to 0.9% from 2001 to 2003. Yet, regardless of motivation, Japanese investors are predominantly choosing to temporarily migrate to the United States.\nThe fact that China, Taiwan and South Korea have had strong economic performance in the last decade and relatively higher levels of immigrant investors to the United States, suggests that these investors are migrating for more than financial purposes. These investors may be more strongly motivated by the family and/or social network connections to previously migrated investors and other LPRs in the United States. These theoretically derived motives, however, must be further tested empirically before any conclusive behavioral statements can be made.", "Classical economic theory holds that investments provide for multiplier effects throughout the economy by increasing demand for other goods and services. For example, an increase in demand for corn may increase the demand for storage facilities, which results in an increase in construction contracts. The U.S. Department of Commerce has quantified these effects through the Regional Input-Output Modeling System (RIMS II). The RIMS II multipliers have become a significant factor in assessing indirect economic activity and employment effects for Regional Center Pilot Program petitions. Using the regional multipliers for various industries, foreign investment funds are frequently shown to yield increases in demand across an economy that are several times higher than the direct input by an investor. Thus, despite the relatively low number of investors entering the United States, the impact of each investment by a foreign investor is a multiplied factor greater than the direct investment, depending upon which industry and region is being invested in. Furthermore, studies showing the direct economic investments of foreign investors may not fully capture the economic impact of these investors upon a region.", "In recent years, significant efforts have been made by administrative agencies to both promote investment by foreigners in the United States economy, and to close perceived loopholes for visa exploitation. At the center of these efforts has been the USCIS' changes to the Regional Center Pilot Program, which addressed fraud concerns and the development of a Regional Center unit for coordination and targeting of foreign investments.", "During the late 1990's, the LPR investor visa was suffering from high levels of fraudulent applications. There has been concern that potential immigrants could use schemes of pooling their funds and transferring the money to demonstrate the existence of sufficient capital. Furthermore, applicants could potentially use promissory notes that would allow for their repayment after a six year time period. Since the LPR was only conditional for two years, some observers feared that these investors could pull out of their respective investments after being granted their LPR, have the promissory notes forgiven, and the enterprise would collapse. As a result, the USCIS has engaged in a policy of not accepting promissory notes, although the regulations state that petitions with promissory notes may be considered for approval. Additionally, the creation of the Investor and Regional Center Unit (IRCU) within USCIS has allowed greater scrutiny of applications through increased resources and coordination of petitions processing. Petitioners now must provide extensive documentation that traces the source of their funds to show that the capital was legally obtained.", "Prior to the creation of IRCU, the former-INS had been criticized for becoming more restrictive in application reviews for Regional Center designation, including allowing some applications to remain pending for more than three years. In 2005, concerns were raised by both Members and advocates that the IRCU still did not process applications quickly enough, and that staff members had competing obligations within IRCU. Proponents of the Regional Center Pilot Program believe it has attracted a significant amount of capital and that addressing these criticisms would further increase the levels of foreign investments through the LPR investor visa. USCIS has responded to these criticisms by expanding the number of Regional Centers available for LPR investor investments.\nWorking with foreign financing from the immigrant investor program has become highly attractive for many domestic investors. A number of current investment projects are using LPR investor financing because it is less costly for the domestic investors. For domestic investors, employing LPR investor funds becomes a significantly cheaper option than a bank loan, since there is no requirement to pay interest on the financing. Additionally, because the enterprises are less saddled with financing debt they are more quickly able to turn a profit. The LPR investor visa petitioners are still able to qualify for conditional LPR status under these investment structures through the multiplier rules for employment and capital that the USCIS employs. Thus, limited partnerships of domestic investors with LPR investor visas has become a popular option for financial stabilization and enterprise start-up in Regional Centers as diverse as Philadelphia and South Dakota.", "In the efforts to rebuild the sections of New Orleans damaged by Hurricane Katrina, developers and officials alike have taken an interest in attracting foreign capital. USCIS officials are working closely with New Orleans officials to establish New Orleans as another Regional Center for LPR investor visa investments. Officials at USCIS are hopeful that the program success that the Philadelphia targeted center is experiencing can be replicated in New Orleans. Since being designated a Regional Center, Philadelphia has attracted over 100 LPR investors and most of their investments are being used to help finance the renovation and transformation of the 1,100 acre shipyard (for further discussion, see Appendix B ).", "In the 111 th Congress, authorizing language in the Department of Homeland Security Appropriations Act, 2010 ( P.L. 111-83 , §548), extends the authorization of the Regional Center Pilot Program through September 30, 2012. The Senate-passed version of the act had included language to permanently reauthorize the EB-5 Regional Center Pilot Program, but this language was not included in the conference agreement. On July 22, 2009, the Senate Judiciary Committee held a hearing to assess the Regional Center Pilot Program, with some members expressing support for the program's permanent authorization. Some legislation has also proposed modifying the qualifying criteria as a targeted area to lower the threshold for investment amounts in some geographic regions as a means of enticing more applications by potential immigrant investors. There are currently no other programs for targeting investments by immigrant investors to the United States.\nAdditional investor visa issues that could surface may relate to temporary investors. In terms of nonimmigrant visas, the Danish government has been lobbying the United States to grant E-2 treaty investor visas to Danish nationals. Originally, this provision was granted to the Danes on May 2, 2001 as part of a protocol to the treaty granting nationals of Denmark E-1 nonimmigrant trader visa eligibility. The protocol was never ratified, however, due to congressional objections over the inclusion of immigration provisions in a trade agreement. Subsequently, Representative Sensenbrenner introduced H.R. 3647 in the 109 th Congress, which was passed in the House on November 16, 2005, and would have allowed nationals of Denmark to enter and operate in the United States as investors under E-2 treaty investor nonimmigrant visas. Currently, Danish nationals are only allowed E-1 treaty trader visas. Denmark is one of four countries whose nationals are eligible for E-1 treaty trader visas, but not E-2 treaty investor visas (see Appendix A ).\nAppendix A. E-Class Visa Privileges by Year of Attainment\nAppendix B. Immigrant Investor Pilot Program Projects\nThere are currently numerous targeted economic regions set up for the Regional Center Pilot Program for the EB-5 visa category. These targeted areas have focused on different types of investments in order to achieve economic benefits for the given region. Below are descriptions of a couple of the projects that are currently in place under the Regional Center Pilot Program and the results these projects are producing.", "The South Dakota International Business Institute (SDIBI), Dairy Economic Development Region (DEDR) is the only regional targeting center currently run by a state government. Approved in June 2005, this Regional Center was the result of a state-wide effort to find an improved method of attracting foreign capital to South Dakota. From the state's perspective, the EB-5 pilot investor program offered a more promising solution than the E-2 nonimmigrant visa, since officials could offer investors the benefit of LPR status. Additionally, the job-creation criterion of the EB-5 visa aligned well with the state's focus on job creation from foreign investments (as opposed to isolated capital injections). In its application for Regional Center designation, the state said it would focus its efforts on attracting dairy farm investors. USCIS agreed to the designation on the condition that South Dakota would allow for limited partnerships of foreign investors with domestic farmers. As a result, South Dakota currently has enterprises fully owned and operated by foreign investors, as well as limited partnerships.\nSince the regional designation took effect, South Dakota has attracted 60 foreign investors to its dairy industry (with an additional 10 applications still pending). These foreign investors have injected approximately $30 million into the South Dakota economy, with an additional $6 million in matching funds coming from local farmers. Furthermore, this combined $36 million in invested funds has resulted in almost $90 million in bank financing for the various dairy investment projects. As a direct consequence of these foreign investments, 240 additional jobs have been created and 20,000 additional cows have been brought to South Dakota. Using the RIMS II multipliers for investment and employment, the foreign investments from EB-5 immigrants have resulted in a total of 638 additional jobs and over $360 million in additional funds to the regionally targeted economy.\nAccording to SDIBI/DEDR Director Joop Bollen, the pilot program has afforded South Dakota \"a tremendous opportunity,\" not only because of the direct investments and multiplier effects, but because of the other investments made by the foreign investors. According to Director Bollen, the attraction of foreign investors has had significant spillover effects into the restaurant and meat packing industries. As a result, SDIBI/DEDR hopes to focus on attracting additional investments for its meat packing plants. As such, Director Bollen stated that it was of paramount concern to the SDIBI/DEDR that USCIS have sufficient resources to quickly adjudicate EB-5 immigrant visa petitions. If the adjudication process is too long, Director Bollen stated, then the opportunity cost may make a South Dakota dairy investment unappealing to foreign investors.", "CanAm Enterprises is a private financial advising group which serves to structure, promote and administer the Philadelphia Industrial Development Center (PIDC) Regional Center. The group works in conjunction with the City of Philadelphia through the PIDC to facilitate the city development (mainly in the city's shipyard area) and provide investor credibility. This public/private partnership was developed to aid the transition of Philadelphia from a manufacture-based to a service based economy. The main strategy has been to use collateralized loans to attract investments in industries that provide long-term full time employment. By doing so the city hopes that investors will wish to invest in other projects and sectors of the city's economy.\nWhen the Philadelphia Naval Base was closed as part of the base closures of the 1970s, the base was handed over to the PIDC for transformation to civilian use. Despite the city's efforts the shipyard was unable to remain competitive in the ship construction industry. However, with the passage of requirements following the Exxon Valdez oil spill (and the ongoing regulations from the Jones-Shafroth Act), the civilian shipbuilding industry in the United States became economically viable again. The federal government and the city of Philadelphia combined to invest over $400 million into the Philadelphia shipyard. Additionally Norwegian shipbuilding companies were brought in as investors in the shipyard and provided valuable training and human capital to the shipyard. Since production restarted, EB-5 investors have become increasingly important for providing funds to remove production bottlenecks. A recent example includes the use of EB-5 funds for the development of a more advanced painting technology for the ships.\nPhiladelphia is one of the Regional Centers that has been most successful in attracting foreign investors through the EB-5 visa. There are approximately 60 EB-5 visa investors in Philadelphia who have invested a total of $75 million into the city. Additionally, there are around 30 petitions that are under review for other investment projects. The lead official at CanAm Enterprises told CRS that while they believe the funds have been important to the city, the human capital the investors bring is equally important. This official stated that the investors being brought to the United States represented highly competent entrepreneurs, who not only made investments in the city beyond their initial investment, but also facilitated greater economic activity through exchanges with their existing foreign networks." ], "depth": [ 0, 1, 1, 1, 2, 3, 3, 2, 1, 2, 2, 2, 1, 1, 2, 2, 2, 1, 2, 2, 2, 1, 2, 2 ], "alignment": [ "h0_title h2_title h1_title", "", "h2_full", "h0_full", "", "", "", "h0_full", "h0_full", "", "", "h0_full", "h1_full", "h2_full", "", "h2_full", "", "h0_title", "", "h0_full", "", "", "", "" ] }

{ "question": [ "What are the category distributions in the Foreign Investor Visas?", "What do the categories look like for the nonimmigrant investors?", "What is the category for immigrant investors?", "How many visa arrivals were reported in 2008?", "How do U.S. investor visas compare to those from Canada?", "How does the LPR investor visa specifically compare to the Canadian visa?", "What does the admissions data between the two countries show?", "What is the trajectory for both countries regarding visas?", "How do U.S. investor visas operate?", "What does the classical theory suggest about this scenario?", "How are different groups of investors motivated?", "What may draw some investors to remain within their home country?" ], "summary": [ "There are currently two categories of nonimmigrant investor visas and one category of immigrant investor visa for legal permanent residents (LPR).", "The visa categories used for nonimmigrant investors are: E-1 for treaty traders; and the E-2 for treaty investors.", "The visa category used for immigrant investors is the fifth preference employment-based (EB-5) visa category.", "According to Department of Homeland Security (DHS) statistics, there were 230,647 nonimmigrant treaty trader and investor visa arrivals in the United States in FY2008. For the same time frame, DHS reported the granting of 1,360 investor visas.", "When viewed from a comparative perspective, the investor visas of the United States are most closely mirrored by those of Canada.", "The LPR investor visa draws especially strong parallels to the Canadian immigrant investor visa, since the latter served as the model for the former.", "Comparing the admissions data between these two countries, however, reveals that the Canadian investor provision attracts many times the number of investors of its United States counterpart.", "Yet, both countries showed an upward trend in immigrant investor visas in the last two years.", "The investor visas offered by the United States operate on the principle that foreign direct investment into the United States should spur economic growth in the United States.", "According to the classical theory, if these investments are properly targeted towards the U.S. labor force's skill sets, it should reduce the international migration pressures on U.S. workers.", "To attract foreign investors, research indicates that temporary migrants are motivated most significantly by employment and wage prospects, while permanent migrants are motivated by professional and social mobility. Theoretically, however, it is unclear to what extent potential migration provides additional incentive for investment activity. Investors from developed countries may sometimes lack incentive to settle in the United States since they can achieve foreign direct investment (FDI) and similar standards of living from their home country.", "Investors from developed countries may sometimes lack incentive to settle in the United States since they can achieve foreign direct investment (FDI) and similar standards of living from their home country." ], "parent_pair_index": [ -1, 0, 0, -1, -1, 0, -1, 2, -1, 0, -1, 2 ], "summary_paragraph_index": [ 1, 1, 1, 1, 2, 2, 2, 2, 3, 3, 3, 3 ] }

{ "title": [ "Background", "SSA Transferred Applications, Conducted Outreach and Training, and Reported That These Efforts Did Not Significantly Affect Workload", "SSA Transferred over 1.9 Million Applications to States, Made Information on MSPs Available to Potentially Eligible Individuals, and Trained Staff", "SSA Spent about $12 Million in the First 3 Years and Reported That Implementing the Requirements Did Not Significantly Affect SSA’s Workload", "Estimated MSP Enrollment Increased from 2007 through 2011 with the Largest Increases Occurring after the Requirements Took Effect", "States Reported That the Requirements Led to Various System Changes and Increased Workload", "Concluding Observations", "Agency Comments", "Appendix I: GAO Methodology for Estimating Change in Medicare Savings Program Enrollment", "Appendix II: GAO Contact and Staff Acknowledgments", "GAO Contact", "Staff Acknowledgments" ], "paragraphs": [ "Medicare covers almost 49 million beneficiaries. Individuals who are eligible for Medicare automatically receive Part A benefits, which help pay for inpatient hospital, skilled nursing facility, hospice, and certain home health services. A beneficiary generally pays no premium for this coverage unless the beneficiary or spouse has worked fewer than 40 quarters in his or her lifetime, but the beneficiary is responsible for required deductibles, coinsurance, and copayment amounts. Medicare- eligible beneficiaries may elect to purchase Part B, which helps pay for certain physician, outpatient hospital, laboratory, and other services. Beneficiaries must pay a premium for Part B coverage, which generally Beneficiaries are also responsible for was $99.90 per month in 2012.Part B deductibles, coinsurance, and copayments. Beneficiaries electing to obtain coverage for Medicare services from private health plans under Part C are responsible for paying monthly Part B premiums and, depending on their chosen plan, may be responsible for a monthly premium to the Medicare plan, copayments, coinsurance, and deductibles. Finally, under Medicare Part D, beneficiaries may elect to purchase coverage of outpatient prescription drugs from private companies. Beneficiaries who enroll in a Part D plan are responsible for a monthly premium, which varies by the individual plan selected, as well as copayments or coinsurance. Table 1 summarizes the benefits covered and cost-sharing requirements for Medicare Part A and Part B, referred to together as Medicare fee-for-service.\nMany low-income Medicare beneficiaries receive assistance from Medicaid to pay Medicare’s cost-sharing requirements. For Medicare beneficiaries qualifying for full Medicaid benefits, state Medicaid programs pay for Medicare’s Part A (if applicable) and Part B premiums and cost- sharing requirements up to the Medicaid payment rate as well as for services that are not generally covered by Medicare. To qualify for full Medicaid benefits, beneficiaries must meet their state’s eligibility criteria, which include income and asset requirements that vary by state. In most states, beneficiaries that qualify for Supplemental Security Income (SSI) automatically qualify for full Medicaid benefits. Other beneficiaries may qualify for full Medicaid benefits through one of several eligibility categories that states have the option but are not required to cover, such as the medically needy category, which includes individuals with high medical costs.\nCongress created several MSPs—QMB, SLMB, QI, and QDWI—and, more recently, the LIS program to further assist low-income Medicare beneficiaries with their premium and cost-sharing obligations. Each program has different benefits, and beneficiaries qualify for different levels of benefits depending on their income. (See table 2.) Beneficiaries must also have limited assets to qualify for MSPs or LIS. MIPPA amended the asset limits for the QMB, SLMB, and QI programs to more closely align with the LIS limits beginning January 1, 2010. This raised the MSP asset limits for the first time since 1989 and ensured that those limits would be adjusted for inflation in the future. As with other Medicaid benefits, states have the flexibility to extend eligibility for MSP benefits to a larger population than federal law requires to be covered by implementing less restrictive income and asset requirements, for example by eliminating asset limits or not counting certain types of income. Therefore, eligibility requirements for MSPs vary across states, while requirements for LIS, which is administered by SSA, are uniform nationwide.\nMIPPA included several new requirements aimed at eliminating barriers to MSP enrollment. Specifically, MIPPA required SSA to, beginning January 1, 2010, transfer data from LIS applications, at the option of applicants, to state Medicaid agencies, and it required state Medicaid agencies to use the transferred information to initiate an MSP application. SSA was also required to make information on MSPs available to those potentially eligible for LIS, coordinate outreach for LIS and MSPs, and train staff on MSPs.included a number of other provisions related to MSPs. As mentioned earlier, MIPPA amended the asset limits for QMB, SLMB, and QI to more closely align with the limits for LIS. It also required CMS to translate a previously developed model MSP application into 10 languages other In addition to the above requirements, MIPPA than English. In addition, MIPPA included funding for states and other organizations to perform outreach for LIS and MSPs. Beginning January 2010, MIPPA also exempted certain types of income and assets from being counted when SSA makes a determination of LIS eligibility. For example, the law required that SSA not count the value of a life insurance policy as an asset. The law did not extend these changes to MSPs, but states have the option to make comparable changes to their programs. The treatment of the value of life insurance is one example of a potential difference in how LIS and MSPs count income and assets in determining program eligibility.\nIn addition to the application transfers required under MIPPA, there are a number of other pathways to enrollment in MSPs. First, when a person applies for Medicaid, states may screen them for eligibility for MSPs. Second, some states offer a streamlined application to apply specifically for enrollment in MSPs. Finally, more than half of states automatically enroll beneficiaries whom SSA has determined to be eligible to receive SSI benefits. Once enrolled in MSPs, states periodically determine whether beneficiaries remain eligible for the program and either renew or cancel enrollment. States have different processes for doing this, some of which require more steps by the enrollee than others.", "In implementing the MIPPA requirements, SSA reported transferring over 1.9 million applications to states, made information available on MSPs to potentially eligible individuals, conducted outreach, and provided training to staff on MSPs. SSA spent about $12 million in the first 3 years in implementing the MIPPA requirements, and officials reported that these efforts did not significantly affect its workload.", "As required by MIPPA, SSA began transferring applications in January 2010, and SSA reported transferring over 1.9 million applications to states between January 4, 2010, and May 31, 2012. SSA officials told us that all states were able to receive LIS data when the transfers began in January 2010 and that applications are transferred to states each business day. Through the application transfer, SSA provides states with the following information: (1) all of the information reported by the applicant or modified by SSA, including information on household composition, income, and assets; (2) whether SSA approved or denied LIS enrollment and the reasons for denials; and (3) the date that the LIS application was submitted, as eligibility for SLMB, QI, and QWDI is retroactive to that date. SSA decided that transfers would occur after SSA determined eligibility for LIS, which generally occurs within 30 days. As a result, a number of elements of the application information transferred to states have been verified by SSA.affect benefits for certain applicants. Specifically, for those individuals enrolling in the QMB program, where benefits do not begin until the month after the state’s determination of eligibility, waiting for the SSA data transfer may result in the loss of a month or more of benefits.\nHowever, the timing of the transfer can SSA coordinated with CMS officials and state Medicaid agency officials about how to structure the exchange of application data. For example, SSA developed a standard data transfer agreement and signed an agreement with each state. In the months prior to implementation, SSA tested the data exchange with states in order to identify and resolve any concerns states had in receiving and using the transferred data. Finally, SSA programmed its data systems to transfer the applications as agreed with the states. SSA officials also told us that the agency designed the process to eliminate duplicate applications, applications with insufficient address data, and applications where the individual has opted out of the data transfer. In response to concerns raised by states once the transfers began, SSA also decided to delay the transfer of applications from individuals not yet eligible for Medicare until the applicant is within 1 month of eligibility. For 2011, SSA reported transferring 66 percent of all LIS applications where SSA determined eligibility to states to initiate an application for MSPs; and 13 percent of applications had applicants who opted out of the transfer and thus were not transferred. SSA officials told us the remaining 21 percent were not transferred for various other reasons beyond the applicant opting out of the transfer, such as the applicant was not yet eligible for Medicare or the applicant submitted a duplicate application.\nTo implement the requirements to make information available to potentially eligible individuals and coordinate outreach, SSA took several steps. SSA made information, such as the model MSP application developed by CMS, available through its website and in local offices. SSA conducted an outreach campaign in 2009 to provide information on LIS and MSPs, including the changes that MIPPA made to the eligibility requirements for both programs. As part of the campaign, SSA held events and issued new promotional materials, which the agency provided to local Social Security offices, community organizations, and health providers’ offices. SSA also sent about 2 million outreach letters in 2009 to individuals previously denied LIS benefits alerting them that eligibility requirements for LIS and MSP would be changing in January 2010 and they could now be eligible for LIS as well as MSPs. Since January 2010, SSA has sent letters describing LIS and MSPs to several categories of potentially eligible individuals. (See table 3.)\nTo train staff, SSA developed two video trainings for its employees on the MIPPA changes to LIS and MSPs and made the video trainings available on-line. SSA required those staff that would be interacting with individuals potentially eligible for LIS or MSPs to view the video trainings prior to January 2010. SSA also updated its policies and procedures manual to include instructions for employees in handling individuals’ questions about MSPs during routine contacts. For example, SSA’s policies and procedures manual instructs employees to tell individuals about the availability of MSPs and that in applying for LIS the individuals can initiate an MSP application with their state Medicaid agency unless they opt out. SSA’s manual also instructs employees not to help complete MSP applications but to refer individuals with MSP questions to either their local Medicaid office or to State Health Insurance Assistance Programs, which help individuals complete applications for Medicare and Medicaid benefits.", "In fiscal years 2009 through 2011, SSA spent about $12 million to implement the MIPPA requirements. Of the $24.1 million appropriated by MIPPA for the initial costs of implementing the requirements, SSA spent $9.2 million combined for fiscal years 2009 and 2010 ($4.5 million and $4.7 million respectively). The remaining $14.9 million in unspent funds remains available to SSA for future costs in meeting the requirements. In fiscal year 2011, SSA spent about $2.5 million of the $3 million appropriated under MIPPA for the ongoing administrative costs of carrying out the requirements. These costs were financed through its first annual agreement with CMS. For fiscal year 2012, CMS agreed to fund $2.8 million. SSA officials told us that, based on data available as of July 2012, they expected SSA’s workload, and therefore costs, to remain constant for fiscal year 2012.\nSSA officials told us that implementing the MIPPA requirements has not affected SSA’s overall workload significantly as measured by the staff time committed to implementation and to handling inquiries and calls about MSPs. For example, SSA officials reported that implementation required 17 full time equivalents (FTE) in 2009, 32 in 2010, and 8 in 2011 and indicated that the ongoing cost in staff time of meeting the requirements is relatively small. SSA officials told us that a larger amount of staff time was used in 2009 and 2010 because that was when SSA conducted its outreach campaign and designed and launched the application transfers, the latter of which required programming data systems, developing new procedures, and training staff. According to officials, some of the ongoing staff time will be dedicated to responding to inquiries and calls about MSPs. While SSA data indicated that the volume of field office inquiries and calls to its toll-free line related to MSPs increased since the requirements took effect, the volume was relatively small compared to the overall volume of inquires and calls SSA received. For example, in fiscal year 2011, SSA received about 53,000 calls related to MSPs out of a total of 76.8 million fielded through the toll-free line.\nSSA officials also reported that, for fiscal year 2011, SSA was under a hiring freeze. As a result, SSA officials noted that FTEs that had been devoted to MSP work have been diverted from some of SSA’s more traditional workloads, such as processing claims for Social Security benefits or issuing Social Security numbers. However, the funding appropriated under MIPPA supported the relatively small number of FTEs used to implement the requirements and will continue to do so through the funding agreements with CMS. MIPPA prohibits SSA from using its own administrative funding to carry out the MSP requirements, and, therefore, SSA intends to continue to rely on funding provided under the CMS funding agreements for these activities.", "Using CMS data, we estimated that MSP enrollment increased each year from 2007 through 2011. The largest increases in MSP enrollment occurred in 2010 and 2011 (5.2 percent and 5.1 percent respectively), the first 2 years that the MIPPA requirements were in effect. (See table 4.) During this period, Medicare enrollment also grew by approximately 2 to 3 percent each year, from about 44.4 million people in 2007 to about 48.7 million people in 2011.\nA number of factors may have contributed to the higher levels of growth in MSP enrollment in 2010 and 2011, including SSA application transfers and outreach, other MIPPA provisions and related changes to state policies, and the economic downturn.\nSSA application transfers. In response to our survey of state Medicaid officials about the effects of the application transfers on MSP enrollment, officials from 28 states reported that MSP enrollment has increased as a result of the application transfers. In contrast, officials from 12 states reported that the application transfers did not have an effect on MSP enrollment, and officials from the remaining 10 states reported they did not know the effect of the transfers. While there are no nationwide data that demonstrate the effects of the SSA application transfers on MSP enrollment, 3 of the 6 states we contacted to supplement our survey tracked some information on the outcomes of applications transferred by SSA.application transfers from SSA in 2011, Arizona reported enrolling about 800 of 16,000 applicants; Louisiana reported enrolling about As a result of the 3,300 of about 21,800 applicants; and Pennsylvania officials reported enrolling about 16,000 of 37,500 applicants. It is not clear, however, if these beneficiaries would have enrolled in MSPs through other means if the application transfers had not been in place. For example, these enrollees may have instead enrolled by applying directly through the state.\nSSA outreach. As previously mentioned, SSA completed an outreach campaign in 2009 and has sent letters with information about MSPs to millions of potentially eligible individuals. Our prior work indicates that letters sent by SSA to potentially eligible individuals in 2002 resulted in more beneficiaries enrolling in MSPs than would have likely enrolled without receiving an SSA letter.\nOther MIPPA provisions. The MIPPA provision that more closely aligned asset limits for MSPs with the limits for LIS expanded the number of beneficiaries eligible for MSPs in 2010. Specifically, the requirement effectively expanded eligibility in 41 states by increasing the asset limits. In addition, MIPPA-funded outreach conducted by states and other organizations that began in 2009 may have increased the likelihood that applications resulted in enrollment. According to data from the National Council on Aging (NCOA), the national resource center funded to track the outreach, grantees assisted about 200,000 individuals from January 2010 through December 2011 in submitting a complete MSP application. NCOA reported that grantees in most states are able to access the applications transferred by SSA to identify those beneficiaries who potentially need assistance completing the MSP application.\nEconomic downturn. It is unclear how the economy affects the population potentially eligible for MSPs. In 2011, we reported that during the economic downturn, from 2007 through 2010, unemployment among those aged 65 and older doubled and food insecurity increased. In addition, awards of SSA disability benefits to those ages 50 to 64 increased. However, our past work also found that the percentage of adults 65 and older with incomes below 200 percent of the federal poverty level did not increase.", "Officials from four of the six states we contacted to supplement our survey reported making changes to Medicaid eligibility systems, specifically, changes to both information systems and business processes, to receive and act upon the applications transferred by SSA. For example, officials from Arizona reported modifying the state’s information system to accept the data and automatically create records for the individuals in the eligibility system and generate notification letters asking the applicants for additional information in order to complete the application. Officials also said that the state established new business rules for processing applications received through the transfers. Officials from Colorado, one of the two states that did not report making changes, told us that the state plans to make changes to its system pending the availability of funding to implement the changes. Because the state did not have the funds to make the necessary system changes, officials said that they had to develop an interim process, under which transferred applicants receive an assessment of MSP eligibility only if the applicant completes the state’s request for additional information. Officials from the final state, Pennsylvania, told us that the state did not make changes to its information system as a result of the application transfers but did establish business processes for sorting the applications and forwarding them to county assistance offices for processing.\nOfficials from the final state said that they could not determine the effect of the application transfers on the state’s workload, including the effect on the volume of applications received. increased workload, said that it is difficult to determine the effect of the application transfers but that for some applications the transfers had reduced the time needed for processing.\nStates identified several reasons why processing the applications transferred from SSA had increased their workload, including that the transfers include applications for those who are clearly ineligible for MSPs, applications have inaccurate information, and applicants do not understand that their application for LIS is triggering an application for MSPs.\nThe increased workload may have resulted from SSA transferring applications for individuals who are ineligible for MSPs because their income or assets exceed the federal MSP eligibility limits or they are not yet eligible for Medicare. In response to our survey, officials from one state reported that over 70 percent of the applications received from SSA are ineligible for the state’s MSPs but that the state is still required to process the application. The officials noted that processing these applications is not a productive use of limited state resources. Officials from Pennsylvania, one of the six states we contacted to supplement our survey, reported that, of the approximately 37,500 applications transferred by SSA in 2011, about 14,600 had been denied LIS enrollment. Those rejected applicants represented a significant majority of the 21,600 rejected by the state for MSP enrollment. Officials told us that they have adjusted their process to automatically deny enrollment in MSPs for those individuals that were rejected by SSA for LIS because, for example, the person did not have Medicare or had income that exceeded the eligibility limits.\nIn response to our survey and during interviews, officials from several states reported inaccuracies in the SSA data that may have made the applications more difficult for states to process. For example, Louisiana officials told us that the city of an applicant is sometimes misspelled in the SSA data. This triggers an error in the state’s system, which must be reviewed and corrected by the state.\nIn response to our survey, officials from several states also indicated that the state spends time requesting information from applicants who do not provide it because they do not understand that they have applied for MSPs. For example, officials from Virginia commented that individuals do not realize that their application for LIS is triggering an application for MSP and do not end up providing the additional information needed for the state to make a determination of MSP eligibility. Arizona officials stated similar concerns and provided data indicating that 63 percent of all of the applications transferred by SSA and processed by the state in 2011 were denied because the applicant did not respond to the state’s request for additional information.\nThe extent to which the SSA application transfers required system changes or affected workload may have depended on whether the state treated the transferred information as verified. Though CMS policy allows states to treat the information in the transferred applications as verified, in response to our survey, officials from 35 states reported requiring applicants to reverify some or all of the information before the state would determine eligibility for MSPs. States most frequently reported requiring applicants to reverify income, both earned and unearned, and assets.(See table 5.) Nine states reported requiring applicants to reverify all of the data elements transferred by SSA, including household size and identity.\nIn the six states we contacted, we found some evidence to suggest that the application transfers had less of an effect on workload in states that treated the transferred information as verified. Specifically, of the three states that we contacted that accepted SSA’s verification of the application information, two states reported being able to enroll some of the transferred applicants with little to no work required of caseworkers. Louisiana officials said that the transfers have allowed the state to autoenroll some applicants (where the eligibility system enrolls the applicant using the data transferred by SSA with no need for a caseworker to enter data or contact the applicant). For example, from March 2010 through January 2012, Louisiana autoenrolled about 14 percent of applicants transferred by SSA (5,937 of 43,414). Officials said that the transfers have reduced the workload for these applications. Similarly, officials from Pennsylvania said that the number of applications received from SSA where caseworkers need to contact applicants for more information was small, because, in addition to treating the information as verified, the state has access to 12 different data sources that can be used to address any discrepancies in the SSA data and provide asset information that is not included in the SSA data. In contrast, in the three states we contacted that required applicants to reverify some of the information (Arizona, Colorado, and Florida), the verification process included applicants reporting and documenting income and reporting and attesting to the accuracy of other information, such as assets and citizenship. This verification process included multiple steps by states and applicants.\nDifferences in how SSA and states count income and assets for LIS versus MSPs may have driven states’ choices to require further verification of information in the transferred applications. For example, several states noted that the LIS application combines income for a couple, whereas the state needs to know the income for each spouse separately to determine eligibility for MSPs. Officials from Arizona, one of our selected states that requires applicants to reverify income, explained that the state needs to know the income of each spouse as well as any dependent children living in the household to determine eligibility for MSPs. In a February 2010 letter to state Medicaid directors with guidance on implementation of the MIPPA requirements, CMS noted that SSA has a more expansive definition of a household in determining eligibility for LIS than what most states use to determine MSP eligibility. The guidance reminded states that they have the option to align their definition with SSA’s, and noted that doing so would expand eligibility for MSPs to more people and reduce states’ administrative burden in processing the applications transferred by SSA. Some states also count certain types of income and assets that SSA does not. For example, SSA does not count the value of life insurance policies against the asset limit, but states count it unless the state has amended its Medicaid plan to disregard it. States must verify whether applicants have life insurance policies either by contacting the applicant or through another data source.", "Historically, MSPs have had low enrollment rates, with the Congressional Budget Office estimating in 2004 that only a third of eligible individuals were enrolled in the QMB program and an even smaller percentage in the SLMB program. Our estimates show that enrollment has grown each year for the last 5 years, with the largest increases occurring in 2010 and 2011 (5.2 percent and 5.1 percent), the first 2 years the MIPPA requirements were in effect. The differences between how income and assets are counted for LIS and MSPs make it difficult for some states to act on the applications transferred by SSA without requiring additional information from applicants, a step that requires additional work by the state and can present a hurdle to applicants. Aligning the methods for determining income and assets for MSPs with those of LIS is an option currently available to states, and some states have used that flexibility. More states may not have opted to do so because aligning these methods would likely expand the number of individuals who are eligible only for MSP, and not for other Medicaid, benefits. Because providing MSP benefits to such individuals is likely to increase costs to the state, states have no immediate financial incentive to provide MSP benefits to these individuals. Further, while aligning these methods may allow states to more easily act upon the applications transferred by SSA, it would create a method for counting income and assets for MSPs that may differ from how states assess eligibility for Medicaid, making it more complicated for states to assess MSP eligibility as part of assessing eligibility for Medicaid.", "We provided a draft of this report to HHS and SSA to review. HHS did not provide comments. SSA stated, in an e-mail, that the report accurately describes its implementation of the requirements. SSA also provided technical comments, which we incorporated as appropriate.\nWe are sending copies of this report to the Administrator of CMS, the Commissioner of SSA, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov.\nIf you or your staff have any questions about this report, please contact me at (202) 512-7114 or kingk@gao.gov. Contact points for our Office of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix II.", "To describe the change in Medicare Savings Program (MSP) enrollment from 2007 through 2011, we used data from the Centers for Medicare & Medicaid Services (CMS) to estimate annual enrollment and the change in annual enrollment over that period. The data, reported by states to CMS, included state-level information on the number of Medicare beneficiaries for whom states will pay the Medicare Part B premium. For our estimates we used data that represented the number of beneficiaries for whom states financed the Part B premium in December of each year. The data do not reflect enrollment for Qualified Disabled and Working Individuals, which CMS officials estimated numbered less than 300 people nationally as of March 2012. In addition, the data include some Medicare beneficiaries who are not eligible for MSPs but for whom states finance the Part B premium. We excluded some but not all of these beneficiaries from our analysis. Specifically, we excluded those beneficiaries categorized as “medical assistance only” as those beneficiaries are not eligible for MSPs per CMS’s policy manual. We were not able to exclude those categorized as “medically needy”—beneficiaries who may or may not also meet the eligibility requirements for an MSP— because CMS does not have data on this population for each of the years in our analysis. It is also likely that for a small percentage of beneficiaries, states did not specify the basis of eligibility, and therefore it is unclear whether they were eligible for MSPs or not. While CMS does not have data for each of the years in our analysis on the number of beneficiaries categorized as medically needy or with an unspecified eligibility category, 4 percent were medically needy and 4 percent did not have an eligibility category specified as of May 8, 2012. Though our estimates of enrollment may be overstated, we believe that our estimates of the change in enrollment over the 5-year period are valid.\nTo assess the reliability of CMS’s data on MSP enrollment, we interviewed CMS officials about their efforts to ensure the quality of the data and reviewed the CMS policy manual outlining the requirements states must follow in reporting the data. We also asked officials about the limitations of the data and reviewed any statements about data limitations in published reports. Finally, we reviewed data for each month of 2007 through 2011 to identify any anomalies in the data. We determined the data to be sufficiently reliable for the purposes of estimating the changes in MSP enrollment nationally over time; where relevant we stated the limitations of the data in the findings.", "", "", "In addition to the contact named above, Kristi Peterson, Assistant Director; Jeremy Cox, Assistant Director; Susan Barnidge; Krister Friday; Sandra George; Kristin Helfer Koester; Lisa Rogers; and Paul Wright made key contributions to this report." ], "depth": [ 1, 1, 2, 2, 1, 1, 1, 1, 1, 1, 2, 2 ], "alignment": [ "h3_full h2_full", "h0_title h2_title", "h0_full", "h0_full h2_full", "h1_full", "h2_full", "h3_full", "", "h3_full", "", "", "" ] }

{ "question": [ "What did the SSA do to implement MIPPA requirements?", "What did the SSA report doing between January 4, 2010 and May 31, 2012?", "What other steps did SSA take?", "What did the SSA spend between 2009 and 2011?", "What did SSA officials tell GAO regarding MIPPA requirement implementation?", "What does GAO estimate regarding MSP enrollment?", "What was significant about the first 2 years that the MIPPA requirements were in effect?", "What might have contributed to the higher levels of growth observed?", "How was this corroborated by state officials?", "What was the effect of SSA application transfers according to state officials?", "What is the relationship between application transfers and system changes?", "What did officials report regarding reverification?", "How does this contrast with states that accepted SSA's verification?", "What may have driven states to decide on whether or not to require reverification?", "What does federal law allow states to determine regarding MSPs and LIS?", "How might doing so affect Medicaid costs?", "How has SSA confirmed GAO's report on MIPPA implementation?", "What did Congress establish to help low-income beneficiaries pay for Medicare?", "What has low enrollment in MSPs been attributed to?", "How did MIPPA aim to eliminate enrollment barriers?", "What did MIPPA require of GAO?", "What does this report describe?" ], "summary": [ "The Social Security Administration (SSA) took a number of steps to implement the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) requirements aimed at eliminating barriers to Medicare Savings Program (MSP) enrollment and spent about $12 million in fiscal years 2009 through 2011 to do so.", "SSA reported transferring over 1.9 million Low-Income Subsidy (LIS) program applications to state Medicaid agencies between January 4, 2010 and May 31, 2012.", "SSA also took steps to make information available to potentially eligible individuals, conduct outreach, and train SSA staff on MSPs.", "In fiscal years 2009 and 2010, SSA spent $9.2 million of the $24.1 million appropriated by MIPPA for initial implementation costs, and in fiscal year 2011, SSA spent about $2.5 million of the $3 million appropriated by MIPPA for ongoing administrative costs.", "SSA officials told GAO that implementing the MIPPA requirements has not significantly affected its overall workload and that SSA expects funding provided under the law to be sufficient to carry out the requirements.", "Using data from the Centers for Medicare & Medicaid Services (CMS), GAO estimates that MSP enrollment increased each year from 2007 through 2011.", "The largest increases occurred in 2010 and 2011 (5.2 percent and 5.1 percent respectively), the first 2 years that the MIPPA requirements were in effect.", "Several factors may have contributed to the higher levels of growth in MSP enrollment during these 2 years, including SSA application transfers and outreach, other MIPPA provisions related to MSPs, and the economic downturn.", "For example, while there are no nationwide data demonstrating the effects of the SSA application transfers, officials from 28 states reported that MSP enrollment had increased as a result of the transfers.", "Officials from most of the six states GAO contacted to supplement its survey reported that the SSA application transfers led to changes in eligibility systems and had increased the state's workload, that is, the time spent processing MSP applications.", "The extent to which the application transfers resulted in system or workload changes may have depended on whether states accepted SSA's verification of the information transferred, as allowed under CMS policy.", "In response to GAO's survey, officials from 35 states reported that the state required the applicant to reverify at least some of the information. GAO found from interviews with officials from selected states that requiring reverification from applicants included multiple steps by the state and applicant.", "In contrast, officials from two states that accepted SSA's verification of the information told GAO that the state was able to enroll some of the applicants transferred by SSA with little to no work required by caseworkers.", "Differences in how SSA and states count income and assets when determining eligibility for LIS versus MSPs may have driven states' decisions to require verification from applicants.", "States have the flexibility under federal law to align methods for counting income and assets for MSPs with those for LIS and doing so may reduce the administrative burden of processing the transferred applications.", "However, doing so would likely increase enrollment and, therefore, increase state Medicaid costs.", "SSA, in an e-mail, agreed with GAO's description of its implementation of MIPPA requirements.", "Congress established four MSPs and the LIS program to help low-income beneficiaries pay for some or all of Medicare’s cost-sharing requirements.", "Historically low enrollment in MSPs has been attributed to lack of awareness about the programs and cumbersome enrollment processes through state Medicaid programs.", "MIPPA included requirements for SSA and state Medicaid agencies aimed at eliminating barriers to MSP enrollment. Most notably, MIPPA created a new pathway to MSP enrollment by requiring SSA, beginning January 1, 2010, to transfer the information from a LIS application to the relevant state Medicaid agency, and the state must initiate an application for MSP enrollment.", "MIPPA also required GAO to study the effect of these requirements.", "This report describes (1) SSA’s implementation of the requirements; (2) how MSP enrollment levels have changed from 2007 through 2011 and the factors that may have contributed to those changes; and (3) the effects of the MIPPA requirements on states’ administration of MSPs." ], "parent_pair_index": [ -1, 0, 0, 0, -1, -1, 0, 1, 2, -1, 0, -1, 2, 2, -1, 5, -1, -1, -1, 1, -1, -1 ], "summary_paragraph_index": [ 2, 2, 2, 2, 2, 3, 3, 3, 3, 4, 4, 4, 4, 4, 4, 4, 4, 0, 0, 0, 0, 0 ] }

{ "title": [ "Background", "DOE’s Project Management Requirements for Capital Asset Projects and Cleanup Projects", "DOE’s Project Management Order 413.3B", "EM’s Operations Activities Protocol", "TRU Waste Operations at Area G", "TRU Waste Removal Project", "TWF Construction Project", "GAO’s Cost Guide", "NNSA Has Not Met Its Cost Estimates to Complete the TRU Waste Removal Project at LANL", "NNSA’s Cost Estimate for the Transuranic Waste Facility Project at LANL Partially Met Best Practices", "Conclusions", "Recommendations for Executive Action", "Agency Comments and Our Evaluation", "Appendix I: Objectives, Scope, and Methodology", "Appendix II: GAO’s Assessment of NNSA’s Cost Estimates for the TWF Construction and Operations and Maintenance, as of June 2014 Compared with Industry Best Practices", "Best practice characteristic and overall assessment Comprehensive: Partially met", "Best practice characteristic and overall assessment", "Best practice characteristic and overall assessment", "Appendix III: Comments from the Department of Energy", "Appendix IV: GAO Contact and Staff Acknowledgments", "GAO Contact", "Staff Acknowledgments" ], "paragraphs": [ "This section describes (1) DOE’s project management requirements for capital asset projects and cleanup projects, (2) TRU waste operations at Area G, (3) the TRU waste removal project, (4) the TWF construction project, and (5) GAO’s Cost Guide.", "DOE has established separate project management requirements for its capital asset projects and certain cleanup projects defined as operations activities. DOE’s project management order for capital asset projects, Order 413.3B, establishes the requirements for managing capital asset projects, and EM’s Operations Activities Protocol establishes the requirements for managing cleanup projects defined as operations activities. The TRU waste removal project is a cleanup operations activity and is subject to EM’s Operations Activities Protocol, whereas the TWF is a capital asset construction project and must be carried out in accordance with Order 413.3B.", "DOE’s project management order for capital asset projects, Order 413.3B, applies to all capital asset projects with a total project cost greater than or equal to $50 million. Capital asset projects include construction projects that build large complexes that often house unique equipment and technologies such as those that process TRU waste or other radioactive material. DOE’s order establishes a process for NNSA and other DOE offices to manage projects, from identification of need through project completion, with the goal of delivering projects within the original performance baseline that are fully capable of meeting mission performance and other requirements, such as environmental, safety, and health standards. In particular, the order defines five major milestones— or Critical Decision (CD) points—that span the life of a project:\nCD-0: Approve mission need. DOE identifies a credible performance gap between its current capabilities and capacities and those required to achieve the goals defined in its strategic plan. The mission need translates this gap into functional requirements. DOE formally establishes a project and begins the process of conceptual planning and identifying a range of alternative approaches to meet the identified need.\nCD-1: Approve alternative selection and cost range. DOE completes the conceptual design and selects its preferred approach based on analysis of life-cycle costs, and approves the project’s preliminary cost range to complete the project’s design and construction.\nCD-2: Approve the performance baseline. A project’s performance baseline consists of key cost, scope, schedule, and performance parameter targets. The project’s scope defines the technical goals and requirements that the project is to deliver at completion. The performance baseline cost includes the entire project budget, or total project cost, and represents DOE’s commitment to Congress. At this milestone, DOE completes its preliminary design and develops a definitive cost estimate that is a point estimate and no longer a range.\nCD-3: Approve the start of construction. Design and engineering are essentially complete and have been reviewed, and project construction or implementation begins.\nCD-4: Approve the start of operations or project completion. For construction projects, at this milestone, DOE completes the project and begins the transition to operations.\nDOE’s project management order for capital asset projects specifies the requirements that must be met, including for developing project cost estimates, along with the documentation necessary, to move a project past each CD point. In addition, the order requires senior management to review the supporting documentation and decide whether to approve the project at each CD point. DOE also provides suggested approaches for meeting the requirements contained in the order through a series of guides, such as guides for cost estimating and project reviews.", "The life-cycle cost estimate data are maintained in EM’s Integrated Planning, Accountability, and Budgeting System and are used to develop DOE’s reported environmental liability. performance and, if practical, how that performance affects the life- cycle cost estimate and contract period of performance baseline.", "Before 1970, TRU waste generated at LANL was managed as low-level radioactive waste and was disposed of at Area G in pits and trenches along with hazardous waste. In 1970, in response to concerns that TRU waste remained radioactive for an extremely long time and scientific research recommending deep geologic disposal for this waste, the Atomic Energy Commission––a DOE predecessor––directed sites that generated TRU waste to begin segregating it from other waste and storing it in retrievable packages for an interim period, pending disposal in a repository. As a result of the directive, starting in the early 1970s, the TRU waste generated at LANL was stored in segregated TRU waste pits and trenches and aboveground in fabric domes so that it could be more easily retrieved when a permanent repository site opened. (see fig. 1).\nToday, Area G serves as LANL’s primary location for storing and processing TRU waste. Both legacy and newly generated TRU waste are stored and processed for shipping to WIPP at facilities in Area G. TRU waste operations at Area G include the following processes: packaging waste into 55-gallon drums or other approved containers following DOE standards, called waste acceptance criteria, to protect human health, safety, and the environment during the waste’s transport to and disposal in WIPP; repackaging containers if they are found to not meet WIPP’s waste acceptance criteria; resizing large waste using methods such as cutting it into smaller pieces so that it can be placed into approved containers; characterizing the waste by using specialized scanning equipment to assess the contents of each waste container and the amount of radioactivity it contains; and certifying the waste to declare that it meets WIPP’s waste acceptance criteria.", "Starting in 2011, NNSA and the New Mexico Environment Department agreed to significant changes in the strategy for completing the TRU waste removal project. In that year, a wildfire occurred near Area G, resulting in increased public concern about the risk posed by the TRU waste stored aboveground at Area G. To address this risk, in 2012, NNSA and the New Mexico Environment Department reached a voluntary agreement, called the Framework Agreement, which established a June 2014 deadline for the accelerated removal of 3,706 cubic meters of aboveground TRU waste at a high risk from wildfires. To meet this deadline, NNSA initiated an effort know as the “3706 Campaign.” To facilitate this campaign, the New Mexico Environment Department and DOE agreed to extend other deadlines established under the 2005 Consent Order governing hazardous waste cleanup activities for locations across LANL. With these deadlines extended, NNSA was able to reallocate EM funding for environmental cleanup activities at LANL to focus on the 3706 Campaign. Using the additional funds, NNSA increased the TRU waste processing capacity at LANL by constructing more facilities for repackaging waste and hiring additional contractors to operate the facilities 7 days a week. Under the Framework Agreement, NNSA also agreed to remove the remaining aboveground TRU waste at Area G and developed a schedule for removing the belowground TRU waste at Area G by September 30, 2018. According to NNSA officials, part of the plan in establishing the Framework Agreement was that, once the 3706 Campaign was completed, NNSA and the New Mexico Environment Department would discuss renegotiating the final completion date for the Consent Order.\nOn May 30, 2014, DOE announced that NNSA had completed the removal of about 93 percent of the TRU waste included in the 3706 Campaign but would not meet the June 2014 deadline because of the department’s decision to halt the TRU waste removal project. As noted previously, DOE halted the project at LANL in February 2014, in response to an incident at WIPP that involved a LANL TRU waste container that ruptured and leaked radioactive material while in storage.", "The TWF project is to replace NNSA’s existing capabilities that reside at Area G for storage, characterization, and certification of newly generated TRU waste at LANL. The TWF design includes multiple buildings for waste storage, waste characterization, and operational support. The facility will also have space and utility hookups for three mobile trailers to be provided by WIPP that will contain additional characterization capabilities needed to certify that TRU waste containers meet WIPP waste acceptance criteria (see fig. 2).\nThe TWF is being designed and constructed as a high-hazard nuclear facility, which must meet nuclear safety standards for storage and handling of nuclear waste. Nuclear safety design features of the TWF include a barrier to prevent large vehicles from crashing into the facility, a seismic power cutoff switch designed to reduce possible sources of fire that could result from an earthquake, and a tank to store water to help suppress any earthquake- initiated fire.\nNNSA’s Office of Defense Programs, which is the program office responsible for maintaining the nation’s nuclear weapons stockpile, is sponsoring the TWF project. The office provides the annual funding for planning and construction and approves the project’s milestones. NNSA’s Office of Acquisition and Project Management is responsible for overseeing the construction of the TWF within NNSA’s approved cost and schedule estimates. To do so, the office provides direction and oversight of NNSA’s management and operating contractor at LANL.\nNNSA divided the TWF project’s design and construction into two subprojects: site development and facilities construction. NNSA completed the site development activities, which included relocation of utility lines, as well as excavation and grading to prepare the site for the facility’s construction, in December 2012, at a cost of $7.7 million. In February 2013, NNSA approved the project’s CD-2 performance baseline estimate of $99.2 million to construct the TWF with a completion date between April 30, 2016, and January 31, 2018. As mentioned previously, NNSA also estimated that the facility will cost $300 million to operate and maintain for its projected useful life of 50 years, spanning 2018 through 2068. In combination, NNSA’s estimated life-cycle costs for the TWF when it approved the project’s performance baseline to complete construction at CD-2 totaled about $406.9 million.", "Drawing from federal cost-estimating organizations and industry, the Cost Guide provides best practices about the processes, procedures, and practices needed for ensuring development of high-quality—that is, reliable cost estimates.characteristics of a high-quality, reliable cost estimate: The Cost Guide identifies the following four\nComprehensive when it accounts for all life-cycle costs associated with a project, is based on a completely defined and technically reasonable plan, and it contains a cost estimating structure in sufficient detail to ensure that costs are neither omitted nor double- counted;\nWell-documented when supporting documentation explains the process, sources, and methods used to create the estimate and contains the underlying data used to develop the estimate;\nAccurate when it is not overly conservative or too optimistic and is based on an assessment of the costs most likely to be incurred; and\nCredible when a sensitivity analysis has been conducted, the level of confidence associated with the point estimate has been identified through the use of risk and uncertainty analysis, and the point estimate has been cross-checked with an independent cost estimate (ICE).\nTo develop a cost estimate that embodies these four characteristics, our Cost Guide lays out best practice steps. For example, one step in developing an accurate estimate is to identify and document ground rules that establish a common set of agreed-on estimating standards and solid assumptions that are measurable, specific, and consistent with historical data. According to the Cost Guide, it is imperative that cost estimators brief management on the ground rules and assumptions used for an estimate so that management understands the conditions the estimate was structured on and can avoid overly optimistic assumptions.", "NNSA’s TRU waste removal project at LANL did not meet its 2006 cost estimate and is not expected to meet the 2009 cost estimate established for the completion of the project. During our review, NNSA and EM were in the process of developing a new cost estimate for the project. The TRU waste removal project has not met its past cost estimates, partly because the 2006 and 2009 cost estimates were based on aggressive funding assumptions to meet the deadlines of the Consent Order. In addition, because NNSA did not maintain or use two of the three project baselines outlined in its cleanup project requirements, it could not measure the progress of the total project.\nAs of the end of fiscal year 2014, NNSA had spent about $931 million on the project, which exceeded the 2006 cost estimate of $729 million by $202 million (see fig. 3). The amount expended by the end of fiscal year 2014 did not exceed the $1.2 billion upper range of the 2009 cost estimate, but it did exceed the $848 million lower range of the estimate by $83 million. As of July 2014, the most recent date for which data were available, NNSA had removed approximately 79 percent of the TRU waste at LANL; however, the remaining 21 percent includes the waste buried belowground, which will be the most difficult and expensive to address, according to NNSA officials. The new fiscal year 2015 draft estimate, currently under review by NNSA and EM, projects that the final project costs will be approximately $1.6 billion, or $400 million above the upper range of the 2009 cost estimate.\nNNSA’s TRU waste removal project exceeded the 2006 cost estimate and is not expected to meet the 2009 cost estimate, in part, because NNSA and EM developed the cost estimates using aggressive project funding assumptions that were based on the need to meet the Consent Order requirement for closing Area G by 2015, according to NNSA and EM officials. For the 2006 cost estimate, NNSA officials overseeing the TRU waste removal project developed the parameters of the project estimate based on the need to remove almost all of the TRU waste by 2012. In particular, to meet these deadlines, NNSA based its cost estimate on funding projections provided by EM that were consistent with meeting the Consent Order deadline and that assumed that EM would increase the yearly funding for environmental cleanup projects at LANL. According to NNSA and EM officials, they recognized that the funding assumptions used in the cost estimate were aggressive and that significant funding shortfalls would inhibit the TRU waste removal project’s ability to remain on schedule. From fiscal year 2006 through fiscal year 2008, EM provided approximately $457 million—$284 million (38 percent) less than the amount requested by NNSA officials for all cleanup activities at LANL—and, as a result, it was not possible to fund the TRU waste removal project at the levels established in the 2006 estimate. According to NNSA officials, EM was unable to increase the funding for LANL cleanup projects due to limited budget flexibility and competing demands from cleanup projects at other DOE sites. In a 2008 report on LANL’s cleanup efforts, DOE’s Inspector General found that EM did not have enough money to address all the milestones in the NNSA officials said that, by environmental agreements they signed.2009, the TRU waste removal project had fallen behind schedule and could not be completed by 2012, in part, because of the shortfall in funding. The extension of the project’s completion date beyond 2012 resulted in additional costs, which contributed to the total cost of the project exceeding the 2006 estimate.\nIn 2009, NNSA and EM developed a new cost estimate for the TRU waste removal project with a completion date in 2018 but again used aggressive funding assumptions to complete the project as close to the Consent Order’s 2015 deadline as possible. Similar to the 2006 estimate, the 2009 cost estimate used funding projections provided by EM that assumed an increase in the yearly levels of funding for LANL cleanup activities that were necessary for NNSA to complete the TRU waste removal project by July of 2018—2 and a half years after the Consent Order deadline in 2015. However, due to the same budget restrictions that affected cleanup project funding previously, actual funding levels provided by EM for fiscal years 2009 to 2012 for all cleanup projects at LANL again came in below the levels requested by NNSA officials at LANL. Specifically, LANL received approximately $1 billion over these years, which was $240 million (19 percent) less than the levels requested by NNSA officials at LANL for cleanup projects at the site. As a result, funding for the TRU waste removal project was reduced, and this reduction caused the project to fall behind the schedule set in the 2009 cost estimate, according to NNSA officials. Moreover, the 2009 cost estimate was never officially approved by NNSA and EM because the date estimated for project completion was not consistent with the requirements of the Consent Order. According to NNSA officials, they could not formally approve the 2009 estimate because it included a 2018 estimated completion date for the TRU waste removal project, which conflicted with the required 2015 closure date established in the Consent Order.\nIn addition to developing estimates using aggressive funding assumptions, NNSA did not maintain or use two of the three project baselines outlined in the Operations Activity Protocol, so the agency could not measure the progress of the total project. As discussed previously, NNSA was to manage the TRU waste removal project using EM’s Operations Activities Protocol, which is intended to provide the framework for managing and reporting on the progress of cleanup projects through the use of three performance baselines: life-cycle cost, contract period of performance, and fiscal year work plan. However, for the TRU waste removal project, because NNSA did not have an updated life-cycle cost baseline and did not establish a contract period of performance baseline, it only used the fiscal year work plan baseline to manage the project, as discussed below:\nLife-cycle cost baseline. NNSA has not updated the life-cycle cost baseline for the project since 2009, even though agency officials told us they were aware that the estimate has been out-of-date since about 2012. Since that year, the project has undergone significant changes that affected its estimated cost and completion date. For example, by initiating the 3706 Campaign in 2012, NNSA altered the scope of work from what was planned in the 2009 cost estimate. NNSA and EM officials told us that, although they recognized in 2012 that the 2009 estimate was no longer valid, they did not see the purpose in completing a new estimate before completion of the campaign and the expected renegotiation of the Consent Order deadlines. According to these officials, a new cost estimate for the project would have either needed to use unreasonably high funding assumptions to achieve project completion by 2015 or, if it used more reasonable funding assumptions, it could not have been approved because of the political issues associated with a completion date beyond the 2015 Consent Order deadline. The Operations Activities Protocol requires that EM or NNSA Site Office Managers develop cost estimates that cover the full life-cycle of a cleanup project, but it leaves the Site Office Manager discretion to determine whether an update to the life-cycle cost baseline is required. Because NNSA’s LANL Site Office Manager, in consultation with EM officials, decided not to update the life-cycle cost baseline, NNSA could not measure project performance to determine the impact of management actions. For example, from fiscal year 2012 to 2014, NNSA used additional funding that was reallocated to the TRU waste removal project to increase the pace of TRU waste packaging and removal; however, because they did not have an updated cost estimate to measure against, NNSA managers were unable to identify the effect these actions had on the total cost of the project.\nContract period of performance baseline. NNSA has not managed the TRU waste removal project using a contract period of performance because, according to NNSA officials, the project, like other projects at LANL, is being conducted through NNSA’s management and operating contract. According to the Operations Activities Protocol, a contract period of performance baseline is required for those cleanup projects that are executed through a contract that establishes a performance baseline for cost and scope over the duration of the contract. The management and operating contract covers all work performed at LANL, but it does not establish a cost estimate for specific projects such as the TRU waste removal project, according to NNSA officials. In contrast, for cleanup projects at EM-managed sites, the scope of the contract is typically limited to the cleanup project and would not include other site activities that were unrelated to the project. According to NNSA officials, executing the TRU waste removal project through the management and operating contract does not provide the baseline necessary for establishing a contract period of performance, so NNSA is not required to manage to a contract period of performance baseline for this project. According to EM officials, DOE determined that as part of EM’s transition to direct oversight of the legacy cleanup work at LANL, EM will transition away from using a management and operations contract to manage the remaining cleanup work. When this change in contract type is completed, the officials stated that a contract period of performance baseline will be available for monitoring performance of the work, including the TRU waste removal project.\nFiscal year work plan baseline. NNSA has used the fiscal year work plans outlined in the Operations Activities Protocol to monitor the performance of portions of the TRU waste removal project and to manage and assess the performance of the entire TRU waste removal project in the absence of an accurate life-cycle cost estimate baseline or a contract period of performance baseline. According to NNSA officials, a new fiscal year work plan is developed each year for the TRU waste removal project using an integrated priorities list for remaining TRU removal work and the projected funding amount allocated for LANL cleanup. However, while NNSA and EM site and headquarters officials monitored progress against the fiscal year work plan, the agency was unable to evaluate the performance of the entire TRU waste removal project and identify potential cost overruns because its life-cycle cost estimate was out-of-date, and it did not manage to a contract period of performance. The Operations Activities Protocol requires that the Site Office Manager report yearly on any variances between total project costs to date and the estimated costs for the entire project as part of the fiscal year work plans. However, because NNSA did not have an accurate cost estimate for the TRU waste removal project, the 2012, 2013, and 2014 fiscal year work plans used the outdated 2009 cost estimate to report on the variances between the current and estimated costs for the project. As a result, these fiscal year work plans did not provide accurate information on project performance to date to help managers measure total project performance and manage costs.\nAt the time of our review, NNSA and EM were in the process of developing a new cost estimate for the TRU waste removal project that they expect to complete in fiscal year 2015; however, this estimate may quickly become inaccurate due to assumptions related to funding and the status of WIPP that could be invalidated. As discussed previously, the new draft cost estimate increases the estimated total cost of the project to $1.6 billion, with a completion date in fiscal year 2023 (i.e., October 2022). According to an NNSA official, this draft estimate uses a more conservative approach than past estimates by expanding the scope of the project estimate to include the costs to remove additional TRU waste that was not included in past estimates.concerning when WIPP will reopen and the need to address the impending Consent Order deadlines in 2015 that have not yet been renegotiated with New Mexico, the same NNSA official told us that several of the new estimate’s assumptions are no longer valid or may not be valid after a few years. For example, the funding assumptions in the new estimate may already be invalid. With the TRU waste removal project on hold as a result of the WIPP closure, the New Mexico Environment Department is no longer providing deadline extensions for some of LANL’s hazardous waste cleanup work and, as a result, NNSA officials managing the cleanup work have had to reprioritize their funding to attempt to meet those deadlines. Restoring funding to hazardous waste cleanup projects reduces the funding available for TRU waste removal, which would invalidate the funding assumptions used in the new cost estimate. In addition, the NNSA official told us that the new cost estimate also assumes that LANL will resume TRU waste shipments to WIPP in fiscal year 2017 based on an unofficial estimate from the WIPP manager that WIPP will reopen between 18 and 30 months after the initial However, in light of the uncertainty assessment of the incident.shipments from LANL in this time frame, the TRU waste removal project at LANL would be delayed, resulting in additional costs not accounted for in the new estimate, such as the costs for maintaining the project workforce longer than anticipated.\nIf WIPP does not start accepting TRU waste To objectively measure the performance of the TRU waste removal project and take action to manage project costs, NNSA managers of the project need an updated cost estimate. EM’s Operations Activity Protocol leaves it to the discretion of the Site Office Manager to update cleanup project estimates, and NNSA’s LANL Site Office Manager chose to delay revising the outdated 2009 estimate. As a result, DOE does not have an estimate of the total cost or completion date of the TRU waste removal project that uses updated assumptions based on the current understanding of project conditions. NNSA and EM are developing a new cost estimate for the project; however, the new estimate may quickly become inaccurate because of changes in funding, and the status of the WIPP may soon invalidate its assumptions. According to best practices for cost estimating, maintaining an updated cost estimate is critical so that officials making decisions about the future management of a project have accurate information for assessing their alternatives. By revising the TRU waste removal project’s estimate to include the current understanding of project conditions, NNSA program managers could more accurately identify cost overruns.", "NNSA’s cost estimate for the TWF partially met best practices. More specifically, NNSA’s cost estimate—which consisted of separate cost estimates for completing construction and for operations and maintenance, as the TWF’s life-cycle costs—partially reflected each of the four characteristics of a reliable estimate (comprehensive, well- documented, accurate, and credible) as established by best practices. In developing the construction estimate, NNSA took several steps that conformed to best practices, such as validating the construction estimate by completing an ICE. Although DOE’s project management order for capital asset projects does not require the use of all best practices in developing a cost estimate, DOE’s related cost-estimating guidance, which is optional, describes most of them. In contrast, in developing its operations and maintenance cost estimate, NNSA did not take steps that conformed to best practices. In particular, NNSA did not sufficiently document the approach (i.e., data sources and methodologies) used to develop the estimate, even though operations and maintenance costs represented about 74 percent of the total life-cycle costs of the facility. The reason was that operations and maintenance cost estimates for a construction project do not need to be updated and documented at CD-2 under DOE’s project management order, as funds for these costs do not need to be specifically requested from Congress to complete the project. By not sufficiently documenting the approach used to develop the estimate, NNSA may not have reliable information to support budgetary decisions for funding the TWF’s operations and maintenance in the future. For example, the contractor’s representatives told us that they estimated the operations and maintenance costs to be $6 million annually from 2018 through 2068, for a total of $300 million but did not use an inflation rate in the calculations. Thus, although $6 million may be an accurate estimate for the first year, without documentation of the approach used to develop the estimate, we could not determine its reliability for the first or future years.\nAppendix II provides a summary description of our assessment of NNSA’s cost estimates for the TWF project’s construction and operations and maintenance. The following are examples from our assessment, by best practice characteristic:\nComprehensive. The TWF estimates partially reflected the characteristics of comprehensive cost estimates. For example, NNSA partially followed the best practice for completely defining the program, as NNSA’s contractor based the TWF construction cost estimate on a mature design plan that detailed the technical requirements and characteristics for the TWF. In contrast, for the TWF operations and maintenance cost estimate, NNSA’s contractor was not able to provide us with definitions of the technical requirements and characteristics that would have formed the basis of the estimate, although the $300 million estimate represented a substantial change from a $642 million estimate that NNSA’s contractor produced in June 2010 for CD-1 (approve alternative selection and cost range). As a result, we could not determine whether the $300 million estimate reflected the most recent TWF design approved at CD-2 to complete construction. NNSA officials told us they did not develop an updated and documented basis to support the operations and maintenance cost estimate because DOE’s project order does not require updated and documented estimates of all life-cycle costs at CD-2. Instead, at CD-2, the order focuses on the need for the baseline cost estimate to complete construction because funding for construction needs to be specifically requested from Congress to complete the project. According to best practices, clearly defining the technical requirements would help to ensure that managers have an adequate understanding of the facility and where information was limited and assumptions were made in developing the estimate.\nWell-documented. The TWF estimates partially reflected the characteristics of well-documented cost estimates. For example, regarding the construction estimate, NNSA’s contractor documented the data sources and the methodology used to calculate the construction estimate so that a cost analyst unfamiliar with the project could understand what was done and replicate the estimate. In contrast, NNSA did not document the approach (data sources and methodologies) used to develop the operations and maintenance estimate, even though the operations and maintenance costs represented about 74 percent of the TWF’s life-cycle costs. As mentioned previously, DOE’s project management order does not require documentation of the operations and maintenance costs at CD-2. NNSA was required to report the operations and maintenance cost estimate by following a DOE budget formulation guidance that did not specify requirements for documenting the estimate. Because NNSA did not document the approach used, we could not determine whether it was appropriate for developing the operations and maintenance estimate; whether NNSA management reviewed the estimate, including its risks and uncertainties, or whether NNSA management approved the estimate.\nAccurate. The TWF estimates partially reflected the characteristics of accurate cost estimates. For example, NNSA’s contractor partially followed the best practice for properly adjusting the estimates for inflation. Regarding the construction estimate, NNSA’s contractor developed the estimate using pricing data that were adjusted for inflation. However, the contractor did not then normalize the data to remove the effects of inflation. According to representatives from the contractor, they did not believe data normalization was an applicable step for the TWF construction estimate because the data set was too small. According to cost-estimating best practices, data normalization is often necessary to ensure comparability of data sets because data can be gathered from a variety of sources and in different forms that need to be adjusted before being used. Regarding the operations and maintenance estimate, NNSA’s contractor did not properly adjust the estimate for inflation over the 50-year useful life of the TWF. Specifically, the contractor’s representatives told us that they estimated the operations and maintenance costs to be $6 million annually from 2018 through 2068, for a total of $300 million, but they did not use an inflation rate in these calculations. Adjusting for inflation is an important step in developing an estimate because if the inflation amount is not correct, the estimate is not accurate. Applying the wrong inflation rate will either result in a higher cost estimate or estimated costs that are not sufficient to keep pace with inflation.\nCredible. The TWF estimates partially reflected the characteristics of credible cost estimates. For example, NNSA followed the best practice to have an ICE completed in January 2013 to validate the TWF construction costs. However, because DOE’s project management order does not define the operations and maintenance costs as project costs, NNSA was not required to include these costs in the ICE. By not including the TWF operations and maintenance costs in the ICE, NNSA managers may lack insight into these future costs. According to best practices, an ICE can provide NNSA managers with additional insight into the TWF’s potential operations and maintenance costs—in part, because ICEs frequently use different methods and are less burdened with organizational bias. Therefore, according to best practices, an ICE can be used as a benchmark to assess the reasonableness of the contractor’s proposed operations and maintenance costs, improving NNSA management’s ability to make sound investment decisions, and accurately assess the contractor’s performance. Moreover, because DOE’s project management order does not require it, NNSA’s contractor did not follow the best practice to complete a sensitivity analysis to quantify the extent to which either the construction or operations and maintenance cost estimates could vary because of changes in key assumptions and ground rules. Such an analysis is a best practice because uncertainty cannot be avoided and, therefore, it is necessary to identify the cost elements that represent the most risk and, if possible, quantify them. According to cost-estimating best practices, doing a sensitivity analysis increases the chance that decisions that influence the design, production, and operation of the TWF will be made with a focus on the elements that have the greatest effect on cost.\nAccording to NNSA officials who oversee the TWF project, combining the TWF construction estimate with the operations and maintenance estimate to reflect the life-cycle costs and assessing the combined estimate obscured the positive steps NNSA took in developing the construction estimate. We agree that the TWF construction estimate conformed to several best practices. Examples are as follows:\nNNSA developed the construction estimate based on a mature design plan for the facility to ensure that it was based on the best available information at the time,\nNNSA documented the data sources and the methodologies used to calculate the construction estimate so that a cost analyst unfamiliar with the project could understand what was done and replicate it, and\nNNSA had an ICE completed to provide an unbiased test of the reasonableness of the TWF construction costs.\nNonetheless, as described above, and in appendix II, we also identified examples where NNSA’s construction estimate did not conform to best practices. Because NNSA did not follow all best practices for cost estimating, particularly for the TWF operations and maintenance cost estimate, NNSA may not have reliable information to support budgetary decisions for funding the TWF’s operations and maintenance. NNSA expects the TWF may be ready to start operations as early as April 2016, and when it does, NNSA will need to balance funding for the TWF with the operations and maintenance costs for other nuclear infrastructure and facilities at LANL and other NNSA sites that make up the national nuclear security enterprise. In December 2013, we found that, as the facilities and infrastructure that support the nuclear security enterprise continue to age, maintenance costs are likely to grow. In that report, NNSA officials said that deferred maintenance projects will have to compete against programmatic priorities for funding within the overall pool of maintenance funds available. By having reliable information on the TWF’s costs, including operations and maintenance, well before the project starts operations, NNSA managers would be better able to plan for, and manage the costs of the TWF in balance with other infrastructure in the national nuclear security enterprise.\nGAO, Project and Program Management: DOE Needs to Revise Requirements and Guidance for Cost Estimating and Related Reviews, GAO-15-29 (Washington, D.C.: Nov. 25, 2015). Specifically regarding DOE’s cost-estimating guide, we found, in November 2014, that for two best practice steps—determining the estimating structure and conducting sensitivity analysis—the guide only partially or minimally describes those steps. operations and maintenance estimate until the project is constructed and undergoes operational readiness reviews in preparation for CD-4 (to approve the start of operations or project completion). Updating the TWF’s cost estimate to include all life-cycle costs and needed analyses would provide NNSA more reliable information for better managing the TWF as it prepares for the start of operations.", "Safely removing the TRU waste stored at LANL is a critical part of NNSA’s efforts to clean up the legacy environmental contamination from decades of nuclear weapons activities. NNSA has made progress in removing the TRU waste from LANL’s Area G and has monitored the project’s recent performance through fiscal year work plans. But NNSA has consistently used cost estimates for completing the project that it could not meet because the estimates were developed based on aggressive and unrealized funding assumptions, and the agency chose to delay revising the 2009 estimate when it was determined to be outdated, which was not consistent with the intent of DOE’s cleanup project requirements for maintaining an updated life-cycle cost baseline. While NNSA and EM are developing a new cost estimate for the project, the new estimate may quickly become inaccurate because changes in funding and the status of the WIPP may soon invalidate its assumptions. By revising the estimate to include the current understanding of project conditions, including the uncertainty at WIPP, NNSA program managers can more accurately identify cost overruns consistent with best practices.\nWhen completed, NNSA expects the TWF to provide TRU waste capabilities at LANL to support NNSA’s nuclear weapons mission for the next 50 years and has taken several steps that conformed to best practices in developing the TWF’s construction estimate. However, NNSA has not developed a reliable estimate of its operations and maintenance costs by, for example, not sufficiently documenting its approach and not using an inflation rate in its calculations because DOE’s project management order for capital asset projects does not require the use of all cost-estimating best practices in developing estimates of all life-cycle costs. Thus, although the operations and maintenance costs were estimated to be $6 million annually from 2018 through 2068, for a total of $300 million, without documenting the approach used to develop the estimate, and not using an inflation rate in these calculations, we could not determine the reliability of the estimate for future years. DOE agreed with the recommendations in our November 2014 report to revise its order to require that DOE, NNSA, and its contractors develop cost estimates in accordance with all best practices. However, opportunities exist currently to enhance the reliability of the TWF cost estimate. Updating the TWF’s cost estimate to include all life-cycle costs, as well as needed analyses, would provide NNSA more reliable information for better managing the TWF as it prepares for the start of operations, which NNSA expects could be as early as April 2016.", "To develop reliable cost estimates for the TRU waste removal project and for the TWF construction project at LANL, we recommend that the Secretary of Energy take the following two actions:\nDirect NNSA and EM to revise the cost estimate for the TRU waste removal project to ensure that it uses updated assumptions based on the current understanding of project conditions, such as the status of WIPP.\nDirect NNSA to revise and update the TWF project’s cost estimate by following all best practices for developing a reliable cost estimate that covers all life-cycle costs for better managing the project going forward.", "We provided DOE with a draft of this report for its review and comment. In written comments, reproduced in appendix III, NNSA provided a joint response to our draft report for itself and DOE’s EM, which generally agreed with both of the report’s recommendations. In its comments, NNSA stated that it will update its cost estimates for both the TRU waste removal project at Area G and the TWF’s operations and maintenance and provided details of the specific actions planned or taken to address both recommendations and timelines for completing these actions. NNSA also provided general and technical comments that we incorporated into the report, as appropriate.\nIn regard to the report’s first recommendation to revise the cost estimate for the TRU waste removal project to ensure that it uses updated assumptions based on the current understanding of project conditions, NNSA stated actions have been taken to address this recommendation. Specifically, a comprehensive life-cycle baseline revision was submitted and reviewed, and EM is currently taking steps to revise and finalize this new baseline cost estimate for the project in light of realistic out-year funding profiles to support a planned renegotiation of the Consent Order with the New Mexico Environment Department. In addition, the pending changes to the type of contract used to manage the legacy cleanup work at LANL will be factored into the baseline revision. DOE plans to complete the revised cost estimate by September 30, 2015. We are pleased that DOE plans to address this recommendation and has actions under way to do so.\nIn regard to the report’s second recommendation to revise and update the TWF project’s cost estimate by following all best practices for developing a reliable cost estimate that covers all life-cycle costs, NNSA stated in its written comments that it will update the TWF’s operations and maintenance cost estimate to ensure effective management of the facility once it is operational. Regarding the TWF’s construction estimate, as we described in the report and in appendix II, NNSA’s TWF construction estimate conformed to several but not all best practices. In particular, NNSA validated the project team’s estimate through an ICE to provide an unbiased test of the reasonableness of the TWF construction costs. Regarding the TWF’s operations and maintenance estimate, NNSA stated it will prepare the updated estimate as part of the programming process for the fiscal year 2017 budget, which takes place in fiscal year 2015, to support postconstruction activities and operations. Further, NNSA stated that the estimate will reflect operational costs for a 7-year window and incorporate applicable best practices, including documentation of any significant deviations and uncertainties impacting the estimate. The estimated completion date for these activities is March 30, 2015.\nWe are encouraged by NNSA’s planned actions to update the TWF operations and maintenance estimate using applicable best practices. However, it will be particularly important for NNSA to document its decisions on which best practices are being followed and the reasons practices not being followed are not applicable. As we noted in the report, one of the key weaknesses we found was that NNSA did not document the approach (data sources and methodologies) used to develop the $300 million operations and maintenance estimate for the TWF, even though the operations and maintenance costs represented about 74 percent of the TWF’s life-cycle costs. Because NNSA did not document the approach used, we could not determine whether it was appropriate for developing the operations and maintenance estimate. With regard to the time frames covered by this estimate, NNSA plans to update the TWF operations and maintenance cost estimate to cover a 7-year period. Given the need now for reliable information on the estimated costs for operations, NNSA’s plan to update the TWF operations and maintenance cost estimate following applicable best practices, and covering a 7-year period, by March 30, 2015, would provide it more reliable information for managing the facility as it prepares for the start of operations. As we noted in the report, however, NNSA expects the TWF to provide TRU waste capabilities at LANL to support NNSA’s nuclear weapons mission for the next 50 years. By having a reliable and updated life-cycle estimate for the TWF that covers the estimated useful life of the facility, NNSA managers would be better able to plan for the TWF costs in balance with other infrastructure in the national nuclear security enterprise.\nAs agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Secretary of Energy, and other interested parties. In addition, this report will be available at no charge on the GAO website at http://www.gao.gov.\nIf you or your staff members have any questions about this report, please contact me at (202) 512-3841 or trimbled@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix IV.", "Our objectives were to examine (1) the extent to which the National Nuclear Security Administration (NNSA) has met its cost targets for the transuranic (TRU) waste removal project at Los Alamos National Laboratory (LANL) and (2) the extent to which NNSA’s cost estimate for the TRU Waste Facility (TWF) project at LANL met best practices for a reliable cost estimate.\nTo examine the extent to which NNSA’s TRU waste removal project at LANL has met its cost estimates, we reviewed documentation of NNSA’s total project cost estimates from 2006 and 2009. We focused on these cost estimates because they were developed after the establishment of the Consent Order in 2005, and they were the most recently completed estimates for the total cost of the project. During our review, NNSA was in the process of developing a new cost estimate, the draft fiscal year 2015 cost estimate, for the TRU waste removal project. We interviewed the NNSA officials and representatives from its LANL contractor who were working on the draft estimate to understand the cost estimation process and preliminary results. We reviewed data provided to us by NNSA from the Department of Energy’s (DOE) Integrated Planning, Accountability, and Budgeting System on the annual dollars spent for fiscal years 2006 through 2013 for the TRU waste removal project, as well as NNSA’s estimate of fiscal year 2014 year-end spending for the project. We compared the project spending data with the 2006 and 2009 cost estimates, and with the new draft 2015 cost estimate. We also reviewed data provided to us by NNSA from LANL’s Waste Compliance and Tracking System on total volumes of TRU waste removed from LANL from 1999 through July 2014, as well as NNSA’s estimate of the total volume of TRU waste remaining. We assessed the reliability of the project data we reviewed and analyzed, and we determined that the data for this period were sufficiently reliable to examine the extent to which NNSA’s TRU waste removal project at LANL has met its cost targets. To assess the reliability of the project data, we reviewed information provided by NNSA on the data systems used for managing and reporting the data, including the systems’ controls and checks that ensure the accuracy and completeness of the data, as well as procedures that were in place to review and certify the reliability of the data such as inspector general or internal audit reports of the quality of the data. In addition, we reviewed NNSA’s fiscal year work plans for the years after NNSA adopted the Operations Activities Protocol for managing the TRU waste removal project, fiscal years 2012 through 2014. We compared the total project cost estimates and the fiscal year work plans to the requirements for developing and using cost estimates found in DOE’s Operations Activities Protocol, which sets the requirements for managing cleanup projects at DOE defined as operations activities. To refine our analysis, we interviewed officials from NNSA’s Office of Environment, Health, and Safety in headquarters, the Environmental Project’s Office in NNSA’s LANL Site Office, and the DOE Office of Environmental Management’s (EM) Office of Disposal Operations. We also met with the contractors working on the TRU waste removal project at LANL during a visit to the site where we toured Area G and the buildings conducting TRU waste processing. average of the individual assessment ratings to determine the overall assessment rating for each of the four characteristics as follows: Not Met = 1.0 to 1.4, Minimally Met = 1.5 to 2.4, Partially Met = 2.5 to 3.4, Substantially Met = 3.5 to 4.4, and Fully Met = 4.5 to 5.0. We consider a cost estimate reliable if the overall assessment ratings for each of the four characteristics are substantially or fully met. If any of the characteristics are not met, minimally met, or partially met, then the cost estimate does not fully reflect the characteristics of a high-quality estimate and cannot be considered reliable.\nWe conducted this performance audit from July 2013 to February 2015 in accordance with generally accepted government standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.", "", "Best practice The cost estimate includes all life-cycle costs.\nDetailed assessment Partially met. The life-cycle cost estimate consisted of a design and construction (construction) estimate and a 50-year operations and maintenance estimate. The operations and maintenance cost estimate was not updated at Critical Decision (CD)-2 when the construction estimate was approved. The life-cycle estimate did not include retirement of the facility.\nThe cost estimate completely defines the program, reflects the current schedule, and is technically reasonable.\nPartially met. The construction estimate was based on the technical requirements considered 90 percent mature. The operations and maintenance estimate was not supported by definitions of the technical requirements that would have formed the basis of the estimate.\nThe cost estimate work breakdown structure is product-oriented, traceable to the statement of work/objective, and at an appropriate level of detail to ensure that cost elements are neither omitted nor double-counted.\nPartially met. The construction estimate work breakdown structure covered the major work for the end product of the TWF project. The work breakdown structure did not present all cost elements at a clear level of detail, and it was not standardized so that cost data can be collected and used for estimating future programs. The operations and maintenance estimate did not reflect a documented work breakdown structure.\nThe estimate documents all cost-influencing ground rules and assumptions.\nPartially met. The construction estimate included ground rules and assumptions, such as technical specifications, vendor quotes, and registered risks. The operations and maintenance estimate did not document ground rules and assumptions.\nThe documentation captures the source data used, the reliability of the data, and how the data were normalized.\nPartially met. The construction estimate documented the data sources used but not data reliability and how the data were normalized. The operations and maintenance estimate was not supported by detailed documentation.\nThe documentation describes in sufficient detail the calculations performed and the estimating methodology used to derive each element’s cost.\nPartially met. The construction estimate used an engineering buildup approach for individual cost elements. The operations and maintenance estimate did not include documentation on how cost elements were derived.\nThe documentation describes, step by step, how the estimate was developed so that a cost analyst unfamiliar with the program could understand what was done and replicate it.\nPartially met. The construction estimate documentation explained how work breakdown structure elements were estimated and the documentation was mathematically sensible and logical. The documentation explains how management reserve and contingency were calculated and was composed of cost and schedule uncertainty. The operations and maintenance estimate did not include documentation that detailed how the estimate was developed.", "Best practice The documentation discusses the technical baseline description, and the data in the baseline is consistent with the estimate.\nDetailed assessment Partially met. The documentation for the construction estimate matched the technical requirements document. The operations and maintenance estimate was not supported by a technical baseline document.\nThe documentation provides evidence that the cost estimate was reviewed and accepted by management.\nPartially met. NNSA approved the construction estimate. The approval memo did not detail recommendations for changes, feedback, and the level of contingency reserves decided upon to reach a desired level of confidence. The operations and maintenance estimate did not document management review and approval.\nThe cost estimate results are unbiased, not overly conservative or optimistic, and based on an assessment of most likely costs.\nPartially met. The construction estimate included risk and uncertainty analysis, the results included S curve cumulative probabilities. The risk and uncertainty is quantified as management reserve and contingency. The cost estimate was in range when compared with metrics that benchmark the TWF estimate to similar nuclear projects. The operations and maintenance estimate did not include documentation to help determine whether it was unbiased and not overly conservative or optimistic.\nThe estimate has been adjusted properly for inflation. Partially met. The construction estimate was adjusted for inflation for the period of the construction schedule, but the cost data were not normalized. The operations and maintenance estimate was not properly adjusted for inflation.\nThe estimate contains few, if any, minor mistakes.\nPartially met. The construction estimate included minor calculation errors in the cost summary table. We were not able to perform random sampling to check calculations for accuracy because the electronic cost model provided to us did not identify the formulas for calculations. The operations and maintenance estimate did not include detailed calculations that we could use to check its accuracy.\nThe cost estimate is regularly updated to reflect significant changes in the program so that it always reflects current status.\nMinimally met. The construction estimate was updated to reflect changes in technical or program assumptions at the CD-3 (approve the start of construction) milestone but is not regularly updated with actual costs on an ongoing basis. The operations and maintenance estimate is not regularly updated to reflect changes in the project and has not been updated since June 2010.\nVariances between planned and actual costs are documented, explained, and reviewed.\nMinimally met. The construction estimate did not explain variances between planned and actual costs. The CD-2 estimate included a summary level reconciliation with the CD-1 estimate.", "Best practice The estimate is based on a historical record of cost estimating and actual experiences from other comparable programs.\nDetailed assessment Partially met. The construction estimate was based on the contractor’s market price data for the scope of work required to complete the project. The estimate also uses metrics from similar nuclear projects but did not include documentation on the reliability of the metrics data. The operations and maintenance estimate did not document whether it was based on historical or other data.\nThe estimating technique for each cost element was used appropriately.\nPartially met. The construction estimate was based on engineering buildup approaches appropriate to each cost element. The operations and maintenance estimate did not include documentation of the techniques used for each cost element.\nThe cost estimate includes a sensitivity analysis that identifies a range of possible costs based on varying major assumptions, parameters, and data inputs.\nMinimally met. The construction estimate identified and examined key cost drivers but did not include a formal sensitivity analysis. The operations and maintenance estimate did not include a sensitivity analysis.\nA risk and uncertainty analysis was conducted that quantified the imperfectly understood risks and identified the effects of changing key cost driver assumptions and factors.\nPartially met. The construction estimate included risk and uncertainty analysis for cost and schedule and quantified the cost of these risks as management reserve and contingency reserve. The estimate did not document how correlation of cost elements was accounted for in the risk and uncertainty analysis. The operations and maintenance estimate did not include risk and uncertainty analysis.\nMajor cost elements were cross-checked to see whether results were similar.\nPartially met. The construction estimate included cross-checks with metrics that benchmark the TWF to similar nuclear projects. The operations and maintenance estimate did not include documentation of cross-checks.\nAn independent cost estimate (ICE) was conducted by a group outside the acquiring organization to determine whether other estimating methods produce similar results.\nPartially met. An ICE for the project’s construction phase was performed by DOE’s Office of Acquisition and Project Management. The ICE appears to have been based on a similar technical baseline to the program office estimate. However, the program estimate was 13 percent higher than the ICE. NNSA did not document how it reconciled the two estimates. The ICE did not cover the operations and maintenance costs of the facility.\nThe ratings we used in this analysis are as follows: “Not met” means the cost estimate provided no evidence that satisfies the best practice. “Minimally met” means the cost estimate provided evidence that satisfies a small portion of the best practice. “Partially met” means the cost estimate provided evidence that satisfies about half of the best practice. “Substantially met” means the cost estimate provided evidence that satisfies a large portion of the best practice. “Fully met” means the cost estimate provided complete evidence that satisfies the entire best practice.", "", "", "", "In addition to the individual named above, Diane LoFaro, Assistant Director; Mark Braza; Richard P. Burkard; Brian M. Friedman; Abishek Krupanand; Eli Lewine; Cynthia Norris; Katrina Pekar-Carpenter; and Karen Richey made key contributions to this report." ], "depth": [ 1, 2, 3, 3, 2, 2, 2, 2, 1, 1, 1, 1, 1, 1, 1, 2, 2, 2, 1, 1, 2, 2 ], "alignment": [ "h2_title", "", "", "", "", "h2_full", "h2_full", "", "h0_full h2_full", "h1_full", "h2_full h1_full", "h3_full", "", "h0_full h3_full", "", "", "", "", "", "", "", "" ] }

{ "question": [ "What issue did GAO find with the NNSA project?", "How was this demonstrated in 2014?", "How is this expected to be demonstrated in 2009?", "Why did the NNSA not meet its cost estimates?", "What was NNSA doing at the time of GAO's review?", "Why hadn't the NNSA revised the project's cost estimate since 2009?", "Why might the new cost estimate not reflect current conditions?", "How might the new cost estimate help the NNSA's program managers?", "What did the NNSA's cost estimate reflect?", "In what way was NNSA's cost estimate well-documented?", "What data was NNSA's cost estimate documentation missing?", "How did this incomplete documentation affect GAO's analysis?", "Why was NNSA's estimate only partially credible?", "Why didn't NNSA conduct a sensitivity analysis?", "How might a sensitivity analysis have improved credibility?", "How would updating the TWF's cost estimate benefit the NNSA?", "What have nuclear weapons activities at LANL generated?", "How will the NNSA address these large quantities of waste?", "What is the first project?", "What is the second project?", "What has NNSA developed for these projects?", "What was GAO asked to review?", "What does this report examine?", "How did GAO collect data for this report?" ], "summary": [ "The National Nuclear Security Administration's (NNSA) project to remove transuranic (TRU) waste—primarily discarded equipment and soils contaminated with certain radioactive material—at Los Alamos National Laboratory (LANL) did not meet its cost estimates.", "At the end of fiscal year 2014, NNSA had spent about $931 million on the project, exceeding its 2006 estimate of $729 million by $202 million.", "Under current plans, the project is also expected to exceed its 2009 estimate.", "NNSA did not meet its cost estimates, in part, because they were based on aggressive funding assumptions designed to meet the completion dates agreed to in a 2005 cleanup agreement, which the Department of Energy (DOE) did not fully fund.", "At the time of GAO's review, NNSA was developing a new project completion cost estimate of about $1.6 billion, with completion projected for October 2022.", "NNSA had not revised the project's cost estimate since 2009 because the agency was reluctant to approve an estimate with a completion date that conflicted with the 2005 cleanup agreement.", "However, according to an NNSA official, NNSA's new estimate may not reflect current conditions—partly because of uncertainty created by funding and the indefinite suspension of shipments of TRU waste to the permanent repository at DOE's Waste Isolation Pilot Plant (WIPP) after a radioactive release closed WIPP in February 2014.", "By revising the estimate to include the current understanding of project conditions, including the uncertainty at WIPP, NNSA program managers can, for example, more accurately identify cost overruns.", "NNSA's cost estimate for the TRU Waste Facility (TWF), which consisted of separate cost estimates for completing construction and for operations and maintenance, partially reflected each of the four characteristics of a reliable estimate (comprehensive, well-documented, accurate, and credible) as established by best practices.", "For example, NNSA's estimate was partially well-documented by clearly documenting the data sources and methodology used to develop the construction estimate.", "However, NNSA did not sufficiently document the approach used to develop the operations and maintenance estimate, which represented about 74 percent of the TWF's life-cycle costs, because DOE's project management order does not require these costs to be documented when a project is approved to request funding from Congress for construction.", "As a result, GAO could not determine whether the cost-estimating approach was appropriate.", "In addition, NNSA's estimate was partially credible because NNSA completed an independent cost estimate (ICE) that provided an unbiased cross-check of the construction estimate consistent with best practices, but it did not include the operations and maintenance costs in the ICE because it was not required by DOE's project management order.", "Moreover, NNSA did not conduct a sensitivity analysis to quantify variations in the TWF's cost estimates due to changes in key assumptions because it was not required by DOE, which also affected the estimate's credibility.", "Doing a sensitivity analysis increases the chance that decisions for the TWF will focus on the elements that have the greatest effect on cost, according to best practices.", "Updating the TWF's cost estimate to include all life-cycle costs and needed analyses, would provide NNSA more reliable information for better managing the TWF as it prepares for the start of operations, which NNSA expects could be as early as April 2016.", "Nuclear weapons activities at LANL have generated large quantities of TRU waste that must be disposed of properly.", "To address a 2005 cleanup agreement with the state of New Mexico requiring DOE to close LANL's TRU waste site, NNSA is to oversee two TRU waste projects.", "The first is to remove the waste stored at LANL and ship it to WIPP for permanent disposal.", "The second is to construct a facility—the TWF—to provide new capabilities for managing newly generated TRU waste at LANL.", "NNSA has developed cost estimates for both projects.", "GAO was asked to review cost estimates for the TRU waste projects at LANL.", "This report examines (1) the extent to which NNSA's TRU waste removal project at LANL has met its cost estimates and (2) the extent to which NNSA's cost estimate for the TWF met best practices for a reliable estimate.", "GAO reviewed spending data for the TRU waste removal project for fiscal years 2006 through 2014 and the cost estimates for both projects, compared the cost estimate for the TWF with best practices, and interviewed agency officials." ], "parent_pair_index": [ -1, 0, 0, 0, -1, 4, 4, 4, -1, 0, 0, 2, 0, -1, 5, -1, -1, 0, 1, 1, 0, -1, -1, 1 ], "summary_paragraph_index": [ 2, 2, 2, 2, 2, 2, 2, 2, 3, 3, 3, 3, 3, 3, 3, 3, 0, 0, 0, 0, 0, 1, 1, 1 ] }

{ "title": [ "Background", "Overview of the Watchlisting and Screening Processes", "Weaknesses Exposed by the December 2009 Attempted Attack", "2010 Guidance Addresses Weaknesses in Nominations Process, but Agencies Face Challenges in Managing Increased Volumes of Information", "Changes to Watchlisting Guidance and Impacts on Agencies", "Assessing Impacts of Guidance Could Help Ensure That Challenges Are Resolved and Inform Future Efforts to Strengthen the Watchlisting Process", "The Number of Individuals on the Watchlist and Aviation-Related Subsets Increased after the Attempted Attack", "Screening Agencies Are Addressing Vulnerabilities Exposed by the Attempted Attack, but Assessing Their Impacts Could Help Inform Future Efforts", "TSA Has Encountered More Individuals on the No Fly and Selectee Lists and Is Screening against More Watchlist Records", "No Fly and Selectee List Encounters", "CBP Expansion of PreDeparture Vetting Has Kept Hundreds More Aliens in the TSDB off Airplanes Bound for the United States", "State Revoked Hundreds of Visas Held by Individuals on the Watchlist after the Attempted Attack", "State Revoked Hundreds of Visas after Attempted Attack", "Assessing Outcomes and Impacts of Screening and Vetting Agency Programs Could Help Ensure That the Watchlist Is Achieving Intended Results", "Conclusions", "Recommendations for Executive Action", "Agency Comments", "Appendix I: Objectives, Scope, and Methodology", "Objectives", "Scope and Methodology", "Watchlist Nominations Process", "Composition of the Watchlist", "Screening and Law Enforcement Agency Actions", "Appendix II: Overview of the Watchlist Nominations Process", "Appendix III: Transportation Security Administration’s Secure Flight Program and Related Activities", "Secure Flight Overview", "Secure Flight Has Reduced Misidentifications", "Appendix IV: Redress Process for Individuals Experiencing Difficulties during Travel- Related Screening and Inspection", "Changes to DHS TRIP Watchlist-Related Procedures since the Attempted Attack", "DHS TRIP Redress Data and Related Information", "Appendix V: GAO Contact and Staff Acknowledgments", "GAO Contact", "Staff Acknowledgments" ], "paragraphs": [ "", "Pursuant to Homeland Security Presidential Directive 6, TSC was established to create and maintain the U.S. government’s consolidated watchlist—the Terrorist Screening Database (TSDB)—and to provide for the use of watchlist records during security-related and other screening processes. The watchlisting and screening processes are intended to support the U.S. government’s efforts to combat terrorism by consolidating the terrorist watchlist and providing screening and law enforcement agencies with information to help them respond appropriately during encounters with known or suspected terrorists, among other things.\nTSC receives watchlist information for inclusion in the TSDB from two sources: NCTC and the FBI. TSC receives the vast majority of its watchlist information from NCTC, which compiles information on known or suspected international terrorists. NCTC receives this information from executive branch departments and agencies—such as the Central Intelligence Agency (CIA), State, and the FBI—and maintains the information in its Terrorist Identities Datamart Environment (TIDE) database. Agencies that submit nominations to NCTC are to include pertinent derogatory information and any biographic information—such as name and date of birth—needed to establish the identity of individuals on the watchlist. The FBI provides TSC with information about known or suspected domestic terrorists.who are subjects of ongoing FBI counterterrorism investigations to TSC for inclusion in the TSDB, including persons the FBI is preliminarily investigating to determine if they have links to terrorism.\nIn general, the FBI nominates individuals In accordance with Homeland Security Presidential Directive 6—and built upon through Homeland Security Presidential Directives 11 and 24—the TSDB is to contain information about individuals known or suspected to be or have been engaged in conduct constituting, in preparation for, in aid Nominating agencies, of, or related to terrorism and terrorist activities. NCTC, and the FBI apply a reasonable-suspicion standard to determine which individuals are appropriate for inclusion in the TSDB. NCTC and the FBI are to consider information from all available sources to determine if there is a reasonable suspicion of links to terrorism that warrants a nomination. Once NCTC and the FBI determine that an individual meets the reasonable-suspicion standard and that minimum biographic information exists, they extract sensitive but unclassified information on the individual’s identity—such as name and date of birth— from their classified databases and send the information to TSC. TSC reviews these nominations—evaluating the derogatory and biographic information—to decide whether to add nominated individuals to the TSDB. Appendix II contains additional information on the watchlist nominations process.\nTo support agency screening processes, TSC sends applicable records from the TSDB to screening and law enforcement agency systems based on the agency’s mission responsibilities and other factors. For instance, applicable TSC records are provided to TSA for use in screening airline passengers, to CBP for use in inspecting and vetting persons traveling to and from the United States, and to State for use in screening visa applicants. Regarding individuals who are not citizens or nationals of the United States seeking to travel to and lawfully enter the United States, screening and law enforcement agencies rely on immigration laws that specify criteria for determining whether to issue visas to individuals and whether to admit them into the country. In many instances, individuals who are not citizens or nationals of the United States who have engaged in or are likely to engage in terrorist-related activities may be ineligible to receive visas or inadmissible for entry to the United States, or both. U.S. citizens returning to the United States from abroad are not subject to the admissibility requirements of the Immigration and Nationality Act, regardless of whether they are subjects of watchlist records. In general, these individuals only need to establish their U.S. citizenship to the satisfaction of the examining officer—by, for example, presenting a U.S. passport—to obtain entry into the United States. U.S. citizens are subjected to inspection by CBP before being permitted to enter and additional actions may be taken, as appropriate.", "On December 25, 2009, Umar Farouk Abdulmutallab, a 23-year old Nigerian man, attempted to detonate a concealed explosive device on Northwest Airlines Flight 253 en route from Amsterdam to Detroit as the plane descended into the Detroit Metropolitan Wayne County Airport.\nAccording to the Executive Office of the President’s and Senate Select Committee on Intelligence’s inquiries into events that led to the attempted attack, failures across the intelligence community—including human errors, technical problems, and analytic misjudgments—contributed to the government’s failure to identify the subject as a threat that would qualify him for inclusion on the terrorist watchlist. The inquiries concluded that the intelligence community held information on Mr. Abdulmutallab—he was included in TIDE at the time of the attempted attack—but that it was fragmentary and ultimately not pieced together to form a coherent picture of the threat he posed (see fig. 1).\nThe government inquiries also raised issues regarding how agencies used and interpreted the 2009 watchlisting protocol for nominating individuals to the watchlist. For example, according to the Executive Office of the President’s review, although Mr. Abdulmutallab was entered into TIDE in November 2009, NCTC determined that the associated derogatory information did not meet the criteria for nominating him to the terrorist watchlist. Therefore, NCTC did not send the nomination to TSC. Also, according to the Senate Select Committee on Intelligence report, agencies may have interpreted the 2009 watchlisting protocol’s standards for placing individuals on the watchlist too rigidly, thereby preventing Mr. Abdulmutallab from being nominated for inclusion on the watchlist.\nUnder the auspices of the Information Sharing and Access Interagency Policy Committee, TSC—in coordination with watchlisting and screening agencies—reviewed the 2009 watchlisting protocol and made recommendations regarding whether adjustments to the protocol were warranted. The Deputies Committee—a senior interagency forum that considers policy issues affecting national security—initially approved new watchlisting guidance for issuance to the watchlisting and screening communities in May 2010. After a multiagency classification review was completed, the Deputies Committee approved a final version of the Watchlisting Guidance in July 2010, which TSC issued to the watchlisting and screening communities.", "", "The July 2010 Watchlisting Guidance includes changes that were intended to address weaknesses in the nominations process that were exposed by the December 2009 attempted attack and to clarify how agencies are to nominate individuals to the watchlist. Since the guidance was approved, nominating agencies have expressed concerns about the increasing volumes of information and related challenges in processing this information and noted that the long-term impacts of the revisions may not be known for some time. For example, the watchlisting unit director from one agency reported that the agency is experiencing an increasing intake of information from its sources, which has impacted its analysts’ reviews of this information. Also, officials from some agencies reported that at times they have had to temporarily add personnel to review and process the large volumes of information.\nData from the nominating agencies we contacted show that the agencies sent more nominations-related information to NCTC after the attempted attack than before the attack. According to NCTC officials, the center experienced receiving an increase in nominations beginning in February 2010. The officials noted that in May 2010, the volume of incoming nominations exceeded NCTC’s ability to process it, resulting in a backlog. NCTC has applied additional resources—both staffing and technological—to address its backlog. As a result, in October 2011, NCTC officials noted that the center had virtually eliminated its backlog. Moreover, unless TSC has the ability to process the information it receives, it cannot add information to the TSDB for use by screening and law enforcement agencies. Overall, the volume of nominations TSC is receiving from the FBI and NCTC has generally increased since the attempted attack. According to TSC officials, the center has avoided backlogs by employing a variety of strategies to address its workload, including management of personnel resources and use of more advanced technology.\nSince the December 25, 2009, attempted attack, agencies involved in the watchlist nominations process have pursued staffing, technology, working groups, and other solutions to strengthen the process and manage increasing volumes of information. Specifically, officials from four of the seven agencies we contacted reported that they are in the process of developing and implementing certain technological solutions to address watchlisting issues. For example, NCTC, in consultation with other members of the intelligence community, reported that it is developing information technology tools to strengthen analysts’ abilities to identify potential links to terrorism. The government has also created interagency working groups to address watchlist-related issues. Further, NCTC reported that training programs have been developed and administered to its watchlisting analysts, as well as nominating and screening agency personnel.\nOur review of the July 2010 Watchlisting Guidance and discussions with relevant agency officials indicated that in drafting the guidance, the watchlist community emphasized quality-assurance mechanisms as well as civil rights and civil liberties protections that should be considered when nominating individuals.", "While agencies are pursuing actions to strengthen the watchlisting process, no single entity is accountable for routinely assessing the overall impacts the July 2010 Watchlisting Guidance is having on the watchlisting community, the extent to which these impacts are acceptable and manageable from a policy perspective, and if the impacts indicate the need for any adjustments. Further, no entity is routinely collecting and analyzing data needed to conduct such governmentwide assessments over time. In general, officials from the nominating agencies we contacted and from NCTC and TSC said that they participated in developing the July 2010 Watchlisting Guidance and agreed with the changes, but noted that they did not know at the time how changes implemented through the 2010 guidance would impact them. Routinely assessing these impacts could help agencies address any challenges they are having in implementing the watchlisting guidance.\nAgencies involved in the nominations process are taking actions to address challenges related to implementing the 2010 guidance. For example, officials from the Information Sharing and Access Interagency Policy Committee’s Subcommittee on Watchlisting noted that departments and agencies within the watchlisting community are responsible for assessing the impacts of their individual watchlisting efforts and for bringing issues, as needed, to the subcommittee. They explained that agencies react to and address issues and challenges as they arise. However, this approach has not allowed them to proactively and systematically assess the watchlisting process and identify emerging issues; achieve consensus on solutions to potential challenges before they manifest themselves; and determine if adjustments to the watchlisting guidance are needed.\nBecause of the collaborative nature of the watchlisting process, any assessment of impacts must be an interagency effort. However, none of the interagency entities we contacted were routinely performing these assessment functions. In February 2011, officials from the Subcommittee on Watchlisting noted that the subcommittee was preparing a report on watchlisting efforts since the December 2009 attempted attack and had requested that subcommittee members provide input. At that time, the subcommittee officials noted that the Information Sharing and Access Interagency Policy Committee did not plan to conduct routine assessments of the watchlisting processes. In August 2011, a representative of the National Security Staff informed us that the Information Sharing and Access Interagency Policy Committee recently began performing an assessment function related to the July 2010 Watchlisting Guidance. The representative noted that the depth and frequency of specific reviews will vary as necessary and appropriate. The staff did not provide us details on these efforts, so we could not determine to what extent the assessments will be routine or involve collecting and analyzing data needed to conduct such assessments over time.\nSince we found no single entity that is responsible and accountable for routinely assessing the overall impacts the 2010 guidance is having on the watchlisting community—and collecting the data needed to conduct such assessments—the Assistant to the President for Homeland Security and Counterterrorism may be best positioned to ensure that governmentwide assessments are conducted. The President tasked this individual to be responsible and accountable for ensuring that agencies carry out actions to strengthen the watchlisting process after the December 2009 attempted attack. Thus, it likewise follows that this individual could be responsible and accountable for ensuring that the impacts from these actions are routinely assessed and that the results of the assessments are used to inform future watchlisting changes.\nAccording to Standards for Internal Control in the Federal Government, ongoing monitoring of programs and activities should occur during the course of normal operations.appropriate agencies routinely evaluate or assess the impact of the 2010 guidance on the watchlisting community could help decision makers determine if the guidance is achieving its intended outcomes or needs any adjustments, and help inform future efforts to strengthen the watchlisting process. Such assessments could also help the Information Sharing and Access Interagency Policy Committee and the watchlisting community understand longer-term impacts of changes to the watchlisting guidance, such as how increasing volumes of information are creating resource demands. Finally, such assessments could help to improve transparency and provide an accurate accounting to the Executive Office of the President and other stakeholders, including Congress, for the resources invested in the watchlisting process.", "Immediately after the December 2009 attempted attack, federal agencies took steps that resulted in an increase in the number of individuals in the TSDB and its aviation-related subsets—the No Fly and Selectee lists— based on new intelligence and threat information. Specifically, in the months following the attempted attack, agencies added these individuals to the TSDB from TIDE or from the TSDB to the No Fly or Selectee lists. Also, upon completion of this initiative, the number of U.S. persons on the No Fly List more than doubled and the number of U.S. persons on the Selectee List increased by about 10 percent. According to TSC data, the number of individuals on the No Fly List generally continued to increase during the remainder of 2010, while the number of individuals on the Selectee List remained relatively constant.\nTo carry out these upgrades, TSC and NCTC—at the direction of the Deputies Committee and in consultation with other intelligence agencies—reviewed available intelligence and threat information that existed on certain individuals. At the same time, TSC worked with NCTC and intelligence community agencies to ensure that (1) the information that supported changing the watchlist status of the individuals was as complete and accurate as possible and (2) the individuals were placed in the TSDB and, when applicable, on the No Fly or Selectee lists, in accordance with standards and criteria for inclusion on these lists.", "Agencies that screen individuals against TSDB records are addressing vulnerabilities and gaps in processes that were exposed by the December 2009 attempted attack to enhance homeland security. For example, TSA actions have resulted in more individuals being denied boarding aircraft or subjected to enhanced screening before boarding. The number of U.S. persons (U.S. citizens and lawful permanent residents) denied boarding has also increased and, for such persons abroad, required the government to develop procedures to facilitate their return. TSA is also screening airline passengers against additional TSDB records to mitigate risks. CBP has implemented a program to build upon its practice of evaluating the risk posed by individuals attempting to enter the United States before they board flights bound for the United States. As a result, air carriers have permitted fewer individuals in the TSDB to board such flights, particularly nonimmigrant aliens. State took actions to revoke hundreds of U.S. visas immediately after the attempted attack because it determined that the individuals could present an immediate threat. These and other agency actions are intended to enhance homeland security, but no entity is routinely assessing governmentwide issues, such as how the changes have impacted agency resources and the traveling public, whether watchlist screening is achieving intended results, or if adjustments to agency programs or the watchlisting guidance are needed.", "", "After the attempted attack, TSA continued implementation of the Secure Flight program, which enabled TSA to assume direct responsibility for determining if individuals are matches to the No Fly or Selectee lists from air carriers. Secure Flight requires that air carriers collect—and that passengers provide—full name and date-of-birth and gender information, thereby improving TSA’s ability to correctly determine whether individuals are on these lists. Before Secure Flight, air carriers were not required to collect date-of-birth and gender information, and each airline conducted watchlist matching differently with varying effectiveness. According to TSA, the increase in individuals added to the No Fly and Selectee lists, combined with the implementation of Secure Flight, resulted in an increase in the number of times airlines encountered individuals on these lists. TSA data show that the encounters involved both domestic flights (flights to and from locations within the United States) and international flights (flights to or from the United States or over U.S. air space).\nSince the December 2009 attempted attack and subsequent increase in the number of U.S. persons nominated to and placed on the No Fly List, there have been instances when U.S. persons abroad have been unable to board an aircraft bound for the United States. Any individual— regardless of nationality—can be prohibited from boarding an aircraft if the threat represented by the individual meets the criteria for inclusion on the No Fly List. In general, however, U.S. citizens are permitted to enter the United States at a U.S. port of entry if they prove to the satisfaction of a CBP officer that they are in fact U.S. citizens. Lawful permanent residents, who in limited circumstances independent of the No Fly List may be rendered an applicant for admission, are usually entitled to removal proceedings prior to having their status as a lawful permanent resident terminated for immigration purposes.\nIn our October 2007 watchlist report, we recommended that DHS assess to what extent security risks exist by not screening against more watchlist records and what actions, if any, should be taken in response. DHS generally agreed with our recommendation but noted that increasing the number of records that air carriers used to screen passengers would expand the number of misidentifications to unjustifiable proportions without a measurable increase in security. In general, misidentifications occur when a passenger’s name is identical or similar to a name in the TSDB but the passenger is not the individual on the watchlist. Since then, TSA assumed direct responsibility for this screening function through implementation of the Secure Flight program for all flights traveling to, from, or within the United States. According to TSA, Secure Flight’s full assumption of this function from air carriers and its use of more biographic data for screening have improved watchlist matching. This includes TSA’s ability to correctly match passenger data against TSDB records to confirm if individuals match someone on the watchlist and reduce the number of misidentifications. Appendix III contains additional information on how Secure Flight has reduced the likelihood of passengers being misidentified as being on the watchlist and related inconveniences.\nTSA’s actions discussed below fully respond to the recommendation we made in our October 2007 report. Specifically, TSA has implemented Secure Flight such that as circumstances warrant, it may expand the scope of its screening beyond the No Fly and Selectee lists to the entire TSDB. According to the program’s final rule, in general, Secure Flight is to compare passenger information only to the No Fly and Selectee lists because, during normal security circumstances, screening against these components of the TSDB will be satisfactory to counter the security threat. However, the rule also provides that TSA may use the larger set of “watch lists” maintained by the federal government when warranted by security considerations, such as if TSA learns that flights on a particular route may be subject to increased security risk.\nAlso, after the attempted bombing in December 2009, DHS proposed and the Deputies Committee approved the Secure Flight program’s expanded use of TSDB records on a routine basis to screen passengers before they board flights. In April 2011, TSA completed the transition of the Secure Flight program to conduct watchlist matching against this greater subset of TSDB records and notify air carriers that those passengers who are determined to be a match should be designated for enhanced screening prior to boarding a flight. According to TSA, the impact on screening operations has been minimal given the relatively low volume of matches against these additional records each day.\nTSA noted that the entire TSDB is not used for screening since matching passenger data against TSDB records that contain only partial data could result in a significant increase in the number of passengers who are misidentified as being on the watchlist and potentially cause unwarranted delay or inconvenience to travelers. TSA also noted that as with potential misidentifications to the No Fly and Selectee lists, passengers who feel that they have been incorrectly delayed or inconvenienced can apply for redress through the DHS Traveler Redress Inquiry Program (DHS TRIP). DHS noted that TSA regularly monitors the Secure Flight program and processes and makes adjustments as needed.\nIn fiscal year 2011, TSA reprogrammed $15.9 million into Secure Flight to begin screening against the additional TSDB records. TSA’s fiscal year 2012 budget request proposed funding to make screening against the additional records permanent. According to TSA, for fiscal year 2012, Secure Flight requested an increase of $8.9 million and 38 full-time personnel to continue supporting this expanded screening effort. According to TSA, the funding will be used for information technology enhancements that will be required to implement this expanded screening and will allow TSA to handle the increased workload.", "For individuals traveling by air to the United States, CBP has established programs whereby it assesses individuals before they board an aircraft to determine whether it is likely they will be found inadmissible at a port of entry. The following sections discuss how CBP’s Pre-Departure Targeting Program and Immigration Advisory Program handle the subset of travelers who are in the TSDB. Other high-risk and improperly documented passengers handled by these programs include passengers who have criminal histories; have had their visas revoked; are in possession of fraudulent, lost, or stolen passports; or otherwise appear to be inadmissible.\nIn response to the attempted attack in December 2009, and as part of its border and immigration security mission, CBP implemented the Pre- Departure Targeting Program in January 2010 to build upon its process of assessing if individuals would likely be found inadmissible at a port of entry before they board an aircraft to cover all airports worldwide with direct flights to the United States. Before the attempted attack, CBP assessed individuals who were departing from airports that had CBP Immigration Advisory Program officers on site. At airports without such a program, passengers in the TSDB but not on the No Fly List generally were allowed to board flights and travel to U.S. airports. Upon arrival at a U.S. port of entry, CBP would inspect the passengers and determine their admissibility. CBP continues to assess passengers through the Immigration Advisory Program for flights departing from airports that have a program presence.\nFor both the Pre-Departure Targeting Program and the Immigration Advisory Program, if CBP determines that a passenger would likely be deemed inadmissible upon arrival at a U.S. airport, it recommends that the air carrier not board that passenger (that is, it makes a no board recommendation). CBP generally makes these no board recommendations based on provisions for admissibility found in the Immigration and Nationality Act. U.S. citizens are generally not subject to these recommendations since they are generally permitted to enter the United States at a U.S. port of entry if they prove to the satisfaction of a CBP officer that they are in fact U.S. citizens. CBP may also decide to not issue such recommendations for aliens in the TSDB if, for example (1) CBP officers determine that, based on a review of all available information, the individual is not likely to be denied admission to the United States, or (2) the individual was granted a waiver of inadmissibility by DHS, if such a waiver is available.\nFor flights departing from airports without an Immigration Advisory Program officer on site, CBP is leveraging the capabilities of its officers within its Regional Carrier Liaison Groups to issue no board recommendations to air carriers. These groups were established in 2006 to assist air carriers with U.S. entry-related matters—with a primary focus on verifying the authenticity of travel documents—and to work directly with commercial air carriers on security-related matters. Regional Carrier Liaison Group staff who are located in the United States handle Pre- Departure Targeting Program no board recommendations to air carriers remotely by delivering the recommendations via phone, fax, or e-mail. CBP policy instructs staff to give no board recommendations priority over other duties, given the time and security sensitivities involved.\nThere are three Regional Carrier Liaison Groups, which are located in Honolulu, Hawaii; Miami, Florida; and New York City, New York. Each of the three locations has authority over a region of the world, with the Honolulu location covering U.S.-bound flights from Asia and the Pacific; the New York City location covering flights from Africa, Europe, and the Middle East; and the Miami location covering flights from Latin America and the Caribbean.\nUnited States who does not have a valid passport and visa, if a visa is required. When CBP does not recommend that an individual in the TSDB be denied boarding and the passenger boards a flight bound for the United States, CBP inspects the passenger upon arrival at a U.S. airport. For aliens seeking admission to the United States, determinations on admissibility are generally made by CBP officers during this inspection in accordance with applicable provisions of the Immigration and Nationality Act. In general, aliens who are deemed inadmissible are detained by DHS until the individual can board a return flight home.\nSince the attempted attack, CBP predeparture vetting programs—the Pre-Departure Targeting Program and the Immigration Advisory Program—have resulted in hundreds more aliens being kept off flights bound for the United States because CBP determined that they likely would be deemed inadmissible upon arrival at a U.S. airport and made corresponding no board recommendations to air carriers. In addition to the increase in no board recommendations that resulted from implementing the Pre-Departure Targeting Program in January 2010, the increase during 2010 was in response to the new threats made evident by the attempted attack, according to CBP officials. CBP data also show that there have been instances when individuals have boarded flights bound for the United States and arrived at U.S. airports. According to CBP officials, the vast majority of these cases involved either (1) U.S. citizens and lawful permanent residents who generally may enter the United States, and therefore, CBP generally does not recommend that air carriers not board these passengers, or (2) aliens in the TSDB who were deemed inadmissible but were granted temporary admission into the United States under certain circumstances, such as DHS granting a waiver of inadmissibility.\nAt the time of our review, CBP did not have readily available data on how often aliens in the TSDB boarded flights bound for the United States— information that could help CBP assess how its predeparture programs are working and provide transparency over program results, among other things. According to CBP officials, the agency was working on adding data fields to CBP systems to capture more information related to these programs. The officials noted that these changes will allow CBP to break down and retrieve data by U.S. citizens, lawful permanent residents, and aliens, and that related reports will be produced. At our request, CBP conducted a manual review of data it compiled on the results of its processing of passengers at U.S. airports from April 2010 through September 2010. During this period, CBP data show that there were instances when aliens in the TSDB boarded flights bound for the United States and were admitted into the country. These occurrences are in addition to instances where aliens in the TSDB were able to board flights bound for and enter the United States because they had been granted admission to the country on a temporary basis under certain circumstances, such as by DHS granting a waiver of inadmissibility. According to CBP officials, for each of these occurrences, CBP officers determined—based on a review of all available and relevant information—that the derogatory information on the individual was not sufficient to render that person inadmissible under the Immigration and Nationality Act.\nCBP officials stated that the Pre-Departure Targeting Program increased the workload for Regional Carrier Liaison Group staff and that two of the three groups increased the number of CBP officers assigned to handle this workload. facility that supports these programs experienced increased workloads, which they handled through additional hiring, overtime hours, and assignment of temporary duty personnel.\nRegional Carrier Liaison Group positions are not specifically funded but are staffed from existing CBP port personnel, with CBP port management determining the staffing levels required at each location. individual any law enforcement sensitive information. Rather, the CBP officers or air carrier personnel are to advise the individual to go to the U.S. consulate or the person’s home country passport office, as appropriate, to address the issue. CBP officials also noted that individuals who have travel-related concerns are advised to file an inquiry through DHS TRIP. According to DHS TRIP officials, about 20 percent of all requests for redress that it receives involve CBP inspections conducted at land, sea, or air ports of entry.", "", "After the December 2009 attempted attack, the Executive Office of the President directed TSC to determine the visa status of all known or suspected terrorists in the TSDB. TSC then worked with State to determine whether individuals who held U.S. visas should continue holding them in light of new threats made evident by the incident. Specifically, in January 2010, State revoked hundreds of visas because it determined that the individuals could present an immediate threat to the United States. State officials noted that these revocations were largely related to individuals who were added to the TSDB—or moved to the No Fly or Selectee lists—after the attempted attack based on new intelligence and threat information.\nIn March 2010, TSC and State initiated another review and identified hundreds of cases in which individuals in the TSDB held U.S. visas. These cases included individuals who were in the TSDB at the time of the December 2009 attempted attack but did not have their visas revoked during the January 2010 review. According to State officials, all individuals who could present an immediate threat to the United States had their visas revoked within 24 hours. In cases involving a less clear nexus to terrorism, the officials noted that visas were not immediately revoked. The officials explained that investigating these cases can take several months and involve extensive coordination with law enforcement and intelligence officials. According to State officials, of these remaining cases, the department revoked a number of visas based on intelligence community recommendations and determined that other visas had been issued properly following the completion of an interagency review process and, in applicable cases, ineligibility waivers provided by DHS.\nRegarding the cases in which State determined that individuals could continue to hold visas, State officials noted that an individual’s presence in the TSDB does not itself render that person ineligible for a visa. For example, State will issue a visa if it determines that the available information supporting the TSDB record does not meet the statutory conditions under which an individual may be deemed ineligible for a visa to the United States, and the individual is not otherwise ineligible for a visa. The officials added that in those instances where State finds that an individual is ineligible for a visa—based on provisions in the Immigration and Nationality Act that define terrorist activities—the department may still, in certain circumstances, issue a visa if DHS agrees to grant a waiver of inadmissibility, if such a waiver is available. According to State officials, reasons an individual found ineligible for a visa may receive a waiver include significant or compelling U.S. government interests or humanitarian concerns. According to State officials, while the department consulted with law enforcement and intelligence community officials regarding whether to revoke the visas, State has final authority over all visa decisions.\nIn addition to the hundreds of visa revocations involving individuals in the TSDB that were related to the reviews directed by the Executive Office of the President, State data show that the department revoked hundreds more visas based on terrorism-related grounds during 2010. The total number of visas State revoked during 2010 was more than double the number of visas the department revoked based on terrorism-related grounds during 2009. According to State, as of May 2011, a number of individuals in the TSDB continued to hold U.S. visas because the department found that (1) they were ineligible to hold a visa under the terrorism-related provisions of the Immigration and Nationality Act but received waivers of that ineligibility or (2) they were not ineligible to hold visas under the terrorism-related provisions of the act following standard interagency processing of the visa applications.\nUnder current procedures, State screens visa applicant data against sensitive but unclassified extracts of biographical information drawn from TSDB records as part of its evaluation process for issuing U.S. visas. If an applicant for a visa is identified as a possible match with a TSDB record, consular officers are to initiate a process to obtain additional information on the individual’s links to terrorism, including information maintained by law enforcement and intelligence agencies. State data show that the department denied about 55 percent more nonimmigrant visas based on terrorism-related grounds during 2010 than it did during 2009, which includes denials involving individuals in the TSDB. Further, State found that in cases where individuals were ineligible to hold nonimmigrant visas based on terrorism-related grounds—but evinced significant or compelling U.S. government interest or humanitarian concern—the department recommended, and DHS granted, waivers of ineligibility.\nAccording to State officials, the department’s automated systems do not capture data on the number of individuals in the TSDB who applied for visas—or the related outcomes of these applications (e.g., issued or denied)—because this information is not needed to support the department’s mission. State officials noted that it would be costly to change department databases to collect information specific to individuals applying for visas who are in the TSDB, but the department is working with TSC on a process to make these data more readily available through other means. State is also partnering with other agencies to develop a new, more automated process for reviewing visa applications that is intended to be more efficient than the current process. The new process is also intended to help minimize the inconvenience of protracted visa processing times for applicants incorrectly matched to TSDB records, among other things.", "Since the December 2009 attempted attack, agencies have taken actions to strengthen their respective processes for screening and vetting individuals against TSDB records. However, no entity has acknowledged that it is responsible and accountable for routinely conducting governmentwide assessments of how agencies are using the watchlist to make screening or vetting decisions and related outcomes or the overall impact screening or vetting programs are having on agency resources and the traveling public. Also, no entity is assessing whether watchlist- related screening or vetting is achieving intended results from a policy perspective, or if adjustments to agency programs or the watchlisting guidance are needed. Further, no entity is routinely collecting and analyzing data needed to conduct such governmentwide assessments over time. According to the TSC Director, conducting such assessments and developing related metrics will be important in the future.\nThe actions screening and law enforcement agencies have taken since the attempted attack have resulted in more individuals in the TSDB being denied boarding flights, being deemed inadmissible to enter the United States, and having their U.S. visas revoked, among other things. These outcomes demonstrate the homeland security benefits of watchlist-related screening or vetting, but such screening or vetting and related actions have also had impacts on agency resources and the traveling public. For example, new or expanded screening and vetting programs have required agencies to dedicate more staff to check traveler information against TSDB records and take related law enforcement actions. Also, any new or future uses of the watchlist for screening or vetting may result in more individuals being misidentified as the subject of a TSDB record, which can cause traveler delays and other inconveniences. Agencies are independently taking actions to collect information and data on the outcomes of their screening or vetting programs that check against TSDB records, but no entity is routinely assessing governmentwide issues, such as how U.S. citizens and lawful permanent residents are being affected by screening or the overall levels of misidentifications that are occurring. Routinely assessing these outcomes and impacts governmentwide could help decision makers determine if the watchlist is achieving its intended results without having unintended consequences or needs further revisions.\nBecause watchlist-related screening or vetting is a governmentwide function, any effort to assess the overall outcomes and impacts must be an interagency effort. The federal government has established interagency working groups to address screening and related issues. However, according to agency officials we contacted, these groups have not conducted governmentwide assessments because they have been focused on implementing new or expanding screening or vetting programs and revising related policies and procedures, among other things.\nSimilar to watchlisting issues, in August 2011, a representative of the National Security Staff informed us that the Information Sharing and Access Interagency Policy Committee recently began performing an assessment to support its oversight of new screening processes. The representative noted that the depth and frequency of specific reviews will vary as necessary and appropriate. The staff did not provide us details on these efforts, so we could not determine to what extent the assessments will be routine or involve collecting and analyzing data needed to conduct such governmentwide assessments over time. As discussed previously, the President tasked the Assistant to the President for Homeland Security and Counterterrorism to be responsible and accountable for ensuring that agencies carry out actions to strengthen the watchlisting process after the December 2009 attempted attack. As such, the Assistant to the President may be best positioned to ensure that governmentwide assessments of the outcomes and impacts of agency screening programs are conducted.\nAccording to Standards for Internal Control in the Federal Government, ongoing monitoring of programs and activities should occur during the course of normal operations. These standards also note that performance data on agency programs be available as a means to hold public service organizations accountable for their decisions and actions, including stewardship of public funds, fairness, and all aspects of performance.\nRoutine, governmentwide assessments of screening agency programs could help the government determine if the watchlist is achieving its intended results, identify broader issues that require attention, and improve transparency and provide an accurate accounting to the Executive Office of the President and other stakeholders, including Congress, for the resources invested in screening processes.", "The attempt on December 25, 2009, to detonate a concealed explosive on board a U.S.-bound aircraft highlights the importance of the U.S. government placing individuals with known or suspected ties to terrorism on its watchlist. The Executive Office of the President’s review of the attempted attack found that the U.S. government had sufficient information to have uncovered and potentially disrupted the attempted attack, but shortcomings in the watchlisting process prevented the attempted bomber from being nominated for inclusion on the watchlist. The July 2010 Watchlisting Guidance includes changes that were intended to address weaknesses in the nominations process. Since the guidance was approved, agencies have expressed concerns about the increasing volumes of information and related challenges in processing this information. The federal entities involved in the nominations process are taking actions to address challenges related to implementing the guidance. However, no single entity is routinely assessing the overall impacts of the watchlisting guidance or the steps taken to strengthen the nominations process. Working collaboratively to ensure that the watchlisting community periodically evaluates or assesses the impacts of the revised guidance on the watchlisting community could (1) help decision makers determine if the guidance is achieving its intended outcomes or needs any adjustments, (2) inform future efforts to strengthen the watchlisting process, (3) help the watchlisting community understand longer-term impacts of changes to the watchlisting guidance, and (4) improve transparency and provide an accurate accounting to the Executive Office of the President and other stakeholders, including Congress, for the resources invested in the watchlisting process.\nJust as agencies are not routinely assessing the impacts of the revisions made to the watchlisting guidance or the steps taken to strengthen the nominations process, no single entity is routinely assessing information or data on the collective outcomes or impacts of agencies’ watchlist screening operations to determine the effectiveness of changes made to strengthen screening since the attempted attack or how changes to the watchlisting guidance have affected screening operations. Routine, governmentwide assessments of the outcomes and impacts of agencies’ watchlist screening or vetting programs could help ensure that these programs are achieving their intended results or identify if revisions are needed. Such assessments could also help identify broader issues that require attention, determine if impacts on agency resources and the traveling public are acceptable, and communicate to key stakeholders how the nation’s investment in the watchlist screening or vetting processes is enhancing security of the nation’s borders, commercial aviation, and other security-related activities.", "To help inform future efforts to strengthen watchlisting and screening processes, we recommend that the Assistant to the President for Homeland Security and Counterterrorism establish mechanisms or use existing interagency bodies to routinely assess how the watchlisting guidance has impacted the watchlisting community—including its capacity to submit and process nominations in accordance with provisions in the guidance—and whether any adjustments to agency programs or the guidance are needed, and whether use of the watchlist during agency screening processes is achieving intended results, including whether the overall outcomes and impacts of screening on agency resources and the traveling public are acceptable and manageable or if adjustments to agency programs or the watchlisting guidance are needed.", "We provided a draft of the classified version of this report for comment to the National Security Staff; the Office of the Director of National Intelligence; the Departments of Defense, Homeland Security, Justice, and State; and the CIA. In its written comments, DHS noted that it appreciated the report’s identification of enhancements the department has made to several screening programs to address vulnerabilities exposed by the December 25, 2009, attempted attack, including actions taken by CBP and TSA. DHS also noted that it is committed to working with interagency stakeholders, including the Interagency Policy Committee, to ensure that its use of the watchlist in its screening programs is achieving intended results. DHS also provided technical comments, in addition to its written comments. National Security Staff; the Office of the Director of National Intelligence; and the Departments of Defense, Justice, and State did not provide written comments to include in this report, but provided technical comments, which we have incorporated in this report where appropriate. The CIA did not provide any comments.\nWe are sending copies of this report to National Security Staff; the Attorney General; the Secretaries of the Departments of Defense, Homeland Security, and State; the Directors of National Intelligence and Central Intelligence; and appropriate congressional committees. This report is also available at no charge on the GAO website at http://www.gao.gov.\nShould you or your staff have any questions about this report, please contact Eileen R. Larence at (202) 512-6510 or larencee@gao.gov. Key contributors to this report are acknowledged in appendix V. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report.", "", "Our reporting objectives were to determine (1) the actions the federal government has taken since the December 25, 2009, attempted attack to strengthen the watchlist nominations process, the extent to which departments and agencies are experiencing challenges in implementing revised watchlisting guidance, and the extent to which agencies are assessing impacts of the actions they have taken; (2) how the composition of the watchlist has changed as a result of actions taken by departments and agencies after the attempted attack; and (3) how screening and law enforcement agencies are addressing vulnerabilities exposed by the attempted attack as well as the outcomes of related screening, and to what extent federal agencies are assessing the impacts of this screening.", "In general, we focused on the federal entities that were tasked by the Executive Office of the President to take corrective actions after the attempted attack: the Department of Homeland Security (DHS); Department of Justice’s Federal Bureau of Investigation (FBI) and Terrorist Screening Center (TSC); Department of State (State); Department of Defense; Office of the Director of National Intelligence’s National Counterterrorism Center (NCTC); Central Intelligence Agency (CIA); and Executive Office of the President’s National Security Staff.", "To determine actions the federal government has taken to strengthen the watchlist nominations process, we analyzed postattack government reports, including reports issued by the Executive Office of the President and the Senate Select Committee on Intelligence. We analyzed the Watchlisting Guidance that was approved in July 2010 and compared it to the February 2009 watchlisting protocol—the last version that was published before the attempted attack—to identify changes that were intended to strengthen agencies’ abilities to nominate known or suspected terrorist to the watchlist. We interviewed officials from five entities that nominate individuals for inclusion on the terrorist watchlist, as well as NCTC’s Deputy Director for the Terrorist Identities and TSC’s Director. We also met with officials from the Executive Office of the President’s Information Sharing and Access Interagency Policy Committee and its Subcommittee on Watchlisting, which provides an interagency forum to which agencies can bring watchlist-related issues for discussion and resolution.\nTo identify to what extent agencies are experiencing challenges implementing changes to the watchlisting guidance, we analyzed data and documentation provided by seven federal entities involved in the nominations process—such as nominations data for the period January 2009 through May 2011—as well as the congressional testimony of NCTC, TSC, and FBI leadership and program directors. We also interviewed the watchlisting unit directors and program staff at each of the five nominating agencies, NCTC’s Deputy Director for the Terrorist Identities, and the TSC Director to discuss their nominations processes, the number of nominations they send to NCTC, and how, if at all, the changes to the nominations process have created challenges for each agency.\nTo determine to what extent agencies are assessing for the impacts of the actions they have taken, we interviewed officials from five federal entities who participate in the Information Sharing and Access Interagency Policy Committee’s Subcommittee on Watchlisting and related working groups.", "To identify how the composition of the watchlist has changed since the attempted attack, we reviewed TSC data from late December 2009 through March 2010 on the number of individuals who were added to TSC’s Terrorist Screening Database and its subset No Fly and Selectee lists that are used to screen airline passengers before boarding, and related efforts to determine whether the individuals should remain on these lists. To identify broader trends in the size and composition of the watchlist and subset lists, we reviewed TSC monthly data for 2009 and 2010 on the number of individuals on these lists, including U.S. citizens and lawful permanent residents. We also determined how the revised watchlisting guidance has impacted the size of these lists. Further, we interviewed senior-level officials from TSC and NCTC to identify factors that contributed to trends in the size of the lists during 2009 and 2010, and to obtain their perspectives on how changes in the watchlist guidance had impacted growth in the lists.", "To identify how screening and law enforcement agencies have addressed vulnerabilities exposed by the attempted attack and how they are assessing the outcomes and impacts of screening or vetting, we focused on the departments and agencies that use the watchlist to screen individuals traveling to the United States—the Transportation Security Administration (TSA), which screens passengers before they board aircraft; U.S. Customs and Border Protection (CBP), which inspects travelers to determine their admissibility into the United States; and State, which screens individuals who apply for U.S. visas.\nTo determine agency actions to address vulnerabilities in screening or vetting and related outcomes, we analyzed TSA, CBP, and State documentation—such as documents that discuss new or expanded screening programs—as well as testimonies and inspector general reports. We obtained data—generally for 2009 and 2010 but in some cases through May 2011—on how often these agencies have encountered individuals on the watchlist and the outcomes of these encounters to help determine what impact changes in agency screening or vetting procedures has had on operations and the traveling public, among other things. We also interviewed senior-level officials from these agencies; these interviews included discussions about how agencies’ screening or vetting procedures have changed since the attempted attack and how they are assessing the impacts of the changes. Further, to better understand the impacts of watchlist screening or vetting on the traveling public, we analyzed data for 2009 and 2010 on individuals who had inquiries or sought resolution regarding difficulties they experienced during their travel-related screening or inspection and interviewed DHS officials who are responsible for providing redress for these individuals. Regarding federal government efforts to assess the outcomes and impacts of actions agencies have taken to strengthen screening or vetting processes since the December 2009 attempted attack, we obtained information on the extent to which federal monitoring activities and practices are consistent with GAO’s Standards for Internal Control in the Federal Government.\nTo assess the reliability of data on watchlist nominations, number of watchlist records in databases, and screening outcomes, we interviewed knowledgeable officials about the data and the systems that produced the data, reviewed relevant documentation, examined data for obvious errors, and (when possible) corroborated the data among the different agencies. We determined that the data were sufficiently reliable for the purposes of this report. We conducted this performance audit from February 2010 to May 2012 in accordance with generally accepted government auditing standards. to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.\nWe issued a classified report on this work in December 2011.", "Pursuant to Homeland Security Presidential Directive 6, the Terrorist Screening Center (TSC) was established to develop and maintain the U.S. government’s consolidated watchlist—the Terrorist Screening Database (TSDB)—and to provide for the use of watchlist records during security-related screening processes. The watchlisting and screening processes are intended to support the U.S. government’s efforts to combat terrorism by consolidating the terrorist watchlist and providing screening and law enforcement agencies with information to help them respond appropriately during encounters with known or suspected terrorists, among other things.\nTIDE is the U.S. government’s central repository of information on known or suspected international terrorists and is maintained by NCTC. benefit, false documentation or identification, weapons, explosives, or training; or are members of or represent a foreign terrorist organization.\nIn general, nominating agencies submit terrorism-related information to NCTC to add information to existing records in TIDE as well as to nominate new individuals to be included in TIDE, with the additional purpose of nominating known or suspected terrorists to the TSDB. Nominations are to include pertinent derogatory information and any biographic information—such as name and date of birth—needed to establish the identity of individuals on the watchlist.\nThe FBI provides TSC with information about known or suspected domestic terrorists. According to the FBI’s Domestic Terrorist Operations Unit, domestic terrorists engage in activities that (1) involve acts dangerous to human life that are a violation of the criminal laws of the United States or any state; (2) appear to be intended to intimidate or coerce a civilian population, influence the policy of a government by intimidation or coercion, or affect the conduct of a government by mass destruction, assassination, or kidnapping; and (3) occur primarily within the jurisdiction of the United States.\nIn general, the FBI nominates individuals who are subjects of ongoing FBI counterterrorism investigations to TSC for inclusion in the TSDB, including persons the FBI is preliminarily investigating to determine if they have links to terrorism. In determining whether to open an investigation, the FBI uses guidelines established by the Attorney General, which contain specific standards for opening investigations. The FBI also has a process for submitting requests to NCTC to nominate known or suspected international terrorists who are not subjects of FBI investigations.\nIn accordance with Homeland Security Presidential Directive 6—and built upon through Homeland Security Presidential Directives 11 and 24—the TSDB is to contain information about individuals known or suspected to be or have been engaged in conduct constituting, in preparation for, in aid of, or related to terrorism and terrorist activities. NCTC and the FBI apply a reasonable-suspicion standard to determine which individuals are appropriate for inclusion in the TSDB. Determining whether individuals meet this standard, however, can involve some level of subjectivity. NCTC and the FBI are to consider information from all available sources and databases—including information forwarded by nominating agencies as well as information in their own holdings—to determine if there is a reasonable suspicion of links to terrorism that warrants a nomination.\nOnce NCTC and the FBI determine that an individual meets the reasonable-suspicion standard and that minimum biographic information exists, they extract sensitive but unclassified information on the individual’s identity—such as name and date of birth—from their classified databases and send the information to TSC. TSC reviews these nominations—evaluating the derogatory and biographic information, in accordance with the watchlisting guidance—to determine whether to add nominated individuals to the TSDB. As TSC adds individuals to the watchlist, the list may include persons with possible ties to terrorism in addition to people with known links, thereby establishing a broad spectrum of individuals who are considered known or suspected terrorists. Figure 2 provides an overview of the process used to nominate individuals for inclusion in the TSDB.\nConsistent with Homeland Security Presidential Directive 6, to ensure that watchlist information is current, accurate, and complete, nominating agencies generally are to provide information to remove an individual from the watchlist when it is determined that no nexus to terrorism exists.\nTo support agency screening or law enforcement processes, TSC sends applicable records from the TSDB to screening or law enforcement agency systems for use in efforts to deter or detect the movement of known or suspected terrorists. For instance, applicable TSC records are provided to TSA for use in screening airline passengers, to U.S. Customs and Border Protection (CBP) for use in vetting and inspecting persons traveling to and from the United States, and to State for use in screening visa applicants. Regarding individuals who are not citizens or nationals of the United States seeking travel to and entry into the United States, screening and law enforcement agencies rely on immigration laws that specify criteria and rules for deciding whether to issue visas to individuals or to admit them into the country. In many instances, individuals who are not citizens or nationals of the United States who have engaged in or are likely to engage in terrorist-related activities may be ineligible to receive visas or inadmissible for entry to the United States, or both. If a foreign citizen is lawfully admitted into the United States—either permanently or temporarily—and subsequently engages in or is likely to engage in a terrorist activity, the individual, in certain circumstances, may be removed to his or her country of citizenship. U.S. citizens returning to the United States from abroad are not subject to the admissibility requirements of the Immigration and Nationality Act, regardless of whether they are subjects of watchlist records. In general, these individuals only need to establish their U.S. citizenship to the satisfaction of the examining officer—by, for example, presenting a U.S. passport—to obtain entry into the United States. U.S. Citizens are subject to inspection by CBP before being permitted to enter, and additional actions may be taken, as appropriate.", "This appendix presents an overview of the Transportation Security Administration’s (TSA) Secure Flight program, which began implementation before the December 25, 2009, attempted attack and is a key part of TSA’s efforts to address vulnerabilities that were exposed by the incident. This appendix also discusses how the program has reduced the likelihood of passengers misidentified as being on the watchlist and provides an update on the status of TSA efforts to validate the information that passengers report when making a reservation that is used in the watchlist-matching process.", "The matching of airline passenger information against terrorist watchlist records is a frontline defense against acts of terrorism that target the nation’s civil aviation system. In general, passengers identified by the TSA as a match to the No Fly List are prohibited from boarding flights to, from, and within the United States, while those matched to the Selectee List are required to undergo additional screening prior to boarding such flights. Historically, airline passenger prescreening was performed by air carriers pursuant to federal requirements. However, in accordance with the Intelligence Reform and Terrorism Prevention Act of 2004, TSA developed an advanced passenger prescreening program known as Secure Flight that enabled TSA to assume from air carriers the function of watchlist matching.\nSecure Flight is intended to eliminate inconsistencies in passenger watchlist matching procedures conducted by air carriers and use a larger set of watchlist records when warranted, reduce the number of individuals who are misidentified as being on the No Fly or Selectee lists, reduce the risk of unauthorized disclosure of sensitive watchlist information, and integrate information from DHS’s redress process into watchlist matching so that individuals are less likely to be improperly or unfairly delayed or prohibited from boarding an aircraft.\nIn January 2009, the Secure Flight program began initial operations— assuming the watchlist-matching function for a limited number of domestic flights for one airline—and subsequently phased in additional flights and airlines. TSA completed assumption of this function for all domestic and international flights operated by U.S. air carriers in June 2010 and completed assumption of this function for covered foreign air carriers flying to and from the United States in November 2010.", "Since the December 2009 attempted attack, TSA has completed its assumption of the watchlist-matching function from air carriers—under the Secure Flight program—which has reduced the likelihood of passengers misidentified as being on the watchlist. According to TSA data, Secure Flight is consistently clearing over 99 percent of passengers automatically (less than 1 percent of passengers are being misidentified as being on the No Fly List or Selectee List). When misidentifications occur, a passenger may not be able to print a boarding pass from a computer or an airport kiosk. Rather, the individual may have to go to the airline ticket counter to provide identifying information that is used to determine if the person is a positive match to the No Fly List or Selectee List. Before Secure Flight, more passengers had to go through this process to verify their identities, since each airline conducted watchlist matching differently with varying effectiveness.\nThe Secure Flight program increases the effectiveness of watchlist matching, applying an enhanced watchlist-matching system and process consistently across the airline industry. Under Secure Flight, air carriers are required to (1) collect full name and date-of-birth and gender information from airline passengers and (2) be capable of collecting redress control numbers from passengers.helps reduce misidentifications. According to TSA, Secure Flight is required to submit an annual report to the Office of Management and Budget certifying that the program has met its baseline goal for reducing misidentifications.\nFurther, people who have been denied or delayed airline boarding, have been denied or delayed entry into or exit from the United States at a port of entry or border crossing; or have been repeatedly referred to additional (secondary) inspection can file an inquiry to seek redress. After completing the redress process—which includes submitting all applicable documents—an individual will receive a redress control number that may facilitate future travel. For example, airline passengers who have completed the redress process and are determined by DHS as not being the subject of a watchlist record are put on the department’s list of individuals who are “cleared” to travel. Using the redress control number when making reservations for future travel may help to prevent misidentifications.\nTo mitigate future risks of performance shortfalls and strengthen management of the Secure Flight program moving forward, in May 2009, we recommended that TSA periodically assess the performance of the Secure Flight system’s matching capabilities and results to determine whether the system is accurately matching watchlisted individuals while minimizing the number of false positives, consistent with the goals of the program; document how this assessment will be conducted and how its results will be measured; and use these results to determine whether the system settings should be modified. TSA’s actions discussed below fully respond to the recommendation we made in our May 2009 report.\nTSA has developed performance measures to report on and monitor Secure Flight’s name matching capabilities. According to TSA, Secure Flight leadership reviews the daily reports, which reflect quality, match rate, false positive rates, and other metrics. Reviews are to include analysis, discussion with program leadership, and identification of process and data quality improvements to increase efficiency and reduce possible false positive matches to the watchlist. In addition, DHS established a multidepartmental Match Review Board Working Group and a Match Review Board to, among other things, review the performance measures and recommend changes to improve system performance. According to TSA, the working group meets on a biweekly basis and the board meets monthly, or as required, to review working group findings and to make system change recommendations. For example, the board has recommended changes in the threshold used for determining whether an individual is a match to a watchlist record and has decided to implement additional search tools to enhance Secure Flight’s automated name-matching capabilities. Furthermore, TSA plans to periodically assess the extent to which the Secure Flight program fails to identify individuals who are actual matches to the watchlist.", "The DHS Traveler Redress Inquiry Program (DHS TRIP) is a single point of contact for individuals who have inquiries or seek resolution regarding difficulties they experienced during their travel screening at transportation hubs—like airports and train stations—or crossing U.S. borders, including watchlist issues; inspection problems at ports of entry; and situations where travelers believe they have been unfairly or incorrectly delayed, denied boarding, or identified for additional screening or inspection at our nation’s transportation hubs.\nWhile serving as the point of contact for the receipt, tracking, and response to redress applications, DHS TRIP generally refers cases to the appropriate screening agency for review and adjudication.", "According to DHS TRIP officials, since the December 2009 attempted attack, the office implemented a new procedure to ensure that (1) the office is promptly notified when an individual who is determined by DHS TRIP as not being the subject a watchlist record—and, therefore, has been put on the department’s list of individuals who are “cleared” to travel—is subsequently added to the watchlist and (2) redress applicants are provided additional information regarding the resolution of their cases. Prior to the attempted attack, DHS TRIP would conduct electronic comparisons once each day to ensure that someone who had been cleared as a result of the redress process had not subsequently been added to the watchlist. Since the attempted attack, DHS TRIP now conducts continuous checks (on a 24/7 basis) of cleared individuals against the watchlist every time the watchlist is updated. According to DHS TRIP officials, this change provides the office immediate notification if an individual who is cleared through the redress process is subsequently added to the watchlist. In turn, DHS TRIP officials can alert screening agencies more quickly that an individual should not be cleared if encountered during screening.\nSeparately, DHS TRIP—at the direction of the Secretary of Homeland Security and in partnership with the Terrorist Screening Center (TSC), Departments of Justice and State, Federal Bureau of Investigation (FBI), and other members of the interagency redress community—has taken steps intended to help provide transparency to redress applicants regarding the resolution of their cases.", "According to DHS TRIP data, individuals submitted approximately 32,000 applications for redress during 2009 and 36,000 applications during 2010. The DHS TRIP redress application asks travelers to identify their areas of concern, but the information collected generally does not allow DHS TRIP officials to determine if individuals were misidentified as being on the watchlist. DHS TRIP officials explained that since the application allows travelers to list multiple reasons for applying—and the individuals generally do not know why they were subject to additional screening, inspection, or delay—the office cannot conclude with certainty that being misidentified as being on the watchlist was the cause of an applicant’s inconvenience. In late 2009, as part of the rollout of TSA’s Secure Flight program, several air carriers instituted a public awareness campaign encouraging travelers to submit redress inquiries if they believed that they have been misidentified in the past. Finally, DHS TRIP officials noted that individual screening and law enforcement agencies are in the best position to understand if their screening and law enforcement systems and procedures incorrectly identify individuals as matches with watchlist records. The officials explained that these agencies have access to more detailed records that would identify reasons for a delay or inconvenience, including a misidentification to the watchlist.\nAccording to DHS TRIP, less than 1 percent of individuals who apply for redress have been confirmed matches to the watchlist or have identifying information (e.g., name and date of birth) that closely matches someone on the watchlist. In such cases, DHS TRIP forwards the inquiry to TSC for resolution. TSC data show that the government has procedures in place to review the information that supports a watchlist record upon receipt of a redress inquiry and has revised the watchlist status of individuals based on these reviews. We did not review the effectiveness of these procedures.", "", "", "In addition to the contact named above, Eric Erdman, Assistant Director; Mona Blake; Jeffrey DeMarco; Michele Fejfar; Lisa Humphrey; Richard Hung; Thomas Lombardi; Linda Miller; Victoria Miller; Jan Montgomery; Timothy Persons; and Michelle Woods made key contributions to this report." ], "depth": [ 1, 2, 2, 1, 2, 2, 1, 1, 2, 3, 2, 2, 3, 2, 1, 1, 1, 1, 2, 2, 3, 3, 3, 1, 1, 2, 2, 1, 2, 2, 1, 2, 2 ], "alignment": [ "", "", "", "h0_title", "h0_full", "", "", "h0_title h2_title h1_full", "h1_title", "h1_full", "h1_full", "h1_title", "h1_full", "h0_full h2_full h1_full", "h2_full", "", "", "h0_title h2_title", "h2_full", "h0_title h2_full", "h0_full", "", "h2_full", "", "h1_title", "h1_full", "", "", "", "", "", "", "" ] }

{ "question": [ "What did the federal government do in July 2010 regarding watchlist nominations?", "What did the agencies GAO contacted express concerns about?", "Despite this, how has the volume of information sent by nominating agencies changed?", "How are nominating agencies addressing these concerns?", "What initiative did an interagency policy committee begin in 2011?", "How could such assessments be beneficial to the federal government?", "What are screening agencies addressing?", "How is this demonstrated by the continued implementation of Secure Flight by the Transportation Security Administration?", "How else has Secure Flight been beneficial?", "What practice has U.S. Customs and Border Protection built upon?", "Why did the Department of State revoke hundreds of visas?", "What are such actions intended to do?", "What has been done to assess the impacts of these actions?", "How could routine assessments benefit decision makers and Congress?", "What weaknesses did the 2009 attempted bombing of Northwest Flight 253 expose?", "How did the President address these weaknesses?", "What was GAO asked to report on?", "How did GAO collect data for this report?", "How does this report differ from a December 2011 classified GAO report?" ], "summary": [ "In July 2010, the federal government finalized guidance to address weaknesses in the watchlist nominations process that were exposed by the December 2009 attempted attack and to clarify how agencies are to nominate individuals to the watchlist.", "The nominating agencies GAO contacted expressed concerns about the increasing volumes of information and related challenges in processing this information.", "Nevertheless, nominating agencies are sending more information for inclusion in the terrorist watchlist after the attempted attack than before the attempted attack.", "Agencies are also pursuing staffing, technology, and other solutions to address challenges in processing the volumes of information.", "In 2011, an interagency policy committee began an initiative to assess the initial impacts the guidance has had on nominating agencies, but did not provide details on whether such assessments would be routinely conducted in the future.", "Routine assessments could help the government determine the extent to which impacts are acceptable and manageable from a policy perspective and inform future efforts to strengthen the nominations process.", "Screening agencies are addressing gaps in processes that were exposed by the attempted attack.", "For example, based on the growth of lists used to screen aviation passengers and continued implementation of Secure Flight—which enabled the Transportation Security Administration to assume direct responsibility for conducting watchlist screening from air carriers—more individuals have been denied boarding aircraft or subjected to additional physical screening before boarding.", "Secure Flight has also reduced the likelihood of passengers being misidentified as being on the watchlist and has allowed agencies to use a broader set of watchlist records during screening.", "U.S. Customs and Border Protection has built upon its practice of evaluating individuals before they board flights to the United States, resulting in hundreds more non-U.S. persons on the watchlist being kept off flights because the agency determined they would likely be deemed inadmissible upon arrival at a U.S. airport.", "The Department of State revoked hundreds of visas shortly after the attempted attack because it determined that the individuals could present an immediate threat to the United States.", "These actions are intended to enhance homeland security, but have also impacted agency resources and the traveling public.", "An interagency policy committee is also assessing the outcomes and impacts of these actions, but it did not provide details on this effort.", "Routine assessments could help decision makers and Congress determine if the watchlist is achieving its intended outcomes and help information future efforts.", "The December 25, 2009, attempted bombing of Northwest Flight 253 exposed weaknesses in how the federal government nominated individuals to the terrorist watchlist and gaps in how agencies used the list to screen individuals to determine if they posed a security threat.", "In response, the President tasked agencies to take corrective actions.", "GAO was asked to assess (1) government actions since the incident to strengthen the nominations process, (2) how the composition of the watchlist has changed based on these actions, and (3) how agencies are addressing gaps in screening processes.", "GAO analyzed government reports, the guidance used by agencies to nominate individuals to the watchlist, data on the volumes of nominations from January 2009 through May 2011, the composition of the list, and the outcomes of screening agency programs. GAO also interviewed officials from intelligence, law enforcement, and screening agencies to discuss changes to policies, guidance, and processes and related impacts on agency operations and the traveling public, among other things.", "This report is a public version of the classified report that GAO issued in December 2011 and omits certain information, such as details on the nominations guidance and the specific outcomes of screening processes." ], "parent_pair_index": [ -1, -1, 1, 1, -1, 4, -1, 0, 1, -1, -1, 4, -1, 6, -1, 0, -1, 2, -1 ], "summary_paragraph_index": [ 1, 1, 1, 1, 1, 1, 3, 3, 3, 3, 3, 3, 3, 3, 0, 0, 0, 0, 0 ] }

{ "title": [ "Background", "Child Welfare Services", "Federal Funds Dedicated to Child Welfare", "Selected States Used Title IV-B Funds to Support a Wide Array of Services, and Strategies for Using These Funds Varied", "Most States Rely on Flexible Federal Funding to Provide Additional Support for Child Welfare Services", "States Use TANF, SSBG, and Medicaid to Fund Services Also Covered by Title IV-B", "Some States Have Waivers that Permit Them to Use Title IV-E Funding for Services Covered under Title IV-B", "Child Welfare Agencies Have Difficulty Securing Many Services Due to a Variety of Challenges", "Gaps in Child Welfare Services Include Substance Abuse and Mental Health Services", "In Our Selected Localities, Service Gaps Were Caused by Factors Including Provider Shortages and Challenges Accessing Services of Partner Agencies", "Provider Shortages", "Concluding Observations", "Agency Comments and Our Evaluation", "Appendix I: Comments from the Department of Health and Human Services", "Appendix II: GAO Contact and Staff Acknowledgments", "GAO Contact", "Staff Acknowledgments" ], "paragraphs": [ "In 2011, an estimated 6.2 million children were referred to child welfare agencies by sources including educators, law enforcement officials, and relatives because they were allegedly maltreated. After an initial screening process, agencies conducted abuse or neglect investigations and assessments on behalf of more than half of these children. Over 675,000 children were found to be the victims of abuse or neglect. Many of the children (both victims and non-victims) who were referred to child welfare agencies, as well as their caregivers and families, received some child welfare services, such as in-home services and counseling or other mental health services. Child welfare agencies also conduct activities referred to in the report as non-service related. These non-service-related activities include investigating allegations of abuse or neglect (known as child protective investigations), providing case management for children at home or in foster care, training staff, and administering programs. Further, child welfare agencies make payments to caregivers of children in foster care (maintenance payments) and to adoptive parents of former foster children and other eligible children with special needs (adoption subsidies).", "Children referred to child welfare agencies as well as their families may need a variety of services. Families may need services to prevent child abuse or neglect, or to help stabilize the family if abuse or neglect has occurred so that the child can safely remain at home. If it is not in a child’s best interest to remain at home, the child may be placed in foster care. In these cases, services may be offered to help the family reunite. If reunification is not possible, services may be needed to encourage adoption and support adoptive families. Some common types of child welfare services are listed in table 1, below.\nChild welfare agencies secure services in a variety of ways. Child welfare agency staff may provide some services directly in addition to carrying out typical case management duties. Child welfare agencies may also rely on contractors, also called purchased service providers. Another way child welfare agencies secure services is by relying on partner agencies, such as behavioral health agencies and public housing authorities. These agencies serve families in the child welfare system in addition to clients who are not in the child welfare system. Child welfare agencies also refer individuals for medical services. Medical services may be supported in a variety of ways, including through Medicaid or private health insurance.\nFigure 1, below, is an example of how a child welfare agency might meet—using various providers and funding sources—a hypothetical family’s diverse service needs.\nStates are chiefly responsible for funding and administering child welfare programs. Most states administer their child welfare programs centrally. However, in some states, local agencies administer their own child welfare programs, with supervision from the state. To varying degrees, these agencies use a combination of state, local, and federal funds to support their programs. According to a survey of states funded by the Annie E. Casey Foundation and Casey Family Programs, in state fiscal year 2010, 46 percent of all child welfare expenditures were from federal sources, while 43 percent and 11 percent were from state and local funds, respectively. Among federal funds used for child welfare purposes, states use a combination of funding designated solely for child welfare purposes and other sources of funding with broader aims.", "Title IV-B is the primary source of federal child welfare funding available for child welfare services, representing about 9 percent of dedicated federal child welfare appropriations ($730 million of $8 billion) in fiscal year 2012. In addition to child welfare services, Title IV-B funding may also be used for a variety of other activities, such as child protective investigations and case management. Child welfare agencies may spend Title IV-B funds on behalf of any child or family. They receive these funds primarily though two formula grant programs: the Stephanie Tubbs Jones Child Welfare Services program (CWS) under Subpart I of Title IV-B, and the Promoting Safe and Stable Families child and family services program (PSSF) under Subpart II. About $281 million in CWS funds and $328 million in PSSF funds were provided to states, territories, and tribes in fiscal year 2012.streams are similar, as seen in table 2, below, although CWS funds may be used for a broader array of activities. States may spend CWS funds on any service or activity that meets the program’s broad goals, which include protecting and promoting the welfare of all children. Ninety percent of PSSF funds must be spent within four required categories: The purposes of Title IV-B’s two main funding family support, family preservation, time-limited family reunification, and adoption promotion and support.\nFunds authorized under Title IV-E of the Social Security Act make up the large majority of federal funding dedicated to child welfare, with funds chiefly available for specific foster care and adoption expenses, but not for services. Congress appropriated $7.1 billion under Title IV-E in fiscal year 2012 (89 percent of federal child welfare appropriations), in general to partially reimburse states for expenditures on behalf of eligible children and youth who are in foster care, have left care for adoption or guardianship, or are aging out of care without adoptive homes. Title IV-E funds may be used to reimburse states for a portion of room and board (maintenance) expenses for eligible children in foster care, and for the costs of subsidies to parents who adopt eligible children with special needs (adoption assistance). States participating in the Guardianship Assistance Program may also receive Title IV-E reimbursement for a portion of assistance payments provided to relatives who become guardians (known as kinship guardians) of eligible children in foster care. States may also use Title IV- E funds to support case planning for eligible children in foster care, and for administration and training costs associated with eligible foster children and children adopted out of foster care. Additionally, states may use Title IV-E funds available through the Chafee Foster Care Independence Program and Education and Training Vouchers to support youth who are transitioning out of foster care without a permanent home, youth who have been adopted out of foster care after age 16, and youth who have entered into kinship guardianships after age 16.\nThe funds provided under Title IV-E serve as an open-ended entitlement to support the costs of caring for eligible children in foster care. However, there is no similar entitlement to preventive services for children at risk of entering into foster care. Experts and policymakers have expressed concerns that the federal funding structure for child welfare encourages reliance on foster care and does not grant states flexibility to support services designed to reduce the need for foster care. However, Congress authorized HHS to waive certain Title IV-E funding restrictions so that states with approved demonstration projects may spend those funds more flexibly. In order to be granted a waiver, states must demonstrate that their projects are cost-neutral to the federal government, among other requirements. States must also conduct an evaluation (carried out by an independent contractor) of project success in improving child and family outcomes. HHS’ authority to issue these waivers lapsed in 2006 but was renewed by Congress in 2011.\nCongress also appropriated $189 million in fiscal year 2012 (2 percent of federal child welfare appropriations) under the Child Abuse Prevention and Treatment Act (CAPTA) and a variety of other programs and initiatives, much of which was not directed explicitly to child welfare agencies and could be available to partner agencies and community- based organizations as well. These programs and initiatives included competitive grants for purposes including eliminating barriers to adoption and providing services to abandoned children.", "Officials from the four states we studied reported spending Title IV-B CWS funds in state fiscal year 2011 to support a variety of services and other activities, and they told us they largely spent PSSF funds for services in the program’s four required expenditure categories. With respect to CWS, Virginia used these funds for case management costs for children in foster care who were not eligible for Title IV-E funding. Florida allocated over two thirds of CWS funds for case management costs for children living at home, out of the home, or with adoptive families. Florida spent almost one third of CWS funds on children’s legal services, and limited funds on administration and training. Minnesota officials reported spending CWS funds on licensing staff, other state level expenses, quality assurance, and program administration. New Mexico largely spent CWS funds on foster care maintenance payments, which is permitted in limited circumstances. States report annually to ACF on how they plan to spend Title IV-B funds within specific categories. For fiscal year 2012, states nationwide planned to spend 32 percent of CWS funds on child protective investigations and related activities. Other common planned expenditure categories were family preservation services (18 percent), family support services (13 percent), time-limited family reunification services (11 percent), and foster care maintenance payments (10 percent).\nStates reported spending 93 percent of PSSF funds in these categories for fiscal year 2009. States are not required to report actual expenditures for the CWS program. material supports, such as emergency rent assistance. For instance, one Virginia locality reported spending PSSF family support funds for a home visiting program designed to reduce the risk of abuse and neglect by first- time mothers, and a parenting academy for individuals ordered by the court to attend parenting classes and others found to have neglected or abused their children.\nMinnesota distributed some PSSF funds to localities through competitive matching grants targeted at two service areas, and additional funds to all localities for differential response initiatives. The first of these areas focused on family group decision-making practices designed to increase family involvement in decisions about their children’s care needs. The second of these areas focused on services to “screened out” families, or families who would not otherwise qualify for ongoing case management or services due to relatively low abuse or neglect risk levels. Some funds were also distributed to localities to support their differential response practices. Minnesota officials said the state began encouraging localities to implement differential response in the early 2000s, and PSSF funds played an integral role in these efforts. State officials said that because Minnesota localities administer and largely fund their own child welfare programs, they had to find creative ways to develop incentives for localities to adopt a differential response model. They decided to leverage PSSF funds along with funding from a private donor to initiate a 4-year pilot project that established differential response in 20 counties.\nNew Mexico officials told us their next round of family support contracts would be targeted at services to birth families, but services would also be available to foster families. develop this strategy to improve its performance. The state’s family preservation contracts covered up to 4 months of intensive in-home services designed to prevent the need to remove children to foster care in families with high levels of safety and risk concerns in eight counties. In addition, time-limited family reunification contracts covered intensive services designed to enable families in 11 counties to reunite with children in foster care within 4 months of referral. New Mexico used PSSF adoption promotion and support funds statewide for activities including home studies, parent training, and a social networking site for adoptive parents.", "", "Nationally, most states supplement Title IV-B funds with other federal funding that is not dedicated to child welfare, according to expenditure data states reported to ACF. States use widely varying approaches and make different choices about how to spend the federal dollars they receive due to a variety of competing demands. As seen in figure 2 below, our selected states each used different combinations of federal funds not dedicated to child welfare to support services and other activities covered under Title IV-B in state fiscal year 2011. These funding sources were chiefly TANF, SSBG, and Medicaid. Officials in these states told us that they first used the most restrictive federal sources for activities that meet funding criteria and, after those costs were covered, they used more flexible sources to support services and other activities as needed.\nMost states across the country, including two of our selected states, chose to use TANF funding for child welfare services and other activities covered by Title IV-B. TANF is a federal block grant that supports four overarching goals, one of which is to provide assistance to needy families so that children can live in their homes or the homes of relatives. Because TANF funds can be spent on essentially any service for eligible families that aims to achieve one of the program’s four goals, it offers states flexible funding that can be used to support child welfare activities. According to national data reported by states to ACF, in the spring of 2011, 31 states spent TANF funds, including state maintenance of effort funds, for purposes covered by Title IV-B. For fiscal year 2011, we estimate these expenditures to have been at least $1.5 billion. Moreover, nationally states reported spending these funds for a variety of purposes. For example, 16 states reported using TANF funds for in-home services, family preservation services, or both. Another 9 states reported using TANF for child protective investigations and related activities. Among the four states we studied, Virginia spent TANF funds on family support and family preservation programs. Florida used TANF for a number of different purposes including case management, child protective investigations, and a state-sponsored home visiting program. New Mexico and Minnesota, in contrast, did not use TANF for child welfare. New Mexico officials said that their state had a relatively high poverty rate and spent most of its TANF funds on cash assistance.result, New Mexico officials said they had few TANF funds available for other purposes—including child welfare.\nMost states, including all four of our selected states, also used SSBG funds for child welfare services and other activities. SSBG is a federal block grant under which states are provided funding to support a diverse set of policy goals. abuse and neglect, preventing or reducing inappropriate institutional care, and achieving or maintaining self-sufficiency. In addition to their annual SSBG allotments, states are permitted to transfer up to 10 percent of their TANF block grant to SSBG. According to ACF data, 44 states including the District of Columbia spent fiscal year 2010 SSBG funding (including TANF transfer funds) in three reporting categories covered by Title IV-B. (Fiscal year 2010 was the most recent year for which national SSBG expenditure data were available.) Specifically, 35 states reported spending $377 million for services to children in foster care and other related activities, which accounted for 13 percent of total SSBG expenditures. Covered activities included, but were not limited to, counseling, referral to services, case management, and recruiting foster parents. Thirty-nine states also reported using $290 million in SSBG funds (10 percent) for child protective investigations and related activities, such as emergency shelter, initiating legal action (if needed), case management, and referral to service providers. Twenty-two states reported spending $31 million on adoption services and other activities, such as counseling, training, and recruiting adoptive parents.\nFor fiscal year 2012, Congress appropriated $1.7 billion in SSBG funds. the states we selected to study used SSBG for services and other activities covered by Title IV-B. In state fiscal year 2011, New Mexico used SSBG for purposes including administrative costs associated with child protective investigations, foster care, and adoptions. In that same year, Florida spent SSBG funds on purposes including child protective investigations, child legal services, and the state’s hotline for reporting abuse and neglect.\nNationwide, some child welfare agencies also claimed federal Medicaid reimbursement for services they provide to Medicaid beneficiaries. The amount of federal Medicaid reimbursement claimed by child welfare agencies is unknown. Under the Medicaid targeted case management benefit, child welfare agencies can be reimbursed for case management activities designed to assist targeted beneficiaries in gaining access to needed medical, social, educational, and other services. One of our selected states, Minnesota, claimed $24 million in federal reimbursement for Medicaid targeted case management for children at risk of placement in foster care and their families in calendar year 2011. Another selected state, Virginia, reported claiming $1.9 million in federal Medicaid reimbursement for targeted case management activities related to children in foster care in state fiscal year 2011. Child welfare agencies may also obtain federal reimbursement for services they provide to Medicaid beneficiaries covered under home and community-based service waivers. Under these waivers, states may cover a wide range of services and other activities to allow targeted individuals, such as children with developmental disabilities or serious emotional disturbances who would otherwise require institutional care, to remain at home or live in a community setting. Among our selected states, Minnesota claimed $1.8 million in federal reimbursement for services to children with disabilities under a home and community-based services waiver in calendar year 2011. Child welfare agencies can also claim federal Medicaid reimbursement for administrative case management activities, including making Medicaid eligibility determinations. Two of our selected states— Florida and New Mexico—claimed federal Medicaid reimbursement for administrative costs associated with case management activities. For example, Florida claimed $1.3 million in federal reimbursement for activities that included applying for Medicaid benefits and arranging appointments.\nChild welfare agencies nationwide also accessed other federal funding sources dedicated to child welfare to support services and other activities. These other dedicated federal funding sources included CAPTA and ACF discretionary grants. CAPTA funds can be used for a wide variety of purposes. For example, among our four selected states, New Mexico used a $136,000 CAPTA state grant for purposes including training, investigations, and case management in state fiscal year 2011. Florida spent about $1.4 million in CBCAP funds to support its chapter of a child abuse prevention organization, parent leadership and support groups, a child abuse prevention month campaign, and fatherhood initiatives.\nOther government entities whose missions intersect with those of child welfare agencies may also use federal funds for purposes covered under Title IV-B for children and families they serve. These entities, such as behavioral health agencies, housing authorities, and the courts, typically serve a broader population than children and families affected by abuse or neglect. However, some serve children and families who are also in the child welfare system. These entities may access a variety of federal funds to benefit these children and families. For example:\nBehavioral health agencies that oversee home visiting programs may use Maternal, Infant, and Early Childhood Home Visiting Program funds to provide home visiting services to families at risk of abuse or neglect. They may also access Substance Abuse Prevention and Treatment Block Grant funds for substance abuse treatment for individuals in the child welfare system, including pregnant women and women with dependent children.\nHousing authorities that participate in the U.S. Department of Housing and Urban Development’s (HUD’s) Family Unification Program may provide housing vouchers to families at risk of losing their children to foster care or who face difficulty achieving family reunification due to inadequate housing.\nCourts receive Court Improvement Program formula grants to improve the handling of child abuse and neglect cases.", "Although states are generally prohibited from funding services, such as parenting classes and substance abuse treatment, with Title IV-E funds, ACF has granted waivers permitting some states to do so. As of October 2012, 14 states had implemented or were approved to initiate Title IV-E waiver demonstration projects that allow them to use those funds for services covered by Title IV-B. These projects were designed to test new financing and service delivery approaches that may result in lower foster care costs and increased available funding for new or expanded services. States with waivers are required to ensure that their Title IV-E expenditures under the waiver do not exceed what they would have spent without a waiver. These states would be solely responsible for covering additional costs incurred if the number of children in foster care, or costs of caring for such children, exceeded state estimates. States with active and recently approved waivers have used various methods to determine that their projects were cost neutral. First, states with flexible funding waivers agree to receive a capped (or fixed) amount of Title IV-E funding in exchange for flexibility to use those funds for an expanded array of services, similar to a block grant. In other states, the amount of funding received for children participating in the waiver project is determined by the average amount of funding received for children in a control group who are not receiving waiver services, ensuring that funding for the waiver group is comparable to what it would have been without the waiver.\nThe goals of each Title IV-E waiver project vary and include: (1) reducing the time children and youth spend in foster care and promoting successful transition to adulthood for older youth, (2) improving child and family outcomes, and (3) preventing child abuse and neglect, and the re-entry of children and youth into foster care. ACF encouraged states to develop projects that included evidence-based and evidence-informed practices to promote children’s social and emotional well-being and to collaborate with state Medicaid agencies when possible. Approved waiver projects reflect these priorities in a variety of ways (see figure 3). For instance, Illinois plans to provide specialized training to parents and other caregivers of very young children in Cook County who exhibit effects of trauma, using a control- and treatment-group design. Wisconsin plans to implement post-reunification support services, including evidence-based therapies designed to address trauma (trauma-informed care), for families reunified after foster care.\nAmong the four states we studied, only Florida had an active Title IV-E demonstration waiver project. Florida’s waiver demonstration project was implemented in 2006 as part of a statewide reform effort that included transferring management of child welfare cases to community-based lead agencies that work with a network of purchased service providers after the state has concluded its initial child protective investigation. Florida’s demonstration waiver goals are to: (1) improve child and family outcomes, (2) expand the array of community-based services and increase the number of children eligible for services, and (3) reduce administrative costs related to service provision.\nVargo et al., IV-E Waiver Demonstration Evaluation Final Evaluation Report SFY 11-12, a Title IV-E waiver evaluation submitted to the Florida Department of Children and Families, March 15, 2012. these placement expenditures.funding restrictions such as these seem misaligned with federal policy principles and fail to create incentives for states to invest in services designed to prevent foster care placement. In New Mexico, a state official said that increased Title IV-E flexibility would allow them to expand investments in services that prevent foster care placement. At the same time, another state official said that Title IV-E funds were an important source of guaranteed support for children in foster care, and cautioned that New Mexico may have difficulty ensuring that adequate resources are devoted to those children if Title IV-E funds are used for different purposes. Some experts and policymakers have also suggested reforms to how child welfare services are funded and have put forth proposals that would change the way states can use Title IV-E funding. These proposals include instituting various mechanisms for allowing states to increase their focus on services that aim to keep families together while also preserving adequate funding for those children who must be placed in foster care.", "", "Data from a national survey conducted by ACF indicate that not all children and families in the child welfare system receive the services they need. The survey included interviews with a sample of over 5,000 children and caregivers with child protective investigations closed between February 2008 and April 2009. Many of these children and caregivers reported that they had not received services for which they had a demonstrated need in the 12 months prior to being interviewed. For instance, an estimated 91 percent of caregivers who needed substance abuse services had not received them (see table 3). Additionally, an estimated 58 percent of younger children and 48 percent of adolescents at risk for behavioral, emotional, or substance abuse problems had not received any behavioral health services during this same time period.\nACF reviews of state child welfare systems also suggest that children and families may not receive the services they need. ACF’s most recent Child and Family Services Reviews, conducted from fiscal years 2007 to 2010, showed that 20 of 52 states did not have an appropriate range of services to adequately identify and address the needs of children and families. ACF defined an appropriate range of services as those that help create a safe home environment and enable children to remain at home when reasonable, and help find other permanent homes for foster and adopted children. ACF officials told us that, while the reviews do not include formal data on the availability of specific services, their reports on individual states indicate that the most commonly unavailable services included: behavioral health services, including child psychologists and psychiatrists; substance abuse treatment for adults and youth; housing; and domestic violence services. In a survey funded by Casey Family Programs, 25 out of 41 of state child welfare agencies responding reported waiting lists for at least one service provided by child welfare agencies or their purchased service providers. (This survey did not ask states about the length of time a child or family remained on the waiting list before receiving services.) These services included in-home services, home visiting services, and substance abuse assessment and treatment. The absence of a waiting list, however, does not necessarily indicate that services are available. A service provider may not maintain a waiting list even if there are families waiting to be served.\nOfficials from our 13 selected localities echoed these concerns. In response to a GAO data collection instrument, most of these localities reported key service gaps in the areas of substance abuse assessment and treatment services; assistance with material needs, such as housing and transportation; and in-home services (see figure 4).\nService gaps can negatively affect outcomes for children and their families. Specifically, according to officials in our 13 selected localities, previous GAO work, and some research, service gaps can complicate efforts to prevent placement in foster care, hinder chances of reunification after foster care, and harm child well-being.\nOfficials in our selected localities reported that difficulty securing high- quality, timely treatment for families with parental substance abuse problems can decrease the likelihood of recovery and reunification. In 6 of 13 selected localities, officials reported waiting lists for substance abuse treatment services. Officials in one of these localities noted that clients often wait 2 to 3 months for these services. Further, officials in five localities said that available inpatient services were of poor quality or too short in duration to meet client needs. New Mexico officials told us their state’s behavioral health entity covered a maximum of 30 days of inpatient substance abuse treatment, which they said is insufficient for long-term addicts.\nSome research corroborates the views of local officials that lack of access to timely, intensive treatment may negatively affect a family’s chances of reunification. A 2007 study of nearly 2,000 women in Oregon who were substance abusers and had children in foster care found that mothers were more likely to be reunited with their children if they entered treatment quickly and spent more time in treatment. Similarly, in California, a study of more than a thousand mothers who participated in a drug treatment program in 2000 found that mothers who completed or spent at least 90 days in treatment were about twice as likely to reunify with their children as those who spent less time in treatment. GAO previously reported on family-centered residential drug treatment programs, which can last up to 24 months and may allow women to bring their children with them. These programs help women address issues underlying their substance abuse, build coping strategies, and enhance parenting skills, which can reduce chances that children will need to be removed to foster care. The Substance Abuse and Mental Health Services Administration (SAMHSA) evaluated performance data from residential treatment programs for mothers and found that 6 months after treatment ended, fewer children of participating women were living in foster care and most children who accompanied their mothers to treatment were still living with them.\nOfficials in several of our selected localities also said it could be difficult for families experiencing substance abuse to achieve reunification within Delays in receiving treatment can make it difficult mandated deadlines. for treatment to be completed within these deadlines. In addition, a previous GAO report found that mandated reunification deadlines can conflict with the amount of time required to successfully address the needs of these families.high-quality, evidence-based treatment is essential to achieving reunification within mandated timelines. Officials in one selected locality said they frequently terminate parental rights due to parents’ inability to establish sobriety within limited time frames. However, officials in another locality reported that judges are sympathetic to substance-abusing One ACF official told us that timely access to parents’ efforts to engage in services, and frequently extend their permanency deadlines.\nAccording to past GAO work and officials in selected localities, lack of affordable housing may also contribute to children’s removal into foster care or may prevent families from reunifying. In 2007, GAO surveyed 48 state child welfare directors about African American children in foster care. Officials from 25 states cited a lack of affordable housing options as one factor that contributed to disproportionately high rates of foster care placement among African American children in the child welfare system. This report found that affordable public housing is a critical support that can help low-income families stay together. 13 selected localities told us that a parent’s inability to obtain housing could prevent family reunification even if all other reunification criteria had been met. However, officials in one locality said they work with families to find them appropriate housing and would not keep a child from his or her parents based solely on the family’s housing situation.\nSimilarly, officials in 3 of our GAO previously reported that failure to provide services to address the trauma of abuse or neglect may negatively affect children’s well-being in both the short and long term. GAO reported that children may experience traumatic stress as a result of maltreatment, which significantly increases their risk of mental health problems, difficulties with social relationships and behavior, physical illness, and poor school performance. Early detection and treatment of childhood mental health conditions can improve children’s symptoms and reduce the likelihood of negative future outcomes, such as dropping out of school or becoming involved in the ACF has also made the social and emotional juvenile justice system.\nGAO, African American Children in Foster Care: Additional HHS Assistance Needed to Help States Reduce the Proportion in Care, GAO-07-816 (Washington, D.C.: July 11, 2007). well-being of children receiving child welfare services an agency priority, and is encouraging child welfare agencies to focus on improving behavioral and social-emotional outcomes for the children they serve.", "", "Officials from 8 of our 13 selected localities reported a shortage of substance abuse treatment providers. Some officials cited a shortage of treatment in general, while others discussed shortages of specific kinds of treatment. For instance, officials from six localities reported an inadequate number of inpatient treatment providers. Officials from two selected localities also reported particular difficulty finding providers that offered appropriate substance abuse treatment services for adolescents. In one Virginia locality with extremely high rates of substance abuse, officials said that in order to address this shortage, their local behavioral health agency had hired a counselor dedicated to treating youth with substance abuse problems. However, this counselor served five counties and had difficulty keeping up with demand.\nOfficials from nine selected localities as well as three state officials from our discussion group reported a shortage of mental health service providers. Officials from six localities and three state officials from our discussion group also noted shortages of certain types of specialists. For example, officials from multiple localities in three out of four selected states reported acute shortages of child psychiatrists. One state official who participated in our discussion group also reported particular difficulty finding mental health providers who offered evidence-based therapies specifically designed to address trauma in children. Officials in one Florida locality said that service providers in their community were interested in becoming trained in certain evidence-based practices, but found it too costly to do so. To address mental health provider shortages, Minnesota’s Department of Human Services contracted with the Mayo Clinic to provide phone-based psychiatric consultation services to primary care doctors across the state. Officials said the initiative would improve the quality of psychiatric care for children, including children in the child welfare system.\nOfficials in several localities across three states and from one state in our discussion group reported a shortage of mental health, substance abuse, and/or other service providers who accept Medicaid. GAO has previously reported on this issue. In a recent survey of states, GAO found that 17 states reported challenges ensuring enough mental health and substance abuse providers for Medicaid beneficiaries. Additionally, GAO found in 2011 that more than three times as many primary care physicians reported difficulty referring children enrolled in Medicaid or the Children’s Health Insurance Program (CHIP) to specialists as compared with privately-insured children.\nFinally, provider shortages were cited as particularly challenging in rural areas. Officials in localities across all four selected states and two state officials from our discussion group reported provider shortages in rural areas. Officials from some rural localities described difficulty attracting and retaining service providers. A local Florida official said that one of his agency’s behavioral health purchased service providers had been advertising a child psychiatrist position for 5 years without success. In several localities, officials said provider shortages often result in families traveling long distances to receive services in more urban areas.\nInadequate health coverage among some children and families in the child welfare system also contributes to service gaps. In 6 of 13 localities, officials cited lack of health insurance as a factor contributing to difficulty securing medical services for families. Officials from selected localities reported that in some cases services were more difficult to obtain for parents than for their children, due to lack of health insurance. In addition, undocumented immigrants are not eligible for Medicaid and may lack private health insurance as well. Officials in several localities described particular difficulty obtaining services for these families. There are, however, a variety of approaches local officials reported using in order to obtain services for families. In some cases, agencies were able to turn to behavioral health agencies. And in one locality, officials said a local non-profit sometimes funded mental health assessments for clients without insurance. In other cases, officials said their agencies paid for these services with their own funds. Additionally, fewer parents in the child welfare system may lack health insurance after January 1, 2014, when states may expand eligibility for Medicaid coverage to non-elderly non-pregnant adults with incomes at or below 133 percent of the federal poverty level, as provided for under the Patient Protection and Affordable Care Act.\nLack of transportation is also a widespread impediment to obtaining services, especially in rural areas. Officials in all selected agencies that served rural areas reported difficulty with transportation for rural clients, and discussion group participants from two additional states reported similar difficulties. A number of local officials said that providing services in the home could help mitigate transportation challenges, as well as allow providers to better assess and address challenges in the home environment. Some officials noted that in-home services are typically more expensive than office-based services. However, officials in one Florida locality reported that they had made in-home services a budgetary priority due to transportation challenges in their area.\nWhile state child welfare agencies receive reimbursement under Title IV- E for many costs related to children in foster care, funding for services designed to prevent the need to remove children from their homes and place them in foster care is more limited. State and local child welfare agencies may face difficult decisions when determining which of these prevention activities to prioritize and fund, particularly in light of the ongoing fiscal challenges states face. For instance, local officials in New Mexico described challenges in securing resources to provide services to children and families at risk of foster care placement. New Mexico state officials told us they contracted for services designed to avoid foster care placement or reunite families after foster care entirely with Title IV-B PSSF family preservation and reunification funds and did not allocate state or other federal funds to support these contracts. Because Title IV-B funds were limited, the state targeted services only to selected counties with the highest need. Officials in one New Mexico county said that most of their family preservation and reunification services were cut for fiscal year 2013, in part because they had been successful in reducing the number of children in foster care and were no longer considered a high need county.\nFiscal challenges have also affected child welfare partner agencies. For example, one ACF official we interviewed noted that most states have experienced budget cuts in social services, which affect both child welfare and substance abuse services. In addition, officials from SAMHSA told us that since 2008, states have had more difficulty maintaining state funding of behavioral health services.\nMany localities experienced gaps in services provided by partner agencies, in some cases due to the fiscal constraints of those agencies. For example:\nOfficials in 7 of the 13 localities, as well as one state official from our discussion group, said that their local housing authorities had long waiting lists (in some cases up to 3 or 4 years) for Section 8 housing vouchers. As a result, families referred to the housing authority often did not receive assistance.\nIn a few localities, officials said that families with children in foster care could not obtain approval for public housing units until they had regained custody, which hindered efforts to reunite children with their families. One ACF official said that, in response to GAO’s inquiry, the agency initiated discussions with HUD about improving outreach to local housing authorities about this issue.\nOfficials in two localities in different states, as well as one state official from our discussion group, noted that their state Medicaid programs required diagnoses of mental health disorders to cover services, even for very young children (ages 0 to 3 years). Officials stated that these requirements could make obtaining needed services difficult in some cases, and could result in inappropriate diagnoses in other cases.\nStates may place appropriate limits on accessing services based on medical necessity or utilization control procedures. 42 C.F.R. § 440.230.\nHowever, in some cases, selected child welfare agencies coordinated with other service agencies to improve families’ access to services. For example:\nThree selected localities had coordinated with their local housing authority to apply for a grant through the federal Family Unification Program, which sets aside housing vouchers for families in the child welfare system.\nTwo selected localities had Family Dependency Treatment Courts, which coordinate court, treatment, and child welfare services for child welfare cases in which parental substance abuse is a primary factor.\nOne Virginia locality collaborated with partner agencies to use funding provided under the American Reinvestment and Recovery Act for homelessness prevention and rapid re-housing to help families at risk of eviction. As these funds were about to expire, they worked with community partners to identify other sources of funding to allow this homelessness prevention program to continue.\nThere are also other opportunities on the federal, state, and local level for child welfare and partner agencies to coordinate to improve service delivery for children and families in the child welfare system. For instance:\nACF awards regional partnership grants for projects designed to increase the well-being of, and improve the permanency outcomes for, children affected by substance abuse through interagency collaboration and program and service integration. In 2012, ACF awarded 17 new regional partnership grants and approved 2-year extensions for 8 of 53 grants awarded in 2007.\nIn September 2012, ACF awarded five grants totaling $25 million for collaborative partnerships between child welfare agencies and housing/ shelter organizations. Grants were awarded to projects focused on improving safety, family functioning, and child well-being in families at risk of homelessness and child maltreatment.\nAlso in 2012, ACF awarded nine grants totaling almost $29 million over 5 years for projects to improve the social and emotional well- being of children and youth in the child welfare system. The purposes of these grants, which are in the form of cooperative agreements, include improving adoption outcomes through interagency collaboration and supporting child welfare agencies in assessing children’s mental and behavioral health needs.\nThe Commissioner of ACF’s Administration on Children, Youth and Families told us the agency is encouraging states to collaborate with state Medicaid agencies to solve issues affecting families in the child welfare system, including barriers to accessing Medicaid-funded mental health services for infants. As an example, he said ACF’s most recent Title IV-E waiver announcement encouraged state child welfare agencies to submit proposals in conjunction with state Medicaid agencies. According to the Commissioner, six out of nine approved waiver proposals explicitly indicate a partnership with the state Medicaid agency.\nIn fiscal year 2012, SAMHSA awarded 16 grants totaling almost $16 million to implement systems of care (which involve collaboration across government and private agencies, providers, and families) for children and youth with serious emotional disturbances. According to agency officials, 14 grantees were coordinating with child welfare agencies to address service development, funding, and access to care for children and youth in the child welfare system and those at risk of abuse or neglect.", "Child welfare agencies, like other state agencies, operate in an environment of ongoing fiscal constraint. They must make difficult choices about how to allocate their limited resources to support services critical to ensuring children’s safety and well-being. Despite their use of Title IV-B funding in combination with other federal dollars to supplement their state and local funds, these agencies continue to struggle to meet the complex needs of children not in foster care and their families. Given current state and federal fiscal constraints, they will likely continue to struggle. The waivers HHS has granted to some states to use their Title IV-E funding more flexibly may provide useful information about the effects of shifting available resources from foster care costs to support services intended to reduce the need for foster care without increasing funding overall.", "We provided a draft of this report to the Secretary of Health and Human Services for review and comment. HHS indicated in its general comments, reproduced in appendix I, that it agreed with GAO’s finding that gaps exist in services to address the effects of child maltreatment, and provided additional information about the agency’s emphasis on trauma-informed care and its efforts to encourage child welfare agencies to respond more effectively to trauma. The agency also agreed with GAO’s concluding observations that ongoing fiscal constraints contribute to challenges in meeting the needs of children and families, and offered two steps child welfare agencies could take to more effectively use available resources: (1) identify currently funded services that do not yield desired results and shift resources toward evidence-based programs and practices; and (2) use outcomes (specifically those related to child well- being), rather than services delivered, to measure program success. Our report did not address the effectiveness of specific services; however we agree that information about effective practices is an important tool that child welfare agencies can use to determine how best to allocate available funds. Additionally, our work has long shown that using outcomes is an important component of measuring program success.\nHHS also discussed the use of TANF funds for child welfare purposes in its comments, and noted that in addition to the services described in our report, TANF funds are spent on foster care maintenance payments and adoption subsidies, as well as relative foster care maintenance payments and guardianship subsidies. Because this report focuses on expenditures for services typically covered under Title IV-B, we did not include maintenance payments and adoption subsidies in the scope of our review. We have clarified that, due to the similarity among these payment types, we excluded relative maintenance payments and guardianship subsidies as well. HHS also noted that states may spend federal TANF funds on purposes authorized solely under prior law that do not meet a TANF purpose, and that many of these expenditures are for child welfare purposes. We have also clarified that our analysis includes these expenditures, as appropriate. Finally, HHS described planned revisions to its TANF expenditure reporting form to capture more detailed information about how states spend TANF funds on child welfare payments and services. We have not reviewed these plans; however, we recently recommended that HHS develop a detailed plan and specific timelines to help monitor its progress in revising these TANF reporting categories.\nIn addition to these general comments, HHS also provided us with technical comments that we incorporated, as appropriate.\nWe are sending copies of this report to relevant congressional committees, the Secretary of Health and Human Services, and other interested parties. In addition, this report will be available at no charge on GAO’s website at http://www.gao.gov.\nIf you or your staffs have any questions about this report, please contact me at (202) 512-7215 or brownke@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff that made key contributions to this report are listed in appendix II.", "", "", "", "In addition to the contact name above, the following staff members made key contributions to this report: Elizabeth Morrison, Assistant Director; Lauren Gilbertson; James Lloyd; Erin McLaughlin; Ellen Phelps Ranen; and Deborah Signer. Also contributing to this report were: Susan Anthony, Jeff Arkin, Carl Barden, James Bennett, Jessica Botsford, David Chrisinger, Kim Frankena, Ashley McCall, Phillip McIntyre, Jean McSween, Almeta Spencer, Hemi Tewarson, James Rebbe, and Carolyn L. Yocom." ], "depth": [ 1, 2, 2, 1, 1, 2, 2, 1, 2, 2, 3, 1, 1, 1, 1, 2, 2 ], "alignment": [ "h3_full h1_title", "h3_full", "h3_full h1_full", "h0_full", "h0_title h1_title h3_title", "h0_full h3_full h1_full", "h1_full", "h2_title h3_title", "h2_full", "h2_title h3_title", "h3_full h2_full", "h2_full", "h3_full", "", "", "", "" ] }

{ "question": [ "What did the states GAO selected use funds provided under Title IV-B of the Social Security Act for?", "How did Virginia use its Title IV-B funds?", "How did New Mexico use its Title IV-B funds?", "What other funds do states use for purposes under Title IV-B?", "What funds did states report spending in spring 2011 for Title IV-B purposes?", "What reimbursement did states report collecting for Title IV-B purposes?", "What are funds under Title IV-E designated for?", "How do states circumvent this to use funds more flexibly?", "What services are difficult for child welfare agencies to secure?", "How did a 2008-2009 HHS survey demonstrate this?", "What did local child welfare officials report?", "How might these service gaps pose an issue?", "What factors did officials cite as contributing to service gaps?", "What was found in 2011 regarding child abuse and neglect?", "How do state and local child welfare agencies address this issue?", "What is the primary source of funding provided to address this issue?", "How is this funding insufficient?", "What did Congress ask GAO to provide information on?", "What information does this report provide?", "How did GAO collect data for this report?" ], "summary": [ "The four states GAO selected used funds provided under Title IV-B of the Social Security Act for a variety of child welfare services and other activities, and had different strategies for spending these funds.", "For instance, in fiscal year 2011 Virginia provided funding to all local child welfare agencies to spend on their own priorities, such as parenting classes.", "New Mexico targeted certain counties for services, such as intensive in-home services for families at risk of foster care.", "States nationwide also use other federal funds, such as Temporary Assistance for Needy Families (TANF) and Social Services Block Grant (SSBG) funds, as well as Medicaid, for purposes covered under Title IV-B.", "In the spring of 2011, 31 states reported spending TANF funds, and in fiscal year 2010, 44 states reported spending SSBG funds on these purposes.", "Some states also claim federal Medicaid reimbursement for activities covered under Title IV-B. One selected state, Minnesota, claimed reimbursement for case management for children at risk of foster care placement in 2011.", "Funds authorized under Title IV-E of the Social Security Act make up the large majority of federal child welfare funds, but are designated for purposes such as providing room and board payments for children in foster care and subsidies to adoptive parents, and generally cannot be used for child welfare services.", "However, 14 states have waivers allowing them to use these funds more flexibly to improve child and family outcomes. Among GAO's selected states, Florida had a waiver allowing it to use some Title IV-E funds for in-home services designed to prevent foster care placement.", "Many services, including substance abuse treatment and assistance with material needs, such as housing, are difficult for child welfare agencies to secure due to a variety of challenges.", "A 2008-2009 U.S. Department of Health and Human Services (HHS) survey that sampled children and families in the child welfare system found that many did not receive needed services. For example, an estimated 58 percent of children age 10 and under at risk of emotional, behavioral, or substance abuse problems had not received related services in the past year.", "Local child welfare officials in four selected states reported service gaps in multiple areas.", "Service gaps may harm child wellbeing and make it more difficult to preserve or reunite families. For example, officials from one locality noted 2- to 3-month wait times for substance abuse services. Due to the chronic nature of the disease, delays in receiving services may make it more difficult to reunify families within mandated deadlines.", "Officials cited factors contributing to service gaps that included provider shortages and lack of transportation. Additionally, officials noted difficulty securing services from partner agencies, such as housing authorities. State fiscal constraints, which affect both child welfare and partner agencies, contribute to such difficulties.", "In fiscal year 2011, over 675,000 children were found to be victims of abuse or neglect.", "To help ensure that such children have safe and permanent homes, state and local child welfare agencies secure child welfare services, such as parenting classes and substance abuse treatment.", "Title IV-B of the Social Security Act is the primary source of federal funding designated for child welfare services that is available to states. In fiscal year 2012, Congress appropriated $730 million under Title IV-B.", "Although states augment these funds with state, local, and other federal funds, some children and families may not receive the services they need.", "Congress mandated that GAO provide information about the funding and provision of child welfare services.", "This report addresses: (1) how selected states use funds provided under Title IV-B, (2) what alternative sources of federal funding states use to fund child welfare services and other activities covered under Title IV-B, and (3) what services, if any, child welfare agencies have difficulty securing for children and their families.", "To answer these questions, GAO reviewed relevant laws, regulations, guidance, and reports; analyzed HHS expenditure data and program evaluations; and interviewed HHS officials, child welfare experts, and state and local child welfare officials in 4 states and 13 localities selected to illustrate a variety of approaches to financing and delivering services. GAO also reviewed state fiscal year 2011 expenditure data from selected states and administered a data collection instrument to selected localities." ], "parent_pair_index": [ -1, 0, 0, -1, 0, 0, -1, 3, -1, 0, -1, 2, 2, -1, 0, 0, 0, -1, 4, 5 ], "summary_paragraph_index": [ 1, 1, 1, 2, 2, 2, 2, 2, 3, 3, 3, 3, 3, 0, 0, 0, 0, 0, 0, 0 ] }